Supply Chain Management

By: Mahesh Alimchandani GM SCM, Cummins India Ltd. Gmail: maheshalim@gmail.com 1 Cell: + !" #$%$&'((&

Supply Chain Management

1. Introduction

!. Int)oduction

!.!. *ey Concepts !.!.!. Supply Chain

The Supply Chain is:

the se+uence o, supplie)s that cont)i-ute to the c)eation and deli.e)y o, a good o) se).ice to end custome)s. A/ICS 0!1: 2he p)ocesses ,)om the initial )a3 mate)ial to the ultimate consumption o, ,inished p)oduct, lin4ing ac)oss supplie)"use) companies. A/ICS 0$1: 2he ,unctions 3ithin and outside a company that ena-le the .alue chain to ma4e p)oducts and p)o.ide se).ices to the custome)s.
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!. Int)oduction

!.!. *ey Concepts !.!.$. Logistics

Logistics is:
the management o, the sto)age and ,lo3 o, goods, se).ices and in,o)mation th)oughout you) o)ganisation.

!. Int)oduction

!.!. *ey Concepts !.!.%. Supply Chain Management

Supply Chain Management is:

o)gani5ing the cost e,,ecti.e ,lo3 and sto)age o, mate)ials, in"p)ocess in.ento)y, ,inished goods and )elated in,o)mation ,)om point o, o)igin to point o, consumption to satis,y custome) )e+ui)ements.

!. Int)oduction

!.!. *ey Concepts !.!.(. 6-7ecti.es

Greater efficiency; lo er costs !nhance fle"i#ility; agility Impro$e customer ser$ice %ptimi&e the $alue chain

!. Int)oduction

!.$ /)incipal Issues !.$.!. Supply Chain 0!1

Supply Chain
2he supply chain o, a company consists o, di,,e)ent depa)tments, )anging ,)om p)ocu)ement o, mate)ials to custome) se).ice. 2he supply chain includes acti.ities associated 3ith in.ento)y 0mate)ials1 ac+uisition, sto)ing, use in p)oduction, t)ansit, and deli.e)y to custome)s. 2he acti.ities a)e planned, e8ecuted, and monito)ed unde) the guidelines set -y the company9s chosen custome) se).ice le.els and in line 3ith the company9s othe) ope)ating goals.
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!. Int)oduction

!.$ /)incipal Issues !.$.!. Supply Chain 0$1

Supplie)9s /a)tne)

Custome)s

Sto)es <mployee s Supplie) <mployee s Sto)es Logistic s :acto)y =a)ehouse <mployee s Sto)es

>ist)i-uto)s ? @eselle)s

In-ound Logistics

Sto)es

Line In.ento)y

;alue :lo3 In,o)mation :lo3 ;alue :lo3 <na-le)s

!. Int)oduction

!.$. /)incipal Issues !.$.$. <lements o, Logistics

!lements of Logistics:
mate)ials management:
sou)cing and )ecei.ing o, )a3 mate)ials o) un,inished p)oducts ,o) su-se+uent use

mate)ial ,lo3 system:

the a-ility to locate and schedule mate)ial th)ough to end p)oduction and disposition

physical dist)i-ution:
the deli.e)y o, ,inished goods to custome)s

!. Int)oduction

!.$. /)incipal Issues !.$.%. Logistic Goal

Logistic goal and o#'ecti$es

2he )ight p)oducts 2he )ight +uantity 2he )ight moment At minimal cost

:le8i-ility

>eli.e)y )elia-ility

>eli.e)y timeA lead time

In.ento)y le.el

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!. Int)oduction

!.$. /)incipal Issues !.$.(. Logistic Steps

Logistic steps:
accepting a custome) o)de)
)ecei.e and ente) c)edit clea)ance A autho)i5e deli.e)y commitment

supplie) o)de)ing ,o)ecasting demand scheduling manu,actu)ing in.ento)y management deli.e)y to custome).

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!. Int)oduction

!.$. /)incipal Issues !.$.'. <.olution Buality p)oducts Lo3est possi-le cost

Supply Chain !$olution

6)de) ,ul,illment

Integ)ation o, supply chains Custome) se).ice /)e,e))ed pa)tne)s Communication Supply chain communities Common goals, o-7ecti.es

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!. Int)oduction

!.$. /)incipal Issues !.$.#. 2he Goal

Supply Chain Management Goal

To e$ol$e a company(s supply chain into an optimally efficient) customer*satisfying process) here the effecti$eness of the hole supply chain is more important than the effecti$eness of each indi$idual department.

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!. Int)oduction

!.$. /)incipal Issues !.$.&. :ocus

Supply Chain Management focuses on #usiness processes:

p)oduct design planning o)de) management stoc4 management

instead of functions:
sales pu)chasing p)oduction

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!. Int)oduction

!.$. /)incipal Issues !.$.C. >)i.e)s o, Change 0!1

+ri$ers of change:
outsou)cing t)end actual custome) demand: speed, ,le8i-ility and competiti.e p)icing ne3 so,t3a)e: <@/, sophisticated application so,t3a)e

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!. Int)oduction

!.$. /)incipal Issues !.$.C. >)i.e)s o, Change 0$1

ne3 technologies
<lect)onic >ata Inte)change 0<>I1 inte)net, int)anet, e8t)anet 3i)eless communications telecon,e)encing and telecommuting -a) coding.

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!. Int)oduction

!.$. /)incipal Issues !.$. . Acti.ities

Supply chain management acti$ities:

:o)ecasting demand Selecting supplie)s 6)de)ing mate)ial Managing in.ento)y Scheduling p)oduction Shipping and deli.e)y 6)gani5ing in,o)mation e8change

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!. Int)oduction

!.%. Analysis !.%.!. >iag)am

Dnde)stand the custome)

Dnde)stand the p)oduct

Dnde)stand the in,o)mation ,lo3

Dnde)stand the p)ocess

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!. Int)oduction

!.%. Analysis !.%.$. Dnde)stand the Custome) 0!1

,no and understand the customers:

Eou) e8isting custome)s, i.e.,
demog)aphics e8isting and potential num-e) income le.elsF

=ho a)e you) potential custome)sF Go3 might these custome)s -e g)oupedF :o) 3hich pe)centage o, sales is each g)oup )esponsi-leF

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!. Int)oduction

!.%. Analysis !.%.$. Dnde)stand the Custome) 0$1

=hat is the e,,ect o, .a)ious methods o, communications 0i.e., telephone, ,a8, e"mail, inte)net telephoney systems1 in you) )elation 3ith you) custome)sF =hat do you) custome)s 3ant ,)om youF Go3 3ell do you) competito)s meet custome)s needsF

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!. Int)oduction

!.%. Analysis !.%.%. Dnde)stand the /)oducts

-nderstand the products:

Go3 manyF =he)e a)e theyF =hich pe)centage o, salesF =hat is the p)oduct li,e cycleF =hat is the p)oduct mi8F

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!. Int)oduction

!.%. Analysis !.%.(. Dnde)stand the /)ocess

-nderstand the production process:

p)ocess ,lo3
linea) ,lo3 7o- shop " -atch ,lo3 assem-ly line continuous ,lo3 p)o7ect ,lo3

o)de) ,ul,illment st)ategy

ma4e"to"o)de) ma4e"to"stoc4.

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!. Int)oduction

!.%. Analysis !.%.'. Dnde)stand the In,o)mation :lo3

-nderstand the information flo :

=hat in,o)mation is )e+ui)ed ,o) e,,ecti.e decision"ma4ing at each stage in the supply chainF =hat data has to ,lo3 -et3een each pa)t o, the supply chainF

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!. Int)oduction

!.(. /e),o)mance Indicato)s 0!1

. total $ie must #e ta/en in assessing performance. 0erformance measurements need to #e focused on hat factors add to total performance) total $alue or total cost. The principle performance indicator is customer ser$ice. %ptimum ser$ice le$els are necessary from each supplier to each customer throughout the supply chain.

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!. Int)oduction

!.(. /e),o)mance Indicato)s 0$1

Custome) Se).ice + Buality

<,,iciency

<,,ecti.eness

Supplie)s

Inputs

Adding .alue

6utputs

Custome)s

@esults

/)oducti.ity

Custome) Se).ice

/)o,ita-ility

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!. Int)oduction

!.(. /e),o)mance Indicato)s 0%1

!ffecti$eness:
accomplishment o, the )ight things, on time, 3ithin the )e+ui)ements speci,ied.

!fficiency:
)esou)ces e8pected to -e consumed di.ided -y )esou)ces actually consumed.

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!. Int)oduction

!.(. /e),o)mance Indicato)s 0(1

0roducti$ity:
measu)es o, output di.ided -y measu)es o, input ,o) a gi.en pe)iod o, time.

0rofita#ility:
)elationship -et3een )e.enues and costs.

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Supply Chain Management

1. 0urchasing and 0rocurement

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$. /)ocu)ement

$.!. *ey Concepts

0urchasing: implies the monetary transaction. 0rocurement: the responsi#ility for ac2uiring the goods and ser$ices the organi&ation needs:
goods:
)a3 mate)ials p)oduction pa)ts maintenance, )epai) and ope)ating supplies 0M@61

se).ices:
consulting se).ices utilities 3o)4e)s health ca)e -ene,its.

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$. /)ocu)ement

$.$. /)incipal Issues $.$.!. <.olution in /u)chasing

!$olution in Strategies for 0urchasing

:ocus on p)ice :ocus on +uality, )elia-ility, )esponsi.eness, and total cost

St)ategic ,ocus
" supplie) )elationships " ,o)ecasting " cycle time

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$. /)ocu)ement

$.$. /)incipal Issues $.$.$. 2he /)ocu)ement /)ocess 0!1

The 0rocurement 0rocess:

p)epa)ation:
identi,y needs, such as dependa-ility, long te)m a.aila-ility e.aluate use) )e+ui)ements to ensu)e suita-ility o, pu)chase ,o)ecast 3hen and ho3 pu)chase 3ill -e needed identi,y and select supplie)s de.elop an e,,icient o)de)ing system ,o) cont)ol

negotiation:
-idding p)ocesses cont)acts

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$. /)ocu)ement

$.$. /)incipal Issues $.$.$. 2he /)ocu)ement /)ocess 0$1

o)de) placing .ia app)op)iate channels 0i.e. autho)i5ed pu)chase o)de)1 )ecei.ing including ad7ustments ,o) damages, sho)t o) o.e)"shipping and inco))ect costs monito)ing supplie) pe),o)mance.

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$. /)ocu)ement

$.$. /)incipal Issues $.$.%. Supply Dnce)tainty

!lements of supply uncertainty:

lead time to supply +uantity supplied +uality o, supply data accu)acy on p)oducts supplied and p)ices.

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$. /)ocu)ement

$.$. /)incipal Issues $.$.(. Selecting a Supplie)

In selecting a supplier) a num#er of factors must #e analy&ed:

p)ice +uality )elia-ility c)edit te)ms shipping costs.

Loo/ at the hole transaction cost of dealing ith a supplier 3not 'ust the cheapest price4.

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$. /)ocu)ement

$.!. /)incipal Issues $.$.'. /ositi.e 2)ends 0!1

0ositi$e trends in purchasing and procurement include:

)educed num-e) o, supplie)s long"te)m )elationships 3ith supplie)s supplie)s located close to custome)s ,o) imp)o.ed access integ)ated in,o)mation in,)ast)uctu)e: <>I, elect)onic catalogs

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$. /)ocu)ement

$.!. /)incipal Issues $.$.'. /ositi.e 2)ends 0$1

supplie)s conside)ed to -e an essential pa)t o, the -usiness supplie)s in.ol.ed in ,utu)e p)oduct de.elopment p)og)ams.

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$. /)ocu)ement

$.%. Analysis

,ey considerations in analy&ing the purchasing process:

annual sales annual pu)chases num-e) o, supplie)s num-e) o, supplie) alliances total num-e) o, pu)chased p)oducts o) pa)ts sho)t and long"te)m cost e,,ecti.e pu)chasing e,,icient -usiness management o, the pu)chasing p)ocess.

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$. /)ocu)ement

$.(. Suggestions

.naly&e hat the suppliers re2uirements are for:

goods and se).ices: lot si5es, pac4aging, deli.e)y ,)e+uency, and )esponsi.eness in,o)mation: ho3 much and 3hen ,inancing a))angements and costs.

Compare your needs and a#ilities against these re2uirements.

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$. /)ocu)ement

$.'. /e),o)mance Indicato)s $.'.!. >eli.e)y to Schedule

The follo ing formula is used to assess suppliers deli$ery to schedule performance.
>HI!JJ"0LK!JJ1AS > I monthly deli.e)y pe),o)mance 0H1 L I num-e) o, line items deli.e)ed late) than scheduled S I num-e) o, line items scheduled ,o) deli.e)y du)ing month >i,,e)ent tole)ances ,o) A, B, C"a)ticles 0see chapte) #1

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$. /)ocu)ement

$.(. /e),o)mance Indicato)s $.'.$. Buality to Speci,ication

The follo ing formula is used to assess 2uality performance.

BHI!JJ"0@K!JJ1AL B I monthly +uality pe),o)mance 0H1 @ I num-e) o, units )e7ected du)ing month L I num-e) o, units deli.e)ed du)ing month

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2he Supply Chain Management Guide

5. Sales 6orecasting

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%. Sales :o)ecasting

%.!. *ey Concepts

Sales forecasting is the process of organi&ing and analy&ing information in a ay that ma/es it possi#le to estimate future sales.

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.!. >emand Dnce)tainty

!lements of demand uncertainty:

timing o, o)de) si5e and composition o, o)de) data accu)acy on:
p)oducts )e+ui)ed deli.e)y points timing.

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.$. Components o, >emand

Components of demand:
2)end:
g)o3th o) decline o.e) an e8tended pe)iod o, time

Cyclical:
3a.eli4e ,luctuation a)ound the t)end

Seasonal:
patte)n o, change that )epeats itsel, yea) a,te) yea)

@andom:
not accounted ,o) -y the othe) components 0t)end, cyclical, o) seasonal1.

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.%. Sales :o)ecasting Methods 0!1

7ualitati$e sales forecasting methods rely more on 'udgment and intuition than on historical data:
su).eys o, -uye) intentions, such as +uestionnai)es, telephone polls, and consume) inte).ie3s >elphi techni+ue:
a -ody o, e8pe)ts, consulted sepa)ately, is as4ed to a))i.e at a consensus opinion

sales ,o)ce composite:

-ased on the com-ined estimates o, e8pe)ienced sales pe)sonnel.

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.%. Sales :o)ecasting Methods 0$1

7uantitati$e sales forecasting methods ma/e use of past data to predict future sales:
ma)4et tests to gauge consume) )esponse 0usually to a ne3 o) modi,ied p)oduct1 unde) actual conditions t)end p)o7ectionsAanalysis 0also called Time Series1 in.ol.es ,o)ecasting sales -ased on the histo)ical )elationship -et3een sales and time, 3hich is e8p)essed as a g)o3th rate 0pe)centage1 and each measu)e is plotted on a g)o3th curve:

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.%. Sales :o)ecasting Methods 0%1

mo.ing a.e)age: all o-se).ations a)e gi.en e+ual 3eight and only a ,e3 o, the p)e.ious o-se).ations a)e conside)ed e8ponential smoothing: gi.es g)eate) 3eight to mo)e )ecent o-se).ations and conside)s all past o-se).ations

)eg)ession analysis can -e used to ,o)ecast a dependent .a)ia-le 0i.e., sales1 as a )esult o, changes in one o) mo)e independent .a)ia-les 0i.e., ad.e)tising1

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.%. Sales :o)ecasting Methods 0(1

input"output models ,o)ecast the impact o, the change in the outputs 0sales1 o, one indust)y on the out"outs o, the pu)chasing indust)y 0i.e., a )eduction in the supply o, tin cans p)oduced -y the metal indust)y 3ould e,,ect the supply o, canned tuna that 3ould -e p)oduced -y the ,ish canne)ies1.

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.%. Sales :o)ecasting Methods 0'1

Computeri&ed forecasting models include:

sp)eadsheets, such as Mic)oso,t <8cel 03ith the Data Analysis Toolpack1, that can pe),o)m calculations automatically 3ith changes in ente)ed data ,o)ecasting application so,t3a)e:
statistical pac4ages, such as Minita ,o)ecasting pac4ages speci,ically designed ,o) ,o)ecasting applications

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.(. Ma7o) Dses o, Sales :o)ecasts 0!1

Sales forecasts are used for:

p)oduction:
p)oduction scheduling in.ento)y cont)ol

pu)chasing:
dete)mination o, p)ocu)ement )e+ui)ements scheduling o, pu)chases to get ,a.o)a-le p)ices

,inance:
esta-lishing o, ope)ating -udgets cash ,lo3 planning capital -udget A e8penditu)e decisions

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.(. Ma7o) Dses o, Sales :o)ecasts 0$1

ma)4eting:
,o)mulation o, ma)4eting st)ategies ,o) p)oducts setting o, sales +uotas scheduling o, ad.e)tising e8penditu)es and sales p)omotions

pe)sonnel:
planning o, manpo3e) )e+ui)ements

top management:
o.e)all planning and cont)ol o, ope)ations o, the company.

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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.'. Ad.antages :o)ecasting 0!1

.ccurate sales forecasting offers se$eral ad$antages:

)educed e8cess in.ento)y ,e3e) stoc4 sho)tages 3hich )esult 3hen demand e8ceeds supply ,e3e) unnecessa)y p)oduction line changes to ,ul,ill unanticipated demand less o.e)time hou)s th)ough imp)o.ed p)edictions in pe)sonnel )e+ui)ements imp)o.ed custome) se).ice le.els as supply and demand -alance mo)e economic pu)chasing po3e).
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%. Sales :o)ecasting

%.$. /)incipal Issues %.$.#. :o)ecast Accu)acy

6actors that influence forecast accuracy:

a.aila-ility o, p)oduct demand histo)y capa-ility o, compute) system othe) a.aila-le histo)y 0i.e., ne3 p)oducts, design changes, changes in custome) -ase, p)omotional actions, economic indicato)s1 )esponsi-ility ,o) ,o)ecasting: a team e,,o)t is )e+ui)ed 0Sales, >ist)i-ution and Manu,actu)ing1.

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%. Sales :o)ecasting

%.%. Chec4list

Sales forecasting considerations:

=hat a)e the items to -e ,o)ecastF Go3 ,a) into the ,utu)e should the ,o)ecast e8tendF =hat is the length o, the time pe)iod ,o) stating the ,o)ecast +uantityF Go3 ,)e+uently should the ,o)ecast -e made, )e.ie3ed and )e.isedF =hat 3ould constitute an accepta-le tole)ance o, ,o)ecast e))o)F

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%. Sales :o)ecasting

%.(. Suggestions 0!1

0rior to forecasting sales) scru# the data #y remo$ing the effects of unusual e$ents that are not li/ely to happen again. %ther ise) the forecasting model ill sho a distorted $ie of the past.

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%. Sales :o)ecasting

%.(. Suggestions 0$1

!"amples of pro#lems that may re2uire data ad'ustments:

unusual 3eathe) addition o) loss o, ma7o) custome)s special p)omotions changes in p)ice o) pac4age si5e.

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%. Sales :o)ecasting

%.(. Suggestions 0%1

+etermine the most accurate forecasting method:

)egula)ly use a num-e) o, di,,e)ent methods to gene)ate ,o)ecasts maintain histo)ical accu)acy in,o)mation on each method use the most accu)ate method to gene)ate Mo,,icialN ,o)ecasts.

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%. Sales :o)ecasting

%.(. Suggestions 0(1

Ma/e an .8C*analysis of the items to forecast:

A"items a)e )e.ie3ed each month -y management only those B" and C"items 3ith a signi,icant de.iation -et3een ,o)ecast and actual demand need to -e )e.ie3ed -y management.

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2he Supply Chain Management Guide

9. 0roduction planning and control

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(. /)oduction Cont)ol

(.!. *ey Concepts (.!.!. /)oduction /lanning and Cont)ol

The responsi#ility for:

num-e) o, units o, a speci,ic p)oduct to -e p)oduced time inte).als o.e) 3hich p)oduction 3ill occu) a.aila-ility o, e+uipment, mate)ials and 3o)4 ,o)ce cost e,,ecti.e in.ento)y and )esou)ce management.

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(. /)oduction Cont)ol

(.$. /)incipal Issues (.$.!. /)oduction as a Goal o) Means 0!1

0roduction as a goal:
)esou)ces a)e planned and used in the p)oduction p)ocess )ega)dless o, actual demand o,ten -ased on economies o, scale, 3he)e lo3e) cost pe) item is p)esumed to gene)ate end p)oduct demand.

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(. /)oduction Cont)ol

(.$. /)incipal Issues (.$.!. /)oduction as a Goal o) Means 0$1

0roduction as a means:
)esou)ces a)e planned and used in the p)oduction p)ocess only as a )esult o, p)oduct demand o,ten -ased on economies o, scope, 3he)e end p)oduct demand has g)eate) in,luence o.e) p)oduction units and costs.

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(. /)oduction Cont)ol

(.$. /)incipal Issues (.$.$. <conomies o, Scope .s Scale 0!1

!conomies of scope production assumptions:

)esponsi.e to demand ,le8i-le p)oduction plans .a)ia-le cost pe) item smalle) p)oduction )uns inc)eased total set up and change o.e) costs lo3e) p)oductAin.ento)y o-solescence minimi5ed in.ento)y ca))ying costs mate)ial is pulled th)ough the p)oduction p)ocess as needed.

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(. /)oduction Cont)ol

(.$. /)incipal Issues (.$.$. <conomies o, Scope .s Scale 0$1

!conomies of scale production assumptions:

)esponsi.e to p)o,it ma)gin gains ,i8ed p)oduction plans lo3e) cost pe) item la)ge) p)oduction )uns less p)oduction set up and change o.e) cost g)eate) )is4 o, p)oductAin.ento)y o-solescence highe) in.ento)y ca))ying costs mate)ial is pushed th)ough the p)oduction p)ocess.

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(. /)oduction Cont)ol

(.$. /)incipal Issues (.$.%. 6)de) >ecoupling /oint

:o far does a customer order penetrate in the production process;

/u)chasing /)oduction =a)ehouse >ist)i-ution

0osition of the order decoupling point Manu,actu)e to o)de) Manu,actu)e to stoc4

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(. /)oduction Cont)ol

(.$. /)incipal Issues (.$.(. /lanning Gie)a)chy

Agg)egate plan: 3o)4s 3ith agg)egate 0g)ouped1 units Maste) /)oduction Schedule: indicates the +uantity and timing o, the p)oduction o, speci,ic end items. 0actual o)de)s a)e inco)po)ated1 Mate)ials planning: 3hat mate)ial is needed 3henF Capacity )e+ui)ements planning: 3hich e+uipment, 3o)4 ,o)ce and ,acilities a)e )e+ui)edF Loading: 3hich 7o- on 3hich 3o)4 cente)F Se+uencing: in 3hich o)de) ha.e the 7o-s to -e p)ocessedF

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(. /)oduction Cont)ol

(.$. /)incipal Issues (.$.'. /)oduction Cont)ol Systems

6ormal production control systems for in$entory include:

<conomic 6)de) Buantity 0<6B1 Mate)ials @e+ui)ements /lanning 0M@/1 Oust"in"2ime concept
0See Chapte) #, In.ento)y Management1

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(. /)oduction Cont)ol

(.%. Suggestions

Suggestions:
pull )athe) than push mate)ial th)ough the p)oduction p)ocess p)oduce nothing until it is needed )educe set up times )educe lot si5es t)y to mo.e the o)de) decoupling point to an ea)ly stage in the supply chain t)y to )emo.e t)ansaction 0steps 3hich ad no .alue1 ,)om the p)ocess.

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2he Supply Chain Management Guide

<. Material :andling

69

'. Mate)ial Gandling

'.!. *ey Concepts '.!.!. Mate)ial Gandling 0!1

Material :andling:
mo.ing o, goods -et3een incoming t)anspo)t, sto)age, p)ocesses and outgoing t)anspo)t the set o, acti.ities that mo.e p)oduction inputs and othe) goods 3ithin plants, 3a)ehouses and t)anspo)tation te)minals.

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'. Mate)ial Gandling

'.!. *ey Concepts '.!.!. Mate)ial Gandling 0$1

0ro$iding the right amount of material:

in the )ight condition at the )ight place at the )ight time in the )ight position in the )ight se+uence ,o) the )ight cost -y using the )ight methods.

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'. Mate)ial Gandling

'.$. /)incipal Issues '.$.!. Mate)ials Gandling Manage) 0!1

The tas/ for the materials handling manager is to find the methods) the routes) the layouts and the right components to minimi&e handling.

72

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.!. Mate)ials Gandling Manage) 0$1

Si" main responsi#ilities of the materials handling manager:

pac4aging " uniti5ing inte)nal t)anspo)t sto)age )et)ie.al identi,ication communication.

73

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.$. Mate)ial Gandling System >esign

The design of a material handling system depends upon the the type and the characteristics of the materials to #e handled.

74

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.%. Mate)ial Gandling System Components 0!1

Material handling e2uipment:

uniti5ing e+uipment mate)ial t)anspo)t e+uipment sto)age and )et)ie.al e+uipment automatic identi,ication and communication e+uipment.

75

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.%. Mate)ial Gandling System Components 0$1

-niti&ing e2uipment:
containe)s, such as ca)tons, -o8es, and -ags ca))ie)s o) suppo)t, such as pallets, s4ids, and ply3ood st)etch 3)ap sh)in4 3)ap.

76

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.%. Mate)ial Gandling System Components 0%1

Material transport e2uipment:

con.eyo)s 0-elts and )olle)s1 indust)ial .ehicles, such as pallet t)uc4s, li,t t)uc4s, and automated guided .ehicles 0AG;1 mono)ails hoists c)anes.

77

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.%. Mate)ial Gandling System Components 0(1

Storage and retrie$al e2uipment:

unit load sto)age e+uipment unit load )et)ie.al e+uipment small load sto)age and )et)ie.al e+uipment.

78

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.%. Mate)ial Gandling System Components 0'1

.utomatic identification and communication e2uipment:

-a) coding )adio ,)e+uency tag magnetic st)ipe sma)t ca)ds .oice headsets machine .ision.

79

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.(. Cost"e,,ecti.e Means o, 2)anspo)t 0!1

,ey factors to consider in selecting means of transport:

physical cha)acte)istics o, loads the num-e) o, loads to -e mo.ed the distance to -e mo.ed the )e+ui)ed speed o, mo.ement.

80

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.(. Cost"e,,ecti.e Means o, 2)anspo)t 0$1

Dnits mo.edA hou)

Con.eyo)s

Moto)i5ed t)olleys

:o)4li,t t)uc4s Manual t)olley Manual Mo.ement distance 0m1

81

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.(. Cost"e,,ecti.e Means o, 2)anspo)t 0%1

%ther factors hich influence the means of transport:

cost o, -uildingAdismantling loads pac4aging costs space )e+ui)ements inte),ace 3ith othe) sto)age, t)anspo)t and handling systems house4eeping issues.

82

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.'. =a)ehousing 0!1

The arehouse must #e:

located in the )ight place the )ight si5e o)gani5ed

to allo :
e,,icient deli.e)y and placing cost"e,,ecti.e use o, its space ade+uate access to sto)ed mate)ials secu)ity ,)om the,t and 3eathe) ,le8i-ility to deal 3ith the .a)ious items.

83

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.'. =a)ehousing 0$1

The mission 3or goal4 of a arehouse is set #y demand. The arehouse location is a means to achie$ing the mission.
Mission
8alance and #uffer .ccumulate and consolidate @apid response

Location
=ear the manufacturer Central to production locations Close to customer

+emand
Monthly>2uarterly replenishments of stoc/s ?ee/ly>monthly orders +aily

84

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.'. =a)ehousing 0%1

?ithin the arehouse) stoc/ must #e:

put into 4no3n places and in 4no3n o)de)

so that it can #e:

)et)ie.ed +uic4ly and in the )ight +uantity )otated p)ope)ly 0e8. ,i)st"in, ,i)st"out1.

85

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.'. =a)ehousing 0(1

?arehousing acti$ities:
)ecei.ing goods identi,ying goods so)ting goods dispatching goods to sto)age holding goods pic4ing goods p)epa)ing shipments dispatching shipments.

86

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.'. =a)ehousing 0(1

Material receipt
Scan the incoming part number Determine the storage location Location input to operator for storage Confirmation from operator on storage Inventory update

Material tracking
Monitor material movement in storage Maintain FIFO / LIFO etc as re!uired Maintain history for every part number from receipt to dispatch
87

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.'. =a)ehousing 0(1

Material issue
"eceive dispatch order from #"$ Determine the material to be issued based on FIFO / LIFO etc Location input to operator for picking Confirmation from operator on delivery

Inventory update
Inventory count Maintain inventory count for every part number stored

88

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.'. =a)ehousing 0(1

#"$ Integration
Inventory updates Delivery schedules

"eports
Inventory on hand Orders dispatched Orders on backlog Orders under process Shipments completed in a given period of time

89

'. Mate)ial Gandling

'.$. /)incipal Issues '.$.'. =a)ehousing 0(1

%MS &enefits Faster inventory turns. More efficient use of available warehouse space. Reduction in inventory paperwork. Improved cycle counting. Reduced dependency on warehouse personnel. Enhanced customer service. Improved stacking productivity.

90

'. Mate)ial Gandling

'.%. Suggestions

Suggestions for materials handling:

use identi,ication systems, such as -a) coding to handle the )ight mate)ial:
gi.e a pa)t identi,ication num-e) gi.e a location identi,ication num-e)

handle simila) mate)ials, pac4aging and si5e o, loads at the same time implement imp)o.ements in mate)ial handling systems 3hich 3ill inc)ease the e,,iciency o, the o.e)all system.

91

2he Supply Chain Management Guide

A. In$entory Management

92

#. In.ento)y Management

#.!. *ey Concepts

In$entory:
those stoc4s o) items used to suppo)t p)oduction and custome) se).ice.

Ser$ice le$el:
p)o-a-ility 0H1 that stoc4 3ill -e a.aila-le to meet demand.

93

#. In.ento)y Management

#.$. /)incipal Issues #.$.!. 2ypes o, In.ento)y 0!1

Types of In$entory:
)a3 mate)ials:
pu)chased pa)ts used in manu,actu)ing othe) items

3o)4"in"p)ocess:
pa)ts that a)e in the manu,actu)ing p)ocess

su-"assem-lies:
manu,actu)ed pa)ts that a)e pa)tially completed and stoc4ed in in.ento)y

94

#. In.ento)y Management

#.$. /)incipal Issues #.$.!. 2ypes o, In.ento)y 0$1

,inished goods:
Items )eady ,o) sale to a custome)

M@6:
maintenance, )epai) and ope)ation supplies.

95

#. In.ento)y Management

#.$. /)incipal Issues #.$.$. :unctions o, In.ento)y 0!1

6unctions of in$entory:
sa,ety stoc4s:
p)otect against unce)tainties o, mate)ials supply and consume) demand

cycle stoc4s:
)esult ,)om o)de)ing o) p)oducing in lots

t)ansit stoc4s:
mate)ials must -e mo.ed ,)om one location to anothe)

96

#. In.ento)y Management

#.$. /)incipal Issues #.$.$. :unctions o, In.ento)y 0$1

speculati.e stoc4s:
e8pected p)ice inc)ease

p)omotional stoc4s:
additional in.ento)y accumulated ,o) a p)omotional e.ent.

97

#. In.ento)y Management

#.$. /)incipal Issues #.$.%. <lements o, In.ento)y 0!1

!lements of in$entory
In.ento)y Le.el

<8cess stoc4 @eplenishments Sa,ety stoc4

2ime
98

#. In.ento)y Management

#.$. /)incipal Issues #.$.%. <lements o, In.ento)y 0$1

!lements of in$entory
6.e) time, demand and the a-ility to se).ice demand 0)eplenish in.ento)y1 can .a)y. :o)ecasts may not -e p)ecise due to unce)tainties, so, a )ese).e o, stoc4 0sa,ety stoc41 may -e necessa)y to )educe in.ento)y sho)tages 0stoc4"outs1. In.ento)y le.els a-o.e the sa,ety stoc4 and no)mal demand a)e conside)ed e8cess in.ento)y.

99

#. In.ento)y Management

#.$. /)incipal Issues #.$.(. In.ento)y Golding

@easons for holding in$entory:

pu)chased pa)ts:
.a)iations in supplie) lead time +uantity discounts p)ice changes sca)cities o, mate)ials co.e) pe)iod -et3een p)oduction )uns allo3 ,le8i-ility in p)oduction scheduling .a)iations in p)oduct demand 0sa,ety stoc41 economies o, scale.

manu,actu)ed pa)ts:

100

#. In.ento)y Management

#.$. /)incipal Issues #.$.'. In.ento)y Costs 0!1

Cost of in$entory production and holding:

o)de)Aset"up costs:
cost o, )eplenishing in.ento)y th)ough changes in the p)oduction )un ,o) a di,,e)ent item includes la-ou) and othe) associated costs

ca))ying costs:
cost o, capital insu)ance costs costs o, space, sta,, in.ento)y handling, dete)io)ation, damage, o-solescence, insu)ance

101

#. In.ento)y Management

#.$. /)incipal Issues #.$.'. In.ento)y Costs 0$1

oppo)tunity costs:
)est)iction o, othe) in.estments that could ha.e -een made 3ith the same money

stoc4"out costs:
lost sale halted p)oduction.

102

#. In.ento)y Management

#.$. /)incipal Issues #.$.#. In.ento)y Management 0!1

%#'ecti$es of in$entory management:

minimi5e costs:
3o)4ing capital ca))ying costs sc)ap and )e3o)4

highest le.el o, custome) se).ice.

103

#. In.ento)y Management

#.$. /)incipal Issues #.$.#. In.ento)y Management 0$1

In$entory management tas/s:

ma4e decisions a-out:
sa,ety stoc4 )eplenishment p)oduction )uns e8cess stoc4.

104

#. In.ento)y Management

#.$. /)incipal Issues #.$.#. In.ento)y Management 0%1

In$entory must #e managed differently for:

independent demand: in,luenced -y ma)4et conditions dependent demand: de)i.ed ,)om the p)oduction o, pa)ent items.
0see ,ollo3ing slide1

105

#. In.ento)y Management

#.$. /)incipal Issues #.$.#. In.ento)y Management 0(1

Independent demand

>ependent demand <

>

106

#. In.ento)y Management

#.$. /)incipal Issues #.$.&. ABC"Analysis 0!1

.8C analysis of in$entory:

select a c)ite)ion 0sales A usage1 -ased on impo)tance )an4 the in.ento)y items on c)ite)ion calculate the cumulati.e sales andAo) usage ,o) all items assign items into A, B, C g)oups assign in.ento)y le.els and 3a)ehouse locations ,o) each item.

107

#. In.ento)y Management

#.$. /)incipal Issues #.$.&. ABC"Analysis 0$1

.8C classification) here items are not of e2ual importance:

A"items
,e3 items 0e8. !' H1 3hich ha.e a high )ate o, usage andAo) high unit cost and account ,o) CJ H o, the total .alue o, usage in the in.ento)y

B"items
num-e) o, items 0e8. $' H1 3hich in total account ,o) !' H o, the total .alue o, usage

108

#. In.ento)y Management

#.$. /)incipal Issues #.$.&. ABC"Analysis 0%1

C"items
g)eat many items 0e8. #J H1 3ith lo3 indi.idual usage andAo) lo3 unit .alue 3hich in total account ,o) only ' H o, the total .alue o, usage

109

#. In.ento)y Management

#.$. /)incipal Issues #.$.&. ABC"Analysis 0(1

.8C analysis chart demonstrates relati$e importance of in$entory items.

Class of Item B of Items B of Calue

Class . Class 8 Class C

1<B 1<B AEB

DEB 1<B <B

110

#. In.ento)y Management

#.$. /)incipal Issues #.$.&. ABC"Analysis 0'1

ABC " Analysis Cha)t

#JJ Lum-e) o, items 'JJ (JJ %JJ $JJ !JJ J /)oduct ! /)oduct $ /)oduct % /)oduct ( C B A

111

#. In.ento)y Management

#.$. /)incipal Issues #.$.&. ABC Analysis 0#1

.8C and in$entory control efforts:

A"items
.e)y ca)e,ul management ca)e,ul estimates o, ,utu)e usage.

B"items
)outine management )outine e,,o)t in ,o)ecasting demand.

C"items
little e,,o)t in ,o)ecasting demand ho3e.e) -e ca)e,ul ,o) st)ategic items 0sa,ety stoc41.

112

#. In.ento)y Management

#.$. /)incipal Issues #.$.C. In.ento)y Management Systems 0!1

In$entory management systems include:

t3o"-in )eplenishment system:
used ,o) lo3 .alue , non"c)itical items 0i.e.. class C items1 )elies on .isual inspection o, declining in.ento)y one -in contains enough mate)ial to meet needs -et3een the time one o)de) is )ecei.ed and anothe) is placed second -in 0also called the M)ese).e -inN1 contains enough mate)ial to meet needs -et3een placing an o)de) and )ecei.ing the mate)ials i, p)oduction taps into the )ese).e -in, additional mate)ials must -e o)de)ed immediately

113

#. In.ento)y Management

#.$. /)incipal Issues #.$.C. In.ento)y Management Systems 0$1

)eo)de) point system:

amount o)de)ed 3hen in.ento)y declines to a p)edete)mined le.el conside)s: hen to order 3re*order point4 ho much to order 3order 2uantity4

pe)iodic )e.ie3 systems:

a,te) p)edete)mined ,i8ed passages o, time, o)de)s a)e placed ,o) .a)ia-le amounts conside): ho much to order 3order 2uantity4 ho long #et een orders 3reorder time inter$al4

114

#. In.ento)y Management

#.$. /)incipal Issues #.$.C. In.ento)y Management Systems 0%1

Mate)ials @e+ui)ements /lanning 0M@/1:

assumes .a)ia-le demand th)oughout p)oduction calculates component )e+ui)ements -ased on the Maste) /)oduction Schedule 0M/S1, Bill o, Mate)ial and in.ento)y data mate)ials a)e pu)chased only 3hen the M/S has them scheduled ,o) use mate)ials a)e pushed th)ough a plant

115

#. In.ento)y Management

#.$. /)incipal Issues #.$.C. In.ento)y Management Systems 0(1

M@/ II systems sha)e in,o)mation 3ith othe) ,unctional depa)tments, outside the ope)ations a)ea 0i.e., pu)chasing, sales, cost accounting1. 2hese systems plan the use o, company )esou)ces, including scheduling )a3 mate)ials, .endo)s, p)oduction, e+uipment and p)ocesses

OI2: di,,e)ent app)oach to )eo)de)ing:

acti.ities that add no .alue a)e 3aste mate)ial only is supplied 3hen it is )e+uested ,)om the ne8t step in the p)oduction p)ocess 0pull system1 these )e+uests a)e called 4an-ans.

116

#. In.ento)y Management

#.$. /)incipal Issues #.$. . Go3 Much to 6)de): <6B 0!1

!conomic %rder 7uantity 3!%74:

the lot si5e that minimi5es total annual in.ento)y holding and o)de)ing costs assumptions:
annual demand is constant. ,o)ecast is pe),ect 0no )andom e))o)1 all costs a)e constant and linea) lead time is 4no3n and constant.

117

#. In.ento)y Management

#.$. /)incipal Issues #.$.!$. <8cess In.ento)y

@easons for e"cess in$entory include:

enginee)ing changes spoilage de,ects technical o-solescence lac4 o, ma)4et demand.

124

#. In.ento)y Management

#.$. /)incipal Issues #.$.!%. In.ento)y Counting Methods 0!1

In$entory Counting Methods:

Cycle counting:
a ,e3 e8pe)ienced people count continuously th)oughout the yea) timely detection o, e))o)s ,e3e) mista4es in item identi,ication minimal loss o, p)oduction time systematic imp)o.ement o, )eco)d accu)acy.

125

#. In.ento)y Management

#.$. /)incipal Issues #.$.!%. In.ento)y Counting Methods 0$1

<nd o, yea):
many ine8pe)ienced people count in.ento)y in a sho)t hectic pe)iod once pe) yea) no co))ection o) cause o, e))o)s many mista4es in item identi,ication plant and 3a)ehouse shutdo3n ,o) in.ento)y no imp)o.ement o, in.ento)y accu)acy.

126

#. In.ento)y Management

#.%. Suggestions #.%.!. # Step Action /lan

:ind out 3hy you ha.e in.ento)ies Analy5e the p)esent situation:
in.ento)y mat)i8 ABC"analysis

>e,ine the in.ento)y le.els >e,ine the in.ento)y system >e,ine pe),o)mance indicato)s /e),o)mance ,ollo3"up

127

#. In.ento)y Management

#.%. Suggestions #.%.$. In.ento)y Mat)i8

:ill in the di,,e)ent amounts o, in.ento)y

Raw material WIP Sub-assemblies MRO Finis e! "oo!s

Safety Cycle Transit Speculati$e 0romotional ******* *******

128

#. In.ento)y Management

#.%. Suggestions #.%.%. @ationali5e /)oducts

/)int and analy5e lists o, slo3"mo.ing and Class C items Monthly e.aluation Action plans :ollo3"up

129

#. In.ento)y Management

#.%. Suggestions #.%.(. @educe <8cess

@educe e"cess:
t)y to mo.e the o)de) decoupling point to an ea)ly stage in the supply chain to )educe in.ento)y holding 0ca))ying1 cost:
Sou)cing /)oduction =a)ehouse >ist)i-ution

ABC " item management sho)ten )eplenishment cycles.

130

#. In.ento)y Management

#.(. /e),o)mance indicato)s 0!1

In$entory turno$er:
Annual cost o, sales In.ento)y .alue at cost

Stoc/ co$erage:
stoc4holding 8 '$ 3ee4s A annual usage

Customer satisfaction:
compa)ison o, H o, demand actually satis,ied 3ith the de,ined se).ice le.el num-e) o, -ac4o)de)s

131

#. In.ento)y Management

#.(. /e),o)mance indicato)s 0$1

!"cess in$entory reduction: R%=((PE - CE)/PE)*100

@Iin.ento)y )eduction du)ing month 0H1 /<Ip)io) month e8cess in.ento)y 0.alue1 C<Icu))ent month e8cess in.ento)y 0.alue1

132

2he Supply Chain Management Guide

F. +istri#ution

133

&. >ist)i-ution

&.!. *ey Concepts 0!1

0hysical distri#ution:
the acti.ity that is conce)ned 3ith:
)ecei.ing pa)ts o) ,inished goods sto)ing them until they a)e )e+ui)ed and then deli.e)ing them to the custome).

134

&. >ist)i-ution

&.!. *ey Concepts 0$1

Transport operator:
3ho does the mo.ing.

Intermodal:
inte)change point ,)om one t)anspo)tation mode p)o.ide) to anothe).

135

&. >ist)i-ution

&.!. *ey Concepts 0%1

Consolidation:
the p)ocess o, )ecei.ing multiple lots in small +uantities, 3hich a)e accumulated and then )epac4aged into one la)ge) lot.

Cross doc/ing:
unloading the ca)go ,)om se.e)al t)uc4s and then immediately )eload it into one containe) ,o) deli.e)y to a ,inal destination.

136

&. >ist)i-ution

&.!. *ey Concepts 0(1

+istri#ution arehouse:
a ,acility designed to assem-le and then )edist)i-ute goods in a 3ay that ,acilitates )apid mo.ement to custome)s.

-niti&ation:
a techni+ue ,o) g)ouping -o8es on a pallet o) s4id ,o) late) mo.ement -y pallet 7ac4, ,o)4li,t, con.eyo) andAo) t)uc4.

137

&. >ist)i-ution

&.!. *ey Concepts 0'1

Containeri&ation:
the p)ocess o, com-ining se.e)al uniti5ed loads into a single 3ell"p)otected load.

138

&. >ist)i-ution

&.$. /)incipal Issues &.$.!. :unctions o, /hysical >ist)i-ution

6unctions of physical distri#ution:

in.ento)y management o)de) p)ocessing 3a)ehousing:
the set o, acti.ities in.ol.ed in )ecei.ing and sto)ing goods and p)epa)ing them ,o) )eshipment

mate)ials handling t)anspo)tation.

139

&. >ist)i-ution

&.$. /)incipal Issues &.$.$. >ist)i-ution >ecisions

Important distri#ution decisions:

=hich t)anspo)t modeF Lum-e) and location o, dist)i-ution 3a)ehousesF 63n o) cont)act"out 3a)ehousing and t)anspo)tF

140

&. >ist)i-ution

&.$. /)incipal Issues &.$.%. 2)anspo)t Modes 0!1

8asis of transport mode selection:

natu)e, .olume, .alue and c)iticality o, goods ,le8i-ility o, t)anspo)t mode: coping 3ith demand change.

141

&. >ist)i-ution

&.$. /)incipal Issues &.$.%. 2)anspo)t Modes 0$1

Methods of transport:
t)uc4s )ail)oads 3ate) ai)3ays pipelines
@ail 0iggy#ac/ 2)uc4 6ishy#ac/ =ate) /ipeline 8irdy#ac/ Ai)

142

&. >ist)i-ution

&.$. /)incipal Issues &.$.%. 2)anspo)t Modes 0%1

Truc/s:
,le8i-le, on"time, lo3 loss and damage, t)acing, accu)acy and 3ide geog)aphical co.e)age 3eathe) and t)a,,ic conditions can delay shipments still hea.y p)ice competition.

143

&. >ist)i-ution

&.$. /)incipal Issues &.$.%. 2)anspo)t Modes 0(1

@ailroads:
ine8pensi.e ,o) ca)load lots )e+ui)es mo)e pac4ing mate)ial o) must allo3 ,o) )ough handling some3hat slo3 ,)eight,o)3a)de)s, piggy-ac4 t)uc4, and dou-lestac4 containe)s o,,e) cost sa.ings ,o) use)s. Idle time is .e)y high Ideal ,o) hea.y o) high density p)ods

144

&. >ist)i-ution

&.$. /)incipal Issues &.$.%. 2)anspo)t Modes 0'1

?ater transportation:
ideal ,o) hea.y, lo3".alue non"pe)isha-les, -ut has high ,i8ed costs 3eathe) can -e a p)o-lem containe)i5ation and imp)o.ed po)ts allo3 ,o) e8pansion in ne3 p)oducts and ma)4ets. Slo3est mode

145

&. >ist)i-ution

&.$. /)incipal Issues &.$.%. 2)anspo)t Modes 0#1

.ir ays:
high costs, so only suita-le ,o) high .alue o) u)gent o) pe)isha-le items 3eight and locations limited sa.es in.ento)y holding costs impo)tant in inte)national t)ade.

146

&. >ist)i-ution

&.$. /)incipal Issues &.$.%. 2)anspo)t Modes 0&1

0ipelines:
slo3 -ut dependa-le, continuous ,lo3 o, li+uids o) slu))ies ha)de) to esta-lish today due to go.e)nment )egulations. In,)ast)uctu)e -uilding is a -ig tas4

147

/ac4age Ca))ie)

!"pensi$e Time constraint or high $alue prods rapid G relia#le @apid G relia#le 0referred fr e #usinesses eg ama&on Trac/a#le Can #e thru any mode air ay truc/ etc

148

Inte)modal 2)anspo)t

Intermodal transport Com#ination of 1modes con$eyence Truc/ H .eroplane* #irdie #ac/ Truc/ H Ship* 6ishy#ac/ Truc/ H train* 0iggy#ac/

149

&. >ist)i-ution

&.$. /)incipal Issues &.$.(. 6utsou)cing

+ecisions for o ning or contracting*out transport consider:

total cost cont)ol custome) se).ice ,le8i-ility management s4ills ope)ato)s )etu)n on in.estment.

150

&. >ist)i-ution

&.$. /)incipal Issues &.$.'. >ist)i-ution =a)ehouses

=um#er and location of distri#ution arehouses are #ased on:

custome) se).ice needs a.aila-le t)anspo)tation se).ices cost t)ade"o,,.

151

&. >ist)i-ution

&.%. /e),o)mance indicato)s

0erformance can #e assessed on the #asis of:

dist)i-ution system ,le8i-ility:
)esponse time to special )e+uests

dist)i-ution system in,o)mation:

speed, accu)acy and message detail o, )esponse

dist)i-ution system mal,unction )eco.e)y:

e,,iciency to )eco.e) ,)om mal,unction 0e))o)s in -illing, damage, claims1.

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2he Supply Chain Management Guide

D. Customer Ser$ice

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C. Custome) Se).ice

C.!. *ey Concepts

Customer Ser$ice Standard

A statement o, goals and accepta-le pe),o)mance ,o) the +uality o, se).ice that a company e8pects to deli.e) to its custome)s.

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C. Custome) Se).ice

C.$. /)incipal Issues C.$.!. =hat Custome)s Loo4 ,o) 0!1

?hat customers loo/ for:

/)e"t)ansaction:
accessi-ility o, data 0catalogue, p)ice lists, lite)atu)e1 completeness o, data 0p)oducts, p)ices, inst)uctions1 a.aila-ility o, samples

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C. Custome) Se).ice

C.$. /)incipal Issues C.$.!. =hat Custome)s Loo4 ,o) 0$1

accessi-ility o, the o)gani5ation: e"perts assurance of product suita#ility) 2uality) relia#ility 3employees should #e /no ledgea#le a#out products4 customers ant to #e noticed) appreciated and recogni&ed as important indi$iduals e,,iciency o, the in,o)mation ,lo3

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C. Custome) Se).ice

C.$. /)incipal Issues C.$.!. =hat Custome)s Loo4 ,o) 0%1

2)ansaction:
)elia-ility: deli.e)y on time, in the )ight +uantities, and e))o)",)ee +uality o, p)oducts, pac4aging, palletisation in,o)mation a-out o)de) p)ocessing, dispatch, t)anspo)t ,le8i-ility: time, p)oduct .a)iants, .olumes assu)ance o, satis,action a,te) pu)chase.

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C. Custome) Se).ice

C.$. /)incipal Issues C.$.!. =hat Custome)s Loo4 ,o) 0(1

/ost"t)ansaction:
technical suppo)t, t)aining, helpdes4 a.aila-ility o, spa)e pa)ts and )epai) inst)uctions p)oduct t)acea-ility handling o, complaints: speed, monito)ing, e.aluation administ)ation: in.oices, accounts )ecei.a-le, and payments pe),o)mance measu)ements and e.aluation.

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C. Custome) Se).ice

C.$. /)incipal Issues C.$.$. =hat Custome)s <8pe)ience 0!1

The customer e"perience is:

any episode in 3hich the custome) comes in contact 3ith the o)gani5ation:
pe)sonal contact telephone mail ad.e)tising inte)net 0i.e., e"mail, ,o)ms1

any e.ent that ,o)ms a pe)ception o, the o)gani5ation in the mind o, the custome).

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C. Custome) Se).ice

C.$. /)incipal Issues C.$.$. =hat Custome)s <8pe)ience 0$1

The customer e"perience is a chain of contacts the customer undergoes in o#taining a product. !ach lin/ represents a contact. The total e"perience depends on the ea/est lin/.
Custome) 0sta)t1 Sales Se).ice Custome) 0end1

Shipping

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C. Custome) Se).ice

C.$. /)incipal Issues C.$.(. Custome) Se).ice Issues

Customer ser$ice issues include:

accu)ate unde)standing o, custome)9s needs and 3ants the a-ility to deli.e) necessa)y custome) se).ice le.els .a)iations -et3een plans and thei) actual implementation e,,ecti.e communications 3ith the custome)9s di,,e)ence -et3een supplie)9s and custome)9s pe)ception o, se).ice le.el.

161

C. Custome) Se).ice

C.$. /)incipal Issues C.$.'. Se).ice Le.els

?hich ser$ice le$el approach to you use:

cut costs and )educe o) eliminate se).ice ma8imum se).ice at any cost the cost o, stoc4"out is no g)eate) than the cost o, ca))ying additional in.ento)y 0-)ea4"e.en point1 competiti.e ad.antage, 3he)e se).ice is su,,iciently highe) than competito)s9 se).ice.

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C. Custome) Se).ice

C.%. Analysis C.%.!. Custome) Analysis 0!1

Customer .nalysis: e"ample ta#le:

2he ,ollo3ing ta-le helps to identi,y the custome) g)oups, thei) p)ima)y e8pectations, and thei) cont)i-ution to total sales.
Customer 1 Customer 1 Customer 5 Customer 9 ******* ******* ******* ******* Total Sales Sales #value$ % Total Sales % &umul Pro!ucts I1EEE 1D)9 1D)9 . D5<EE 1A)F 5<)1 . 3F<B4) 831<B4 F51EE 19)A 9I)F 8 51<EE A)5 <A)E C W at t e customer wants 5 days e" stoc/ 1 ee/s < days e" stoc/ A ee/s order to deli$ery

<EEEEE

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C. Custome) Se).ice

C.%. Analysis C.%.!. Custome) Analysis 0$1

0areto .nalysis:
in many cases, app)o8imately CJH o, the tu)no.e) 0i.e., stoc41 can -e asc)i-ed to app)o8imately $J H o, the custome)s, a)ticles o) o)de)s @an4 the custome)s, p)oducts, etc. in o)de) o, magnitude Calculate H that each item cont)i-utes to total .alue de)i.e a cumulati.e H list e.aluate the cumulati.e list and identi,y app)op)iate -)ea4points 0A, B and C1.

164

C. Custome) Se).ice

C.%. Analysis C.%.!. Custome) Analysis 0%1

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C. Custome) Se).ice

C.%. Analysis C.%.$. *no3 the Custome)

,no the customer:

=ho is ou) custome)F =hat a)e the impo)tant things 3e 4no3 a-out ou) custome)sF =hat do ou) custome)s e8pectF =hat do ou) custome)s 3antF

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C. Custome) Se).ice

C.%. Analysis C.%.%. Custome) Se).ice Le.els

Customer ser$ice le$els:

>o 3e consistently meet and e8ceed e8pectationsF Go3 3ell do 3e sol.e the p)o-lems that ou) custome)s e8pe)ienceF =hat se).ice le.els 3ill gi.e us a )elati.e edge o.e) ou) competito)sF Go3, and ho3 +uic4ly, a)e 3e using custome) in,o)mationF

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C. Custome) Se).ice

C.%. Analysis C.%.(. Custome) @esponse

Customer response
=hat did you li4e mostAleast a-out doing -usiness 3ith usF =hat 3ill you tell othe)s a-out usF Go3 can 3e se).e you -ette)F

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C. Custome) Se).ice

C.(. Suggestions

Group 3segment 4 customers #ased on ser$ice needs:

Companies t)aditionally g)oup custome)s -y indust)y o) p)oduct, and then p)o.ide the same le.el o, se).ice to e.e)yone 3ithin the g)oup. 2o imp)o.e custome) satis,action, custome)s should -e g)ouped -y distinct se).ice needs and se).ices should -e tailo)ed to each g)oup.

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C. Custome) Se).ice

C.'. /e),o)mance Indicato)s C.'.!. Custome) Se).ice Le.el

Customer ser$ice le$el

2he desi)ed p)o-a-ility .e)sus the actual pe)centage that p)oduct demand can -e met ,)om stoc4 e8p)essed in a num-e) o, 3ays:
H o, o)de)s completely satis,ied ,)om stoc4 H o, units demanded 3hich a)e met ,)om stoc4 H o, units demanded 3hich a)e deli.e)ed on time H o, time the)e is stoc4 a.aila-le

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C. Custome) Se).ice

C.'. /e),o)mance Indicato)s C.'.$. A.aila-ility

0erformance indicators of a$aila#ility:

stoc4"out ,)e+uency:
ho3 many times does demand ,o) a speci,ic p)oduct e8ceed its a.aila-ility

,ill )ate:
ho3 much o, a speci,ic p)oduct is a.aila-le to satis,y custome) demand

o)de)s shipped complete:

ho3 o,ten is custome) demand ,ully met.

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C. Custome) Se).ice

C.'. /e),o)mance Indicato)s C.'.%. 6pe)ational /e),o)mance

%perational performance indicators:

speed:
o)de) cycle time

,le8i-ility:
a-ility to handle e8t)ao)dina)y custome) )e+uests

mal,unction )eco.e)y:
contingency plans ,o) )eco.e)ing ,)om se).ice ,ailu)es.

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C. Custome) Se).ice

C.'. /e),o)mance Indicato)s C.'.(. @elia-ility

@elia#ility performance indicators:

a-ility to comply to:
planned in.ento)y a.aila-ility ope)ational pe),o)mance

capa-ility and 3illingness to:

p)o.ide accu)ate and timely custome) logistical in,o)mation

commitment to:
continuous se).ice +uality imp)o.ement.

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C. Custome) Se).ice

C.'. /e),o)mance Indicato)s C.'.'. Buality

7uality performance indicators:

A-ility to deli.e):
items 3ithout e))o)s shipped goods 3ithout damage.

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2he <nd Supply Chain Management

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