Supply Chain Management

PRAVIN KUMAR
Supply Chain Management

Definition

Supply Chain-
A network of all facilities, functions,
activities, associated with flow and
transformation of goods and services
from raw materials suppliers to
customer, as well as the associated
information flows is known as supply
chain.
Supply Chain Management
(Continued…)
Definition

Supply Chain Management-

Supply Chain Management (SCM) is
collaborative effort of Multiple channel
members to design, implement and seamless
value added processes to meet the real needs
of the end customer.
 4- Flows in Supply Chain

Parts
Supplier Manufacturer Distributors Buyer
Warehouses Retailers

Flow of Goods, Flow of Ownership

Flow of Information, Flow of Money

Supply Chain Illustration
Supply Chain for Denim Jeans
Supply Chain for Denim Jeans
(cont.)
DELL Computer’s Supply Chain

Direct Shipment
Mother
Board

Dell Assembly Customer wants

Hard Disk Plant to buy Computer
.

r
de
.

Or
r’s
.

me
sto
RAM

Cu
Website or
Phone
Supply Chain Processes
Objectives of SCM

1. To improve customer response.

2. To improve product quality.
3. To reduce Lead-time of manufacturing,
transportation, information flow.
4. To reduce inventory cost.
5. Better demand forecasting.
6. To synchronize the information flow with the
demand of buyer.
7. To select the Suppliers and Distributors.
8. To outsource globally.
9. To measure the performance of Supply Chain.
10. To implement On-line marketing and e-
Business.
 Supply Chain Uncertainty
 One goal in SCM:
– respond to uncertainty in
customer demand without
creating costly excess
inventory
 Negative effects of
uncertainty
– lateness
– incomplete orders
 Inventory
– insurance against supply
chain uncertainty
 Factors that contribute to
uncertainty
– inaccurate demand forecasting
– long variable lead times
– late deliveries
– incomplete shipments
– product changes batch ordering
– price fluctuations and discounts
– inflated orders
 Bullwhip Effect

TThhee mmaaggnnific
ificaatio
tionn ooff vvaaria
riabbility
ility in
in oord
rdeers
rs in
in th
thee ssuupppply
ly--
cchhaain
in

R etailer’s O rd ers W h olesaler’s O rd ers M an u factu rer’s O rd ers

Q u an tity

Q u an tity
O rd er

Q u an tity

O rd er
O rd er
Ti m e Tim e T im e

AA lolott ooff ……ccaann le leaadd to

to ……ccaann leleaadd to
to
re
retataile
ilers
rs eeaacchh ggre
re a te r va riabbility
a te r v a ria ility eeve n g re a te r
v e n g re a te r
wwith
ith little
little fo
forr aa fe
fewweerr nnuum mbbeerr vva
a ria
riabbility
ility fo
forr aa
vva
a ria
ria bility
b ility in
in ooff wwhhoole lessaale
lers
rs, , ssin
inggle
le
th
th e ir o rd e rs…
e ir o rd e rs …. . aanndd…… mm a n ufa
a n u facctu
ture
rer.r.

© T h e M cG ra w -H ill C o m pa n ies, In c., 2 0 0 4

 Emerging issues in
Supply Chain Management

Vendor Managed Inventory (VMI):

In this case, Supplier decides on the
appropriate inventory levels of each
product and the inventory policies to
maintain these level. e.g. Campbell soup,
Maruti, Tata Motors, LG etc.

Third Party Logistics (3PL):

It is simply the use of outside company to execute
part or complete material management and product
distribution function of a firm.
Emerging issues in
Supply Chain Management
(Continued…)
Outsourcing:

It means handing over certain logistics related activities to

another company. Outsourcing ensures strategic growth, adding
technological strength, and improving market access.

Outsourcing is defined as the act of moving

a firm’s internal activities and decision
responsibility to outside providers
Risk pooling:
It mainly involve the concept of centralized warehousing.
Centralized warehousing reduces safety stocks and average
inventory in the system. This is clear from the argument that in
case of unequal demand reallocation of inventory is easier
from a central warehouse. The higher the coefficient of
variation, the greater the advantage in keeping a central
warehouse.
Emerging issues in
Supply Chain Management
(Continued…)
Reverse Logistics:
Flow of product at the end of its life from customer to
manufacturer for reprocessing.

Cross Docking
Warehouse works as only coordinating point in a
supply chain the product directly shipped to
customer
Mass Customization
Definition
 Mass customization is a term used to
describe the ability of a company to
deliver highly customized products and
services to different customers

 The key to mass customization is

effectively postponing the tasks of
differentiating a product for a specific
customer until the latest possible point in
the supply-chain network
 E-Procurement

 Direct purchase from suppliers over the Internet

 E-marketplaces
– web sites where companies and suppliers conduct
business-to-business activities

 Reverse auction
– a company posts orders on the Internet for
suppliers to bid on
Online Sourcing/
Procurement Process
Online Sourcing/
Procurement Process (cont.)
Online Sourcing/
Procurement Process (cont.)
Source: Adapted from Garrison Wieland for “Wal-Mart’s Supply Chain,”
Harvard Business Review 70(2; March–April 1992), pp. 60–71.
 Transportation

 Rail
– low-value, high-density, bulk
products, raw materials, inter-
modal containers
– not as economical for small
loads, slower, less flexible than
trucking
 Trucking
– main mode of freight transport
in U.S.
– small loads, point-to-point
service, flexible
– More reliable, less damage than
rails; more expensive than rails
for long distance
 Transportation (cont.)

Air
– most expensive and fastest, mode of freight
transport
– lightweight, small packages <500 lbs
– high-value, perishable and critical goods
– less theft
Package Delivery
– small packages
– fast and reliable
– increased with e-Business
– primary shipping mode for Internet
companies
 Transportation (cont.)

Water
– low-cost shipping mode
– primary means of international shipping
– U.S. waterways
– slowest shipping mode
Inter-model
– combines several modes of shipping-truck,
water and rail
– key component is containers
Pipeline
– transport oil and products in liquid form
– high capital cost, economical use
– long life and low operating cost
5 Global Logistics Management

• Challenges for logistics managers

• Global distribution strategies
• Logistics intermediaries and facilitators
• objectives of logistics outsourcing
• Steps for logistics outsourcing
• Selection criteria of third party logistics provides.

27
Challenges for logistics managers:

Management’s challenge is to evaluate the environmental and

cultural make-up of each prospective market and then develop
a logistics system that will meet what may be radically
different customers’ needs. Extended supply chains, multiple
languages, different channel members, distinct regulations, and
a myriad of cultural factors all combine to make the entire
logistics process much more complex than managers may be
used to.

28
 Global distribution strategies

• Exporting:
Exporting occurs when the firm engages the services of a
middleman to sell its products overseas. This middleman may
simply buy the goods from the manufacturer directly, then resell
them in some attractive market of formers’ choosing.
Alternatively, the intermediary may act as a broker, searching for
a foreign buyer and putting them in contact with the seller.

(Continued…)
29
Advantages:
• There are usually no monatory or contractual ties in
foreign market.
• Management can terminate the effort quickly if
sales do not materialize.
• Risk is minimum.

Disadvantages:
• Managers have very little control over how their
product is handled.
• Markets, pricing, promotion, and distribution are all
determined by the middleman.
• Licensing:
Licensing is a strategy that provides a bit more control
over the marketing process without a substantial increase in
risk. With a license, a company in one country permits a firm in
another to make a product, utilize a recipe, or employ some
other process that belong to the first party.

Limitation: The licensee always has the potential of

becoming a competitor.

(Continued…)
31
• Joint Ventures:
Joint ventures occur when one company buys an
ownership interest in another firm. The investor can now
exert much more control via direct managerial input
owing to its financial partnership. Joint Ventures also allows
the investing firm to utilize the specialized skill of its local
partner as well as have immediate access to a local
distribution system.
Limitations: Risk is higher and flexibility is lower
because of equity position has been established in the
partner.
• Ownership: ownership of a foreign subsidiary provides a
firm the highest degree of control over its international
marketing effort, but with higher levels of risk.

Advantage:
• Ownership offers total control, permitting management to
operate without the need to accommodate a partner.
• Customs duties and other import taxes may be eliminated
since the subsidiary is, for all intents and purposes, a
domestic entity in that country.

33
Disadvantages:
• Flexibility is lost because the firm has made a
long-term commitment to the foreign market.
• There is always some risk of government
nationalization of foreign-owned business.
Logistics intermediaries and facilitators

• International freight forwarders focus primarily on

arranging international transportation. Their task is to
combine many small shipments into a single large one
that then qualifies for a lower transportation rate.
• Non vessel-owning common carriers (NVOCCs) specialized
in less-than container load ocean shipment and perform
some of the same functions as ocean freight forwarders.
Unlike freight forwarders, who usually act as a shipper’s
agent, NVOCCs are common carriers utilizing containers
rather than vehicles or vessels. In fact, freight forwarders
can be NVOCC’s biggest customers. An NVOCC takes the
shipments form freight forwarders and combine them with
other goods going to same place.
(Continued…)
35
• Export management companies (EMCs) are used when a
firm wishes to shell its products in a foreign market but
lacks the resources or expertise to conduct the business
itself. EMCs function like external export departments,
acting as agents for domestic firms in overseas markets by
either selling a product themselves or taking orders for
their clients’ products.
• Export trading companies are in business of exporting
goods and services. They locate overseas buyers and handle
most of the export arrangements, including documentation,
inland and overseas transportation, and the meeting of
foreign government regulations. In essence, they attempt to
combine all facets of international business: sales, finance,
communications, and logistics. Ex: Sogo Shosha of Japan

(Continued…) 36
• Export packers supply packaging service for overseas
shipments when the shipper lacks the equipment or
expertise to do it itself. The benefits of these intermediaries
are adequate protection for the product and compliance
with all packaging regulations throughout the channel. In
the first instance, the length and complexity of the channel,
transit time, and the sophistication of the entire logistics
system must be considered.

• Customs brokers shepherd goods through the customs

process. They ensure compliance with all local laws, that
documentation is correctly completed, and that any
disputes that may arise are resolved quickly in as favorable
a manner to the shipper as possible. Together with the
variety of customs procedures, restrictions, and
requirements that differ in each country, the job of
facilitating export shipments across international borders
requires a specialist- the customs broker.
37
Objectives of logistics outsourcing

• Improved strategic focus

• Lowered cost
• Easier market expansion
• Increased flexibility

38
Steps for logistics outsourcing

1. Know where you want to go.

2. Clarify your needs and objectives.
3. Select best fit based on your most important criteria.
4. Make sure both sides are clear about service requirements.
5. Have an implementation Plan.
6. Ensure complete support from upper management.
7. Have open and honest communication Channel.
8. Plan an exit strategy.
9. Have consistent checkpoint meetings.
10. Maintain the open communications initially established.

39
3PL Functions

• Transportation
• Warehousing
• Freight consolidation and distribution
• Product marking, labeling, and packaging
• Inventory management
• Traffic management and fleet operations
• Freight payment and auditing
• Cross docking
• Product returns
• Order management
• Carrier selection
• Rate negotiation
• Logistics information systems 40
3PL selection Criteria

• Cost of service
• Quality of service
• Compatibility
• Long-term relationships
• Reputation of the company
• Performance measurement
• Willingness to use logistics manpower
• Flexibility
• Quality of management
• Information sharing and mutual trust
• Information technology capability
• Experience in similar products
• Financial performance
• Geographical spread
• Range of service provided
• Risk management 41
Now, Fire Your Questions.