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5/30/2009

Kiran Afshan, Huma Naz | MBA –ITM 13


Table of Contents
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1 Organization Portfolio 3
2 Literature Survey 13
3 An Introduction to Supply Chain and Supply 26
Chain Management
4 Supply Chain of Pepsi Haidri Beverages 80
5 Ideal Features of a Supply Chain Management 100
Software
6 Supply Chain Management Systems and the 129
Current Marketplace
7 Proposed System for Pepsi Haidri Beverages 167
8 Limitations and Future Recommendations 186
Chapter 1

Organization
Portfolio
Chapter 1

Organization Portfolio

Haidiri Beverages Private Limited, Pakistan

The Haidiri Beverages Group was set up in 1979 and is Pepsi's sole selling agent for
District Rawalpindi and Islamabad. It is based in the CDA Industrial Triangle, Kahuta
Road, Islamabad. It manages the supply for several wholesalers, retailers, restaurants,
hotels and other such food outlets. In order to achieve the projected sales targets
effectively, the organization ensures a comprehensive strategic alignment with the
overall Pepsi Cola’s business strategy. Haidiri Beverages’ primary functions are to
conduct a systematic manufacturing and supply of the product without any tactical
flaws. Backed by a powerful competitive strategy and empowered by some effective
supply chain strategies, the group has been managing an effective supply chain
throughout the region. It has set up a sophisticated manufacturing and storage plant in
Rawalpindi with multiple production units and huge production capacity. Haidiri
Beverages has different management departments dealing with specialized Marketing,
Human Resource, Information Technology and Supply Chain Processes. In this section
we conduct a brief analysis of the basic supply chain management functions of Haidri
beverages.

1.1 History of PepsiCo

PepsiCo is a world leader in convenient snacks, foods and beverages, with revenues of
more than $39 billion and over 185,000 employees. The company consists of PepsiCo
Americas Foods (PAF), PepsiCo Americas Beverages (PAB) and PepsiCo International
(PI). PAF includes Frito-Lay North America, Quaker Foods North America and all Latin
America food and snack businesses, including Sabritas and Gamesa businesses in
Mexico. PAB includes PepsiCo Beverages North America and all Latin American
beverage businesses. PI includes all PepsiCo businesses in the United Kingdom, Europe,
Asia, Middle East and Africa. PepsiCo brands are available in nearly 200 countries and
generate sales at the retail level of more than $98 billion. Some of PepsiCo's brand
names are more than 100-years-old, but the corporation is relatively young. PepsiCo
was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was
acquired in 1998 and PepsiCo merged with The Quaker Oats Company, including
Gatorade, in 2001.
PepsiCo offers product choices to meet a broad variety of needs and preference -- from
fun-for-you items to product choices that contribute to healthier lifestyles. PepsiCo’s
mission is: “To be the world's premier consumer “Products Company” focused on
convenient foods and beverages. We seek to produce healthy financial rewards to
investors as we provide opportunities for growth and enrichment to our employees, our
business partners and the communities in which we operate. And in everything we do,
we strive for honesty, fairness and integrity.” (www.pepsico.com)

1.2 PepsiCo Headquarters

PepsiCo World Headquarters is located in Purchase, New York. The seven-building


headquarters complex was designed by Edward Durrell Stone, one of America's
foremost architects.

1.3 Areas of Operation

Haidri Beverages is one among a number of PepsiCo’s franchisers all around the
country. Haidri Beverages, solely, have three branches in Pakistan located in
Islamabad/Rawalpindi, Gujranwala and Peshawar. All the franchises in Pakistan have
divided their area of distribution and the domain of each franchiser is restricted to their
area of operation. Not much of expansion is done since it might violate the domain area
of other franchisers. We will be dealing with the area covered by Haidri Beveravges
Islamabad.

Haidri Beverages deals with distributors residing in Islamabad/Rawalpindi district,


with its boundaries starting from Dina, Mirpur till Attock district.
1.4 Business Cycle of Pepsi Haidri Beverages

Figure 1 Business Cycle of Haidri Beverages [Source: Haidri Beverages Management]

The business cycle starts from forecasting customer demand for each product of
PepsiCo individually. According to the demand forecasted by the sales and distribution
department, the annual plan is prepared for the running year which is then further
divided into quarterly, monthly, weekly and daily basis and production plan is created.
For the production, the company needs raw materials, these raw materials include the
following:

1. Pepsi Concentrate
2. Sugar
3. Carbonated Water
4. Glass Bottles
5. PET bottles
6. Plastic in Raw Form
7. Packaging material
8. Crates
9. Cans
10. Bottle caps
11. … and many others
Much of the raw materials are acquired by local manufacturers. However, cans, Pepsi
concentrate, glass bottles etc. are purchased from manufactures that are:

1. Domestic but at distant location


2. Located in Foreign countries (New York, Dubai)
The purchased raw material is shifted immediately to store (in-house raw material
inventory) from where it is periodically issued to the production department for
processing in order to convert it into final product. As in company policy, the finished
product is immediately shifted to distributors and is stored there. Only safety level
finished product inventory is maintained by the company so as to comply with laws
enforced by Government to keep minimum level safety inventory.
A Territory Development Manager of the company is designated for each distributor for
monitoring further sales to retailers and consumers. This is a place where the exact
demand and supply ratio is measured and targets are defined. The distributor produces
information of actual sales (supply) to the customer which is an input to the company
as demand forecast which completes the business cycle of Haidri Beverages.

1.5 Organizational Workflow


The workflow of Pepsi Haidri Beverages starts from preparing the annual sales and
procurement strategy. This sales strategy is then divided into quarters, months, weeks
and days. On the basis on monthly sales, a target is defined for each distributor and
they are made aware of that target. The distributors accomplishing this target get
discounts and bonuses. Haidri Beverages doesn’t need to contact distributors or
retailers themselves since they have a predefined number of distributors and the
network needs no expansion. Each distributor is responsible for a specific area and the
other distributors are not allowed to enter in this domain.

According to the defined sales strategy, the production plan is prepared for the year
divided further into quarters, months, weeks and days. The daily or weekly production
plan is forwarded to production department. According to the production plan, the
production department makes a production schedule which is done on daily basis. The
production department makes a complete sketch of products to be produced and the
required raw materials and their quantity. These raw materials are requisitioned from
the inventory (store). The inventory control department is divided into two areas: store
management and warehouse management. The store mainly contains the raw material
which is required to produce the product as well as all the other raw materials required
for operations management throughout the organization. The warehouse stores the
finished product only. The organization keeps only the safety inventory in its
warehouse. A daily shipment of product is done to the distributors in order to fulfill
consumer demand.

In order to fulfill the demand of production department, the Purchase department


needs to procure raw material frequently. The suppliers are already chosen by the
company and contracts are given to those suppliers only. The company gives priority to
local suppliers so as to complete its business cycle efficiently and effectively.
Unfortunately, there are a number of items that are unavailable in local market and it
has to purchase these items from remote areas. These materials include cans, Pepsi
concentrate, sugar, nitrogen (liquid form), and others.

The purchased items are moved first to the store where the raw material is issued to
concerned department according to the requisition done. The finished product is moved
to warehouse where the shipment department is responsible for loading product to
vehicles for delivery to distributors. A small amount of finished goods inventory is kept
by the company as safety inventory.

The peak season when the demand is highest usually starts from May and continues till
September. During this period, the demand is fulfilled by making longer shifts and
utilizing the production equipment 24 hours a day.

The waste produced during manufacturing process is sold out to concerned parties. The
supply chain designed in this research will therefore follow the Lean Supply Chain
Management strategy.

The cash is collected by the finance department by hand. The company has not opted
for any credit or online credit-card sale as yet.

The manufacturing process is shown in the figure below:


Filling
PEPSI
Capping
Put
Put of
Carbonated
Liquidation
Filing
Syrup
Into crates
Bottles
Start
Concentrate
the
Process
and
Tank
of with
Filtering
Filling
inCoding
Sugar
Crates
through
Process
Machine
Process
24 Machine
2
bottles
1.5 Current IT Infrastructure

The company has partially automated its four (4) major business processes:

1. Sales Process
2. Accounting and Finance
3. Human Resource
4. Store and warehouse management

The details of these modules and how they help in the business processes is provided as
under:
Figure 2 Production process of beverages [Source: Pepsi Haidri Beverages Production Department]
1. Sales or Shipment Module
The sales module encapsulates all information regarding distributor data
management, key accounts management, sale (cash inflow) and shipment etc.
The distributor information is captured with regards to the area it is covering in
the local market, the location of the distributor, name, contact numbers, contact
persons etc. Key accounts are those retailers to which the company distributes
the product directly. This happens in the case of fountain fresh Pepsi products
which are delivered to the customer using the post-mix cylinders delivered by
company owned vehicles. Such customers include KFC, Pizza Hut, Savour Foods
and others. Sales are done on cash payments which are deposited in advance by
the distributor. The products are then shipped the distributor. Usually, the
distributors bring along their own vehicles to load the shipment. At the time of
sale, the data is saved in ERP sales module, the finance data (cash inflow) is
updated and a receipt is generated by the system called sales invoice.

The system keeps track of which distributor purchased what quantity and the
frequency of sales can also be captured. A daily sales report is generated by the
system which shows the distributor, units of product purchased, date of
purchase, the total amount and other key information. The company defines a
target sale for each distributor at the beginning of month. This target is defined
on the basis of previous sales history of the distributor which is managed by the
software. The reports generated by the system also provide the user with the
information of what percentage of the target has been achieved by the distributor
as yet. The distributor can be judged on this basis if he will be able o achieve the
set target or not.

The ERP system not only keeps track of the primary sales done to the distributor,
it also captures the secondary sale data provided by Territory Development
Managers (TDMs), the personnel designated by the company to monitor the
distributor sales (at distributor end) and to keep a check that a distributor does
not enter the domain of another distributor. The secondary sales data contains
information regarding distributor’s sale to retailers which is recorded in units per
day and does not actually contain information as to which retailer the product
was sold.

2. Financial Accounting module


Financial accounting module has a basic and limited functionality. It has two to
three main entry forms regarding insertion/deletion of accounts (chart of
accounts) and transaction entry. Any transaction taking place in the company
will be recorded here. The invoices (payment or receipt) is also created in the
same form. The form contained a category field where the category of
receipt/transaction is defined. The categories can be cash receipt, bank receipt,
payment invoice, sale invoice etc. A notable point is that the transaction is not
made automatically when a sales transaction takes place. This could be rightly so
as the cash payment is received directly from the distributor by the finance
department, but it can create a logical error since the transaction is not done in
correspondence to the sales transaction.

The reports generated the system include trial balance, balance sheet, income
statement and other basic financial statements.

3. Inventory Management
It is also a limited-functionality module which only records how much items are
produced today. This entry is done at the end of the day and still there is
confusion about what actually is inserted in the system since the total
manufactured amount is reduced at the end of the day due to sales transaction
and the corresponding batch numbers or lot numbers are not recorded in sales
module.

The system still supports the inventory control system since it contains up-to-
date information regarding the finished product available in the warehouse only
and also the store data which contains information of raw materials. The stock-in
and stock-out is also updated whenever requisition is made from the production
department for the raw material used for production.

4. Human Resource Management module


Human Resource Management module has proved to be very handy when it
comes to daily attendance and payroll calculations. The system automatically
generates a bar code when a new employee is added in the HRM module. On the
basis of this bar code, employee gets a printed card. Whenever an employee
comes in or goes out, he scans his card against the bar-code reader placed at the
entry gate of the company and the time-in and timeout of instantly updated by
the system. A monitory report is also flashed on manager’s screen which is
updated every 5 seconds. This shows a complete list of employees coming in and
going out. The system contains a descriptive employee record and employee
leaves are also managed by the system. It shows how much leaves of which
category (casual leave, paid leave, sick leave etc.) has been acquired by each
employee as yet.

The payroll of employees are calculated automatically including overtimes,


deductions (for late arrivals and extra leaves), bonuses, allowances etc. and a pay
slip is generated by the system.

In order to support the ERP system and network as a whole, the following hardware
configuration has been adopted by the MIS department:

• Full LAN support, using domain server, switches, boosters and other network
equipment
• Internet facility is provided to all users
• 1 oracle database server, 1 application server, Linux server (for network
management), and a print server
• Requisition for a backup database server has already been placed
• The network facilitates almost 50-60 users around the organization
The system, collectively, has proved to be very beneficial for the employees and
managers at Haidri Beverages and the employees seem to be satisfied over the system’s
performance. Further enhancements are done at frequent basis in order to facilitate the
company’s management and human resource to perform their tasks in a much better
way.
Chapter 2

Literature Survey
Chapter 2

Literature Survey
2.1 Article: How should we define SCM?

Author :Sree Hameed

Created on: 11 April 2007

In the early years of SM it is considered to breaking down the walls but now the concept
is change it not breaking down the walls but rearranging the walls. SCM helps to
achieve CEO agenda. Professional organizations try to provide knowledge of SCM.

This figure helps to understand the process of business

Figure 3Business processes in a supply chain [Source: Sree Hameed, 2007]

Through this figure we get overview of business and understand how actually it makes
money. The purpose is to see the bigger picture and creating value to enterprise and not
stuck into conflicts and debates.

2.1.1 Customer (the why)


Customers are those who take the initial step in order to get the product. Company
current and future strategies around which product to build, assets to own, which
market to enter or serve these all things depend on customer needs and requirement.
2.1.2 Product (the what)
As the product become obsolete more innovation and creativity is required in order to
satisfy customer need. But to meet innovation, profitability requires engineering. There
is a gap between actual and desired and this gap will lead to the profit leaks.

Figure 4 Product leaks [Source: Sree Hameed, 2007]

Profit leaks also provide the opportunity for product and process innovation.

2.1.3 Process (the how)


Seven core processes are design, source, make, move, store, sell and service.
Management takes decision regarding to process. The decision based on three groups
i.e. strategic, tactical, execution.

2.1.4 People/Partner (the who)


Customer demanding better, faster and cheaper which increase the product complexity
and this leads to complexity in supply chain. Companies try to achieve flexibility and
responsiveness. Outsource some process or function to the partners who have more
competencies in specific area. Processes are shared and collaborate and coordinate with
partners. When environment is very dynamic it is very difficult to go alone. Life cycles
of products are shrinking faster as compare to lifecycle of the assets used to produce the
product this will lead the organization where they have very little choice and they are
less adaptive to assets.
2.2 Article: Supply Chain Management
Author: M. Eric Johnson

SCM is flow of information, funds and material from supplier to producer and then to
distributor and ultimately to consumer but it also includes after sale service. SCM
involves the coordination of material and information between firms but inventory
management coordinates with inventories at different locations.

SCM is famous in recent years for a number of reasons. Action taken by one person of
the firm can influence others profitability in the chain. But nowadays firms compete
with other supply chain as a part of supply chain. So as a firm successfully streamlines
its operation, the next step for improvement is coordination with their suppliers and
customers.

In the Italian pasta industry, the demand of consumer was stable throughout the year
however because of trade promotions, volume discounts, long lead times and end of
quarter sales incentives the order seen at the manufacturers are highly
variable(Hammond 1994).So it lead that to a Bull Whip effect.

Some managers are more interested in integration but it is impossible to implement a


system oriented approach without information technology. Supply chain should be
viewed as an integrated system Forrester (1958); Forrester (1961).Change in
management theory and technology set the stage of supply chain management. One of
the reasons of change in mgmt theory means the shift of power from manufacturers to
retailers.

Information technology and retail power are the key catalysts in SC. E-business is
playing an important role and is facilitating the virtual supply chain
Figure 5 Supply Chain Process [Source: M. Eric. Johnson (1999), Supply Chain Management]

2.2.1 Key components of supply chain management


According to the author, there are twelve key components of a supply chain
management system:

1. Location
2. Transportation and Logistics
3. Inventory and forecasting
4. Marketing and channel restructuring
5. Sourcing and supplier management
6. Information and electronic mediated environments
7. Product design and new product introduction
8. Service and after sales support
9. Reverse logistics and green issues
10. Outsourcing and strategic alliances
11. Metrics and incentives
12. Global issues
Location includes both qualitative and quantitative facility location. This includes
models of facility location, geographic information systems (GIS),country differences,
taxes and duties, transportation costs associated with certain locations, and government
incentives (Hammond & Kelly (1990)).Transportation and logistics includes all the
issues which are related to the flow of goods through the supply chain including
transportation, warehousing and material handling. Inventory and forecasting includes
traditional inventory and forecasting models. Marketing and restructuring includes the
basic thinking on the on SC structure (Fisher 1997) and it includes the interfaces with
marketing. Bull whip effect has received many attentions in the research literature. But,
increased in consumer demand through the EDI and the internet can decrease the Bull
whip effect. Other initiatives can also mitigate the bullwhip effect. For example, changes
in pricing and trade promotions (Buzzell, Quelch, &Salmon (1990)) and channel
initiatives, such as vendor managed inventory (VMI), coordinated forecasting and
replenishment (CFAR), and continuous replenishment (Fites (1996), Verity (1996),
Waller, Johnson, & Davis (1999)), can significantly reduce demand variance.

Figure 6 Typical VMI impplmentation [Source: M. Eric Jonhson (1999), Supply Chain Management]
Marketing focuses downstream in the supply chain, whereas sourcing and supply
management focuses on upstream to suppliers. Information and electronic mediated
environments focuses on application of IT to reduce inventory (Woolley (1997) and the
expanding area of e-commerce (Benjamin & Wigand (1997) and Schonfeld (1998)).

The sale and after sale support addresses the critical problem of providing service and
service parts (Cohen and Lee (1990). Reverse logistics and green issues are emerging
dimensions of supply chain management (Marien (1998)).

Figure 7 Product recovery options [Source: M. Eric Johnson (1999), Supply Chain Management]

Outsourcing and strategic alliances sees the SC impact of outsourcing. With the rapid
growth in third party logistics providers, there is a large and expanding group of
technologies and services to be examined. These include fascinating initiatives such as
supplier hubs managed by third parties. Metrics and incentives include organizational
and economic issues. This category includes both measurement within the supply chain
(Meyer (1997)) and industry benchmarking ((1994), (1997)).Final one is global issue
when a company operates in foreign multiple country. When a company operates in
foreign country then tax rate, duties and currency exchange rate and govt. issues
matters a lot.
2.3 Article: Artificial Intelligence in Supply Chain Management - Theory
and Applications

Author: Hokey Min


2.3.1 Purpose:
The purpose of this article is to promote the AI for improving human decision-making
processes in supply chain management and the organization productivity in various
business areas due to its ability for recognizing business potential and pattern, using
relevant information, and analyses data accurately.
2.3.2 Design/Methodology/Approach:
This paper covers the explanation of the AI based SCM system .Despite its widespread
acceptance as a decision making tool, AI has seen limited application in supply chain
management (SCM). To fully explain the potential benefits of AI for SCM, this paper
explores various sub-fields of AI that are most suitable for solving practical problems
relevant to SCM. This article reviews the past record of success in AI applications to
SCM and identifies the most suitable areas of SCM in which to apply AI.
2.3.3 Findings /Objectives:
The main objectives of this article are to identify the sub-fields of AI that are most
suitable for SCM applications and their usefulness for improving SC efficiency,
analyzing the existing literature dealing with the applications of AI to SCM ,to develop
a taxonomy for the existing AI literature and categories it according to its SCM
application areas, problem scope, and methodology, to identify the potential SCM
application areas that have not been explored and discuss the future trends for AI in
SCM.
2.3.4 Review:
Hokey Min (2009) described about the role of artificial intelligence in supply chain
management system. AI use computers for reasoning, identifying business pattern, use
past experience for forecasting and making decision for present problems. Hockey Min
use existing literature for explaining AI and its applications that are used in many
fields. Although AI is used in many fields of decision making but SCM is not fully used
the benefits of AI. He categorized the existing literature into three classes’ problem
scope, methodology and the implementation status. He described the role of AI in sub
units of supply chain like Inventory control and planning, transportation network
design, Purchasing and supply management, Demand planning and forecasting, Order-
picking problems, Customer relationship management and e-synchronized SCM. So it
is concluded that AI tools has great potential for solving many strategic issues
involving CRM, outsourcing relationships, strategic alliances among SC partners, SC
coordination, collaborative demand planning, and business-to-business negotiations.
Another finding is that an agent-based system has emerged as one of the most popular
AI tools for tackling various aspects of SC problems. However AI has some limitations
like AI does not have free will and depends on the computer software which may be
programmed incorrectly and AI solutions may not be easy to implement.
2.3.5 Reference:
Author: Hokey Min
Affiliation: Management, College of Business Administration, Bowling Green State
University, Bowling Green, OH, USA
Publication Frequency: 6 issues per year
Published in: International Journal of Logistics Research and Applications
First Published on: 24 March 2009

2.4 Article: A Collaborative Supply Chain Management

Part 2 – the hybrid KB/gap analysis system for planning stage


The Authors
Zulkifli Mohamed Udin, Faculty of Technology Management, Universitiy Utara Malaysia,
Kedah Darul Aman, Malaysia
Mohammad K. Khan, School of Engineering, Design and Technology, University of Bradford,
Bradford, UK
Mohamed Zairi, School of Management, University of Bradford, Bradford, UK
2.4.1 Purpose – The purpose of this paper is to promote the model of knowledge-based
collaborative supply chain management (KBCSCM) system as an alternative strategy
for organizations to resolve the problems in their current supply chain management
(SCM) in the era of collaborative commerce.
2.4.2 Design/methodology/approach – This paper covers the explanation of the
KBCSCM system and the utilization of the GAP analysis technique, which is integrated
in the knowledge-based system (KBS). Through this technique, the current position of
organizations’ can be identified before implementation of some improvement programs.
2.4.3 Findings – This paper has described a hybrid KB/GAP analysis CSCM system for
application in organizations, specifically for manufacturing environment. The valid,
practical and consistent solutions that are provided by KBCSCM system would assist
organizations in implementing CSCM as a strategy.
2.4.4 Originality/value – This paper describe the use of KB approach in the SCM
environment. A systematic planning of CSCM has not been developed before and the
development of the KBCSCM system is believed to be crucial in order to improve the
competitiveness of the organization’s SCM. So that users can be able to easily
understand the position of their organization.
2.4.5 Review

Udin, khan & Zairi describes in this paper the hybrid KB/GAP analysis Collaborative
Supply chain management system for manufacturing organization. Knowledge base
system is the information system application those support organization in decision
making. The use of KBS application in the SCM is mostly use in area of procurement;
purchasing, supplier selection and evaluating supplier performance. The use of
knowledge base approach in SCM and systemic planning and design of CSCM improve
the competitiveness of organization. This paper presents the idea to develop
collaborative supply chain management. This paper promotes CSCM as a strategy and
eliminates disintegration in Supply chain. CSCM based on GAP analysis enable
management to identify firm performance. In this paper the production rule based type
of KBS is used to structure the information that is gathered from literature and from
users. All modules are developed separately and integrated using phase technique.
Trust among parties in SCM, communication, resources sharing, responsibility, profit
and risk sharing, technology, business processes adjustment and other issues are taken
as a basic guideline to develop CSCM system in this paper. This system enables users to
use the knowledge that reside in the system. The GAP analysis technique used in rule
based structure show the organization position.
In this paper the prototype of KBCSCM system for the planning stage has been
developed and tested using artificial data. Three modules of planning are organization
environment perspective module, Collaborative business perceptive module and
external-internal chain perspective module. In organization environment perceptive
module gather the general information like company background, number of
employees, type of industry, SCM investment activities etc. Purpose of this module is to
identify the current condition of organization and its environment. The purpose of
collaborative supply chain perspective module is to show current market position and it
has tree sub modules: financial performance, market analysis and product
development. Product development phase measure the interest of suppliers and
customers in product development activities. Internal-external chain perspective
module consist two sub modules internal function strategy and supplier customer
strategy. The function of this module is to understand the current market position based
on internal-external relationship based on some variables such as commitment,
integration, trust development, relationship management, information and
communication and etc.
Udin Z.M, Khan .M.k & Zairi. M (2006). A collaborative supply chain management. The
hybrid KB/GAP analysis system for planning stage, Business Process Management journal,
Vol. 12, No. 5, 671-687
2.5 Article: The Internet-Enabled Supply Chain: From the “First Click”
to the “Last Mile”
Author: Dr. David L. Anderson, Anderson Consulting

Dr. Hau L. Lee, Stanford University

2.5.1 Purpose:
The purpose of this article is to study how the internet has changed the way in which
supply chains are managed, planned and controlled. The authors state that the web
offers the supply chain enormous potential and entirely new methods for streamlined
coordination between business partners, including third and even fourth-party
providers. The authors further state that companies who want to succeed in the new
economy need to enhance communications with their partners and providers.

2.5.2 Review

The internet has provided companies a wide range of opportunities to create value.
Using the internet to connect the supply chain systems to all the other supply chain
participants becomes the medium through which the essential processes of managing
and synchronizing supply chains are carried out. The reason why the change in supply
chains, by shifting them over to internet, is so certain is, firstly, that the customers are
looking beyond cost as the sole arbiter of value. They demand innovation and
personalization of not only the products but of the associated velocity of the supply
chain issues exponentially and yet at the same time requires greater flexibility.

How will the Internet-enabled supply chain be different from the traditional supply
chain? The authors believe there are some key areas that distinguish the new Internet-
enabled supply chain from the traditional supply chain. These areas and issues are
discussed by the authors as follows:

2.5.2.1 e-Design – Product Innovation on the Web

The authors have identified the following key benefits of an eSCM:-


• Shorter time-to-market, enabled by collaborative design
• Internet-enabled technology provides real-time linkages between key suppliers,
manufacturers, engineers and marketers
• The ability to conduct collaborative design means that companies can iterate
many more design alternatives with suppliers
• Product upgrades can also be achieved more effortlessly and in a timely manner,
enabling companies to stay ahead of their competition
• The revenue and profit impacts are enormous
• Enhanced communication and collaborative processes overcome many of the
organization silo issues faced in traditional sequentially oriented design activity
• Products can be rolled out faster
• The risks of customer needs shifting during development are mitigated
• Increased collaboration throughout the design process can minimize product
complexities that later drive supply chain inefficiencies and costs in production,
logistics and service parts.
Figure 8 E-Design of SCM [Source: D.L. Anderson, 2000]

2.5.2.2 e-Mediaries and Exchanges – Using Online Markets to Revolutionize Buying


and Selling

The marketplace, according to the authors, is being reinvented. Companies can now
buy and sell across a wide spectrum of emerging Internet-enabled marketplaces. Like
traditional marketplaces, trading networks may take many forms. In the supplier-
centric model, like W.W. Grainger, sellers provide their catalogs online for all buyers to
access. Global companies like BP Amoco are utilizing the buyer-centric model to display
their needs online and allow vendors to make bids.
The latest development is online marketplaces – the business-to-business equivalent of
eBay. These marketplaces are like online bazaars, where anyone can buy or sell all types
of goods and services. Each of these various exchanges provides companies with unique
opportunities to tap into performance and cost benefits unavailable prior to the Internet.
Regardless of the type of marketplace, the benefits are many: lower product acquisition
costs, lower procurement transaction costs, the ability to tap into almost unlimited
supply sources to respond to changing market needs, and a means to profitably dispose
of unused excess inventory.
References:

Anderson D.L., Lee H.L. (2000), Internet-Enabled Supply Chain: From the “First Click”
to the “Last Mile”, Acset, vol. 2 [online] Available at:
http://www.ascet.com/documents.asp?d_ID=199
Chapter 3

An Introduction to
Supply Chain &
Supply Chain
Management
Chapter 3

An Introduction to Supply Chain

&

Supply Chain Management


Up till recently, companies did not think in terms of supply chains, but viewed
themselves and their trading partners as independent islands. Sellers at times struggled
to keep up with demand, while buyers purchased goods for which they could pay,
barter or obtain credit. Economic and competitive pressures eventually forced
companies to think in terms of supply chains for the production and delivery of goods.
For this reason, the material or physical supply chain was born.

With the advancement of business processes, supply chain gained more and more
importance for each member of business community including manufacturers, retailers,
suppliers, suppliers’ suppliers and even consumer. Strategies were developed in order
to accelerate product sales and distribution. With the expansion of sales from areas to
cities and cities to countries, the need arose for proper tracking of demand and supply
as well as forecasting of materials, supplies, sales and distribution schemas. After the
emergence of Information Technology and business globalization, the concept of
integrated supply chain management was revolutionized. Information technology
consists of the tools used to gain awareness of information, analyze this information,
and execute on it to increase the performance of the supply chain.

3.1 What Is a Supply Chain?


A supply chain consists of all parties involved, directly or indirectly, in fulfilling a
customer request. The supply chain includes not only the manufacturer and suppliers,
but also transporters, warehouses, retailers and even customers themselves. Within each
organization, such a manufacturer, the supply chain includes all functions involved in
receiving and fulfilling a customer request. These functions include, but are not limited
to, new product development, marketing, operations, distribution, finance and
customer service.
Supply chain activities transform natural resources, raw materials and components into
a finished product that is delivered to the end customer. In sophisticated supply chain
systems, used products may re-enter the supply chain at any point where residual value
is recyclable. A typical supply chain begins with ecological and biological regulation of
natural resources, followed by the human extraction of raw material and includes
several production links, for instance; component construction, assembly and merging
before moving onto several layers of storage facilities of ever decreasing size and ever
more remote geographical locations, and finally reaching the consumer.

Figure 9 Information, Funds, and Product flow in SCM [Source:


http://dspace.mit.edu/bitstream/handle/1721.1/39816/ESD-260JFall2003/OcwWeb/Engineering-Systems-
Division/ESD-260JFall2003/CourseHome/index.htm]

Consider a customer walking into a Wal-Mart store to purchase detergent. The supply
chain begins with the customer and his or her need for detergent. The next stage of this
supply chain is the Wal-Mart retail store that the customer visits. Wal-Mart stocks its
shelves using inventory that may have been supplied from a finished-goods warehouse
or a distributor using trucks supplied by a third party. The distributor in turn is stocked
by the manufacturer (say Proctor & Gamble [P&G] in this case). The P&G
manufacturing plant receives raw material from a variety of suppliers, who may
themselves have been supplied by lower-tier suppliers. For example, packaging
material may come from Tenneco packaging, while Tenneco receives raw material to
manufacture the packaging from other supplier. This supply chain is illustrated as
follows:-

Figure 10 Wal-Mart SCM Process [Source: Supply Chain Management System by Sunil Chopra &Pete
Meindl]

A supply chain is dynamic and involves the constant flow of information, product and
funds between different stages. In the above example, Wal-Mart provides the product,
as well as pricing and availability information, to the customer. The customer transfers
funds to Wal-Mart. Wal-Mart conveys point-of-sales data as well as replenishment
orders to the warehouse or distributor, who transfers the replenishment order via trucks
back to the store. Wal-Mart transfers funds to the distributor after the replenishment.
The distributor also provides pricing information and sends delivery schedule to Wal-
Mart. Wal-Mart may send back packaging material to be recycled. Similar information,
material, and fund flows take place across the entire supply chain.

A typical supply chain may involve a variety of stages. These supply chain stages
include:

Customers
Retailers
Wholesaler/distributors
Manufacturers
Component/raw material suppliers
Each stage in a supply chain is connected through the flow of products, information,
and funds. These flows often occur in both directions and may be managed by one of
the stages or an intermediary. Each stage need not be present in a supply chain. The
appropriate design of supply chain depends on the customer’s needs and the roles
played by stages involved.

3.2 The Objective of a Supply Chain

The objective of every supply chain should be to maximize the overall value generated.
The value a supply chain generated is the difference between what the final product is
worth to the customer and the costs the supply chain incurs in filling the customer’s
request. For most commercial supply chains, value will be strongly correlated with
supply chain profitability (also known as supply chain surplus), the difference between
the revenue generated from the customer and the overall cost across the supply chain.
Supply chain profitability or surplus is the total profit to be shared across all supply
chain stages and intermediaries. The higher the supply chain profitability, the more
successful is the supply chain. Supply chain success should be measured in terms of
supply chain profitability and not in terms of profits at an individual stage.

Many of the exchanges encountered in the supply chain will therefore be between
different companies who will seek to maximize their revenue within their sphere of
interest, but may have little or no knowledge or interest in the remaining players in the
supply chain. More recently, the loosely coupled, self-organizing network of businesses
that cooperates to provide product and service offerings has been called the Extended
Enterprise.

3.3 Supply Chain Management (SCM)

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 end customers. 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. In other words, SCM is a cross-functional inter-enterprise system that
uses information technology to help support and manage links between some of a
company’s key business processes and those of its suppliers, customers, and business
partners.

Supply chain management has generated much interest in recent years for a number of
reasons. Many managers now realize that actions taken by one member of the chain can
influence the profitability of all others in the chain. Firms are increasingly thinking in
terms of competing as part of a supply chain against other supply chains, rather than a
single firm against other individual firms. Also, as firms successfully streamline their
operations, the next opportunity for improvement is through better coordination with
their suppliers and customers. The cost of poor coordination can be really high. The
figure below illustrates an example of a supply chain network and how closely each
partner is linked to one another in order to fulfill the demand and supply process:-

Figure 11 An example of SCM Process

3.4 Goal of Supply Chain Management


Goal of SCM is to efficiently manage process bifurcating demand, controlling inventory,
enhancing the network of business relationships a company has with customer,
suppliers, distributors and others, and receiving feedback on the status of every link in
the supply chain. The goal of SCM is to create a fast, efficient, and low cost network of
business relationships, or supply chain, to get a company’s products from concept to
market.
Supply Chain Management is one of the most important strategic aspects of any
business enterprise. Decisions must be made about how to coordinate the production of
goods and services, how and where to store inventory, whom to buy materials from,
and how to distribute them in the most cost-effective, timely manner.

3.5 The Bullwhip Effect

In the Italian pasta industry, consumer demand is quite steady throughout the year.
However, because of trade promotions, volume discounts, long lead times, fully-
truckload discounts, and end-of-quarter sales incentives the orders seen at the
manufacturers are highly variable. In fact, the variability increases in moving up the
supply chain from consumer to grocery store to distribution center to central warehouse
to factory, a phenomenon that is often called bullwhip effect.

Figure 12Bullwhip Effect in Supply Chain [Source: http://knowscm.blogspot.com/2008/02/bullwhip-effect-in-


supply-chain.html]

The costs of this variability are high – inefficient use of production and warehouse
resources, high transportation costs, high inventory costs, to name a few. Acer Inc.
sacrificed $20 million in profits by paying $10 million for air freight to keep up with
surging demand, and then paying $10 million more later when that inventory became
obsolete. The bullwhip effect phenomenon has been observed in many different
industries and occurs whenever demand uncertainties and variability become
magnified at each link in the supply chain. It’s one of the most important causes of
inefficiency in a supply chain.

Order Quantity

Manufacturer’s Orders to Wholesaler’s


Supplier Orders to
Manufacturer

Retailer’s Orders to
Wholesaler

Figure 13 Bullwhip Effect in supply chain [Source: http://knowscm.blogspot.com/2008/02/bullwhip-effect-in-


supply-chain.html]

3.6 Supply Chain Infrastructure

The supply chain involves both internal and external supply chain operations. The
suppliers and customers both are inter-linked to the manufacturing organization. The
internal supply chain involves sequential links of the purchasing, production and
distribution department. The purchases department of a company is directly linked to
the suppliers of that company to purchase materials is raw, semi-finished or finished
form. After these materials are purchased, they are passed on to the production
department to covert this material into finished product. This finished product is
forwarded to distribution department for the distribution of finished goods to retailers
and ultimately, to the customers.
Figure 14 Supply Chain Process [Source:
http://en.wikipedia.org/wiki/File:A_company%27s_supply_chain_(en).png]

3.7 Extended Supply Chain

The extended supply chain is a clever way of describing everyone who contributes to a
product. So if you make text books, then your extended supply chain would include the
factories where the books are printed and bound, but also the company that sells you
the paper, the mill where that supplier buys their stock, and so on. It is important to
keep track of what is happening in your extended supply chain because with a supplier
or a supplier’s supplier could end up having an impact on you (as the old saying goes, a
chain is only a strong as its weakest link). For example, a fire in a paper mill might
cause the text book manufacturer’s paper supplier to run out of inventory. If the text
book company knows what is happening in its extended supply chain it can find
another paper vendor.
Consider a typical manufacturer. The supply chain is made up of many interrelated
firms as shown in the figure below. There are part suppliers, component suppliers and
subassembly suppliers. Further up the chain are the suppliers’ suppliers, finally
reaching raw materials suppliers at the top of the chain. Going downstream, back
through the producing firm, the supply chain continues through the warehousing and
distribution channels, and then through the retail channels, ending with the consumer.
Raw Material Suppliers Raw Material Suppliers Raw Material Suppliers

Part Suppliers Component Suppliers Subassembly Suppliers

Manufacturers

Distribution Channels Retail Channels


Warehousing Channels
Retail Channels

Retail Channels

Consumer

Figure 15 A Systematic diagram of extended supply chain

The supply chain encompasses all activities associated with the flow and transformation
of goods and services from the raw material stage (at one end of the supply chain)
through to the consumer (at the other end of the chain), including all associated
information flows.

3.8 Basic Components of Supply Chain Management

The following are five basic components of SCM:-


1. Plan – This is the strategic portion of SCM. You need a strategy for managing all
the resources that go toward meeting customer demand for your product or
service. A big piece of planning is developing a set of metrics to monitor the
supply chain so that it is efficient, costs less and delivers high quality and value to
customers.

2. Source – Choose the suppliers that will deliver the goods and services you need to
create your product. Develop a set of pricing, delivery and payment processes
with suppliers and create metrics for monitoring and improving the relationships.
And put together processes for managing the inventory of goods and services you
receive from suppliers, including receiving shipments, verifying them, transferring
them to your manufacturing facilities and authorizing supplier payments.

Figure 16 The Five Components of Supply Chain Process

3. Make – This is the manufacturing step. Schedule the activities necessary for
production, testing, packaging and preparation for delivery. As the most metric-
intensive portion of the supply chain, measure quality levels, production output
and worker productivity.

4. Deliver – This is the part that many insiders refer to as logistics. Coordinate the
receipt of orders from customers, develop a network of warehouses, pick carriers
to get products to customers and set up an invoicing system to receive payments.

5. Return – The problem part of the supply chain. Create a network for receiving
defective and excess products back from customers and supporting customers
who have problems with delivered products.
3.9 SCM Flows

Supply chain management flows can be divided into three main flows:

1. The Product Flow


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

2. The Information Flow


It involves transmitting orders and updating the status of delivery.

3. The Finances Flow


It consists of credit terms, payment schedules, and consignment and title ownership
arrangements.

If the goal of SCM is to provide high product availability through efficient and timely
fulfillment of customer demand, then how is the goal accomplished?

Figure 17 A view of different flows in a supply chain [Source: http://www.careersinsupplychain.org/what-is-


scm/flows.asp]
Obviously, you need effective flows of products from the point of origin to the point of
consumption. But there’s more to it. Consider the diagram of the fresh food supply
chain. A two-way flow of information and data between the supply chain participants
creates visibility of demand and fast detection of problems. Both are needed by supply
chain managers to make good decisions regarding what to buy, make, and move.
Other flows are also important. In their roles as suppliers, companies have a vested
interest in financial flows. As you can understand, suppliers want to get paid for their
products and services as soon as possible and with minimal hassle. Sometimes, it is also
necessary to move products back through the supply chain for returns, repairs,
recycling, or disposal.

3.10 The Importance of Supply Chain Decisions

There is a close connection between the design and management of supply chain flows
(product, information, and funds) and the success of a supply chain. Wal-Mart, Dell
Computer, and Seven-Eleven Japan are examples of companies that have built their
success on superior design, planning, and operation of their supply chain. In contrast,
the failure of many e-businesses such as Webvan can be attributed in weaknesses in
their supply chain design and planning.

Wal-Mart has been a leader at using supply chain design, planning and operation to
achieve success. From its beginning, the company invested heavily in transportation
and information infrastructure to facilitate the effective flow of goods and information.
Wal-Mart designed its supply chain with clusters of stores around distribution centers
to facilitate frequent replenishment at its retail stores in a cost-effective manner.
Frequent replenishment allows stores to match supply and demand more effectively
than the competition. Wal-Mart has been a leader in sharing information and
collaborating with suppliers to bring down costs and improve product availability. The
results are impressive. In their annual 2004 report, the company reported a net income
of more than $9 billion on revenues of about $250 billion. These are dramatic results for
a company that reached annual sales of only $1 billion in 1980. The growth in sales
represents an annual compounded growth rate of 26 percent.
3.11 Decision Phases in a Supply Chain

Successful supply chain management requires many decisions relating to the flow of
information, product, and funds. Each decision should be made to raise the supply
chain profitability. These decisions fall into three categories of phases, depending on the
frequency of each decision and the time frame during which a decision phase has an
impact. As a result, each category of decisions must consider uncertainty over the
decision horizon.

1. Supply Chain Strategy or Design

During this phase, given the marketing and pricing plans for a product, a
company decides how to structure the supply chain over the next several years.
It decides what the chain’s configuration will be, how resources will be allocated,
and what processes each stage will perform.

Strategic decisions made by companies include whether to outsource or perform


a supply chain function in-house the location and capacities of production and
warehousing facilities, the products to be manufactured or stored at various
locations, and the modes of transportation to be made available along different
shipping legs, and the type of information system to be utilized.

A firm must ensure that the supply chain configuration supports its strategic
objectives and increases supply chain profitability during this phase. For
example, a company’s decisions regarding its choice of supply sources for
components, contract manufacturers for manufacturing, and the location and
capacity of its warehouses , are all supply chain design or strategic decisions.
Supply chain design decisions are typically made for long-term and are very
expensive to alter on short notice. Consequently, when companies made these
decisions, they must take into account the uncertainty in anticipated market
conditions over the next few years.

Decisions made during this phase include:

Strategic network optimization, including the number, location, and size of


warehouses, distribution centers and facilities
Strategic partnership with suppliers, distributors, and customers, creating
communication channels for critical information and operational
improvements such as cross docking, direct shipping, and third-party
logistics
Product design coordination, so that new and existing products can be
optimally integrated into the supply chain, load management
Information Technology infrastructure, to support supply chain operations.
Where-to-make and what-to-make-or-buy decisions
Aligning overall organizational strategy with supply strategy

Figure 18 Hierarchy of Supply Chain Decisions [Source: http://www.eil.utoronto.ca/profiles/rune/node5.html]

2. Supply Chain Planning

For decisions made during this phase, the time frame considered is a quarter to a
year. Therefore, the supply chain’s configuration determined in the strategic
phase is fixed. This configuration establishes constraints within which planning
must be done. The goal of planning is to maximize the supply chain profitability
that can be generated over the planning horizon given the constraints establishes
during the strategic or design phase. Companies start the planning phase with a
forecast for the coming year (or a comparable time frame) of demand in different
markets.

Planning includes making decisions regarding which markets will be supplied


from which locations, the subcontracting of manufacturing, the inventory
policies to be followed, and the timing and size of marketing and price
promotions. Planning establishes parameters within which a supply chain will
function over a specified period of tie.

In the planning phase, companies must include uncertainty in demand, exchange


rates, and competition over this time horizon in their decisions. Given a shorter
time frame and better forecasts than the design phase, companies in the planning
phase try to incorporate any flexibility built into the supply chain in the design
phase and exploit it to optimize performance. As a result of the planning phase,
companies define a set of operating policies that govern short-term operations.

Decisions made during this phase include:

Sourcing contracts and other purchasing decisions.


Production decisions, including contracting, scheduling, and planning
process definition.
Inventory decisions, including quantity, location, and quality of inventory.
Transportation strategy, including frequency, routes, and contracting.
Benchmarking of all operations against competitors and implementation of
best practices throughout the enterprise.
Milestone payments
Focus on customer demand.
3. Supply Chain Operations

The time horizon here is weekly or daily, and during this phase companies make
decisions regarding customer orders. At the operational level, supply chain
configuration is considered fixed, and planning policies are already defined. The
goal of supply chain operations is to handle incoming customer orders in the best
possible manner. During this phase, firms allocate inventory or production to
individual customer orders, set a date that an order is to be filled, generate pick
lists at a warehouse, allocate an order to a particular shipping mode and
shipment, set delivery schedules of trucks, and place replenishment orders.
Because operational decisions are being made in the short term (minutes, hours,
or days), there is a less uncertainty about demand information. given the
constraints established by the configuration and planning policies, the goal
during the operational phase is to exploit the reduction of uncertainty and
optimize performance.

Decisions made during this phase include:

Daily production and distribution planning, including all nodes in the supply
chain
Production scheduling for each manufacturing facility in the supply chain
(minute by minute).
Demand planning and forecasting, coordinating the demand forecast of all
customers and sharing the forecast with all suppliers
Sourcing planning, including current inventory and forecast demand, in
collaboration with all suppliers
Inbound operations, including transportation from suppliers and receiving
inventory
Production operations, including the consumption of materials and flow of
finished goods
Outbound operations, including all fulfillment activities and transportation to
customers
Order promising, accounting for all constraints in the supply chain, including
all suppliers, manufacturing facilities, distribution centers, and other
customers...
The design, planning, and operation of a supply chain have a strong impact on overall
profitability and success. It is fair that a large part of the success of a firm can be
attributed to their effective supply chain design, planning, and operation.

3.12 Process Views of a Supply Chain


A supply chain is a sequence of processes and flows that take place within and between
different stages and combine to fill a customer need for a product. There are five
different stages which are the participants of a supply chain, that is, customer, retailer,
distributor, manufacturer and supplier. There are two different ways to view the
processes performed in a supply chain.

1. Cycle View: The processes in a supply chain are divided into a series of cycles,
each performed at the interface between two successive stages of a supply chain.
Given the five stages of a supply chain, all supply chain processes can be broken
down into the following four process cycles:-
a. Customer order cycle
b. Replenishment cycle
c. Manufacturing cycle
d. Procurement cycle
Customer
Supplier
Manufacturer
Distributor
Retailer
Customer
Replenishment
Manufacturing
Procurement
Order
Cycle
Cycle
Cycle
Cycle

Each cycle occurs at the interface between two successive stages of the supply
chain. The five stages thus result in four supply chain process cycles. For
example, when customers shop online at Amazon, they are part of the customer
order cycle – with the customer as the buyer and Amazon as the supplier. In
contrast, when Amazon orders books from a distributor to replenish its
inventory, it is part of the replenishment cycle – with Amazon as the buyer and
the distributor as the supplier.

Within each cycle, the goal of the buyer is to ensure product availability and to
achieve economies of scale in ordering. The supplier attempts to forecast
customer orders and reduce the cost of receiving the order. The supplier then
works to fill the order on time and improve efficiency and accuracy of the order
fulfillment process. The buyer then works to reduce the cost of the receiving
process. Reverse flows are managed to reduce cost and meet environmental
objectives.

A cycle view of the supply chain clearly defines the processes involved and
owners of each process. This view is very useful when considering operational
decisions because it specifies the roles and responsibilities of each member of the
supply chain and the desired outcome for each process.

2. Push/Pull View

All processes in a supply chain fall into one of the two categories depending upon
the timing of their execution relative to end customer demand. With pull processes,
execution is initiated in response to a customer order. With push processes,
execution is initiated in anticipation of customer orders. Therefore, at the time of
execution of pull process, customer demand is known with certainty, whereas at the
time of execution of a push process, demand is not known and must be forecasted.
Pull processes may also be referred to as reactive processes because they react to
customer demand. Push processes may also be referred to as speculative processes
because they respond to speculated (forecasted) rather than actual demand. The
push/pull view is very important when considering strategic decisions relating to
supply chain design.

3.13 Supply Chain Macro Processes in a Firm

All supply chain processes discussed in the two process views can be classified into the
following three macro processes:

1. Customer Relationship Management (CRM): All processes that focus on the


interface between the firm and its customers
2. Internal Supply Chain Management (ISCM): All processes that are internal to
the firm
3. Supplier Relationship Management (SRM): All processes that focus on the
interface between the firm and its suppliers
The three macro processes manage the flow of information, product, and funds
required to generate, receive, and fulfill a customer request.

3.13.1 CRM Macro Process


The CRM macro process aims to generate customer demand and facilitate the
placement and tracking of orders. It includes processes such as marketing, pricing,
sales, order management, and call center management. At an industrial distributor,
CRM processes include the preparation of catalogs and other marketing materials,
management of the Web site, and management of the call center that takes order and
provides services.

3.13.2 ISCM Macro process


The ISCM macro process aims to fulfill demand generated by the CRM process in a
timely manner and at lowest possible cost. ISCM processes include the planning of
internal production and storage capacity, preparation of demand and supply plans, and
fulfillment of actual orders.

3.13.3 SRM Macro Process


The SRM macro process aim to arrange and manage supply sources for various goods
and services. SRM processes include the evaluation and selection of suppliers,
negotiation of supply terms, and communication regarding new products and orders
with suppliers.

All three supply chain macro processes and their component processes are shown in the
figure below:

Supplier Company Customer

Figure 19 SCM Macro Processes [Source: Copra S., Meindl P., Supply Chain Management]
For a supply chain to be successful, it is crucial that the three macro processes are well
integrated. The organizational structure of the firm has a strong influence on the success
or failure of the integration effort. In many firms, marketing is in charge of the CRM
macro process, manufacturing handles the ISCM macro process, and purchasing
oversees the SRM macro process – with very little communication among them. It is not
unusual for marketing and manufacturing to have two different forecasts when making
their plans. This lack of integration hurts the supply chain’s ability to match supply and
demand effectively, leading to dissatisfied customers and high costs. Firms should
structure a supply chain organization that mirrors the macro processes and ensures
good communication and coordination among the owners of processes that interact
with each other.

3.14 Drivers of Supply Chain performance

Success and profitability in a supply chain requires that a company’s supply chain
achieve the balance between responsiveness and efficiency that best meets the needs of
the company’s competitive strategy. To understand how a company can improve supply
chain performance in terms of responsiveness and efficiency, we must examine the
logistical and cross-functional drivers of supply chain performance: facilities, inventory,
transportation, information, sourcing, and pricing. These drivers interact with eachother
to determine the supply chain performance in terms of responsiveness and efficiency.
As a result, the structure of these drivers determines if and how strategic fit is achieved
across the supply chain.

3.14.1 Facilities
Facilities are the actual physical location in the supply chain network where product is
stored, assembled, or fabricated. The two major types of facilities are production sites
and storage sites. Decision regarding the roles, location, capacity and flexibility of
facilities have a significant impact on the supply chain performance. For instance, an
auto parts distributor striving for responsiveness could have many warehousing
facilities located close to customers even though this practice reduces efficiency
alternatively a high efficiency distributor would have fewer warehouses to increase
efficiency despite the fact that this practice will reduce responsiveness.

3.14.2 Inventory
Inventory encompasses all raw materials, work in process, and finished goods within a
supply chain. Changing inventory policies can dramatically alter the supply chain’s
efficiency and responsiveness. For example, a clothing retailer can make itself more
responsive by stocking large amounts of inventory and satisfying customer demand
from stock. A large inventory, however, increases the retailer’s cost, thereby making it
less efficient. Reducing inventory makes the retailer more efficient but hurts its
responsiveness.

3.14.3 Transportation
Transportation entails moving inventory from point to point in the supply chain.
Transportation can take the form of many combinations of modes and routes, each with
its own performance characteristics. Transportation choices have a large impact on
supply chain responsiveness and efficiency. For example, a mail-order catalog company
can use a faster mode of transportation such as FedEx to ship products, thus making its
supply chain more responsive, but also less efficient given the high costs associated
with using FedEx. Or the company can use slower but cheaper ground transportation to
ship the product, making the supply chain efficient but limiting its responsiveness.

3.14.4 Information
Information consists of data and analysis concerning facilities, inventory, transportation,
costs, prices, and customers throughout the supply chain. Information is potentially the
biggest driver of performance in the supply chain because it directly affects each of the
other drivers. Information presents management with the opportunity to make supply
chains more responsive and more efficient. For example, with information on customer
demand patterns, a pharmaceutical company can produce and stock drugs in
anticipation of customer demand, which makes the supply chain very responsive
because customers will find the drugs they need when they need them. This demand
information can also make the supply chain more efficient because the pharmaceutical
firm is better able to forecast demand and produce only the required amount.
Information can also make this supply chain more efficient by providing managers with
shipping options, for instance, that allow them to choose the lowest-cost alternative
while still meeting the necessary service requirements.

3.14.5 Sourcing
Sourcing is the choice of who will perform a particular supply chain activity such as
production, storage, transportation, or the management of information. At the strategic
level, these decisions determine what functions a firm performs and what functions the
firm outsources. Sourcing decisions affect both the responsiveness and efficiency of a
supply chain. After Motorola outsourced much of its production to contract
manufacturers in China, it saw its efficiency improve but its responsiveness suffer
because of the long distances. To make-up for the drop in responsiveness, Motorola
started flying in some of its cell phones from China even though its choice increased
transportation cost. Flextronics, an electronics contract manufacturer, is hoping to offer
both responsive and efficient sourcing options to its customers. It is trying to make its
production facilities in United States very responsive while keeping its facilities in low-
cost countries efficient. Flextronics hopes to become an effective source for all customers
using this combination of facilities.

3.14.6 Prices
Pricing determines how much a firm will charge for goods and services that it makes
available in supply chain. Pricing affects the behavior of the buyer of the good or
service, thus affecting supply chain performance. For example, if a transportation
company varies its charges based on the lead time provided by the customers who
value responsiveness will be willing to wait and order just before they need a product
transported. Early orders are less likely if prices do not vary with lead time.

3.15 Framework for Structuring Drivers

The visual framework for supply chain decision making is shown in figure below;

Most companies begin with a competitive strategy and then decide what their supply
chain strategy ought to be. The supply chain strategy determines how the supply chain
should perform with respect to efficiency and responsiveness. The supply chain must
then use the three logistical and three cross-functional drivers to reach the performance
level this supply chain strategy dictates and maximize the supply chain profits.
Although this framework is generally viewed from the top-down, in many instances, a
study of six drivers may indicate the need to change the supply chain and potentially
even the competitive strategy

3.16 Components of Decision in Supply Chain Drivers

3.16.1 Facilities
Decisions regarding facilities are a crucial part of supply chain design. Following are
the components of facilities decisions that companies must analyze.

3.16.1.1 Role
For production facilities, firms must decide whether they will be flexible, dedicated, or a
combination of the two. Flexible capacity can be used for many types of products but is
often less efficient, whereas dedicated capacity can be used for only a limited number of
products but is more efficient. Firms must also decide whether to design a facility with
a product focus or a functional focus. A product-focused facility performs many
different functions (e.g., fabrication and assembly) in producing a single type of
product. A functional-focused facility performs few functions (e.g., only fabrication or
only assembly) on many types of products. A product focus tends to result in more
expertise about a particular type of product at the expense of the functional expertise
that comes from a functional methodology.

For warehouses and DCs, firms must decide whether they will primarily cross-docking
facilities or storage facilities. At cross-docking facilities, inbound trucks from suppliers
are unloaded; the product is broken into smaller lots, and is quickly loaded onto store-
bound trucks. Each store-bound truck carries a variety of products, some from each
inbound truck. For storage facilities, firms must decide on the products to be stored at
each facility.

3.16.1.2 Location
Deciding where a company will locate its facilities constitutes a large part of the desing
of a supply chain. A basic trade-off here is whther to centralize in order to gain
economies of scale or to decentralize to become more responsive by being closer to the
customer. Companies must also consider a host of issues related to the various
characteristics of the local area in which the facility is situated. These include
macroeconomic factors, quality of workers, cost of workers, cost of facility, availability
of infrastructure, proximity to customers, the location of that firm’s other facilities, tax
effects, and other strategic factors.

3.16.1.3 Capacity
Companies must also determine a facility’s capacity to perform its intended function(s).
A large amount of excess capacity allows the facility to be very flexible and to respond
to wide swings in the demands placed on it. Excess capacity, however, costs money and
therefore can decrease efficiency. A facility with little excess capacity will likely be more
efficient per unit of product it produces than one with a lot of unused capacity. The
high-utilization facility, however, will have difficulty responding to demand
fluctuations. Therefore, a company must make a trade-off to determine the right
amount of capacity to have at each of its facilities.

3.16.1.4 Facility-Related Metrics


Manager should track the following facility-related metrics that influence supply chain
performance;

• Capacity measures the maximum amount a facility can process.


• Utilization measures the fractional capacity that is currently being used in
the facility. Utilization affects both the unit cost of processing and
associated delays. Unit costs tend to decline and delays increase with
increase in utilization.
• Theoretical flow/ cycle time of production measures the time required to
process a unit if there are absolutely no delays at any stage.
• Actual average flow/ cycle time measures the average actual time taken
for all units processed over a specified duration such as a week or month.
The actual flow/ cycle time includes the theoretical time and any delays.
• Flow time efficiency is the ratio of the theoretical flow time to the actual
average flow time.
• Product variety measures the number of products/ product families
processed in a facility. Processing costs and flow times are likely to
increase with product variety.
• Processing/ set up / down/ idle time measures the fraction of time that the
facility was processing unit, being set up to process units, unavailable
because it was down, or idle because it had no units to process.
• Production service level measures the fraction of production orders
completed on time and in full.

3.16.2 Components of Inventory Decisions

The major inventory related decisions that supply chain managers must make to
effectively create more responsive and more efficient supply chains are:

3.16.2.1 Cycle Inventory


Cycle inventory is the average amount of inventory used to satisfy demand between
receipts of supplier shipments. The size of the cycle inventory is a result of the
production, transportation, or purchase of material in large lots. Companies produce or
purchase in large lots to exploit economies of scale in the production, transportation, or
purchasing process. With the increase in lot size, however, also comes an increase in
carrying cost. As an example of a cycle stock decision, consider an online book retailer.
This retailer’s sales average around 10 truckloads of books a month. The cycle inventory
decisions the retailer must make are how much to order for replenishment and how
often to place these orders. The e-retailer could order to truckloads once each month or
it could one truckload every three days. The basic trade-off supply chain managers face
is the cost of holding larger lots of inventory (when cycle inventory I high) versus the
cost of ordering product frequently (when cycle inventory is low).

3.16.2.2 Safety Inventory


Safety inventory is inventory held in case demand exceeds expectation; it is held to
counter uncertainty. If the world were perfectly predictable, only cycle inventory would
be needed. Because demand is uncertain and may exceed expectations, however,
companies hold safety inventory to satisfy an unexpectedly high demand. Managers
face a key decision when determining how much safety inventory to hold. Choosing
safety inventory involves making a trade-off between the costs of having too much
inventory and the costs of losing sales due to not having enough inventory.

3.16.2.3 Seasonal Inventory


Seasonal inventory is built up to counter predictable variability in demand. Companies
using seasonal inventory, build up inventory in periods of low demand and store it for
periods of high demand, when they will not have the capacity to produce all that is
demanded. Managers face key decision in determining whether to build seasonal
inventory and if they do build it, in deciding how much to build. If a company can
rapidly change the rate of its production system at very low cost, then it may need
seasonal inventory, because the production system can adjust to a period of high
demand without incurring large costs. However, if changing the rate of production is
expensive (for example, when workers must be hired or fired), then a company would
be wise to establish a smooth production rate and build up its inventory during periods
of low demand. Therefore, the basic trade-off supply chain managers face in
determining how much seasonal inventory to build is the cost of carrying the additional
seasonal inventory versus the cost of having more flexible product rate.

3.16.2.4 Level of Product Availability


Level of product availability is the fraction of demand that is served one time from
product held in inventory. A high level of product availability provides a high level or
responsiveness but increase costs because a lot of inventory is held but rarely used. In
contrast, a low level of product availability lowers inventory holding costs but results in
a higher fraction of customers who are not served on time. The basic trade-off when
determining the level of product availability is between the cost of inventory to increase
product availability and the loss from not serving customer on time

3.16.2.5 Inventory-Related Metrics


A manager should track the following inventory-relate metrics that influence supply
chain performance:

• Average inventory measures the average amount of inventory carried. Average


inventory should be measured in units, days of demand and financial value
• Products with more than a specified number of days of inventory identifies a
product for which the firm is carrying a high level of inventory. This metric can
be used to identify products that are in oversupply or identify reasons that justify
the high inventory such as price discounts or being a very slow mover.
• Average replenishment batch size measures the average amount of each
replenishment product. The batch size should be measured by SKU in terms of
both units and days of demand. It can be estimated by averaging more time the
difference between the maximum and the minimum inventory (measured in each
replenishment cycle) on hand.
• Seasonal inventory measures the amount of both cycle and safety inventory that
is purchased solely due to seasonal changes and demand.
• Fill rate measures the fraction of orders/demand that were met on time from
inventory. Fill rate should not be averaged over time but over a specified number
of units of demand (say every thousand, million etc)
• Fraction of time out of stock measures the fraction of time that a particular SKU
had zero inventory. This fraction can be used to estimate the demand during the
stock out period.

3.16.3 Components of Transportation Decisions

The key components of transportation that companies must analyze when designing
and operating a supply chain are:

3.16.3.1 Design of Transportation Network


The transportation network is the collection of transportation modes, locations, and
routes along which product can be shipped. A company must decide whether
transportation from a supply chain source will be direct to the demand point or will go
through intermediate consolidation points. Design decisions also include whether
multiple supply or demand points will be included in a single run or not. Finally,
companies must also decide the st of transportation modes that will be used.

3.16.3.2 Choice of Transportation Mode


The mode of transportation is the manner in which a product is moved from one
location in the supply chain network to another. Companies can choose between air,
truck, rail, sea, and pipeline as modes of transport for products. Today, information
goods can also be sent via internet. Each mode has different characteristics with respect
to the speed, size of shipments (individual parcels to pallets to full trucks to entire
ships), cost of shipping, and flexibility that lead companies to choose one particular
mode over the others.
3.16.3.3 Transportation-related Metrics

A manager should track the following transportation-related metrics that influence


supply chain performance.

• Average inbound transportation cost typically measures the cost of bringing


product into a facility as a percentage of sales or cost of goods sols (COGS).
Ideally, this cost should be measured per unit brought in, but this can be difficult.
The inbound transportation cost is generally included in COGS. It is useful to
separate this cost by supplier.
• Average incoming shipment size measures the average number of units or
dollars in each incoming shipment at a facility.
• Average inbound transportation cost per shipment measures the average
transportation cost of each incoming delivery. Along with the incoming shipment
size, this metric identifies opportunities for greater economies of scale in inbound
transportation.
• Average outbound transportation cost measures the cost of sending product out
of a facility to the customer. Ideally, this cost should be measured per unit
shipped, but it is often measured as a percentage of sales. It is useful to separate
this metric by customer.
• Average outbound shipment size measures the average number of units or
dollars on each outbound shipment at a facility.
• Average outbound transportation cost per shipment measures the average
transportation cost of each outgoing delivery. Along with the outgoing shipment
size, this metric identifies opportunities for greater economies of scale in
outbound transportation.
• Fraction transported by mode measures the fraction of transportation (in units
or dollars) using each mode of transportation. This metric can be used to
estimate if certain modes are overused or underutilized.
3.16.4 Components of Information Decisions
The following components are identified which a company must analyze in order to
increase efficiency and improve responsiveness within its supply chain:

3.16.4.1 Push Versus Pull


When designing processes of the supply chain, managers must determine whether
these processes are part of the push or pull phase in the chain. Push systems generally
require information in the form of elaborate Material Requirements Planning (MRP)
systems to take the master production schedule and roll it back, creating schedules for
suppliers with part types, quantities, and delivery dates. Pull systems require
information on actual demand to be transmitted extremely quickly throughout the
entire chain so that production and distribution of products may reflect the real
demand accurately.

3.16.4.2 Coordination and Information Sharing


Supply chain coordination occurs when all stages of a supply chain work toward the
objective of maximizing total supply chain profitability based on shared information.
Lack of coordination can result in significant loss of supply chain profit. Coordination
among different stages in a supply chain requires each stage to share appropriate
information with other stages. For example, if a supplier is to produce the right parts in
a timely manner for a manufacturer in a pull system, the manufacturer must share
demand and production information with the supplier. Information sharing is this
crucial to the success of a supply chain.

3.16.4.3 Forecasting and Aggregate Planning


Forecasting is the art and science of making projections about what future demand and
conditions will be. Obtaining forecasting information frequently means using
sophisticated techniques o estimate future sales or market conditions. Managers must
decide how they will make forecasts and to what extent they will rely on forecasts to
make decisions. Companies often use forecasts both on a tactical level to schedule
production and on strategic level to determine whether to build new plants or even
whether to enter a new market.

Once a company creates a forecast, the company needs a plan to act on this forecast.
Aggregate planning transforms forecasts into plans of activity to satisfy the projected
demand. A key decision managers face is how to collaborate on aggregate planning
throughout the entire supply chain. The aggregate plan becomes a critical piece of
information to be shared across the supply chain because it affects both the demand on
a firm’s suppliers and the supply to its customers.
3.16.4.4 Information-related Metrics
A manager should track the following information-related metrics that influence supply
chain performance.

• Forecast horizon identifies how far in advance of the actual event a forecast is
made. The forecast horizon must equal the lead time of the decision that is driven
by the forecast.
• Frequency of update identifies how frequently each forecast is updated. The
forecast should be updated somewhat more frequently than a decision will be
revisited, so that large changes can be flagged and corrective action taken.
• Forecast error measures the difference between the forecast and actual demand.
The forecast error is a measure of uncertainty and drives all responses to
uncertainty such as safety inventory or excess capacity.
• Seasonal factors measure the extent to which the average demand in season is
above or below the average in the year.
• Variance from plan identifies the difference between the planned
production/inventories and the actual values. These variances can be used to
raise flags that identify shortages and surpluses.
• Ratio of demand variability to order variability measures the standard
deviation of incoming demand and supply orders places. A ratio less than one
potentially indicates the existence of the bullwhip effect.
3.16.5 Components of Sourcing Decisions
The key sourcing decisions that are made within a firm are as under:

3.16.5.1 In-house or Outsource


The most significant sourcing decision for a firm is whether to perform a task in-house
or outsource it to a third party. This decision should be driven in part by its impact on
the total supply chain profit. It is best to outsource if the growth in total supply chain
profit is significant with little additional risk. Within a task such as transportation,
managers must decide whether to outsource all of it, outsource only the responsive
component, or outsource only efficient component. Once again, the decision should be
based on part on the gowth in total supply chain profitability.

3.16.5.2 Supplier selection


Managers must decide on the number of suppliers they will have for a particular
activity. They must then identify the criteria along which suppliers will be evaluated
and how they will be selected. For the selection process, managers must decide whether
they will use direct negotiations or resort to an auction. Is an auction is used, it must be
structured to ensure the desired outcome.

3.16.5.3 Procurement
Procurement is the process in which the supplier sends product in response to customer
orders. Managers must decide on the structure of procurement of direct as well as
indirect materials, and strategic as well as general materials. In each case, it is important
to identify the critical mechanism for increasing supply chain profits, for example, a
firm should set up procurement for direct materials to ensure good coordination
between the supplier and buyer.

3.16.5.4 Sourcing-related metrics


A manager should track the following sourcing-related metrics that influence supply
chain performance.

• Days payable outstanding measures the number of days between when a


supplier performed a supply chain task and when it was paid.
• Average purchase price measures the average price at which a good or service
was purchased during the year. The average price should be weighted by the
quantity purchased at each price.
• Range of purchase price measures the fluctuation in purchase price during a
specified period. The goal is to identify if the quantity purchased correlated with
the price.
• Average purchase quantity measures the average amount purchased per order.
The goal is to identify whether a sufficient level of aggregation is occurring
across locations when placing an order.
• Fraction on-time deliveries measures the fraction of deliveries from the supplier
that were on time.
• Supply quality measures the quality of product supplied.
• Supply fund time measures the average time between when an order is placed
and the product arrives.
3.16.6 Components of Pricing Decisions
The following key components of pricing decisions are identified that affect supply
chain performance.

3.16.6.1 Pricing and Economies of Scale


Most supply chain activities display economies of scale. Changeovers make small
production runs more expensive per unit than large production runs. Loading and
unloading costs make it cheaper to deliver a truckload to one location than four. In each
case, the provider of the supply chain activity must decide how to price it appropriately
to reflect these economies of scale. A commonly used approach is to offer quantity
discounts. Care must be taken to ensure that quantity discounts offered are consistent
with the economies of scale in the underlying process. Otherwise, there is a danger of
customer orders being driven primarily by the quantity discounts even though the
underlying process does not have significant economies of scale.

3.16.6.2 Everyday Low Pricing Versus High-Low Pricing


A firm such as Costco practices everyday low pricing at its warehouse stores, keeping
prices steady over time. Costco will go to the extent of not offering any discount on
damaged books to ensure its everyday low pricing strategy. In contrast, most
supermarkets practice high-low pricing and offer steep discounts on a subset of their
product every week. The Costco pricing strategy results in relatively stable demand.
The high-low pricing strategy results in a peak during the discount week, Often
followed by a steep drop in demand during the following weeks. The two pricing
strategies lead to very different demand profiles that the supply chain must serve.

3.16.6.3 Fixed Price Versus Menu Pricing


A firm must decide whether it will charge a fixed price for its supply chain activities or
have a menu with prices that vary with some other attribute, such as the response time
or location of delivery. If marginal supply chain costs or the value to the customer vary
significantly along some attribute, it is often effective to have a pricing menu.

3.16.6.4 Pricing-Related Metrics


A manager should track the following pricing-related metrics. With menu pricing, each
metric should be tracked separately for each segment in the menu.
• Profit margin measures profit as a percentage of revenue. A firm needs to
examine a wide variety of profit margin metrics to optimize its pricing, including
dimensions such as type of margin (gross, net, etc.), scope (SKU, product line,
division, firm), customer type, and others.
• Days sales outstanding measures the average time between when a sale is made
and when the cash is collected.
• Incremental fixed cost per order measures the incremental costs that are
independent of the size of the order. These include changeover costs at a
manufacturing plant or order processing or transportation costs that are incurred
independent of shipment size at a mail-order firm.
• Incremental variable cost per unit measures the incremental costs that vary with
the size of the order. These include packing costs at a mail-order firm or variable
production costs at a manufacturing plant.
• Average sale price measures the average price at which a supply chain activity
was performed in a given period. The average should be obtained by weighting
the price with the quantity sold at that price.
• Average order size measures the average quantity per order. The average sale
price, order size, incremental fixed cost per order, and incremental variable cost
per unit help estimate the contribution from performing the supply chain
activity.
• Range of sale price measures the maximum and the minimum of sale price per
unit over a specified time horizon.
• Range of periodic sales measures the maximum and the minimum of the
quantity sold per period (day/week/month) during a specified time horizon. The
goal is to understand any correlation between sales and price and any potential
opportunity to shift sales by changing price over time.
3.16.7 Demand Forecasting in a Supply Chain
Demand Forecasting 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.
3.16.8 Necessity for Forecasting Demand
Often forecasting demand is confused with forecasting sales. But, failing to forecast
demand ignores two important phenomena. There is a lot of debate in the demand
planning literature as how to measure and represent historical demand, since the
historical demand forms the basis of forecasting. Should we use the history of outbound
shipments or customer orders or a combination of the two to proxy for demand.
3.16.8.1 Stock Effects
The effects that inventory levels have on sales. In the extreme case of stock-outs,
demand coming into your store is not converted to sales due to a lack of availability.
Demand is also untapped when sales for an item are decreased due to a poor display
location, or because the desired sizes are no longer available. For example, when a
consumer electronics retailer does not display a particular flat-screen TV, sales for that
model are typically lower than the sales for models on display. And in fashion retailing,
once the stock level of a particular sweater falls to the point where standard sizes are no
longer available, sales of that item are diminished.
3.16.8.2 Market Response Effects
The effect of market events that are within and beyond a retailer’s control. Demand for
an item will likely rise if a competitor increases the price or if you promote the item in
your weekly circular. The resulting sales increase reflects a change in demand as a result
of consumers responding to stimuli that potentially drive additional sales. Regardless of
the stimuli, these forces need to be factored into planning and managed within the
demand forecast.
In this case demand forecasting uses techniques in causal modeling. Demand forecast
modeling considers the size of the market and the dynamics of market share versus
competitors and its effect on firm demand over a period of time. In the manufacturer to
retailer model, promotional events are an important causal factor in influencing
demand. These promotions can be modeled with intervention models or use a
consensus process to aggregate intelligence using internal collaboration with the Sales
and Marketing functions.
3.16.8.3 Components of a Forecast and Forecasting Methods
A company must be knowledgeable about numerous factors that are related to the
demand forecast. Some of these factors are listed next.

1. Past demand
2. Lead time of product
3. Planned advertising or marketing efforts
4. State of the company
5. Planned price discounts
6. Actions that competitors have taken
A company must understand such factors before it can select an appropriate forecasting
methodology. For example, historically a firm may have experienced low demand for
chicken noodle soup in July and high demand in December and January. If the firm
decides to discount the product in July, the situation is likely to change, with some of
the future demand shifting to the month of July. The firm should make its forecast
taking the factor into consideration.

3.16.8.4 Forecasting Methods are Classified According to the Following Four Types:
1. Qualitative: qualitative forecasting methods are primarily subjective and rely on
human judgment. They are most appropriate when little historical data is
available or when experts have market intelligence that may affect the forecast.
Such methods may also be necessary to forecast demand several years into the
future in a new industry.
2. Time series: Time-series forecasting methods use historical demand to make a
forecast. They are based on the assumption that past demand history is a good
indicator of future demand. These methods are most appropriate when the basic
demand pattern does not vary significantly from one year to the next. These are
the simplest methods to implement and can serve as a good starting point for a
demand forecast.
3. Causal: Causal forecasting methods assume that the demand forecast is highly
correlated with certain factors in the environment (the state of the economy,
interest rates, etc.). Causal forecasting methods find their correlation between
demand and environmental factors and use estimates of what environmental
factors will be to forecast future demand. For example, product pricing is
strongly correlated with demand. Companies can thus use causal methods to
determine the impact of price promotions on demand.
4. Simulation: simulation forecasting methods imitate the consumer choices that
give rise to demand to arrive at a forecast. Using simulation, a firm can combine
time-series and causal methods to answer such questions as: what will be the
impact of a price promotion? What will be the impact of competitor opening a
store nearby? Airlines simulate customer buying behavior to forecast demand for
higher-fare seats when there are no seats available at the lower fares.
A company may find it difficult to decide which method is most appropriate for
forecasting. In fact, several studies have indicated that using multiple forecasting
methods to create a combined forecast is more effective than using any one method
alone.

3.16.8.5 Aggregate Planning


Aggregate planning is an operational activity which does an aggregate plan for
the production process, in advance of 2 to 18 months, to give an idea to
management as to what quantity of materials and other resources are to be
procured and when, so that the total cost of operations of the organization is kept
to the minimum over that period.
The quantity of outsourcing, subcontracting of items, overtime of labor, numbers
to be hired and fired in each period and the amount of inventory to be held in
stock and to be backlogged for each period are decided. All of these activities are
done within the framework of the company ethics, policies, and long term
commitment to the society, community and the country of operation.
Aggregate planning has certain pre-required inputs which are inevitable. They include:
• Information about the resources and the facilities available.
• Demand forecast for the period for which the planning has to be done.
• Cost of various alternatives and resources. This includes cost of holding
inventory, ordering cost, cost of production through various production
alternatives like subcontracting, backordering and overtime.
• Organizational policies regarding the usage of above alternatives.
"Aggregate Planning is concerned with matching supply and demand of output over
the medium time range, up to approximately 12 months into the future. Term aggregate
implies that the planning is done for a single overall measure of output or, at the most, a
few aggregated product categories. The aim of aggregate planning is to set overall
output levels in the near to medium future in the face of fluctuating or uncertain
demands. Aggregate planning might seek to influence demand as well as supply."
3.16.8.6 Objectives of Aggregate Planning
The aggregate planner’s main objective is to identify the following operational
parameters over the specified time horizon:

• Production Rate: The number of units to be completed per unit time (such as per
week or per month)
• Workforce: the number of workers/units of capacity needed for production
• Overtime: the amount of overtime production planned
• Machine Capacity Level: the number of units of machine capacity needed for
production
• Subcontracting: the subcontracted capacity required over planning horizon
• Backlog: demand not satisfied in the period in which it arises but carried over to
future periods
• Inventory on Hand: the planned inventory carried over the various periods in
the planning horizon
3.16.9 Design Options for a Transportation Network
3.16.9.1 Distributor Storage with Carrier Delivery
Under this option, inventory is not held by manufacturers at the factories but is held by
distributors / retailers in intermediate warehouses and package carriers are used to
transport products from the intermediate location to the final customer. Amazon.com as
well as industrial distributors like W.W. Grainger use this approach combined with
drop shipping from a manufacturer. Information and product flows when using
distributor storage with delivery by a package carrier are shown in Figure.
Figure 20 Distributor Storage with Carrier Delivery [Source: Sunil Chopra and Pete Meindl, Supply Chain
Management]

Relative to manufacturer storage, distributor storage will require a higher level of


inventory because the distributor / retailer warehouse aggregates demand uncertainty
to a lower level than the manufacturer. From an inventory perspective, distributor
storage makes sense for products with somewhat higher demand. Both Amazon and
Grainger only stock the medium to fast moving items at their warehouse with slower
moving items stocked further upstream. In some instances, postponement can be
implemented with distributor storage but it does require that the warehouse develop
some assembly capability. Distributor storage, however, requires much less inventory
than a retail network. Amazon achieves about 12 turns of inventory using warehouse
storage while Borders achieves about 2 turns using retail stores.

Transportation costs are somewhat lower for distributor storage compared to


manufacturer storage because an economic mode of transportation (e.g. truckload) can
be employed for inbound shipments to the warehouse, which is closer to the customer.
Unlike manufacturer storage where multiple shipments may need to go out for a single
customer order with multiple items, distributor storage allows outbound orders to the
customer to be bundled into a single shipment further reducing transportation cost.
Transportation savings from distributor storage relative to manufacturer storage
increase for faster moving items.
Compared to manufacturer storage, facility costs are somewhat higher with distributor
storage because of a loss of aggregation. Processing and handling costs are comparable
to manufacturer storage unless the factory is able to ship to the end customer directly
from the production line. In that case, distributor storage will have higher processing
costs. From a facility cost perspective, distributor storage is not appropriate for
extremely slow moving items.

The information infrastructure needed with distributor storage is significantly less


complex than that needed with manufacturer storage. The distributor warehouse serves
as a buffer between the customer and the manufacturer, decreasing the need to
coordinate the two completely. Real time visibility between customers and the
warehouse is needed, whereas real time visibility between the customer and the
manufacturer is not. Visibility between the distributor warehouse and manufacturer can
be achieved at a much lower cost than real time visibility between the customer and
manufacturer.

Response time with distributor storage is better than with manufacturer storage
because distributor warehouses are, on average, closer to customers and the entire order
is aggregated at the warehouse when shipped. Amazon, for example, processes all
warehouse-stored items within a day and it then takes 3-7 business days using ground
transportation for the order to reach the customer. Grainger processes customer orders
on the same day and has enough warehouses to deliver most orders next day using
ground transport. Warehouse storage will limit to some extent the variety of products
that can be offered. Grainger does not store very low volume items at its warehouse,
relying on manufacturers to drop ships those products to the customer. Customer
convenience is high with distributor storage because a single shipment reaches the
customer in response to an order. Order visibility becomes easier than with
manufacturer storage because there is a single shipment from the warehouse to the
customer and only one stage of the supply chain is directly involved in filling the
customer order. Return ability is better than with manufacturer storage because all
returns can be processed at the warehouse itself. The customer also has to return only
one package even if the items are from several manufacturers.

The performance of distributor storage with carrier delivery is summarized in Table.


Distributor storage with carrier delivery is well suited for medium to fast moving items.
Distributor storage also makes sense when customers want delivery faster than offered
by manufacturer storage but do not need it immediately. Distributor storage can handle
somewhat lower variety than manufacturer storage but can handle a much higher level
of variety than a chain of retail stores.

3.16.9.2 Distributor Storage with Last Mile Delivery


Last mile delivery refers to the distributor / retailer delivering the product to the
customer's home instead of using a package carrier. Webvan, Peapod, and Albertson’s
have used last mile delivery in the grocery industry. Unlike package carrier delivery,
last mile delivery requires the distributor warehouse to be much closer to the customer,
increasing the number of warehouses required. The warehouse storage with last mile
delivery network is as shown in Figure.

Figure 21 Distributor Storage With Last Mile Delivery [Source: Sunil Chopra and Pete Meindl, Supply Chain
Management]

Distributor storage with last mile delivery requires higher levels of inventory than all
options other than retail stores, because it has a lower level of aggregation. From an
inventory perspective, warehouse storage with last mile delivery is suitable for
relatively fast moving items where disaggregation does not lead to a significant increase
of inventory. Staple items in the grocery industry fit this description.

Transportation costs are highest using last mile delivery. This is because package
carriers aggregate delivery across many retailers and are able to obtain better economies
of scale than available to a distributor / retailer attempting last mile delivery. Delivery
costs (including picking and transportation) can be as high as $30-$40 per home
delivery in the grocery industry. Last mile delivery may be somewhat cheaper in dense
cities. Transportation costs may also be justifiable for bulky products where the
customer is willing to pay for home delivery. Home delivery for water and large bags of
rice has proved quite successful in China, where the high population density has helped
decrease delivery costs.

Facility and processing costs are very high using this option given the large number of
facilities required. Facility costs are somewhat lower than a network with retail stores
but much higher than either manufacturer storage or distributor storage with package
carrier delivery. Processing costs, however, are much higher than a network of retail
stores because all customer participation is eliminated. A grocery store doing last mile
delivery performs all the processing until the product is delivered to the customer's
home unlike a supermarket where there is much more customer participation.

The information infrastructure with last mile delivery is similar to distributor storage
with package carrier delivery. It requires, however, the additional capability of
scheduling deliveries. Response times are faster than the use of package carriers.
Product variety is generally lower than distributor storage with carrier delivery. The
cost of providing product availability is higher than every option other than retail
stores. The customer experience is very good using this option, particularly for bulky,
hard to carry items. Order visibility is less of an issue given that deliveries are made
within 24 hours. The order-tracking feature does become important to handle
exceptions in case of incomplete or undelivered orders. Of all the options discussed,
return ability is best with last mile delivery because trucks making deliveries can also
pick up returns from customers. Returns are more expensive to handle than at a retail
store where a customer can bring the product back.

The performance characteristics of distributor storage with last mile delivery are
summarized in Table.
In areas with high labor cost, it is very hard to justify distributor storage with last mile
delivery on the basis of efficiency or improved margin. It can only be justified if there is
a large enough customer segment willing to pay for this convenience. In that case, an
effort should be made to couple last mile delivery with an existing network to exploit
economies of scale and improve utilization. An example is Albertson's use of existing
grocery store facilities and labor to provide home delivery. A portion of the grocery
store serves as a fulfillment center for online orders as well as a replenishment center for
the grocery store itself. This helps improve utilization and lower the cost of providing
this service. Last mile delivery may be justifiable if customer orders are large enough
and customers are willing to pay for this service. All home delivery companies like
Peapod now charge for this service even for very large order sizes.

3.16.9.3 Manufacturer or Distributor Storage with Customer Pickup


In this approach, inventory is stored at the manufacturer or distributor warehouse but
customers place their orders online or on the phone and then come to designate pickup
points to collect their orders. Orders are shipped from the storage site to the pickup
points as needed. Examples include 7dream.comoperated by 7 Eleven Japan, which
allows customers to pick up online orders at a designated store. A B2B example is W. W.
Grainger where customers can pick up their order at one of the Grainger retail outlets.
In the case of 7dream.com, the order is delivered from a manufacturer or distributor
warehouse to the pickup location. In the case of Grainger, some items are stored at the
pickup location while others may come from a central location. The information and
product flows in the network for 7 Eleven Japan is as shown in Figure.

Figure 22 Manufacturer or Distributor Warehouse Storage with Customer Pickup [Source: Sunil Chopra and
Pete Meindl, Supply Chain Management]
7 Eleven has distribution centers (DC) where product from manufacturers is cross-
docked and sent to retail outlets on a daily basis. A retailer delivering an online order
can be treated as one of the manufacturers with deliveries cross-docked and sent to the
appropriate 7 Eleven outlet. Serving as an outlet for online orders allows 7 Eleven to
improve utilization of its existing logistical assets.

Inventory costs using this approach can be kept low with either manufacturer or
distributor storage to exploit aggregation. Grainger keeps its inventory of fast moving
items at pickup locations, while slow moving items are stocked at a central or
warehouse or in some case the manufacturer.

Transportation cost is lower than any solution using package carriers because
significant aggregation is possible when delivering orders to a pickup site. This allows
the use of truckload or less-than-truckload carriers to transport orders to the pickup
site. In a case like 7 Eleven Japan, the marginal increase in transportation cost is small
because trucks are already making deliveries to the stores and their utilization can be
improved by including online orders.

Facility costs are high if new pickup sites have to be built. A solution using existing sites
will lower the additional facility costs. This, for example, is the case with 7dream.com
and W.W. Grainger where the stores already exist. Processing costs at the manufacturer
or the warehouse are comparable to other solutions. Processing costs at the pick up site
are high because each order must be matched with a specific customer when they
arrive. Creating this capability can increase processing costs significantly if appropriate
storage and information systems are not provided. Increased processing cost at the
pickup site is the biggest hurdle to the success of this approach.

A significant information infrastructure is needed to provide visibility of the order until


the customer picks it up. Very good coordination is needed between the retailer, the
storage location, and the pickup location.

A response time comparable to the use of package carriers can be achieved in this case.
Variety and availability comparable to any manufacturer or distributor storage option
can be provided. There is some loss of customer experience because unlike the other
options discussed, customers must come and pick up their orders. On the other hand,
customers who do not want to pay online can pay by cash using this option. In
countries like Japan where 7 eleven has over 8,000 outlets, it can be argued that the loss
of customer convenience is small because most customers are close to a pickup site and
can collect their order at their own convenience. In some cases, this option can be
considered more convenient because it does not require the customer to be at home at
the time of delivery.

Order visibility is extremely important for customer pickups. The customer must be
informed when the order has arrived and the order should be easily identified once the
customer arrives to pick it up. Such a system will be hard to implement because it
requires integration of several stages in the supply chain. Returns can potentially be
handled at the pickup site. The problem with some existing sites such as 7 Eleven stores
is that they are not equipped to accept and process returns for products not sold at the
stores. From a transportation perspective, however, return flows can be handled using
the delivery trucks. For customers, returning a product will be easy because they have a
physical location to bring it to. Overall, return ability is fairly good using this option.

The performance characteristics of manufacturer or distributor storage with consumer


pickup sites are summarized in Table.
The main advantage of a network with consumer pickup sites is that it can lower
delivery cost, thus expanding the set of products sold as well as customers served
online. The major hurdle is the increased handling cost at the pickup site. Such a
network is likely to be most effective if existing locations such as convenience or grocery
stores are used as pickup sites because such a network improves the economies from
existing infrastructure. Unfortunately, such sites are typically designed to allow the
customer to do the picking and will need to develop the capability of picking a
customer specific order.
3.16.9.4 Retail Storage with Customer Pickup
In this option, inventory is stored locally at retail stores. Customers either walk into the
retail store or place an order online or on the phone, and pick it up at the retail store.
Examples of companies that offer multiple options of order placement include
Albertsons.com. Albertsons uses part of the facility as a grocery store and part of the
facility as an online fulfillment center. Customers can walk into the store or order
online. A B2B example is W. W. Grainger where customers can order online, by phone,
or in person and pick up their order at one of the Grainger retail outlets. Albertson’s
stores its inventory at the pickup location itself. In the case of Grainger, some items are
stored at the pickup location while others may come from a central location.

Local storage increases inventory costs because of lack of aggregation. For very fast
moving items, however, there is marginal increase in inventory even with local storage.
Albertson's uses local storage given that most of its products are relatively fast moving
and are being stocked at the supermarket in any case. Similarly, Grainger keeps its
inventory of fast moving items at pickup locations, while slow moving items are
stocked at a central warehouse.

Transportation cost is much lower than other solutions because inexpensive modes of
transport can be used to replenish product at the retail store. Facility costs are high
because many local facilities are required. A minimal information infrastructure is
needed if customers walk into the store and place their order. For online orders,
however, a significant information infrastructure is needed to provide visibility of the
order until the customer picks it up.

Very good response times can be achieved in this case because of local storage. For
example, both Albertson’s and Grainger offer same day pickup from their retail
locations. Product variety stored locally will be lower than other options. It is more
expensive than all other options to provide a high level of product availability. Order
visibility is extremely important for customer pickups where orders are placed online or
on the phone. Returns can be handled at the pickup site. Overall, return ability is fairly
good using this option.
The performance characteristics of a network with customer pickup sites and local
storage (such as retail stores) are summarized in Table.

The main advantage of a network with local storage is that it can lower the delivery cost
and provide a faster response than other networks. The major disadvantage is the
increased inventory and facility costs. Such a network is best suited for fast moving
items or items where customers value the rapid response.

3.16.9.5 Direct Shipping with Milk Runs


A milk run is a route on which a truck either delivers product from a single supplier to
multiple retailers or goes from multiple suppliers to a single buyer location, as shown in
the figure below:

Figure 23 Direct Shipping with Milk Runs, Single supplier to multiple retailers

Figure 24 Direct shipping with milk runs, multiple suppliers to single retailer [Source: Sunil Chopra and Pete
Meindl, Supply Chain Management]

In direct shipping with milk runs, a supplier delivers directly to multiple buyer
locations on a truck or a truck picks up deliveries destines for the same buyer location
from many suppliers. When using this option, a supply chain manager has to decide on
the routing of each milk run.

3.17 Lean Supply Chain Management

Another important concept in supply chain is effectively managing the waste generated
during supply chain operations particularly production also referred to as Lean Supply
Chain management. Lean supply chain management is not exclusively for those
companies who manufacture products, but by businesses who want to streamline their
processes by eliminating waste and non-value added activities. Companies have a
number of areas in their supply chain where waste can be identified as time, costs or
inventory. To create a leaner supply chain companies must examine each area of the
supply chain. The study of different aspects when considering lean manufacturing or
lean supply chain is illustrated as follows:
1. Procurement
Many businesses have complex purchasing operations. Large companies often
have corporate purchasing groups as well as local purchasing. This can lead to
vendors being given multiple contracts leading to variations in prices depending
on location. Companies that practice lean supply chain management reduce their
procurement function so that each vendor has one point of contact, one contract
and offers one price for all locations. Businesses are looking to new technologies
to assist them in improving procurement processes. These include internet based
purchasing that allows requisitioners to purchase items from vendor’s catalogs
containing companywide contract prices. Changes in payment options to
vendors can also streamline processes. Companies that use a two-way match,
which is payment on receipt rather than payment on invoice, will reduce
resources in their purchasing department as well as improve supplier
relationships.
2. Manufacturing
Lean supply chain management gained popularity in the manufacturing area as
this is where significant improvement can be achieved. Manufacturing processes
can be improved to reduce waste and resources while maintaining operational
performance. Companies who have adopted lean supply chain practices have
examined each of their routings, bill of materials and equipment to identify
where improvements can be achieved.
3. Warehousing
Warehouse processes should be examined to find areas of eliminating waste of
resources and non-value added steps. One area the companies should always be
working on is the reduction of unnecessary inventory. The accumulation of
inventory requires resources to store and maintain it. By reducing unnecessary
inventory, a company can minimize warehousing space and handling, in turn
reducing overall costs.
4. Transportation
Businesses who want to implement lean processes often look to their
transportation procedures to see where they can be streamlined. In many
instances companies find that their efforts to improve customer satisfaction leads
to poor shipping decisions. Orders are shipped without combining additional
orders to minimize costs or expensive shipping options are selected because of a
customer request. Businesses often find that they are using a number of shippers
unnecessarily when they could be reducing their shipping options and reduce
overall costs.
Lean supply chain management requires businesses to examine every process in their
supply chain and identify areas that are using unnecessary resources, which can be
measured in dollars, time or raw materials. This will improve the company’s
competitiveness as well as improve the company’s overall profitability.

3.18 Reducing Waste in the Supply Chain

Businesses are examining every area of their supply chain to reduce costs. Reducing
waste has become a key component of any cost reduction program that is implemented.
There are a number of processes that can be used in order to reduce waste in a
company’s supply chain.
1. Product Design
Many companies are examining the design of their products to identify where
the use of raw materials can be reduced or expensive materials be replaced.
Indeed many businesses are reviewing each component to identify whether it
can be manufactured or purchased more cheaply. When designing product
packaging options, companies are examining cheaper and less wasteful
materials.
2. Resource Management
Each production process should be examined to minimize the waste of raw
materials. In manufacturing operations processes that waste material that cannot
be recycled or reused must be redesigned. Even in processes that do produce
waste that can be recycled should be examined due to the costs in recycling
processes.
3. Use of Scrap Material
As well as minimizing the waste of raw materials in manufacturing processes,
the use reuse of waste material can be expanded. Improvements in the
technology of reclaiming waste material has meant that companies that
previously discarded waste products now have the ability to reuse that material.
As the recycling technology becomes more available the costs will inevitably fall
helping more businesses with waste issues.
4. Improving Quality
Quality control is built into all manufacturing processes but is usually focused on
the finished product rather than minimizing waste. Quality management should
include the goal of minimizing the waste of raw materials as well as producing a
quality product. Improving the overall quality of a company’s manufacturing
process will reduce waste overall as it will increase the quantity of finished goods
that pass quality inspection.
When companies are considering waste minimization programs, they will find that
some costs will be required in the implementation. However as those programs come
online, the reduction in waste will produce cost savings greater than the initial
investment. The implementation of waste minimization programs has been successful
in improving company’s products as well as reducing overall costs.
Chapter 4

Supply Chain of Pepsi Haidri


Beverages
Chapter 4

Supply Chain of Pepsi Haidri Beverages


4.1 Understanding Supply Chain of Haidri Beverages

As we have already discussed the concept of supply chain in detail; it would now be
much easier to understand the current supply chain operated manually by Haidri
beverages.

4.2 Supply Chain Strategy or Design

In order to ensure a good supply chain strategy, Haidri Beverages plans two years in
advance. It has several contracts with manufacturers, and receives raw material on a
convenient basis. The company also decides where production plants are to be placed.
Haidri has production plants at Peshawar and Islamabad. The production process is
65% automated. The company has to provide and manage transport for the delivery of
products as well as the arrangement of third party services for the procurement of
products. The shipping department handles orders and the transport department
decides the vehicles for safe delivery.
Material planning and sourcing is carried out as well. Sources of supply of raw material
both local and foreign are identified and terms and conditions are negotiated. Capacity
planning is also done at this stage. Sales forecasting and production planning depends
upon the capacity of the organization with respect to:
1. Production (180,000 converted 250 ML crates per day).
2. Storage: Raw and packing (80,000 Sq Ft)
3. Storage: Finished goods (120,000 Sq Ft)
Haidri has a procurement budget of Rs 2.9 billion. Approved suppliers cannot go
beyond this budget. The supplier is audited by the most cost efficient quality control
department. Distributors are also decided by the company, keeping in mind past
performances. The company has increased its distribution capacity from one to six
filling lines during the last few years lending it a competitive edge over Coca Cola.
4.3 Supply Chain Planning

As the above configurations have been set, planning must be done within the above
stated constraints. The goal of planning is to maximize the supply chain surplus.
Planning establishes parameters within which a supply chain will function over a
period of time. Companies start the planning phase with a forecast for the coming year
of demand. Pepsi carries out sales forecasting for local demand as well as for export
purposes to countries such as Afghanistan. The annual sales target is conveyed to the
supply chain department of Haidri Beverages. Planning is carried out on a monthly,
weekly and daily basis at Haidri.

4.4 Supply Chain Operation

Company makes decision regarding individual customer orders. The goal of supply
chain operations is to handle incoming customer orders in the best possible manner.
During this phase, firms allocate inventory or production to individual orders, set a
date that an order is to be filled, generate pick lists at a warehouse, allocate to shipping,
set delivery and so on. There is less uncertainty about demand. At Haidri, the
production, sales and supply chain departments get together to decide the inventory
usually on a weekly basis.

4.5 Process Views of a Supply Chain

Pepsi has a seasonal demand. Just in time concept is applicable in non-seasonal period
and not applicable in seasonal period. All processes that are part of the procurement
cycle, manufacturing cycle, replenishment cycle, and customer order cycle are push
processes.
Pepsi Sales order and processing: The Shipping Manager receives sales order from Sales
Team, distributors through telephone, fax & email one day before dispatch. The sales
are made to base distributors on advance payment against orders then shipping
manager plans according to the demand of distributors on daily basis.
4.6 Competitive Edge and Supply Chain Strategies

Figure 25 Supply Chain Strategy for Pepsi

There are three major sustainable advantages that give PepsiCo a competitive edge as
they operate in the global marketplace:
1. Big, muscular brands,
2. Proven ability to innovate and create differentiated products and
3. Powerful go-to-market systems.
PepsiCo's overall mission is to increase the value of shareholder's investment. They do this
through sales growth, cost controls and wise investment of resources. They believe their
commercial success depends upon offering quality and value to their consumers and
customers; providing products that are safe, wholesome, economically efficient and
environmentally sound; and providing a fair return to their investors while adhering to the
highest standards of integrity. A customer while purchasing a bottle of Pepsi will
consider product quality, price and availability of the product. Thus, Pepsi in Pakistan
particularly focuses its competitive strategy as to producing sufficient variety, reasonable
prices, and the availability of the product.

4.7 Supply Chain Strategy

Step 1: The Customer and Supply Chain Uncertainty


a) Identifying Customer Needs
Haidri needs to understand the customer needs for each targeted segment and the
uncertainty the supply chain faces in satisfying these needs. As Haidri deals with
beverages, which are a fast moving consumer good, it knows the requirements of
consumers. Pepsi is considered as a drink which is refreshing during summer, and
taken regularly during winter, with demand hiking around festivals such as Eid and
occasions such as weddings. Haidri caters to both cities and rural areas. It understands
the needs of both. As demand for beverages is seasonal, the quantity of product needed
for each lot is taken care of with past demand in mind. Consumers generally require a
small response time, high service level, reasonable price and some variety (for example
health conscious people favor diet versions of sodas).
b) Demand Uncertainty and Implied Demand Uncertainty
Demand for Pepsi varies by product. For example there is a greater demand for “Pepsi”
as compared to “Mirinda Apple,” which is new. Hence, Pepsi has a low demand
uncertainty as compared to “Mirinda Apple.” The product “Pepsi” is approaching its
maturity stage in the PLC whereas “Mirinda Apple” is in the introductory stage.
Pepsi’s implied demand uncertainty varies with the product type as well as the
customer needs. Due to decreased lead time (the customer may purchase its
competitor’s product if Pepsi is not available at that time), need for greater variety and
higher level of service, implied demand uncertainty increases. This is true for cities
where unmet demand by Pepsi is met by Coca Cola, Amrat Cola and other such
competitors.
Supply uncertainty is also affected by new products. New products have higher supply
uncertainty.
Step 2: Understanding the Supply Chain Capabilities
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Figure 26

The efficiency and responsiveness varies according to the consumer needs, implied
demand uncertainty, product type and market segments. In remote areas the company
focuses on being somewhat efficient as other modes of transportation could turn the
product to be highly expensive. According to the company it does not deal with
distributors who do not have 20 to 25 vehicles, therefore as the company has focus on
cost reduction, uses slow and inexpensive modes of transportation, the demand is
certain, and uses economies of scale in production, the product Pepsi is more inclined
towards being somewhat efficient. In cities, the company focuses its attention on being
highly responsive as Pepsi has to meet short lead time, meet a high service level, handle
a large variety of products and respond to wide ranges of quantity demanded especially
at the retail stage.
Step 3: Achieving the Strategic Fit
Making one stage more responsive allows the other stage to focus on being more
efficient. The Pepsi supply chain assign different roles to its different stages, the
company has to decide either to transfer the responsiveness to the manufacture stage or
to the retailer stage. While discussing the Pepsi’s supply capability it is seen that Pepsi
tends to be more responsive in the cities and a bit less in towns. Therefore, transferring
the responsiveness to the retailer and distributor, allowing them to face the higher
implied demand uncertainty. This in return allows the manufacturer and supplier to be
more efficient. At the same time, multiple beverage types contribute to a broader
product portfolio causing Haidri to adjust its strategies accordingly; tailoring the supply
chain to best meet the needs of each beverage demand.

4.8 Distribution Channels

➢ Direct distribution:
○ Delivery of post mix cylinders & handling of key accounts: The key
accounts are different wholesalers, restaurants and hotels like Pizza Hut,
KFC, Metro which serve as a place for key sale. These are known as national
key accounts and are very important in terms of competition.
○ Export Parties
➢ Indirect distribution:
○ Through Base market distributors
○ Through Outstation distributors
Haidri uses light and heavy vehicles for safe delivery of goods to the distributors for
timely delivery. It follows the just in time concept which is applicable in Non-seasonal
period and not applicable in the seasonal period.

4.9 Review and Revise Distribution

This is usually done through taking over key revenue areas. If the distributor does not
achieve its sales target, the distribution is taken back and an addition of new distributor
is done. Therefore Pepsi’s supply is low supply uncertainty. Some of its supply source
capabilities are:
➢ Less breakdowns
➢ High quality
➢ Flexible supply capacity
➢ Mature production process

4.10 Factors Influencing Distribution Network Design

At the highest level, performance of a distribution network should be evaluated along


two dimensions:
1. Customer needs that are met
2. Cost of meeting customer needs
The customer needs that are met influence the company’s revenues, which along with
cost decide the profitability of the delivery network. While customer service consists of
many components we will consider those measures that are influenced by the structure
of the distribution network for Pepsi.
Response Time for Pepsi is minimal as the direct customers for Pepsi are the retailers
and then the consumers. So with over 30 delivery trucks in Islamabad, Pepsi is readily
available to every retailer within 30 minutes. Rawalpindi has 6 warehouses from where
the supply to the market is done through Shehzore or small cars.
Product Variety in Pepsi is large. They have made their place in the market with their
unique product line ranging from chips to water. As we are dealing with Haidri, the
product variety includes beverages ranging from the water Aquafina to Mountain Dew,
Pepsi, Pepsi Max, 7 Up, Mirinda, Mirinda Apple & Fountain Fresh.
Customers Desire Pepsi and Mountain Dew the most; Mountain Dew has the highest
consumption in Gujranwalla. Recently, the sales for 250 ml bottles has decreased but
they are trying to increase it as it gives the company higher profits.
Availability of Pepsi is very high and the product is always available in stock whenever
an order arrives. Whenever the distributors feel that after one loading there could be a
stock out they place an order to Haidri Beverages in advance just to keep the floor with
enough stock in hand. The Distributors have 3 days stock as back up with them in order
of any malfunctioning of the plant or other such external factors.
Customer Experience for Pepsi has always been positive as they receive the product
with ease and on time. The retailers are the direct customers as they place an order to
the distributors. There has never been a shortage or a delay for Pepsi in Metro or Pizza
Hut which are the key accounts for the company.
Order Visibility in Pepsi is not really an electronic phenomenon where you can track
your order through computer. Since the area covered by Pepsi Haidri Beverages is not
too big and distance in miles is not too large, it is quite easy for a distributor to track his
order via phone call or on-location inquiry.
Returnability of Pepsi has always been very strong in a sense that unsatisfactory items
can be returned and changed on the spot. This is true for both the consumers and the
retailers. Pepsi has laid down a system through which they can effectively manage this
requirement. The retailers are told to take down the comments and the address or
phone numbers from the person who is returning the bottle. It seems at first that a
customer always wants the highest level of performance along all these dimensions, in
practice however this is not always the case.

4.11 Design Options for Distribution Network

4.11.1 Distributor Storage with Carrier Delivery


In Pepsi inventory is not held by the manufacturers at the factories but is held by
distributors/ retailers in intermediate warehouses and package carriers are used to
transport the products from the intermediate location to the final customer. This
requires distributor storage to keep high levels of inventory because distributor/retailer
aggregates demand uncertainty to a lower level than the manufacturer. Transportation
costs for Pepsi are somewhat lower because an economic mode of transportation (e.g.
truckload) can be employed for inbound shipments to the warehouse, which is closer to
the customer. Facility cost is high because of a loss of aggregation and often end up
with higher processing costs. The information structure needed is not that complex. The
distribution warehouse serves as a buffer between manufacturer and customer. Real-
time visibility between customers and warehouse is needed whereas visibility between
customer and manufacturer is not required. Response time is also reduced. Customer
convenience is high and order visibility with manufacturer storage becomes easier.
Distributor storage is well suited for medium to fast moving goods and it can also
handle higher level of variety than retail stores.

Figure 27 Distributor Storage with Carrier Delivery method is used by Pepsi Haidri Beverages [Source: Pepsi
Shipment Department]

4.11.2 Value of Distribution System


There are basically two components of distribution:
• Storage
• Distribution
The storage facilities of Haidiri Beverages are designed in order to boost the timely
availability of the product. For this purpose the distributors are fully equipped with
facilities that are needed to ensure intensive supply of the product. The storage facilities
are designed to contain the maximum possible inventory items that are needed at any
given time.
Haidiri Beverages has established several storage units nearer to the market in order to
boost availability. Transportation conducts inventory movement from point to point in
supply chain of Haideri Beverages. It incorporates a combination of modes and routes
at different stages. Transportation choices have a large impact on the responsiveness
strategy of the business. Haidiri has several contracts with several distributors with
multiple transport facility that ensure the maximum possible transport of inventory
within a short period of time. The distribution does not work between specific supply
chain components but it performs a basic function of integration amongst all supply
chain components. In case of FMCG like Pepsi, the value of systematic distribution
process cannot be undermined. The Pepsi distribution system linked the entire supply
chain for all product categories. The distribution centers and its information network
play a key role in that regard. The major object is to carefully track sales of items and
offer short replenishment cycle times. The distributors offer stored deliveries too many
retail outlets in the twin cities. Different products are being delivered conveniently on
pre-orders. The distribution system is flexible enough to alter delivery schedule
depending on customer demand. The Territory Distributor Managers maintain a contact
with the retailers in order to book and place the orders. Whenever a store places an
order it is immediately transmitted to the supplier through the distribution manager.
Now Haidiri receives orders from all distribution centers and the shipment department
delivers the orders. At the distribution centre, products from the manufacturer are
delivered into different trucks and each truck makes deliveries to multiple retail stores.
The number of stores depends upon the sales volume. The system works on trust and
does not require the delivery person to be present when store personnel scan the
delivery. This reduces the delivery time at each store.
Haidiri has nine distributors in Islamabad and Rawalpindi, namely: Shan distributors,
Awan distributors and Arbab Distributors. To support this distribution network they
have a transport department which consists of more than 30 ten wheeler trucks in
Islamabad alone. Each truck has a capacity of 1572 Pepsi cans. Rawalpindi distribution
is made possible through Shehzore and Suzuki because of narrow and congested roads.
The distribution department is in direct contact with the manufacturers and keeps
updating inventory levels. They keep in stock spare three days stock to combat external
uncertainty. The distribution department is responsible for all the variety of products in
their portfolio. PepsiCo’s overall distribution network spreads throughout Pakistan
connecting the remotest of places and providing great customer service. Globalization
has increased the competition that Pepsi is constantly coming up with new projects,
campaigns and distribution. Pepsi with more than 180% of profits this year and with the
annual review of their rates (last revised on 14th November 2007) is looking more and
more competitive.

4.12 Demand Forecasting

4.12.1 Importance
Demand forecasts form the basis of all supply chain planning at Haidiri Beverages.
Forecasts of future demand are essential for making accurate supply chain decisions
and ensuring the company’s success. Examples of such decisions include how much of
the product to make, how much to inventory, how much to replenish and how much to
order.

4.12.2 Ease of Forecasting


Beverages are a push product. Forecasting is not easy in the beverage industry as there
are possible serious fluctuations in demand due to seasonal changes in winter and
summer, which cannot be easily predicted before hand or controlled. Therefore,
accurate forecasting can be difficult at times, and there is a margin for error. However,
having multiple product lines and daily planning procedures do decrease variability at
Haidiri. Risk of error is decreased by high responsiveness.

4.11.3 Forecasting Methods


At Haideri Beverages, a combination of three forecasting methods is used. These
methods are used for local demand only. In the case of exports to countries such as
Afghanistan, no forecasting is done as orders are taken by Haidiri one year in advance.
Forecasting is done in collaboration with PepsiCo International. The following methods
are used in combination for the purpose of sales and demand forecasting:-

1. Time-Series Method

Historical demand data can be effectively used to forecast future demand.


Haidiri Beverages takes into account the previous two years historical data to
forecast its future demand. On this basis, a demand forecast for the coming year
is made. Haidiri carries out demand forecasting for local demand.
2. Qualitative Method

Using historical data and market intelligence as a guide, Haidiri’s management


practices their own judgment to determine the demand forecast. Haidiri’s
management forms a panel for achieving this purpose that comprises of the CEO,
GM marketing, the department managers (sales, shipping, quality control,
marketing etc) and specially hired supply chain analysts. A yearly demand plan
is forecasted in this way which is then further divided into monthly, weekly and
daily plans accordingly.

3. Causal Method

Causal forecasting assumes that the demand forecast is highly correlated with
certain factors in the environment such as the state of the economy, interest rates,
and product pricing that can cause a change in the demand. An example is how
by introducing a product variant, such as Pepsi Twist, can influence demand for
the original product that is Pepsi. Promotional activities by PepsiCo International
planned for the year is another example. Haidiri Beverages plans its demand
forecast in collaboration with PepsiCo international, knowing that increased
promotional activity leads to higher demand.

4.12.4 Forecasting in Practice


Haidiri regularly updates its forecasts as and when needed. It keeps in regular touch
with PepsiCo International headquarters, integrates demand planning and forecasting
throughout the supply chain, and keeps an eye on market trends, seasonal variations
and competitors’ strategies. This ensures that the forecast reflects the current reality and
reduces risk. The updated forecast is essential for the company to carry out supply
chain planning and decisions. Haidri Beverages, operating without an updated forecast
is unlikely to meet the needs of its customers and its own organizational objectives.

4.13 Aggregate Planning

4.13.1 Planning Horizon


The planning horizon for Haidiri Beverages is one year that is twelve months which is
further divided into quarters, months and weeks respectively.

4.13.2 Aggregate Planning Strategy


Time flexibility from workforce or capacity strategy-using utilization as the lever

The aggregate planning strategy used by Haidri beverages is the time-flexible strategy,
as it is most suited to the beverage industry.

Capacity: The plant at Haidri Beverages normally works at 12 hours a day machine
capacity, but this capacity can be taken up to 24 hours a day when required, as in peak
times of demand. This excess machine capacity can be utilized when needed.

In order to synchronize production with demand, Haidri keeps a stable workforce by


using the existing workforce and varying the number of hours worked over time. Such
flexible schedules help achieve synchronization. No external workers are hired; instead,
existing workers’ shifts are increased and they are paid over time.

Inventory:At Haidri, production is synchronized with demand and high levels of


inventory are avoided. The company maintains a month’s safety inventory as a tradeoff
between the costs of having too much inventory and the costs of losing sales due to not
having enough inventory. In order to save on carrying and storage costs, Haidri aims to
keep lower levels of inventory, using excess machine capacity and worker overtime to
adjust to demand variations as in line with this strategy.

Stockouts: The costs are distributed over the workforce and stockouts are avoided.

4.13.3 Planning Constraints


Haidri has to comply to national labor laws and laws governing working time and rest
time (no more than fifty hours a week) as outlined in the Constitution of Pakistan and
the Factories Act 1934. This is to ensure the basic rights of the workers. The company
cannot exceed existing fixed capacity in production decisions with respect to:

• Production (180,000 litres converted to 250 ML crates per day).


• Storage: Raw and packing (80,000 Sq Ft)
• Storage: Finished goods (120,000 Sq Ft)
The company needs to comply to the capital available and has to maintain a minimum
safety inventory level at all times to avoid stockouts.

4.14 Transportation Network

Haidiri Beverage’s supply chain strategy is closely linked to the appropriate use of
transportation. In a typical market, quick response enables supply chains to meet the
customer demands for ever-shorter lead times, and to synchronize the supply to meet
the peaks and troughs of demand. The major focus is to determine the processes that
are to be integrated in the supply chain network with their corresponding suppliers,
distribution centers and the associated transport links between them.

4.15 Modes of Transportation

Land: Truck offers advantage of door to door shipment, a shorter delivery time and no
transfer between pick up and delivery. Haidiri beverage uses the TL (truck load)
approach. This approach provides paves the way for economies of scale and is able to
meet service requirements while minimizing both trucks idle and empty travel time.
Truck loads are more suited to Haidiri beverages because of the use of warehouses and
larger shipments therefore making it cheap. Raw materials from the suppliers are
brought using trucks; finished products are transported to distributors and then
retailers using trucks as well. Haidri beverages have its own fleet of small and large
trucks and vehicles for carrying goods and raw material, while the distributors also use
their own vehicles.

Water: This mode forms only a very small part of the total transport network. It is used
for shipping of empty cans from Dubai to Port Qasim in Karachi, from where it is
brought by land to the plant in Rawalpindi.
Air: It is again a very small part of the entire transport network. This mode is used to fly
in concentrate form New York to Lahore, from where it is transported by land to a
storage facility in Hatter and collected from there by Haidiri Beverages’ own trucks. The
shipping department is in charge for storage and subsequent displacement of the
product orders. The inventory capacity is being utilized and maintained in coordination
with the production department and is based on the term production estimates.
4.16 Design Options for a Transportation Network

4.16.1 Shipment via central DC with inventory storage using milk-runs: This is the
main mode used for transporting goods to consumers who are far away. Products are
transferred to the distribution center in a particular region and are stored there. Smaller
trucks then carry these products to the local retailers as per demand in smaller vehicles
using milk runs.

This method is cost effective because it saves on high transport cost that would have
been involved in transporting to each retailer directly form the supplier, and also
prevents stockouts because inventory is maintained closer to the retail outlets.
D.C

Haidiri Beverages

Figure 7 (Shipping via Central DC)

4.16.2 Direct Shipping: This method is used for transporting products to key account
holders such as KFC and Pizza Hut. Haidri transports to them directly. Diagram in
Appendix.
4.16.3 Direct Shipping with Milk-Runs: This method is used for transporting post mix
cylinders to retailers within the Islamabad/Rawalpindi region for fountain fresh Pepsi.
The shipment is made in milk runs.

4.17 Sourcing Decisions in Supply Chain

For Haidiri Beverages, outsourcing results in the supply chain function being
performed by a third party. It is in fact one of the most important factors facing the firm.
Raw material for production and packaging is being outsourced through contracts.
Inbound and outbound transportation of products from the manufacturing place to the
distribution center and then to the final customer is also being outsourced to a third
party. The basic considerations of Haidiri in this regard are:

• Pointing out sources of supply and negotiate with suppliers


• Sourcing of raw material from local and foreign suppliers
• Deciding terms and conditions with supplier
• Coordinating activities and documentation with suppliers
• Cost comparisons and quality assurance.
Haidiri makes the decision from where to outsource by inviting bids for tenders in the
local newspapers. The tender works as a general offer to all the interested parties
whether they are related to the provision of raw material or distribution vehicles.
Sourcing process of the company includes the selection of supplier, design of supplier
contracts, product design collaboration, procurement of material and services and
evaluation of supplier performance in case of raw material procurement.

Supplier Scoring and Assessment

Figure 28 (Supplier Scoring and Assessment) [Source:


http://www.etq.com/supplierquality/]
When comparing suppliers, Haidiri does not only focus on the quoted price but also
other dimensions that may affect the total cost of the supplier. The following factors
other than quoted price are being considered: replenishment lead time, supply
flexibility, supply quality, pricing terms, exchange rates, duties and supplier viability.
For Haidiri the supplier scoring and assessment is based on the feature that the supplier
performance, in terms of replenishment lead time and on time performance, distinguish
them amongst their competitors. Soon after the tender notice for the procurement of
raw materials is advertised, the suppliers are asked to send sample of the products. For
example, for the manufacture of Pepsi, concentrate and sugar are demanded of high
quality which is the forte of the company. These samples are tested in the total quality
laboratories. If the samples match with the standard set then the sales department
selects that particular supplier. Pepsi being an ISO-9001 certified company cannot sell
low quality products, therefore it has strict standards set for the purchase of raw
materials from suppliers.

4.17 Raw material Procurement

For the manufacturing of Pepsi products, Haidiri procures raw materials like packaging
materials, bottles, cans, sugar and concentrate etc. from both local and foreign suppliers.
The materials used in the manufacture of beverages are primarily being procured from
various parts of the country. Plastic bottles are mostly obtained from APCO plant,
which is located right next to Haidiri’s factory. Cans are imported ready-made and
printed from Dubai in two parts-the case and the lid. Sugar is purchased from several
different suppliers chosen from a list already selected by PepsiCo International. The
concentrate is obtained directly from PepsiCo International. The management usually
advertises in the newspaper to invite tenders for the supply of these raw materials. The
basic components of raw material are: concentrate, CO2, sugar and gas.

4.18 Negotiations with Suppliers

Procurement Managers at Haidiri perform technical evaluation of the suppliers


including the analysis of their historical financial record, lead time and infrastructure
before selection. In some cases, after selection of the supplier, Haidiri enters into
negotiations to set the terms of the contracts. Haidiri’s supply contract with the supplier
specifies parameters governing the buyer-supplier relationship. But in addition to this
contract, further negotiations with the supplier are opted for establishing a significant
impact on the behavior and performance of all stages in the supply chain. Haidiri enjoys
a bargaining edge in the negotiation process and dictates the terms rather than to follow
them.

4.19 Selection Criteria of Distributors

Selection of distributors is a critical step, because the majority of supply to the retailers
is handled by the distributors. Efficient and well-placed distributors are essential for
ensuring product availability, which is the main target of the company. For this purpose,
applicant distributors must have: 20-25 vehicles (depends upon area supplied), have
20,000 cases of empty bottles, and deposit Rs.1,000,000 as security. Distributors who
meet these criteria are then considered as potentials and then selected after negotiations
on cost and other factors. In case of Haidiri’s distributors the company allocates a fixed
quota to its distributors and does not show flexibility of buying back. Revenue sharing
contract exists between the distributor and Haidiri.

4.20 Product Categorization by Value and Criticality

Pepsi’s strategic item is its drink formula. It is considered to be a base line for the
company’s business all over the world. The critical item is the gas component that is
CO2; the company must ensure the availability of this item with less comparative
accumulated cost. Cans and bottles come into the category of general items, the
company tries to ensure maximum efficiency while buying these items. The use, type
and specifications of bottles differ with different products. General items have more
specific use as compared to bulk items. Sugar may rightly be placed under the category
of bulk items. Haidiri procures sugar for its use in the production process. Maximum
efficiency has been ensured while buying sugar and its related products in bulk. Bulk
items are used invariably in all products of Pepsi with slightly variations of proportion.
Figure 29 Product Categorization by value & Criticality 4.21
Strategic Item s
High Critical Item s Pricing
Criticality Ensure availability
Ensure long term
relationship
Gas CO2 Drink Formula and
Bulk P urchase
General Item s Item s
Ensure low cost Ensure low cost
Low Cans and bottles Sugar
Low High
Value/Cost
26
utdallas .edu/~ m etin

Revenue Management

Being a franchise of PepsiCo International, Haidiri beverages cannot vary the price of its
drinks in the retail market in order to regulate revenue and profit; it has to follow the
pricing set and determined by PepsiCo international. However, all the revenue
management policy guide lines are provided from PepsiCo International. For an
effective revenue management, pricing is an important lever to increase supply chain
profit by better matching supply and demand. As per Pepsi’s policy, Haidiri uses
differential pricing based on customer segment, time of use, and product or capacity
availability. In order to increase supply chain profits and total margin earned from these
assets, managers use all available levers, including price. This is a primary role of
revenue management.

4.22 Revenue Management for Seasonal Demand

Seasonal peaks of demand are common every year. In Pepsi the seasonal demand varies
as it increases considerably in summer than in winters. Off-peak discounting can shift
demand from peak to non-peak periods. This is exactly what Pepsi does as it reduces its
prices on litre bottles and comes up with new saving schemes just to attract customers.
Pepsi charges higher price during peak periods and a lower price during off-peak
periods.
4.23 Pricing and Revenue Management for Multiple Customer Segments

These are different segments which Pepsi has allocated and targets multiple customers
from these segments such as children, teenagers and adults. The product range is
available in tin, glass bottles, plastic liter bottles and fountain fresh. Tin is relatively
expensive than glass bottles and caters to a different segment. To use revenue
management successfully when serving multiple customer segments, Haidiri follows
these tactics effectively by basing price on the values assigned by each segment. They
also use different prices for each segment for example a Pepsi can costs Rs 30 and at the
same time Pepsi bottle costs only Rs 12, so Pepsi uses different prices for each segment.
To gain the edge Pepsi forecasts at the segment level as well to help keep Pepsi
competitive in their pricing and revenue management

4.24 Pricing and Revenue management for Bulk and Spot Customers

Haidiri’s has key accounts like Savor foods, KFC, Pizza Hut etc., and pricing is adjusted
in order to facilitate these customers. They are offered discounted prices because they
are potential long term customers and they always purchase in bulk. Not only that, they
serve as an important means of promotion. By offering lower prices to such large scale
customers, the company ultimately benefits. At the same time the distributors also reach
out to the retailers who usually buy at the spot in small quantities.

4.25 Using In Practice

Managers do gather accurate and complete data relating to products, offered prices,
competition and most important customer behavior. For Pepsi it’s equally important to
quantify the expected benefits from revenue management. Historical data and a good
model of customer preferences are being used to estimate the benefits. Pepsi
differentiates between the customers who truly need the supply chain asset during peak
period and those who will benefit from moving their order to the off-peak period. This
approach increases profits for the firm while also satisfying the customers creating a
double impact. Revenue management tactics have brought in huge profits to the
company.
Chapter 5

Ideal Features of a Supply


Chain Management System
Chapter 5

Ideal Features of a Supply Chain Management System


The reality of today’s global economy is such that manufacturing firms everywhere face
stiff competition as a result of outsourcing to countries where cheaper labor is readily
available. Because of this, new methods of manufacturing and delivery have been
created, and out of this have come Supply Chain Management (SCM).
To better appreciate this relatively new area of technology, one needs to understand the
general supply chain model, the economic factors involved in the supply chain process,
and how the software market has developed solutions to meet the challenges faced by
today’s manufacturers and distributors.
Fierce competition is not today’s manufacturers only concern. Rising fuel costs, an
increase in the number of government regulations, a greater need for visibility (as
products or components move cross country and across nations), maintaining customer
satisfaction—all these issues are forcing organizations to look for faster, more efficient
ways of producing and moving goods. SCM software is now available to accommodate
the needs of manufacturers today.

5.1 The Need for Supply Chain Management Systems

SCM is very complex, and because products move through multiple partners, it is quite
difficult to achieve maximum profits, minimum costs, and to gain the needed
competitive edge. SCM has many nodes that connect suppliers, manufacturers, and
distributors together. The supply chain also brings manufacturers and distributors
closer to the outsourced producers, creating a value chain, where each manufacturing
process and each product is tracked from the manufacturer all the way to the final
consumer.
In order for this value chain to be created, throughout the supply chain as well as at
each node, software has been developed to help companies turn out a profitable bottom
line and increase market share in their respective industries. Using these software
solutions, profits are maximized, costs are kept to a minimum, and scheduling and
timing are kept in check.
In addition, collaboration between partners can be daunting, especially since each
partner wants to make a profit. Because of this and other factors (such as rising petrol
prices and the steady increase of goods being manufactured in China and Eastern
European countries), international collaboration and quick inventory turnover are
essential. SCM software can equip a facility with the capacity to receive the increased
volume of product shipments coming from lower-cost countries.

5.2 Software Solutions for Today’s Manufacturers and Distributors

Because of the growing complexity of today’s supply chains, including geographic and
international issues, financial constraints, and the sheer number of players that can be
involved, SCM software has been developed so that manufacturers and distributors can
work without missing a beat.
People typically involved in supply chain activities include manufacturers, distributors,
logistics professionals, procurement specialists, vendor managers, commodity buyers,
planners, and even retailers. All of these players need assistance in solving complex
business issues that arise in the supply chain.
SCM software addresses the needs of both manufacturers and distributors. The
software can be customized to meet manufacturers’ needs by sourcing and obtaining
the materials required to produce semi-finished or finished goods, and to aid
distributors in moving products quickly and efficiently, allowing maximum visibility
across the logistics network.
Supply chain software includes many types of software solutions that may be sold as
stand-alone modules. Yet when combined together, these solutions give supply chain
professionals the visibility they need into their operations. In terms of lean
manufacturing, a hybrid of both manufacturing and distribution modules is used,
giving way to maximum efficiency and low or zero wasted materials in the
manufacturing environment.

5.3 Core Components of SCM Software

In a typical SCM solution, software modules included are a warehouse management


system (WMS), transportation management system (TMS), supplier relationship
management (SRM), international trade logistics (ITL), procurement, demand
management (DM), supply chain analytics, order management, and service parts
planning. For manufacturing companies, SCM also include the modules supporting
manufacturing operations.
1. Warehouse Management Systems (WMS)
At the heart of an SCM solution lies both the WMS and the TMS applications. The
WMS solution deals with the inventory that is to be moved throughout the supply
chain. For inventory movement within the warehouse to be efficient, the process
must be optimized through visibility of the products. Visibility is usually enabled by
Radio Frequency Identification (RFID) technology.
SCM can manage warehouse activities, including:
• Inbound Processing and Receipt Confirmation – Receive and process externally
procured goods into your warehouse with a single radio-frequency scan.
• Outbound Processing – Use RFID technology to manage all the steps of the
goods issue, including distribution and proof-of-delivery activities.
• Cross Docking – Direct inbound goods from receipt to issue without interim
storage. Minimize duplicate goods movements, optimize the flow of goods, and
shorten routes within the warehouse.
• Warehousing and Storage Management – Optimize internal movements and
storage of goods within a warehouse.
• Physical Inventory – Plan and execute physical inventory or cycle counts.
2. Transportation Management System (TMS)
The TMS software is one of the key components to the supply chain. This software
manages the scheduling of all transport modes used to move products from one
location to another, in addition to finding the best routes to take and determining
which products are best transported by what type of transportation (that is, truck,
rail, sea, or plane). TMS software also allows individuals within the transportation
network, such as drivers or managers, to log in to a transportation portal to
communicate directly and make updates in real time.
SCM can manage key transportation processes, including:
• Transportation Planning – Optimize shipments, assign carriers to shipments,
and tender shipments to assigned carriers.
• Transportation Execution – Select carriers, calculate freight costs, settle shipment
costs, and print documents. Use denied-party and embargo lists when shipping
internationally.
• Freight Costing – Calculate and settle freight costs based on actual shipments
and current rates, and use this information to verify invoices.
3. International Trade Logistics
The ITL module within the SCM suite handles the details for international trade.
Collaboration between countries, compliance issues, tariffs and taxes, event
management, shipment tracking, and import and export management are all dealt
with by giving many people across the supply chain access and visibility into the
issues that can occur at any node within the supply chain, and not only into the
products themselves in the international context.
4. Supplier Relationship Management (SRM)
SRM software enables suppliers and delivery site individuals to access supplier
portals for the following two reasons:
i. To facilitate communication among these parties and to update them on any
problems the supplier may be experiencing at its end, and
ii. To allow managers to use scorecards to rate suppliers as good, average, or
poor.
For example, if a supplier is not complying with standards or is not respecting
delivery times or if the supplier’s goods are simply not available, the supplier will be
given a poor rating. If the supplier receives too many poor ratings or if the problems
continue to occur, the supplier can be justifiably replaced by a new one.
5. Supply Chain Analytics
Supply chain analytics is a tool that allows managers and others involved in
decision-making processes the ability to create what-if scenarios, enabling work-
around scenarios to be put into place before incidents occur. This also enables
production and supply chain planning to be optimized.
SCM supports supply chain visibility design and analytics with features and
functions that enable supply chain design and analytics processes, including:
• Strategic Supply Chain Design – With visibility across the entire supply chain
network, planners and key decision makers can perform strategic and tactical
business planning. They can test scenarios to determine how the supply chain
network can address changes in the market, the business, or customer demand.
• Supply Chain Analytics – SCM enables to define, select, and monitor KPIs1 to
get an integrated, comprehensive view of performance across the supply chain.
Companies can also use predefined KPIs based on the supply chain operations
reference (SCOR) model to monitor sourcing, planning, production, distribution,
and returns processes.
6. Demand Management
DM software gives both manufacturers and distributors the ability to forecast and
manage the demand for particular products sold within their respective markets.
DM software takes historical sales and warehouse data, and provides a guideline to
what should be procured and at what time, taking into account seasonal variability.
This helps in the planning of what is needed to be produced and how much of each
material is to be procured. DM software can also help manufacturers obtain
particular components from different sources to produce complex products within
appropriate timelines. The software may also take data from the human resources
(HR) application to schedule laborers according to production demand.

7. Order Management
Eliminate the soft costs, delays and errors associated with manually generating,
sending, receiving, and acknowledging orders. SCM automates this entire process,
cutting administration costs and saving hundreds of thousands of dollars per year in
overheads, while making supply chain more efficient. Supply Chain Management
Hub enables the supply chain to extend way beyond enterprise. Much of the
inefficiency and cost that carry is a direct result of poor, late, or non-existent

1
Key Performance Indicators (KPI) are financial and non-financial measures or metrics
used to help an organization define and evaluate how successful it is, typically in terms of
making progress towards its long-term organizational goals. KPIs can be specified by
answering the question, "What is really important to different stakeholders?"
communication with suppliers. SCM system simply take the information
organization choose to provide and deliver it to the people, in real-time and in the
format they require.

SCM can manage order fulfillment activities, including:


• Sales Order Processing – Fulfill a contract or purchase order with a specific
product configuration and quantity – or a given service at a specific time.
• Billing – Handle the entire billing process, from the creation and cancellation of
invoices through the transfer of billing information to the accounting
department.
8. Procurement

SCM supports end-to-end procurement, including processes for:


• Strategic Sourcing – Identify and evaluate vendors based on historical
performance and other data. Create long-term sourcing plans that align with
financial and marketing strategies.
• Purchase Order Processing – Convert demand, such as purchase requisitions
and e-shopping carts, into purchase orders or delivery schedules for a scheduling
agreement.
• Invoicing – Receive, enter, and check vendor invoices for correctness in terms of
content, price, and computation.
9. Manufacturing
SCM supports all production processes, including engineer-to-order, configure-to-
order, make-to-order, and make-to-stock manufacturing. The solution enables both:
• Production Planning and Detailed Scheduling – Optimize schedules for
machine, labor, and overall capacity utilization, factoring in customer delivery
dates, material availability, and real-time manufacturing conditions.
• Manufacturing Operations – Capture production information from the shop
floor to support production control and costing processes.
10. Service Parts Planning
SCM can also handle service parts planning activities, including:
• Parts Demand Planning – Improve the accuracy of forecasts through better
modeling of demand quantities, events, and their respective deviations.
Companies can select sophisticated forecast models and optimize model
parameters to improve forecasting for slow-moving parts or for parts with
irregular demand patterns. Through aggregated forecast-parameter profile
maintenance, can make data maintenance more efficient.
• Parts Inventory Planning – Reduce inventory levels and achieve retail service
levels by providing more precise demand modeling. Companies can distribute
inventory optimally within the multi-echelon supply chain to ensure high service
levels while keeping inventory levels at a minimum.
• Parts Supply Planning – Reduce inventory in the supply chain by improving
supplier alignment, increasing automation, and developing accurate supply
plans. Companies can also reduce operational cost through efficient purchasing
practices.
• Parts Distribution Planning – Set up stock transfers for parts within a service
parts network to reduce stock-out situations and operational costs.
• Parts monitoring – Work with suppliers and customers to exchange information
and handle alerts collaboratively.

5.4 Other Supported Features of Supply Chain Management Systems

Supply Chain management helps to cost-effectively collaborate with suppliers and


customers to dramatically reduce inventory levels, increase inventory overturn, and
strip out administrative costs. Supply Chain systems makes information available to
suppliers in real-time, enabling the entire supply chain to work faster, smarter, and
more cost-effectively.

1. Planning and Forecasting


A major factor behind missed product deadlines is that suppliers are not given enough
warning about changes to production schedules. Using Supply Chain Management
Hub, suppliers will know about production plans. Fewer mistakes and last-minute
changes are made and goods are delivered on time to the correct location.

2. Visibility
Current inventory levels tend to bloat as a result of poor visibility into demand flowing
through supply chain. By making upcoming demand transparent to suppliers, help to
lower all of costs and run a far more efficient supply chain. Once suppliers see
inventory levels and short term and long term requirements for their products, they
can better run their own operations, buying smarter, holding less inventory, doing less
last-minute and expensive transportation, and cutting their production setups.

3. Financial Supply Chain Management (FSCM)


Financial Supply Chain Management set of applications provides a complete, integrated
solution for managing electronic customer billing, receivables, collections, and customer
credit risk. FSCM helps to more effectively control company's accounts receivable
processes and ensure cash flows through online billing, more streamlined handling of
billing disputes, and collections.
Complete integration with core ERP applications ensures that company receivables and
collections professionals have the most up-to-date data. So they can resolve issues
quickly – resulting in accelerated cash flow and lower operating expenses.
FSCM includes the following applications:
• Credit Management
○ Employs sophisticated tools to analyze customer credit worthiness and
establish policy
○ Helps to avoid bad debt losses by proactively managing customer credit
risk exposure

• Electronic Invoicing and Payments


○ Enables customer access to invoices, account status, and payment
information over the Internet
○ Integrates seamlessly with your existing customer or supplier facing
portals
• Dispute Management
○ Resolves accounts receivable disputes faster and more systematically
○ Reduces days sales outstanding (DSO) and improve cash flows
• Collections Management
○ Enables the more effective management of past due accounts
○ Ensures faster collection of delinquent payments though prioritized
collections efforts

5.5 Supply Chain Planning and Collaboration

SCM includes features and functions to support collaborative supply chain planning
processes, including strategic, tactical, and operational planning.
5.5.1 Strategic, Tactical, and Operational Planning
SCM can optimize a full range of planning activities, including:
• Demand Planning and Forecasting – Forecast and plan anticipated demand for
products or product characteristics. Use state-of-the-art forecasting algorithms
for product life-cycle planning and trade promotion planning.
• Safety Stock Planning – Assign optimal safety stock and target stock levels in all
inventories in the supply network. Meet desired customer service levels while
maintaining a minimum amount of safety stock.
• Supply Network Planning – Integrate purchasing, manufacturing, distribution,
and transportation plans into an overall supply picture – so that users can
simulate and implement comprehensive tactical planning and sourcing decisions
based on a single, globally consistent model. This can involve heuristics and
capacity planning, optimization, and multilevel supply and demand matching.
• Distribution Planning – Determine the best short-term strategy to allocate
available supply to meet demand and to replenish stocking locations. To achieve
this, planners can determine which demands can be fulfilled by existing supply
elements.
• Supply Network Collaboration – Work with partners across supply network.
Using collaboration features that improve visibility into supply and demand,
company’s partners can reduce inventory buffers, increase the velocity of raw
materials and finished goods through the pipeline, improve customer service,
and increase revenues.

5.6 Business Benefits


SCM can help to transform a traditional linear supply chain into an adaptive network
with the following benefits:
• Faster Response to Changes in Supply and Demand – With increased visibility
into the supply chain and adaptive supply chain networks, you can be more
responsive. Companies can sense and respond quickly to changes and quickly
capitalize on new opportunities.
• Increased Customer Satisfaction – By offering a common information
framework that supports communication and collaboration, SCM enables to
better adapt to and meet customer demands.
• Compliance with Regulatory Requirements – companies can track and monitor
compliance in areas such as environment, health, and safety.
• Improved Cash Flow – Information transparency and real-time business
intelligence can lead to shorter cash-to-cash cycle times. Reduced inventory
levels and increased inventory turns across the network can lower overall costs.
• Higher Margins – SCM can lower operational expenses with timelier planning
for procurement, manufacturing, and transportation. Better order, product, and
execution tracking can lead to improvements in performance and quality – and
lower costs.
• Greater Synchronization with Business Priorities – Tight connections with
trading partners keep supply chain aligned with current business strategies and
priorities, improving your organization's overall performance and achievement
of goals.

5.7 Enabling Technologies

Many technologies exist to share and analyze information in a supply chain system.
Managers must decide which technologies to use and how to integrate these
technologies into their companies and their partners’ companies. The consequences of
these decisions are becoming more and more important as the capabilities of these
technologies grow. Some of these technologies include the following:

1. Electronic Data Interchange (EDI) allows companies to place instantaneous


paperless purchase orders with suppliers. EDI is not only efficient, it also
decreases the time needed to get products to customers because transactions are
faster and more accurate then when they are paper based. Although EDI is a bit
outdated and has limited capabilities, it still offers efficiency and responsiveness
gains for some firms.

2. The Internet has critical advantages over EDI with respect to information
sharing. The internet conveys much more information and therefore offers much
more visibility than EDI. Better visibility improves decisions across the supply
chain. Internet communication among stages in the supply chain is also easier
because a standard infrastructure (World Wide Web) already exists. Thanks to
the internet, e-commerce has become a major force in the supply chain.

3. Enterprise Resource Planning (ERP) systems provide the transactional tracking


and global visibility of information from within a company and across its supply
chain. This real-time information helps a supply chain to improve the quality of
its operational decisions. ERP systems keep track of the information, whereas the
internet provides one method with which to view this information.

4. Radio Frequency Identification (RFID) consists or an active or passive radio


frequency (RF) tag applied to the item being tracked and an RF reader/emitter. A
passive tag draws energy from the reader, whereas an active tag has its own
battery and draws power from there. Wal-Mart has mandated the use of RFID
technology by its top 100 suppliers at the case level. RFID has many potential
uses. It can be used in manufacturing to check availability of the entire bill of
materials. The technology can make the receiving of a truck much faster and
cheaper. Full implementation of RFID could eliminate the need for manual
counting and barcode scanning at the receiving dock. It can also be used to get an
exact count of incoming items and items in storage. RFID technology, however,
has yet to reach 100 percent accuracy, and its cost per unit is still high enough to
make global acceptance difficult, even at the case level.

5.8 E-Business and Contribution Network

5.8.1 Impact of E-Business on Customer Services


1. Customer service is the most important function of e-business. Good customer
service means responsiveness. It means one can understand, anticipate and
respond quickly to the needs and demands of customers.
2. Transparent Availability
Customers or clients should always be able to contact with businesses
immediately, and customer easily accessible to them.
3. Visibility
Business contact information should be available anywhere to customers. It is
vital to have easily available e-mail links, toll-free telephone numbers and links
to feedback forms.
4. E-mail Lists
E-mail lists are powerful tools in e-business customer service. Business can
maintain their visibility with their clients or customers while providing
important information to them. These lists can give on-going or routine
information as well as news and positive advancements or changes. Response
and feedback should be encouraged by providing links back to customers and
full contact information.
5. Auto Responders
It is smart to provide as much information as possible to customers by using auto
responders. When customer sends an email to auto responder , it can send back
any appropriate information automatically.
6. Interactivity
By increasing the ease of interactivity with customer businesses increase the
likelihood of an exchange of information. This can be achieved through form,
surveys and incentives.

7. Customer Experiences
An e-business can greatly increase customer experience in term of access,
customization and convinces.
8. Product Variety
E-business offers a large variety of products to customers.
9. Efficient Fund Transfer
An e-business can enhance revenues by speeding up collection.
5.9 Impact of E-Business on Cost

E-business affects inventory, facilities, and transportation and information costs.


Responsiveness
Efficiency
Transportation
Information
Inventory
Facilities
Competitive
S.C. Strategy
Strategy
1. Inventory
An e-business can lower inventory level and inventory cost by improving supply
chain coordination and creating better match between supply and demand.
Benefits are Smoothing Supply-Demand uncertainties and Economies of scale
(Start up costs, Transport fixed costs). Cost includes Capital cost, Risk and
Operational costs.

Types of inventory :
By uncertainty type:
• Cycle Inventory: designed to meet economies of scale (EOS)
• Safety Inventory: designed to meet uncertainties (marginal analysis)
By supply chain stage:
• Raw materials Process inventory
• Ready product inventory
2. Transportation: Transportation Modes (air, truck, sea, rail) In House or
Outsource. Transportation speed makes a positive contribution to responsiveness
and can be increased at a cost.
3. Facilities – Capacity: Two basic types of facilities costs must be included in the
analysis are cost related to Location of factories, warehouses, retail outlets and
cost related to operation. Increasing the number of warehousing facilities in a
logistics network generally improves customer service, because additional
stocking locations reduce average delivery times to customers. However, more
warehouses increase warehousing and inventory costs. Warehousing costs
increase because there are more overhead and fixed costs to absorb. Inventory
costs increase because a greater number of warehouses means more safety stock
inventory must held system-wide to provide a specified level of customer
service.
In contrast, transportation costs decrease as the number of facilities is increased
over some range. Rather than shipping smaller quantities direct from points of
supply (eg. Plants) to customers, warehouses serve as product mixing centres
that allow larger, consolidated shipments between supply points and
warehouses. This transportation cost advantage becomes diminished, however, if
too many warehouses are present because the shipment sizes between supply
points and warehouses decrease to the point that there is little shipment
consolidation advantage over direct shipments to customers.

4. Information
➢ Accurate forecasting
➢ Coordination between stages of S.C.
➢ Fast cycles
➢ Inventory reduction
➢ Lost sales reduction
➢ Markdowns reduction

5.10 The Role of IT in Forecasting

There is a natural role of IT in forecasting, given the large amount of data involved. The
frequency with which forecasting is performed, and the importance of getting the
highest quality results possible. The forecasting module within a supply chain IT
system often called the demand planning module is a core supply chain software
product.

Commercial demand planning modules come with a variety of forecasting algorithm


which can be quite advanced and are sometimes proprietary. These methodologies often
give a more accurate forecast then what can be produced through the use of a general
package such as excel. Most demand planning application make it easy to test the
various forecasting algorithms against historical data to determine the one that provides
the best fit to the observed demand pattern. The availability of a variety of forecasting
options is important because different forecasting algorithms provide different levels of
quality depending on the actual demand patterns. The IT system can be used to best
determine forecasting methods not just for the firm overall, but also by product
categories and markets.

Good demand planning modules link not only to customer orders but often directly to
customer sales information as well, incorporating the most current data into the
demand forecast. Much of the progress in areas such as collaborative planning is due to
IT innovations that allow the exchange and incorporation of forecasts between
enterprises.

Good demand planning modules contain tools to perform what-if analysis regarding
the impact of potential changes in prices on demand. These tools help analyze the
impact of promotions on demand and can be used to determine the extent and timing of
promotions.

Keep in mind that none of these tools is foolproof. Forecasts are virtually always wrong.
A good IT system should help track the historical forecast errors so they can be
incorporated into future decisions. A well structured forecast, along with a measure of
error, can significantly improve decision making.

Forecasting modules are available from all the major supply chain software companies,
including the ERP firms such as SAP and Oracle. Finally, some of the DRM focused
firms have elements of forecasting in their products, given their focus on customer
facing processes. Forecasting and IT have a long history. The classic supply chain IT
package has a forecasting module feeding forecasts to a planning module. Forecasting is
core part of IT in the supply chain.

5.11 Risk Management in Forecasting

The risk associated with forecast error must be considered when planning for the
future. Errors in forecasting can cause significant misallocation of resources in
inventory, facilities, transportation, sourcing, pricing, and even in information
management. Forecast errors during network design may cause too many, too few, or
the wrong type of facilities to be built. At the planning level, plans are determined from
forecasts so the actual inventory, production, transportation, sourcing and pricing plans
that a company produces and follows depend on accurate forecasting. Even on an
operational level, forecasting plays a role I the actual day to day activities that are
executed within a company.

Long lead times require forecasts to be made further in advance. Seasonality also tends
to increase forecast error. Forecast error increase when product life cycles are short,
because there are few historical data to build on when producing a forecast. Firms with
a few customers often experience very lumpy demand that is harder to forecast than
demand from many small customers, which tends to be smoother. Forecast quality
suffers when it is based on orders placed by intermediaries in a supply chain rather
than on end customer demand.

Improved responsiveness and pooling often come at a cost. Increase speed may achieve
capacity investment. Whereas pooling tends to increase transportation cost. To achieve
the right balance between risk mitigation and cost, it is important to tailor the
mitigation strategies. For instances, when dealing with a commodity for which
shortfalls can easily be made up or by spot market purchases, spending large amounts
to increase the responsiveness of the supply chain is not warranted.

5.12 Forecasting in Practice

5.12.1 Collaborate in Building Forecasts


Collaboration with your supply chain partners can often create a much more accurate
forecast. It takes an investment of time and effort to build the relationships with your
partners to begin sharing information and creating collaborative forecasts. However, the
supply chain benefits of collaboration are often on order to magnitude greater than the
cost. The reality today, however, is that most forecasts do not even account for all the
information available across the different functions of a firm. Progress needs to be made
before all supply chain information is accounted for and utilized.

5.12.2 Share Only the Data that Truly Provides Value


The value of data depends on where one sits in the supply chain. For instances, a
retailer finds point of sales data to be quite valuable in measuring the performance of its
store. However, a manufacturer selling to a distributor who in turn sells to retailers does
not need all the point of sale detail. The manufacturer finds aggregate demand data to
be quite valuable, with marginally is truly required decreases investment in IT and
improves the chances of successful collaboration.

5.12.3 Be Sure to Distinguish Between Demand and Sales


Often companies make the mistake of looking at historical sales and assuming that this
is what the historical demand was to get true demand, adjustment need to be made for
unmet demand due to stock outs competitor actions, pricing and promotions.
5.13 The Role of IT in Aggregate Planing

Aggregate planing is the supply chain area in which information technology is mostly
used. The aggregate production planning (APP) problem is about determining the
optimum production, work force, and inventory levels for each period of the planning
horizon for a given set of production resources and constraints. Such planning usually
involves one product or a family of similar products with small differences so that
considering the problem from an aggregated viewpoint is justified. The product
demand data are assumed to be known with certainty; however, provisions for forecast
error may be incorporated. The goal is to meet the forecasted product demand in a cost-
effective manner. Typical costs related to APP include payroll, hiring/layoffs,
overtime/under time, and inventory shortage/backordering. Numerous APP models
with varying degrees of sophistication have been introduced in the last four decades.

Aggregate planning is a process by which a company determines levels of capacity,


production, subcontracting, inventory, stock outs, and pricing over a specified time
horizon. Its goal is to maximize profit. In aggregate planning decisions made at a
product family level. For planning time frame of 3 to 18 months is required.
5.13.1 Role of Aggregate Planning in SCM
It specifies operational parameters over the time horizon:
○ Production rate
○ Workforce
○ Overtime
○ Machine capacity level
○ Subcontracting
○ Backlog
○ Inventory on hand
All supply chain stages should work together on a plan that will optimize supply chain
performance. Information Needed for an Aggregate Plan are Demand forecast in each
period ,Production costs ,labor costs, regular time and overtime. Sub contracting costs,
cost of changing capacity: hiring or layoff and cost of adding or reducing machine
capacity, Labor/machine hours required per unit ,Inventory holding cost, Stock out or
backlog cost
5.13.2 Aggregate Planning in Planning in Practice
• Think beyond the enterprise to the entire supply chain.
• Make plans flexible because forecasts are always wrong
• Rerun the aggregate plan as new information emerges
• Use aggregate planning as capacity utilization increases

5.14 The Role of IT in Inventory Management

Most of the researches in supply chain areas are concerned about optimizing the supply
chain in terms of its efficiency and competence in the product market, but only limited
studies are done considering the inventory management in supply chains. Effective
inventory management in a supply chain can play a vital role in cutting inventory
holding costs across the different stages of the supply chain. The prime objective for all
supply chains is to provide clients with what they want, when they want it. Inventory
management plays a central role in every supply chain’s need to satisfy its clients.
Inventory management help the companies develop an effective approach to inventory.
it analyze the impact of internal and external factors to integrate inventory with
purchasing, manufacturing, distribution, marketing and sales to create inventory
policies that make sense. It help to analyses the
• Client needs and their influence on in-stock/fill rates, lead time and accuracy
• Costs incurred from purchase transaction expenses, manufacturing set-
up/changeover expenses, and more
• Operations changes driven by promotions or recalls and SKU proliferation
• Technology and its ability to provide trend, profiling and seasonality-based
forecasting, trading partner visibility and planning collaboration
• Corporate goals whether revenue, unit sales, increases inventory
management help to understand inventory and lower inventory cost.

5.15 Role of IT in Transportation


Transportation is one of the major items of cost in a supply chain. As a firm's ability to
serve the customers depends on how efficiently and quickly the orders are delivered,
transportation management becomes one of the important operations in a supply chain.
There are two important functions performed by transportation: product movement
and product storage. While product movement is the primary function of
transportation, temporary product storage becomes its secondary function. There are
five key participants in transportation environment: the shipper, the carrier, the receiver
or consignee, the government, and the public.
The complexity of transportation decisions demands to use of IT systems
IT software can assist in:
➢ Identification of optimal routes by minimizing costs subject to delivery
constraints
➢ Optimal fleet utilization
➢ GPS applications

5.16 Risk management in transportation

The goal of a transportation risk management program is to reduce the risks of


transporting hazardous materials. Qualitative or quantitative transportation risk
analysis (TRA) methods are important elements of a transportation risk management
program, allowing company management to identify major risk contributors and the
effectiveness of various risk reduction options. A wide variety of TRA methods, ranging
from simple to complex, are used in the industries. There are three main types of risk
for transporting a shipment:
➢ The risk that shipment is late.
➢ The risk that shipment is never reached its destination because intermediate
nodes are or links are disrupted by external factors.
➢ The risk of hazardous material.
In each case it is important to identify the sources of risk and their consequences and
plan suitable mitigation strategies.
Risk mitigation strategies:
➢ Decrease the probability of disruptions
➢ Alternative routings
➢ In case of hazardous materials the use of modified containers, low-risk
transportation models, modification of physical and chemical properties can
prove to be effective

5.17 Making Transportation Decisions in Practice

➢ Align transportation strategy with competitive strategy


➢ Consider both in-house and outsourced transportation
➢ Design a transportation network that can handle
➢ e-commerce
➢ Use technology to improve transportation performance
➢ Design flexibility into the transportation network

5. 18 The Future of IT in Supply Chain

Information systems that focus on micro processes are much more successful. For firm
targeting macro process functionality the ability to integrate across macro processes.
This conclusion is an important implication of companies those use software.
Characteristics of software improve the performance of its users. Thus a user of supply
chain software should first identify areas within the tree macro processes where
improvement will provide the maximum leverage. Software and IT decisions should
then support the goal of improving performance along these processes.

There are two potential ways for a company to enter in a market. The first is trough the
superior functionality, whether it is specific functionality needed by a particular
industry or an application with vastly improved ease of use. Provide an integrated
product that increases the linkage between the macro processes. It is difficult for start
up to build an integrated product across CRM, ISCM and SRM. However a large
software company with tremendous resources and a history of pulling desperate
products into an integrated package could take this path.

5. 19 Risk Management in IT
There are several risks associated with the use of IT in the supply chain; the larger the
change in the IT system the greater is the risk of a negative impact on operations. The
firm cannot function properly if IT suffers from a major failure.

The major areas of risk in IT can be divided into two broad categories:

The fist is the risk involved with installing new IT systems. During the process of
getting new IT systems running a firm is forced to transition from the old processes it
used in its operations to the new process in its IT system. Here problem can be
occurring in both business process and in technical issues. on the business process side
new IT system requires employees to operate according to new processes. There may be
difficult to learn and employees who prefer the old ways of doing business may feel
difficulty.

There are some technical issues. The amount of integration that needs to take place
between desperate systems is often overwhelming. When firm switch to new system
which is not properly integrated than problems occur. Even when the employees are
bought into the new process and all the technical hurdles are overcome, it is often a
delicate balance to actually make the transaction over to the new system.

A firm still faces risks once its IT systems are operating. The more a firm relies in IT to
make decision and execute processes the higher is the risk that any sort of IT problem,
ranging from software glitches to power outages to virus can completely shutdown
firms operations. Some systems only allow a process to be executed in one way. Then
the firm settles in to a pattern of doing thing in one way obviously there are great
efficiency benefits of this but firm also run this risk that the process is not of the
performance level of its competitors and that its systems make it difficult to change to
newer, more effective processes.

5. 20 When Implementing IT Systems

• Install IT system in an incremental fashion rather than in a big bang approach.


This allow the firm to limit the damage and easy to pinpoint problem areas
during installation.
• Firm can implement duplicate system to ensure new system work well. The firm
can keep its old system running at the same timer the new one is running. If new
system creates problems than old system can be utilized as it still exists.
• Implement only the level of complexity that one needs.beacure complexities
increase the risks.
One the operational side mitigation strategies include data backup systems, systems
running in parallel in case when one should suffer a problem and range of security
software products. Picking systems that can flexibility of change if need b can be
important.

5.21 The role of IT in Sourcing

Sourcing related IT has had the most ups and down of any supply chain software sector.
The sourcing software world created many electronic marketplaces in the late 1990s that
were expected to transform the purchase of goods and services. There are a wide
variety of areas in which IT can and is used in sourcing today. In fact there is a greater
diversity if IT sourcing products than in most supply chain areas.

5.22 Some of the Major IT Product Areas Within Sourcing

5.22.1 Design Collaboration


This software improves the design of product trough collaboration between
manufacturer and the suppliers. The software facilitates the joint selection of
components that have positive supply chain characteristics such as ease of
manufacturability activities include the sharing of engineering change order between a
manufacturer and its suppliers. This this eliminates the costly delays that occur when
several suppliers are designing components for the manufacturers’ product
concurrently.

5.22.2 Source
Sourcing software assists in the qualification of suppliers and helps in supplier
selection. Contract management and supplier evaluation. An important objective is to
analyze the amount that an firm spend with each supplier. Supplier are evaluated along
several criteria include lead time, reliability, quality and price. This thing improves
supplier performance and help in selection of suppliers. Contact management is also an
important part of sourcing.

5.22.3 Negotiate
Negotiation with supplier contains many steps, starting with request for quote. The
negotiation process may also include the design and execution of auctions. The goal of
this process is to negotiate an effective contract that specifies price and delivery
parameters for a supplier in a way that best match the enterprise needs. Successful
software automates the RFO process and the execution of auctions.

5.22.4 Buy
Buy software executes the actual procurement of material from suppliers. This includes
the creation, management and approval of purchase order. Successful software in this
area automates the procurement process and helps decrease processing cost and time.

5.22.5 Supply Collaboration


Once an agreement for supply is established between the enterprise and a supplier
supply chain performance can be improved by collaborating on forecasts, production
plans, and inventory levels. The goal of collaboration is to ensure a common plan across
the supply chain. Good software in this area should be able to facilitate collaborative
forecasting and planning in a supply chain.

The most significant problem to success of sourcing software is that employees often
just do not want to use the software. As sourcing software often limits what can be
purchased, many people bristle at the loss of freedom to purchase what they feel are the
best item for their company. In many cases people just go around the system and buy
the products they want. Another difficulty arises when successful use of the IT systems
requires collaboration among different enterprises. Difficult to convince firms of the
benefits of using the system and often each firm is suspicious of the others.

5.23 Risk Management in Sourcing

Sourcing risks in an inability to meet demand on time, an increase in procurement costs


or the loss of intellectual property. It is important to develop mitigation strategy. An
inability to meet demand on time arises because of disruption or delay from the supply
source. The risk of supply disruption may be serious, especially with far sources.
Disruption risk can be minimized by developing multiple sources. Developing multiple
sources is very expensive for products with low demand. Delay from supply source can
be mitigated by charring inventory or developing a backup source that is more
responsive. Caring inventory is best for low values products that do not become
obsolete quickly.

The risk of higher procurement costs can be significant when industry wide demand for
the product exceeds available supply, exchange rates are unfavorable or there is a single
supply source. Exchange rate risk can be minimized by developing a global supply
network that is flexible enough to be reconfigured based in exchange rate fluctuations.
The risk of holdup because of a single source can be countered by developing
alternative sources or bringing part of the supply capability in house.

Intellectual property risk can be mitigated by keeping products in house. Even when
product is outsourced, firm can maintain ownership of part of the equipment if it is
viewed as having significant intellectual property value.

5.24 Making Sourcing decision in practice:

5.24.1 Use Multifunctional Teams


Effective strategies for sourcing result from multifunctional collaboration with in firms.
A sourcing strategy from the purchasing group is likely o be relatively narrow and
focus on purchase price. A strategy develops with the collaboration of purchasing,
manufacturing, engineering and planning is much more likely to identify the correct
drivers of total cost. The collaboration must be continued beyond strategy formulated to
the procurement phase, because that is where manufacturing and engineering are most
likely to realize the full benefits of good sourcing strategy.

5.24.2 Ensure Appropriate Coordination Across Regions and Business Units


Coordination of purchasing across all regions and business until allows a firm to
maximize economies of scale in purchasing and also to reduce transaction costs. Other
opportunities from improved sourcing such as better supply chain coordination and
design collaboration however may require strong involvement at the business unit level
to be really effective. Mandating global coordination across all business units may
complicate these efforts, Most of the value is extracted from better design collaboration
and coordinated supply chain forecasting and fulfillment are better served with
somewhat more decentralized sourcing.

5.24.3 Always Evaluate the Total Cost of Ownership


An effective sourcing strategy should not make price reduction its sole objective. All
factors that influence the total cost of ownership should be identified and used in
selecting suppliers. Supplier’s performance along all relevant dimensions should be
measured, and its impact on total cost should be quantified. Focusing on the total cost
of ownership also allows a buyer to better identify opportunities for better collaboration
in design planning and fulfillment.

5.24.4 Build Long Term Relationships with Key Suppliers


A basic thing of good sourcing is that a buyer and a supplier working together can
generate more opportunities for saving than the two parties working separately. Solid
relationship is likely to result only when two parties have long term relationship and
degree of trust. A long term relation encourage suppliers to expand greater effort on
issues that are important to a particular buyers this include investment in buyer specific
technology and design collaboration. These capabilities are very important when
sourcing direct materials.

5.25 The Role of IT in Pricing and Revenue Management

The area of impact for IT within PRM is he pricing of retail goods in the consumer
package good category. The grocery store have utilized this technology t price their
products at the retail level. The pricing problem tackle involves both the regular as well
as promotional pricing of products.

PRM systems have also impact on fashion goods. Here the challenge revolves around
how to optimally mark down the price of goods as the styles and seasons change. The
goal is to mark down the price enough to sell most of the product but without marking
it down so much that profit is thrown away.
The major pitfall in the pricing and revenue management area of IT revolve around
linking PRM decisions with other areas and systems of the company. Pricing is
generally determined within a relatively well defined area of a company, making it easy
to setup pricing software. This ease of installation can cause problems if there is no
integration with inventory, distribution, and production system. A common problem is
a software recommendation of a price reduction, which in turn brings on a surge in
demand. This lead o dissatisfied customers if there is insufficient inventory because the
pricing systems did not communicate with the inventory management system. This lack
of coordination can be quite harmful and greatly dilute the benefits of PRM.

5.26 Using Pricing and Revenue Management in Practice

5.26.1 Evaluate Your Market Carefully


The first step in revenue management is to identify the customer segments being served
and their needs. The goal is to understand what the customer is buying. Identified
market needs. It is important to gather accurate and complete data relating to product
offered, prices, competition and most important, customer behavior. Information about
customer behavior is a valuable asset. A proper understanding of customer preferences
and a qualification of the impact of various tactics on consumer behavior are at the core
of successful revenue management.

5.26.2 Quantify the Benefits of Revenue Management


Historical data and a good model of customer preferences should be used to estimate
the benefits through a simulation. The outcome of this step should be explicit revenue
targets that are to be achieved as a result of revenue management. The revenue target
should be such that all people involved believe in them. The revenue management
effort should then be compared to be expected benefit.

5.26.3 Implement a Forecasting Process


The foundation of revenue management system is the forecasting function. Forecasting
involves estimated demand and also attributing an expected error to the forecast itself.
Both the estimated value and the expected error are important input into any revenue
management model. It is very difficult to forecast at a micro level, where all behavior is
essentially idiosyncratic. So it is ensure that revenue management tactics are planned
over an aggregate enough level that effective forecasting is possible.

Finally as new information becomes available reforecasting to see if the revenue


management tactics currently in place are still appropriate. The frequency of forecasting
will depend on the amount of market activity. Ideally the forecast and the revenue
management decision should be evaluated after every transaction.

5. 26.4 Apply Optimization to Obtain the Revenue Management Decision


The goal of optimization is to use forecasts of customer behavior to identify a revenue
management tactic that will be most effective.

5.26.5 Involve Both Sales and Operations


The sales people must understand the revenue management tactic in place so that they
can align their sales pitch accordingly. The sales force must differentiate between those
customers who truly need the supply chain asset during the peak period and those that
will benefit from moving their order to the off peak period. This approach will increase
profit for the firm while also satisfying customers. Operations must understand the
potential outcomes taking place.

5.26.6 Understand and Inform the Customer


Customers may have negative perception about revenue management tactics if they are
simply presented as a mechanism for extracting maximum revenue. Thus it is important
for firms to structure their revenue management program in a way that revenue
increases while improving services along some dimensions that is important to
customer that pay the highest price.

5.26.7 Integrate Supply Planning with Revenue Management


Integrate supply panning and revenue management can create significant value.
Combine revenue management with decisions on the supply side. After applying
revenue management a manufacturer finds that the production of a short lead time
facility provides the majority of its profit, it should look into adding more short lead
time capacity. Understanding and acting on the interactions among supply, demand,
and pricing can bring about powerful results.
5.27 The Final Word

SCM software has been designed to meet the needs of firms with global distribution,
logistics, and manufacturing needs. Lean manufacturing and visibility in the supply
chain are crucial elements for both distributors and manufacturing executives. Moving
products among multiple locations and countries can be a daunting task, and SCM
software offers the flexibility to track all inventory at any point in the supply chain.
Additionally, the issues of compliance, scheduling, flexibility, coordination, and
visibility can be greatly improved because of the combination of business processes
integrated into SCM software, no matter how complex the supply chain is.
Chapter 6

Supply Chain Management


Systems and the
Marketplace
Chapter 6

Supply Chain Management Systems and the Marketplace


If a company expects to achieve benefits from their supply chain management process,
they will require some level of investment in technology. The backbone for many large
companies has been the vastly expensive Enterprise Resource Planning (ERP) suites,
such as SAP and Oracle.
Since the wide adoption of Internet technologies, all businesses can take advantage of
Web-based software and Internet communications. Instant communication between
vendors and customers allows for timely updates of information, which is key in
management of the supply chain.
This chapter presents a list of market giants with respect to SCM solutions sorted by the
total market share of their solutions worldwide.

6.1 Leading SCM Software Providers’ Financial Scorecard

The worldwide market for supply chain management (SCM) software topped an
estimated $6 billion last year, and is expected to reach or exceed $8 billion by 2010,
according to the most current estimates from AMR Research (617-542-6600) and ARC
Advisory Group. That’s a segment that includes supply chain planning (SCP)
applications as well as supply chain execution systems including transportation
management (TMS), warehouse management (WMS), and manufacturing execution
(MES).
Leading at the top are three Enterprise Resource Planning (ERP) vendors; SAP at $735
million, Oracle at $585 million, and Infor at $348 million. Others include two best-of-
breed suppliers, Manhattan Associates with $289 million and i2 Technologies with $280
million, both providers of supply chain planning and execution solutions.
Driving that growth, according to John Fontanella, AMR’s vice president of research, is
the need to manage pcomplex, global supply chains that include a mix of global
suppliers, contract manufacturers as well as company-owned plants, third-party
logistics providers and a network of transportation providers.
In fact, AMR’s research found that the typical U.S. manufacturer is managing on
average more than 30 contract relationships. Supply chain management solutions allow
enterprises to handle that complexity while still responding to increasingly demanding
customers.

6.2 Top Supply Chain Management Software Vendors

The list of top 20 SCM vendors was published in 2007 by AMR Research (617-542-6600)
and ARC Advisory Group who evaluated the following vendors with respect to
revenue earned in previous years and quality of benefits/services offered to their
customers.

2006
revenue
Supplier Web site SCP WMS MES/MRP TMS
(in
million)
1 SAP $735 * www.sap.com x x x x
2 Oracle $585 * www.oracle.com x x x x
3 Infor $348 ** www.infor.com x x x x
Manhattan
4 $289 www.manh.com x x x
Associates
5 i2 Technologies $280 www.i2.com x x
6 JDA Software $278 www.jda.com x x
7 RedPrairie $189 www.redprairie.com x x x
8 IBS $178 www.ibsus.com x x x x
9 Epicor $124 www.epicor.com x x x
10 Aldata $99 www.aldata-solution.com x x x
11 Swisslog $93 *** www.swisslog.com x x x
12 HighJump $90 www.highjumpsoftware.com x x x
Brooks Software
13 (Applied $85 www.brookssoftware.com x
Materials)
14 ClickCommerce $76 www.clickcommerce.com x x
2006
revenue
Supplier Web site SCP WMS MES/MRP TMS
(in
million)
15 Microsoft $72 www.microsoft.com x x
16 QAD $67 www.qad.com x x x x
17 IFS $57 www.ifsworld.com/us x x
Descartes
18 $46 www.descartes.com x x
Systems Group
19 Catalyst $41 www.catalystwms.com x x x
20 Logility $37 www.logility.com x x x
* Industry estimate ** Combined Infor, SSA Global & Provia Software *** Swisslog - Industry
estimate for WMS, WCS and supply chain planning
SCP: Supply chain planning WMS: Warehouse management system MES/MRP: Manufacturing
execution system TMS: Transportation management system

Given below is a list of some of the top SCM software vendors along with their profile
and a brief history to help develop a better understanding of the vendors themselves as
well as the system offered by them.

6.3 SAP SCM

SAP Americas is a subsidiary of SAP AG, the world’s largest business software
company and the third-largest software supplier overall. SAP Americas’ corporate
headquarters is located in Newtown Square, PA, a suburb of Philadelphia. The
company’s officers and executives lead a team of professionals dedicated to delivering
high-level customer support and services.
Founded in 1972 as Systems Applications and Products in Data Processing, SAP has a
rich history of innovation and growth that has made it the recognized leader in
providing collaborative business solutions for all types of industries – in every major
market. The company, headquartered in Walldorf, Germany, employs more than 46,100
people in more than 50 countries, and serves more than 43,400 customers worldwide.

With a mission statement that emphasizes experience, knowledge, and technology


for maximizing business, SAP has successfully leveraged its extensive experience to
deliver a comprehensive range of solutions to empower every aspect of business
operations. Organizations of all sizes can use SAP solutions – including small business
solutions and solutions for midsize companies – to reduce costs, improve performance,
and gain the agility to respond to changing business needs.
By deploying the best technology, services, and development resources, SAP has
delivered a business platform that unlocks valuable information resources, improves
supply chain efficiencies, and builds strong customer relationships. And through the
Global Solution Center, SAP Americas identifies customer needs and develops solutions
to meet these needs.
SAP is listed on several exchanges, including the Frankfurt Stock Exchange and the
New York Stock Exchange, under the symbol “SAP.”

6.4 SAP Key Strengths

The SAP Supply Chain Management (SAP SCM) application can help an
organization transform a linear supply chain into an adaptive supply chain
network, in which communities of customer-centric, demand-driven companies
share knowledge, intelligently adapt to changing market conditions, and
proactively respond to shorter, less predictable life cycles.
The SAP solution synchronizes supply to demand – robust, configurable
components allow customers to balance push and pull network planning
processes, replenish inventory quickly, and execute production based on actual
demand.
Customers can sense and respond to changing environments with an adaptive
supply chain network – and drive distribution, transportation, and logistics
processes that are integrated with real-time planning processes.
SAP’s SCM solution suite provides network wide visibility, collaboration, and
analytics – as well as full capability to monitor and analyze the extended supply
chain.
More than 25,000 small and midsize companies have selected SAP to drive
operational efficiency and profitable growth.

6.5 SAP Technology

The SAP solutions suite comprises licensed and on-demand applications and services.
The company’s Enterprise Service-Oriented Architecture (Enterprise SOA) is a blueprint
for an adaptable, flexible, and open IT architecture for developing services-based,
enterprise-scale business solutions. With SAP NetWeaver as a technical foundation,
enterprise SOA moves IT architectures to higher levels of adaptability – and moves
companies closer to the vision of real-time enterprises by elevating Web services to an
enterprise level.

6.6 SAP Supply Chain Management Solutions

6.6.1 SAP Business One


Affordable, easy-to-use business management software designed specifically for
small and midsize businesses.
Enables customers to manage their critical business functions across sales,
distribution, and financials, all in a single integrated system.
With SAP Business One, companies can instantaneously access a complete and
up to-the-minute view of the business, so they can respond to customers faster
and grow the business more profitably.
6.6.2 SAP Business ByDesign
Streamlines processes and eliminates departmental silos.
Improves the efficiency and effectiveness of employees.
Helps customers make better, more proactive decisions.
Adapts to changing market requirements-quicker than competitors.
Lets customers gain control and visibility over their entire business.
Simplifies IT by allowing SAP to manage software-as-a-service.
6.6.3 SAP Business All-in-One
Configurable and extensible business solution for midsize companies.
Fast-Start Program provides innovations that let customers configure their SCM
solution online and receive an immediate cost estimate for a cost-effective
deployment.
Delivers rapid time to value and the flexibility to adapt as an organization’s
needs change. Best of all, SAP Business All-in-One is an affordable and safe long-
term investment.
6.6.4 SAP Supplier Relationship Management (SAP SRM)
Provides strategic value through sustainable cost savings, contract compliance,
and quick time-to-value.
Equips customers with tools to optimize procurement operations and drive
superior results through an end-to-end source-to-pay process.
Activities such as spend analysis, category management, requisitioning,
sourcing, operational contracts, invoicing, and supplier management are part of
an integrated platform.

6.7 SAP Supply Chain Modules

6.7.1 SAP Supply Chain Management


6.7.2 SAP Business One (SAP Small Business Solution)
Sales opportunity management
Business partner management
Inventory
Production
Material requirements planning (MRP)
Service management
Reporting

6.7.3 SAP Business By Design (SAP Midsize Business solution)


Supply Chain Management
Supply Chain Setup Management
○ Supply Chain Design
○ Production Modeling
○ Resource Planning and Allocation
Supply Chain Planning and Control
○ Demand Planning
○ Demand Management and Order Confirmation
○ Exception Monitoring and Control
○ Supply Planning
○ Supply and Logistics Control
Manufacturing, Warehousing, and Logistics
○ Inbound and Outbound Logistics
○ Internal Logistics
○ Inventory Management
○ Production
○ Quality Assurance
○ Tracking, Tracing, and Identification
○ Task Management and Automation
6.7.4 Supplier Relationship Management
SAP E-Sourcing application
SAP E-Sourcing on-demand solution
SAP Spend Analytics
SAP Contract Lifecycle Management
SAP Cost and Quotation Management
6.8 Oracle

After 30 years of providing leading-edge solutions to a vast and growing base of


customers, Oracle remains the gold standard for database technology and applications
in enterprises throughout the world. The company is the world’s leading supplier of
software for information management, and the world’s second largest independent
software company. Oracle technology can be found in nearly every industry, and in the
data centers of 98 of the Fortune 100 companies. Oracle is the first software company to
develop and deploy 100 percent internet-enabled enterprise software across its entire
product line: database, business applications, and application development and
decision support tools.
It is innovation that drives Oracle’s success. With the release of Oracle Fusion
Middleware, Oracle has begun debuting new products and functionality that reflect the
company’s goal: connecting all levels of enterprise technology to help customers access
the knowledge they need to respond to market conditions with speed and agility.
Today, Oracle Real Application Clusters, Oracle E-Business Suite, Oracle Grid
Computing, support for enterprise Linux, and Oracle Fusion all fuel a commitment to
innovation and results that has defined Oracle for thirty years.
Looking ahead, Oracle will strive to become number one in middleware and number
one in software applications, just as the company has done in database applications.
The organization’s goal is to continue to innovate and to lead the industry—while
always making sure that it stays focused on solving the problems of the customers who
rely on its software.
The company’s success speaks for itself. Oracle applications run in more than 1,500
public sector organizations, 10 of the world’s top 10 banks, 20 of the world’s top 20
telecom companies, and 10 of the top 10 academic universities worldwide.

6.9 Oracle Key Strengths

Oracle Supply Chain Management (SCM) is the complete, integrated solution


that powers information-driven supply chains. With Oracle SCM, companies can
predict market requirements, innovate in response to volatile market conditions,
and align operations across global networks.
Oracle SCM provides industry-specific solutions based on best-in-class
applications that span product development, demand management, sales and
operations planning, transportation management, and supply management.
Oracle provides best-in-class global transportation management and supply
management, and integrated manufacturing execution systems (MES).
Oracle delivers best in class capabilities including demand management, product
design, analytics, and optimization via strategic acquisitions including
Demantra, Agile, and 360Commerce.
Among the honors and awards bestowed on Oracle for its world-class enterprise
solutions include ‘Best Supply Chain Management System,’ Intelligent Enterprise
2007 Readers’ Choice Award, ‘The Supply Chain Software Award,’ Winner of
Supply Chain Asia Logistics Awards 2007, ‘Best Supply Chain Software Solution
Provider,’ and winner of the Supply Chain Excellence Awards organized by SCM
Logistics World 2006.

6.10 Oracle Technology

Oracle Application Integration Architecture is a comprehensive set of products


that deliver sustainable business process based integrations across Oracle, third
party and custom applications. With its open, standards-based foundation,
Oracle Application Integration Architecture enables you to create streamlined
business processes that span application boundaries, while greatly shortening
time to value.

Oracle Fusion Middleware for Applications applies Oracle’s market-leading


middleware portfolio to the leading business applications. Extend the business
value of your applications across user communities, lines of business, and
organizations. The only comprehensive and integrated middleware foundation
certified with Oracle HCM, CRM, financial management, and other business
applications.

6.11 Oracle Supply Chain Management Solutions

Oracle E-Business Suite Supply Chain Management


○ Integrates and automates all key supply chain processes, from design,
planning and procurement to manufacturing and fulfillment, providing a
complete solution set to enable companies to power information-driven value
chains.
○ Companies can anticipate market requirements and risks, adapt and innovate
to respond to volatile market conditions, and align operations across global
networks.
○ A unified data model provides a single, accurate view of a customer’s entire
supply chain. Companies can implement lean, demand driven principles and
manage their increasingly complex, global supply chains.
Oracle Service Optimization Suite
○ The Oracle Service Optimization Suite (OSO) features a best-of-breed,
modular, configurable design that allows customers to choose the right
components that meet their unique business requirements.
○ The highly configurable nature of OSO enables it to be deployed in a broad
range of supply chain sectors such as Home Delivery, Field Service and
Facilities Management.
○ From capacity planning, through vehicle, technician and customer
scheduling, to dispatch management and mobile operations, Oracle Service
Optimization Suite can help customers take their service delivery business to
the next level of operational efficiency and customer satisfaction.
PeopleSoft Enterprise Supply Chain Management
○ Provides a cohesive yet flexible solution for the synchronized supply chain,
driving efficiencies in cost savings over the entire supply chain—including
plan-to-produce and order-to-cash business processes.
○ PeopleSoft Enterprise Supply Chain Management is a family of applications
in Oracle’s PeopleSoft Enterprise product suite.
○ Extends a company’s supply chain in real time by connecting suppliers and
customers with company business processes.
○ Provides integrated spend management for all categories of goods and
services.

○ Delivers embedded analytics to monitor supply chain performance and adjust


as conditions and business goals shift.
JD Edwards EnterpriseOne Supply Chain Management
○ These software modules promote revenue growth and cost reduction by
improving fulfillment rates, allowing better asset and capacity utilization and
expanding market dominance while reducing inventory, shrinking lead times,
and achieving overall cost of goods improvements.
○ JD Edwards Supply Chain Management is part of Oracle’s JD Edwards
EnterpriseOne family of applications.
Oracle Transportation Management
○ Delivers robust transportation planning and execution capabilities to shippers
and third party logistics providers.
○ Integrates and streamlines transportation planning, execution, freight
payment, and business process automation on a single application across all
modes of transportation, from full truckload to complex multi-leg air, ocean,
and rail shipments.
○ Lowers transportation costs, improves customer service and asset utilization,
and provides flexible, global fulfillment options.

6.12 Oracle Supply Chain Modules

Oracle Supply Chain Management Suite


○ Advanced Procurement
○ Logistics & Transportation
○ Product Lifecycle Management
○ Asset Lifecycle Management
○ Manufacturing
○ Supply Chain Planning
○ Order Fulfillment
○ Order Management
Oracle Service Optimization Suite
○ Oracle Real-Time Appointment Scheduler
○ Oracle Real-Time Dispatch Manager
○ Oracle Real-Time Resource Manager
○ Oracle Real-Time Resource Scheduler
PeopleSoft Enterprise Supply Chain Management
○ Customer Order Management
○ Supply Chain Planning
○ Inventory and Fulfillment Management
○ Manufacturing Solution
JD Edwards EnterpriseOne Supply Chain Management
○ Food and Beverage Producers
○ Manufacturing
○ Supply Chain Execution (Logistics)
○ Supply Chain Planning (SCP)
○ Supply Management (Procurement)
ORACLE Transportation Management
○ Forwarding and Brokerage Operations
○ Freight Payment, Billing, and Claims
○ Fusion Transportation Intelligence
○ Logistics Inventory Visibility
○ Transportation Operational Planning
○ Transportation Sourcing

6.13 Manhattan Associates

Manhattan Associates is a leading supply chain solutions provider. The company’s


supply chain planning, supply chain execution, business intelligence and business
process platform capabilities enable its more than 1,200 customers worldwide to
enhance profitability, performance and competitive advantage.
From flexible, intuitive planning, to advanced forecasting and replenishment, to
integrated supply chain execution -- Manhattan Associates provides a comprehensive
range of easy-to-use solutions. These solutions are designed to help customers run their
businesses more efficiently, grow profits, delight customers -- and beat competitors. The
company’s team of experts offers years of real-world experience and is committed to
helping companies solve the everyday problems they face.
By combining planning and execution expertise with the highest level of customer
service, Manhattan Associates helps companies manage their entire supply chain more
efficiently than ever before. Their customers have the opportunity to leverage a single
solution provider for all their supply chain needs to make their jobs easier and serve
their customers better.
Globally, since 1990, Manhattan Associates has helped customers use technology to
identify the weak links in their supply chains, reconfigure their processes and optimize
their performance. Shortly after its inception in 1990 in Manhattan Beach, California,
Manhattan Associates gained a reputation for providing world-class warehouse
management solutions. Since that time, the company has continually expanded its
products and added capabilities to better serve its customers. Today Manhattan
Associates offers a holistic approach to supply chain with SCOPE: Supply Chain
Optimization—Planning through Execution, which brings together all the tools
businesses need to integrate upgrades and optimize their supply chain.
Looking to the future, Manhattan Associates is aggressively pursuing the dynamic level
of growth it must achieve to meet the needs of its global customers. In 200 alone,
Manhattan Associates added 400 employees to help it initiate 260 implementations. The
company’s investment in research and development continues to exceed any others, and
has increased 250% in the last five years, to a 2007 total of $45 million.

6.14 Manhattan Associates Key Strengths

The company’s software portfolio includes five key Supply Chain Solution Suites:
Planning and Forecasting, Inventory Optimization, Order Lifecycle Management,
Transportation Lifecycle Management and Distribution Management. These
solution suites are enhanced by Platform Applications -- including Supply Chain
Intelligence, Supply Chain Visibility and Supply Chain Event Management --
that organize and deliver the information and processes needed to optimize
supply chains across functions and locations within and outside an enterprise.
For 17 years, Manhattan Associates has concentrated exclusively on helping
companies streamline their supply chains to achieve lower costs, higher profits
and happier customers. Virtually all of the company’s 2,300 employees focus on
supply chain optimization. They work directly to bring value to 1,200 customers
through research and development, training, implementation and ongoing
support.

Manhattan Associates builds its knowledge of supply chain optimization every


day so that it can bring its customers the best possible solutions for their needs.
Each year Manhattan Associates invests more in supply chain research and
development than any other company in the world—in excess of $45 million in
2007.
In addition to its many PhDs and other experts, the Manhattan Science Advisory
Board brings together thought leaders and international researchers from
outstanding academic institutions such as MIT, Columbia University and
Georgia Tech to discuss advances in the underlying science, address new
economic developments and identify fruitful areas of research.
Manhattan Associates is committed to offering the best and deepest supply chain
solutions to its customers.

6.15 Manhattan Associates Technology

Manhattan Associates’ Supply Chain Process Platform provides a unifying architecture


that fosters agility and scalability while minimizing solution implementation, evolution
and support costs. More than 1,200 customers worldwide use Manhattan Associates’
global, on-demand and licensed supply chain solutions to enhance profitability and
build sustainable competitive advantage.

6.16 Manhattan Associates Supply Chain Management Solutions

6.16.1 Manhattan’s SCOPE: Supply Chain Optimization


Planning through Execution optimizes all the links in the supply chain from
order placement to delivery.
Planning and Forecasting provides the crucial front end to an organization’s
supply chain that takes a customer’s business to a higher level.
Demand Forecasting lets decision makers predict demand at any combination of
product and location nodes. Demand Forecasting is designed and synchronized
to produce the optimal forecast input for Inventory Optimization, financial or
assortment planning.
Multi-Channel Planning integrates planning for the organization’s web, catalog
and store channels to reduce redundancy and increase efficiency, while still
respecting the unique characteristics of each channel.
Financial Planning delivers top-down or bottom-up planning with an easy to
use, but powerful solution that manages multiple versions of plans across
categories, channels and time periods.
Assortment Planning customizes assortments by channel. Lets customers see
buyers’ changes immediately so they can reach their business goals with the right
mix of products.
Item Planning synchronizes with assortment planning to support time-phased
planning and tracking for multiple key performance indicators.
Promotion Planning coordinates all aspects of promotions from one solution.

6.17 Manhattan Associates Supply Chain Modules

6.17.1 Manhattan’s SCOPE: Supply Chain Optimization


Planning and Forecasting
○ Demand Forecasting
○ Multi-Channel Planning
○ Assortment Planning
○ Item Planning
○ Promotion Planning
○ Store Clustering
Inventory Optimization
○ Replenishment
○ Multi-Echelon
○ Vendor Managed Inventory
○ Collaboration Gateway
Order Lifecycle Management
○ Distribution Order Management
○ Reverse Logistics Management
○ Collaboration Gateway
Transportation Lifecycle Management
○ Transportation Procurement
○ Transportation Planning & Execution
○ Logistics Gateway
○ Fleet Management
○ Appointment Scheduling
○ Yard Management
Distribution Management
○ Warehouse Management
○ Slotting Optimization
○ Labor Management
○ Billing Management
○ Supplier Enablement
○ Hub Management

6.18 Infor

Infor is one of the world’s largest providers of business software, with approximately
$2.1 billion in revenue, and the 10th largest software company in the world. A company
unparalleled in application breadth, market experience, open technology and global
reach, Infor has 9,200+ employees, direct offices and implementation and support
capabilities in 100 countries, and over 70,000 customers worldwide. The thought leaders
at Infor understand that their customers want to reduce the number of vendors they
work with and Infor strives to continue as their trusted “vendor of choice.” Infor has a
consistent 95% customer retention rate — one of the highest in the industry and 72% of
its license revenues are generated by its current customers. Additionally, over 1,000 new
customers chose Infor last year for its unparalleled application breadth, open
technology, and global reach. The company is committed to continuing its growth by
broadening its best-in-class focus, and by providing the most innovative solutions and
services globally.
Customers can expect Infor to continue adding solutions based on market need and
customer demand. Infor is a unique software company — four years old with more than
thirty years experience. It has the stability, the agility, and the resources to meet the
business demands of a rapidly changing world.
6.19 Infor Key Strengths

Backed by domain experts who understand the supplier collaboration requirements of


manufacturers, Infor SRM (Supplier Relationship Management) enables rapid demand
fulfillment and performance evaluation by presenting a single face to suppliers based
on information combined from disparate enterprise resource planning systems. Infor
SRM creates a real-time supplier collaboration environment. This advanced electronic
data interchange (EDI) and web-enabled solution delivers faster, more accurate insight
into an organization’s supply chain. The company’s solution suite complements a
customer’s ERP software system with electronic communication of demand to all
suppliers and helps deploy lean replenishment methods with its electronic Kanban and
supplier-managed inventory capabilities. Businesses run more efficient supply
operations, reduce inventory levels, increase order accuracy, and gain the flexibility to
respond immediately to changes in customer demand.

6.20 Infor Supply Chain Management Solutions

6.20.1 Infor SCM (Supply Chain Management)


Infor SCM’s supply chain logistics and inventory management software solutions help
companies reduce supply chain operational costs for increased profitability, improve
customer service to enhance competitiveness, and manage growth and expansion to
improve revenues and market share. Infor Supply Chain Management is a global
solution with implementations at over 1,600 customer sites in 40 countries Infor SCM
delivers a smart solution suite that comprises Strategic Network Design, Demand
Planning, Distribution Planning, Manufacturing Planning, .Production Scheduling,
Transportation and Logistics Planning, Warehouse Management, and Event
Management.
RFID—Infor SCM provides a comprehensive RFID-enablement framework delivering
business value through process optimization for manufacturers and other companies, as
well as compliance solutions for retail, pharmaceuticals, the US Department of Defense,
and others.
6.20.2 Infor SRM (Supplier Relationship Management)
This advanced electronic data interchange (EDI) and web-enabled solution delivers
faster, more accurate insight into the supply chain—insight that enables customers to
save millions of dollars by replacing fax and value-added network (VAN)
communications, minimizing premium freight charges, improving supplier
performance, and lowering administrative expenses.
Infor’s SRM solution helps companies achieve technology-enabled business process
excellence, increase productivity and cash flow, improve operational efficiency and
quality, and increase supplier visibility.
The company’s solutions suite allows organizations to respond faster to change and
opportunity, enable innovation, and profit from a strong, flexible, lean supply chain.
Infor SCM complements an existing ERP software system with electronic
communication of demand to all suppliers and helps deploy lean replenishment
methods with its electronic Kanban and supplier-managed inventory capabilities.
With Infor SCM, businesses run more efficient supply operations, reduce inventory
levels, increase order accuracy, and gain the flexibility to respond immediately to
changes in customer demand.
6.20.3 Infor SRM SupplyWeb
Infor SRM SupplyWeb is the leading supplier relationship management (SRM) solution
in the automotive industry. Infor SRM SupplyWeb version 10 includes new features to
improve collaboration between customers and suppliers, providing new tools designed
to enhance data accuracy, and demand and order management. SupplyWeb offers
manufacturers the benefits of a proven SRM solution that is easily integrated into their
existing ERP system. For customers, this new version of SupplyWeb demonstrates
Infor’s commitment to enrich the value of their current investments, extend their core
ERP applications with new business-specific solutions and evolve the Infor product line
to produce next-generation solutions.
SupplyWeb significantly strengthens the relationship between suppliers in the supply
chain with the addition of new modules, Production Invoicing and Purchase Order
Collaboration, which automate specific business functions related to order processing
Production Invoicing improves data accuracy between customers and suppliers
eliminate discrepancies in pricing and payables and allow for more timely payments
from the customer. Purchase Order Collaboration facilitates a purchase order
negotiation process, allowing customers and suppliers to set terms before committing to
an order.
6.21 Infor Supply Chain Management Modules

6.21.1 Infor SCM (Supply Chain Management)


Strategic Network Design
Demand Planning
Distribution Planning
Manufacturing Planning
Production Scheduling
Transportation and Logistics Planning
Warehouse Management System
RFID
Event Management
6.21.2 Infor SRM (Supplier Relationship Management)
Demand Fulfillment and Performance Evaluation
Electronic Kanban and Supplier-Managed Inventory Capabilities
Advanced Electronic Data Interchange (EDI) and Web-Enabled Solution
6.21.3 Infor SRM SupplyWeb
Production Invoicing
Purchase Order Collaboration
Supplier Cumulative Quality Management
Flex Fields
Receipt Reconciliation
6.22 JDA

JDA Software Group, Inc. is a global leader in delivering integrated software and
professional services for the retail demand chain. By capitalizing on its substantial
market position and financial strength, JDA commits significant resources to advancing
its best-of-class collection of solutions that address a wide array of critical business
functions including merchandise and inventory management, store operations and
point of-sale, supply chain collaboration, and business analysis.
Across the global ERP landscape, JDA Software Group supplies the links in the supply
chain. The company’s supply and demand optimization (SDO) software helps retailers
and other businesses manage supply and demand chains, as well as business processes
ranging from planning and forecasting to e-commerce and store operations.
The company also offers point-of-sale applications to handle back-office functions,
including inventory management, receipts, and returns. Other products include analytic
applications for decision support and collaborative tools for maintaining product and
catalog information with partners, distributors, and suppliers. JDA boasts more than
5,400 customers worldwide.
With North American operations established in 1985, JDA is headquartered in
Scottsdale, Arizona and employs more than 1,200 associates operating from 32 offices in
major cities throughout North America, South America, Europe, Asia and Australia.

6.23 JDA Key Strengths

JDA has been serving the supply and demand chain for nearly 30 years. The company’s
Supply & Demand Optimization solution set is powered by a collection of best-in-class
products designed to enable retailers, manufacturers and whole sale distributors to
more profitably anticipate, create and satisfy customer demand.
This comprehensive solution integrates JDA’s proven planning, analysis optimization
and execution capabilities with collaborative workflow, for seamless integration and
interoperation spanning a wide range of processes across the Customer-Driven Value
Chain.
With Supply & Demand Optimization, decision makers can work together to reduce
operational costs and increase top line revenues across the enterprise, and down to the
store level. JDA customers represent more than 65% of software license sales each
quarter, a testament to the real demand chain results that JDA repeatedly delivers. JDA
acquired Manugistics in July 2006. This provider of demand and supply chain solutions
enabled JDA to grow its product line with supply management, demand management
and pricing, and transportation and logistics applications.
JDA is uniquely positioned to support an optimized Customer-Driven Value Chain. It
can help its customers to optimally plan various aspects of their business – from raw
materials acquisition, through manufacturing and replenishment, to the shelf.

6.24 JDA Technology

JDA offers several hosting and on-demand managed services to ensure a fit tailored
specifically to the needs of its customers. Whether an organization’s needs are as simple
as hardware hosting or as substantial as complete application management, JDA
provides a full-spectrum technology platform and support.

6.25 JDA Supply Chain Management Solutions

6.25.1 JDA Supply & Demand Optimization


6.25.1.1 Enterprise Planning
A collaborative and configurable, workflow-driven planning solution that synchronizes
all planning metrics, including sales, margins or turns, across functional organizations
and reconciles them up and down the enterprise hierarchies.
Enterprise Planning ensures that strategic goals and objectives are met by providing all
participants with visibility to corporate goals so that they can align their plans
accordingly. Enables rapid response to changing market conditions leveraging a
proactive, event driven environment so that customers can improve productivity.
Supports and optimizes the strategic, financial and operational planning activities
across the Customer-Driven Value Chain so that customers are better equipped to meet
sales and revenue targets.
Provides a single, integrated solution for financial, merchandise, channel and key item
planning so that customers can better manage their inventory.
6.25.1.2 Space & Category Management
Enables retailers and manufacturers to plan and execute category and merchandise
plans designed to achieve demand-based precision merchandising. Tailors assortments,
including product launches and group-specific go-to-market strategies, so that
customers can improve cluster results and meet true local demand increases movement
at full retail value while lowering carrying costs and decreasing out-of-stocks and
excess inventory, so that customers can enhance their overall profitability.
6.25.1.3 Price & Promotion Management
Optimizes pricing (taking a competitors’ pricing into account) and promotions planning
and execution to generate maximum sales and margin dollars – to better shape demand
and match supply, ultimately taking the guesswork out of price setting and promotions
planning, delivery and measurement. Improves financial predictability, responsiveness
and accuracy, so that customers can determine the best mix of price and promotion to
help them drive revenues and better understand impact on the forecasts. Improves
utilization of promotional dollars at all levels of the organization, so that customers can
maximize their return on promotional spend. Generates maximum value from end-of-
life, end-of-season and excess inventory, so that customers can drive up overall margins.

6.25.2 JDA Supply Chain Modules


JDA Supply & Demand Optimization
Enterprise Planning
Space & Category Management
Price & Promotion Management
Demand Planning
Allocation & Replenishment
Supply & Manufacturing Management
Network & Inventory Optimization
Collaboration
6.26 Epicor

Epicor Software is a global leader delivering business software solutions to the


manufacturing, distribution, retail, hospitality and services industries. With 20,000
customers in over 150 countries, Epicor provides integrated enterprise resource
planning (ERP), customer relationship management (CRM), supply chain management
(SCM) and enterprise retail software solutions that enable companies to drive increased
efficiency and improve profitability.
Founded in 1984, Epicor celebrates 25 years of technology innovation delivering
business solutions that provide the scalability and flexibility businesses need to build
competitive advantage. Epicor provides a comprehensive range of services with a single
point of accountability that promotes rapid return on investment and low total cost of
ownership, whether operating business on a local, regional or global scale.
At the core of Epicor is an adaptable, collaborative architecture that satisfies the needs
of any manufacturer regardless of country, industry or device, enabling business
anywhere business without barriers. Epicor delivers unprecedented business
management, providing real time, in-context business insight throughout any
manufacturing environment.
Epicor is a multidimensional solution uniquely equipped with rich feature sets
supporting any environment including make-to-order (MTO), engineer-to-order (ETO),
configureto- order (CTO), mixed-mode, make-to-stock and discrete manufacturing.
Built on the second-generation service-oriented architecture (SOA), Internet Component
Environment (ICE) 2.0, Epicor fuses modern Web 2.0 technologies with True SOA
delivering unprecedented flexibility and visibility across multiple departments. Epicor’s
ERP solutions go beyond traditional ERP, encompassing processes outside the
production and distribution cycle. In addition to a full range of manufacturing
capabilities, Epicor extends tools across backoffice processes including financial
management, customer relationship management, sales and customer service,
providing real-time, in context information to employees from the shop floor to the top
floor.
6.27 Epicor Key Strengths

Epicor is a global leader dedicated to providing business software solutions to


companies around the globe. With comprehensive solutions, service and support, the
company helps more than 20,000 of the world’s best companies run their business more
efficiently and effectively. Epicor’s ERP solutions automate and optimize business
operations by integrating data and processes into a single unified solution to maximize
profitable growth. Epicor delivers a single end-to-end software solution for business.
The company offers a comprehensive range of professional services with its solutions,
providing a single point of accountability to promote rapid return on investment and
lower total cost of ownership. In addition to award-winning financial, inventory and
manufacturing management capabilities, Epicor’s ERP solution delivers in-depth
supply chain management, customer relationship management, business intelligence
and enterprise performance management functionality.
Epicor solutions are built to comply with local governmental and industrial
requirements in a majority of countries around the globe.

6.28 Epicor Supply Chain Management Solutions Highlights

6.28.1 Epicor 9
The latest Epicor ERP solution, Epicor 9, represents the convergence of Epicor’s rich tool
sets into a single product. As the first solution built on ICE 2.0, Epicor 9 redefines the
ERP experience, combining a full range of enterprise, manufacturing and distribution
functionality with the most collaborative, flexible service oriented architecture available.
Epicor 9 eliminates the technological and industrial boundaries that stifle productivity,
enabling business anywhere - business without barriers.
6.28.2 Epicor Manufacturing
Epicor Manufacturing is designed to meet the needs of progressive manufacturers,
regardless of shop environment. Epicor Manufacturing delivers built-in workflow
processes to manage the entire order cycle: from marketing, sales and customer
relationship management, through production, planning, sourcing and procurement to
installation, service and financial recognition. Complimented by a full-range of
enterprise capabilities, Epicor Manufacturing helps achieve maximum efficiency at each
plant, while providing innovative technology to span the entire enterprise.
6.28.3 Epicor Distribution
Epicor Distribution is an end-to-end solution providing tools to efficiently assemble
ship and deliver the finished goods. Epicor Distribution offers a full range of order
management, supply chain and warehousing capabilities built on a single business
platform based on industry-leading Web services architecture. Complimented by a full
suite of enterprise functionality, Epicor Distribution supports the needs of truly agile
distributors.

6.29 Microsoft Dynamics

Founded in 1981, Microsoft Business Solutions, Inc. is a global provider of enterprise


business solutions for the midmarket. Microsoft Business Solutions offers e-business
applications for financials, distribution, project accounting, electronic commerce,
human resource management, manufacturing, sales and marketing management, and
customer service and support.
Named for the third time to the “Top 100 Companies to Work for in America” list,
Microsoft Business Solutions employs more than 3,800 employees worldwide. The
company’s products and services automate essential business functions and enhance the
strategic value of financial and operational information.

6.30 Microsoft Business Solutions

Products are sold and implemented by a unique worldwide network of independent


partner organizations that share the company’s commitment to lasting customer
relationships.

Microsoft’s research and development facilities are located primarily in Redmond,


Washington with smaller facilities located in Mountain View, California; Fargo, North
Dakota; Beijing, China; Dublin etc. As of June 30, 2005, Microsoft employed
approximately 61,000 people.
Like its size, Microsoft’s ambitions are anything but small. The world’s number one
software company provides a variety of products and services, including its Windows
operating systems and Office software suite. The company has expanded into markets
such as video game consoles, servers and storage software, and digital music players. In
early 2008 the company made an unsolicited bid to acquire Yahoo! for about $44.6
billion.
Success includes the flexibility to respond to emerging markets, such as today’s growth
opportunities in China and Eastern Europe, and to the ever changing needs of
customers.
In response to these global challenges, Microsoft offers Microsoft Dynamics, a suite of
integrated, adaptable business applications for small and medium-sized organizations
and divisions of large enterprises. These integrated solutions—delivered through a
worldwide network of experienced Microsoft Certified Partners—work like and with
familiar Microsoft software and help automate and improve financial, customer
relationship, and supply chain management.

6.31 Microsoft Dynamics Key Strengths

With Microsoft Dynamics, an organization can connect its entire supply chain in a
productive, fast-moving flow. The business value of vendors and business partner
relationships is enhanced significantly. And these increased efficiencies in distribution
translate to improved customer satisfaction and reduced cost of doing business.
A Microsoft Dynamics solution provides employees with a multitude of ways to plan,
coordinate, and executive delivery of goods and services productively. Companies
realize strong return on investment as a result of better individual and team
productivity, streamlined operations, and more effective collaboration.
Using Microsoft Dynamics, people can effectively improve supply chain efficiency, with
minimal time spent on product training and learning. The user interface is familiar,
consistent, and comfortable—just like that of other Microsoft programs people work
with.
Microsoft Dynamics gives people across the supply chain visibility into customer
demand and the delivery of goods—helping them make faster, better business decisions
and take the best course of action when adjustments are necessary.
With features such as automatic notification, a team can easily can keep tabs on
inventory, helping sustain optimal item levels without tying up funds in the warehouse.
They can plan purchasing at favorable terms and in a timely manner, controlling costs
and ensuring that the organization meets its customer commitments. And they can
connect closely with operations to make sure manufacturing has the materials it needs
to deliver products on time.
Microsoft Dynamics’ supply chain strengths can help the team fulfill customer
commitments with greater reliability and accountability, and deliver the products and
services customers want, when they need them.

6.32 Microsoft Dynamics Technology

The Microsoft Dynamics licensed suite of software products and applications, built on
familiar and widely used Microsoft technologies, offers a wide array of full-spectrum
ERP solutions for Supply Chain Management.

6.33 Microsoft Dynamics Supply Chain Management Solutions

6.33.1 Microsoft Dynamics AX


Automates sales and purchasing and streamlines intercompany operations. Enables
Web access so that the sales team to exchange accurate and up-to date information with
vendors, sell products and services, exchange information with consultants, and
configure complex products company information--anytime, anywhere.
Helps manage a broad range of other business areas, minimizing the need for multiple
systems.
6.33.2 Microsoft Dynamics NAV
Delivers the tools a business needs to respond quickly to customers, rapidly pursue
new market opportunities, and improve profitability by working efficiently with trade
partners.
Tightens the distribution processes and improves inventory management for single- or
multi-site warehouses, and handles order processing and demand planning.
Helps manage a broad range of other business areas according to the particular needs of
the organization.
6.33.3 Microsoft Dynamics GP
As an ERP software solution, Microsoft Dynamics for distributors manages inventory
and goods to keep distribution moving smoothly.
Maintains tight control over distribution and streamlines the pick/pack/ship cycle to
gain competitive advantage.
From forecasting to delivery, Microsoft Dynamics GP can help accelerate sales order
processes and reduce costs per transaction. Integrated applications help manage
inventory more effectively, fill orders faster, and improve customer service with
ecommerce.
Enables a company to meet customer demand efficiently, with inventory and order
management that reduces cost, improves accuracy, and speeds fulfillment.
6.33.4 Microsoft Dynamics SL
Microsoft Dynamics SL (formerly Microsoft Business Solutions–Solomon) offers
systems for the distribution industry. Integrated applications help efficiently manage
inventory, order, and purchasing management; sales forecasting; e-commerce; and
warehouse management.
These applications connect directly with dozens of other business management systems
to help organizations meet the diverse needs of their business, including accounting,
CRM, human resources and payroll, supply chain management, manufacturing, and
more.

6.34 Microsoft Dynamics Supply Chain Modules

6.34.1 Microsoft Dynamics AX


Commerce Gateway
Enterprise Portal
Logistics
Master Planning
Product Builder
Production
Supply Chain Visibility
Trade
Warehouse Management (WMS)
6.34.2 Microsoft Dynamics NAV
Inventory Management
Warehouse Management
Supply Planning
Business Notifications
Sales and Purchase Document Workflow Approvals
6.34.3 Microsoft Dynamics GP
Distribution II
6.34.4 Microsoft Dynamics SL
Advanced Shipping Manager
Bill of Materials
Inventory Management & Replenishment
Landed Cost
Order Management
Order to Purchase
Purchasing
Work Order

6.35 Domestic Vendors of SCM Systems

Many Pakistani software companies offer information systems with database support.
While most of the software companies in Pakistan are registered as a franchise for SAP
and Oracle products, only a few among them offer ERP systems of their own. One of the
biggest franchises of SAP and Oracle products in Islamabadcity is ERPSoft. While most
of the companies consider purchasing software from local vendors, SAP and Oracle still
have got a huge market share in Pakistani software industry when it comes to ERP
systems or Supply Chain Management Systems (SCMS).

Companies that can afford huge budgets, while not sacrificing quality, go for
purchasing SAP or Oracle products. It is surprising, however, that many foreign
companies including companies from India and UAE offer excellent ERP, CRM and
SCM systems that offer a wide range of functionality without any major setbacks in the
system and costing unpredictably lesser than those developed by domestic software
industry.
Companies like TeraData (NCR), Ultimus, DPS, etc. have developed their own ERP
systems giving it different terminologies like Business Process Management (BPM), B2B
systems (Business-to-Business), Enterprise Class etc. Some of these systems provide full
supply chain support while others only support half of the functionality eliminating the
key business planning software features.

Some of the supply chain management systems vendors in Pakistan are listed below
along with the features offered by the systems:

6.36 Teradata NCR

Teradata is the world’s largest company solely focused on raising intelligence through
data warehousing and business analytics. Teradata delivers award-winning, integrated,
purpose built platforms based on the most powerful, scalable, and reliable technology
platform in the industry. Their assets include:
• Approximately 6,000 associates in more than 60 countries
• Strong diversified client base of over 900 customers worldwide and companies of
all sizes
• 2,000+ implementations worldwide
Trillions of bytes of data don't faze Teradata. The company designs and implements
enterprise data warehousing systems that store information about customers, finances,
operations, and other business data. Its software includes its core database system, as
well as applications for managing data, demand and supply chains, customers,
compliance and risk, and performance. The company also offers consulting, support,
and training services. Teradata targets companies in the entertainment, financial
services, government, health care, insurance, manufacturing, retail, telecom, and
transportation sectors.
6.36.1 Products
• Customer Relationship Management: Teradata Relationship Manager
• Data Warehousing
• Demand Chain Management
• Financial Management
• Industry Solutions
• Profitability Analytics
• Supply Chain Intelligence
• Master Data Management

6.37 Active Enterprise Intelligence™


Staying ahead of your competition means that you create and deploy consistent and up-
to-date intelligence throughout your enterprise, enabling you to achieve “pervasive
business intelligence.” Mastering this requires a synergistic combination of two
powerful forms of business intelligence (BI):

• Strategic Intelligence - for back office knowledge workers. Planners, financial


analysts, marketing managers, and others use historical trends and insights to
make informed decisions concerning customers, inventory, suppliers, products,
and partners.

• Operational Intelligence - for front-line workers and systems. This extends the
value of your enterprise data warehouse to customer service representatives,
retail cashiers and call-center agents - anyone who makes day-to-day decisions.
Teradata’s strategy for pervasive BI, known as Active Enterprise Intelligence™, provides
the foundation for near real-time, smarter decisions throughout your organization. We
deliver Active Enterprise Intelligence™ solutions through our Active Data
Warehousing™ technology, professional services expertise and partner products.

6.38 Enterprise Data Warehousing


Business leaders are partnering with their IT organizations to help drive sales, reduce
risk, and manage growing regulatory compliance. They are also relying on IT to
provide them with a 360 degree view of customers, supply chain, and financial and
performance management.
To deliver on business requirements and technical requirements such as predictable
performance, IT organizations must leverage best of breed technologies. These
technologies must evolve and grow with the business. An Enterprise Data Warehouse
(EDW) from Teradata allows you to better analyze business operations and drive
smarter, faster decisions - providing you with a single view of your business.
At the heart of our solutions is a platform of products that grow with you and a world
class database Teradata 12. Teradata offers a new family of purpose-built platforms that
span the business and analytical data warehouse needs of your entire organization. The
EDW platform is the Teradata Active Enterprise Data Warehouse and is surrounded by
a full suite of data management tools and robust data mining software. Plus, you'll
receive expert data warehouse advice from the industry's most experienced data
warehouse consulting professionals. These are just a few of the reasons why industry
leaders worldwide choose Teradata solutions and services.
Teradata partners and integrates with leading business intelligence companies such as
SAS, SAP, Oracle, Microsoft, and Microstrategy. Teradata also relies on its world class
partners to deliver key solutions built on the Teradata EDW including data acquisition
and integration services from companies such as AbInitio, Attunity, GoldenGate,
Hummingbird, IBM, and Informatica.

6.39 Ultimus

Ultimus is the first BPM Company with complete global capabilities, including offices
in 16 countries and customers in 80 countries. The Ultimus product is available in 20
languages, and is supported by a worldwide professional services team and a 24/7
support center.
With over 1,900 customers worldwide, Ultimus has deployed BPM processes for more
customers than any other BPM company. Over 125 Large Enterprise customers, with
annual revenues above $1 Billion, have deployed Ultimus BPM.
With over 15 years experience and more than 1,900 customers, many with extensive
process deployments, Ultimus has deployed more BPM processes than any other BPM
company. Ultimus is recognized for innovation and has a history of BPM industry firsts.

Customers and analysts agree that Ultimus has the most complete and mature set of
capabilities to support both the human needs and system needs of business processes.

6.40 Business Process Management

Business Process Management is about making things work better. It’s about making
your life easier. It’s about making your business more efficient, more effective, and more
successful.
We believe you should be relentless in your pursuit of success. That’s why we believe in
continuous process improvement: We aren’t just workflow software. We go far beyond
simple workflow automation, and we don’t stop at mere process management. We bring
you a suite of tools with the power to match your passion, and the adaptability to meet
your changing business needs instantly.

6.41 Ultimus BPM Solutions for Supply Chain Management

6.41.1 Precision and Efficiency are Your Competitive Advantage


While many companies have clear processes to manage their supply chain, most of
these processes continue to be manual, paper-based processes that are slow and
cumbersome to manage. The result of Business Optimization for Supply Chain
Management can mean:
• Faster time to market with new products
• Rapid change response
• Increased inventory turns
• Less cash tied up in work in process
6.41.2 Ultimus BPM-based Solutions
Ultimus BPM is automating hundreds of SCM business processes including new
product development, prototyping, product manufacturing, quality assurance,
packaging, raw materials, warehousing and shipping and custom quotes. By
implementing business optimization through Ultimus, manufacturers such as General
Electric, Newell Rubbermaid, Bernstein AG, Siemens, Solectron-Mexico, FEMSA,
Alcatel, Otis and Stryker, Quadrant have eliminated supply chain process inefficiencies,
and realized rapid, measurable benefits that extend across departments in their entire
organization. Some of these benefits include:
• Reduce Turn-around Time for Build-to-Order Processes
• Produce More Accurate Quotes
• Accelerate Continuous Process Improvement Initiatives such as Six Sigma
• Gain End-to-end Visibility Into Mission-Critical Processes
• Reduce Latencies in Production Processes
• Strengthen Relationships with Customers and Partners

6.42 DPS

Among IT consulting firms, DPS is unique in its emphasis on developing compatible


solutions for its clients—not only in terms of technology, but in terms of corporate
culture as well. Information solutions consist not merely of software or hardware, but of
a way of thinking and making decisions as a group. A clever technical solution is not
enough; it will succeed only if it matches the client's long term business goals and
values. We take you as our partner first and our client afterwards. We partner with our
clients IT department and provide them support at all the three levels, strategic, tactical
and operational.
We believe in people before software and strategy before systems. We've worked at the
highest levels of the corporate environment—from the inside. We're sensitive to the
cultural aspects of change just as surely as we're alert to the latest trends in IT
development. We create effective sponsorship as well as effective code.

6.43 Business to Business - B2B

6.43.1 Supply Chain Benefiting both Buyers and Suppliers

Supply chain management, through its impact on resources, directly affects both the
bottom line and customer satisfaction. Nothing is more crucial to your success than
effectively managing the supply chain. Relying on outdated means of procurement
provides an open invitation to competitors to take away ever-larger shares of your
market.
The DPS B-to-B package offers medium and large enterprises a secure online venue for
procurement—a venue completely under your control. A streamlined supply chain
enables economies for buyers and vendors, better service to customers, and the
opportunity to expand into new markets and forge new relationships.

6.44 DPS B2B Packages

For the chain, the browser-based interface lets you maintain vendors and stores, review
and update products and purchase contracts, assign retail prices, control delivery
schedules, place and track orders, and review profit margins on a product-by-product
basis.
For the store, DPS B-to-B lets you review information for products, prices, purchases,
and delivery schedules, as well as print invoices and place and track orders.
For the vendor, DPS B-to-B lets you manage product offerings and prices, manage costs,
maintain existing contracts, negotiate delivery schedules, and view and confirm orders.

6.45 B2B Product Features

In technical terms, DPS B-to-B is a modular package consisting of Java servlet-based


business logic and a customizable HTML client. The package can be integrated with any
enterprise-strength back end, including Oracle, DB2, or SQL Server. DPS B-to-B is
designed for robust performance in a high-volume environment, yet is easily scalable to
suit medium-sized enterprises as well.
6.46 Xavor Corporation

Xavor is an Irvine, California-based Management & Technology Solutions firm with


Global 1000 clients, complete with an outsourcing set-up. Xavor uses a proprietary
workshop-driven consultative approach to help clients with
• Establishing team-driven Leadership and Ownership
• Define an Organization Model
• Define Policies
• Define Processes
• Build Technology Systems
• Define and build Metrics
• Define Roles & Responsibilities
• Design Management Systems
• Build a sustainable Infrastructure

6.47 Vendor Managed Inventory Solution

6.47.1 Xavor's VMI (Vendor Managed Inventory) Supply Chain Integration Solution, a
process management enablement accomplished by a scalable information technology
solution that allows manufacturers/suppliers of goods to monitor their sales
consumption by linking directly with retailer/reseller's store level point of sale data,
using industry standard XML data interchange B2B standards such as EDI or
RosettaNet. Replenishment order decisions are made using store and product combo
information by analyzing inventory data statistically in order to maximize the customer
service level while minimizing inventory and logistical costs.
6.47.2 VMI Supply Chain Integration Platform provides:
Business To business Integration
Efficiency by inventory integration with partners
Industry standard protocols and customized protocols for our clients
6.47.3 How is it done?
Supply chain analysts work closely with the customer in order to understand the
relevant vendor and supplier inventory related processes. The analyst builds a VMI
integration process model with replenishment rules. Xavor's Systems Integration
Analysts work closely working with the customer's technology team to implement the
technology of the customer's choosing, such as Sterling, BizTalk or Tibco. Xavor's team
of analysts customizes a solution that suffices customer's business process re-
engineering and automation needs.
6.47.4 Benefits:
• Integrated delivery solution
• Combined forecast and better business solutions
• Gap reduction between client and vendor material management
Chapter 7

Proposed System for Pepsi Haidri


Beverages
Chapter 7

Proposed System for Pepsi Haidri Beverages


This chapter presents a detailed high-level SCM system design for Pepsi Haidri
Beverages. It also identifies which part of the systems need customization and which of
them need reengineering. The chapter starts by providing a complete justification as to
why supply chain management system is needed and what benefits the company
expects to gain by adopting such systems.

7.1 Why SCM?

Up until 10 or 15 years ago, the term “supply chain” did not even exist. Back then,
purchasing was purchasing, warehousing was warehousing, transportation was
transportation and each function operated in relative isolation from one other. Today,
most companies are looking for ways to integrate these and additional functions into a
holistic supply chain strategy. Supply chain execution involves how well things move
through the supply chain—the operations that occur from the raw materials delivered
to a manufacturer, then to the distributor, and finally to the customer.

While more and more companies are seeking ways to coordinate and streamline their
supply chains, the overall task can be intimidating. Companies face numerous
challenges, including increasing transportation costs, growing retailer influence,
tightening requirements for fast order fulfillment, SKU proliferation, physical labor
constraints and the demand for consistently “perfect orders.”

Indeed, these very challenges are what make supply chain management so important to
embrace. Nate Rosier, director, supply chain practice, for supply chain consulting firm
CIBER Inc. (Greenwood Village, CO, USA) specializes in supply chain initiatives for the
beverage industry. “A lot of beverage distributors have inventory management
challenges,” he points out. “For example, a lot of our clients import products from
around the world or buy from smaller suppliers that still don’t even place bar codes on
their products or send advance shipment notifications.” In addition, Rosier says that a
lot of beverage distributors are still behind the curve when it comes to the
implementation and usage of supply chain technology.

7.2 Getting Started

The first step in creating and/or improving your supply chain is to identify your goals.
Overall goals of supply chain management processes for distributors generally focus on
efficient and accurate receiving, inventory accuracy, effective slotting, flexible
replenishment, multiple picking options, increased warehouse productivity, reduced
returns and flexible exception handling.

“When looking at supply chain investment, it is important to determine what your


goals are, then develop an effective roadmap for investing in your supply chain,” states
Cal Petty, director of supply chain practice for CIBER, who specializes in applications
and implementation. Advanced planning cannot be overemphasized. There is a story of
a supermarket chain that implemented an expensive routing and scheduling software
package in its eight distribution centers. Then, a year later, it began to question just how
many distribution centers it needed in the first place.

Next, decide whether your supply chain improvement project is one you can handle on
your own, or whether you need a consultant. It’s a trade-off between cost and internal
resources. While consultants can be expensive, your organization may not have the
internal expertise necessary to handle the project on its own. And even if you do, you
may not be able to pull these people away from their regular jobs. If you do opt to hire a
consultant, find one who has specific experience in the beverage industry.

Whether or not you hire a consultant, it is important to create an internal steering


committee to oversee the project, plus a design team to actually implement the project.

7.3 Technology Used

The technology to be used for implementation of the proposed system is ERP-II. ERP II
can be defined as the next generation of enterprise resource planning strategies and
applications. ERP II focusses not just on information usage, but also upon delivering it
to the individual who requires it, and in a way that best suits their needs. ERP II
superseded ERP and its two lesser known iterations called extended ERP and Enterprise
Application Suite (EAS).The most apparent change from ERP to ERP II is a change in
focus from one that is totally enterprise-centric and preoccupied with internal resource
optimization and transactional processing to a new focus on process integration and
external collaboration. ERP II application deployment strategies relates to information
that is exchanged between two or more businesses over the Internet. This exchange of
information electronically via the Internet is known as collaborative commerce or c-
commerce2. So it can be concluded that ERP II has c-commerce features. ERP II has also
expanded to include areas such as Supply Chain Management (SCM), Customer
Relationship Management (CRM), Knowledge Management (KM), business intelligence
(BI), and inventory optimization(IO). The features in ERP II is very much in line with the
Gartner research paper which predicted that ERP II would take ERP foundation and
extend it outward to position the enterprise in the supply chain.

7.4 Deployment of ERP-II in a Customized Way

The proposed system, as a first step, will customize the current traditional ERP system
in such a way that it supports both legacy ERP system as well as the supply chain and
customer relationship management systems deployed over web application.
The proposed ERP-II SCM focuses more on supply chain execution rather than supply
chain planning. The reason is quite obvious; Pepsi Haidri Beverages is quite a mature
company where planning of supply chain network is already done and the location of
facility installation has already been chosen. There is no chance of expansion since the
other business units of Pepsi manufacturing are already operating in their respective
areas and the areas of responsibility has been divided and well-managed.

7.5 Achieving Target Deployment

The ERP-II deployment is planned in the following ways:-

2
Collaborative Commerce, also referred to as c-commerce, involves the collaborative,
electronically enabled business interactions among enterprise’s internal personnel, business
partners and customers throughout a trading community. The trading community can be an
industry, industry segment, supply chain or supply chain segment.
• As a first step, ERP-I modules will run in parallel with ERP-II modules which
include Supply Chain Management and Customer Relationship Management.
This is will be done by making changes in the database so that the legacy
software will not be affected by those changes and even if it does, it would be so
minor that a little customization will overcome the changes made to the
database. Major changes like creation of new screens, reports, and all work
related to business process reengineering will be done in such a way that it
would not disturb the current legacy system. A new database will be created for
this purpose and development of new system will go head-to-head with the old
system. After completion of ERP-II system, the old database will be merged into
the new system so that the previous on-going operations would not get
interrupted.
• The aim of creating a new application is to shift the whole application to a web-
based solution so that personnel who are working outside the company’s
boundary can also access the information and operate the system as per their role
and requirement.
• Security is another major issue regarding successful implementation and
deployment of web-based ERP application. For this purpose, special encryption
and decryption algorithm will be created and incorporated in all those areas of
software that deals with information transfer from the user to the host
application or vice versa and specifically those which contain sensitive
information like product ingredients, customer and supplier transactions,
inventory information, shipment and sales information etc. For this purpose, the
information coming from either of the three supply chain participants will be
first encrypted using hash functions which are embedded to support digital
signatures for the verification of sender. The information will then further be
encrypted using different techniques and decrypted at the receiver’s end. The
encryption and decryption process will be kept hidden from the users to ensure
ease of use.

7.6 Benefits of Using Web SCM systems


Among countless benefits of web-based SCM systems, a few of them identified as most
beneficial to Pepsi Haidri Beverages are as follows:

1. The biggest benefit of web SCM is the easy and equal access to all participants of
the supply chain of Haidri Beverages. It would not cost them even a single extra
penny to give access of the solution to distributors and suppliers while the
benefits are far-reaching.
2. There is no need to install the whole or any part of the web-based solution at
individual participant’s location. The web-based solution allows all parties to
access information from a single database or distributed databases (proposed for
future developments). The other key benefit extracted from it is the elimination
of EDI (Electronic Data Interchange). A question may arise as to what makes the
Internet different from electronic data interchange (EDI), a technology that has
been around for more than 20 years. Essentially, the Internet performs the same
function as EDI at a fraction of the cost. Moreover, it has capabilities that EDI
does not possess, namely, real-time versus batch processing, transmission of
unlimited data types including graphics, forecasts and an open, non-proprietary
network. If carefully exploited, these Internet characteristics can lead to
significant value creation.
3. A short word that covers a huge range of benefits itself is “collaboration”. Web-
SCM offers a great level of collaboration among all partners of the supply chain
by exchanging real-time information with each other. a good starting point is to
think of the number of ways in which your company interacts with both
customers and suppliers. These interactions can be categorized as one of the
following: executing a transaction; determining optimal prices; discovering
available supply and unmet demand; and supply chain planning for new and
existing products. Thus, three distinct categories emerge where B2B e-commerce
can be applied to extract value:
• Reduced transaction charges
• Improved market efficiencies
• Enhanced supply chain benefits
Prior to making any investment in B2B e-commerce, a company has to identify the value
created and the effort required for implementation under each of these categories. The
relative position of these categories will not be the same for all firms but will vary based
on the supply chain strategy and competitive environment. A company must tailor e-
commerce implementation to support categories where the value created is high
relative to the cost of implementation.

7.7 Network Diagram of Proposed System

Figure 30 Network Diagram of the Proposed System

A simple diagram of the network setup has been developed which depicts how the
suppliers and distributors are connected to the internet. The web application is hosted
by the company itself which is connected to the internet with a firewall installed. The
web-based application is accessible by the suppliers and distributors via internet.
Further, more illustrative diagram is given as follows:-

Distributor/Wholesaler
Suppliers

Suppliers
Distributor/Wholesaler

Distributor/Wholesaler

Distributor/Wholesaler

Suppliers

Suppliers

Distributor/Wholesaler
Suppliers

Pepsi Manufacturing Location

Figure 31 Detailed Network Diagram of Proposed System


7.8 Core Modules of Proposed System

The following modules have been identified as the core supply chain management
system modules to be implemented phase-by-phase (implementation of operations-
supported TPS modules in the first phase):-
1. Demand Management
2. Supply Chain Analytics
3. Vendor Managed Inventory
4. Inventory Management
5. Transportation Management
6. Supplier Relationship Management
7. Manufacturing Execution
8. Facility Management
9. Sourcing
10. Sales and Customer Support
11. Financial Management

7.9 Demand Management

Demand management module contains two major items:


a. Demand and supply forecasting and
b. Aggregate planning

7.9.1 Demand and Supply Forecasting: In demand and supply forecasting, the
forecasts will be based on time series, qualitative and causal methods. Data for time
series will be acquired from previous year’s sales records. Other features include:

i. Forecast horizon
ii. Frequency of update
iii. Forecast error
iv. Seasonal factors
v. Procurement forecast based on previous production and store data
vi. Variance from plan
vii. Ratio of demand variability to order variability
See Information-related metrics for study of details of the included features.

7.9.2 Aggregate Planning: In this section, the forecast will be divided into biannually,
quarterly, monthly, weekly and daily forecast to make it easier for the staff to plan the
demand and supply. The aggregate plan will be made in accordance with the user
specification, that is, to what extent he wants to divide the forecast. The aggregate
planning module will then be able to generate the following plans:

i. Sales Forecasting
ii. Procurement Forecasting
iii. Production Forecasting

Figure 32 Data Input and Output Diagarm - Data generated from demand forecast will be used as input for
Aggregate Planning subsystem

The data generated from demand forecast, that is, the forecast data will be used as input
by the aggregate planning module to generate time-specific plans.

7.10 Supply Chain Analytics

This module deals with the analysis of Pepsi Haidri Beverages’ supply chain. This
module performs the following tasks:
i. Define and select Key Performance Indicators (KPIs)
ii. Monitoring and analysis of KPIs
iii. Safety stock planning
iv. Supplier delivery performance ratings, including lead times, quality of product
delivered, items returned, items found damaged/non-usable, and durability of
delivered product

7.11 Vendor Managed Inventory

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 distributor warehouse). 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.
The VMI module will provide the following features:-
i. Inventory management at distributor end
ii. Stock-in and stock-out
iii. Secondary sales
iv. Daily opening and ending report
v. Re-order levels
vi. Other key features include tracking of:
a. Quantity damaged
b. Maximum inventory quantity
c. Returns from customer
d. Maximum quantity/daily quantity agreed upon

7.12 Inventory Management System

Though items are the same, the inventory management system will be in use by the
company only. This module provides full support for the management of raw, semi-
finished and finished material. The raw and semi-finished material records will be kept
separate from warehouse or finished goods inventory records to support customization.
The features included for inventory management system are:-

i. Counting and maintenance of stock and inventory items


a. Finished product
b. Semi-finished & raw material (store management)
ii. Product life management (expiry date tracking)
iii. Glass bottle tracking
iv. Item categorization
v. Pricing
vi. Stock-in and stock-out
vii. GRN and return note management

viii.Cycle inventory maintenance


ix. Safety inventory maintenance
x. Seasonal inventory maintenance
xi. Re-order levels
xii. Bill of materials
xiii.Average inventory
xiv.Products with more than a specified number of days of inventory
xv. Average replenishment time & size
xvi.Fill rate
xvii.Fraction of time out of stock
xviii.Requisition generation
xix.Reports
a. Item list
b. Price list
c. Stock status
d. Item requisition history
e. Inventory turnover
f. Inventory opening & closing
xx. Notifications
a. When item reaches re-order level
b. When item reaches expiry date
c. When a glass bottle reaches maximum number of times it can be filled

7.13 Transportation Management

This module supports all features related to transport. Following are the features
proposed for transport management module:
i. Transportation Modes Management: This is a master file which contains all
modes available for transportation.
ii. Transportation Facilities Management: This module maintains records of all
transportation facilities held by the company. This will include vehicle number,
engine and chassis numbers, type of vehicle, load capacity etc.
iii. Routing Management: This feature contains routing tables and tax details. For
example, the route for importing Pepsi concentrate from New York can be
defined as:

Route Mode Distance (km) Tax Rs.


New York to Karachi Sea 4000 200,000
Karachi to Lahore Land 800 500
Lahore to Hattar Land 250 300
Hattar to Rawalpindi Land 100 200

iv. Reporting and Calculations:


a. Average inbound transportation cost
b. Average incoming shipment size
c. Average inbound transportation cost per shipment
d. Average outbound transportation cost
e. Average outbound shipment size
f. Average outbound transportation cost per shipment
g. Fraction transported by mode (inbound & outbound)

7.14 Supplier Relationship Management

This module is responsible for maintenance of supplier records, including master data
as well as supplier history. This will also allow collaboration among supplier and Haidri
beverages by setting up which modules and screens the supplier can access by defining
access right incorporated in supplier master data. Following are the features supported
by this module:

i. Supplier Master Data Management


ii. Supplier History Maintenance
a. Lead Time
b. Frequency of purchases
c. Credit history
d. Performance history
1) Order delivered on time
2) Pricing
3) Terms and conditions flexibility
4) Supplier ranking
iii. Supplier Selection
iv. Supplier classification
v. Reports
a. Days Payable outstanding
b. Average purchase price
c. Product-grouped vendors list
d. Ranking
e. Average purchase quantity – vendor wise
f. Supply quality
g. Supply lead time
h. Fraction on-time deliveries
i. Supplier scoring

7.15 Manufacturing Execution System

This module allows full monitoring and planning of production process. The following
features are proposed for this module:

i. Production scheduling

ii. Labor shifts management

iii. Waste management


iv. Production summary

v. Cost of goods manufactured

vi. Bills of material

vii. Mapping production to facilities

viii.Manufacturing operations management

ix. Process Costing

x. Reports

a. Production Plan

b. Product Costing

c. Process Costing Report

d. Production Day-End Report

e. Facilities Engagement Report

f. Number of hours consumed by each facility at day-end

g. Average manufacturing time for each item

h. Average cost of goods manufactured

i. Cost of goods available for sale

7.16 Facility Management

This module offers full support for management of all facilities installed at Pepsi Haidri
Beverages as well as those which are used for operating purposes like vehicles,
computer systems, photocopy machines, printers, fax machines, security gate, loaders,
fork lifters, etc. The following features are supported by this module:

i. Facilities Master Data

a. Type
b. Capacity

c. Maximum number of workable hours

d. Location

ii. Operational costs

iii. Mapping employees to facility

iv. Utilization

v. Product variety

vi. Mapping production schedules to facilities

vii. Reports and Computations

a. Capacity

b. Utilization

c. Cycle time of production

d. Actual Average flow/cycle time

e. Flow time efficiency

f. Product variety

g. Processing/setup/down/idle time

h. Average production batch size

i. Production service level

7.17 Sourcing

Sourcing refers to all activities involved in purchasing raw and semi-finished materials
from suppliers or third parties. The key features of this module are:

i. Supplier Tenders management

ii. Request for Quotations

iii. Supplier quotations


iv. Supplier selection

v. Purchase order management

vi. Goods receipt Note Management

vii. Invoicing

viii.Material returns management

ix. Reports and Calculations

a. Days payable outstanding

b. Average purchase price

c. Range of purchase price

d. Average purchase quantity

e. Fraction on time delivery

f. Supply quality

g. Supply lead time

h. Purchases History

7.18 Sales and Support

The module supports the following features:

i. Distributor Information management

a. Storage Capacity

b. Location

c. Distributor’s retail channel

ii. Key accounts management

iii. Sales order processing

iv. Sale Order tracking


v. Sales invoicing

vi. Secondary Sales Management

vii. TDM Personnel Management

viii.Target definition and tracking

ix. Reports

a. Distributor Data

b. Secondary Sales Tracking

c. Target tracking

d. Distributor ranking

e. Average lead time

f. Product sales analysis

g. Forecast variability

7.19 Financial Management

This module controls a wide range of activities. All matters relating to “money” are
dealt here. The key features of this module include:-

i. Capital Budgeting

ii. Posting of Transactions

iii. Cash payments and receipts

iv. Transaction Audit System

v. Report Generation

a. Cost of Goods Sold

b. Cash Flow Statement

c. Payment Schedules
d. Analysis of Financial Statements
Chapter 8

Limitations and Future


Recommendations
Chapter 8

Limitations and Future Recommendations

8.1 Limitations of Study

The following limitations were identified during study:-

1. Rough-cut Method: The supply chain management system proposed for Pepsi
Haidri Beverages was, in the first stage, has been designed using the Rough-cut
model only. These models typically assume a "single site" (i.e., ignore the
network) and add supply chain characteristics to it, such as explicitly considering
the site's relation to the others in the network. Therefore, the supply chain system
proposed for the company would only contain suppliers and distributors of
Pepsi Haidri Beverages Islamabad only. The other franchise owners of Pepsi will
be connected to the supply chain in future, as mentioned in article 8.2,

2. RFID Technology: RFID technology has not been proposed due to the huge
budget required to implement this technology. Moreover, the company does not
need this technology since, firstly, tracking of the items being sold is already
supported by the SCM features and secondly, the distribution area is limited to
urban and rural areas of Rawalpindi and Islamabad district only.

3. Supplier Connectivity: the number of suppliers connecting to the proposed


system is expected to be more or less 10-20%. For this purpose, the company is
expecting to connect only those suppliers who supply major items like
concentrate, cans, sugar and plastics suppliers.

8.3 Customization vs. Re-engineering

Most of the modules proposed in the supply chain system are re-engineered, that is,
they need major changes in the core business processes. The modules which needed
some customization include the following:-

• Forecasting
• Sales

• Distributor and manufacturer inventory

• Production scheduling and control

From the above modules, sales module is the module that needs maximum
customization. The payment modes are proposed to be changed although the payment
method would remain the same, that is, advanced payment. The requirements for
distributor and manufacturer inventory management system remain that same with
some addition in fields to support decision-making process.

8.3 Future Recommendations

The following enhancements and upgrades are recommended for the proposed system
in future:-

1. Expansion of supply chain management system to customers, and in this case,


retailers to whom the distributors sell out the product. Retailers will also be
provided a facility to connect to the system from where data relating to the actual
sales to consumers can be collected.

2. Point of Sale system for distributors: The distributor will be provided a point-
of-sale application connected to the system from where real-time data will be
captured

3. Distributed database approach: The database supported by the system will be


distributed, that is, replicas of database will be created at a number of host sites
(the other franchise owners of Pepsi). Local databases to distributors will also be
provided to support efficient POS system. This database will be highly
synchronized with master databases arranged in a peep-to-peer network
arrangement of distributed system.

4. Network security

5. Data mining

6. Connecting other manufacturing locations to Haidri beverages Rawalpindi


7. Complete transformation of legacy systems to ERP-II systems

8.4 Conclusion

Supply chain management is an exploding field, both in research and in practice. Major
international consulting firms have developed large practices in the supply chain field.
Through better information engineering, supply chain improvements have resulted in a
reduced bullwhip effect, lower inventory levels, reduced logistics costs, and streamlined
payments. These improvements appear to have helped macroeconomic benefits such as
more stable economic output and higher productivity growth. However, Firms who
operate in global environment and deal with multiple suppliers and customers, are
required to manage inventories in new and innovative ways, and are faced with
possible channel restructuring. The field promises to continue growing as the research
advances and as firms continue to apply knowledge in their global networks. Finally, as
the internet changes fundamental assumptions about business, firms operating in
supply chains will be required to understand this new phenomenon and respond
accordingly.

As for Pepsi Haidri Beverages, in order to survive in the current economic conditions as
well as the increased competition in beverage industry with the ever growing
competitors like Coca Cola adopting new techniques of expanding their supply chain
and reaching their customers in a much more efficient manner and producing
beverages according to consumer demand, it is more advisable to Pepsi Haidri
Beverages to conduct the business in a strategic way with technological support and
efficient demand and supply network which seems impossible without supply chain
collaboration and information technology support.
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