You are on page 1of 8

MBA – Semister 3

MK0001 – Sales, Distribution and Supply Chain Management

Set-II
Q.1 a. List out the obstacles in supply chain and suggest measures to overcome them? (8 marks)

b. Give an example for an ethical issue in sales and distribution? (2 marks)

Ans: Developing an effective supply chain is not easy. A company must have the right technology
and the support of the best suppliers for it to work. However, even once that obstacle has been
overcome, another major issue may still loom ahead: finding real cost-reduction in the real supply
chain. Unfortunately the unanticipated costs of running the supply chain often surprise managers and
force companies to make some tough decisions. Thankfully, understanding what causes or drives
these costs is half the battle.

There are actually six main causes of cost problems in supply chains. Usually a supply chain
will not exhibit all of these problems but they commonly do have a combination of numerous
ones since many of them are related. One of those causes is simply that the business and its
partners have not clearly thought about what they are doing.
Anyone who has ever put together a supply chain knows that it is a truly ambitious endeavor
that is truly worth doing right. However, many companies lack sufficient direction to
accomplish such a goal. Along those same lines is a second cause: confusion. When so many
different elements come together, confusion is almost inevitable initially, especially if there
was not enough planning, training, or communication among those elements.
Another problem deals with the way supply chain success is measured. Too many companies
continue to use outdated financial yardsticks as the sole indicator of the success of a project
or of the business. This approach does not work for supply chains since its main goal is not
necessarily to only to improve profits but to balance supply and demand among all of the
chain’s elements. Using profits and revenues as the main unit of success measurement means
that many partners may begin to sacrifice quality or to make other drastic changes which
seem to help the bottom line but which destroy the supply chain’s foundation.
A third cause of extra costs involves barriers. Those already involved with supply chains
probably already understand that small changes are magnified at each level of the supply
chain. A minor price cut at the distributor level may be a major problem for vendors
supplying the raw materials. In order to minimize these effects, businesses must be able to
overcome the barriers that exist between each separate organization involved in the supply
and between the different departments operating within one’s own company. Unfortunately
crossing these boundaries is not always as easy as it sounds. However, dealing with these
situations before they arise and choosing supply chain partners who are open to that level of
collaboration can help alleviate many of these problems.
Finally, supply chains often suffer because either one or several links in the chain are unable
or are resistant to change or when attempts are made to make everyone involved in the link
adhere to strict guidelines. Being willing to adapt and to be flexible is one of the biggest
challenges supply chain partners must face. An insistence that the status quo be the way to go
will ultimately cost all parties involved a great deal and might actually destroy the supply
chain.
While there are a number of ways to avoid these cost problems, they all boil down to one
thing: take pre-emptive action. When a supply chain waits for a problem to arise and then
deals with it, the consequences have already occurred and the damage may not be able to be
reversed. Instead, companies need to sit down with their supply chain partners and discuss
issues like flexibility, barriers, metrics, and direction. By going over these concepts in
advance, the companies can ensure that everyone is on the same page and that anyone who is
not willing to be part of the group can get out before they get too deeply involved.
Overall supply chains can be tremendous assets to companies and their vendors, but they
often come with a price. Businesses must be willing to change their attitudes, their routines,
and their ideas of how things need to run. A failure to do this means that not only will the
supply chain fail, but the businesses involved will likely lose a great deal of money in the
process.
Major Trends in Supply Chain Management are:
• Co-makership
• Use of Third Party Logistics
• Principle of Postponement
• Use of ERP/DRP Techniques
Co-makership
Co-makership is defined as the development of a long-term relationship with a limited
number of suppliers on the basis of mutual confidence. The common benefits of co-
makership are shorter delivery lead times, reliable delivery promises, less schedule
disruption, lower stock levels, faster implementation of design changes, fewer quality
problems, stable competitive prices and higher priority given to orders. The basic philosophy
of co-makership is that the supplier should be treated as an extension of the customer’s
factory with the emphasis on continuity and a seamless end-to-end pipeline. The trend
towards co-maker ship should increase with the growth in trend towards outsourcing. The
principle of co-makership can be extended in both directions in the supply chain – upstream
to customers and downstream to distributor retailers and even end users.
Use of Third Party Logistics
Outsourcing operations like storage, transportation, delivery, etc., improve service levels,
enhance flexibility and reduce costs. Outsourcing also helps to reduce investments in assets
like trucks and warehouses, and enables organizations to access new technologies more easily
and even penetrate new markets. However, certain issues need examination. The service
provider may offer the same service to a competitor to recover the investment costs and
hence, the pay off may not materialize. The organization’s image is closely linked to that of
the service provider, Hence, a decision to use third party logistics should be based on the
organisation’s needs, the service provider’s capabilities, the terms and conditions, and the
resulting pay off.
Principle of Postponement
Organisations can determine the appropriate point in the supply chain at which the product is
completed in its saleable form. Delaying the final labelling, assembly or packaging until the
last moment is known as principle of postponement. The objective of this principle is to
minimize the risk of carrying finished product inventory at various points in the supply chain
by delaying product differentiation to the latest possible moment before customer purchase.
Stocking and transportation cost savings are attained by keeping products at the highest
echelon level as possible and by moving goods through the supply chain in large, generic
quantities. Some examples of postponement are – delaying the labeling process till the
customer’s order is received, shipping products in bulk and transferring them to smaller
containers at warehouses, delaying final assembly until actual receipt of a customer’s order,
and stocking petroleum, paints, etc., in unblended state and performing blending operations
against actual orders. However, postponement should not lead to a compromise on the
desired service level.
Use of ERP/DRP Techniques
Enterprise Resource Planning (ERP) systems are information integrators and they help to
bind various business processes in an enterprise. ERP also helps in the streamlining and re-
engineering of various processes. It helps in focusing on value-added activities and
eliminating the non-value adding activities. Because of tremendous developments in
information technology (IT), ERP has led to improvements in various activities related to in-
bound logistics, transportation, materials management, accounting, finance, etc.
DRP is a tool which estimates inventory requirements at stocking locations, and ensures that
supply sources are able to meet the demand. DRP incorporates policies on safety stocks and
information as well as the relation between demand forecasts, inventory levels, and
manufacturing and distribution schedules. The logic used is analogous to material
requirements planning. The manufacturing lead times, in turn, are linked to manufacturing
schedules. DRP assists not only in short-term distribution planning, but also in anticipating
future production and distribution resources so as to match supply and demand. It helps to
quickly adjust to vagaries of the market place with minimum inventories. Its potential is
particularly significant in a multi-echelon environment owing to its approach to incorporate
dependencies at various echelon levels. Since minimal inventories are held, DRP can be
viewed as a key requirement for a just-in-time production and logistics system.
Q.2 a. Find out the recent trends in channel management and how they have helped in
creating value in channel performance? (5 marks)
Wholesaling
Wholesaling refers to the activities involved in selling to organizational buyers who intend to
either resell or use for their own purposes. A wholesaler is an organization providing the
necessary means to: 1) allow suppliers (e.g., manufacturers) to reach organizational buyers
(e.g., retailers, business buyers), and 2) allow certain business buyers to purchase products
which they may not be able to purchase otherwise. According to the 2002 Census of
Wholesale trade, there are over 430,000 wholesale operations in the United States.
While many large retailers and even manufacturers have centralized facilities and carry out
the same tasks as wholesalers, we do not classify these as wholesalers since these
relationships only involve one other party, the buyer. Thus, a distinguishing characteristic of
wholesalers is that they offer distribution activities both for a supplying party and for a
purchasing party. For our discussion of wholesalers we will primarily focus on wholesalers
who sell to other resellers such as retailers.

Retailing
The term ‘retailing’ refers to ‘the activities involved in selling commodities directly to
consumers’.
Retailing consists of the sale of goods or merchandise for personal or household consumption
either from a fixed location such as a department store or kiosk, or from a fixed location and
related subordinated services.
Defined here as sales of goods between two distant parties where the deliverer has no direct
interest in the transaction, the earliest instances of distance retailing probably coincided with
the first regular delivery or postal services. Such services would have started in earnest once
man had learned how to ride a camel, horse, etc.
When individuals or groups left their community and settled elsewhere, some missed
foodstuffs and other goods that were only available in their birthplace. They arranged for
some of these goods to be sent to them. Others in their newly adopted community enjoyed
these goods and demand grew. Similarly, new settlers discovered goods in their new
surroundings that they dispatched back to their birthplace, and once again, demand grew.
This soon turned into a regular trade. Although such trading routes expanded mainly through
the growth of traveling salesmen and then wholesalers, there were still instances where
individuals purchased goods at long distance for their own use.
A second reason that distance selling increased was through war. As armies marched through
territories, they laid down communication lines stretching from their home base to the front.
As well as garnering goods from whichever locality they found themselves in, they would
have also taken advantage of the lines of communication to order goods from home.
In commerce, a retailer buys goods or products in large quantities from manufacturers or
importers, either directly or through wholesalers, and then sells individual items or small
quantities to the general public or end-user customers, usually in a shop, also called a store.
Retailers are at the end of the supply chain. Marketers see retailing as part of their overall
distribution strategy.
Shops may be on residential streets, or in shopping streets with few or no houses, or in
shopping centers. Shopping streets may or may not be for pedestrians only. Sometimes a
shopping street has a partial or full rooftop to protect customers from precipitation. Online
retailing, also known as e-commerce, is the latest form of non-shop retailing.
Shopping generally refers to the act of buying products. Sometimes, this is done to obtain
necessities such as food and clothing; sometimes, it is done as a recreational activity.
Recreational shopping often involves window shopping (just looking, not buying) and
browsing and does not always result in a purchase.
b. What do you mean by supply chain integration? What are its benefits? (5 marks)
Stevens (1989) proposed a model in which the balance within the supply chain involved
functional trade-off.
The development of an integrated supply chain requires the management of material and
information flows to be viewed from three perspectives: strategic, tactical and operational. At
each level, the use of facilities, people, finance and systems must be co-ordinated and
harmonized as a whole.
The focus at the strategic level should develop:
• Objectives and policies for the supply chain in order to achieve competitive superiority.
• The physical components of the supply chain.
• A statement of customer service intent by the product market, customer group, or
perhaps by a large customer.
• An organisation structure capable of bridging the functional barriers and thereby,
ensuring an integrated value delivery based supply chain.
The tactical perspective focusses on the means by which the strategic objectives may be
realized. Objectives for each element of the supply chain provide the directions for achieving
balance within the supply chain. The tactical perspective involves identifying the necessary
resources with which the balance may be achieved.
The third phase is supply chain development in which the supply chain strategy and plans for
implementation are evolved. The strategy should be examined to ensure that the relevant
customers (and customer service expectations) have been identified and that this is consistent
with management’s perception of market development trends. Implementation plans require a
time-phased program for resource allocation throughout the supply chain.
Stevens makes an interesting comment concerning supply chain development. While the
impetus for the development of the strategy may be a top-down approach, its success is likely
to be achieved by a bottom-up approach.
• Stage 1 is a situation in which the company approaches supply chain tasks in discrete
decisions with responsibility lodged in each of the task centers. The result is usually a
lack of control across the supply chain function because of organizational boundaries
preventing the co-ordinated decisions from achieving an overall customer service
objective.
• Stage 2 of development is typified by the functional integration of the inward flow of
goods through materials management, manufacturing management and distribution. The
emphasis is usually on cost reduction rather than on performance achievement and is
focused on the discrete business functions with some attempts at achieving internal trade-
off between, for example, purchasing discounts and inventory investment, and perhaps,
plant operating costs and batch volumes. Customer service is reactive.
• Stage 3 accepts the necessity of managing the flow of goods to the customer by
integrating the internal activities. At this stage, integrated planning is achieved by using
systems such as distribution requirements planning (DRP), JIT, manufacturing
techniques, etc. This level of internal integration is essential before the company can
consider integrating customer demand in an overall demand management activity. IT
becomes an effective enabler in this process.
• Stage 4 extends the integration to external activities. In doing so, the company
becomes customer oriented by linking the customer’s procurement activities with its own
procurement and marketing activities.
The value chain/supply chain management approach enables a company to respond to market
changes. However, for the full potential to be realised, the connection and inter-relationships
between the component parts of the supply chain must first be identified, and an integrated
system designed to ensure that the system which evolves can be managed such that customer
product and service expectations may be met cost-effectively.
Q.3 Show how new information technologies have brought about changes in the supply
and distribution activities of a particular Organization. Do you think it has helped in
reaching out to the consumers more effectively? Give reasons for your answers. (10
marks)
The internet has vastly expanded the value of the goods and services business trade
electronically. The internet era has revolutionized commerce, making electronic commerce a
reality. The major force of electronic commerce is driven by the fact that it results in
lowering purchasing cost, a reduction of inventories, lowering cycle time, more efficient and
effective customer services, lowering sales and marketing cost and new sales opportunities.
E-commerce has three dimensions.
1. Reach is about access and connection. It means simply how many customers a
business can access or how many products it can offer. Reach is the most visible
difference between electronic and physical businesses, and it has been the primary
competitive differentiation for business thus far.
2. Richness is the depth and detail of the information that the business gives the
customer or collects about the customer. Richness holds enormous potential for building
close relationships with customers in a future dominated by e-commerce.
Affiliation is about whose interests in business it represents. Until now, affiliation hasn’t been
a serious competitive factor in physical commerce because, in general, no company ever
devised a way to make money by taking the customer’s side. E-retailers with navigational
functions are shifting their affiliation towards customers. Traditionally, manufacturers and
retailers must find ways to fight, co-opt, or imitate their e-commerce competitors’ affiliation
strategies.
Improved productivity, faster financial flows, improved quality, improved customer service,
reduced costs, shortened supply chain, faster product development, reaching new markets,
improvement in cash flows etc. are the advantages of IT.
IT has helped in making the supply chain faster, flexible and responsive. An organisation
needs to invest in IT carefully to make its supply chain more responsive. Various flows in
supply chain such as material, information and money can be effectively managed through
IT. Specifically:
• Strategic decisions on the supply chain design can increase customer satisfaction and
save money at the same time – the classic win-win situation through IT.
• By sharing information, supply chain partners are able to respond more rapidly to
known demand and to do so with less inventory in the system as a whole and, hence, at
lower cost.
• Reduction of operating costs by proper coordination of the planning of various stages
of the supply chain is enabled through IT.
• By minimising the need for excess parts and simplifying the overall design, it will be
easier for companies to customise or vary the product according to each customer’s needs
and requirements.
• Rapid introduction of a new or modified product is possible through IT.

• Greater product customisation, or manufacturing to order, would come at relatively


low unit cost through IT.
• There is sharing of planning and scheduling information due to collaboration and
integration among departments within the company and outside departments. This is
something that is highly correlated to the supply chain performance.
• Effective inventory management, having just the right amount of the right
merchandise on the shelves for just the right amount of time minimises overstocking and
markdowns, and so boosts profitability. This is possible through IT.
• Detailed analysis of item performance, what-if scenario evaluation, and exception
reporting and handling is facilitated through IT.
IT and supply chain
The application of IT to the logistics function has had a major impact on added value in the
value chain. One particular application, Electronic Data
Interchange (EDI), has added to the value input with:
• More accurate and rapid information flows,
• Improved logistics system productivity,
• Closed trading relationships,
• Improved cash flows, and
• A reduction in forecasting errors.
Equally, it may be said that EDI would not function adequately, if at all, without the benefits
of electronic point of sale (EPOS) data capture. EPOS enables real and live transactional data
to be used (through the facility of EDI) to manage production operations and inventory
allocations and levels. Hindustan Lever Ltd. (HLL) is an excellent example of a value
delivery system. By using an integrated combination of information systems and EDI
systems, it has managed to delay the finishing of the product until the very last moment. With
the advent of the internet, the supply chain is becoming more and more customer centric.
The value chain concept is an ideal vehicle from which this notion can be developed. The
benefits of using this concept are:
• It identifies the roles and tasks to be undertaken in the total process of customer
satisfaction.
• Having identified roles and tasks, they may be evaluated in cost terms, and decisions
made concerning trade-off potential and the extent to which intermediaries may be
involved.
• The analysis may be used to determine more accurate costs for providing the service
requirements of customers using an activity-based costing methodology.
The key to the development of the supply chain concept has been the rapid progress made by
information and the fact that the cost of making information available to more decision
makers has steadily decreased, while concurrently, the physical costs of business such as
facilities and inventory have steadily risen.
Another major influence accompanied these phenomena—the developments made in just-in-
time (JIT). The change in manufacturing philosophy brought about by the Japanese Kanban
(just-in-time) concept, which was specifically devised to eliminate waste (any activity or
process which does not directly add value to the product service), has clear implications for
logistics. For example, holding excess inventory was seen as wasteful and, therefore,
companies should minimize, even eliminate inventories. JIT introduced the commitment to
short (but consistent) lead times, minimum levels of inventory but, at the same time, optimal
levels of customer service.
The rationale behind the concept is that stocks of components (or finished items for resale)
should be planned to arrive only at the time they are actually needed. In effect, it saves
money on downstream inventories by placing greater reliance on improved responsiveness
and flexibility. Hence, quick response (QR) systems (the distribution equivalent) are
attractive. The implications for distribution management are not difficult to identify. Clearly,
there is an information requirement here, and the development of EPOS and EDI has made
the concept of minimal stocks/optimal service much more feasible.