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OPERATIONS

Q1. Write short notes on the following:


a. Supply chain management
b. Different types of Inventory
c. EOQ
d. Lead time and buffer stock
e. Make to order vs Make to stock

Supply chain management:

Supply Chain management is the management of flow of goods and services and
involves various activities that transform raw materials to end products. Supply
chain and the activities that come under supply chain management are represented
below.

SUPPLY CHAIN SUPPLY CHAIN


NETWORK MANAGEMNT

Procurement:
Procurement is the process of getting the goods and/or services your company
needs to fulfil its business model.
Product Life Cycle Management:
Product lifecycle management (PLM) is the system of strategic processes
employed to reduce the cost of getting a product to market, efficiently scale to
meet market demand, extend the duration of the profitable years of your product's
maturity and continue maximum profitability as product sales begin to decline.
Effective product lifecycle management depends upon collaboration among
supply chain team members and facilitates the sharing of data oftentimes across
design, quality, manufacturing and business systems.
Logistics:
The term "logistics" applies to activities within one company or organization
involving product distribution.
Supply Chain Strategy:
Supply chain strategy includes:
 Optimum end-to-end supply chain cost
 Flexibility for Business strategy and future growth
 Improve customer service levels
 Improve visibility through IT infrastructure
So, supply chain strategy often focuses on driving down operational costs and
maximizing efficiencies.
Asset Management:
It is a systematic process of developing, operating, maintaining, upgrading, and
disposing of assets cost-effectively.
Different types of Inventory:
Inventories Can be broadly classified into two types.
 Manufacturing Inventory
 Trading Inventory
Manufacturing Inventory:

Manufacturing Inventory
Work in Finished Packing MRO
Raw Material Progress/
Goods Materials Supplies
Process

Raw materials inventory:


Raw materials inventory are the items that your business needs to produce its
goods and/or services. Milk is a part of the raw material that is needed to make
an ice cream.
Work-in-process inventory:
Work-in-process inventory is any unfinished goods that your business has made.

Finished goods inventory:


Finished goods inventory includes any finished goods that are ready to sell.
Packing Inventory:
Packing material is the inventory used for proper packing of goods. It can be
primary packing and secondary packing.

MRO Supplies:
M- Maintenance R- Repair O- Operations
These are the supplies that are needed to keep the business running.
Trading Inventory:
Under this all materials are same. Goods are goods.
The other types of inventories are:

Goods in Buffer Anticipatory Decoupling Cycle


Transit Inventory Stock Stock Inventory

EOQ:
In inventory management, economic order quantity (EOQ) is the order quantity
that minimizes the total holding costs and ordering costs. In other words, it is the
number of units that a company should add to inventory with each order to
minimize the total costs of inventory—such as holding costs, order costs, and
shortage costs.
The EOQ is used as part of a continuous review inventory system in which the
level of inventory is monitored at all the times and a fixed quantity is ordered
each time the inventory level reaches a specific reorder point. The EOQ provides
a model for calculating the appropriate reorder point and the optimal reorder
quantity to ensure the instantaneous replenishment of inventory with no
shortages.
Lead time and buffer stock
Lead time denotes the average duration of time in days between placing of
orders and receipt of material. When orders are placed for any item this lead time
must be taken in consideration, so that orders could be placed at a time when
existing stocks are sufficient for the needs during this period.
Buffer stock is the quantity of stock set a part as an insurance against
variations in demand and procurement period. Buffer stock can be calculated as
follows:
𝐵 = √2 ∗ 𝑆 ∗ 𝐷 /𝐻
Where,
S = setup costs,
D = Demand rate &
H = Holding costs.
It can be calculated by multiplying the difference between maximum and average
consumption rate per day with lead time for that item.

Make to Order Vs Make to Stock


Make to Order Make to Stock
 Manufacturing or assembly  Strategy of an organization to
process are used to satisfy produce products based on
customer requirements only anticipated demand.
when an order is received.  When accurate forecasting of
 It may require the combination demand is possible, the make to
of standard and custom-made stock strategy can be very cost
parts, if it requires only standard effective.
parts it is called assemble to  The downfall of this strategy is
order process. possible over production due to
unrealistic forecasting of
demand.

Q2. With Industry 4.0 at the forefront, how would digitization make supply
chain more efficient and agile? Sight 2 use-cases with an effective approach.
Ans: Digitization in Industry 4.0 is the future. The supply chain today is a series
of largely discrete steps taken through marketing, product development,
manufacturing, and distribution, to make the end product reach the customer.
Digitization brings down those walls, and the chain becomes a completely
integrated ecosystem that is fully transparent to all the players involved — from
the suppliers of raw materials, components, and parts, to the transporters of those
supplies and finished goods, and finally to the customers demanding fulfillment.
This network will depend on several key technologies: Robotics, Bigdata
analytics, Sensors and geo-location, Nano technology and 3D printing, UI &
display innovation, cloud services etc. Let’s see how digitization affects supply
chain.

 GPS, GSM, Galileo based positioning for tracking of shipment


 Sensors for filling status, product quality, packaging quality & equipment status.
 Reliable all-time localization

 3D Printing  Augmented
 Microwave Sensors & Reality
laser-based Geo-  Customer self-
production loacation service scanning
 New supplier Nanotech  In-store
configurations & 3D- Robotics navigation
 New production Printing  Displays on
location packaging

Digitization
 Multivariate
regressions UI &
 Predictive Bigdata Display  Picking
analytics innovation  Palletizing
 Demand  Loading
forecasting Cloud  Unloading
 Capacity Services  Automated CKD
planning Assembly
 Routing

 Connected devices, global real time data consistency


 Cloud based tracking
 Realtime availability of SCM data and synchronized IT services
1) By making use of big data to derive industry insights about the whole process
starting from the end customer requirements to the challenges and feasibility of
processes involved, to manage it more effectively and efficiently and making the
different phases of supply chain transparent to all the players involved in the
process starting from raw material provider to the customer.
2) Sensors and smart equipment, internet-enabled devices and technology can
profoundly change logistics management. It will help in boosting efficiency and
speed throughout the entire supply chain. The biggest areas of growth are
automated storage and retrieval systems, warehouse control system software and
warehouse execution systems, all are critical components in the creation of the
modern smart warehouse and thus creating a digitalized Supply chain.
Q3. Gartner supply chain 2018 report establishes Apple, Amazon, P & G and
McDonalds as the Master of Supply Chain Management Worldwide?
Ans: Management gurus and Analysts around the world call Amazon’s Supply
chain management as the most innovative and effective in the world. Obviously,
they have facts to support this statement. Like many other top players in the
industry Amazon follows consumer centric approach to make things more
economical. Their supply chain process is simple, yet effective.

• Customer choses product and order it online


Order • Information is sent to warehouse through notifications
Placement

• Information to workers regarding the prodct details


• Barcode matching with the order.
Warehouse
Operation • Transportation to distribution center

• Barcoe is again matched with product to avoid any discrepancy.


• Boxes are packaed and weighed and the shipped to the customer
Distribution
Center address.

Products are shipped by either US postal service or UPS for the last mile, arriving
at the consumer within 1 to 7 days.
Some of the key points that make Amazon’s Supply chain highly efficient are
listed below:
1. Amazon brings speed to its Supply chain process by investing heavily in
reducing the delivery time of its products and in some cases same day delivery
too. They are planning on introducing drones to make the process even faster.
2. Amazon focus on Outsourcing Inventory Management and Insourcing
Logistics. The products that are not frequently purchased or ordered are not stored
in regular Amazon warehouses.
3. They recently-introduced “Dash” button also enables users to order basic
household supplies at the touch of a button, so they don’t need to log on to a
computer to order. Such tools are also a boon in that they provide a wealth of
real-time data from which they can gain even more specific information about
when demand for a product will rise and fall, so that they can adjust stocks
accordingly.
4. Amazon makes high use of their Robotics vertical. The robots of Amazon
Robotics can pick and pack without needing any human assistance, enabling
Amazon to complete warehouse activities super-fast.
Another firm in the same industry is India’s Flipkart. Flipkart uses a
Continuous review model. The inventory stocks are replenished when the
inventory levels reach Reorder point (ROP). The company employs first in first
out(FIFO) method for its inventory management. Under the FIFO method,
shipment request is sent to a warehouse where the oldest inventory items are
shipped first. This model makes sense for electronics since technology becomes
obsolete very quickly. Flipkart uses sales to predict the levels of inventory. Most
of the major warehouse spread across the Metros like Mumbai, Delhi, Kolkata
and Chennai and in the cities of Pune, Bangalore and Noida. They further have
smaller regional distribution centers at over 500 locations.
Some of the supply chain strategies that set apart Amazon from Flipkart are
a) The uses of Robotics by Amazon in their warehouses has made the process
efficient.
b) Innovative thinking- Amazon won a patent in January for floating
warehouses that use drones for deliveries and replenishment. They are thinking
of using drones for warehouses and home delivery.
c) Faster Logistics- Amazon uses “Relay” and is Amazon’s first trucking app
and is designed to make trips to Amazon warehouses faster and more efficient. It
is used for pre-check in. With the pre-check in process, it gives Amazon better
visibility into the current location of its deliveries and can better prepare for
arrivals.
d) Amazon offer same day and single day delivery to their prime customers
because of the better logistical support.

Q4. GST has affected the supply chain, logistics and warehousing of various
manufacturing and retailing giants. Take any two prominent companies in
different sectors and comment on the above statement.
Ans: Most firms had to establish hubs and transit points in several states to avoid
the state value added tax (VAT) because the goods directly supplied to dealers
were taxed as per the VAT rate, but the transfer from the warehouse was treated
as a stock transfer and did not attract VAT.
However, this only caused more problems in accounting and lack of clarity for
companies, while also resulting in opportunities for tax evasion. Now GST has
replaced the state taxes therefore it is no more necessary to build hubs in different
states. Companies can make changes to their supply chain model and can
consolidate operations to take the benefit of large scale operations.
The tax on warehouses and manual labor has increased to 18% from 15%. The
removal of stock transfer hubs will benefit by increasing the share of direct
dispatches for medium and large-sized dealerships. With the removal of state
taxes companies now have a better opportunity to reach vendors in other states
and to also increase their customer base.

Q5. A Fortune 500 retailer is facing stock-out options at some of its stores and
excess inventory at other locations. It lacks standard operating procedures and
is struggling to move its products through its supply chain into the stores. It
was also facing some serious issues with its supplier base off late. Identify
supply chain improvements that could optimize inventory levels and raise
profits?
Ans: Some of the improvements and methods that this fortune 500 company
could implement to try to replenish their store shelves and raise profits are listed
below:
 Priority should be given to resolve the issue with supplier and in the
meantime reduce the dependencies by creating multiple supplier network.
 They should try and roll out extra products from the store shelves that are
stocked up with excess products to the stores that does not have enough
stock.
 Company should properly study and understand the demographic
requirements so that it can predict the sales in each of its stores.
 Company should try putting more product on the sales floor rather than
stockroom by redesigning shelves.
 Sending returns from other customers directly to the stores that are running
out of stock.
 The company should first replenish the stocks for the products that are in
high demand.
Q6. Suggest some strategies to optimize the production of Cadbury Dairy Milk
at the plant of Mondelez in Pune.
Ans: Some strategies to optimize the production of Cadbury dairy milk are
 The company should keep the current plant running and should focus
primarily on the production of products that are in high demand.
 The company can also look for 3rd party manufactures and acquire small
factories equipped with required resources to facilitate the production.
 The new supply chain models should be made referring to the Industry 4.0
approach so that the production can be made faster and the lead time can
be minimized
 As the firm is expanding and they have variety of products, they should
plan and execute methods to make the supply chain faster by using
techniques like smart warehousing and making the process more
transparent
 Make use of analytics to gain insights on the consumer requirements for
the ongoing phase and manufacture products based on those insights
Q7. As an operation manager of a traditional tiles manufacturing industry you
are facing challenges due to globalization (foreign companies eating up the
domestic market share). As the industry is traditional, what can be the probable
reasons behind the challenges in terms of operations?
Also, design a supply network to enhance your reach and market share in both
domestic and global market (Hint: Include Manufacturing management,
Procurement, Logistics management, issues in managing global operations
and the ways to overcome the same)
Ans: The probable reasons behind the challenges that the company might be
facing are
a) As new players have entered the market it will become difficult for the
existing industries to procure raw materials as the demand for raw materials will
grow and suppliers will have new customers who might be paying them better.
b) The new entrants might be paying the labor force or their staff lucrative
incomes, that will lead to issues regarding the lack of labor thus hampering
production
c) There is a high chance that new companies will benefit from what they can
offer the customer something they have never seen before, if they create a product
that has high desire it can result in increased sales, thus capturing more market
share.
d) There is a possibility that new industries have better logistical approach
and less lead times than the traditional one, encouraging the customer to choose
them over traditional industry.

Supply Design-
1. Implementing Industry 4.0 to increase efficiency and manufacturing.
Integration and proper planning.
2. The process will be carried out is make to stock, so that we can provide
customized products to the customer, being a traditional firm, we will provide
choice to the customer for traditional products or customized products.
3. Skilled labor will be hired so that quality of the product does not suffer
4. The logistic department will be made more transparent and the use of high
end technology will be made to make the process smooth and to predetermine
various factors that impact logistics, for example weather, traffic & increasing
fuel costs. This will be done to make sure that there are no transit delays and loss
of inventory during transportation.
5. Global operations will require the understanding of markets the company
want to enter, consumer demand and expectations from the product. We will
make the use of data analytics to analyze what is required to succeed in the market
and making sure to implement the technology for efficient use.