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Cases in logistics

prof. G.pherwani

Case 3: MARUTI UDYOG-And Supply Chain The Web That Runs Maruti 1996-e-biz efforts restricted to B2B(e-mail, dialup connectivity)2Mblink to VSNL-e-ordering This how Maruti Udyog’s InfoTech team of 60 has wired up India’s largest auto maker. All offices are connected on a 256-kbps link Result: Inventories are now down from five days to less than 36 hours Production plans are shared with key vendors up to three weeks advance. The Delivery Instruction System is an extension of Maruti’s wired structure, the extranet, for key vendors. By mutual agreement. not more than 5-10per cent variation from the plans is allowed Result: Many vendors have cut their inventories by a third Rejection ,warranty claims from TIER I Suppliers Rs.100bn.business-2MB link to VSNL-Tie-up with 3Banks (ANZ Grind lays Corporation Bank, BOA for EFT).STDI. Application. s/w for online DataUpdation Its market share is 60 per cent. With 12 high-end Compaq Alpha servers, with 17.9 terabyte storage capacity Largest-handled transactions worth Rs19,000 crore during 2000-01 Rs 1.2crore worth of spares every week 189 dealers across 147 cities Maruti also extended his extranet “Whole system helps to take decision faster” The Maruti network will soon be expanded to a part of the 1,723 workshops spread over 740 cities. Fault repair online ,and maruti to monitor service quality

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All 216 sales outlets are hooked to the Maruti extranet The mess of manual booking and conformation has been eliminated. Coming up :e-learning for dealers and service center Soon it will be used to monitor quality of service too Result: Logging an order once took five days. It's down now to a few minutes Everyday nearly 1,400 vehicles a min of 8,000 components each 11 brands, 35 variants and 100 colors. A 25-kms mesh of optic fiber runs across the plant, allowing the 4,600 workers real-time access to information. Vendors can access the information on a need-to-know basis across the extranet ( dealer dial up order online) Result: Plant can access information regarding availability of components and production schedules 24X7x365 Order online--->EFT--->Cars in Transit--->Engine Chassis numbers updated and vehicle becomes “IN STOCK”. B2C+Brandsite the Product Speed Flash 15, September 2005 Maruti Udyog sign up with Oracle Corporation to deliver an ERP solution in order to link its entire inbound logistics, process and outbound logistics even more electronically to leave no room for errors or human intervention. This will make them even more agile. Indian Car market has become fiercely competitive. The main advantages fro Maruti are: 1. proven Japanese technology and design 2. awesome reach and service networks 3. J.D. Powers repeatedly ranks them the highest in customer Satisfaction due to their responsiveness 4. Full use of E-commerce in SCM.

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ProblemsAnalyze the case and discuss its core factor fro competitiveness. How channel members act in coordination and effect of inventory on profitability? What effect will efficiency have of price advantage over competition? Give your opinion.

Case 2: Sponge Iron Containerization and multimodal transportation of sponge iron from India’s west coast to consumers in west coast

Advantages 1. Containerization has increased world trade, & intermodal has got an impetus. 2. containers are easy to transfer from one mode to another-& their use facilitates intermodal transportation 3. Global freights use truck/water rail transportationbecause factories & markets may not be close to the ports. 4. On land too, truck/rail combinations offers low costs than only truckloads & delivery times are improved. 5. It creates a price/service offering that can’t be matched by any single mode.

It creates convenience for shippers which have now to deal with only one entity representing all carriers who together provide intermodal service. Costs can be tabulated in a simple 2-mode transfer: ⇒ Loading ⇒ Trucking cost to port ⇒ Unloading-crane- ⇒ loading onto ship . key issues: ⇒ Exchange of information to facilitate shipment transfers between different modes because transfers involve considerable delays. 7. hurting delivers time performance.4 6.

34.000dwt Standing charges-Rs. 000 Fuel cost-Rs.153.120. 000 .5 ⇒ Ship freight ⇒ Unloading into truck ⇒ Truck to destination ⇒ Unloading at destination Transit insurance ⇒ Information transmission By ship Alibag Marmugao: ship size-35.000dwt Payload.

1. except SAIL plant at Bhadravati in Karnataka. 24/quintal For cat. 000 Port dues-336.6 Fuel cost at anchor-Rs. later in Eastern India. 210 By road Alibag Marmugao: Road 520 kms. 70/tonne km.000 Unloading charges/t Rs.27. 5 at the side & 5 at jetty 5. Operating cranes on the ship limit loading/unloading to 10. & used 1 round trip in a day due to tidal conditions 3. 50 Travel time-1 day Waiting/loading-4. mini-steel plants & large integrated steel plants-the former intensely used in Maharashtra & Gujarat.000 t per day. Sponge iron produced at sponge iron plant in Alibag. 50-0. Alibag is minor port. 300 per tonne per month By rail Alibag Marmugao: Rail 500 kms IRCA tariffs-Rs.0.15. hence cargo needs barges to load/unload in deep waters to jetty. 4. substitutes scarp iron-users: foundries. Deep water operations at Alibag not possible for 120 days in a year. Maharashtra-an intermediate product in steel making. 5 days Unloading rate 2000t/hr. Rs. Charter rates will be Rs. due to monsoon 2. . 10 barges will be required. Product: 1.

⇒ It had capacity of 0.Rs. 24 t of pellets of DRI [direct reduced iron] & 0. ⇒ Gas-based method. UPSTREAM.000 per 2.7 UPSTREAM ACTIVITY ⇒ Location-availability of Natural Gas from Bombay High form where it is brought of shore about 25 miles ⇒ Gas available at-land fall prices. 31 t of lump ore per tonne of finished product.500 cubic meters-less than what inland customers would pay-& 300 cu. under License from HylSa Mexico is cheaper alternative to coal-based methods used by competitors in eastern India.5m t per annum ⇒ Needs 1. ⇒ Site was on shore to get access to sea route also during construction & operation.Natural gas by pipeline form ONGC-pellets from Kudremukh Iron Ore . Meters required per tonne of sponge iron produced. 25.in feed mix of 80:20. ⇒ Iron ore & pellets are not available at Alibag LOGISTICS PROBLEM I.

II. 250/t Rs. 330/t Rs.B Annually renewable terms]-LUMP ORE from: Goa Banspani. 30/t ⇒ IRCA has categorized finished sponge iron under Category 210. road cost will be Rs. 250/t ⇒ Nearest rail head is 15 kms. Orissa Diatari. 10m/km.8 Company [an export-oriented unit where Rupee prices will fluctuate with The negotiated price was $12 per tonne F. DOWNSTREAM ⇒ Markets are all over India . Railway Board asked them to construct a line along with other local industries at accost of Rs. Away.O. Orissa 20% 30% 30% Rs.

9 Bombay High Chandigarh Dehra Dun Delhi Ghaziabad Guwahati Jaipur Lucknow Ahmadabad Vapi Indore Jabalpur Nagpur Patna Kolkata Raipur Bhubaneshwar Mumbai Hyderabad Belgaum Bangalore Palakkad Kochi Chittoor Chennai Salem Coimbatore Madurai Gateway Regional Distribution Center Sub Distribution Center Local Billing Point Optional Local Billing Point ⇒ Distance to markets is from 2. ⇒ Stock yard for redistribution would cost Rs. ⇒ Plant will need 10 trucks a day . 100. ⇒ It will need additional time for loading & unloading. [Durgapur] To 70 kms.300 kms.[Bombay] ⇒ Ships won’t be returning empty from Eastern India since they will be carrying back iron ore from Orissa. since ships are under time charter. but not due to travel timescheduling ships will need expertise.000 per month-inventory carrying cost will be a factor too.

“Natural gas is a major concern in terms of quality. adding “we are in talks with ONGC and Reliance who can supply us gas at a cheaper rate”.7 MMBTU.5 per MMBTU. which has an installed capacity of 800.000/t ⇒ Demand exceeds supply-market is good. What is the best solution in mode choice? Please discuss the above in view of sponge iron supplies. 4.10 ⇒ Each additional handling of product will cost 1% -average selling price is Rs. Should they do it in-house or outsource it to a professional firm? 3. The supply from Bombay High is around 50 to 55 per cent of the committed linked quantity.000 metric tonnes per year. He said all gas-based sponge iron manufacturers in the Uran sector are facing a challenge on maintaining their operations in the scenario of lack of natural gas supplies and rising gas prices for the next two years till alternate LNG supplies are made available from .” Grasim had invested Rs 600 crore in the plant at Alibag near Mumbai. then it will be economical for our operations”. “If the price of LNG can be reduced to $2. quantity and price”. PROBLEMS 1. president Vikram Ispat told FE. which is uneconomical for the operations of the sponge iron plant at present. Natural gas is a vital input for gas-based sponge iron plants set up by various companies Grasim Industries. Grasim is awaiting the gas policy which will deregulate the prices of gas in the country in a phased manner. Mr Bagrodia said. he said. What is the best solution for both IBL & OBL? 2. Ispat and Essar. “The regassification plant involves huge investments and may be considered if natural gas supplies are stabilised”. “We have to sign agreements with the oil companies who will give us an idea. Ratan K Shah. The price of LNG works out to around $3.

” Grasim Industries director MG Bagrodia said. Grasim will go in for setting up of this plant if the existing supply of natural gas does not improve and the company is also unable to source liquefied natural gas (LNG) from private players at an attractive price. Alternatively. We will be able to reach full capacity only if ONGC or Gail increase supply of natural gas.11 private players. Customer orders jeans Wal-mart P.S SUPPLY flows LEVI’S registers order Milliken makes fabric DuPont makes fiber Cotton grower sells cotton ORDER FLOWS .O. we can source LNG from private companies at a rate which is economical. Most of the gas-based sponge iron producers are running their plants at 50 to 55 per cent of their capacity. Industries is weighing three options to overcome shortage of fuel (natural gas) at its sponge iron unit Vikram Ispat which includes setting up of a coke re-gassification plant. The existing prices of natural gas are also unattractive for the company. One such player from whom gas may be sourced is Petronet LNG which will transport gas from Rasgas of Qatar. He ruled out divestment of the sponge iron unit by the company. “We are weighing two to three options to maintain operations at the plant which is running at 70 per cent capacity. Vikram Ispat has a turnover of around Rs 360 crore and made a net profit of around Rs 40 crore.

trust o Revenue sharing-remember don’t squeeze o o o o o o Customer delivered value Total value Total cost Product value Monetary cost Service value Time cost Personal value Energy cost Image value Psychic cost the supplier. Compression.12 Hand-held GPS detects item need-identical software/hardware with the entire 5 Major player and 4 Logistics service providers get to know about replenishment simultaneously-THIS IS WHERE THE MAJOR SAVINGS come from! Pre-requisites: o Long-term Partnering o Harmonized code sharing o Information-sharing.time-information-communication-transaction cost-unpredictability [risks]-multiple service providers. Process- . squeeze the process! Responsiveness Time goals Cost goals Commitments System access Synergy Competition is between networks and not companies-winner is the firm with a better network.

At sales point SCANNER identifies article-picks up price from the Price master –signals quantity from actual stock to be deducted ROL identified-prints receipts for the customer-gives him change-adds to sales. sales price.signals EDI for action-subtracts form stock-records cost of transaction-tax to be paid-net profit. . EDI-is electronic data interchange. Selling space-laid merchandize+ hung merchandize on a carousel Storage space-is non-selling space which norm is 25%.13 Customer at POS SCREEN at vendor screen at carrier screen at Wal-Mart Screen at bank-EFT Stock interface Customer interface Finance interface Management interface Customer buys-depletes merchandize-online signal to vendor at ROL point to supply ROQ-in turn to carrier-EDI-acknowledge instruction [info flow]ahead of goods-goods tagged. is documentation in electronic format Merchandize-article in a ready-to-sale condition. bar-coded-in hanger-washing instruction. RFID coded-hungpriced-move directly to selling counter WITHOUT ANY FURTHER CHECK BY Wal-Mart-payment by EFT. IS 10% FOR Wal-Mart. duly tagged.

Schedule and Quality (the 3 pillars of project management).W. security is sound.14 ROQ-deliver only what’s ordered by Wal-Mart” EDI. In a developed environment. and are controlledand utilised can affect Cost. where suppliers are close by. the way that materials are provided for a project.links-POS+dB+vendor+carrier+bank for EFT+ mgmt. IT systems are in place and ‘interconnected’ and we have well trained and largely ethical staff involved through the process. But what needs to be done when one. . Materials are probably being sourced far from the end project location. After all. and nearly always has a direct influence on cost and schedule. or the US. you have a fair chance of getting it right. Buying for the Project. some or all of these factors are not in place? The delivery of Supply Chain support for a Project in a remote location has a number of differences which need to be considered during planning. Africa. For example. materials may be purchased and supplied from Australia. Logistics Planning for Projects in Remote environments The success of planning the Logistics Support for Projects. EFT will pay only for this. transport is regular. The easiest way is often to identify these variances at each stage of the Project Cycle to develop a clear and effective support plan. for delivery to a project in a developing country such as Papua New Guinea. or even Antarctica. is often a direct contributor to the overall project success. SCM at Wal-Mart: Article coded-barcodes-LAN/WAN NETWORKS-S.

damage and theft. A shipping or consolidation point before the goods are forwarded to the remote location is often sound. Ensure the goods are properly inspected before payment. For example: . 2. A ‘receiving and inspection point’ needs to be established outside of the remote location. as opposed to the contractor raising their own orders utilising their own ERP systems. this can mean that the order are perhaps done on behalf of a contractor. Inappropriately packaged for forwarding to remote environment. Wasted time and cost that could have been avoided. or poor communications infrastructure limits IT integration). Consider the potential for delays. In some cases. No supplier wants to wear the responsibility or consequences of that. If systems are poorly connected (perhaps an immature site. preferably supported with a receiving system linked to the Purchasing and Payment system. and do so as close to the supplier as possible. Why? Well. At first this appears inefficient. if you are going to pay the supplier on time. having on-site staff who understand the operation take ownership of the material supply early in the process adds to increased ownership of the project and early identification of other issues that might not be identified by someone at the Head Office. This often goes against what is now common practice to accept delivery and make payment when the goods arrive at the site. Also. you don’t want to find out that you have the wrong goods once you have paid for expensive freight and handling half way accross the world.15 Project Materials. If you find a supplier who will accept terms such as this. make sure that the system which will be used to manage the goods through the supply chain is the one used to actually raise and manage the Purchase Orders. Often too. This should be controlled and tightly managed. Two principles should be considered in these cases… 1. expect to pay for the privelage. but in many cases the end result is often a smoother operation where the Supply Chain has been integrated into the one system. that is only going to be put at risk if you are going to inspect and pay after you have freighted the goods through some of the worst conditions imaginable.

hopefully planning has been started to identify solutions early in the process. major mobilisation of work crews should be considered once the ‘risk period’ of material delivery has passed. too often the first moment these issues are identified are when the goods arrive at the Port (perhaps without correct documentation) or everyone is scratching their head about how to move the goods. that the contractor may not be familiar with. storage and handling issues into the plan. the crew is often sitting idle incurring cost. and who best to operate it. or civil disturbance. consideration needs to be given to ensuring adequate insurance for some of these events (if possible) and incorporating transport delays into the project plan. Advise on the most practical and efficient shipment methods. Often.16 • • • • Identifying local import/customs issues. Identifying alternative sources of supply. often local. In these cases. Liability and Ownership of the Transport Chain Both parties will also need to appreciate that some risks and factors associated with the transport cannot be managed effectively by either party. there is only one well established transport route that has been especially developed (or evolved) to meet the requirements of the operation. airports and providers to move freight inwards. road accidents. This could result in unexpected risk and cost to the project. Another common mistake is to mobilise a work crew on the assumption that the materials will arrive for a project on a given day. However. and who will pay for it. Often. but in many remote locations this is not appropriate as the supplier or contractor does not have control over the Distribution chain through to the end location. road closures due to weather. This is different to a well connected operation where there may be a multitude of roads. While it may delay start by a couple of days. Not recognising this in the early stages of planning will mean that either the existing Transport chain will be stretched to accommodate the project requirements or the ‘new’ arrangements which may be put in place independently could be unproven or note even appropriate for the environment. . As above. for a remote site. Transport and Import arrangements. Transfer of custody and ownership needs to occur at this point. Thought needs to be given to who is best equipped to manage the risk of the Transport chain. normally where the supply cain transitions from ‘developed’ to ‘undeveloped’ and where there is a resource to contractually manage that transition. Incorporating local transport. contracts are struck with delivery terms stating payment for materials to be provided to the work site. that may offer a lower cost. When the materials don’t arrive on the often over-optimistic time. For example.

Lost Control. the location and resources that will be required to control materials will be determined. Ideally. Ideally. Cost. Poorly Planned Project stores . Project Materials may often be ‘directs’ and more often than not will not be established within an inventory system. . This can be a simple Excel spreadsheet. The control of materials once at the worksite is often a problem area. and resources put in place. which references the orders that have arrived. all players at the start of the project should be advised of the arrangements and suitable care given to keep the materials in order. An alternative system will often need to be developed to ensure the materials are tracked and controlled. Care should be given to who will actually collect the materials as well. materials should not be issued to the project in less than the base Unit of Measure from the order. who has collected the materials and when. Project delays. Either way. with perhaps an ‘authorised’ list of people being developed who are given the authority to collect and sign for the project materials. before they arrive.17 Managing the Risk of Transport in a Remote location Receipt and Control of Materials.

This inevitably leads to a large surplus that nobody wants to know about. Ask contractors to provide proposals for what to do with Surplus materials. Secure. and one that few people consider. This also facilitates building a rapport and effective working relations between the project group and the supporting supply chain. hence there is little disincentive for the project to minimise surplus. The team controlling the stores should be recognised as stakeholders and participants in the project.Controlled. At least look for other ’surplus’ materials that are already in location during the planning stages for the project. The tendency is to put it ‘into the site inventory’ for a rainy day. This is another area where the ‘remote’ project has a few issues of its own. or small group of people. there is often a tendency to over-supply with greater than usual levels of contingency built into the Bills of Material. This also usually means that the surplus is written off the account for the project. They may know of other buyers or projects nearby where the surplus materials can be transferred and utilised. the control of the store often lends itself to being clearly assigned to a single person. There are no easy answers to this issue.18 Because a unique system may need to be established for the project. Accountable. . due to cost of getting the gear out again. Close Out. and the limited options for disposal of the materials. Well Organised Project Lay Down yard . Disposal is often difficult as well. Because of the difficulties in supplying the project. but the following suggestions can assist: • • • Ensure there is an incentive for Project Managers to minimise surplus materials in their planning. and also be asked to contribute regularly status-updates to project stakeholders and be encouraged to propose new ideas for improvement that will help in the flow and control of project materials.

so that the concepts which will be applied for a project can be clearly communicated and understood by all involved. This report covers just some of the issues that may be encountered. I also strongly recommend drafting a specific ‘Logistics Support Plan’ for a project. as required. Gordano offer on-site packing service options. Overall. it is about engaging in a planning process. Customers goods are fully insured.Level 1. engineering and defence industries. in order to develop a project plan that will be successful. Systems can be interfaced direct with customer own computers. and are often more resourceful and responsive to change than their developed world counterparts. allowing you to concentrate on your core objectives. variable despatch patterns. with select members of the teams trained and certified to pack ‘Dangerous Goods’ as approved by IATA and the CAA. Customised IT and software systems ensure complete traceability and instant management reporting. both large and small. Gordano operate 24 hours 365 days a year (meeting AOG demands). Packaging and Logistics Services from Gordano Support Group Ltd Businesses. Trust the people who work in that environment every day as they will know what can and can’t work. Understand what is different about the remote environment you are working in. and trained to pack to the exacting standards of the aerospace. Handling month end peaks. can benefit from Gordano's subcontract packing and logistics services. either on or off customer own sites. and develop solutions that are integrated and will work. All relevant personnel are trained and certified to UK National Aviation Cargo Security . on your own site. Their teams are security cleared. and either returned to customers own premises or despatched to the final customer. • • • • • • Skilled packing teams provide fast and reliable turnaround. including their on-site Packing and Despatch Management Operation. . Alternatively. They offer Collection Service Packing. daily multi trip pick up and drop offs.19 The remote project can have a number of unique characteristics that need to be recognised and addressed. whereby a Packing Supervisor will manage the despatch and packing operations. where items will be collected and packed at one of their units.

return volumes have exploded.DC Returns As competitive pressures force retailers to implement more liberal return policies. supplying consistently high performance. Barcoded RMA labels are key to getting product off the dock and processed quickly. Streamlined Receiving / Triage Process . and other resources while tying up potentially valuable inventory. You want the process to be fast. Key components of an integrated Reverse Logistics operations should include: Barcoded RMA Labels Timely. and have the ability to extend these initiatives to other geographic areas Reverse Logistics . will provide you with an efficient service. whichever you choose. or within customer own sites. While the challenges are different from the order fulfillment side of the warehouse. dock doors. accurate and cost effective. labor. accurate Information is paramount to an efficient reverse logistics process. you can be assured that whatever your products. Returns processing can be an extremely expensive activity. the goals are essentially the same.20 Therefore. it is not uncommon to find retailers receiving back as much as one-third of the total items they ship. Gordano run a number of dedicated packing units located in close proximity to. consuming space. Gordano's expert teams. they are in the safest of hands. resulting in many benefits through savings in costs and time. Today.

). In many cases it makes sense to automate this process. Integrated Repack Stations Repack or rework workstations should be integrated into the reverse logistics process. Automated Sortation The information gathered during the triage process is used to sort product by disposition. and to set up downstream processing. System Directed Re-stocking . Secondary sorts may be used to separate product into logical groupings (I. accounting.21 The primary goals of the triage process are speed and accuracy. It is important to minimize the pools of inventory that can accumulate in these operations. A robust information system is leveraged to capture information for multiple departments (sales.e. vendor. operations. ) disposition product. putaway zone.

this process should be system directed and occupy space out of the way of on-going operations. our 75.22 The returns processing software should be tightly integrated with the Warehouse Management System to facilitate seamless transitioning of saleable product back into inventory. Located just outside of Chicago. clean. Intelligent Scrap Process Product with no value or with value less than the cost to process should be identified and scrapped as early in the process as possible. Streamlined Return To Vendor Process It is critical that product to be returned to the manufacturer is processed in a timely manner so appropriate credit may be received. gated storage facility is heated & sprinkler controlled which gives us flexibility to handle sensitive medical and computer equipment . If it is necessary to accumulate product prior to shipment.000 square foot.

resources and storage capacities within the facility. Companies rely on records not only for vital financial and operational information. In many cases. Industry Solutions . Visual Thinking responded by developing a facility-wide simulation to analyze the performance of the Inter-modal facility under various capital improvement options. the Canadian Pacific Railway (CPR) needed a tool to help determine an economical solution.23 without being concerned with the effects of temperature on electronics. Each piece. cost-effective management of vital information. It also ensures that documents are retained and eventually disposed of in accordance with appropriate regulatory requirements and company policy. including all activities. Our tracking and retrieval process begins with a descriptive inventory prepared at your home or facility. The ability to quickly and accurately locate critical information is an important part of a firm's infrastructure. Records management is the proper archiving of information vital to the life of the company.Case Study With volumes of inbound and outbound containers soon to surpass a facility's capacity. state and local law. we have a storage plan to fit your needs. It can be an excellent method for professional. The simulation provides detailed analysis of all aspects of the Inter-modal facility. it is advantageous to have an outside vendor manage the bulk of the information. This data can be communicated to you via e-mail. Examples of key management statistics include: • • Trucker dwell times Train turn around times . its description and location in the warehouse are readily available. Compliance with federal. but also for regulatory and litigation protection. Proper record management insures that business information can be accessed at any time in a timely and cost-effective manner. responding to an audit or legal proceeding or reacting to a medical emergency are simplified when an appropriate records management program is in place.Logistics CASE STUDIES Intermodal Container System . Whether you need short or long-term storage. Each company is unique and has a different set of records management needs. fax or phone.

Methods to reduce truck queuing times and street congestion were examined using this simulation. The tool also takes into account bridge and tunnel crossing constraints as well as staffing levels at the border security and inspection kiosks.24 • • • • Resource utilization Track turnover ratios Toplifter travel distances Overall cost per handling Intermodal Waste Management . barges? Tug boats and unit trains are required in the system? What is the cost of operation? How will the system perform under adverse weather/operating conditions? What are the handling limits and bottlenecks? Border Gateways . Wine Supplier .Case Study Visual8 dveloped Border-Flow© in conjunction with Border Gateways to analyze truck queuing issues at the major border crossings between Canada and the U.Case Study .S.Case Study A Waste Management consortium is being supported by Visual8 in their bid for a major city's waste management system through a detailed simulation of the proposed system demonstrating how this system is designed to operate under extreme conditions. This simulation study helps answer questions such as: • • • • • How many containers. The model simulates commercial truck traffic flow from the major arterial routes into the primary city roads feeding the border crossing.

The resultant simulation model was used to analyze the bottleneck processes in the system to handle increased production volumes. and staffing requirements. in order to . Push Vs. The ability to quickly analyze the entire system and its interdependencies using this simulation model led to an increase in materials handling capacity of 20% through the addition of AGV's. Simulating this radical change to the distribution system of copper products the tool identified how parts could be staged at levels of competition reduce manufacturing lead times and inventory in the field. This simulation provides the ability to investigate improved service strategies to their 500 retail outlets based on new inventory management and supply methods. The resultant simulation allows users to conduct 'what-if' analysis around increased product demand and assess the limits of the current supply network. The model was used to analyze which parent products could be staged. The system provided a direct comparison of current state to potential future scenarios and forecast the storage capacity requirements at the distribution centers in terms of racking. This includes the inflow of materials from receiving docks to palletized ASRS storage through to the shipping of finished product on containers out of the warehouse. at what stage in the manufacturing cycle to satisfy downstream requirements. Replenishment points and order quantities for staged product were established through the simulation.Case Study Visual8 assisted NIBCO in their use of simulation to evaluate the feasibility and cost-benefit of implementing a pull rather than a push inventory supply chain system.25 A hierarchical supply chain simulation model was developed in SIMUL8 to address warehousing and distribution issues within a $3 billion wine supplier network (our client would like to remain anonymous).Case Study A warehouse simulation for a large pharmaceutical company (our client would like to remain anonymous) was developed to provide a detailed analysis of all their automated warehouse materials handling. given the variability of demand. Pull Inventory Management . dock space. Pharmaceutical Company .

By taking into account transportation travel times and costs across the network. truck-load (TL) and less-than-truck-load (LTL) policies. This computer model takes into account geographic locations of the many source and supply points in the system together with the frequency of stock replenishments and product demand levels. milk-runs. Rail Network Modeling .Case Study Visual8 Corporation has worked with a major North American railroad (our client would like to remain anonymous) to develop a simulation model of their entire parts supply network. the simulation provides performance results over a years operation. and other key parameters.26 maintain high order service levels but minimize inventory investment. order consolidation rules. push inventory management Intermodal interfacing We Can Ensure Your Goals Are Met: • • • Optimization of Service Levels and Resources Maximizing your ROI Integrating all stages of the supply chain . holding charges. product consumption rates and reordering policies. LOGISTICS MODELING SIMULATION BENEFITS Typical Logistics Models: • • • • Rail and Shipping Traffic flow management Warehouse and inventory management Supply chain analysis Types of Problems We Resolve: • • • • Service strategies and forecasting Capacity and bottleneck analysis Pull vs. The tool was used to support the rationalization of stocking levels and warehousing location for supplies across the network in support of reducing costs for the railroad's maintenance operations.

multiple consignments to any number of destinations. uperb engineering and flawless manufacturing are among the great strengths of German automaker BMW Group. a "sports activity vehicle" that BMW expects to launch in 2004. manufacturer of power trains and other automotive systems.m of modern. where it will turn out 300 X3s a day. has become a strategic opportunity. but our stringent stock management procedures enable us to take in stock from a number of sources and despatch complex. it’s what our customers have come to expect. long regarded as necessary drudgery. This was possible through the integration of its so-called "customer-oriented sales and production system" into the production process of an outside company. High praise indeed. Magna Steyr. Because with experience comes trust. Thus all customer-relevant aspects of a BMW can be delivered to the consumer. BMW has found a partner to take over a function that was considered the very core of what BMW is as a company. printers and clients AND moving around 450 tonnes of print into Ireland each week. That BMW would turn over such a vital link in its supply chain to another company is dramatic evidence that supply chain management.27 “Redhead have proved themselves to be a professional and reliable service provider consistently meeting our requirements for the delivery of time-sensitive products” Nicky George. 25 years of working with publishers. At Redhead we have developed the perfect print logistics solution.000 sq. and trust is something you cannot put a value on. for much of the engineering and all of the production of the X3. Austria. racked warehousing not only offers you bulk stockholding and collation facilities. but then with daily experience of working with live news. Magna will construct a plant in Graz. In essence. So the company's announcement in late 2001 was extraordinary: BMW had turned to an outsider. Mirror Group Newspapers. Not only can it give companies new options for reducing costs and improving . National Operations Manager. 15.

which competes head-to-head with the Sony PlayStation. the proliferation of products with shorter lifecycles. And at many companies.28 asset utilization. it has partnered with contract manufacturer Flextronics. other astute companies are calling on outsiders to become essential links in that 40 percent to 70 percent of the organization that comprise the end-to-end supply chain. A host of activities. Like BMW. But the giant software creator is not making the new product itself. some of the most creative minds are working on reconfiguring the supply chain. Consider how some cutting-edge companies have led the way in forging new supply chain models: Another example is Microsoft. Global markets. evolving. from sourcing and procurement to manufacturing. The Art of Partnering Executives who will deal best with overhauling their traditional supply chain operations are those who are comfortable with increased specialization. flexibly and efficiently through specialized third-party providers. and rising customer expectations have combined to create new opportunities that require more sophisticated. The art of partnering will largely determine which companies succeed. It has created a new game console. but it can also drive growth and improve customer satisfaction. sophisticated. frequently mutating networks of partners. Each product group within the organization could end up with its own supply line. a critical exercise that demands the attention of executives all the way up to the CEO. can now be provided more effectively. complex and global supply chains. which collaborated on the Xbox design and handles the product's manufacturing. Winning companies will be the ones that can visualize their supply chains as complex. creating a series of links weaving inside and outside of the company. the Xbox. . Instead. logistics and service management. Fundamental to this creative thinking is that less is more when it comes to keeping the critical links of the supply chain in-house.

Companies can go into a death spiral trying to economize themselves into prosperity by trimming here and there to fix a link that may not be worth the effort. Leadership needs to assess whether the organization is best positioned to make money from its assets or to get more. of course. As a result. in Europe the fragmented nature of the market fostered a stronger tradition of subcontracting. they should keep several principles in mind. that's the way many executives continue to think of them. there were few outsourcing alternatives from which to choose. unsentimental evaluation of the supply chain will lead to the conclusion that a particularly strong link should be turned into a profit center. However. the delusion that the only way you can improve performance is to shave a little more off your costs. company to company and even year to year. In fact. For example. as recently as 10 years ago. Let Go of the Past Historically most supply chains in the United States have been do-it-yourself operations. . Typical corporate practice has been to control product and service flows to customers by owning the means of production and distribution. In both the United States and Europe. for less.29 How do senior executives apply this type of revolutionary thinking to their own companies? We begin with the premise that every company will benefit from fundamentally rethinking its supply chain link by link and reconstructing it from scratch—but without any factories. and by customs and other government regulations). from industry to industry. particularly for logistics and transportation (which were especially affected by country-specific tariff and tax structures. At times. On the other hand. supply chains were considered cost centers. slash costs and generate substantially greater efficiencies—look like? The answers will vary. only 10 percent to 15 percent of US supply chain assets were owned and operated by outsiders. distribution centers or warehouses that it owns or has relationships with. Cat Logistics. your competition could be making plans already with a partner that's the best in the business. a subsidiary of Caterpillar that distributes its engines. from somewhere else. warehouses and trucks. Leadership needs to ask: What would the ideal supply chain—the one that would deliver additional revenues. the rigorous. But as executives go through this tough-minded exercise. Although reconfiguring your operations—which ultimately will affect significant numbers of people and involve well-established investments—is no easy task. including factories. This leads managers into the efficiency trap.

which had a 17 percent share. Toys "R" Us . After a customer orders a refrigerator at a Home Depot. there is an emerging sector of the economy that provides contract services for everything from design and logistics support to repair management and procurement. dishwashers. it can display a far greater variety of GE models. Moreover. which would display—but not warehouse or deliver—the appliances. (As of mid-April 2002. The company produces cell phones for Ericsson. But in 2000 GE agreed to partner with The Home Depot. Walk a Mile in Your Customer's Shoes Sound familiar? Nonetheless. printers for Hewlett-Packard Company and PDAs for Palm. Rather than compete head-to-head in the unforgiving online retail environment. GE ships it directly to the customer's home. behind Solectron.) Picking the best partner from the multitude now available can require you to stretch your imagination and perhaps make an unexpected choice. because the giant retailer doesn't have to stock the appliances. However. the company cut its fleet of trucks by one-third while guaranteeing a delivery window of 20 minutes (down from three hours)—a unique service for which customers are happy to pay a premium. The resulting inventory savings are enormous. But one cement company turned this to its advantage. Stand at the end of the chain and look back at it from your customer's perspective. Embracing information technology such as GPS locators and satellite communications. with half of all orders from construction sites rescheduled or canceled. buyers of GE refrigerators. One category of companies that barely existed a decade ago is known as electronic manufacturing services. provides the same service for Land Rover and other companies too. it's worth revisiting in the context of the supply chain. Flextronics was number two in the sector. routers for Cisco Systems. air conditioners and other appliances traditionally purchase them at big retail outlets that warehouse and deliver the goods to customers.30 power trains and other spare parts to remote places around the world. there were limited options for companies looking to hand off important supply chain functions. Unpredictability is the norm in the cement business. Team with the Best Until recently. has manufacturing operations in 28 countries. Flextronics. the partner Microsoft turned to for its Xbox project. with 11 percent of the electronic services market. Are you reaching the customer in every way you can? Do your distribution channels support one another as fully as they can? Are you targeting new services that add value for your customers? For example.

it will require a more fundamental culture shift.com draws on its Internet expertise to provide website development. After all. some of these relationships will be crucial to business. To deal with the complexities of forming multiple. For others. Asia. customer service and order fulfillment capabilities. overlapping and continuously evolving partnerships. A perhaps more painful dilemma: Choosing the right partner can sometimes mean acknowledging that the best option is your direct competitor. A second reason is that executives are reluctant to share information that traditionally has been considered sensitive and proprietary. to unlock the benefits of exchanging information across supply chain partners. mobile devices and attendant software have made it possible for companies to stay in constant touch with their partners in real time. Nonetheless. The number of possible partnerships across the supply chain is seemingly endless. some companies might want to create a C-level position like chief risk officer or chief relationship officer to oversee their formation. The Internet.com inked an arrangement in August 2000 that capitalizes on each company's strengths. Nestlé will eventually move the manufacturing of Libby's Juicy Juice and Kern's/Libby's Nectars to Ocean Spray plants.31 and Amazon. Toys "R" Us focuses on merchandising while Amazon. Allow Technology to Set You Free One of the reasons executives like to hold on to all the links of the supply chain is that it is reassuring to be able to shout instructions down a corridor and get an immediate response. the two companies have formed a strategic alliance along part of their supply chains. driven from the top. The goal is to reduce purchasing and distribution costs for both companies. secure networks and other technologies have eased concerns for some. no matter how widely scattered around the globe. In the fast-moving high-tech . acting as the eyes and ears or arms and legs to customers and suppliers around the world. for example. the giant food and beverages conglomerate. Nestlé. It took only a matter of months and minimal upfront costs for the partnership to be up and running in time for that year's lucrative holiday season. is a long way off—or used to be. But recent improvements in Internet security software. ranging from the simple and short-lived to the complex and long-term. Consider some examples of companies leveraging technology and information to improve supply chain responsiveness and efficiency. competes with Ocean Spray Cranberries in the fruit juice business.

which it uses to link its California-based designers with suppliers in Hong Kong. failing because of misunderstandings and cultural mismatches between partners. you run some risk of losing proprietary information. . Dell was able to see its pending orders and fulfill the most important first. Dell Computer Corporation relied on its Web-enabled supplier network to adapt quickly to supply chain disruptions. as a strategic opportunity—while the competition moves ahead with innovative partnerships. Think Differently About the Supply Chain Today CEOs have market opportunities their predecessors could only dream about. But the much greater risk emerges when a company neglects to reevaluate its supply chain. an innovative idea can go from drawing board to market launch in months. the ability to sense and respond rapidly to the market through flexible. Zara's innovative use of technology—equipping all of its store managers with handheld devices—allows managers to provide real-time feedback to the designers about what customers are buying. In the days following the September 11 terrorist attacks. Japan and Taipei. and were able to steer new customers accordingly. In addition. This process has cut design-to-delivery cycles by more than 50 percent and saved $10 million in inventory costs. data communications hardware and software maker Adaptec relies on the Internet for its collaborative design processes. As an increasing number of world-class companies reevaluate their supply chains. Supply chain operations are no longer a given—an inherited operating model with few alternatives for improvement. link by link. When you team with a partner. practices and capabilities available to respond to market opportunities. Companies have many more tools. breaking them apart and picking partners with which to reconfigure them. high-performing supply chains will be a competitive weapon for any organization looking to change the game and lead the market. customer service representatives could determine which computer configurations could still be assembled quickly.32 industry. By assembling best-in-class partners and leveraging leading-edge technologies. or eliminating an internal link that should not have been cast aside.000 new designs a year while aggressively managing inventory obsolescence. The garment maker introduces an astonishing 12. Increasingly. the question inevitably arises: Are there dangers in reconstructing a familiar supply chain that appears to have functioned well for decades? Certainly. At the same time. The company increased production at its factories in Europe and Asia and filled orders from these facilities.

McDonalds developed local businesses. McDonalds India works with 38 different suppliers on a long-term basis and several other stand alone restaurants for its various other requirements. The following list of suppliers. absolutely fresh and at great value. inventory management. And when we are talking about fast food business with McDonald’s as the subject of the study it can be expected a Supply Chain model of one of the highest precisions. on which it had spent more than six years to get the system into place. McDonald's entered its first distribution partnership agreement with Radha Krishna Foodland. developed its Indian partners in such a manner that they stayed with the company from the beginning. As already mentioned. when it studied the nuances of McDonald's operations and requirements for the Indian market. recording and reporting. As distribution centers. McDonalds had been working on its supply chain even before it opened its first joint in the country. G. deliveries to the restaurants and data collection. a part of the Radha Krishna Group engaged in food-related service businesses. Through its unique cold chain. as well as maintain the freshness and nutritional value of raw and processed food products. It is this unmatched Supply Chain Structure. immensely benefiting the farmers at one end and enabling customers at retail counters get the highest quality food products. the quality inspection program. This has involved procurement. To ensure this. McDonald’s initiative to set up an efficient supply chain and deploy state-of-art technology changed the entire Indian fast food industry and raised the standards of performance to international levels. reveal how this ‘Cold Chain’ works and contributes towards the efficiency of McDonalds. an international brand which was trying to make inroads into the country. The level of commitment of McDonalds can be gauged from the fact that even before it set up its first restaurant in the country it infused Rs 400 Crore to set up its delivery mechanism.33 McDonalds India Supply Chain: Prof. re-packing of promotional items continued since then at the centers playing a vital role in maintaining the integrity of the products throughout the entire 'cold chain'. McDonald’s distribution centers in India came in the following order: Noida and Kalamboli (Mumbai) in 1996. and the latest one in Kolkata (2007). Today. which not just ensures on time delivery of raw materials and supplies to McDonalds but also enables it to cut down on its cost and maximize profitability along with maintaining highest quality standards of its products. McDonalds has been able to both cut down on its operational wastage. McDonalds. pherwani SCMLD july-dec 2009 Enhanced reading Supply Chain is one of the critical factors for the smooth functioning of any business. storage. The association goes back to July 1993. transportation and retailing of perishable food products. all under controlled temperatures. who build up the major supply chain of McDonalds. the company was responsible for procurement. Bangalore in 2004. Cold Chain was one of the unique concepts of McDonalds supply chain in India. which can supply it highest quality products. This system brought about a veritable revolution. warehousing. . The success of McDonalds India was achieved by sourcing all its required products from within the country. Valueadded services like shredding of lettuce.

Trikaya Agriculture (Supplier of Iceberg Lettuce): Implementation of advanced agricultural practices has enabled Trikaya to successfully grow specialty crops like iceberg lettuce. the Rs 262-crore Dynamix Dairy Industries.34 Dynamix Dairy Industries (Supplier of Cheese): Dynamix has brought immense benefits to farmers in Baramati. Stringent quality control measures and continuous Research & Development From farm two degrees Celsius in 90 minutes is the first step to quality. color and solids content. lactose. . adulterated or contaminated. This instant feedback and the rejection of the entire tanker-load forces farmers to follow the best practices in terms of animal husbandry. butter/ghee. or more. For example. Easy accessibility has enabled farmers augment their income by finding a new market for surplus milk. the temperature is never allowed to increase. manufactures cheese slices for McDonald’s at 10 metric tonnes per month. When the refrigerated milk arrives at the Dynamix plant at Baramati. until just before the burger is actually served in a McDonald’s restaurant hundreds of kilometers away. Pre-cooling room and a large cold room for post harvest handling. special herbs and many oriental vegetables. A farmer can deliver milk even twice a day on his bicycle and get a printed receipt on the spot. Dynamix has helped set up 15 bulk cooling centers throughout the district from which it purchases milk. It can even detect minute traces of pesticides or antibiotics administered to cows. which also lists the quality of the milk supplied by him as per fat content. skimmed milk powder. If the milk is sub-standard or adulterated. located in Baramati in Pune district of Maharashtra. A batch of milk can vary from one liter to 10 liters. The factory has: • • • Fully automatic international standard processing facility. Each batch is mixed in one large stainless steel cooler and chilled immediately to two degrees Celsius to stop bacterial growth and preserve freshness. Capability to convert milk into cheese. which is equipped with modern measuring and testing equipment and a large cooling tank.1 per cent. Refrigerated truck for transportation. casein & whey protein and humanized baby food. Maharashtra by setting up a network of milk collection centers equipped with bulk coolers. Each cooling center. Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant. is not more than a few kilometers away from local dairy farms. From this point onwards. Farm infrastructure features: • • • • A specialized nursery with a team of agricultural experts. The sophisticated testing lab can check fat content with an accuracy of 0. use proper feeds. cut down on the indiscriminate use of pesticides and animal medicines and completely stop even the slightest attempts at adulteration. the milk in every single tanker is thoroughly tested and rejected if found sub-standard. it is rejected on the spot.

. Maharashtra. In addition to export. The pack house.35 Trikaya Agriculture. Ltd. a major supplier of iceberg lettuce to McDonald's India. With this cold chain infrastructure in place. which reflect the latest food processing technology (de-boning. Maharashtra. ensuring no delay between harvesting. A world-class infrastructure at their plant at Taloja.35° C. clubs. . The frozen product is immediately moved to cold storage rooms. produces a range of frozen chicken and vegetable foods. is another important player in this cold chain. USA. flight kitchens and offshore catering companies all over India. and Vista Processed Foods Pvt. Ltd. With continued assistance from its international partners. McDonald's has provided assistance in the selection of high quality seeds. procedures and support services. is one such enterprise that is an intrinsic part of the cold chain. a large cold room and a refrigerated van for transportation where the temperature and the relative humidity of the crop is maintained between 1º C and 4º C and 95% respectively.. Initially lettuce could only be grown during the winter months but with McDonald's expertise in the area of agriculture. Ltd. and helped develop a refrigerated transportation system allowing a small agri-business in Maharashtra to provide fresh. Vista Processed Foods Pvt. (Supplier of Chicken and Vegetable range of products including Fruit Pies) A joint venture with OSI Industries Inc. exposed the farms to advanced drip-irrigation technology.. pre-cooling. McDonald's assistance has enabled Trikaya Agriculture to supply this crop to a number of star-rated hotels. Trikaya Farms in Talegaon. The pre-cooling room ensures rapid vacuum cooling to 2º C within 90 minutes. Exposure to better agricultural management practices and sharing of advanced agricultural technology by McDonald's has made Trikaya Agriculture extremely conscious of delivering its products with utmost care and quality. Trikaya Agriculture has also a plan to export this high value product to other international markets. to retain total freshness. is now able to grow this crop all the year round. McDonald's expertise in packaging. McDonald's suppliers for the chicken and vegetable range of products. Capability to produce frozen foods at temperature as low as -35 Degree Cel. This includes hi-tech refrigeration plants for manufacture of frozen food at temperatures as low as . Vegetables are moved into the pre-cooling room within half an hour of harvesting. has: • • • Separate processing lines for chicken and vegetable foods. especially to McDonald's Middle East and Asia Pacific operations. Post harvest facilities at Trikaya include a cold chain consisting of a pre-cooling room to remove field heat. high-quality lettuce to McDonald's urban restaurant locations thousands of kilometers away. Ltd. Vista has installed hi-tech equipment for both the chicken and vegetable processing lines. USA and McDonald’s India Private Limited have enabled Vista to set up world-class infrastructure and support services. Vista Processed Foods Pvt. McDonald's India Pvt. pre-cooling and cold room are located at the farms itself.. Technical and financial support extended by OSI Industries Inc. packaging and cold storage. handling and long-distance transportation has helped Trikaya to do trial shipments to the Gulf successfully. International standards. This is vital to ensure that the frozen food retains it freshness for a long time and the 'cold chain' is maintained.

Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts) Amrit Food. The DCs have focused all their resources to meet McDonald's expectation of 'Cold. work towards innovation in taste. . storage. and On-Time Delivery' and plays a very vital role in maintaining the integrity of the products throughout the entire 'cold chain'. coating. Also. both locally and in the parent companies. frying and freezing). corporate canteens. inventory management. the latest vegetable mixers and blenders are in operation. food service establishments and coffee shops. hospitals. are also offered to institutions like star-rated hotels. Ranging from liquid products coming from Punjab to lettuce from Pune. data collection. For the vegetable range. a very wide range of frozen and nutritious chicken and vegetable products is available. Today. restaurants. at Vista. These items are stored in rooms with different temperature zones and are finally dispatched to the McDonald's restaurants on the basis of their requirements. Ltd. an ISO 9000 company. Now. These products. Dry and cold storage facility to store and transport perishable products at temperatures up to -22 Degree Cel. Radhakrishna Foodland (Distribution Centers for Delhi and Mumbai) An integral part of the Radhakrishna Group. keeping cultural sensitivities in mind.36 blending. forming. recording and reporting. Salient strengths are : • • • A one-stop shop for all distribution management services. The factory has: • State-of-the-art fully automatic machinery requiring no human contact with product. manufactures widely popular brands – Gagan Milk and Nandan Ghee at its factory at Ghaziabad. The company has both cold and dry storage facilities with capability to store products up to -22º C as well as delivery trucks to transport products at temperatures ranging from room temperature to frozen state. besides being supplied to McDonald's. Effective process control for minimum distribution cost. Ongoing R&D. quality inspection. deliveries. production of better quality frozen foods that are both nutritious and fresh has made Vista Processed Foods Pvt. schools and colleges. caterers. McDonald's local supply networks through Radhakrishna Foodland. both processing lines are absolutely segregated and utmost care is taken to ensure that the vegetable products do not mix with the non-vegetarian products. the DC receives items from different parts of the country. project sites. Uttar Pradesh. Foodland specializes in handling large volumes. providing the entire range of services including procurement. nutritional value and convenience. for total hygiene. Clean. a name to reckon within the industry. which operates distribution centers (DCs) for McDonald's restaurants in Mumbai and Delhi.

recording and correcting any deviations. McDonald's Quality Inspection Program (QIP) carries out quality checks at over 20 different points in the Cold Chain system. Setting up of the Cold Chain has also enabled it to cut down on operational wastage Hazard Analysis Critical Control Point (HACCP) is a systematic approach to food safety that emphasizes prevention within its suppliers' facility and restaurants rather than detection through inspection of illness or presence of microbiological data. the supplier gets the opportunity to expand his business. health and hygiene while continuously maintaining McDonald's recognized standards. .37 • • Installed capacity of 6000 ltrs/hr for producing homogenized UHT (Ultra High Temperature) processed milk and milk products. There are many cases of local suppliers operating out of small towns who have benefited from their association with McDonald's India. As the ingredients move from farms to processing plants to the restaurant. Strict quality control supported by a fully equipped quality control laboratory. control points and critical control points for all McDonald's major food processing plants and restaurants in India have been identified. The HACCP verification is done at least twice in a year and certified. exposure to advanced agricultural practices and the ability to grow or to export. As McDonald's expands in India. Based on HACCP guidelines. have access to the latest in food technology. All suppliers adhere to Indian government regulations on food. The relationship between McDonald's and its Indian suppliers is mutually beneficial. The limits have been established for those followed by monitoring.

but in reality. Wal-Mart has been able to deliver low prices by being efficient. which are also all over the world. .38 LOGISTICS AT Wal-Mart Many people wonder how Wal-Mart is able to charge such low prices and continue to make a profit. There are several factors in their business model that contribute to this ability. This efficiency is present in several areas but one of the most important places is how they are able to manufacture products all over the world and get them to retail outlets. Some criticize Wal-Mart's efforts to deliver to their customers a quality product at low prices. This ability requires a flawless logistical system that allows product to be shipped anywhere at a moments notice. but a big one is their ability to adapt to an ever-changing global marketplace.

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Wholesaling

g.pherwani

Wholesaling consists of the sale of goods/merchandise to retailers, to industrial, commercial, institutional, or other professional business users or to other wholesalers and related subordinated services. According to the United Nations Statistics Division, Wholesale is the resale (sale without transformation) of new and used goods to retailers, to industrial, commercial, institutional or professional users, or to other wholesalers, or involves acting as an agent or broker in buying merchandise for, or selling merchandise, to such persons or companies. Wholesalers frequently physically assemble sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots. Examples include: pharmaceuticals storage; refrigeration; delivery and installation of goods; engaged sales promotion for customers and label design Cash and carry wholesale represents a type of operation within the wholesale sector. Its main features are summarized best by the following definitions:

Cash and carry is a form of trade in which goods are sold from a wholesale warehouse operated either on a self-service basis, or on the basis of samples (with the customer selecting from specimen articles using a manual or computerized ordering system but not serving himself) or a combination of the two. Customers (retailers, professional users, caterers, institutional buyers, etc.) settle the invoice on the spot and in cash, and carry the goods away themselves. Though wholesalers buy primarily from manufacturers and sell mostly to retailers, industrial users and other wholesalers, they also perform many value added functions, including selling and promoting, buying and assortment building, bulk-breaking, warehousing, transporting, financing, risk-bearing, supplying market information, and providing management services. (OECD Organization for Economic Cooperation and Development). There are significant differences between "classical" sales at the wholesale stage and the cash and carry wholesaler: These differences are based in particular on the fact that customers of the cash and carry wholesaler arrange the transport of the goods themselves and pay the goods in cash and not on credit. (EU Commission Decision (Kesko/Tuko) of November 20, 1996 (97/277/EC)).

In a retail context, the term has a similar meaning: customers pay cash for the goods they purchase (the retailer does not offer credit accounts) and carry them away themselves (the retailer does not offer delivery service).

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Historic meaning
The policy of cash and carry established at the onset of World War II in 1939 revised the Neutrality Acts that were established by US President Roosevelt in order to instill a sense of neutrality between the United States and the war that was raging in Europe. The economic situation in the US was rebounding at this time (after the great depression) but there was still a need for industrial manufacturing jobs. The Cash and Carry program helped to solve this issue and in turn the US benefited through the sale of war supplies to their allies. This also helped in making sure that the US didn't give away all its supplies and rations. This program was also beneficial for the British and French who were not faring well in response to Germany's militarism and were in need of war materials. Any allied ship that could make the risky trip across the North Atlantic to US coastal ports could get war materials for cash. Despite its success, this policy soon left European allies (primarily Britain) bankrupt and this forced US leaders to revise the plan. The revised plan is known as the Lend-Lease program, in which the European allies no longer had to pay cash or arrange their own transportation. Instead, the United States would provide this for them and later payment was expected. In keeping with the Monroe doctrine the US didn't actively participate in the war until both Japan and Germany declared war on them too, after which they switched from allied assistance to active engagement

Multi-national

Auchan

41
• • • • • • • • • •

• • • • • • • • • •

Barnes & Noble (Books, Music, Videos, Magazines) Best Buy (Music, Videos, Electronics, Computer Software, Appliances) Borders (Books, Music, Videos) Carrefour Cora Costco (merged with Price Club) (Groceries, General Merchandise) Hipercor Home Depot (Hardware) IKEA (Furniture, House wares) Kmart (owned by Sears) (Groceries, General Merchandise) o Big Kmart (Groceries, General Merchandise) o Super Kmart (Groceries, General Merchandise) o Sears Grand (Groceries, General Merchandise) o Sears Essentials (Groceries, General Merchandise) OBI Office 1 Office Depot (Office Supplies) Pet Smart (Pet Supplies) Price Smart Real (owned by METRO AG) Staples, Inc. (Office Supplies, Office Equipment) Target (General Merchandise) Toys "R" Us (Toys) Wal-Mart (Groceries, General Merchandise) o Wal-Mart Supercenter (Groceries, General Merchandise) o Sam's Club (Groceries, General Merchandise) The Warehouse Group o Red Sheds (New Zealand) o Yellow Sheds (Australia)

India
• • • • • • • • • •

Star India Bazaar (owned by the Tata Group) Big Bazaar (owned by the Pantaloon Retail) max hyper market (owned by the landmark group) Reliance Retail Giant Vishal Mega mart Citi Mart Bharati-Wal_mart Metro Cash & Carry, Hyderabad A warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities and towns. They come equipped with loading docks to load and unload trucks; or sometimes are loaded directly from railways, airports, or seaports. They also often

Other retailers may provide only a catalogue or website. The JIT system promotes the delivery of product directly from the factory to the retail merchant or from parts manufacturers directly to a large scale factory such as an automobile assembly plant. Some warehouses are completely automated. The retailers make their profit on the difference between the wholesale and retail price. The pallets and product are moved with a system of automated conveyors and automated storage and retrieval machines coordinated by programmable logic controllers and computers running logistics automation software. but instead transfers customer orders and shipment details to wholesalers. with some over 20 meters high. or Warehouse Management System. who then ship the goods directly to the customer. The direction and tracking of materials in the warehouse is coordinated by the WMS. However. with no workers working inside. the distance between the manufacturer and the retailer (or the parts manufacturer and the industrial plant) grew considerably in many domains.42 have cranes and forklifts for moving goods. without the use of warehouses. a database driven computer program. with the items ready for sale being placed in the bottom parts of the racks and the crated or palletized and wrapped inventory items being usually placed in the top parts. Retailers that drop ship merchandise from wholesalers may take measures to hide this fact to avoid any stigma. Drop shipping is a supply chain management technique in which the retailer does not keep goods in stock. with the gradual implementation of offshore outsourcing and off shoring in about the same time period. and also where land is expensive. so that customers can inspect an item similar to those that they can purchase. The WMS is used by logistics personnel to improve the efficiency of the warehouse by directing putaways and to maintain accurate inventory by recording warehouse transactions. as automated storage systems can use vertical space efficiently. Recent developments in marketing have also led to the development of warehouse-style retail stores with extremely high ceilings where decorative shelving is replaced by tall heavy duty industrial racks. In this way the same building is used both as a retail store and a warehouse. which are usually placed on ISO standard pallets. These high-bay storage areas are often more than 10 meters high. necessitating at least one warehouse per country or per region in any typical supply chain for a given range of products. • • • • • • • Procedure Some drop shipping retailers may keep "show" items on display in stores. or to keep the wholesale source from becoming • . These systems are often installed in refrigerated warehouses where temperatures are kept very cold to keep the product from spoiling. Traditional warehousing has been declining since the last decades of the 20th century with the gradual introduction of Just In Time (JIT) techniques designed to improve the return on investment of a business by reducing in-process inventory.

the retailer may arrange for the goods to be shipped directly to the customer. This can be effected by "blind shipping" (shipping merchandise without a return address). or "private label shipping" (having merchandise shipped from the wholesaler with a return address customized to the retailer). Rather than route the shipment through the retail store. seafood. meat. art. clothing.com Website Sam’s Club History . home electronics. optical and furniture http://www. clothing jewelry. fresh baked goods. Oklahoma) Bentonville. logo. Arkansas Retail (Warehouse Club) Produce. A customized packing slip may also be included by the wholesaler. • • Small business Drop shipping can occur when a small retailer who typically sells in small quantities to the general public receives a single large order for a product. indicating the retailer's company name. software.43 widely known.samsclub. and/or contact information. Sam's Club Type Founded Headquarters Industry Products Subsidiary of Wal-Mart 1983 (Midwest City. books. flowers.

After Costco's announcement on its change of return policy for consumer electronics (now within 90 days) beginning on February 26. of retail space. MO. No membership (with no surcharge) is required for Optical. To purchase items from Sam's Club.com or many Wal-Mart newspaper ads. . most liberal return/refund policy in the retail business. Oklahoma in the United States Sam's Club is named after the founder of Wal-Mart. Sam's Club finds itself now to be tied with Nordstrom for having best. In 1993. Pharmacy. Arkansas. It is the second largest Sam's Club store.000 sq. 2007. Michigan. its largest is located in Utica. a onetime day pass may be obtained from Sam's Club. Sam Walton. These stores are very similar to Sam's. ft.44 The first Sam's Club opened in April 1983 in Midwest City. A 10% surcharge is added to the prices for non-members. Louis. or Cafe (as available per club). In 2006. or to purchase alcohol. which operates "ClubCo" stores in Latin America. Wal-Mart acquired PACE Membership Warehouse and converted many (but not all) PACE locations into Sam's Clubs. a suburb of St. Wal-Mart acquired The Central American Retail Holding Company (CARHO). with over 145. The latest flagship store opening as of September 28. Design A Sam's Club store in Maplewood. one must purchase a membership. Membership is required to purchase at Sam's Club. however. Sam's Club ranks second in sales volume among warehouse clubs. behind Costco. 2006 was in Bentonville. Many Sam's Club customers are small businesses that wish to offer customers a limited selection of food without the expense of having it delivered.

Sam's Club markets items under the private labels Member's Mark. Sam's Club began accepting MasterCard credit and signature debit cards. most merchandise sold at Sam's Club is sold in bulk and directly off pallets. g. Despite several tests over the years. Each club averages 128. Sam's Club offers goods and services for consumers and business owners as well as affordable luxury merchandise. pherwani 2 . number of unique items purchased. Likewise. • The Sam's Club Database contains retail sales information gathered from sales at Sam's Club stores.45 Like other warehouse clubs. There are also clubs operated internationally under the International Division of Wal-Mart Stores in Brazil. Sam's Club only accepted cash. A membership-based store. The Sam's Club division of Wal-Mart Stores. Other tables are used to store information about stores. however. Sam's Club Credit Card.e. and members. is a warehouse club that specializes in selling to small businesses. Inc. Bakers & Chefs. A Sam's Club associate scans the member's Sam's Club card.1 billion for fiscal year ending January 31. Inc. Canada. However. summary information for the total order (transaction time & date. Sam's Club keeps prices low by selling merchandise in bulk and at very low profit margins. with merchandise stocked in warehouse-style steel bins. When all of the items have been scanned. 2006. Clubs are arranged much like a warehouse. the Wal-Mart Credit Card. 6 packages of soap) purchased during that visit is recorded in the item scan table. Their current primary competitor is Costco.000 m²) (1. products. likely due to the fact that rival Costco has an exclusive acceptance agreement with American Express. on November 9th. The associate proceeds by scanning each item with a barcode reader. Sam's does not accept American Express. Sam's Club also allows members to pay by using Visa signature debit cards (no PIN necessary). had total sales revenue of USD$37. The member then proceeds to a register to check out. 2005. a division of Wal-Mart Stores. etc) is recorded in the store visits table. Mexico.2 ha). China. summary information about each individual type of product (i. amount spent. There are currently 551 Sam's Clubs in the United States. and Puerto Rico.000 square feet (3 acres) (12.. • The process used to gather this information begins with a Sam's Club member gathering all of the items they intend to purchase during the current visit to Sam's Club. Sam's Club did not accept Visa or MasterCard because of high processing fees. prof. Sam's Club has accepted these cards for quite some time. and Sam's Club. at which point a visit number (visit_nbr) is generated and stored in the store visits table. or Discover Card (Sam's Club and Wal-Mart both also offer a Discover Card). It is not known if rival Costco will follow suit. Sam's Club Database • Sam's Club. PIN-based debit cards. Payment Options Until recently. When payment is tendered for items purchased on that visit.

The JV company would set up 8-15 cashand-carry." Bharti Enterprises MD Rajan Mittal said here on Monday. to establish the JV company Bharti WalMart Pvt Ltd. The second agreement pertains to technology transfer and training for Bharti's front end retail operations. adding that stores will be opened in Tier II and Tier III towns which are largely unserved. restaurants and retailers across India. which would sell groceries. low continuity prof. g. some direct mail Merchandise: Moderate width and poor depth of assortment. consumer appliances and fruits and vegetables. "The wholesale cash-and-carry business will cater not only to the organized retailers but also to small kirana stores. g. pherwani 14 . prof. pherwani 14-8 • • Wal-Mart –bharti • Wal-Mart venture for wholesale trading-Jobs factor • NEW DELHI: World's biggest retailer Wal-Mart is set to enter India by end2008 in a equal (50:50) joint venture with Sunil Bharti-promoted Bharti Enterprises for wholesale cash-andcarry business.46 Membership Club Strategy Mix Location: Isolated store or secondary site Prices: Very Low Atmosphere/ Services: Very low Promotion: Little. for wholesale cash-andcarry and back-end supply chain management operations. or wholesale stores over seven years. fruit and vegetable resellers.

9 billion (2006) around self-service and bulk buying.com . The Cash & Carry Stores cash-and-carry concept is based ▲ €29.47 • METRO Cash & Carry is the international leader in selfservice wholesale operating across Europe and in some countries of Asia and Northern Africa.metro-cc. Muller. CEO Billa and Carrefour in that its stores are primarily targeted Wholesale towards professional customers rather than end consumers.H. Germany from large retail chains such as Frans W.000 (2006) METRO Cash & Carry Type Founded Headquarters Key people Industry Products Revenue Employees Website www. 100. It is the largest sales Private division of the German trade and retail giant METRO AG. 1964 • METRO Cash & Carry is different Düsseldorf.

finance protection security handle storage transport . The centre has already registered about 75.000 sq ft including a 20.00. Hyderabad centre is slated to achieve an annual turnover of Rs 300 crore. 98% of which are sourced locally. dairy. Wholesaling Mfrs.000 square feet The self-service wholesale Cash & Carry launched its first distribution centre in Andhra Pradesh at Moosapet in Hyderabad .000 sq ft temperature-controlled space to handle perishables. Supply information About mkt.48 • Spread over an area of 7 acre./product Order Negotiate Risk taking Own title Break bulk Retailers advise assortment negotiate wholesaler promotion sales forecast info. fruits. the Rs 67 crore B2B distribution centre in Hyderabad occupies a selling space of 100. meat and fish. such as vegetables. traders and other institutional businesses as its customers.000 products. Metro Cash & Carry wholesale outlet spread in an area of 1. The centre stocks a range of 18.000 small and medium retailers.

who conduct wholesaling activities without taking title of the goods. who are engaged in production & retailers who are selling • Wholesale transactions are usually larger than retail ones. • They cover a larger trade area than retail. • They are more efficient in performing tasks of selling on a large scale. 14-3 .49 Wholesaling defined • It includes all activities of channel members that sell products to retailers and organization customers [B-2B and not B-2-C]-thye are dealing with business customers only. but also agents and brokers. • Retailers buy for resale • It excludes manufacturers and farmers. Wholesaling Intermediaries • Includes not only wholesalers who assume title to the goods they handle.

providing market information. and risk taking 14-4 • Lowering Costs by Limiting Contacts – Intermediaries that represent multiple suppliers cut buying and selling costs and reduce transaction time – Firms can increase transaction efficiency by only having to contact one or two intermediaries. rather than hundreds of individual suppliers 14-5 . storing.50 • Functions of Wholesaling Intermediaries – Creating Utility • Time utility • Place utility • Ownership/possession utility – Providing Services • Wholesalers commonly provide marketing services that reflect the basic marketing functions of buying. financing. selling. transporting.

Management services and counseling-help improve retailer operations by training sales clerks. Bulk breaking-achieve savings by buying in bulk and breaking into smaller units. 2. 3. Selling and promoting-sales force helps reach many small business customers at lower costs-have more contacts-buyers trust them more than a distant manufacturer.Market information-provide information to suppliers and customers regarding competitors. 5.Financing-grant credit to retailers which manufacturer cant provide-finance suppliers by ordering early and paying timely. 9. 7. 4. Transportation-provide quicker deliveries due to proximity 6. 8.51 14-6 They perform 9 tasks: 1. helping . bearing the cost of theft damage spoilage and obsolescence.Risk bearing-absorb risks by taking title. new product development price levels and market activities. Warehousing-hold inventories-reduce stock costs & obsolescence risks for both ends. Buying and assortment building-able to select items-build needed assortment-save retailers considerable work.

information solutions. payer sites and manufacturers. • It maintains a strong presence on the Net through its website www. pherwani 7 . hospitals. breadth and reach delivering unique cost saving and quality improvement solutions pharmacies. physicians. McKesson Medical Imaging Group located in prof.52 • McKesson is a leading health care service provider in pharmaceutical and medical-surgical supply management. It has unmatched depth. extended care sites. pharmacy automation and sales and market service to the healthcare industry.com offering access to information about every connected thing including healthcare software and order tracking.mackesson.

9. pherwani 11 • Biggest cost in pharmaceutical distribution is variable labor costs associated with pick& place activity.000 • Chain drug stores 15.1. $23. This is corrected by Six-Sigma approach.000 • Average order size. it is .53 Numbers • Orders per month.090. • A strong culture around process improvement and six-sigma teams can drive defects out of the process continuously-millions of doses per day we deliver. prof. besides fixed asset cost.700 • Pharmacists-35.000 • Average shipments: 2 per week. Even small changes mean enhancement. due to logistics • Customers per month: 17.[ 3/day] • Mis-picks cost: $82 to correct. IT isn't the driverpherwani the response.600 • Warehouses 54[130 earlier]. 16 prof. • Wal-Mart learning is they haven't allowed us to grow our costs and accuracy-they don’t give price increases and are very demanding-and taught us to be highly efficient.000 • Hospitals.

54 • McKesson build relationships around the country’s medical fraternity. • Distance between the best and the worst has to be reduced. • This field is not scalable so operational variability has to be reduced. pherwani 17 . prof.

don’t attract high caliber managers and bring down their own costs 7. E-commerce is making easier for producers and consumers to connect without any middle man. They are using technology and value chains bringing them closer in their relationship. don’t carry enough inventory 4. Small producers and small retailers need their services.55 Trends • Wholesaling is changing with the times. act more like order takers 3. • Manufacturers have always the option of bypassing wholesalers or replacing inefficient ones. In less developed economies they still dominate commerce. don’t aggressively promote the mfrs’ product line 2. In the last century wholesalers dominated not only Indian market but also US markets. Charge too much for their services. • Progressive wholesalers are more concerned with their customers and channel members. Their major complaints against them are: 1. don’t supply manufacturer with enough market-customer-competitive information 6. • Today many bypass wholesalers-large retailers take control of their functions. fail to fulfill customers’ orders fast enough 5. B2B sites are wholesale sites in disguise-hidden in the channel and giving new values. inventory .

• They are members of the channel• they add value by doing jobs for their customers and their suppliers. Inventory control .56 Functions: • Wholesalers sell to different type of organizational customers. • Wholesale activities are variations of basic marketing functions-gathering and providing information-buying and selling-grading and storing-transporting-financing and risk taking.

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Correctly managing inventory control is a delicate balance at all times between having too much and too little in order to maximize profits. The costs associated with holding stock. Many businesses simply don’t have enough money to keep excessively large inventories. which is caused by trying to . It is an important part of any business that must have a stock of products or items on hand. At the same time. running out of stock. It is impossible to have an unlimited supply on hand. There are costs associated with purchasing the items as well as storing them. for a number of different reasons. One common problem is running out of inventory. and having too many products leads to further losses when they don’t move off of the shelves. and placing orders must all be looked at and compared in order to find the right formula for a particular business. there are issues with inventory control when there isn’t enough stock on hand. Inventory control means keeping the overall costs associated with having inventory as low as possible without creating problems. This is also sometimes called stock control.59 Inventory control is the delicate balance of the costs versus profits associated with having stock on hand.

but it happens to virtually all of them at some point. waiting to long to reorder will result in a shortage and running out of inventory before the next shipment arrives. but they get things wrong from time to time. This can cause financial losses when inventory is not available for customers to purchase. because either expenses will be too high or customers will get tired of dealing with shortages and find another place to spend their money . Inventory control is an ongoing process that is rarely. expertise. and shipping expenses of ordering large versus small quantities should also be looked at. When figuring out a reorder point. Businesses need to think ahead and calculate the best time for reordering products. and practice help people to make the best decisions regarding stock. executed perfectly. Even the largest stores run out of certain products from time to time when they sell or use more than they expected. if ever. On the other hand. but there are always unknown circumstances and variables. Doing so too soon may cause financial difficulties or running out of space. The overhead costs. Part of inventory control is trying to minimize shortages so these are rare occurrences. Inventory control can break a business if it is executed poorly. it’s necessary to calculate how long it will take the shipment to arrive and the amount of demand for a particular item. Stores can make good estimates about how many of a specific product they will sell.60 reduce inventory costs too much. Another important element of inventory control is called reorder point. fees. Most businesses expect they will have shortages on occasion and they have calculated that the small loss is worth the money saved by not having an overstock. Experience. This is unavoidable. This is something that no business wants to have happen.

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