Supply Chain Management Overview

SUPPLY CHAIN MANAGEMENT
IMDR. Pune Faculty: Sanjay Mankikar

Course Objective: a. Interest of Students
b. Course Logo
Problem
Conceptulisation
Analysis
Operationalisation
Procedure: Lecture, Assignments, Group projects and Presentations in the class
 Expectations from Students:
 Be punctual & regular in class.

 Attendance as per IMDR norms (preferred 100%).
 Adherence to deadlines & no make up
 Interactive & prepared participation shall make the topic more
meaningful.
 Do not involve in cross talks with each other & feel free to ask
for your doubts/difficulties.
 Address all the urges like water, washrooms etc. either before
start or end of the class.
 Students can expect from faculty
 Full support & access

 Encouragement to ask logical questions/doubts with reasons
 Suggestions to make class more interesting
 An outside time from faculty for discussing issue related to
course
 Right to disagree/seek justification from faculty for issue/logic
for the course. However, in event of decision, faculty decision
shall be final.
 Text & Reference books:
 Modeling The supply Chain : Jeremy F Shapiro

 Logistical Management (SCM Process) Donald J Bowersox &
David J Closs
1
Unit 1: Introduction to SCM

 What is a Business Organisation?
 Process is a set of activities performed across the organization in creating

an output of value to customer. e.g. Order Fulfillment, Bills Payable etc.
Every process has a customer: Internal or external.
 A Business has number of major & sub-processes which together
produce business results (e.g. Sales & Marketing Process)
 A manner in which the Business Processes are managed with staff & line
professionals gives rise to Business Organisation
 What are types of Organisations? Evolution of Organization &

Management Concepts:
Adam Smith: by technological/logical changes, productivity is

manageable upwards. Division of labor concept: Pin
Manufacturing split up in steps that everyone doing everything
Ford motors further broke it down to small repeatable tasks.

Hence from everyone building car, he introduced work stations.
Alfred Sloan introduced same concept to Management to be

divided in various functions those support each other.

 Line Organisation: Oldest & simplest form, Also known as Scalar, e.g.
Military organization. Authority lowers as you come down n the
organization.
 Functional Organisation: All activities are grouped in Functional manner &
is under a specialist. Authority flows functionally to heads upwards.
 Line & Staff Organisation: Combination of 1 & 2 above. The structure is
basically line but functional experts are provided to advise line authorities.
 Committee: Committee is a group of individuals assigned to decide on
certain matters referred through interchange of information/ideas.
 THE VALUE CHAIN: Concept introduced by Michael Porter about 2 decades ago
and had an impact on Materials/Inventory Management.
 Concept: Primary & Support Activities
 What is purpose of Procurement & Manufacturing in the Business Organisation?
 These functions play an important role in supplies of either a raw material

or Finished goods to it’s customers.
 Purpose of Procurement & Manufacturing:
2
 Thus it is not a day to day operation. Since the function plays an
important role in supplies of either a raw material or Finished goods to it’s
customers, it acquires a strategic position in organisation. It shall possess
knowledge of:
 Product
 Production level/volumes/availability
 Suppliers
 Customers
 Throughput time
 DIFFERENCE BETWEEN A PRODUCT & SERVICE
PRODUCT SERVICE
 Physical Ideas/Information
 Make/Store/Ship Not So
 No Customer contact Intense contact
 Higher Lead time No fixed lead time
 Infrastructure Limited usually
• SIMILARITIES BETWEEN PRODUCT & SERVICE
 Involves Processes
 Has a Customer
 Has Supplier/s
 Has Scheduling
 OBJECTIVES of MANUFACTURING/ PROCUREMENT
MANUFACTURING PROCUREMENT
 Produce with Specified Purchase at RIGHT
Quality/ Correct Quan- Quality/ Quantity/ Time/
tity/Correct Time/ Place/ Source/ Price
Perform at Right Price
 Forrestor (1958) : Professed a theory that recognized nature of Organisational

relationship in distribution channels. His argument was that system dynamics greatly
influences performance of the functions such as R&D/Engg/S&M and illustrated it as
an effect on Production & Distribution for each & all distribution channel members.
o He went on to establish that a time shall come when the organizations who
have understoos & begun to manage this relationship between
COMPANY/FUNCTIONS/MARKETS/ INDUSTRY/ SUPPLIERS/ECONOMY
etc. shall stand to gain an advantage competitively.
o If we closely look & examine this statement, this is what we call SCM today.
o The companies have turned to global optimal sourcing for their operations.
This has forced the companies to look for more & more effective ways of
coordinating flow of in & out of organization.
3
o Reaching defect free products to customers fastest & in more reliable manner
is no more a competitive advantage but a necessity/requirement from Market
now. This means a lot of coordination between Suppliers & Customers is
involved.
o Increased performance combined with changing technology needs higher
flexibility for company & distribution channel.
 Various types of SCM:
o Basic SCM: It involves a company, it’s immediate supplier & it’s immediate
customer directly linked by one or more of upstream & downstream flows of
products, services, Finances & information.
o Extended SCM: It includes Supplier of immediate supplier & Customers of
immediate customer all linked by one or more of upstream & downstream
flows of products, services, Finances & information.
o Ultimate SCM: Includes all the companies involved in all upstream &
downstream flows of products, services, Finances & information from initial to
ultimate customer.
o SCM Orientation: Recognition by the company of the systemic, strategic
implications of activities & processes involved managing various flows of SC.
 Supply Chain Management: Definitions:
o Integrative Philosophy that deals to manage total flow of distribution channel

from supplier to Customer.
o Deals with total flow of materials from Suppliers through end users.
o Primary objective is to integrate & manage sourcing, flow & control of
materials using a total systems perspective across functions & tiers of
suppliers.
 Materials Management & SCM:

o Scope SCM Materials Mgmt.
o Responsibility Single process owner Multiple function
owner
o Objective Shared at all levels Fragmented to
functions
o Inventory control Balancing as last resort Balancing as first
resort
o Approach Integration Interfacing
 SCM Philosophy:
o Integrated behavior: to Incorporate the customers & suppliers. It is referred by
Bowersox & Closs as SCM. This is a coordinated effort between firm,
supplier, carrier to respond to customer needs.
o Mutual Share of Information: Especially for planning & monitoring process.
Cooper, Lambert & Pagh emphasized the need of sharing transparently for
effective SCM.
o Mutual Sharing Channel Risk & Rewards: Yield the competitive advantage.
Cooper, Lambert & Pagh say that this is important from long term view.
4
o Co-Operation: Similar to complimentary coordinated activities by firms to
produce superior mutual/singular outcome expected over time. This is on
going at all levels of managements.
o Integration of Processes: from Sourcing to manufacturing to Distribution
across SCM. It can be through CFTs, In plant supplier personnel or third
party service providers.
SCM: Antecedents & Consequences:
Factors those enhance or influence the SCM Philosophy.
1. Trust
2. Commitment
3. Organisational Capability
4. Vision & Key processes
5. Results
Transformation Process:
It is Process of changing inputs of labor, capital, Land, Management in output of

goods/services.
WHAT IS QUALITY?
 Basic definition: Quality is Customer Satisfaction/ Fit to Use

 Blended with concept of Internal & External Customer
 Customer Satisfaction for Product as OUTPUT of Process

 Features: Always adds to Sales Income like share, %.
 e.g hotels, cellphones for a class of customer each
 Defect free: Always helps to lower costs through Waste, Scrap, Rework
etc.
WHAT IS DELIVERY?
 Cost of
 On Time in Full
 At Right Time/Place/Quantity/Price
 Potential sales lost means Customer loss
 One dissatisfied turns away 9 potential.
 It is 5 times costly to convert possible customer than to
retain current one.
REPETITIVE MANUFACTURING OPTIONS:
 Repetitive Manufacturing is process of producing many units of one

product OR several models of one basic product.
 PUSH
 PULL
5
PUSH PULL
 Pre-designed/Fixed lines Simple/Flexible Assy. Lines
 Special Purpose Machines General Purpose Machines
 High output/Changeover Quick Setup/Changeover
 WIP high & visible Controlled WIP
 Not multi-skilled workmenMulti-skilled workmen
 High Material movement Controlled material movement
 Large vols/low downtime Controlled vols/high downtime
 Market Segmentation:
 Demographic : Age/Income/Location / Education

 Psychological : Boredom, pleasure, fear, innovative etc
 Industrial factors: Use one firms products to make their products. e.g.
Machine tools
 Market Segmentation:
 Needs Assessment of each segment w.r.t. competition.
 The generalization indicates:
 Product/Service needs: Price/quality/ Need of customization
 Delivery system needs: Availability/ Delivery/ Courtesy/Safety
 Volume needs: Quantity/Predictability in volumes & mix %
WHAT IS COST?
 Cost of
 Internal Failure: Scrap/Re-inspection/Sorting/Rework
 External Failure: Warranty/Complaints/ Returns/
Allowances
 Appraisal Cost: Incoming/In process/Final Inspection
 Prevention Cost : Audits/Training/Process
change/Evaluation
 Hidden cost: Potential sales lost/Redesign/Process
Change
 Measurement: As a % of Sales, Profit, Goods sold etc.

 Demand Analysis:
 It co-relates the demand figures with various SKUs and provides In –Out
movement i.e. Supply-Demand projections for Warehouse management.
 Dependent/Predictive demand: It is demand for those who produce

products for end use (e.g. OE makers).
6
 Independent/Random demand: It is demand for those who are end users
of products.
Patterns of Demands:
 Independent/Random: Inconsistently high or low volumes

 Dependent/Predictive: Consistent demand with some certainty of orders
 Stable: Relatively fixed and steady
 Lumpy: Not at all consistent & limited pattern but no zero demands
found
 Trendy: Can fluctuate drastically
 Fast movement: Relatively consistent high volumes with small variation
 Slow movement: Relatively consistent low volumes which may touch zero
 Obsolescence: No demand over a longer period
Factors affecting Demand analysis:

 Seasonality: Where average demand is repeated over time which can be annual,
monthly, weekly etc.
 Promotions: Normally gives sharp rise in demand followed by sharp decline
 Product Life Cycle: The stock levels differ depending upon life of product
 Desired Service Level: Stocks can be different for movement of product
TYPES OF INVENTORY COSTS:
 Capital Costs: Also referred as Opportunity cost
 Storage Space Cost: Includes various costs like Handling, Moving,

Storage, Rent, Equipment, Infrastructure, Lighting costs
 Inventory Service Cost: To cover the insurance, service tax
 Inventory Risk Cost
Demand Forecasting:
 DEMAND FORECAST:
 This comes in play if consumer demand is uncertain and independent.
The forecasting aims at giving best guess estimate of future demand and
tries to overcome shortfalls of previous forecasts.
 Subjective: Best Guess by experienced staff

 Objective: Use of past data for prediction for future
demand
 Mix of two: Revisit past data for future demand with
sense of present
 The consideration for PLAN TO ORDER put together, leads to:

 VARIABLE Order Time VOT: Anytime between Half tank to warning light
 Fixed Order Time FOT : A fixed day
 The consideration for ORDER QUANTITY leads to:
 VARIABLE Order Quantity VOQ: Quantity to fill in
7
 Fixed Order Quantity FOQ : A fixed quantity
 This is more direct Customer-Driven decision which enables more anticipation &
certainty. It normally uses MRP/MRP II systems for Planning & Manufacturing.
 MRP/MRPII normally determine:

 What is input of Raw Materials
 What is output of FG?
 When/Where is FG needed?
 It is a Inventory & Scheduling approach.
 Deals with supply of materials & component parts whose demand
depends on specific end product
 MRP is set of logical processes, decision rules, records designed from
MPS to time phased components net requirement to meet the
demand.
Unit 2: Information systems across SCM:
Supply Chain Management: Unit 2
Inventory Flow
C Physical Distribution S
U U
S P
T P
O Manufacturing Support L
M I
E E
R Procurement R
S S
Information Flow
56
 Customer to Organisation, information flows via Sales activity, forecasts &

orders.
 The information is processed to & refined to form specific manufacturing &
Procurement plans
 As products & materials are procured/made, inventory flow adds value resulting
in ownership transfer of FG to customers.
8
Co-ordination/Operational Flows:
Strategic plan Capacity plan Logistics plan Mfg. plan Purchase plan
Inventory
deployment
Forecast &
Management
Order Distribution Shipping/ Tr-

Order Mgmt ansportation Procurement
processing Operations
1
a. Inventory flow: This part is concerned with movement, procurement & storage of
RM/FG.
b. Physical Distribution: This part is concerned with movement of FG to point of
use. CSIL is key.
c. Manufacturing Support: This part is concerned with optimally converting RM/WIP
in FG via MPS.
d. Procurement: This part is concerned with movement, procurement & storage of

RM from suppliers to plant.
e. Information flow: The information is broken up into:
a. Coordination flows: Covers strategy, capacity, Logistics, Inventory
deployment, Manufacturing requirements, Procurement & Forecasting
b. Operational flows: Covers Order Management, Order processing,
Inventory controls, Transportation & shipping. & Procurement
 Importance of Information in Integration:
9
 Importance of Information in Integration:
Strategic Planning
Alliance, PDP, CSIL
Decision Analysis
Inventory mgmt, Routing, Make or Buy,
Facility
Management Control
Financials, Quality, CSIL, Productivity
Transaction Systems
Order entry, Shipping, Order selection, Inventory assignment
58
 Strategic Planning: Alliance, PDP, CSIL

 Decision Analysis: Inventory mgmt, Routing, Make or Buy, Facility
 Management Control: Financials, Quality, CSIL, Productivity
 Transaction Systems: Order entry, Shipping, Order selection, Inventory
assignment
 Role of IT in Organisational systems: Information Technology:

 Key resource to achieve integration.
 However organization specific needs, performance measurements are
defined along organizations & therefore cause cross functional barriers.
 An additional barrier is to ability to share experience.
 However the additional advantage is via EDI, PCs, Artificial Intelligence
systems, communications & bar coding/scanning.
 Types of IT:
 Transactional IT: Is concerned with acquiring, processing and
communicating of raw data & compiling/dissiminating in report format.
 Analytical IT: Is concerned with Decision supporting.
Comparison of Analytical v/s Transactional IT.
Time frame Past/present Forecasting

Purpose Communication Decision making
Business Scope Short term Long Term
Nature of database Raw/slightly transformed Objective/Judgmental
Response Time Real time Real time & batch processing
10
Determination of Informations:
 Normally are represented by Transaction set.

 Eg. Purchase, receiving, Issuing, Shipping etc.
Information Software Need:
Evolution theory
Supplier
COMPAN Customer
Y
Environmen
t
Phase I: Manual to computerize (Stand Alone) Network Internal only
Phase II: Network extended to Suppliers via EDI

Better Planning reduced inventory, better cycle time
Cost of EDI is prohibitive
Phase III: Network extended to customers also

Cost of reach is prohibitive, compatibility of software,
Phase IV: Network extended to Customers via internet
Not very high cost, Free business without investments
Example: amazon.com, Desai brothers
Business: Customer logs in: has security links, aunthetications (credit cards)
HAS INCREASED REACH
 Knowledge Base: Is the expertise developed in Logic basis

 Inference engine: the knowledge base is searched for a rules relevant to a
situation
 User Interface: Facilitates the interaction between Decision Maker & Inference
engine.
This leads to:
 MRP & MRP II: MRP is set of logical processes, decision rules, records
designed from MPS to time phased components net requirement to
meet the demand.
 ERP:
o ERP is replica of Major Business Processes & basically a powerful
client Server Based Software.
o It integrates majority of Functions & processes majority of transactions
that enables free flow of information across organisation
11
o
Biggest asset of ERP is Seamless entry & ease of access to it’s
database for all functions those directly or indirectly depend on this
information.
 E-Commerce: Example B2B, B2C, C 2 C, C2B
B2B: Business to Business: company to company

B2C: Business to Consumer: Mango deliveries, Rakhis
C2B: Consumer to Business: Airline
C2C: Consumer to Consumer: Direct auctions etc.
Unit 3: Inventory Management in Supply Chain:

Why Inventory:
 Buffer to meet uncertainties between Supply & Demand
 Advantage of lower Purchase/transport cost
 Advantages of economies of scale with manufacturing
 Meet seasonal demand
 Accommodate flow of goods from one place to other (WIP)
 Exploit speculative opportunities
Types Of Inventory:
 BATCHING ECONOMIES/CYCLE STOCK:

 It arises out of
 Acquisition Via Purchase discounts
 Production Via Volumes to have lower cost/unit
 Transportation Via Volume discounts
 It helps to create the Stock of Raw Materials or Finished Goods that is not going
to be used immediately or Sold at a later date.
 UNCERTAINTY OR SAFETY STOCK:
 It arises out of UNCERTAINTIES from:
 Customer When? What Quantity?
 Supplier Supply of components in time & quantity
 Transportation Reliability & delivery in time
 Other agencies Strikes/Compliances etc.
 Net result is to create the BUFFER AGAINST UNCERTAINTY
 GOODS IN TRANSIT (GIT)/WORK IN PROGRESS(WIP):
 Stocks in Transit: Time required in transportation from Vendor to Plant is
detrimental in terms of Inventory cost. Higher the time, higher the cost involved.
 Trade off between Cost of Service & Time required
 Work In Progress: It is proportional to Throughput Process Time associated with
Production/Manufacturing.
 SEASONAL STOCKS:
 It impacts inbound or/& Outbound logistics and processing time is relatively
short due to various reasons.
 Products have to be stored till it is SOLD.
12
 Trade off of producing in lean period against Inventory Carrying cost is needed.
It is due to manpower/capacity constraints.
 ANTICIPATORY STOCKS:
 It is an insurance against some UNUSUAL events.
 Like Strikes, Price Hike, Major shortage, Capacity issues etc.
 The level of uncertainties being dynamic, predictions are often difficult.
TYPES OF INVENTORY COSTS:
 Capital Costs: Also referred as Opportunity cost
 Storage Space Cost: Includes various costs like Handling, Moving,

Storage, Rent, Equipment, Infrastructure, Lighting costs
 Inventory Service Cost: To cover the insurance, service tax
 Inventory Risk Cost

 INVENTORY CARRYING COST CALULATIONS:.
 Step 1: Decide value of items stored
 FIFO
 LIFO
 Standard Costing
 Step 2: Measure individual cost component as % of step 1
 Capital/Storage space/Inventory service/Inventory Risk
 Step3: Value of Item stored x % from step 2 = Inventory Carrying Cost
 CAUTION: GENERALISING THIS MAY BE MISLEADING IF VARIOUS TYPES
OF PRODUCTS ARE TOGETHER.
 LEAD TIME:
 It is a time between Purchase order placement to physical Receipt including
Purchase requirement processing time.
 Components:
 Pre Order Planning
 Procurement
 Supplier
 Production
 Warehouse
 Transit
 Receive
 Payments
 DEMAND FORECAST:
 This comes in play if consumer demand is uncertain and independent. The
forecasting aims at giving best guess estimate of future demand and tries to
overcome shortfalls of previous forecasts.
 Subjective: Best Guess by experienced staff

 Objective: Use of past data for prediction for future
demand
 Mix of two: Revisit past data for future demand with
sense of present
 3 BASIC CONCEPTS:
13
 If the supply/demand are Independent/Random, we need to cover the difference
between the input & output rates. This is called Bulk or Quantity Stocks. “Q”.
 ROL: The units corresponding to days of lead time
 ROP: It is # of days of lead time from Order to receipt.
 If there is an uncertainty of Supply lead time, we need to cover it up by SAFETY
STOCK (SS) to cover for additional period of supply.

 If there is an uncertainty of Demand lead time, we need to cover it up by
SAFETY STOCK to cover for demand.
 CYCLE STOCKS: For covering in-out movements and involve decisions

regarding Order quantity & Frequency of ordering (Replenishment or Lot
size)
 SAFETY STOCKS: It is held as a cushion between Supply and Demand. It

involves decisions on Supplier’s Lead time (SLT), Supply Lead Time
Variation (SLTV) and covers both.
 The CYCLE STOCKS & SAFETY STOCKS put together are referred as
“WORKING STOCK”
 The consideration for PLAN TO ORDER put together, leads to:
 VARIABLE Order Time VOT: Anytime between Half tank to warning light
 Fixed Order Time FOT : A fixed day
 The consideration for ORDER QUANTITY leads to:

 VARIABLE Order Quantity VOQ: Quantity to fill in
 Fixed Order Quantity FOQ : A fixed quantity
 WHEN TO ORDER?
 When stocks are at a level that can satisfy the demand until replenishment order
is received.
 Periodic Review System: At a Specific Time ROP. Also Known as :

Periodic Inventory Time Based Method/Order Up to Level Method/
Fixed Order Interval Method
 Continuous Review System At Specific Remaining Level of Stock

(ROL). Also Known as : Perpetual Inventory Action Level Method/
Fixed Order Quantity Method
 Considerations for Replenishment decisions:
 Supply Lead Time SLT: Should include all factors ready to use
 Supply Lead Time Variability SLTV: Establish by monitoring
 Average Demand Av.D: Demand during supply Lead time or Forecasted demand
 Demand Variability: DV: It is a difference of Forecast v/s Actual; demand &
measured by Std Deviation
 Required Service Level SL: Ensures Correct Stock Level to meet
Supply/Demand uncertainty/variations.
 When the demand & Supply are certain, ordering decision is very easy.
14
 Example: for Average demand of 50 units per week with LT of 2 weeks,
Decision is Release Order of 100 units every 2 weeks.
 This reflects:
 Historic demand & supply lead time are good for future
 Product has a long/matured life cycle
 No promotional activity is there.
 WHAT IS ROL?
 Cycle Stock = Av Demand X Supply Lead Time

 Safety Stock = Demand Variability x Supply Lead Time X Sq. root of SLT
 ROL = Cycle Stock + Safety Stock
 CONCLUSION:
 The longer the lead time, more Safety Stock is needed.
 Lead Time variation is critical for ROL.
 HOW MUCH TO ORDER?
 Fixed Order Quantity: Review Level of Stock with every transaction.

Also Known as : Continuous Review- Variable Order Time Method
 Variable Order Quantity VOQ System: Fill to top. So you get a variable
Order Quantity each time. Also Known as : Period Review Fixed
Method/Constant Order Cycle Time Method
 Two Bin Method: It is simpler version of Continuous Review Method.
 It starts with holding TWO identical Quantities of Maximum Stock (Max
Stock value = Demand during SLT).
 The first bin is used to satisfy the demand & when it is empty (has
reached ROP), the second bin use starts till replenish order is received
for bin 1.
 Thus this uses a principle of Fixed order Quantity (FOQ) with variable
Time (VOT). It is useful for low cost/high consumption items.
 Minimum Maximum Method: It is simpler version of Periodic Review
Method.
 It sets the maximum level set above ROL.
 The minimum level is ROL then. It uses SLT, Average Demand and Safety
Stock to decide Maximum level.
 When Stock reaches ROL level at VOT, the orders are released to fill it to
Maximum level using VOQ. This has however quite a variation built in.
 EOQ: It is a found at a balance in between Cost of Placing Orders
& Cost of Carrying Inventory.
 Assumptions of EOQ: No lead time, No stock outs & we

can safely order at Zero Inventories. What is does not
consider is Variability in Lead time & Order Quantities.
15
 It is more arithmetical which needs a lot of data & figures
which, if not available, may be misleading (example Order
cost, ICC, consumption etc), if assumed.
 Replenishment of Spares:
 This is an example of independent demand & Normally volumes involved are

low.
 The advise is to Use OE supplier with good After Sales Service back up, Store &
review certain insurance spares as recommended.
 The routines & consumables are more predictable & therefore Dependent
demand. One is free to use the technique as effective. However it normally uses
MRP systems.
STOCK CONTROL:
 The control means to a process employed in order to meet standards. This

involves observing the performance, comparing it with standards and taking action if the
observations are significantly different from standard.
 Because Stocks represent the Capital locked up in Business. Therefore the stockholdings
are normally subjected to Financial Controls. A few of them are:
 Verify value tied up
 Identify cost of holding stocks
 To check for conformance
 To check on malpractices
 For improvement & corrective actions
 MIS
 Consequences of Incorrect Stocks:

 Unforeseen Stock outs…… Imagine Imports
 Informal Stock piling
 Incorrect/Excessive Ordering
 Dents team spirit/faith considerably
 Orders not met in time
 Reasons for Incorrect Stocks:
 Data Entry: Manual entry/Wrong identification of part/Quantity
 Delay in postings
 Issues/Receipts without records/Thefts/Pilferages
 Mismatch between Doc & actuals not tracked/noticed.
 Wrong Locations
 Incorrect Reconciliation process
 Stock Inaccuracy:
 Perpetual Inventory Check:
 This ensures that all the items are under focus of control by way of
counting at predetermined frequency. The principle used normally is:
 A items: Normally fast moving/High value counted more say once in a

month/fortnight with tight tolerance for error < 1%.
16
 B items: Normally Medium moving/medium value counted less say once
in a 2 months with less tolerance for error < 2 to 5%.
 C items: Normally Slow moving/Low value counted lesser say once in a

3-9-6 months with lesser tolerance for error < 5 to 10%.
 Periodic Stock Check:
 The approach is normally that all the items are counted at one time. This
includes, WIP, FG etc & operations are closed, if required. This is done at
sufficiently advance notice and can be planned methodically.
 However the drawback is that in absence Un-trained manpower the accuracy is

always doubtful & errors creep in.
 Secondly, in a hurry to start the operations again, the errors creep in & needs lot
of explanations/co-ordinations to sort out.
 Spot Checking:
 The approach is a sort of surpirse check for specific lines or for verification
against security reasons.
 This technique is low cost but highly accurate in results by

 Picking up items with Zero Book Stocks for checking
 Picking up items at ROL as per Book Stocks for checking
 This check can give confidence level for dependence and correction
if needed.
 Security & Prevention Loss:

 The possibility of thefts/pilferages is largest threat to Stock Accuracy & Controls
exercised in the Warehouse. It is extremely tricky but sensitive matter that needs
a lot of skill/guts to tackle.
 Thefts / Pilferages:
 External:
 In Transit Thefts/Fire/Damage
 In Stores: Misappropriations
Fire
Negligence
Thefts
 Stock Inaccuracy – Security & Prevention Loss:
 A few Symptoms :
 Overwriting
 Missing Documents
 Proper Authorisation not taken
 Too frequent breaks observed by staff
 Visible “Friendship”
 Products not in right Location
 Products not checked against Master List
 Products loaded by Carrier himself
 People seen moving in & out without authority or not checked by staff
concerned
 CLASSIFICATION OF INVENTORY:
17
 Inventory control & multiple product line management demands that the
organization has to focus on important inventory items and use effective methods
to manage/control them. One such technique is ABC analysis.
 Mr. H Ford Dicky of GE professed that items be sorted/classified by Sales
volume & cost/Cash flow/Lead time/Stock out costs etc.
 It implied that: A : Highest impact or value, B is medium impact/value or C is
least impact/value
 PARETO’s law/80-20 rule: It says that relatively small % of population shall

account for large % of overall impact/value
 PERFORMANCE OF ABC ANALYSIS:
 Select the criteria for Valuation i.e. Sales value/Product value
 Rank it in descending order of importance
 Calculate Individual & Cumulative % of value

 Inventory Visibility:
 It is ability of the organization to see inventory on real time basis throughout the Supply
Chain.
 It not only gives the knowledge of WHERE (RM/WIP/FG /GIT) inventory is in the
system (SUPLIER/LOCATION/ PLANT/WAREHOUSE/GIT) but also addresses HOW
MUCH? TO WHOM? etc.
 What is needs is Tracking & Tracing at SKU level for all constituents
(RM/WIP/FG/GIT)
 Provides Summary/Detailed Reports of shipments/ Orders
 Notifications of failures/Potential delays in flow of Materials
 ADVANTAGES of Inventory Visibility:
 Improved Customer relations/Service through OTIF
 Decreases Inventory Carrying Cost and Back orders
 Better Supplier Management
 Better ROA
 Better Cash to Cash or Order to Cash cycle
 Better utilization of Plant/Capacity
 Better Overall SCM/Carriers/Vendor/Customer Performance matrix
 IMPACT of Inventory Visibility:
 Reduction in Inventory is because :
 Better forecasted demand
 Reduction in lead time uncertainty
 Actual Reduction in Lead Time
 Effectiveness of Inventory Management
 A] Customer satisfaction: From Buyer/Sellers point of view
 Measure: Repeat Buying
 Order Cancellation
 Stock outs
 B] Back order/Expediting
 C] Inventory Turns for entire product line / Individual items

 If Sales is 1cr & Av. Inventory is 10 lacs, Inv turns : 10 i.e 5.2 weeks
18
 Differs from Industry to Industry, Company to Company
 Faster T/o can lead to stock outs. So trade off Cost of Transportation v/s
Inventory Carrying cost
 Thus these conditions of Certainty are heavily influenced by
 Demand Variation is quite sporadic

 Supply Lead time variation
 Transit time variation
 Order Processing time variation
 Production Planning & Execution
 Damages/Loss in Transit
These variations are normally met via SAFETY STOCK

The Re Order Level is conditions of uncertainty is a derivation of ROL under certain
conditions + Safety Stock.
 In case of Uncertainty in Demand & Supply side:

 Longer The Lead time, More the Safety Stocks. Any
Variation proves Critical for ROL .
 With a multiple variation of LT/Demand, decision of
deciding the Safety Stock on ROL becomes complicated.
Here the study of Normal Distribution comes handy to
decide the variations during the lead time.
 JIT & Kanban:
 JIT : It is American version of Kanban. Kanban is invented by Toyota motors in

Japan.
 Kanban: It speaks of the informative signboards attached on the material

handling containers (carts) delivering the exact or nearest amount of
materials/other resources required at point of use within a defined area of
operation.
 Each signboard thus shall indicate the Quantity & Time when the
replenishment is needed.
 There are a few steps in which this activity is managed:
 KAN : Production cards authorise Production by Q & T

 BAN: Requirement cards authorise withdrawal of materials/ other
resources from feeding stations.
 ANDON: Visual display of lights to notify problems
 Elements & Aim : To manage materials availability in exact quantity & at precise timing
thereby reducing the pockets of accumulation of inventory/buffers.
 Zero Inventories
 Short lead times
 Frequent replenishments of quantities
 High quality or Zero defects
 This makes the concept approach to expand to Planning, Scheduling, Production,

Inventory & Distribution management.
19
 It therefore has a tremendous impact on Inventory costs. Extended version of the system
introduce concept of Supplier Partnerships, VMI, Employee teams
KanBan & 2 bin or ROL replenishment:
 There is a lot of similarity in these 2 approaches.
 The first bin is used to satisfy the demand & when it is empty (has reached ROL), the
second bin use starts till replenish order is received for bin 1.
 It makes effective use of MPS further to align the parts in such a manner that small but
consistent demand is created.
 Consistent & regular demand for supplies reduces the uncertainty in demand & supply
lead time.
Nature & Importance of Warehousing:

 Broadly the Warehouse stores goods. This includes variety of
 Storage of items in open space
 Storage of items in secured places
 Storage of items in Special Storage conditions
 Storage of items covering Transit storage as well.
 Every product undergoes at least once, Warehousing cycle
during it’s phase of creation to consumption.
 Via Warehouse, firms can decide on “How much”, “When” &
“Where” as the customer demands.
Role of Warehousing in Logistics System: Basic Concepts

 Stores RM/WIP/FG for variable period of time
 Storage in Warehouse means interruption in flow of goods &
addition of the cost to product/s.
 Some firms therefore treat this aspect negatively & seek to
totally eliminate the inventory carrying cost.
 Some firms go to other extreme for stocking as much as
possible for CSL.
 However, the Warehouse can change this disadvantage of
cost addition to advantage by adding more value than cost
via optimal operations.
 Value addition is via trade offs possible in existing areas as:
Value adding role Trade off area

 Consolidation Transportation
 Product mixing Order filling
 Service Lead times
 Contingency Stock outs
 Smooth operation Production
 How Many?
 The dilemma is to have Centralised or Decntralised

Warehouse? The options are influenced by:
 Freight Costs Private (Leased): Large Fixed Cost
20
 Public Warehouse: Large Variable Cost
 Service level required & freight options available
 Any decision taken is bound to be traded off in terms of High

Freight Cost and the Warehouse costs required.
Unit 4: Management of Materials Flow:

 The competency in Information flow is achieved by:
 A. Network Design: Influenced by # of Locations and type & nature of facilities
 B. Information Flow : Historical deficiency of lack of suitable technology &

desired information needs to be addressed.
 C. Transportation: Geographically positions the inventory where/when ever

needed. Speed & consistency are the key factors.
 D. Inventory Management: Depends on network & desired CSL
 E. Warehousing & Distribution: Each of a,b,c,d contribute to increase in CSL. e

has maximum potential to add to CSL.
 Information from Customer flows in via:
 Sales order, Sales transactions & Forecasting
 It is further refined to specific Procurement, Manufacturing & Distribution

Plans.
 Thus this process is viewed as combination of interrelated efforts of Information

& Inventory Management.
 Although the internal management are a pre-requisite to success, to be effective

competitively, firm must try & expand horizons to incorporate Customers &
Suppliers.
 When such an integration is done, the figure is referred as “SCM schematic”.
 There are 2 types of flows to be managed:
 Inventory Flow:
 This is concerned with movement and storage of Raw materials
& Finished goods.
 The management operation starts with initial shipment of RM
from Supplier & ends with delivery of FG to Customer.
 Value Addition role:
21
 RM: By moving RM where & when needed. Thus at all
progressive stages of the transformation, Raw material
gains value.
 WIP: For Supporting Manufacturing, WIP must be
moved to where it matters
 FG: Final value addition when the ownership is
transferred to end customer.
 THESE OPERATIONS ARE DIFFERENT FOR TYPES OF

FIRMS.
 Physical Distribution:
 This is concerned with movement of Finished goods to end
customer via Warehousing & channels.
 The distribution have a commonality: they link
Manufacturing with Distribution via Distributors/retailers as
a part of Distribution process.
 Manufacturing Support:
 It focuses on managing the WIP inventory as it flows across
the process.
 Procurement:
 is concerned with Purchase of Raw Material & arranging

it’s incoming movement of parts/Subassembly from
Suppliers to point of use (plants).
 This has commonality: It links Manufacturing with

Suppliers via transportation networks as a part of
Procurement process.
 Information Flow:
 It identifies specific locations in Supply Chain Management
which have requirements.
 The requirements are:

 Co-ordination: In field of strategic objectives like Capacity,
Inventory deployment, Forecasting & Purchasing.
 Operational:In field of Order Management, Distribution Process,
Inventory management etc.
 Basic Warehousing Decisions:
 Ownership
 Numbers
 Locations
 Size
 Layouts
 What to Store where
22
 The options available are:
 Private (Leased): Large Fixed Cost
 Any decision taken is bound to impact the firms balance sheet (in terms of
facility management) and Income statement (warehouse cost).
 The trick of the trade is to balance the judicious decision because of varying
regional sales conditions such as seasonality, Short supply condition etc.
 How Many?
 The dilemma is to have Centralised or Decntralised

Warehouse? The options are influenced by:
 Freight Costs Private (Leased): Large Fixed Cost
 Service level required & freight options available
 Any decision taken is bound to be traded off in terms of High

Freight Cost and the Warehouse costs required.
 Location
 Having solved “How many”, next question is “Where”?

 Analysis of Warehouse’s intended functions, General levels desired
can answer this question.
 The desirables like Order Servicing time (near Market),Raw Materials mixing
(close to Supplier base) can decide the location.
 The Trade off is desired Customer Service Level v/s Logistics/ Warehouse Cost
Basic Warehousing Decisions :
 Item Stocking: Finally “What items” in “What Quantity” in “Which” Warehouse

needs to be decided. These are mostly applicable to firms having decided on
Multiple locations.
 Whether to store ALL items in ALL Warehouses
 Whether to carry SPECIFIC items in IDENTIFIED facility
 Whether to have COMBINATION of the above?
 Ownership Decisions:
 Fixed Costs
 Influences more in Private Warehouse which is attributed to elements of
Property, Facility planned and cost incurred in infrastructures.
 The element is relatively low in Public Warehouses due to multiple customer
options & minimum cost agreements.
 Variable Costs
 Mostly all costs associated are Variable Costs in public
23
Warehousing.
 It is directly proportional to Volumes as more volumes need more Space.
 The rates are normally telescopic with higher volumes
 Generally the Variable part of costs increase Less sharply in Private
Warehouses compared to Public warehouses.
 It is mainly due to Service charges & Margin of Service provider.
 Generally at low Volumes, public Warehouses are preferred due to
Cost benefit.
 With increased volumes, Private Warehouses are normally effective as
the facility is used more efficiently and fixed cost is spread over large
volumes.
Firm Characteristics Private Public

 Throughput Volume High Low
 Demand Variation Stable Fluctuating
 Market Density High Low
 Special Inv. Control Yes No
 Customer Service High Low
 Security High Low
 Multiple Use needed? Yes No
Public Warehousing:
 Contrary to belief that Private Warehouses would have overtaken Public
Warehouses, Public Warehouses have blossomed over by leaps & bounds.
 Firm with no large inventory or operating seasonally can not justify efficient &
consistent use of Private Warehouse.
 Firm with small volumes to be supplied to dispersed customers & places not
justify efficient & consistent use of Private Warehouse.
 Firm with new products in new area and uncertain demand can not justify
efficient & consistent use of Private Warehouse.
 Finance (Limited Capital Investment): The capital requirement is almost NIL or
very little.
 Contrarily, when a firm builds Private Warehouse it commits itself long term
financially. The firm thus incurs capital payback risks through continued
profitable use or through Sale of facility. The risk rises with Automation with
obsolescence threat.
 Flexibility: A firm can get in a warehouse for a shorter period with no
commitments & obligation. The time for establishing warehouse can be
productively used for Market penetration or Withdrawal.
Public Warehousing: Services offered:

 Public Warehousing offer Services of Testing/Assembly/Packaging/ Pricing
marks/ Lot marking/Picking/EDI services.
 Such activities on a paid service Or Contract basis form a good alternative to
Private Warehouse.
 It can offer all Services that a Private Warehouse can think of at a rightly
justified price, at right place & right time.
 Bonded Warehouse: Is offered when a user is normally interested in delaying
the payment of taxes & tariffs till point of actual use.
24
Field Warehouse: Is normally used for Hypothecation/pledging for transfer of
ownership.
---
 Warehouse Operations: Movement and Storage:
 Due to inventory costs involved, possibility of damage in handling,

pilferage, it is essential to move goods efficiently & speedily.
 Movement occurs at 4 operations below (short distance moves.)

 RECEIVING: Goods received in Warehouse via
transportation
 PUT AWAY: When goods is moved to location to store
 PICKING: Selecting goods for Customer orders Or issue
of RM
 SHIPPING: Loading goods for Customer or production
line.
Warehouse Management
BASIC WAREHOUSE OPERATIONS
Put
PutAway
Away Storage
Storage
•Identify
•IdentifyProduct
Product ••Equipment
Equipment
RECEIVING/ INPUT
•Identify
•IdentifyStorage
Storage ••Stk
StkLocation
Locationby
by
Location
Location ••Frequency
Frequency
• Schedule Carrier
•Move
•MoveProduct
Product ••Size
Size
• Unload Vehicle
•Update
•UpdateRecord
Record ••Special
SpecialCare
Care
• Inspect for damage
• Compare with PO
WAREHOUSE PROCESS
•Ship
•ShipPreparation
Preparation •Order
•OrderPicking
Picking
SHIPPING/OUTPUT ••Information
Information
••Walk
Walk&&Pick
Pick
••Packaging
Packaging
• Schedule Carrier ••Batch
Batchpicking
picking
••Labeling
Labeling
• Load Vehicle ••Auto
AutoStorage
Storage&&
••Staging
Staging
• Bill of Lading •• Retrieval
RetrievalAS/R
AS/R
•Record Update 174
 LAYOUT DESIGN PRINCIPLES: :
 Having seen Space needs, next logical step is design & layout in more details.
 1. Single Story: Low erection cost/ more direct usable space

 2. Straight line flow: Avoids backtracking & is efficient
 3. Material Handling Equipments: Makes operation efficient
 4. Adequate access/Protection: helps optimal space utilistion
 5. Aisle Space: Minimise within constraints of handling
25
 6. Height of building: Costs 20% of horizontal space only to build & can be
cost effective with proper handling equipments.
 7. Ship/Receive area: Stocking duration required with Material Handling
equipments required is key.
 8. Product size/shape/handling needed dictate size of bays
 9. Order Pick/Preparation Area:
 Constant movement, frequency of issues & efficiency is main factor for this
consideration.
 Using cubical height does not effectively work here.
 Continuous balancing between Open space/Material handling equipment/
ergonomics is vital for success.
 MATERIAL HANDLING: The concept of material handling differs from business to

business. It is usually combination of machines used by men or individually.
 “Efficient short distance movement that usually takes place within specified area
such as plant/warehouse & agency involved” can be termed as Material handling.
 5 Dimensions of Handling:
 1. Movement : In & Out of facility
 2.Time: Readying the material for service
 3. Quantity: Meets variable usage & delivery rates
 4. Space: Usually fixed for facility. Effective use is key
 5. Co-Ordination: Addresses capabilities of man management &
futuristic planning views
 MATERIAL HANDLING OBJECTIVES:
Increased Effective Capacity

Minimised Aisle spaces
Reduce # of times product is handled
Develop effective working conditions
Reduce manual movements of labour
Improve logistics Services & Costs
187
 Packaging: Generally there are 2 types of Packaging.

 Interior or Customer: Provides important information to buyer &
acts to motivate him. Acts as “silent Salesperson”
 Exterior or Industrial: Provides goods that is moved & stored.
26
 Important information like handling care etc is provided in
addition to ease of handling
 BOTH types are interdependent & can not be thought in isolation.
 IMPACT ON SCM:
 Capacity/Utilisation of space & Warehousing Cost
 Handling/Handling equipments
 Stacking/Storage
 Damage protection during storage & Transportation
“IT MAY NOT CONTRIBUTE TO PRODUCT VALUE BUT ADDS TO
LOGISTICS COST”
 Packaging is a concern to:
 Marketing: “Silent Sales Person”, Colour/ Design/function
 Production: Cost of placement shape affecting efficiency
 Legal for compliance with environment & transport regulations
 Role of Packaging: :
 Identify the product & provide information
 Improve efficiency in handling & distribution
 Customer interface
 Protect product
 Environment
 Recycling
 Bar coding and scanning
Material Handling equipments
 Dock Equipments:
 Forklift truck always with operator
 Dock Bumpers
 Dock levelers/locks
 Pallets
 Hand Pallet trucks
 Storage & order picking equipment:

 Bins
 Carousels
 Slotted angle racks
 Heavy duty racks
 Mezzanines
 Multiple Location Theory: The Square Root Law:
X2 = (X1) PN2/N1
N2: new locations proposed & N1= Current locations

X2: Total inventory future facilities &
X1= Total inventory Current facilities
 Assumes that there are No internal transfers, Lead times do not vary, CSL is
constant, Demand is distributed.
 Importance of Time:
27
 Availability of effective information gives a competitive edge to business.

 It helps to reduce levels of financial assets to support business performance.
 The goal is to compress/control time from Order receipt to Delivery to Customer
to accelerate Inventory turns.
 It works in 2 manners:
 Postponement :
 It offers strategy to reduce anticipatory risks in SCM.
 It helps to reduce the degree to which commitment to final
manufacturing/distribution can be postponed till final Customer
Order is received.
 This in turn reduces/eliminates the risk of wrong manufacturing/

inventory deployment.
 The postponement is of 2 types:

 Form or Manufacturing
 Time or Logistical
 Form or Manufacturing:
 It speaks of Flexible manufacturing.
 The vision speaks of producing an order only after final

Specifications are received & no preparatory work/procurement
is done.
 The FMS achieves Made to Order strategy without

compromising the efficiency.
 When linked with lot size economies with respective trade offs
between costs & risks, gives dream results.
 It exerts lot of pressure on Post manufacturing functions to

perform but brings in control Anticipatory variations & increases
efficiency & effectivity.
 Time or Logistical:
 It speaks of maintaining full anticipated inventory at one or

more locations.
 Forward deployment is held back till Customer Order is

received.
 Once the action is triggered, it makes all efforts to reach till

customer.
 This helps to eliminate anticipatory distribution without

compromising on economies

28
 Consolidation:
 This is related to economies of transportation management. The
affecting areas are:
 Market area
 Scheduled delivery
 Pooled delivery
Unit 4: Managing Flow Of Materials in Supply Chain
 CONCEPT:
MOVE TRANSFORM
STORAGE
INFORMATION FLOW & MANAGEMENT : NETWORKING

147
 The competency in Information flow is achieved by:
 A. Network Design:
 Influenced by:
 # of Locations and type & nature of facilities

 B. Information Flow
 Historical deficiency of lack of suitable technology & desired information
needs to be addressed.

 C. Transportation
 Geographically positions the inventory where/when ever needed.
29
 Speed & consistency are the key factors.
 . Inventory Management
 Depends on network & desired CSL

 E. Warehousing & Distribution:
 Each of a,b,c,d contribute to increase in CSL.
 e has maximum potential to add to CSL.
 Information from Customer flows in via:
 Sales order, Sales transactions & Forecasting
 It is further refined to specific Procurement, Manufacturing &

Distribution Plans.
 Thus this process is viewed as combination of interrelated efforts of

Information & Inventory Management.
 Although these are a pre-requisite to success, to be effective
competitively, firm must try & expand horizons to incorporate Customers
& Suppliers.
 When such an integration is done, the figure is referred as “SCM
schematic”.
C Inventory Flow
S
U U
S P
T P
O Procure- L
Physical Manufacturing
M ment I
Distribution Support
E E
R R
S S
Information Flow
151
30
Inventory Flow
 This is concerned with movement and storage of Raw materials & Finished
goods.
 The management operation starts with initial shipment of RM from Supplier &
ends with delivery of FG to Customer.
 Value Addition role:
 RM: By moving RM where & when needed. Thus at all progressive stages
of the transformation, Raw material gains value.
 WIP: For Supporting Manufacturing, WIP must be moved to where it
matters
 FG: Final value addition when the ownership is transferred to end
customer.
 THESE OPERATIONS ARE DIFFERENT FOR TYPES OF FIRMS.
 Physical Distribution:
 This is concerned with movement of Finished goods to end customer via
Warehousing & channels.
 The distribution have a commonality: they link Manufacturing with
Distribution via Distributors/retailers as a part of Distribution process.
 Manufacturing Support:
 It focuses on managing the WIP inventory as it flows across the process.
 Procurement:
 is concerned with Purchase of Raw Material & arranging it’s incoming

movement of parts/Subassembly from Suppliers to point of use (plants).
 This has commonality: It links Manufacturing with Suppliers via

transportation networks as a part of Procurement process.
The Concern is what/when & where the parts/Subassembly from Suppliers need to be
supplied.
Information Flow
 It identifies specific locations in Supply Chain Management which have

requirements.
 The requirements are:
 Co-ordination:
 In field of strategic objectives like Capacity, Inventory
deployment, Forecasting & Purchasing.
31
 Operational:
 In field of Order Management, Distribution Process, Inventory
management etc.
Management of Information flow: Distribution Performance:

Procurement
Manufacturing Support Distribution
Cycle
Materials Components Assembly Distribution End

Source Part plant Plant Warehouse Customer
Communication links
Transportation links
158
Multiple Flexible Network
Materials Materials Materials

Source Source Source
Manufacturing Manufacturing Manufacturing

Plant Plant Plant
Plant warehouse Plant warehouse Plant warehouse
Distribution Distribution Distribution

warehouse warehouse warehouse
Customer Customer Customer
159
 Ownership Decisions:
 Fixed Costs
32
 Influences more in Private Warehouse which is attributed to elements of
Property, Facility planned and cost incurred in infrastructures.
 The element is relatively low in Public Warehouses due to multiple
customer options & minimum cost agreements.
 Variable Costs
 Mostly all costs associated are Variable Costs in public
Warehousing.
 It is directly proportional to Volumes as more volumes need more
Space.
 The rates are normally telescopic with higher volumes
--- Contd.
BASIC WAREHOUSE OPERATIONS
Put
PutAway
Away Storage
Storage
•Identify
•IdentifyProduct
Product ••Equipment
Equipment
RECEIVING/ INPUT
•Identify
•IdentifyStorage
Storage ••Stk
StkLocation
Locationby
by
Location
Location ••Frequency
Frequency
• Schedule Carrier
•Move
•MoveProduct
Product ••Size
Size
• Unload Vehicle
•Update
•UpdateRecord
Record ••Special
SpecialCare
Care
• Inspect for damage
• Compare with PO
WAREHOUSE PROCESS
•Ship
•ShipPreparation
Preparation •Order
•OrderPicking
Picking
SHIPPING/OUTPUT ••Information
Information
••Walk
Walk&&Pick
Pick
••Packaging
Packaging
• Schedule Carrier ••Batch
Batchpicking
picking
••Labeling
Labeling
• Load Vehicle ••Auto
AutoStorage
Storage&&
••Staging
Staging
• Bill of Lading •• Retrieval
RetrievalAS/R
AS/R
•Record Update 174
 Packaging: Generally there are 2 types of Packaging.

 Interior or Customer: Provides important information to buyer &
acts to motivate him. Acts as “silent Salesperson”
 Exterior or Industrial: Provides goods that is moved & stored.
 Important information like handling care etc is provided in
addition to ease of handling
 BOTH types are interdependent & can not be thought in isolation.
 IMPACT ON SCM:
 Capacity/Utilisation of space & Warehousing Cost
 Handling/Handling equipments
 Stacking/Storage
 Damage protection during storage & Transportation
33
“IT MAY NOT CONTRIBUTE TO PRODUCT VALUE BUT ADDS TO LOGISTICS
COST”
 Packaging is a concern to:
 Marketing: “Silent Sales Person”, Colour/ Design/function
 Production: Cost of placement shape affecting efficiency
 Legal for compliance with environment & transport regulations
 Role of Packaging: :
 Identify the product & provide information
 Improve efficiency in handling & distribution
 Customer interface
 Protect product
 Environment
 Recycling
 Bar coding and scanning
 Importance of Time:
 Availability of effective information gives a competitive edge to business.

 It helps to reduce levels of financial assets to support business
performance.
 The goal is to compress/control time from Order receipt to Delivery to
Customer to accelerate Inventory turns.
 It works in 2 manners:
 Postponement
 Consolidation
 Postponement:
 It offers strategy to reduce anticipatory risks in SCM.
 It helps to reduce the degree to which commitment to final

manufacturing/distribution can be postponed till final Customer
Order is received.
 This in turn reduces/eliminates the risk of wrong manufacturing/

inventory deployment.
 The postponement is of 2 types:

 Form or Manufacturing
 Time or Logistical
 Form or Manufacturing:
 It speaks of Flexible manufacturing.
34
 The vision speaks of producing an order only after final
Specifications are received & no preparatory work/procurement is
done.
 The FMS achieves Made to Order strategy without compromising

the efficiency.
 When linked with lot size economies with respective trade offs
between costs & risks, gives dream results.
 It exerts lot of pressure on Post manufacturing functions to

perform but brings in control Anticipatory variations & increases
efficiency & effectivity.
 Time or Logistical:
 It speaks of maintaining full anticipated inventory at one or more

locations.
 Forward deployment is held back till Customer Order is received.
 Once the action is triggered, it makes all efforts to reach till

customer.
 This helps to eliminate anticipatory distribution without

compromising on economies.
 Consolidation:
 This is related to economies of transportation management. The affecting

areas are:
 Market area
 Scheduled delivery
 Pooled delivery
Unit 5: Relationship management:
35
 The schematic shows a complex SCM situation. It shows the possible institutions
the product may have to pass through with alternate paths it may follow as the
product flows from Owner to Buyer.
 In spite of explicit simplicity, the model offers very little to Operations

Management for developing Channel management.
 A way to give channel management a real meaning is to focus on relationship to

make the channels function.
Supply Chain Management

Generic Channels of Distribution:
Manufacturers/Industrial Users
RAW Wholesalers
MATERIALS/
INPUTS
Retailers
Consumers/Governing Bodies
218
 Relationship Management:
 Relationship management is new label attached to old & fundamental area of

business.
 The new thrust comes out of belief of successful business arrangement which
shall result from participation when managing firms co-operate in Planning &
execution.
 Economics of Distribution;
 The foundation for developing a successful relationship management lies in

understanding economics of distribution.
 The economic aspects normally shall extend beyond gambit of SCM.
36
 Several distinct functions need to be performed with perfection to achieve

effectiveness in SCM.
 Specialists can perform various functions in Distribution chain better than firms
those have other core competencies (e.g. transportation).
 Combined capabilities of Primary & Specialize partner achieves what is known

as “ASSORTMENT”.
 Assortment is a sorting & configuring several products together to meet buyers

exact requirement.
 Traditional Functions:
 A function in language of SCM represents a work to be completed universally to
achieve effective working.
 There are functions which can occur at multiple points (e.g. Storage)
 There are functions which can occur at single point only.
 Exchange function involves Buying & Selling
 Physical Distribution involves Storage & Transportation.
 The Facilitating functions are typical Support Function.
Specialization Functions:
 Specialization is basic business driver of efficiency. Thus while mode of carriage

can differ for efficiency, but delivery as basic function remains.
 Assortment: Co-operative arrangement of multiple businesses to orchestrate their

activities to deliver products at right location, at right time.
 Concentration: It refers to collection of large quantities of a single product or

several different products so that they can ultimately be sold as one group.
 Customization: The process of sorting & grouping products as required by
Customer is known as Customization. Thus they become unique for a customer
from supplier.
 The capability of the firm to be effective in SCM customization lies in
developing proper arrangements.
37
 Customization also involves special packaging, handling, assembling.
 Dispersion:
 This is shipment of unique assortments to Customers when and where
specified. This is final step of assortments.
Supply Chain Competitiveness
 The competitiveness is built on 2 basic aspects:

 Cooperative behavior shall reduce the risks greatly & shall improve
efficiency of SCM.
 The elimination of waste & duplicate efforts adds to improved
productivity, reduced costs & inventory deployment.
 Risk: The partners in SCM realize that they are better off in a chain with specific
deliverables & competence. Thus by co operating it becomes a part of integrates
SCM.
 Power: The relative onus lies with a partner with relatively higher power. Thus
over past few years the shift is in favor of SCM from Production.
 Leadership: A presence of participating enterprise assumes leadership in SCM.
 8 Is of to create Successful Relationship Management:
 Individual Excellence
 Importance
 Interdependence
 Investment
 Information Sharing
 Integration
 Institutionalization
 Integrity
Alliance Management
 Alliance is a bond of association to further the common interests.

 example: Shippers, Transporters, Airlines etc.
 Factors stimulating Alliances:
 1. Positive manner:
Retailers Manufacturers
High level of co-operation Information sharing

Similarity of goals Recognize mutual benefits
38
Clear communications Controlled implementations
Senior mgmt support Joint task force
Inventory Control Commitment/Resource dedication
 2. Factors creating Obstacles:
Retailers Manufacturers
Low volume SKUs Lack of Communication

Resistance of Mfg. to change Trust level
Information Systems Non compatible Systems
Non compatible data formats Understanding the issues
 3. mutual Dependency: Whether successful or not, an alliance should not

have grey areas of responsibility ownership & thus it must acknowledge
dependency. It plays an important role in this function.
 4. Core Specialization:
 5. Power Clarity or Conflict dynamics
 6. Co Operation emphasis
 Alliance Management:
 The growing popularity of alliances indicate the acceptance of principle by firms.

 However the alliances not working through satisfactorily indicate that there are
still gaps needing to be bridged. Normally the gaps are:
 Fuzzy goals
 Inadequate trust
 Lip level commitment
 Human incompatibility
 Inadequate framework
 Inadequate measurement of performance
 Initializing the Alliance:
 The alliances are more dominant in areas of common interest.

 It is a win-win situation for both the parties involved.
 Ø There is a Need for initiating firm to assess the internal practices thoroughly for
ability, opportunities and sustenance. The integration throws open possibilities
improvement in productivity , improved responsiveness etc. & it needs a great
deal of analysis & performance measurement to get on & build further.
 Implementing the Alliance:
 The key to alliance implementation is choice of partner with suitable vision &
operational philosophies.
 The key is compatibility & not identical means.
39
 The alliance is expected to start on small scale initially to foster easy wins &
forge unity.
 Motivation & appreciation play vital role at this juncture.
 The critical issue is to implement alliance in simplest form & then fine tune the
alignment with technological sophistications to add value.
 Maintaining the Alliance:
 Long term continuity of alliance depends on:

 Mutual Strategic & Operational goals
 2 way performance measurements
 Feedback mechanisms whether formal or Informal
 Periodic reviews also add to maintain trust & transperancy.
Unit 6: Performance Measures in Supply Chain

Managements:
 Combination of economic growth & competition forces the firm to concentrate on

efficiency and effective deployment of resources. This means opting for
“CONTINUOUS MEASUREMENT REVIEW” method. To achieve this, firm
needs to carry out measurement process & assess resource deployment &
attainment.
 The measurement shall be progressed as:
 Dimensions
 Characteristics
 Levels
 Structures
 Dimensions:
 Information at right time, place for decision making is a key to measure,
compare, guide & control. Also needed is a flexibility & on demand
methods to improve response to market opportunities.
 Types of Dimensions:
 Internal Measurement:It focuses on comparing activities &
processes to previous operations &/or Goals. It is relatively easy to
get/collect information & classified as:
 Cost: Compares with budget, plan, % of Sales etc.
 Customer Service: First order pass, Repeat customer
buying
 Productivity:
 Static: With known input & output
 Dynamic: Static information used to represent
periods
40
 Surrogate: Represent factors which are not
included in productivity measures but are highly co-
related with it.
 Asset Management: Fixed Assets & Current Asset
Management
 Quality: Process oriented approach deciding the effectivity
of series of operations than an individual activities.
 External measurement: It is necessary to maintain focus on

Customer Perspective & competition.
 It addresses:
 Customer Perception measurement: Normally

obtained through Industry/company sponsored
surveys, Order follow up mechanism, &
Competition performance.
 Bench mark of Best practice: A technique to
compare the operations of both competitors &
leading firm in related industries. It focuses on
measures, practices & processes of comparable
industry including historical & current performance
levels.
 Characteristics:
 To provide accurate & timely directions for

management. There are normally 3 characters it uses :
 Cost/Service reconciliation: Has to be realistic (like

freight, Sales Promotion etc.
 Dynamic Knowledge Base & Reporting: Representing
reports over a period of time ( like Inventory, Payables,
Receivables, operations etc.)
 Exception based reporting:
 Levels of Measurements & Information Flows:

 From Management perspective, a mechanism for system
monitoring is essential and assure management that the
Operation is within stated parameters.
 The mechanism should also be capable of tracking significant
exceptions. Example: PO authorisations
 Direction: At this level, Information flow and Measurements are

concerned with execution of Operational plan.
41
 Variation: At this level, it is concerned with accumulated
deviations from Operations Plan. It identifies trends these to lead /
develop potential problems.
 Decision: It is concerned with modifications to Operations Plan.
Problems identified at level 1 & 2 above need review at this stage.
 Policy: Policy measurement involves change in Objectives.
 Structures:
 Concerns with Quality of reports generated from Mgmt Info. Systems (MIS).
Unless information is processed & presented rapidly and accurately with respect
to relevant subject Matter.
 Normally 3 types of reports are used:
 Status Report: Provides detailed information about some aspect of
operation ( like Stock Statement, payables, Pending Orders etc.)
 Trend report: are used to control operations. Trend reports are more
selective in content than status reports.
 Ad hoc reports: These are used to report & provide details on Specific
areas of performance. They can be diagnostic, Position Paper or Policy
modifications.
42

Supply Chain Management Overview

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Supply Chain Management Overview

Uploaded by

Copyright:

Available Formats

SUPPLY CHAIN MANAGEMENT

IMDR. Pune Faculty: Sanjay Mankikar

Procedure: Lecture, Assignments, Group projects and Presentations in the class

 Expectations from Students:

 Be punctual & regular in class.

 Students can expect from faculty

 Full support & access

 Text & Reference books:

 Modeling The supply Chain : Jeremy F Shapiro

Unit 1: Introduction to SCM

 Process is a set of activities performed across the organization in creating

 What are types of Organisations? Evolution of Organization &

Adam Smith: by technological/logical changes, productivity is

Ford motors further broke it down to small repeatable tasks.

Alfred Sloan introduced same concept to Management to be

 What is purpose of Procurement & Manufacturing in the Business Organisation?

 These functions play an important role in supplies of either a raw material

 Purpose of Procurement & Manufacturing:

 DIFFERENCE BETWEEN A PRODUCT & SERVICE

• SIMILARITIES BETWEEN PRODUCT & SERVICE

 OBJECTIVES of MANUFACTURING/ PROCUREMENT

 Forrestor (1958) : Professed a theory that recognized nature of Organisational

 Supply Chain Management: Definitions:

o Integrative Philosophy that deals to manage total flow of distribution channel

 Materials Management & SCM:

SCM: Antecedents & Consequences:

Factors those enhance or influence the SCM Philosophy.

It is Process of changing inputs of labor, capital, Land, Management in output of

 Basic definition: Quality is Customer Satisfaction/ Fit to Use

 Customer Satisfaction for Product as OUTPUT of Process

REPETITIVE MANUFACTURING OPTIONS:

 Repetitive Manufacturing is process of producing many units of one

 Demographic : Age/Income/Location / Education

 Needs Assessment of each segment w.r.t. competition.

 The generalization indicates:

 Product/Service needs: Price/quality/ Need of customization

 Delivery system needs: Availability/ Delivery/ Courtesy/Safety

 Volume needs: Quantity/Predictability in volumes & mix %

 Measurement: As a % of Sales, Profit, Goods sold etc.

 Dependent/Predictive demand: It is demand for those who produce

 Independent/Random: Inconsistently high or low volumes

Factors affecting Demand analysis:

TYPES OF INVENTORY COSTS:

 Capital Costs: Also referred as Opportunity cost

 Storage Space Cost: Includes various costs like Handling, Moving,

 Inventory Service Cost: To cover the insurance, service tax

 Inventory Risk Cost

 Subjective: Best Guess by experienced staff

 The consideration for PLAN TO ORDER put together, leads to:

 MRP/MRPII normally determine:

Unit 2: Information systems across SCM:

Supply Chain Management: Unit 2

 Customer to Organisation, information flows via Sales activity, forecasts &

Order Distribution Shipping/ Tr-

d. Procurement: This part is concerned with movement, procurement & storage of

 Importance of Information in Integration:

 Importance of Information in Integration:

 Strategic Planning: Alliance, PDP, CSIL

 Role of IT in Organisational systems: Information Technology:

Comparison of Analytical v/s Transactional IT.

Time frame Past/present Forecasting

 Normally are represented by Transaction set.