SCM

Batch 28
Dr Mohan B
Supply Chain
• Supply chain Story starts when a customer demanded
the product.
• It ended when the order was fulfilled and payment was
made.
Supply Chain
 It consists of all the functions required to fulfill a
customer request
 It includes Product development, production,
marketing, distribution, finance and aftersales
service.
 SC Contains customers, retailers ,warehouses,
transporters, manufacturers and Suppliers.
 It is the Integration of demand and supply
Supply Chain
• Customer is an integral part of supply chain.
• Demand for the product is captured by marketing
team in demand forecast.
• According to the demand the operations team develop
new product or make changes in the existing product
if necessary or make and supply the same.
• Ensuring supply to various demand centers is the role
of distribution.
• SCM exists in three levels. Strategic level – tactical
level and execution level.
 Flows in a supply chain
• Information related to product availability and its
features flows from manufacturer to customer and the
kind of requirement in quality and quantity flows from
customer to the manufacturer through the marketing
department.
• Flow of information is independent.
• Customer is the only positive source of funds.
• Funds may flow from manufacturer to customer for
product returned in reverse logistics.
• When product flows from left to right funds flow from
right to left and vice versa , Hence they are dependent.
CONVENTIONAL
New Trend Of
 Supply Chain Management
 Customer is an integral part of supply chain. It starts with
a customer order and ends when the satisfied customer
pays for the item received.
 There are many stages in the supply chain
 Customers
 Retailers
 Wholesalers
 Manufacturers
 Component /Raw material suppliers
 Supply Chain Management
There are flows between each of these stages and
they are to be managed.
Every flow has a cost and adds to the total cost of
supply chain.
Managing the flows between different stages to
fulfill the customer request is Supply Chain
Management. It starts with a customer request and
ends with payment.
Value and Profitability
Each stage adds value to Supply chain.
 The overall value of the supply chain is the difference between
what the final product is worth to the customer and the effort
that supply chain has expended for it.
The supply chain incurs costs at every stage of the supply chain.
The difference between the sum of all costs incurred at different
stages and the price the customer paid is the profit of the supply
chain. This is supply chain profitability which has to be shared
across the different stages.
Supply chain success is to be measured in terms of supply chain
profitability.
 SCM Objective
Maximise overall value generated.
Normally it may be associated with profitability as a
result of efficient operations and quantity increase due
to appreciation of value received by the customers.
Supply chain profitability is the difference between
the revenue generated from the customers and the
cost incurred across the supply chain.
The more the supply chain profitability the more
successful the supply chain will be.
Decision Phases in Supply Chain
 Supply Chain Strategy
• Supply chain strategy is deciding on the supply chain
design.
• It answers such questions as how to structure the supply
chain ? What will be the configuration and what task
each stage will perform ?
• It should support the Business strategy of the enterprise.
• It includes location decisions, capacity decisions, ware
housing decisions, product decisions , transportation
mode decisions, Type of information decision etc.
• They are long term in nature and are difficult to change.
 Supply Chain Planning
• Planning is medium term in nature.
• It fixes the supply chain configuration finalised in the
Strategy phase.
• Planning phase start with a forecast for the coming
year for different products for different markets.
• It will decide the connect between different markets
and supply locations
• It makes decisions regarding subcontracting,
replenishment and inventory policies to be followed,
back up locations , type of promotional activities and
their timing etc.
 Supply Chain Planning
• Planning must be done within constraints
established by configurations. Configurations are
already decided by supply chain strategies.
Planning tries to avail the flexibilities envisaged in
the design phase.
• In the planning phase the companies should
account for uncertainty in demand, exchange rate,
and competition over its planning decisions.
 Supply Chain Operations
• It decides how individual customer orders are fulfilled.
• Supply chain configuration is already fixed and planning
policies are already defined. Companies make decisions
on day to day order of customers.
• Individual orders are given to inventory or production,
set a date for filling the order, generate pick list in a
warehouse, allocate an order to a particular shipping
mode , set delivery schedules of trucks, and place
replenishment orders.
• Since operational decisions are made at short notice
uncertainty is less.
Business strategy supply chain
strategy Fit
Business strategy and supply chain
strategy
• There will be a set of customer priorities associated
with a product or service that company wishes to
satisfy.
• Customer priorities are quality, cost, flexibility,
responsiveness, innovation from which set of
competitive priorities of the business is chosen.
SCM Strategy is decided based on what each function
in a supply chain can do to meet the competitive
priorities
Business Strategy and SCM Strategy
•SCM Strategy is what each function in a supply chain will
do to meet the competitive priorities.
•Product development strategy will have a portfolio of
products that the company will try to develop internally
or get outsourced. Marketing strategy will decide the
STP and the 4 Ps .
•SCM will decide strategies on the procurement,
transportation, manufacturing, logistics , inventory ,
information flow along with any follow up service.
•There will be strategies in finance, HR, IT etc in
accordance with overall strategy of the firm.
 Strategic fit.
•Value chain encompasses close relationship
between all the functional strategies within a
company. Each functional strategy is crucial.
•When competitive strategies and supply chain
strategies have the same goal there is a strategic
fit between the two.
•Strategic fit refers to the consistency between
the customer priorities that the competitive
strategy of the company is designed to satisfy
and the supply chain capabilities that the supply
chain strategy aims to build.
Different views of supply chain.
Supply chain is a sequence of processes and flows that
takes place within and between different supply chain
stages and combine to satisfy a customer order.
There are two views of supply chain process
Cycle view
The processes in a supply chain can be divided into a
series of cycles performed in various stages of a supply
chain, at the interface between them. Cycle view
provides clarity to the roles of each stage in a supply
chain. It defines the processes and tells who the owner
is.
 Push pull view.
 Cycle view
•Customer order cycle : Occurs at the customer retailer
interface and customer normally initiates this at the site of
the retailer. It starts with customer arrival and follows the
following sequence mentioned.
Customer arrival- order entry- order fulfillment- order
receiving and payment by customer.
•Replenishment cycle : It occurs at the reailer whole saler
interface and includes all processes involved in replenishing
retailer inventory. It is similar to customer order cycle with
the exception that retailer acts as customer here.
Retail order trigger- order entry- order fulfillment- retail
order receiving
 Cycle view
• Manufacturing cycle: It occurs at the wholesaler or retailer or
customer manufacturer interface and includes all processes included
in fulfilling wholesaler/retailer/customer order. The typical cycle is –
Order arrival from distributor, retailer or customer (based on a
forecast) at the manufacturing shop – production scheduling-
manufacturing and shipping- receiving at the distributor, retailer or
customer.
Procurement cycle : Occurs at the supplier manufacturer interface
and includes all processes necessary to ensure that materials are
available for manufacturing to occur as per the schedule.
It is similar to other cycles with the exception that the cycle is initiated
as per the production schedule of the manufacturer. If the lead time of
supplier is long then the supplier has to initiate this cycle as per
demand forecast.
Cycle view of supply chain
 Push /Pull View
•In a pull process demand is known for certainty
and execution is initiated against the order.
•In push process there is only an anticipation of
order and is speculative.
•Push pull differentiation has strategic implication
in deciding strategic design impacting
manufacturing inventory and warehousing
decisions.
Drivers of Supply Chain - Inventory
•Inventory can be of Raw materials, WIP, Finished
goods.
•Inventory exists because of the difference
between supply and demand.
Altering inventory policies can alter the level of
responsiveness and efficiency of the supply chain.
High level of inventory will make the chain
responsive to demand. But with higher inventory,
cost increases and efficiency decreases.
Drivers of Supply Chain
 Drivers of Supply Chain - Inventory
• Inventory improves economies of scale and reduces
costs in that respect.
• It also increases demand by keeping material ready
for purchase by the customer. However inventory
reduces efficiencies.
• If the competitive strategy of the firm is high
responsiveness then inventory is useful.
• There is trade off between responsiveness aided by
keeping inventory and high efficiency by reduced
inventory
 Drivers of Supply Chain -
Transportation
•Transportation moves the product between
different stages of supply chain.
•Transportation can take different modes and
routes.
•Mode and type of transportation affects the
efficiency and responsiveness. While air transport
increases the responsiveness overall efficiency is
lower than that by ship as air transport has volume
restrictions compared to ship.
•Delivery can be by DHL parcel service by road / air
OR through DTDC . It can also be direct delivery by
the sales person.
 Modes of Transportation
Supply Chains use a combination of following modes of
transportation
Air
Package carriers
Truck
Rail
ships
Pipeline
Intermodal
 Transportation
Transportation is a key driver of any supply chain.
Transportation moves product between different stages
in supply chain and affects both responsiveness and
efficiency/cost
The appropriate choice of transportation offers right
balance between responsiveness and cost/ efficiency.
High value item traders may make rapid transportation
to be responsive but keep low inventory.
Low value items may be kept in large volumes and the
transportation mode may be slow but quantity in bulk
 Transportation - concepts
Inventory captive in transportation system is
inaccessible and is called in transit inventory.
Transportation costs accounts for 60% of total
logistics cost.
Transportation cost has cost of capital,
operation cost, labour cost and administration
costs as components
Transportation is one of the largest consumers
of fuel and causes severe environmental
damages.
 Transportation - concepts
Transportation also causes product losses and
damages.
Transportation efficiency is impacted by economies
of scale and economies of distance. Both are seen to
improve with increase in number. Fixed costs gets
shared between larger quantity/distance as number
increases and hence per unit costs fall. In Both the
cases per unit costs decreases.
Components of a transportation decision
Choice of Transportation mode
Type of transportation used to move the material from one
location in the supply chain to another.
Design of transportation network.
Collection of transportation modes, locations and routes
along which the product can be shipped. The supply can be
direct to the demand point or through intermediate
consolidation points. It may include multiple supply or
demand points in the single run.
 Transportation main players - Shipper
Shipper : The shipper is the party that requires the
movement of the product between two points in the
supply chain.
A shipper’s decision includes design of transportation
network and choice of means of transport. He uses
different transportation modes to minimize the total
cost while providing an appropriate level of
responsiveness to the customer.
 Costs for a Shipper
1.Transportation cost- Total cost incurred for different
carriers. It is variable as long as the transportation facility is
not owned by the shipper.
2.Inventory cost – Cost of holding inventory in shippers
supply chain.
3.Facility cost – Cost of various facilities in shipper’s supply
chain. Considered as a variable in design stages
4.Processing cost – Cost of processing orders
5.Service level cost – Cost of not meeting service
commitments.
Transportation main players- Carrier
Carrier: The carrier is the party that moves or
transports the products.
When V star uses TCI to ship its products from
warehouse to customer ,V star is the shipper and TCI is
the carrier.
A Carrier makes investment decisions regarding the
transportation equipment and then makes operating
decisions to try to maximize the return from these
assets
Most transportation infrastructure throughout the
world is owned and managed as public good
 Costs for a carrier
1. Vehicle related cost- Capital and maint. cost
2.Fixed operating cost – Terminal charges, Drivers salary
3.Trip related cost – fuel cost, Toll gate etc
4.Quantity related – Handling and loading/unloading
5.Overhead cost – Administrative expenses.
 Carrier decisions on Modes of
Transportation
The carrier decisions are affected by
1. Equipment cost,
2. Fixed operating costs & Variable operating
costs,
3. The responsiveness the carrier seeks to
provide its target segment,
4. The prices that the market will be bear.
 Transportation – Other Stake holders
Besides the shipper and carrier the other parties have a
significant stake on transportation are
1. The owners and operators of transportation
infrastructure - such as roads, ports, canals, and
airports
2. The bodies that set transportation policy worldwide
3. Government – Quality of life and economy improves
with quality of transportation.
4. Public – They enjoy the fruits of transportation and
suffer damages caused by it.
Transportation infrastructure and policies
Infrastructure: Roads, seaports, airports railway, sea and
canals
Government has monopoly over transportation
infrastructure or a significant role in it.
Improved infrastructure plays a great role in improving
trade and in overall economic development.
When the usage is publicly owned it is important to
charge the usage to avoid congestion and over usage.
When the cost incurred in usage of the infrastructure is less
than the marginal impact on the total cost of the item then
the tendency to overuse will increase.
 Transportation Policy
1.Transportation policy sets the direction for the amount of
national resources that go into improving transportation
infrastructure.
2. Transportation policy also aims to prevent abuse of monopoly
power.
3. It promote fair competition
4. It balances environmental, energy and social concerns in
transportation.
Private public participation mode is promoted to attract private
capital to transport infrastructure development.
1. What is golden Quadrilateral ?
2. Progress of national highway constructions ?
3. Improvement in Connectivity to North East India ?
4. Discuss the PPP modal infrastructure development in India.
Which are the major ports in India?
Name operators of biggest 6 airports in India
What is cabotage law as applicable to India ?
 Modes of Transportation
The effectiveness of any mode of transport is
influenced by
1. Equipment investments
2.Operating decisions
3. Available infrastructure
4. Transportation policies.
The carrier’s primary objective is to ensure good
utilization of its assets while providing customers
with an acceptable level of service.
 Air

Three cost components

1. A fixed cost of infrastructure and equipment
2. Cost of labour and fuel that is independent of the
passengers or cargo on a flight but is fixed for a flight
3. A variable cost that depends on the passengers or
cargo carried
 Air

Air carriers offer a fast and fairly expensive mode of

transportation for cargo
Small high value items or time sensitive shipments that must
travel a long distance are best suited for air transport.
Key issues faced include
1. Location decisions – identifying the location and number
of hubs,
2. Equipment and Operating decisions – Selecting and
assigning planes to routes,
3. Setting up maintenance schedules for planes, scheduling
crews,
4. Pricing decisions - Managing prices and availability at
different prices.
 Water
It is the oldest mode of mass transport
Domestic inland water transport and marine transport
are prevalent.
Steam engine replaced sail boats and steam engines
were replaced by diesel engine.
It is capable of transporting huge quanity of materials
through ships
Water transport has limited range of operation and is
slow in comparison with other modes.
 Water
Large container ships and other ocean-going cargo vessels are the
primary way to move goods internationally. Ocean-going vessels
include container ships, oil tankers, general cargo ships and bulk
carriers.
Ocean-going vessels move goods between international ports in
the global supply chain. These ships are designed for rapid loading
and unloading and are well-served by transport infrastructure for
the rapid onward distribution of goods.
The international shipping industry is 
responsible for around 90 percent of world trade. Container ships
and other cargo vessels transport vast amounts of raw materials,
parts and finished products between international suppliers,
manufacturers and final destinations.
 Truck : TL & LTL
Two major segments-TL (Truck Load) and LTL (Less Than Truck Load )
1. More expensive than rail but offers advantage of door to door
shipment and a shorter delivery time
2. Unlike rail requires no transfer between pickup and delivery
Truck Load
Shipments of 4.5 MT or more
The challenge –
1. Most markets have an imbalance of inbound and outbound flows.
2. Schedule shipments that provide high revenue.
3. Minimise truck’s idle time and empty travel time (Dead heading)
4. Design routes that pick up loads from markets where outbound
demand exceeds inbound supply, because these markets tend to
offer the highest prices.
 Truck - Less Than Truck load
Suited for shipments that are too large to be mailed as small
packages (typically more than 65 Kg) but that constitute less
than half a Truck Load.
Tend to run regional or national hub and spoke networks that
allow consolidation of partial loads
Eg : Kerala Roadways, ATS
Less Than Truck load shipments take longer than TL shipments
as different loads need to be picked up and dropped off.
To reduce accidents on the road caused by driver fatigue,
there may be hours of service regulations that limit work
periods for truck drivers.
Both TL and LTL carriers must design their routes accordingly
 Truck TL & LTL

Design routes that pick up loads from markets where

outbound demand exceeds inbound supply, because
these markets tend to offer the highest prices.
LTL
Suited for shipments that are too large to be mailed as
small packages (typically more than 150 lbs) but that
constitute less than half a TL.
Tend to run regional or national hub and spoke
networks that allow consolidation of partial loads
 Truck : LTL

LTL shipments take longer than TL shipments because

of other loads that need to be picked up and dropped
off.
To reduce accidents on the road caused by driver
fatigue, the US Department of Transportation issues
hours of service regulations that limit work periods for
truck drivers.
Both TL and LTL carriers must design their routed taking
these rules into account.
 Rail

Rail carriers incur a high fixed cost in terms of tracks,

locomotives, cars and yards.
A significant trip related labour and fuel cost is
independent of the number of cars but does vary with
distance travelled and time taken
Any idle time once the a train is powered is expensive
because labour and fuel costs are incurred even though
trains are not moving.
From an operational perspective, it is thus important
for railroads to keep locomotives and crews well
utilized.
 Rail

The price structure and heavy load capability make rail an

ideal mode for carrying large, heavy or high density
products over long distances.
Rail is ideal for heavy, low value shipments that are not
time sensitive
A major goal for railroad firms is to keep locomotives and
crews well utilized
Major operational issues at railroads include vehicle and
staff scheduling, track and terminal delays and poor on
time performance.
 Pipeline

Pipeline is used primarily for transport of crude

petroleum, refined petroleum products and natural gas.
A significant initial fixed cost is incurred in setting up
the pipeline and related infrastructure that does not
vary significantly with diameter of the pipeline.
Pipeline operations are typically optimised at about 80
to 90 percent of pipeline capacity.
Pipelines are best suited when relatively stable and
large flows are required
 Pipeline
Pipeline pricing usually consist of two components-
1. A fixed component related to the shipper’s peak
usage
2. A second charge relating to the actual quantity
transported
This pricing structure encourages the shipper to use the
pipeline for the predictable component of demand with
other modes often being used to cover fluctuations.
 Pipeline

Pipeline pricing usually consist of two

components-a fixed component related to the
shipper’s peak usage and a second charge
relating to the actual quantity transported
This pricing structure encourages the shipper to
use the pipeline for the predictable component
of demand with other modes often being used
to cover fluctuations.
 Intermodal

Use of more than one mode of transport to move a

shipment to its destination
Containers are easy to transfer from one mode to
another and their use facilitates intermodal
transportation
Key issues in the intermodal industry involve the
exchange of information to facilitate shipment transfers
between different modes because these transfers often
involve considerable delays, hurting delivery time
performance.
 Intermodal
Containerised freight often uses truck/water/rail
combination particularly for global freight
On land the rail/truck intermodal system offers the
benefits of lower cost than TL and delivery times that are
better than rail thereby bringing together different
modes of transport to create a price/service offering that
cannot be matched by any single mode
It also creates convenience for shippers that now deal
with only one entity representing all carriers that
together provide the intermodal service.
Containers
Transportation related metrics
Average inbound transportation cost per unit
Average inbound transportation cost per Shipment
Average inbound shipment size
Average outbound transportation cost per shipment
Average outbound shipment cost
Average outbound shipment size.
 Summary -Transportation
Transportation moves the inventory through out the
supply chain.
Transporter as a key driver - Consumes time, financial
human and environmental resources.
Right balance between responsiveness and efficiency
Transportation cost and impact on supply chain
Transportation related metrics
Components of a transportation decision – selection of
mode and network
Shipper Vs carrier – conflict of interests.
 Design Options for a Transportation
Network
Should transportation be direct or through an
intermediate site?
Should the intermediate site stock product or only
serve as a cross docking location?
Should each delivery route supply a single
destination or multiple destinations
 Design Options for a Transportation
Network
The design of the network affects the performance of
supply chain as it establishes the infrastructure within
which operational decisions of scheduling and routing
are made.
A properly designed network provides desired
responsiveness at low cost
 Design Options for a Transportation
Network
The design of the network affects the performance of
supply chain as it establishes the infrastructure within
which operational decisions of scheduling and routing
are made.
A properly designed network provides desired
responsiveness at low cost
1. Direct Shipment Network to Single
Destination
The major advantage of a direct shipment is the
elimination of intermediate warehouses and its
simplicity of operation and coordination
The shipment decision is completely local ,and the
decision made for one shipment does not influence
others.
The transportation time from supplier to buyer
location is short because each shipment goes direct.
Direct Shipment Network to Single
Destination

A direct shipment network to single destination is

justified only if demand at buyer locations is large
enough that optimal replenishment lot sizes are close
to a truckload from each supplier to each location.
2. Direct Shipping with Milk Runs
Direct Shipping with Milk Runs

A milk run is a route on which a truck either delivers

product from a single supplier to multiple retailer or
goes from multiple suppliers to a single buyer location.
Milk runs make sense when quantity destined for each
location is too small to fill a truck but multiple
locations are close enough to each other such that
their combined quantity fills the truck.
Milma delivery
3. All shipments via DC with storage
All shipments via DC with storage
All shipments via intermediate Distribution Center
with storage
Storing product at an intermediate location is
justified if transportation economies require large
shipments on the inbound side or shipments on the
outbound side cannot be coordinated
The presence of a DC allows a supply chain to achieve
economies of scale for inbound transportation to a
point close to the final destination, because each
supplier sends a large shipment to the DC that
contains product for all locations the DC serves.
4. All shipments via DC with cross docking.

All shipments via intermediate transit point with cross docking

Suppliers send their shipments to an intermediate transit point (which
could be a DC) where they are cross-docked and sent to buyer
locations without storing them.
When a DC cross docks product each inbound truck contains product
from suppliers for several buyer locations whereas each outbound
truck contains product for one buyer location from several suppliers.
Consider a distribution center in Ernakulam vegetable market. Each
truck brings to the DC , a truck load of a particular type of vegetable
from farms for different whole sale dealers in the market. These trucks
are cross docked. From the DC each outbound truck to a retailer will
carry different items collected from different inbound trucks.
Cross docking DC
. All shipments via DC with cross docking

All shipments via intermediate transit point with cross

docking
Major benefits are that little inventory needs to be
held and product flows faster in the supply chain.
Also saves on handling cost because product does not
have to be moved in and out of storage.
Cross docking is appropriate when economies of
scale in transportation can be achieved on both the
inbound and outbound sides and both inbound and
outbound shipments can be coordinated.
5. Shipping via DC using Milk Runs
Shipping via DC using Milk Runs

Milk runs can be used from a DC if lot sizes to be

delivered to each buyer location are small.
Milk runs reduce outbound transportation costs by
consolidating small shipments
The use of cross docking with milk runs requires a
significant degree of coordination and suitable routing
and scheduling
6. Tailored Network

Suitable combination of options that reduces the cost

and improves the responsiveness of the supply chain.
Transportation uses a combination of crossdocking,
milk runs and TL and LTL carriers along with package
carriers.
Operating a tailored network requires significant
investment in information infrastructure to facilitate
the coordination.
Pros and Cons of Different Transportation
Networks
Documentation
Bill of lading
in transportation
Basic document in purchasing transport services. Serves
as a receipt. It documents names of products and
quantities shipped . In case of damages during transit,
bill of lading is the basis for claims. The designated
individual in the bill of lading is the only bona fide
recipient of the consignment.
Freight bill.
The document detailing transportation charges and is
prepared based on bill of lading. Freight bill may be
prepaid or collect.
 Drivers of Supply Chain -
Warehouses
•They are places in supply chain network where
inventory is stored, assembled or fabricated.
•The types of facilities are production sites and
storage sites.
•The location , capacity and flexibility of facilities
have significant impact in the responsiveness and
efficiency of Supply Chain.
•A central high volume facility may be efficient
because of economies of scale it reduces
responsiveness, being away from the customer.
 Drivers of Supply Chain -
Information
•It is the biggest driver of the performance of
supply chain as it affects and connects each of the
other drivers.
•It does not have a physical form
•It contains data and data analysis regarding
customer orders, transportation, inventory etc.
•It coordinates different stages of the supply
chain and improves its responsiveness,
profitability and efficiency.
 Drivers of Supply Chain
Sourcing and pricing
• Sourcing is the set of business processes required to
purchase goods & services.
• Managers must first decide which tasks will be outsourced &
those that will be performed within the firm.
• This decision is driven in part by its impact on the total
supply chain profitability.
• Pricing affects the behavior of the buyer of the good or
services, and affects the supply chain in terms of the level of
responsiveness as well as the demand profile that the supply
chain attempts to serve.
1. Ford supply chain – 81 Hr T model Black Car
2. Toyota Model- No vertical integration. 1950’s Vendor
development to supply the items. The car was
distributed by Toyota.
Advantages- Very flexible, more competition with in
the group, many owners in the supply chain, Web of
suppliers no linearity