Program: MBA, III Semester, II Year

MBA-301, Supply Chain Management

Unit-1
Introduction
Lecture-5
Benefits of Supply Chain Management Part-2

Deepak Sharma

Assistant Professor, Department of Mechanical Engg.

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 Outlines
• Prerequisite
• Learning Outcomes
• Reduced Overhead Cost
• Improved cash flow
• Real life examples
• References

Subject Code MBA301 2

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SELO 3,4 Ref 1,2
 Learning Outcomes

After completion of this video students will be able to learn about

various types of issues related to SCM & advantages of effective
SCM.

Subject Code MBA301 SELO 3,4

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 Reduced overhead costs

.With more accurate demand predictions, companies can reduce the

overhead costs associated with storing slow-moving inventory by
stocking less low-velocity inventory to make room for higher-
velocity, revenue-producing inventory. Warehouse fulfilment
costs contribute significantly to overhead. Reduce these costs by
optimizing your warehouse layout, adopting the right automation
solutions to improve productivity and implementing a better
inventory management system.

Subject Code MBA301 SELO 3,4

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 Identifying unnecessary spend is another way to achieve leaner
operations. If you’re facing high logistics costs, for instance,
switching to another provider offering the same service level and
quality at a lower cost is a quick win.

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 Improved risk mitigation
Analyzing big-picture and granular supply chain data can reveal
potential risks, enabling companies to put backup plans in place to
readily respond to unexpected circumstances. By taking proactive
action, rather than reacting to supply chain disruptions, quality
control issues or other concerns as they arise, companies can avoid
negative impacts. Understanding risks also helps companies achieve
leaner operations. For instance, 87% of companies believe they
could reduce inventory by 22% if they had a better understanding of
risks in their supply chains.

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 Improved cash flow
The benefits discussed above allow companies to make smarter
decisions, choose the right partners, accurately predict and respond
to market and demand changes and reduce supply chain disruptions,
but that’s not all: they also improve the company’s bottom line. For
example, working with reliable suppliers not only means fewer
disruptions and more satisfied customers, but it also improves cash
flow by allowing you to invoice (and get paid for products and
services) sooner. Implementing more cost-effective solutions to
eliminate wasteful spend and reducing overhead costs also
contribute to positive cash flow.

Subject Code MBA301 SELO 3,4

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 Supply chain disruptions have a domino effect, impacting every
juncture throughout the supply chain, but the same is true for the
positives: effective supply chain management has direct and
secondary effects that support the efficient, seamless flow of
information, goods and services from procurement through final
delivery.

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 Mini Case Studies: Successful Supply Chain Cost
Reduction and Management

The following mini case studies explore a few high-profile

companies that have managed to sustain their supply chain cost-
reduction efforts and keep expenses under control. The challenges
faced by these organisations and the steps they took, may provide
some inspiration for successful long-term cost management within
your organisation.

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 1. Deere & Company

Deere & Company (brand name John Deere) is famed for the
manufacture and supply of machinery used in agriculture,
construction, and forestry, as well as diesel engines and lawn care
equipment. In 2014, Deere & Company was listed 80th in the
Fortune 500 America’s ranking and was 307th in the 2013 Fortune
Global 500 ranking.

Subject Code MBA301 SELO 3,4

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 Supply Chain Cost Reduction Challenges: Deere and Company
has a diverse product range, which includes a mix of heavy
machinery for the consumer market, and industrial equipment,
which is made to order. Retail activity is extremely seasonal, with
the majority of sales occurring between March and July.

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Subject Code MBA301 SELO 3,4
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 The company was replenishing dealers’ inventory weekly, using
direct shipment and cross-docking operations from source
warehouses located near Deere & Company’s manufacturing
facilities. This operation was proving too costly and too slow, so the
company launched an initiative to achieve a 10% supply chain cost
reduction within four years.

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 The Path to Cost Reduction

The company undertook a supply chain network-redesign program,

resulting in the commissioning of intermediate “merge centres” and
optimization of cross-dock terminal locations.
Deere & Company also began consolidating shipments and using
break-bulk terminals during the seasonal peak. The company also
increased its use of third-party logistics providers and effectively
created a network that could be optimized tactically at any given
point in time.

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 Supply Chain Cost Management Results

Deere & Company’s supply chain cost-management achievements

included an inventory decrease of $1 billion, a significant reduction
in customer delivery lead times (from ten days to five or less) and
annual transportation cost savings of around 5%.

Subject Code MBA301 SELO 3,4

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 Questions

1. Explain the causes of bull-whip effect and provide possible remedies with
suitable illustrations.
2. Analyze the various elements in the warehouse operating principles.

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 References

1. Arntzen, B. C., G. G. Brown, T. P. Harrison, and L. Trafton. Global Supply Chain

Management at Digital Equipment Corporation. Interfaces, Jan.-Feb., 1995.
2. Ballou, R. H. 1992. Business Logistics Management, Prentice Hall, Englewood Cliffs,
NJ, Third Edition.
3. Breitman, R. L., and J. M. Lucas. 1987. PLANETS: A Modelling System for Business
Planning. Interfaces, 17, Jan.-Feb., 94-106.

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