SUPPLY CHAIN FRAMEWORK AND SOLUTIONS 

Framework For supply chain solutions

As our country has a great potential in the improvement of service level and cost reduction in
logistics due to government’s serious concern over infrastructural development,
technological developments in communication, IT, and inventory control,
a framework for solutions to logistics problems can be suggested in the following
levels along with the corporate enterprise level;
1. Government;- policies, infrastructure development etc.
2. 3 PL service providers
3. Vendors
4. Industry
Outsourcing and 3 PLs

 In general we can define outsourcing as contracting out of a company’s non-core, non-

revenue-producing activities to domain experts. Outsourcing is different from contracting
where outsourcing is considered as a strategic management tool that involves the
restructuring of an organization around what it does best—its core competencies.
 The emphasis of core - competency is ‘to do what you are best at and leave all other non-
value added activities to more suited players’
 Outsourcing allows faster turnaround of resources by allowing the companies to focus on
their core competencies, which in turn helps in improving the overall health of the
economy.
3PL

 Third-party logistics in logistics and supply chain management is an organization's use of

third-party businesses to outsource elements of its distribution, warehousing, and
fulfillment service
 Advantages
1.Cost Reduction
2. Maximizing revenue
3.Information flow
4.Cost control
Factors hindering the growth of 3PL in India

According to ETIG’s findings the factors are;

 1.Volumne of transactions
 2.Cost control
 3.Not good enough
 Mindset
4 PL
 3PL - Third-Party Logistics
 In a 3PL model, an enterprise maintains management oversight, but outsources operations
of transportation and logistics to a provider who may subcontract out some or all of the
execution. Additional services may be performed such as crating, boxing and packaging
to add value to the supply chain. In our farm-to-grocery store example, a 3PL may be
responsible for packing the eggs in cartons in addition to moving the eggs from the farm
to the grocery store.
 4PL - Fourth-Party Logistics
 In a 4PL model, an enterprise outsources management of logistics activities as well as the
execution across the supply chain. The 4PL provider typically offers more strategic
insight and management over the enterprise's supply chain. A manufacturer will use a 4PL
to essentially outsource its entire logistics operations. In this case, the 4PL may manage
the communication with the farmer to produce more eggs as the grocery store's inventory
decreases.
Stages of 4 PL

 1. Reinvention
 2.Transformation
 3.Implementation
 4.Excecution
Cost effectiveness of 4PL

 1. Revenue growth enhanced by product quality, availability, improved customer service

with leading technology
 2.Operating cost reduction
 3. Fixed capital reduction and investment in core competencies
BULLWHIP EFFECT

 The bullwhip effect is defined as the demand distortion that travels upstream in the
supply chain from the retailer through to the wholesaler and manufacturer due to the
variance of orders which may be larger than that of sales.
 Distorted information from one end of a supply chain to the other can lead to tremendous
inefficiencies: excessive inventory investment, poor customer service, lost revenues,
misguided capacity plans, ineffective transportation, and missed production schedules
Causes of the bullwhip effect
 Demand forecast updating is done individually by all members of a supply chain. Each
member updates its own demand forecast based on orders received from its “downstream”
customer. The more members in the chain, the less these forecast updates reflect actual
end-customer demand.
 Order batching occurs when each member takes order quantities it receives from its
downstream customer and rounds up or down to suit production constraints such as
equipment setup times or truckload quantities. The more members who conduct such
rounding of order quantities, the more distortion occurs of the original quantities that were
demanded.
 Price fluctuations due to inflationary factors, quantity discounts, or sales tend to
encourage customers to buy larger quantities than they require. This behavior tends to add
variability to quantities ordered and uncertainty to forecasts.
 Rationing and gaming is when a seller attempts to limit order quantities by delivering
only a percentage of the order placed by the buyer. The buyer, knowing that the seller is
delivering only a fraction of the order placed, attempts to “game” the system by making
an upward adjustment to the order quantity. Rationing and gaming create distortions in the
ordering information that is being received by the supply chain.
The bullwhip effect on various S.C
components

 1. Manufacturing cost

 2.Inventory cost and Replenishment lead time

 Transportation Cost

 Product availability
Trade offs

Trade off analysis in logistics system is the evaluation of the cost of each system component
with the objective of determining the combination of components that provide a minimum
total cost for a specified customer service level. This means that trade-off occurs when
management incurs cost in one activity centre as a part of strategy to achieve benefits from
another activity centre so that the net gain is achieved.
 1) The existence of trade-offs - The knowledge that logistics costs have heterogeneous
behaviors and that an increase in the cost of one logistics activity can be compensated by
an increase in revenue (due to the improved level of service) or a reduction in the costs of
other logistics activities, and vice-versa; and
 (2) The relationship between trade-offs and total cost - The knowledge that to achieve
optimal total cost, one must not resort to normal cost-cutting techniques because the
individual elimination of some costs can lead to the emergence or increase of other costs
(2a). In short, it is the knowledge that the total cost is determined by trade-offs
Trade off Levels

 The Nature of Trade-Offs: Trade-off: simply a balance between two/more logistics

functions to achieve total lowest cost. Occurs when increased cost in one area is more
than matched by cost reduction in other areas, resulting in lower total cost.
 Levels
 1. INTER-ORGANISATIONAL TRADE-OFFS: mainly occur when using
intermediaries (selecting wholesalers & retailers) in marketing channel. For example may
cost more to make use of various wholesalers, but sales may increase, thus resulting in a
better overall position.
 2. INTER-FUNCTIONAL (INTERDEPARTMENTAL) TRADE-OFFS between
different management functions/departments. May be necessary for some/all individual
functional departments to operate sub-optimally in order for whole logistics system to
minimize total logistics costs.
 3. INTER-ACTIVITY TRADE-OFFS: among various logistics activities constitute
contributing factor to the achievement of lowest total cost. The most obvious trade-offs at
this level are the following:
  Warehouse cost/transport cost trade-offs Example
  Transport (mode) cost/inventory cost trade-offs
 4. INTRA-ACTIVITY TRADE-OFFS: within particular logistics activity. Following are
the most common:  Trade-offs within a warehouse: Materials handling done
manually/mechanically/automated. High capital costs of automated warehouses traded off
against human resources cost of manual handling.
  Inventory trade-offs: Advantage of ordering large quantities traded off against costs of
carrying stock
  Trade-offs regarding transport: cost of owning & operating own fleet vs. freight tariffs
charged by professional carriers
Zero Sub - optimization

 Meaning; - If one distribution function is optimized, the result is impairment of other

distribution functions.

 The aim of total distribution concept is to minimize sub optimization.

Value chain

 SCM ensures superior customer value for core competency by a blend of better quality
logistical services at minimum costs. Value is added as the goods flow in terms of quality,
costs, quick response, availability and consistency of the logistical system.
Flows of Value chain

 1.Value flow
 2.Goods flow
 3. Cash Flow
 4.Information Flow
Functions and Contributions of SCM
 1. Minimizing Uncertainty
 2. Reducing Lead time
 3. Minimizing the number of stages
Improving Flexibility
 5. Improving process quality
6.Minimizing variety
 7.Managing Demand
 8. Delaying Differentiation
. Industrial level
9.Kitting of Supplies
10. Focusing on ‘A’ Category
11. Planning for multiple supply 4.
chains
12. Modifying performance
measure
13. Competing on service
14. Moving from functions to .
processes
15. Taking initiatives at an