50 file4 annex_2.4-scm

Day-1

Definition, Nature and Principles of Supply Chain Management (SCM)Supply Chain Management (SCM)

Session SpeakerK.M. Sharath Kumar

1M.S Ramaiah School of Advanced Studies - Bangalore

K.M. Sharath Kumar

Session Objectives

• To understand the role of Supply Chain Management inManufacturing and Service OrganisationsManufacturing and Service Organisations

• To critique the impact of Supply Chain in gaining• To critique the impact of Supply Chain in gainingcompetitive advantage

• To assimilate the legal framework and negotiation tacticsin cross-border transactionsin cross border transactions


Session Outline

Hi t f l i ti d S l Ch i M t (SCM)• History of logistics and Supply Chain Management (SCM)• Objectives of SCM

Ch ll d i i i M hi T l i d• Challenges and opportunities in Machine Tool industry supply chain

• Kraljic’s matri• Kraljic’s matrix• Cross-border negotiation

L l f k i b d ti ti• Legal framework in cross border negotiation


Rationale for SCM

Adding Value in Every Thing We DoAdding Value in Every Thing We Do


Rationale for Logistics and Supply Chain Management (SCM)g ( )

• Defeat of the British in the American war of Independence:At the height of war, 12000 troops had to be equipped and fedAt the height of war, 12000 troops had to be equipped and fedfrom the far away Britain.

• Gulf war in 1991: Half a million people and half a milliontones of equipment had to be airlifted 12,000 km with a furthero es o equ p e ad o be a ed ,000 w a u e2.3 million tones of equipment moved by sea- all in impossibletime frames.


Supply Chain Management (SCM)-Supply Chain Management (SCM)Definition

Here are two definitions:

h fThe design and management of seamless, value-added process across organisational boundaries to meet the real needs of the end customerneeds of the end customer

- Institute for Supply Management


Supply Chain Management (SCM)-Supply Chain Management (SCM)Definition

Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer.

-The Supply Chain Council


SCM : Schematic


Evolutionary Timeline of SCM


A business process

Cost

Performance

Timeliness

Product Interface

Performance

T h l I t fS i I t fCustomer

S i I t f Technology InterfaceService InterfaceService Interface

O i i P dOrganisation

Individual Society AutomationProcesses

Products


Value created and addedValue created and added by outside firm providing

MIS

Value created and delivered by

Value created and delivered by

Value created and

Value created by

purchasing and materials management

by production/ operations management

delivered by Finance, HR and

Total value created and delivered for

created and delivered by supplier

Marketingfor customer

Value created and added by outside firm providing

Logistics

12

Logistics

M.S Ramaiah School of Advanced Studies - Bangalore

SUPPLY CHAIN

Customer

SUPPLY CHAIN

Customer

Enterprise Processes

Supplier

Enquiries Quotations

OrdersSupplier Orders Supplies Invoices Money

13

Money


One Variant6,200 Distinct PartsImported from 17 CountriesImported from 17 CountriesFrom 240 Suppliers Assembled in 1 PlantWithin few minutesExported to 34 CountriesSame daySame dayWithout becoming inventory!

Suzuki Grand Vitara

14

Competition is no longer betweenCompetition is no longer betweenCompetition is no longer between Competition is no longer between Companies:Companies:

It is between supply chainsIt is between supply chains


Value Chain


1

CostCost

1

P l 2 3

People QualityQuality TechnologyTechnology

Delivery & ServiceDelivery & Service

4

& Service& Service


Succeed in Technology bySucceed in Technology by Connecting with People


2010 Onwards

Achieve Competitive Advantage by:p g y

Focusing on both Core and Non-Core CompetenciesCore Competencies

Ford Company Scenario


Aston Martin


Ford India introduces its Roadside Assistance (RSA) service in Agra

- 21 July 2010, Business Line


Riding Solo, Honda Shifts to Top Gear on 2-Riding Solo, Honda Shifts to Top Gear on 2wheelers

Company to focus on new models, expand p y f , pdealer network

Mr Shinji Aoyama S j oy

Source: Business Line, 5 January 2011


We have combined the leading edge technology of Nissan

ith A h k L l d Li it d' d li bilit twith Ashok Leyland Limited's delivery capability to

l t th j t i t ff ti "complete the project in a cost effective manner".

Nissan Motor senior vice President and theNissan Motor senior vice President and the JV chairman

Dr. Andy Palmer

24

yM.S Ramaiah School of Advanced Studies - Bangalore

Alto in India is Rs 1 lakhAlto in India is Rs. 1 lakh cheaper than in Chinap

- Shinzo Nakanishi,Shinzo Nakanishi, MD and CEO of MSIL

(09 A 2010 E i Ti )

25

(09 Aug 2010, Economic Times)M.S Ramaiah School of Advanced Studies - Bangalore

Customers get Ambushed


Ambushed Every Where


What SCM is not ?What SCM is not ?

SCM is not :SCM is not :• Buying• Developing suppliers o Blind man touchingDeveloping suppliers• Logistics• Warehousing

o Blind man touching elephant

o All these together ?• Inventory Control• Kanban

M k B d i i

g

• Make-Buy decision• Manufacturing• Distribution


Bottom line SituationBottom-line Situation

SCM l k t th f b i i t d• SCM looks at the process from beginning to endholistically in a seamless way instead of glorifyingunduly/underplaying an in-between event as stand aloney p y g

• The customer does not see, does not have to see, theglorification of any event. He just wants the product/serviceearly and cheap. He is not impressed if you just improve thesituation by working on logistics or shorten the manufacturingsituation by working on logistics, or shorten the manufacturinglead time or you do all and even more, but still do not deliverresults.


Some ExamplesSome Examples

– You get Dell laptop in 10 days after ordering. They in turnou ge e p op 0 d ys e o de g. ey uorder all parts to their vendors only after you order.Incidentally the beautiful consignment reaches yourdoorsteps.

– Seven KMs above ground level, on a London bound flightfrom Bangalore at 7 am, when Thames is almost in sight,you get Vada Sambar very tasty more or less so at leastyou get Vada Sambar, very tasty, more or less so at least.

Sitting in Bangalore through internet you book a 2nd class– Sitting in Bangalore, through internet you book a 2nd classticket from Varanasi to Pratabgarh ten days before. Theticket is delivered to your e-mail ID.


SCM is at play behind all thisSCM is at play behind all this amazing transformation in

Value Chain


Fit Between Corporate and FunctionalpStrategies (Chopra & Meindl)

Corporate Competitive Strategy

Supply ChainProduct Marketingpp yor Operations

StrategyDevelopment

Strategy

Marketingand SalesStrategy

Information Technology Strategy

Finance Strategy

Human Resources Strategy


The primary “drivers” for achieving strategic fitThe primary drivers for achieving strategic fit in Supply Chain Strategy

(adapted from Chopra & Meindl)(adapted from Chopra & Meindl)

Corporate Strategy

Supply Chain Strategypp y gy

Efficiency Responsiveness

Facilities Inventory Transportation Information MarketS t ti

33

y p Segmentation


Importance of Supply Chain Management?Importance of Supply Chain Management? –Cont.

Firms with Supply Chain Management:1 Start with key suppliers and move on to1. Start with key suppliers and move on to

other suppliers.2 Similar protocol for customers and2. Similar protocol for customers and

shippers as well.3. Integrate second tier suppliers and3. Integrate second tier suppliers and

customers.(second tier refers to the customer’s (

customers and the supplier’s suppliers)


Objectives of SCM


Objectives of a Supply Chain• Maximise overall value created

- Supply chain value: difference between what the final pp yproduct is worth to the customer and the effort the supply chain expends in filling the customer’s request

V l i l t d t l h i fit bilit- Value is correlated to supply chain profitability(difference between revenue generated from the customer and the overall cost across the supply chain)pp y )- Supply chain incurs costs (information, storage, transportation, components, assembly, etc.)

• Increase Supply chain profitability (total profit to be shared across all stages of the s ppl chain)across all stages of the supply chain)

• Balance Supply and Demand

38

• Balance Supply and DemandM.S Ramaiah School of Advanced Studies - Bangalore

Components of Supply Chain ManagementManagement


Supply Chain• Organisations must embrace technologies that can

ff i l d h i l h ieffectively manage and oversee their supply chains

Distribution or disposal


Benefits of SCM

I t d ti Inventory reduction Productivity Improvement P l d ti Personnel reduction Cost reduction High customer satisfaction High customer satisfaction Increased profit On time delivery fulfillment On-time delivery fulfillment Revenue/profit increase Better cash management Better cash management Better order management


Past and FuturePast and Future

• GLOBALISATIONG O S ON– Whether for buying or selling, no one confines to his own

country these days.y y• 50% under garments in the world are from Tiruppur, India• In Indian Super markets, imported potato wafers compete with

l l b dlocal brands.• Roses are exported from India daily.• Many international brands of Gadgets to day do not put placeMany international brands of Gadgets to day do not put place

of manufacture any more because they cannot assign any one country for adding maximum value in the supply chain. E.q.,

Philips– Philips– Black and Decker


Supply Chain Competitiveness

C i• Competitor

• Competition

• Competitiveness



Source: Presentation from K.C. Manjunath, GE-Triveni

Supply Chain Competitiveness : Toyota Way

“When Toyota developed Prius hybrid car, a core part of computer system, Insulated Gate Bipolar Transistor had to be developed.

Toyota was not good at semiconductors. But they decided to develop and put up a new plant for Manufacture. Why?

Toyota wanted ‘Self-reliance’ as this Technology would lead to f t & ill i th titi d t “future & will give them competitive advantage “


SCM : Activities


Effects of Supply Chain Problems

Problems with the Supply Chain have caused armies to lose wars & companies to go out of business, for example…p g , f p

I WWII G In 1999 ToysRUS

had problems

In WWII, Germany encountered

problems supplying supplying to

holiday shoppers & lost business

problems supplying troops in Russia,

which contributed to their collapse & lost business.their collapse.


Sources of Supply Chain Problems

UNCERTAINTY POOR COORDINATION

In demand forecast With Internal units and business partners

In delivery times & production delays

Ineffective customer service

production delays High inventory costs, loss of revenue & extra cost for expediting

iservices.


B ll hi D H dBull whip or Dragon Head


B ll hip EffectBullwhip Effect

Occurs when slight demand variability is magnified asOccurs when slight demand variability is magnified as information moves back upstream


Equilibrium & Bull whippedInformation

q ppInformation

Suppliers Producers Distributors RetailersProducts & Services

Products & Services

Products & Services

10 Units 10 Units 10 UnitsSuppliers Producers Distributors Retailers

Products & Services

Products & Services

Products & Services

10 Units 10 Units 10 Units

Cash


Cash


Suppliers

Information FlowSuppliersSuppliersSuppliers

RetailersDistributors

ProducersSuppliers

20 Units

Products & Services

40 Units

Products & Services

Products & Services80 Units

ProducersSuppliers

DistributorsProducers

Suppliers

RetailersDistributors

ProducersSuppliers

20 Units40 Units80 Units

Cash Flow

40 Units160 Units 80 Units 40 Units80 Units160 Units 40 Units80 Units


Shrinking Uncertainty in SC

Source:


Buyer-Supplier Relationship

“Exit – Voice – Loyalty”Exit Voice Loyalty


Sustainability is the WaySustainability is the Way Forward

Mulling new supplier system to g pp yminimise natural disaster: Boeing

Source: 4 July 2011, Reuters


Evolution of the Indian Machine ToolEvolution of the Indian Machine Tool Industry

Ph 1 Th E l Y (th l t )• Phase 1: The Early Years (three clusters)

Ph 2 E d f th G ld Y• Phase 2 : End of the Golden Years

Ph 3 1968 1983 A I i l T h l• Phase 3 – 1968 to 1983: Access to International Technology via Collaborations becomes Difficult

• Phase 4 : The 1980s Open General License (OGL)

• Phase 5 – The 1990s: The Liberalisation Years


Introduction to Machine Tool Industryy• Indian Machine tool industry grew 13% annually over 2008-11

(TAGMA)(TAGMA)

• Indian Machine tool makers target 67% domestic market share• Indian Machine tool makers target 67% domestic market share by 2020 (IMTMA)

• As per available statistics (4th Census of MSME Sector), thissector employs an estimated 59.7 million persons spread overp y p p26.1 million enterprises

• It is estimated that in terms of value, MSME sector accountsfor about 45% of the manufacturing output and around 40% of

57the total export of the country


International Comparison of Machine ToolInternational Comparison of Machine Tool Industries

• Japan:• Japan:- Massive and low cost production with higher reliability and flexibility CNC machine toolsy

- Collaborative development of components with li h b id d i b ioversea suppliers has been considered important business

• Germany:Germany:- Associations play an important role in promoting collaborations- Industrial policies have been effective in strengthening upstream, downstream supply chains and collaborations


International Comparison of Machine ToolInternational Comparison of Machine Tool Industries Contd.

• Italy:• Italy:- Innovation networks have been in the form of clusters

• USA:- Composed of SMEs- Grappling because of lack of coordination in technology

d di istandardisation- Short term transaction relationship between manufacturer supplier and clientsmanufacturer, supplier and clients

• China:- Picked up from 1995 in the form of scattered SMEs- Further diversified into metal cutting and metal forming i d t


industry

Auto sector to drive Die andAuto sector to drive Die and Machine Tool Industry in India y

constitutes 50% of Die & Machineconstitutes 50% of Die & Machine Tool market

TAGMA d IMTMA- TAGMA and IMTMA


An Estimate of Potential aboutAn Estimate of Potential about Machine Tool Industry

The two-wheeler industry adding a capacity of700,000 vehicles every year, calls for an overallinvestment of close to Rs 1,000 crore (Rs 10 billion)per annum, of which at least 60 per cent would bein the form of machine tools.

Source:Sou ce:


Machine Tool Industry SC Challenges

D t it t i t i I di hi t l i d t i• Due to capacity constraints in Indian machine tool industries,European, Taiwanese and Korean machine tool makers areharvesting the Indian ordersharvesting the Indian orders

• With the need to frequently introduce new models as aWith the need to frequently introduce new models as acompetitive measure, design and supply of such machinetools needs to be intact with high flexibility

• Vendors rarely stick to delivery commitments in comparisony y pwith international counterparts


Machine Tool Industry SC ChallengesMachine Tool Industry SC Challenges Contd.

N d t i t b t ti ll i IT th b i id• Need to invest substantially more in IT on the business side,such as SCM and CRM in order to handle complaints beforethey become a source of frictionthey become a source of friction

• Change relationships with parts vendors to become partnersChange relationships with parts vendors to become partnersin development rather than not being just customers

• Many critical components of a modern CNC machine toolare not made in the countryy


Machine Tool Industry SC ChallengesMachine Tool Industry SC Challenges Contd.

S hi ti t d hi h t d t lif l d• Sophisticated machinery, short product life-cycles, anddemanding user requirements have increased competition inthe machine tool marketthe machine tool market

• Small and medium enterprises (SMEs) face problems inSmall and medium enterprises (SMEs) face problems incoordinating their supply chain due to lack of resources andimproper directions


A Case

Bharat Fritz Werner Ltd. was able to develop pand deliver, a complex nine-axis CNC multi-

tasking machine for machining rear axletasking machine for machining rear axle housings of commercial vehicles in a single

tset up


Machine Tool Industry SC Opportunities

T h l t i t d i ti l t thi d f• Two-wheeler sector is today importing nearly two-thirds ofits requirements of machine tools

• Improve delivery capability through better internal practicesby maximising in-built capacityby maximising in built capacity

• Scope for exporting machine tools from here to countries• Scope for exporting machine tools from here to countriessuch as Poland, Czechoslovakia and Turkey, which areemerging as major auto component suppliers to westerng g j p ppEurope and west Asia, despite competition from Taiwan andKorea


Machine Tool Industry SC OpportunitiesMachine Tool Industry SC Opportunities Contd.

D t h t i f d t' lif l i t• Due to shortening of a product's life cycle, companies are to focus on their service offers in order to ensure an advantage in competitionin competition

• Scope for collaborative design of tools digitalScope for collaborative design of tools, digitalmanufacturing systems, and integrated productionmanagement systems, to augment new products to market

• Strategic collaborations by integrating the upstream,g y g g pmidstream, and downstream parts of their supply chains


Machine Tool Industry SC OpportunitiesMachine Tool Industry SC Opportunities Contd.

• Specialisation and coordination mechanism for technological innovation have been dynamically evolvinginnovation have been dynamically evolving

• Export opportunity exists to step up share of exports in the• Export opportunity exists to step up share of exports in the world market due to price competitiveness


UK Manufacturers Take on the Supply Chain Challenge

Present ScenarioPresent Scenario(12 January 2012)

Source: MTD Website


Rationale for the Study

SMEs should focus on information flow and t l d t di th bmutual understanding among the members

of supply chain

Source: Rajesh K SinghSource: Rajesh K. SinghIndian Institute of Foreign Trade (IIFT), New Delhi,

Business Process Management Journal, Vol. 17 No. 4, 2011,pp. 619-638

70

g , , ,pp


Efficient Consumer Response (ECR)

• Consumer: An orientation toward the needs of theconsumer

• Efficient Response: A process orientedoptimisation of the supply chainoptimisation of the supply chain


Efficient Consumer Response (ECR)

V ti l ll b ti i f t i d• Vertical collaboration in manufacturing andretailing with the objective of an efficient

ti f ti f dsatisfaction of consumer needs

• All efforts should stand towards improved customersatisfaction

Source: Dr Dirk SeifertSource: Dr. Dirk SeifertHarvard Business School


Concept of ECR in SCM

• Efficient replenishment

• Efficient administration• Efficient administration

• Efficient operating standards


Collaborative Planning Forecasting Replenishment (CPFR)

Definition:fSharing of forecast and related business information among trading partners in the supply chain to enable automatic product replenishmentreplenishment.

American Production and Inventory Control Society (APICS).Objective of CPFR- optimize supply chain through improved demand forecasts, with the right product delivered at right time to the right location, with reduced inventories, avoidance of stock-the right location, with reduced inventories, avoidance of stockouts, & improved customer service.Value of CPFR- broad and open exchange of forecasting information to improve forecasting accuracy where both the buyerinformation to improve forecasting accuracy where both the buyer and seller collaborate through joint knowledge of base sales, promotions, store openings or closings, & new product introductions

74 M.S Ramaiah School of Advanced Studies - Bangalore

introductions.

Wal-Mart, Warner-Lambert,SAP

H d i VAATZ CHyundai – VAATZ Concept

Open Standards,Broad Requirements & S t ti I t tiSystematic Integration


What Collaboration Should Be?

“ D Thi Diff tl ”“ Do Things Differently”

• B2B Extranet Planning Systems• Competitive Advantage-StrategicCompetitive Advantage Strategic

• Competitive Duration-Medium to LongD i C t Eli i ti th h• Drivers-Cost Elimination through

synchronization• Barriers-Medium Technology;Large People


THE CPFR 9 STEPSTHE CPFR 9 STEPS

•Develop Collaborative Arrangement p g•What info are we going to Share?

•Create Joint Business PlanCreate Joint Business Plan • How are we going to do business?

•Create Sales Forecast –•What does the future look like?

•Identify Exceptions for Sales Forecast –•What we know that the supplier doesn’t•What the supplier knows that we don’t


THE CPFR 9 STEPS..contd

• Resolve/Collaborate on Exception Items• How are we going to overcome the

exceptions?

C O• Create Order Forecast• What can we live with and move forward

with?

• Identify Exceptions for Order ForecastR l /C ll b t E ti• Resolve/Collaborate on Exception Items

78 M.S Ramaiah School of Advanced Studies - Bangalore• Generate the Orders

BEFORE CPFR – LIMITED COLLABORATIONBEFORE CPFR LIMITED COLLABORATION

O dOrder

1.22

Government Vendor

Characteristics:Characteristics:

•Limited visibility of future demand requirements

Inventories to buffer against unexpected demand

• Both partners forecast independently

• Outages cause adversarial relationships


unexpected demand

POST CPFR

Government

Collaborative Joint Business Sales Forecast Firm Order

Government

Order

Retailer Sales

Forecast

Supplier Sales

ForecastJoint Sal;es

Forecast Display UnitsNeeded On-

Hand On-Hand Receipt Need

0 0 00 0 00 0 00 0 00 0 00 00 0 00 0 00 0 00 0 00 00 0 00 0 00 0 00 0 00 0

OrderOrderOrder

CollaborativeArrangement

Joint Business Plan

Sales ForecastCollaboration

Firm OrderPast Fzn Zone

Order Forecasts with tolerances

0 61 610 989 0 989

2,559 1,855 0 1,8552,993 3,492 2,773 7193,656 7,166 10,845 -3,6799,208 03,848 7,308 15,146 -7,8383,400 10,273 14,840 -4,5673,724 361 15,735 22,124 -6,3893,016 361 14,719 21,803 -7,08413,988 0

Characteristics:•Dual insights provide a better forecast demand

• Long term view of demand requirements

• Both partners jointly forecastVendor

p j y

• Earlier visibility of issues through the exceptions

• Monitor POS data via the private exchange/web portal; compare to forecast


p ; p

• Focus of relationship becomes win-win

Summaryy

In order to smoothen the supply chain “bull whip”, we need pp y p ,accurate visibility of demands:

• CPFR is an industry standard “guideline” for collaboration• Collaboration requires “trust”q• Collaboration is a transformational strategy

–Roles and responsibilities can change–Roles and responsibilities can change• Collaboration facilitates long-term B2B relationships

C ll b ti t hi t b i / i• Collaborative partnerships must be win / win• Collaborative benefits can be huge!


Global Supply ChainsGlobal Supply Chains

Some of the issues involved in global supply chains; global supply chains; legal issues, customs fees

and taxes

Global Supply Chains = Supply

language and cultural differences

fast changes in currency Global Supply Chains = Supply chains that involve suppliers and/or customers in other

fast changes in currency exchange rates

political instabilities.countries.


Principles and Standards for EthicalPrinciples and Standards for EthicalPrinciples and Standards for Ethical Principles and Standards for Ethical Supply Management ConductSupply Management Conductpp y gpp y g

LOYALTY TO YOUR ORGANISATIONLOYALTY TO YOUR ORGANISATIONJUSTICE TO THOSE WITH WHOM YOU JUSTICE TO THOSE WITH WHOM YOU

DEALDEALFAITH IN YOUR PROFESSIONFAITH IN YOUR PROFESSION


Business CultureBusiness Culture

Western• Perfectionist

Indian• Functionalist

• Engineer• Planning

• Businessman• Improvisationg

• Facts matter• Mauls for non-compliance

p• People matter• Bonus for successp

• Single task at a time • Multi-task at a time


Supplier Negotiation and SourcingSupplier Negotiation and Sourcing Challenges


Evaluating & Selecting Key Suppliers

Wh l ti li f t t iWhen evaluating suppliers for a strategic partnering, purchase cost becomes relatively less important.less important.

-Tata Nano V/S A-Segment Cars

Key Supplier Selection is conducted by a cross functional team selection approach wherein pppurchasing staff, primary users, product designers, and manufacturing personnel participate.

- Buyer Audit


Kraljic’s Matrix


STRATEGIC SOURCING FOR SUCCESFUL SUPPLY CHAIN MANAGEMENT

Why Strategic Sourcing?

- Lehman Brothers Case


TYPES OF SUPPLIERS

• TECHNOLOGYMACHINERY/CAPITAL EQUIPMENT• MACHINERY/CAPITAL EQUIPMENT

• RAW MATERIALCOMPONENTS• COMPONENTS

• FINISHED PRODUCTS


NEED FOR GLOBAL SUPPLIERSNEED FOR GLOBAL SUPPLIERS

• QUALITY• TECHNOLOGY• COST• SERVICE


GENERALLY NON NEGOTIABLE ITEMSGENERALLY NON-NEGOTIABLE ITEMS

• SPECIFICATIONS• PAYMENT TERMS


ISSUES IN NEGOTIATIONISSUES IN NEGOTIATION

• CULTURE• EXCHANGE RATE• DEGREE OF TRANSPARENCY REQUIRED – OUR

MINDSET/ OUR MANAGEMENT’S MINDSETMINDSET/ OUR MANAGEMENT’S MINDSET


Supplier Strategies

Pl t h l hi i i

Supplier Strategies

• Plans to help achieve company mission• Affect long-term competitive position• Strategic options

– Many suppliersy pp– Few suppliers– Keiretsu network– Vertical integration– Virtual company PlV tua co pa y Plan

98

© 1995 Corel Corp.


Daimler Chrysler’s Supplier Cost Reduction Effort

Supplier Suggestion Model SavingsSupplier Suggestion Model SavingsRockwell Use passenger car door

locks on trucksDodgetrucks

$280,000

Rockwell Simplify design/substitutematerials on manualwindow system

Various $300,000

window system

3M Change tooling for wood-grain panels to allow three

Caravan,Voyager

$1,500,000

from one die

Trico Change wiper-bladeformulation

Various $140,000formulation

Leslie MetalArts

Exterior lighting suggestions Various $1,500,000


Many Suppliers StrategyMany Suppliers Strategy

• Many sources per item• Adversarial relationship• Short-term• Little openness• Little openness• Negotiated, sporadic PO’s• High prices• Infrequent, large lots• Delivery to receiving dock

© 1995 Corel Corp.


Few Suppliers Strategy

• 1 or few sources per item

Few Suppliers Strategy

• 1 or few sources per item• Partnership (JIT)• Long-term, stable• On-site audits & visits• Exclusive contracts• Low prices (large orders) © 1995 • Low prices (large orders)• Frequent, small lots

© 995Corel Corp.

• Delivery to point of use

101

Tactics for Close Supplier Relationships

TacticTacticRed ce total n mber of

ResultsResults• Average 20% reduction in 5• Reduce total number of

suppliers• Certify suppliers

• Average 20% reduction in 5 years

• Certify suppliers

• Ask for JIT delivery from key suppliersy pp

• Involve key suppliers in new product design

• Develop software linkages to li

102

suppliersM.S Ramaiah School of Advanced Studies - Bangalore

Vertical Integration StrategyVertical Integration Strategy

Raw Material(Suppliers)

• Ability to produce goods previously

BackwardBackwardIntegrationIntegration

purchased– Setup operations

CurrentCurrentTransformationTransformation

– Buy supplier

• Make-buy issueForwardForward

IntegrationIntegration• Major financial

commitmentFinished GoodsFinished Goods

(Customers)(Customers)

commitment• Hard to do all things

well103

(Customers)(Customers)wellM.S Ramaiah School of Advanced Studies - Bangalore

Forms of Vertical IntegrationForms of Vertical Integration

Iron Ore Silicon Farming Raw Material(Suppliers)

Steel Flour Milling BackwardIntegration

Automobiles IntegratedCircuits

CurrentTransformation

DistributionSystem Circuit Boards Forward

Integration

DealersComputers

WatchesCalculators

Finished Goods(Customers)Baked Goods


Keiretsu Network Strategy

• Japanese word for ‘affiliated chain’

Keiretsu Network Strategy

• Japanese word for affiliated chain• System of mutual alliances and

hicross-ownership– Company stock is held by allied firms

• Lowers need for short-term profits• Links manufacturers, suppliers, distributors, & pp

lenders– ‘Partnerships’ extend across entire supply chainp pp y


Virtual Company StrategyVirtual Company Strategy

• Network of independent companies• Network of independent companies– Linked by technology

• PC’s, faxes, Internet etc.– Each contributes core competencies– Typically provide services

• Payroll, editing, designing

• May be long or short-term– Usually, only until opportunity is met

© 1995 Corel Corp.

Usually, only until opportunity is met


Overview of Global Procurement:Cross Border NegotiationsCross Border Negotiations

Interpretation, Enforcement and Dispute ResolutionResolution


Precedence's are Referred but notPrecedence s are Referred but not Followed

Sales Act High Court Verdict on S/W CD’sC L (P Ch )Common Law (Prone to Changes)


Legal System Framework

Category 1 Category 2 Category 3

Supreme Court, FederalApex Judiciary

• II round• Takes 10-12 months• Court of last resort

High Court • I round• Takes 6 months

• 50-60% disputes sortedDistrict/Province/CivilCourt

p• Takes 24 – 30 months




Arbitration – Alternativeto litigation

Special Jurisdiction Place of evidence isvery vital

• Headed by professionalst j dnot judges

• Three member committee• Two Industry Veterans and

one retired judge


j g

Points to Remember

C t t di t b t t i t i l t• Contract dispute between any two companies cannot violate the Country law

• Law to be referred has to be mentioned in the contract• Law to be referred has to be mentioned in the contractEx: Bombay court may look into Hongkong/Singapore laws to deal with broadcasting rightsto deal with broadcasting rights

• Choice of Forum – Depending on the issue• Choice of Forum Depending on the issue• Choice of Law – Decided by Parties




Regulators

Example:

• TRAI• SEBI• AAI etc.


Cross Border Negotiations


What is Negotiation?gIt is the art of creating agreement on a specific issue between two(or more) parties with 4 differing views (Win/Loose, Win/Win,Loose/Loose, Loose/Win) imparting or conveying ideas, views orinformation from the mind of one person to the mind of the other.

What is Purchasing?The activity of acquiring goods or services to accomplish theThe activity of acquiring goods or services to accomplish thegoals of an organisation.

What is Purchasing Negotiation?A process in a finite number of steps consisting mainly ofalternate proposals and counter-proposals or a form of co-operation with both common and opposed interests with two ormore parties.


more parties.

Golden Rules of Negotiation1 FORM1. FORM

2 People Buy People First2. People Buy People First

3 Buyers’ are liars and Non Buyers’ are bigger liars3. Buyers are liars and Non-Buyers are bigger liars

4 Emotion Sells and Logic solidifies the sale4. Emotion Sells and Logic solidifies the sale

5 N Gi U5. Never Give Up

6 PMA d K S ili115

6. PMA and Keep SmilingM.S Ramaiah School of Advanced Studies - Bangalore

Role Play


Session Summary

• Meaning and definition of Supply Chain Management has been explained.

• Special cases with respect to advantages of SCM has been discussed.

• Current trends of Supply Chain and it’s impact haveb l id dbeen elucidated.



Session Speaker K.M. Sharath Kumar

Manufacturing Logistics and Make or Buy Decisions

Day-2


Session Objectives

• To ascertain the key factors to optimise logistics process

• To assimilate the factors to be considered for Make or Buy

decisions

• To match supply chain strategies with products


Session Outline

• Logistics strategies • Make or Buy – Factors to be considered • Span of Process • Push vs. Pull Scheduling • Hybrid approach for supply chain

4

Manufacturing Logistics


5

CLM DEFINITION OF LOGISTICS

….is that part of the supply chain process that plans, implements, and controls the efficient, effective

flow and storage of goods, services, and related information from the point-of-origin to the point-of-

consumption in order to meet customers' requirements.

Council of Logistics Management, 1998; www.CLM1.org


6

Logistics - Science of managing (controlling) the movement and storage of goods (or people) from acquisition to consumption.

Goods: Raw Materials → Final products, and everything in between.

Movement = Transportation (between locations). Storage = Inventory, Warehousing (at locations).

Difference between acquisition and consumption is a matter of space and time.

NOTE: Logistics does not deal with Technology of Production, such as the design of machines, vehicles and the design of finished products.



Source: Presentation by Mr. K.C. Manjunath, Triveni Engineering Ltd.

8

Five Business Systems - Tightly Interconnected within the Organization

Measurement Decisions

Management Systems

Reward Decisions

Strategic Decisions

Transportation Decisions

Sourcing Decisions

Inventory Decisions

Logistics Systems {

Price Decisions

Promotion Decisions

Marketing Systems

Product Decisions

Place (How, where, how

much)

} Production Scheduling Decisions

Production Capacity Decisions

Shop Floor Decisions

Manufacturing Systems }

Product Design

Decisions

Process Design

Decisions Engineering Systems }


9

Logistics – Mission [A Bill of “Rights”]

• Logistics embodies the effort to deliver: – the right product – in the right quantity – in the right condition – to the right place – at the right time – for the right customer – at the right cost


10

Activities and Logistics Decisions Transportation

rate and contract negotiation mode and service selection routing and scheduling

Inventories finished goods policies supply scheduling short term forecasting

Warehousing private vs. public space determination warehouse configuration Stock layout and dock design stock placement Cross-docking

Facility Location determining location, number

and size of facilities allocating demand to facilities

Customer Service determining customer wants determining customer response to service changes

Materials Handling equipment selection equipment replacement order picking procedures

Packaging design Order Processing

order procedure determination

Coordinating Production Schedule

aggregate production quantities sequencing and timing of production runs


11

Manufacturing Logistics

Physical Distribution

Recycling/ Returns/ Waste Disposal

Location

Communication


12

Inbound & Outbound Logistics

MANUFACTURING PROCESSES

INBOUND LOGISTICS

OUTBOUND LOGISTICS

SUPPLIER CUSTOMER


13

Reverse Logistics • To manage the flow & Storage of products and services,

moving backwards through the supply chain • Supply chains create waste due to packing • New development in SCM includes the recycling of products and packing materials, “disassembly” of products for reuse, product returns for warranty claims


14

TVS Logistics Case


15

Air Asia Case


16

Freight management goes online in Thiruvananthapuram Railway division

(August 24, 2010)

Freight Operating Information system will enable traders to monitor arrival of the freight train, plan out the receipt and dispatch of consignments to the intended locations, besides

providing adequate time to arrange for labour. M.S Ramaiah School of Advanced Studies - Bangalore

17

Importance of Logistics

• Essential & Expensive - ( GDP ) 10 to 13% in India 8% in USA • Bigger than the profit margin on goods • Affects Financial Performance


18

Logistics for life sciences still out in the cold • A goods carrier crossing a State border in India may have to wait

anywhere between two to 24 hours to get the necessary clearances before it can enter the next State. Compare this to transit across borders in China, which takes between 15 minutes to two hours. Or in the EU, where the carrier usually does not have to wait for more than a few minutes.

• According to World Bank's Logistics Performance Index ranked India 47 with a score of 3.1 (world average 2.5) in 2010, dropping from 39 in 2007. The index evaluates the logistics performance of countries on the basis of following key dimensions such as Customs clearances, infrastructure, ease of shipment and tracking.

Source: Joint Study by DHL and Organisation of Pharmaceutical

Producers of India , October 2011 M.S Ramaiah School of Advanced Studies - Bangalore

20

Role of logistics managers in strategic decision

OTHER MANAGERS

BUSINESS STRATEGY

LOGISTICS STRATEGY

ROUTINE LOGISTICS DECISIONS

LOGISTICS MANAGER

DISCUSSIONS & AGREEMENTS


23

Volvo-Case

Multi Axle Transport Solution


24

Benefits

• Equivalent to 5 : 2-Axle trucks • Higher Average speed • Less Breakdowns • Transportation cost saving of 20-40% to Fleet owners • Takes 16 m road space but the latter take 90 m • Cut in fuel consumption by 50% • Environmental safety


25

Consolidation

• Smaller Operator’s are shrinking • Large players are outsourcing • Shift towards bagging quality orders • Warehousing etc.


26

Volvo’s Fuel Cost

Typical Trucks Volvo Trucks

Fuel Consumption 3.5 kmpl 2.5 kmpl

Cost/Tonne KM Rs. 4.60 Rs. 6.40

Load Carried 10 Tonnes 30 Tonnes

Fuel cost/Tonne KM

Re 0.46 Re 0.21


27

Conclusion “Big is Better”


28

Indian Government Initiatives

Allowing 100% FDI Eliminating CST and IT exemptions on Port

development Projects Improving Multi Modal Transport and PPP


29

Plan for multi-modal venture by 3 logistics PSUs

SCI, Concor, Central Warehousing

Corporation would be equity partners


Source: BL, 5 January 2011

30

Delhi may soon levy congestion fee on vehicles

08 April 2010

Source: ET


31

Railways sees scope for greater logistics play

Source: ET, September 2011


32

Make or Buy Decisions



Make or Buy Choice

• One of the key strategic issue in manufacturing is the decision regarding

“what to make and what to buy”.

• Companies rarely make their own products/services from start to end.

• Mostly these decisions have been taken on an ad-hoc

manner and lack adequate scientific consideration.


Make or Buy Choice

• Inability to make in-house (Technical capability High-Investment Low Utilisation) • Retaining Core Technology

L & T Komatsu-Welding Robot


Make or Buy Choice

• BREAK EVEN ANALYSIS

TOTAL COST -BUY

TOTAL COST - MAKE

MAKE-VARIABLE COST

MAKE-FIXED COST

VOLUME

COST

BREAK-EVEN


Span of Process


Make-or-Buy Decisions

1. Maintain core competence 2. Lower production cost 3. Unsuitable suppliers 4. Assure adequate supply (quantity or delivery) 5. Utilize surplus labor or facilities 6. Obtain desired quality 7. Remove supplier collusion 8. Obtain unique item that would entail a prohibitive

commitment for a supplier 9. Protect personnel from a layoff 10. Protect proprietary design or quality 11. Increase or maintain size of company

Reasons for Making


Make-or-Buy Decisions

1. Frees management to deal with its core competence

2. Lower acquisition cost 3. Preserve supplier commitment 4. Obtain technical or management ability 5. Inadequate capacity 6. Reduce inventory costs 7. Ensure alternative sources 8. Inadequate managerial or technical resources 9. Reciprocity 10. Item is protected by a patent or trade secret

Reasons for Buying


Framework for Make/Buy Decisions

• Which component to Manufacture and what to Outsource? • Identify Core Competencies and it should be made

internally. Fine & Whitney Framework for Outsourcing

• Dependency on Capacity • Dependency on Knowledge Toyotas outsourcing strategies


Make/Buy Decisions

Product Dependent on knowledge and capacity

Independent of knowledge, Dependent on capacity

Independent of knowledge and capacity

Modular

Outsourcing is risky

Outsourcing is an opportunity

Opportunity to reduce cost through outsourcing

Integral

Outsourcing is very risky

Outsourcing is an option

Keep production internal


Push and Pull Scheduling


• Efficient integration of suppliers, manufacturers, warehouses, and stores. • Coordinating activities across the supply chain

• Improve performance through cost reduction, increasing service level, reducing the bullwhip effect, better utilising resources, and effectively responding to changes

Effective SCM Pre-requisites


Challenges can be met by Integration

– Linking front-end customer demand and back-end

production and manufacturing portion of the supply chain.

• Various supply chain integration strategies: – Push, pull, push–pull strategy. – Matching products and industries with supply chain strategies. – Demand-driven supply chain strategies. – The impact of the Internet on supply chain integration.


What is Push and Pull? • MRP is the classic push system. The MRP system

computes production schedule for all levels based on forecasts of end items sale. Once produced, subassemblies are pushed to next level whether needed or not.

Typical PC Manufacturing • JIT is the classic pull system. The basic mechanism is that

production at one level only happens when initiated by a request at the higher level. That is, units are pulled through the system by request.

Dell’s PC Manufacturing


Comparison

• These methods offer two completely different approaches to basic production planning

• Each has advantages over the other, but neither seems to be sufficient on its own.

• Both have advantages and disadvantages, suggesting

that both methods could be useful in the same organisation.


Push Vs. Pull Scheduling in SCM

• Push Scheduling

- Traditional Approach - Move the Job when finished - Creates Excessive Inventory

• Pull Scheduling - Coordinated Production - Driven by Demand( Pulled thru system ) - Extensive use of visual triggers


Customer

D1 D2 D3

D4

RDC1 RDC2

Factory Warehouse

Factory Warehouse

Vendors/Suppliers

Finished products, Demand

forecast level

Finished products

Finished products

WIP

Sub Assemblies

Components

Demand Pull

Product Push


Push-Pull Scheduling in Supply Chain

A Hybrid Approach in Todays Scenario


Toyota’s Manufacturing Strategy Dell’s PC Manufacturing Strategy


Push-Pull Supply Chain

• Initial Stages are operated in a push based manner whereas

the remaining stage are operated in a pull based manner. • Interface between the push based stage and pull based stage

is known as the push-pull boundary

Supply Chain Time Line


Supply Chain Timeline

Push-pull supply chains


General Framework for Time Line

• Make a part of the product to stock – generic product • The point where differentiation has to be introduced is the

push-pull boundary • Based on extent of customisation, the position of boundary

on the timeline is decided


Matching Supply Chain Strategies with Products

Push-pull supply chains


GM’s Case

Failure of Make to Order Strategy


Characteristics of Push & Pull in Supply Chain

Push Pull

Objective Minimize Cost Maximize Service Level

Complexity High Low

Focus Resource Allocation

Responsiveness

Lead Time Long Short

Processes Supply chain Planning

Order Fulfillment


Implementing a Push–Pull Strategy

• Achieving the appropriate design depends on many factors: – product complexity – manufacturing lead times – supplier–manufacturer relationships.

• Many ways to implement a push–pull strategy – location of the push–pull boundary.

• Dell locates boundary at the assembly point • Furniture manufacturers locate the boundary at the

production point


The Impact of Lead Time

• Longer the lead time, more important it is to

implement a push based strategy. • Typically difficult to implement a pull strategy when

lead times are so long that it is hard to react to demand information.


Cases


Grocery Industry • Typical supermarket employs a push-based strategy • Peapod was built on pure pull strategy with no inventory and

no facilities. – Significant service problems with high stock-out rates – Changed to a push–pull strategy by setting up a number of warehouses – Warehouse covers a large geographical area

• Aggregated demand

• Other challenges: – Reducing transportation costs – Short response time – Low customer density

• Products having low demand uncertainty were treated with – high economies of scale in transportation cost – push-based strategy more appropriately.


Book Industry • Initial model of Amazon.com a pure pull system with no

warehouses and no stock. – Ingram Book Group supplied most of Amazon’s customer demand.

• As volume and demand increased: – Amazon.com’s service level was affected by Ingram Book’s

distribution capacity – Using Ingram Book in the first few years allowed Amazon.com to

avoid inventory costs but significantly reduced profit margins. • As demand increased distributor no longer required.

• Current Amazon.com: – Several warehouses around the country where most of the titles are

stocked. – Inventory at the warehouses is managed using a push strategy – Demand satisfied based on individual requests, a pull strategy.

• Slow moving low volume books and CDs are not stocked at Amazon distribution centers – Amazon orders those when demand arrives.


Session Summary

• Meaning of Logistics, components of Logistics management

have been explained.

• Factors influencing the make or buy decision has been elucidated.

• Cases with respect to Push-Pull supply chain have been discussed.


Session Speaker K.M. Sharath Kumar

Supply Chain (SC) Design

Day-2


Session Objectives

• To identify the role of aggregate planning in supply chain to

manage supply and demand

• To examine the key factors ‘to be’ considered when designing a distribution network

• To apply optimisation techniques to evaluate trading partners


Session Outline

• Introduction to SC modelling • Managing supply through Aggregate planning • Gravity Model • Supply Chain Benchmarking • Data Envelopment Analysis

4

Supply chain Networks


5

Integrated Supply Chain

• Functional Integration - Purchasing, M anufacturing, Transportation, Warehousing • Spatial Integration - Geographically dispersed vendors, - Facilities & Markets •Inter-temporal Integration - Strategic, Tactical & Operational •Integration of SC & Demand Management


6

Overview of SC Models and Modelling System

• Need to augment Transactional IT with Analytical IT

- “Metrics is very important” • Analytical IT involves - Descriptive Method - Normative Method or Optimisation method

or Mathematical Programming method


7

Descriptive Method

• Forecasting Models - predict demand for company’s finished products, cost of

raw materials etc. • Cost Relationship -describes how direct and indirect costs vary • Resource Utilisation -how manufacturing activities consume scarce resources • Simulation Models -describes parts or all the company’s supply chain that will

operate over time as function of parameters and policies


8

Normative or Optimisation Method

- Helps managers to make better decisions - Requires descriptive data & models as inputs


9

The primary “drivers” for achieving strategic fit in Supply Chain Strategy

(adapted from Chopra & Meindl)

Corporate Strategy

Supply Chain Strategy

Efficiency Responsiveness

Facilities Inventory Transportation Information Market Segmentation



Introduction to Linear Programming Problem (LPP)

The most important function of management is effective decision making.


Definition of LPP Linear Programming (LP) is a versatile technique for assigning a

fixed amount of resources among competing factors. A mathematical technique used to obtain an optimal solution in

resource allocation problems, such as production planning, scheduling, advertising, cost analysis etc.

It is basically used for efficient and effective utilisation of limited

resources to achieve organization objectives (Maximise profits or Minimise cost).


The General LP Formulation

nix

bxaxaxa

bxaxaxabxaxaxa

tSxcxcxcZMinMax

i

mnmnmm

nn

nn

nn

,...,2,1,0

//...........................................................

//...//...

..... /

2211

22222121

11212111

2211

=≥

=≥≤+++

=≥≤+++=≥≤+++

+++=

•There are n variables in m constraints to be solved

Max / Min Z = C1x1 + C2x2 + …….Cnxn Subject to a11 x1 + a12x2 + …. + a1nxn < /> = b1 a21 x1 + a22x2 + …. + a2nxn < /> = b2 …………………………………… am1 x1 + am2x2 + …. + amnxn < /> = bm where xi >= 0, i = 1,2,……….n


Formulation of LPP (Production allocation problem)

Case: 1 A manufacturer produces two models M1 and M2 . Each unit

of model M1 requires 4 hours grinding and 2 hours polishing. Each unit of model M2 requires 2 hours grinding and 5 hours of polishing. The manufacturer has 2 grinding wheels wherein each is available for 40 hours per week only. Similarly there are 3 polishing machines wherein each is available for 60 hours per week only. Profit on model M1 is Rs. 300 per unit and profit on model M2 is 400 per unit. The manufacturer has to allocate his production capacity so as to maximize his profit.

Formulate the LPP.


Formulation of LPP (Production allocation problem)

Solution: Let X: Number of units of model M1 to be produced. Y: Number of units of model M2 to be produced. Model

M1

Model M2

Requirement

Number of units X Y Maximize Grinding time(hrs.) 4 X 2 Y < 80 Polishing time(hrs.) 2 X 5 Y < 180 Profit (Rs) 300 X 400 Y


Conversion to LPP (Production allocation problem) (cont..d)

Maximum Z = 300X + 400Y Subject to (S.t) 4 X + 2Y < 80 2X + 5Y < 180 and X > 0, Y > 0

Objective Function

Constraints

Decision variable (non negative)


Formulation of LPP

Case: 2 A firm produces two home products viz. model A and model B. The production involves three operations-assembly, painting and testing. The relevant data are as follows:

Hours required for each unit

Unit selling price

Assembly Painting Testing

Model A Rs.40

10 2 1

Model B Rs.60

18 5 2


Case-2 Formulation of LPP (Cont…d)

Total number of hours available each week are as follows:

Assembly 400 Painting 100 Testing 60 The firm wishes to determine its weekly

product mix so as to maximize profit. Formulate the problem as a linear

programming problem(LPP).


Case-2 Formulation of LPP (Cont…d)

Solution: Let X: Number of units of model A to be produced. Y: Number of units of model B to be produced.

Model

A

Model B

Requirement

Number of units X Y Assembly time(hrs.) 10 X 18 Y < 400 Painting time(hrs.) 2 X 5 Y < 100 Testing time (hrs.) 1 X 2 Y < 60 Profit (Rs) 40 X 60 Y


Case- 2 Conversion to LPP (cont..d)

Maximize Z = 40X + 60Y Subject to (S.t) 10X +18Y < 400 2 X + 5Y < 100 1X + 2 Y < 60 and X > 0, Y > 0

Objective Function

Constraints

Decision variable (non negative)


Methods for Solving Linear Programming Problems (LPP)

Important method of solving LPPs

Simplex method using Solver


Managing Supply in a Supply Chain


Aggregate Planning in Supply Chain

• Aggregate planning is a process by which a company determines ideal levels of

capacity, production, subcontracting, inventory stock outs and pricing over a specified time horizon • Goal is to satisfy demand while maximising profit.

Premium Paper Mill Case Spring – Annual Reports Fall - Car Brochure


Aggregate Planning Strategies

• The planner should make trade-off’s among capacity, inventory and backlog costs/ lost sales.

• If one increases the other two decreases. • Trade off Strategies (tailored strategies) - Chase strategy - using capacity as lever - Time flexibility from workforce or capacity strategy -

using utilisation as a lever - Level strategy – using inventory as the lever

24

Red Tomato Gardening Tool Case • Demand for Red Tomato’s

gardening tools is highly seasonal in spring.

• The first step towards

aggregate planning is to arrive at effective demand forecasting.

• Demand forecast for Red Tomato tools

Month Demand Forecast

Jan 1600

Feb 3000

Mar 3200

Apr 3800

May 2200

Jun 2200


25

Red Tomato Tools Case Contd…

• Red Tomato sells each tool at $40. • The company has a starting inventory of 1000 tools in January. • At the beginning of January, company has a workforce of 80 employees. • Plant works 20 days in each month with 8 hrs per day. • Each employee earns $4 per hour on regular time.

• Capacity of the plant is determined by total labour hours worked. • As per labour rules, no employee works more than 10 hrs overtime per

month. • SC manager goal is to have 500 units at the end of june as inventory. • Minimising cost over the planning horizon is equal to maximising profit

as all demand has to be met.


26

Various Costs for Red Tomato Case

Item Cost Material Cost $10/unit

Inventory holding cost $2/unit/month Marginal cost of stock-out/backlog $5/unit/month

Hiring and training costs $300/worker Layoff cost $500/worker

Labor hours required 4/unit Regular time cost $4/hour

Overtime cost $6/hour Cost of subcontracting $30/unit


27

Decision Variables

• Wt = Workforce size for month t • Ht = number of employees hired at the beginning of month t • Lt = number of employees laid off at the beginning of month t • Pt = number of units produced in month t • It = Inventory at the end of month t • St = number of units stocked out/backlogged at the end of

month t • Ct = number of units sub-contracted at the end of month t • Ot = number of overtime hours worked in month t where t = 1, 2, ........ , 6


28

Table Containing Decision Variable


29

Table containing Constraints


30

Formulae


Cell Cell Formula Equation M5

(Wt Constraints)

= D5-D4-B5+C5

Wt = Wt-1 + Ht -Lt

N5 (Capacity

Constraints)

= 40*D5+E5/4-I5

Pt ≤ 40 Wt + Ot /4

O5 (Inventory

Constraints)

= F4-G4+I5+H5-J5-

F5+G5

It-1 + Pt + Ct = Dt +St-1 +It - St

P5 (Over-time

Constraints)

= -E5 + 10 * D5

Ot ≤ 10 Wt

Here, M5 = 0; N5 ≥ 0; O5 = 0; P5 ≥ 0

31

Table containing Objective function


[ ]∑=

+++++++6

13010525003006640

itttttttt CPSILHoW

We need to arrive at minimised solution

32

Invoking Solver Tool and following Constraints


33

Solver Steps • Set Target Cell: C22, • Equal to : Select Min • By Changing Cells : B5 : I10 • Subject to Constraints B5 : I10 ≥ 0 (All decision variables are non-negative) F10 ≥ 500 ( Inventory at end of period 6 is at least 500) G10 = 0 (Stock-out at the end of 6 months equals 0) M5 : M10 = 0 (workforce constraints) N5 : N10 ≥ 0 (capacity constraints) O5 : O10 = 0 (inventory constraints) P5 : P10 ≥ 0 (over-time constraints) Assume linear model in options and press solve


34

Final Solution


35

Gravity Models in Supply Chain


36

Steel Appliances (SA) • Gravity location models are used to find locations that

minimises the transportation cost.

• SA manufactures high quality refrigerators and cooking ranges

- currently one plant in Denver which supplies entire US - Three parts plant located at Buffalo, Memphis and St. Louis

will supply parts for new factory which will serve Atlanta, Boston, Jacksonville, Philadelphia and Newyork.

- The coordinates, demand, required supply and shipping cost

has been collected.


37

Supply sources and Markets for SA


39

Gravity Model

• This model assumes that both markets and supply sources

can be located as grid points on plane.

• All distances are calculated as the geometric distance between two points on the plane.

• Assumes transportation cost linearly grows with quantity shipped.


40

Input Parameters

• xn, yn : coordinate location of either a market or supply source n

• Fn: Cost of shipping one unit for one mile between facility and either market or supply source n

• Dn: Quantity to be shipped between facility and market or supply source n

• If (x,y) is the location selected for the facility, the distance

dn between the facility at location (x,y) and the supply source or market n is given by:


41

Formulae

( ) ( )

−+−=

22 yxd nnn yx

FDd nn

k

nnTC ∑

=

=1

Total Cost (TC) is given by:

The optimal location is one that minimises the total TC


43

Equations

Cell Cell formula Equation Copied to

G5

=SQRT($B$16-E5)^2+($B$17-F5)^2

1

G5:G12

B19

=SUMPRODUCT(G5:G12,D5:D12,C5:C12)

2

-

After entering these formulae, invoke solver to solve the problem


45

Results

• The coordinates (x, y) = ( 681, 882) has been identified as the location of the new factory which minimises the total transportation cost.

• From the map, these coordinates are close to the border of North Carolina and Virginia.

• The manager should look for desirable sites close to optimal coordinates that have the required infrastructure and appropriate worker skills.


47

SC Trading Partners - Benchmarking

using Data Envelopment Analysis (DEA)


48

Non-Parametric Analysis Tool

- Data Envelopment Analysis (DEA)

Analyses multiple outputs and inputs simultaneously to arrive at single overall performance index

Uses Linear Programming technique to objectively derive individual weights under MCDM

Organisation under study is called as DMU Limitations

• Dependent on data

X $

1,0

0,00

0


49

Contd.


51

Motivations to use DEA

• Simplicity and ease-of-use • No need to specify relationships or trade-offs among

performance measures prior to computation • The frontier principle suits benchmarking goal

• Evaluate multiple outputs and multiple inputs simultaneously • Addresses quantitative and qualitative data together • Weights obtained by solving LPP from the data objectively


52

Inferences after using DEA

• Measures operational performance relative to peer groups

• Identify performance gaps in inefficient DMUs

• Evaluate improvement opportunities

• Assess operational progress over time


53

Methodology - Identification of input (X) and output (Y) variables of DMUs for

performance evaluation through DEA. - In general, radial efficiency (θ) measure takes the form of ratio - Considering all ‘m’ inputs and ‘s’ outputs portraying total factor

productivity measure of a DMU, the unknown variable weights will be represented as vi and ur

Virtual Input = v1x1o + ............... + vmxmo Virtual Output = u1y1o + ............... + usyso - Finally the linear programming technique will be used to maximise the

ratio and to determine weights individually

InputOutput

=θ


54

Input and Output Consideration Consideration

• Principle to be adapted for selecting inputs/outputs: lower the better for input value higher the better for output value • n = max { (m*s), (3*(m+s)) } condition has to be satisfied


55

Basic Charnes Cooper and Rhodes (CCR) Model

FPo = Fractional Programme


56

Converting FP into LPP

LPo = Linear Programme


57

Inference after Solving LPP


58

Taking Dual* of the LPP (DLP)

Where, λ is the non-negative Column Vector of Variables Θ is radial efficiency X is Input vector and Y is Output vector xo, yo is DMU under study


59

Example


60

Mathematical Formulation


61

Optimal Solution


62

Reference Set


63

Consolidated Results


64

Output Oriented Model


65

Example-Case (1 Input and 1 Output Case)


66

Graphical Representation

X $

1,0

0,00

0


67

Demo Session


68

References

1. Chien-Ming Chen, Evaluation and Design of Supply Chain Operations using DEA, Ph.D. Thesis, Erasmus University Rotterdam, 2009.

2. William W. Cooper, Lawrence M. Seiford, Kaoru Tone, Introduction to Data Envelopment Analysis and Its Uses, Springer, 2006.

3. William W. Cooper, Lawrence M. Seiford, Kaoru Tone, Data Envelopment Analysis, 2nd edition, Springer, 2007.



Session Summary

• Strategies adapted in aggregate planning with trade-off’s

has been elucidated.

• Facility location model in the form of gravity model has been applied.

• DEA models to evaluate the trading partners has been demonstrated.

70

[email protected] g M: 0 99005 14038
