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8/2/2019 REDDY SCM REDDY M 3

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SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENT

MODULEMODULE--33

BY:BY:

LAKSHMI NARAYANA REDDY.KLAKSHMI NARAYANA REDDY.KMBA,PGDFM,M.PhilMBA,PGDFM,M.Phil

K L NK L N


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INTRODUCTION TO SUPPLY CHAIN MANAGEMENTINTRODUCTION TO SUPPLY CHAIN MANAGEMENT

19701970 -- Traditional Traditional procurement,procurement, physicalphysical

distribution,distribution, materialsmaterials managementmanagement.. 19801980 -- LogisticsLogistics ManagementManagement:: TransportationTransportation..

19901990 -- SCMSCM -- materialsmaterials managementmanagement && LogisticsLogistics

ManagementManagement..

LogisticsLogistics:: integrationintegration of of information,information,

transportation,transportation, inventory,inventory, warehousing,warehousing, materialmaterial

handlinghandling && packagingpackaging..

LogisticsLogistics ManagementManagement:: itit isis aa processprocess ofof planning,planning,

implementingimplementing && controllingcontrolling thethe efficient,efficient, effectiveeffective

flowflow && storagestorage ofof goods,goods, servicesservices && relatedrelated

informationinformation fromfrom POPPOP toto POCPOC forfor thethe purposepurpose ofof

confirmingconfirming toto customercustomer requirementsrequirements..


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Supply Chain: the way that the materials flows

through organizations to customers.

Supply Chain Management: itit isis aa processprocess ofof

planning,planning, implementingimplementing && controllingcontrolling allall operationsoperationsforfor servingserving customerscustomers asas efficientlyefficiently.. OROR..

AbilityAbility toto getget closercloser toto customerscustomers.. OROR..

ItIt isis IntegrationIntegration ofof flowflow ofof products,products, informationinformation &&

fundsfunds.. OROR..

ItIt isis philosophyphilosophy incorporatesincorporates thethe toolstools && techniquestechniques

toto improveimprove thethe DifferentDifferent flowsflows..

ObjectivesObjectives OfOf SCMSCM::1.1. ToTo maximizemaximize thethe customercustomer valuevalue..

2.2. ToTo maximizemaximize thethe firmsfirms profitabilityprofitability..

3.3. ToTo minimizeminimize thethe supplysupply chainchain costscosts..


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MODULEMODULE--33

DesigningDesigning andand PlanningPlanning

TransportationTransportation NetworksNetworks:: RoleRole ofof

transportationtransportation -- modesmodes andand theirtheirperformanceperformance transportationtransportation

infrastructureinfrastructure andand policiespolicies -- designdesign

optionsoptions andand theirtheir tradetrade--offsoffs TailoredTailored transportationtransportation..


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Role of transportationRole of transportationINTRODUCTIONINTRODUCTION::

ItIt refersrefers toto thethe movementmovement ofof productsproducts fromfrom oneonelocationlocation toto anotheranother asas itit makesmakes itsits wayway fromfrom thethebeginningbeginning ofof aa supplysupply chainchain toto thethe customerscustomers handshands..

AnyAny SS CC successsuccess isis closelyclosely linkedlinked toto thethe appropriateappropriate

useuse ofof transportationtransportation.. ItIt isis aa significantsignificant componentcomponent ofof thethe costcost mostmost supplysupply

chainchain occursoccurs && itsits majormajor componentcomponent ofof logisticslogistics costcost..

SS CC alsoalso useuse responsivenessresponsiveness transportationtransportation totocentralizecentralize inventoriesinventories && operateoperate withwith fewerfewer facilitiesfacilities..

The The rolerole ofof transportationtransportation isis aa significantsignificant linklink B/WB/Wdifferentdifferent stagesstages inin aa globalglobal SCSC..

ExampleExample:: DELLDELL currentlycurrently hashas supplierssuppliers worldworld widewide..

WALLWALL MARTMART isis usingusing CROSSCROSS DOCKINGDOCKING..


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CROSSDOCKINGCROSSDOCKING

ItIt meansmeans aa processprocess inin whichwhich productproduct isis

exchangedexchanged B/WB/W truckstrucks soso thatthat eacheach trucktruck goinggoing

toto retailretail storestore hashas productsproducts fromfrom differentdifferent

supplierssuppliers.. ItIt facilitatesfacilitates productproduct mixmix functionfunction..

ItIt isis usedused toto eliminateeliminate thethe storagestorage costscosts..

InIn simplesimple wordswords itit meansmeans movementmovement ofof goodsgoodsfromfrom receivingreceiving dockdock toto shippingshipping dockdock..


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Factors Affecting TransportationDecisionsFactors Affecting TransportationDecisions22 majormajor playersplayers inin TransportationTransportation::

1.1. CarrierCarrier (party(party thatthat movesmoves oror transportstransports thethe product)product)

VehicleVehicle--relatedrelated costcost

FixedFixed operatingoperating costcost

TripTrip--relatedrelated costcost

QuantityQuantity relatedrelated costcost OHOH costcost

22.. ShipperShipper(( Supplier)Supplier) (party(party thatthat requiresrequires thethe movementmovement ofof

thethe productproduct betweenbetween twotwo pointspoints inin thethe supplysupply chain)chain)

TransportationTransportation costcost InventoryInventory costcost

FacilityFacility costcost

ProcessingProcessing costscosts

ServiceService levellevel costscosts


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1. Factors affecting Carrier decisions (party that moves ortransports the product)

Vehicle-related cost: related to costs for purchase / leaseof vehicle used for Transportation of goods.

Fixed operating cost: costs associated with terminals,airport gates & labour that are incurred whether vehiclesare in operation or not.

Trip-related cost: costs includes the price of labour &fuel incurred for each trip. It depends upon length &duration of trip.

Quantity related cost: it includes loading & unloading ofcosts.

OH cost: costs are related to planning & scheduling atransportation network.


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22.. ShipperShipper(( Supplier)Supplier) (party(party thatthat requiresrequires thethe movementmovement

ofof thethe productproduct betweenbetween twotwo pointspoints inin thethe supplysupply chain)chain) TransportationTransportation costcost:: totaltotal amountamount paidpaid toto variousvarious

carrierscarriers..

InventoryInventory costcost:: CostsCosts ofof holdingholding inventoryinventory..

FacilityFacility costcost::

ProcessingProcessing costscosts:: loadingloading && unloadingunloading ordersorders..

ServiceService levellevel costscosts::


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ModesoftransportationandtheirModesoftransportationandtheir

performance characteristicsperformance characteristics

1.1. Trucks (Road Way)Trucks (Road Way)

TLTL

LTLLTL

2.2. Rail wayRail way

3.3. Air wayAir way

4.4. Package CarriersPackage Carriers

5.5. Water wayWater way

6.6. PipelinePipeline

7.7. IntermodalIntermodal


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AIR WAYS:

1. It is used for both passengers & cargo.

2. It have a high fixed costs in infrastructure.

3. Labour & fuel costs are largely trip related.

4. Maximize the daily flying time & revenue generation per trip.

TRUCK:

1. Provides door to door operating flexibility.

2. Trucks are versatile: they can transport the products ofvarying sizes.

3. Trucks are compete with air ways for small shipment & rail

ways for large shipment.4. TL operations have relatively low fixed costs.

5. Higher fixed costs (terminals) and low variable costs.


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RailRail waysways::

1. Rail ways are primarily long distances.

2. Large volume movers of low value.

3. High density goods.

4. Rail price is used to encourage for large shipment over a long

shipment.

5. Scheduling to minimize delays / improve service.

6. Variability of delivery times.

7. Off-track delays (at pickup and delivery end).

WaterWater WaysWays::

1. Limited to certain geographic areas.

2. Very large loads at very low cost.

3. Slowest

4. Involves Inland water ways: Rivers & canals, Lakes

5. Coastal & intercoastal Ocean.


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PipelinePipeline

HighHigh fixedfixed costcost..

PrimarilyPrimarily forfor crudecrude petroleum,petroleum, refinedrefined petroleumpetroleumproducts,products, naturalnatural gasgas..

BestBest forfor largelarge andand predictablepredictable demanddemand..

Dis Advantages:Dis Advantages:

1.1. Speed is quite low.Speed is quite low.

2.2. High installationHigh installation

costs.costs.

3.3. Not flexible.Not flexible.

4.4. Ltd to only fewLtd to only few

products.products.

5.5. Ltd accessibility.Ltd accessibility.

Advantages:Advantages:

1.1. Climaticconditions have aClimaticconditions have aminimal effect.minimal effect.

2.2. Not labour intensive( noNot labour intensive( no

strikes).strikes).

3.3. Operation is done byOperation is done bycomputers.computers.

4.4. Damages are minimal.Damages are minimal.

5.5. High dependability.High dependability.


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Use of more than one mode of transportation to move

a shipment to its destination

Most common example: rail/truck

Also water/rail/truck or water/truck

Grown considerably with increased use ofcontainers Increased global trade has also increased use of

Intermodal transportation

More convenient for shippers (one entity provides the

complete service)

Key issue involves the exchange of information to

facilitate transfer between different transport modes.

Intermodal TransportIntermodal Transport


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Package CarriersPackage Carriers Transportation Companies like FedEx, UPS,

USPS, that carry small packages ranging fromletters to shipments .

Expensive

Rapid and reliable delivery Small and time-sensitive shipments

Preferred mode for e-businesses (e.g., Amazon,

Dell, McMaster-Carr) Consolidation of shipments (especially important

for package carriers that use air as a primary

method of transport)


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Transportation Infrastructure & PoliciesTransportation Infrastructure & Policies

It involves 3 majorcategories.

1. Design options for a transportation network.

2. Trade-offs in transportation design.3. Tailored transportation.


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1.Designoptions foratransportationnetwork

TheThe impactimpact ofof thisthis isis thethe performanceperformance ofof aa SCSC bybyestablishingestablishing thethe infrastructureinfrastructure withinwithin whichwhich operationaloperational

transportationtransportation decisionsdecisions areare mademade suchsuch asas SchedulingScheduling &&routingrouting areare mademade..

AA wellwell designeddesigned transportationtransportation networknetwork allowsallows aa SCSC totoachieveachieve thethe desireddesired degreedegree ofof responsivenessresponsiveness atat aa lowlow

costscosts.. ThereThere areare fivefive optionsoptions forfor transportationtransportation networknetwork::

What are the transportation options? Which one to select?On what basis?

1. Direct shipping network

2. Direct shipping with milk runs

3. All shipments via central DC

4. Shipping via DC using milk runs

5. Tailored network


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Directshippingnetwork: shipment comes

directly from suppliers to retailer stores.

Pg: 421Pg: 421


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Directshippingwithmilkruns:Directshippingwithmilkruns: it is route on which a

truck either delivers products from a single suppliers to

multiple retailers or goes from multiple suppliers to a

single retailers.

MERITS:MERITS:

1.1. EliminatesEliminates

Int

erm

ediat

e WH.Int

erm

ediat

e WH.

2.2. LowerLower

transportationtransportation

cost forsmallcost forsmall

lots.lots.

3.3. Lowerinventory.Lowerinventory.

DEMERITS:DEMERITS:

1.1. IncreasedIncreased

coordinationcoordination

Pg:422Pg:422


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AllshipmentsviacentralDC:AllshipmentsviacentralDC:

1.The retail chain divides stores by geographical

area & a DC is built for each region.

2.Suppliers sends all shipments to DC, DC will sends

to each retail stores.

11

SUPPLIERSSUPPLIERS

DCDC

RETAILESTORESRETAILESTORES


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ShippingviaDCusingmilkruns:ShippingviaDCusingmilkruns: milk runs can be used from

a DC if lots sizes to be delivered to each retail stores.

MERIT:MERIT:

DecreasedoutboundDecreasedoutbound

cost.cost.

DEMERIT:DEMERIT:

DifficultytocoordinateDifficultytocoordinateDCDC

SUPPLIERSSUPPLIERS RETAILESTORESRETAILESTORES


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Tailor

ed

n

etwork

:Tailor

ed

n

etwork

:

It reduces overall costs & improves

responsiveness.

It helps to uses a combination of cross docking &

milk runs, TL, LTL carriers along with the packagecarriers in some cases.

Merits: Transportation choice best matches the

needs of individual products & stores.

Demerits: Highest coordination complexity.


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2. Trade2. Trade--offsin TransportationDesignoffsin TransportationDesign AllAll transportationtransportation decisionsdecisions inin aa SCSC N/WN/W mustmust bebe mademade

takingtaking intointo A/CA/C theirtheir impactimpact onon inventoryinventory costs,costs, facility,facility,

processingprocessing costscosts && thethe costcost ofof coordinatingcoordinating operations,operations, asas

wellwell asas thethe levellevel ofof responsivenessresponsiveness providedprovided toto customerscustomers..

ExampleExample:: DELLDELL usesuses packagepackage carrierscarriers toto deliverdeliver PCsPCs toto

customerscustomers toto centralizecentralize thethe facilitiesfacilities && decreasedecrease thethe

inventoryinventory costcost withwith increasedincreased transportationtransportation costscosts..

TheThe managermanagercancan thenthen makemake thethe appropriateappropriate transportationtransportation

decisiondecision.. HeHe mustmust considerconsider thethe followingfollowing tradetrade offsoffs..

11.. TransportationTransportation andand inventoryinventory costcost tradetrade--offoff..

ChoiceChoice ofof transportationtransportation modemode..

InventoryInventory aggregationaggregation..

22.. TransportationTransportation costcost andand customercustomer responsivenessresponsiveness tradetrade--

offoff..


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1. Transportationandinventorycosttrade1. Transportationandinventorycosttrade--off.off.

ChoiceChoice ofof transportationtransportation modemode..

1.1. NatureNature ofof goodsgoods

2.2. AccessAccess toto carrierscarriers

3.3. PricePrice

4.4. TransitTransit timetime5.5. SecuritySecurity ofof goodsgoods..

6.6. GovtGovt regulationsregulations..

7.7. SafetySafety..

InventoryInventory aggregationaggregation.:.: itit decreasesdecreases thethe SCSC costscosts ifif thetheproductproduct hashas aa highhigh valuevalue toto weightweight ratio,ratio, highhigh demanddemand

uncertaintyuncertainty && customerscustomers ordersorders areare largelarge.. WhenWhen productproduct hashas aa

smallsmall value,value, lowlow demand,demand, ordersorders areare smallsmall thenthen SCSC costscosts willwill

increaseincrease..


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2. Transportationcostandcustomer2. Transportationcostandcustomer

responsivenesstraderesponsivenesstrade--offoff

1. The transportation costs a SC incurs is closely linked

to the degree of responsiveness the SC aims to

provide.

2. It involves temporal Aggregation ( combining ordersacross time).

It decreases a firms responsiveness because of

shipping delay but also decreases transportation

costs because of economies of scale that results from

larger shipment.


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3.Tailored Transportation

The use of different transportation networks and

modes based on customer and product

characteristics.

Most of the firms sells a variety of products & serves

many different customer segments. Example: W W grainger sells & meet customers

needs at a lowercosts by using TT.

Factors affecting tailoring:

Customer distance and density

Customer size

Product demand and value


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Customerdistance anddensityCustomerdistance anddensity

The firm must consider CD & D from WH when designing a transportation

N/W.

When a firm serves a very high density ofcustomers to the DC, it is often

best for the firm to own a fleet of trucks are used with milkruns organizing at

the DC to supply customers.

Overall this helps to makes very good use of the vehicles.

CustomersizeCustomersize

In this very large customers can be supplied using a TL carrier, where asIn this very large customers can be supplied using a TL carrier, where assmallercustomers will require an LTL carrier orMilkruns. When usingsmallercustomers will require an LTL carrier orMilkruns. When using

milkruns a shipper incurs 2 types ofcosts.milkruns a shipper incurs 2 types ofcosts.

1.1. Transportation cost based on total route distance.Transportation cost based on total route distance.

2.2. Delivery costs based on number of deliveries.Delivery costs based on number of deliveries.

ProductdemandandvalueProductdemandandvalue

The cycle inventory for high value products with high demand

is disaggregated to save transportation costs.


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Routing & schedulingin TransportationRouting & schedulingin Transportation

The DC manager must first assign customers to be served by

each vehicle & then decision on each vehicles route. It involves 2 computational procedures:

1. Saving matrix method: it is simple to implement & can beused to assign customers to vehicles even when delivery timewindows or otherconstraints exists.

There are 4 steps: identify the distance matrix, identify thesaving matrix, assign customers to vehicles / routes,sequences customers within routes.

2. Generalized assignment matrix: it is more sophisticated than

saving matrix, usually results in better solution when there arefew delivery constraints to be satisfied.

There are 4 steps in this: Assign seed points for each route,evaluate insertion costs for each customers, assigncustomers to routes, sequence customers with in routes.


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