seminar report on supply chain management

Seminar Report (730001) entitled

“Supply Chain Management”

Submitted by

Mehta Ankur Dilipbhai(Enrollment No. 120110746007)

Academic Year 2013-14 (Third Semester)

In partial fulfillment of the requirements for

Master of Engineering(Industrial Engineering)

Seminar Co-ordinator

Dr. Hemant R Thakkar

Department of Mechanical Engineering

G H Patel College of Engineering & Technology

Gujarat Technological UniversityAhmedabad, Gujarat

M.E SEM III Seminar on “Supply Chain Management”

G H Patel College of Engineering & Technology

Charutar Vidya Mandal Institution

Vallabh Vidyanagar – 388 120

CERTIFICATECERTIFICATEDate: 26/10/2013

This is to certify that the Seminar Report entitled, “Supply Chain Management”, is original study and review of literature carried out by myself. The literature reviewed from other sources has been acknowledged in the report. The seminar is part of curriculum of the degree of ‘Master of Engineering’ in ‘Industrial Engineering’ at Gujarat Technological University (GTU), Ahmadabad pursued during the first semester of academic year 2013-14.

Place: V. V. Nagar Name: Mr. Mehta Ankur D.Date:26/10/2013 Enrollment No.: 120110746007--------------------------------------------------------------------------------------This is to certify that the above mentioned “seminar” is studied and presented in the department by above mentioned student. Dr. Hemant R Thakkar Dr. Darshak Desai Seminar Coordinator Head of the Dept.


ACKNOWLEDGMENTI would like to take this opportunity to best of my Acknowledge on all people who have

directly or indirectly helped me in making seminar report and to turn it up into a successful

piece of work. It was an educational phase while studying at the Master in engineering

(industrial Engineering) working with highly devoted engineering faculties and probably

remains the most memorable experience of my life. Hence they indirectly involved in my

seminar report work. The encouragement and help received from my family members,

friends and colleagues.

It is a great owner for me to making seminar report for G H PAREL COLLEGE OF

ENGINEERING AND TECHNOLOGY, V.V. NAGAR with immense pleasure; I am

present this SEMINAR REPORT ON SUPPLY CHAIN MANAGEMENT.

I would like to convey my sincere regards for Dr Darshak .A. Desai (H.O.D.) for giving me

the opportunity of exposing to the practical development of the aspects that I study in my

curriculum. I would like to thank my seminar guide Dr Hemnat.R. Thakkar who has

enabled to complete this documentation according to prescribed standards of G H PATEL

COLLEGE OF ENGINEERING AND TECHNOLOGY and GUJARAT

TECHNOLOGICAL UNIVERSITY.

(Ankur D Mehta)

(Enrollment No: 120110746007)


TABLE OF CONTENTS TITLE

CERTIFICATE

ACKNOWLEDGEMENT

INDEX

LIST OF FIGURE

LIST OF TABLE

ABBREVIATIONS

ABSTRACT

1: Introduction to Supply Chain Management 1

2: Logistics and SCM 16

3: Dynamics of Supply Chain 20

4: New Emerging World Class Practices in SCM 29

5: Outsourcing and Procurement 41

6: Information Technology in SCM 45

7: Issues, Challenges and Opportunities in Implementation of

SCM 51

8: Conclusion 58

REFERENCES 59

INDEX


CHAPTER NO TITLE PAGE NO


1 Introduction to Supply Chain Management 1

1.1 Necessity of SCM for Industry 2

1.2 The Evolution of SCM 3

1.3 Various Definition of SCM 5

1.4 Participant in the SCM 6

1.5 Objective of Supply Chain 8

1.6 Benefits of SCM 9

1.7 The Reason of SCM is Important 9

1.8 Supply Chain Drivers 10

1.9 Efficiency vs Responsiveness 12

1.10 SCM Decision Making 13

1.11 The Factor Consider in SCM 14

1.12 Gartner 2013 top 10 Supply Chain Company in the World 15

2 Logistics & SCM 16

2.1 Logistics View Point 16

2.2 Logistics Field 16

2.3 Relation between Logistics & SCM 18

3 Dynamics of SCM 20

3.1 The Push-Pull Supply Chain 20

3.2 Bullwhip Effect(Whiplash Effect/ Whipsaw Effect/ Forrester

Effect)

23

3.3 The Magnitude of Supply Chain 27

3.4 The Potential of Supply Chain 28

4 New Emerging World Class Practices in SCM 29

4.1 List of World Class Practices Technique in SCM 29

4.2 Vendor Manage Inventory(VMI) 30

4.3 Reverse Logistics 32

4.4 Third Party Logistics (3PL) 34

4.5 Forth Party Logistics (4PL) 35

4.6 Milk Run System 36


4.7 Transshipment 38

4.8 Bar Coding 38

4.9 RFID 39

5 Outsourcing & Procurement 41

5.1 Outsourcing 41

5.2 Procurement 43

6 Information Technology in SCM 45

6.1 Role of IT for SCM 45

6.2 Importance of IT in SCM 45

6.3 Function of IT in SCM 46

6.4 IT software for SCM 47

6.5 Electronic Data Interchange (EDI) 47

6.6 Enterprise Resource Planning (ERP) 48

7 Issues, Challenges and Opportunities in Implementation of

SCM

51

7.1 Key Implementation Issues 51

7.2 The Challenges 53

7.3 The Opportunities 55

8 Conclusion 58

References 59

LIST OF FIGURE

SR NO FIGURE TITLE PAGE NO


1.1 The evolution of SCM 3

1.2 Simple Diagram of SCM 5

1.3 SCM Diagram 6

1.4 The main SCM Drivers 10

1.5 Trade off Between Cost & Responsiveness 13

2.1 Inbound vs. Outbound 16

2.2 Simplified SCM 18

2.3 Relating Marketing Channel between Logistics Management & SCM 19

3.1 Typical Configuration Scheme of a Push System 21

3.2 Typical Configuration Scheme of a Pull System 22

3.3 Information Distortion: The Bullwhip Effect 23

3.4 The Impact of Bullwhip Effect 24

4.1 Register Trademark of Accenture 35

4.2 4PL provider 36

4.3 Milk Run System 37

4.4 Interface of Bar Coding 38

4.5 RFID Component 39

5.1 Top Reason for Company Outsourcing 42

5.2 Supply Planning Procurement Process Step 44

6.1 Functional Role of IT in SCM 46

6.2 Various ERP Link in Organization 49

LIST OF TABLE

SR NO TABLE TITLE PAGE NO


1.1 Gartner top 10 Supply Chain Company List in the World in 2013 15

4.1 Forward vs. Reverse Logistics 33

4.2 A & A’s Top 10 Global 3PL(May 2012) 35

6.1 Leading INDIA Companies & The ERP Software Used 50

ABBREVIATIONSSCM- Supply Chain Management


Pos- Point of Sale

EDI- Electronic Data Interchange

ICT- Information & communication Technology

OEM- Overall Equipment Manufacturing

3PL- Third Party Logistics

4PL- Forth Party Logistics

RFID- Radio Frequency Identification

DC- Distribution Centre

IT Information Technology

MRP-1- Material Requirements Planning

MRP-2- Manufacturing Resource Planning

ERP- Enterprise Resource Planning

PLC- Product Life Cycle

FMCG- Fast moving Consumer Good

SME- Small and Medium Enterprises

CRP- Capacity Requirement Planning

CRM- Customer Relationship Management

ABSTRACTSupply chain has evolved dramatically over the last four decades. Managing the entire supply

chain is a very challenging task. One of the most significant paradigm shifts of modern


business management is that individual businesses no longer compete as solely autonomous

entities, but rather within supply chains. The ultimate goal of the supply chain management

is to deliver the best customer services through coordinanated of material, finances and

information which flow across a network and the entire customer including internal and the

external customers. The key feature of the supply chain system is the increasing the use of

information technology enablement which extend to customer and suppliers at all the level.

In this emerging competitive environment, the ultimate success of the business will depend

on management’s ability to integrate the company’s intricate network of business

relationships. Most of the supply chain management is being facilitated by the use of

enterprise level resources planning and integration system along with the latest technology in

transportation, distribution and replenishment.

CHATER 1

INTRODUCTION TO SUPPLY CHAIN


A supply chain consists of the flow of products and services from raw materials

manufacturers intermediate products manufacturers end product manufacturers wholesalers

and distributors and retailer connected by transportation and storage activities and integrated

through information, planning and integration activities.

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer

request. The supply chain not only includes the manufacturer and suppliers, but also

transporters, warehouses, retailers, and customers themselves. Within each organization, such

as manufacturer, the supply chain includes all functions involved in receiving and filling a

customer request. These functions include, but are not limited to, new product development,

marketing, operations, distribution, finance, and customer service.

Consider a customer walking into a Wal-Mart store to purchase detergent. The supply chain

begins with the customer and their need for detergent. The next stage of this supply chain is

the Wal-Mart retail store that the customer visits. Wal-Mart stocks its shelves using

inventory that may have been supplied from a finished-goods warehouse that Wal-Mart

manages or from a distributor using trucks supplied by a third party. The distributor in turn

is stocked by the manufacturer (say Procter & Gamble [P&G] in this case). The P&G

manufacturing plant receives raw material from a variety of suppliers who may themselves

have been supplied by lower tier suppliers. For example, packaging material may come from

Tenneco packaging while Tenneco receives raw materials to manufacture the packaging from

other suppliers.

A supply chain is dynamic and involves the constant flow of information, product, and funds

between different stages. In our example, Wal-Mart provides the product, as well as pricing

and availability information, to the customer. The customer transfers funds to Wal-Mart.

Wal-Mart conveys point-of-sales data as well as replenishment order via trucks back to the

store. Wal-Mart transfers funds to the distributor after the replenishment. The distributor

also provides pricing information and sends delivery schedules to Wal-Mart. Similar

information, material, and fund flows take place across the entire supply chain.

This example illustrate that the customer is an integral part of the supply chain. The primary

purpose from the existence of any supply chain is to satisfy customer needs, in the process

generating profits for itself. Supply chain activities begin with a customer order and end


when a satisfied customer has paid for his or her purchase. The term supply chain conjures

up images of

product or supply moving from suppliers to manufacturers to distributors to retailers to

customers along a chain. It is important to visualize information, funds, and product flows

along both directions of this chain. The term supply chain may also imply that only one

player is involved at each stage. In reality, a manufacturer may receive material from several

suppliers and then supply several distributors. Thus, most supply chains are actually

networks. It may be more accurate to use the term supply network or supply web to describe

the structure of most supply chains.

A typical supply chain may involve a variety of stages.

Component/Raw material suppliers.

Manufacturers/Produces.

Wholesalers/Distributors.

Retailers.

Customers.

The appropriate design of the supply chain will depend on both the customer’s needs and

the roles of the stages involved.

1.1NECESSITY OF SCM FOR INDUSTRY:Supply chain management takes into consideration every facility that has an impact on cost

and plays a role in making the product conform to customer requirements: from supplier and

manufacturing facilities through warehouses and distribution centers to retailers and stores.

Indeed, in some supply chain analysis, it is necessary to account for the suppliers’ suppliers

and the customers’ customers because they have an impact on supply chain performance.

Supply chain management is to be efficient and cost-effective across the entire system; total

system wide costs, from transportation and distribution to inventories of raw materials, work

in process, and finished goods, are to be minimized. Thus, the emphasis is not on simply

minimizing transportation cost or reducing inventories but, rather, on taking a systems

approach to supply chain management. Because supply chain management revolves around

efficient integration of suppliers, manufacturers, warehouses, and stores, it encompasses the


firm’s activities at many levels, from the strategic level through the tactical to the operational

level.

1.2 THE EVOLUTION OF SUPPLY CHAIN MANAGEMENTIn the 1980s, companies discovered new manufacturing technologies and strategies that

allowed them to reduce costs and better compete in different markets. Strategies such as just

in-time manufacturing, kanban, lean manufacturing, total quality management, and others

became very popular, and vast amounts of resources were invested in implementing these

strategies. In the last few years, however, it has become clear that many companies have

reduced manufacturing costs as much as is practically possible. Many of these companies are

discovering that effective supply chain management is the next step they need to take in

order to increase profit and market share.

Figure1.1 The evolution of SCM

Materials Management:

Ensuring various aspect related to material flow within organization includes transportation,

services, inventory management, acquisition, storage and handling of materials.

Physical Distribution Management:


Addressing the various issue of inventory (raw matls. And finished goods at the point of

sale), all outbound transportation, warehousing, storage and communication from the focal

firm. More emphasis on outbound transportation as well as storage, packaging and

warehousing ensuring safe and timely delivery of finished goods to customer.

Logistics Management:

Post World War II – movement of huge supplies, rising interest’s rates, oil crisis, severe

Competition made it tough to get reqd. matls. Easily and sell the products at required profit.

This development emerged Logistics Mgmt.wider importance to managing flows of matls.

Components, manufactured parts, and packaged products through and out of the firm.

Integrated Logistics Management:

Integration of logistics function as a single unified system to optimize and control the entire

process of materials, products, and information moving into, through, and out of the firm.

Inbound materials from different suppliers, their transportation, handling WIP, as well as

outgoing traffic and transportation requirement together with the flow of information at

different levels. Reverse flow of matls. Product returns, recalls, information, credit, cash etc.

Supply Chain Management:

It was stared in the mid 1980s. It is the expanded version of logistics processes. Logistics is

concerned with an individual firm while SCM is concerned with all the activities in a

logistical channel environment. It is the cumulative efforts and coordination of entire channel

partners.

Some of the key elements are as follows.

Long term partnership with vendors with focus on vendor development.

Free flow of information amongst chain members.

Long term relations with customer as well as supply chain partners suppliers,

subcontractors, 3PL, distribution centers, retailers etc.

Integrated Supply Chain Management:

It was stared in the mid 1990s. At each level the use of materials facilities, people, finance

and system must be coordinated and harmonized as the part of a single integrated system.

Channel alignment creating a right balance between material order quantity, capacity

requirements, and prices, ownership of materials, transportation, and information processing


across all the channel partners. Management of materials and information flows at strategic,

tactical and operational levels

1.3 VARIOUS DEFINITION OF SUPPLY CHAIN MANAGEMENT I. “It is the strategic management of activity involve in the purchasing and conversation

of material to finished product delivered to customer”

Figure1.2 Simple diagram of SCM

II. “Supply Chain Management is primarily concerned with the efficient integration of

suppliers, with the efficient integration of suppliers, factories, warehouses and stores

so that merchandise is produced and distributed in the right quantities, to the right

locations and at the right time, and so as to minimize total system cost subject to

satisfying service level requirements.”

III. “SCM is a set of approaches utilized to efficiently integrate suppliers, manufacturers,

warehouses and stores so that merchandise is produced and distributed at the right

quantities, to the right locations, and at the right time, in order to minimize system

wide costs while satisfying service level requirements.”

IV. “SCM is the integration of key business processes from the end user through original

suppliers that provides products, services and information and that add value for

customers and other stakeholders.” (As per Global Supply Forum)

V. “SCM is simply and ultimately the business management, whatever it may be in its

specific context, which is perceived and enacted from the relevant supply chain

perspective.” (Fundamental of supply chain management.


Figure1.3 SCM diagram

1.4 PARTICIPANTS IN THE SUPPLY CHAINIn any given supply chain there is some combination of companies who perform different

functions. There are companies that are suppliers manufacturers/ producers,distributors or

wholesalers, retailers, and companies or individuals who are the customers, the final

consumers of a product. Supporting these companies there will be other companies that are

service providers that provide a range of needed services.

Suppliers

The one of the most important part of successful supply chain management are suppliers who

provide the raw material to the manufacturers. The suppliers timely delivered the required

raw material so that industry can fulfill the customers demand in a specific time. Therefore

the selection of the suppliers is a most important part of the supply chain.

Manufactures/Producers

Manufacturers or produces are organizations that make a product. This includes companies

that are producers of raw materials and companies that are producers of finished goods.

Producers of raw materials are organizations that mine for minerals, drill for oil and gas, and

cut timber. It also includes organizations that farm the land, raise animals, or catch seafood.

Producers of finished goods use the raw materials and subassemblies made by other

producers to create their products. Manufacturers can create products that are intangible

items such as music, entertainment, software or designs. A product can also be a service such


as mowing a lawn, cleaning an office, performing surgery or teaching a skill. In many

instances the producers of tangible, industrial products are moving to areas of the world

where labor is less costly. Producers in the developed world of North America, Europe, and

parts of Asia are increasingly producers of intangible items and services.

Distributors

Distributors are companies that take inventory in bulk from producers and deliver a bundle of

related product lines to customers. Distributors are also known as wholesalers. They typically

sell to other businesses and they sell products in larger quantities than an individual

consumer buy Distributors buffer the producers from fluctuations in product demand by

stocking inventory and doing much of the sales work to find and service customers. For the

customer, distributors fulfill the “Time and Place” function. They deliver products when and

where the customer wants them a distributor is typically an organization that takes ownership

of significant inventories of products that they buy from producers and sell to consumers. In

addition to product promotion and sales, other functions the distributor performs are

inventory management, warehouse operations, and product transportation as well as customer

support and Post sales service. A distributor can also be an organization that only brokers a

product between the producer and the customer and never takes ownership of that product.

Retailers

Retailers stock inventory and sell in smaller quantities to the general public. This

organization also closely tracks the preferences and demands of the customers that it sells to.

It advertises to its customers and often uses some combination of price, product selection,

service, and convenience as the primary draw to attract customers for the products it sells.

Discount department stores attract customers using price and wide product selection. Upscale

specialty stores offer a unique line of products and high levels of service. Fast food

restaurants use convenience and low prices as their draw

Customers

Customers or consumers are any organization that purchases and uses a product. A customer

organization may purchase a product in order to incorporate it into another product that they

in turn sell to other customers or a customer may be the final end user of a product who buys

the product in order to consume it.


1.5 OBJECTIVES OF SUPPLY CHAINThe objectives of a supply chain are manifold but most of them are derived from the primary

objectives.

Primary Objectives:-

Primary objectives comprises creating a superior mutual value for the customer in terms of

product and service delivered at a time and place respond to customer needs and demand. By

value its meant that the worth of the product and serviced delivered to the customer must far

exceed the efforts and expenses put in by the company in fulfilling the customer’s order

which gets paid in the form of price by the customers.

Secondary Objectives:-

I. Profitability

There must be supply chain profitability not only at individual stages or to individual

partners. The revenue must exceed the expenses or the cost of the supply chain profitability.

II. Reliability

A supply chain aims to provide time and space specific delivery with a superior service level

in fulfilling the order practically with negligible stock out rates.

III. Flexibility

A good supply chain must be flexible to absorb fluctuations in demand without any extra

cost. It refers to the upside production flexibility that can absorb extra demand. A flexibility

to absorb20 per cent extra demand is quite desirable.

IV. Responsiveness

It refers to how much time takes to meet the customer’s needs, particularly when the design

and volume needs to undergo a change.

V. Turnover Rate

It is important that high turnover rate of assets used in the supply chain whether financial,

space and reduce the risk of obsolescence, increase productivity and productivity

on the investment used in these assets.

VI. Communication and Coordination

A supply chain objective is to provide good communication, coordination, information

sharing ability and competences across all the channel partners right from suppliers to the


distributor/retailers the 3 PLs and finally customers.

1.6 BENEFITS OF SCMKey benefits accrued by implementation of SCM are as follows

Reduction in working capital deployment cost.

Re-engineering, simplification and optimization of process across different components

and stages at different levels.

Optimization of workforce across various orders at different levels and locations.

Reduction in time to market through disintermediation and better logistics.

Bringing about accurate inventory forecasting and planning.

Ensuring certain in process/work in process material and finished goods flow.

Improved satisfaction levels of internal and external customers.

1.7 THE REASON FOR SCM IS IMPORTANT Supply chain is very important because of flow of goods from one destination to other

destination with cost effective and on timely delivery of goods to the business needs and

gives the profit to the organization.

Supply Chain consists of many trading partners, from raw materials to finished products.

Traditional flow of supply chain from suppliers to consumer is as follow

Supplier--Manufacturer--Wholesaler—Retailer-Customer

Each party consists of 5 logistics activities, namely, customers service, production planning,

purchasing, warehousing and transportation, purchasing. Logistics focuses on activities

inside a company while supply chain focuses on relationship between each company. Supply

Chain Management is important because of relationship between each party. If every party

joins hand and work together, it will create cost savings and time to market reduction and

everyone will enjoy the benefit.

To gain efficiencies from procurement, distribution and logistics.

To make outsourcing more efficient.

To reduce transportation costs of inventories.

To meet the challenge of globalization and longer supply chains.


1.8 SUPPLY CHAIN DRIVERS Production:-

This driver can be made very responsive by building factories that have a lot of excess

capacity and that use flexible manufacturing techniques to produce a wide range of items. To

be even more responsive, a company could do their production in many smaller plants that

are close to major groups of customers so that delivery times would be shorter. If efficiency

is desirable, then a company can build factories with very little excess capacity and have the

factories optimized for producing a limited range of items. Further efficiency could be gained

by centralizing production in large central plants to get better economies of scale.

Figure1.4 The main SCM drivers

Inventory:-

Responsiveness here can be had by stocking high levels of inventory for a wide range of

products. Additional responsiveness can be gained by stocking products at many locations so

as to have the inventory close to customers and available to them immediately. Efficiency in

inventory management would call for reducing inventory levels of all items and especially of

items that do not sell as frequently. Also, economies of scale and cost savings could be gotten

by stocking inventory in only a few central locations.


Location:-

A location approach that emphasizes responsiveness would be one where a company opens

up many locations to be physically close to its customer base. For example, McDonald’s has

used location to be very responsive to its customers by opening up lots of stores in its high

volume markets. Efficiency can be achieved by operating from only a few locations and

centralizing activities in common locations. An example of this is the way Dell serves large

geographical markets from only a few central locations that perform a wide range of

activities.

Transportation:-

Responsiveness can be achieved by a transportation mode that is fast and flexible. Many

companies that sell products through catalogs or over the Internet are able to provide high

levels of responsiveness by using transportation to deliver their products, often within 24

hours. FedEx and UPS are two companies who can provide very responsive transportation

services. Efficiency can be emphasized by transporting products in larger batches and doing

it less often. The use of transportation modes such as ship, rail, and pipelines can be very

efficient. Transportation can be made more efficient if it is originated out of a central hub

facility instead of from many branch locations.

Information:-

The power of this driver grows stronger each year as the technology for collecting and

sharing information becomes more widespread, easier to use, and less expensive.

Information, much like money, is a very useful commodity because it can be applied directly

to enhance the performance of the other four supply chain drivers. High levels of

responsiveness can be achieved when companies collect and share accurate and timely data

generated by the operations of the other four drivers. The supply chains that serve the

electronics markets are some of the most responsive in the world. Companies in these supply

chains from manufacturers, to distributors, to the big retail stores collect and share data about

customer demand, production schedules, and inventory levels.

Thus it is important to know the main resource of the supply chain drivers and use it up to the

certain extend so that the organization get the maximum out of its supply chain and satisfy

the customer requirement in time.


1.9EFFICIENCY V/S.RESPONSIVENESS IN SCMEfficiency refers to output to input ratio. Efficiency could be simply defined as the ratio of

revenue to cost or profit generated. It is easier to measure cost as compared to profit, cost is

more often used as a measure of efficiency.

Responsiveness is a measure of the speed of reaction to a customer demand. It is measured as

a unit of time in normal parlance and some authors include in it rightfully the level of

customer service. A responsive supply chain focuses on the time and level of service to

customer demand.

Efficient Supply Chain

Efficiency approach is common in cases of necessity items, utility products, and standard

goods where the product market is mature and normally goods or services are commoditized.

Some examples food items, dairy products, popular models of functional consumer products

segments.

The other key parameter of an efficient supply chain is that product design and facilities

management are oriented towards minimizing costs. A higher utilization of facilities and

effective product design, with standard usage and functionality for the customer.

Responsive Supply Chain

Responsive approach is common in cases of high-value items, personalized items that require

customization and new products that are at early growth stages of a product lifecycle

Some examples Trendy motorcycles with high horsepower targeted at the youth segment are

highly priced, hi-tech goods, medical equipment, garments, fashion jewellery, mobiles,

electronic goods, home furniture, and selected automobile segment in passenger cars,

commercial vehicles and two wheelers, and agriculture equipment furniture, and selected

automobile segment in passenger cars, commercial vehicles and two wheelers, and

agriculture equipment including tractors.

The other key parameter of a responsive supply chain is that product design and facilities

management should be configured towards creating modularity, allowing postponement of

product completion Modularity allows product differentiation and high degree of

customization.


Figure1.5 Trade of between cost and responsiveness

The right combination of efficiency vs. responsiveness in each of these drives allows a

supply chain to “increase throughput” while simultaneously reducing inventory and operating

expense

1.10 SCM DECESION MAKINGSupply Chain Management processes and technology work to ensure the supply chain is

operating efficiently at the lowest cost with optimum customer satisfaction. To this end,

decisions are made at three distinct levels:

Strategic:

At the strategic level, organizations focus on high level decisions that impact the entire

organization. Decisions often revolve around manufacturing site size and/or location,

supplier partnerships, sales markets, or the products or services to be manufactured or

delivered.

1. Determination of the number, size, location of new plants,D.C and warehouses.

2. Acquisition of new production equipment and the design of working centers within each

plant.

Tactical:

Tactical level decision making focuses on measures to generate cost benefits like adopting


best practices or creating a purchasing strategy with selected suppliers. Effective allocation

of manufacturing and distribution resources over a period of several months.

1. Purchasing and production decisions

2. Work-force size

3. Inventory policies

Operational:

Decisions at this level are made on a daily basis and impact how products/services move

through the supply chain. Examples include production schedule changes or warehouse

product movement.

1. The assignment of customer orders to individual machines

2. Dispatching, expediting and processing orders

3. Vehicle scheduling, routing

1.11 THE FACTOR CONSIDER IN SCMBefore design a supply chain for any organization some of the factor keep in mind which will

help to design a effective supply chain across the world.

Consumer Expectations and Competition

Now a days due to increase in the competition to become the best company gives more

importance’s to their customer demand and try to fulfill their requirement. Because of that

the power has shifted to the consumer.

Globalization

A company will not compete only to the local market or their territory or their country only.

The competition is all over the world to capitalize on emerging markets.

Information Technology

The revolution in the supply chain is begun with the introduction of the It in the Supply

chain. E-commerce, Internet, EDI, scanning data a new trend of emerge is online data

sharing across all the function of the supply chain and supply chain is become more effective

due to the introduction of the various software which secure all the data of the company. So

company wisely implements new technology to enhance the business profit.

Government Regulations

The biggest barriers for SCM are government rules and regulations and it will change with


each country so the design of scm is so critical that it will follow all the rules and regulation

of each country.

Environment Issues

Now a day each country is affected by the green house effect. So the biggest challenges for

any organization before design scm are to effective utilization of each resource which is

available and reduces the waste.

1.12 GARTNER 2013 TOP 10 SUPPLY CHAIN COMPANY IN THE

WORLDThe Gartner Supply Chain Top 10 is about leadership. Every year Gartner identify the

companies that best exemplify the demand-driven ideal for today's supply chain and

document their best practices, which can help all companies move closer to their demand-

driven goa1 Apples.

TABLE 1.1 Gartner top 10 supply chain company list in the world in 2013

Sr No Organization Name

1 Apples

2 McDonald's

3 Amazon.com

4 Unilever

5 Intel

6 Proctor & Gamble

7 Cisco System

8 Samsung Electronics

9 The Coca-Cola Company

10 Colgate-Palmolive


CHAPTER 2

LOGISTICS AND SUPPLY CHAIN MANAGEMENTLogistics is an entire process of materials and products moving into, through and out of the

firm. (As per Institute of Supply Chain Management)

Logistics is the management of the flow of resources between the point of origin and the

point of consumption in order to meet some requirements. The logistics of physical items

usually involves the integration of information flow, material handling, production,

packaging, inventory, transportation, warehouse and security.

2.1 LOGISTICS VIEW POINTInbounding Logistics is one of the primary processes of logistics, concentrating on

purchasing and arranging the inbound movement of materials, parts, and/or finished

inventory from suppliers to manufacturing or assembly plants, warehouses, or retail stores.

Outbound Logistics is the process related to the storage and movement of the final product

and the related information flows from the end of the production line to the end user.

Figure2.1 Inbound vs. Outbound

2.2 LOGISTICS FIELD Procurement Logistics

Production Logistics

Distribution Logistics

Reverse Logistics and Forward Logistics

Green Logistics


http://en.wikipedia.org/wiki/Reverse_logistics

http://en.wikipedia.org/wiki/Green_logistics

Procurement logistics

It consists of activities such as market research, requirements planning, and make-or-buy

decisions, supplier management, ordering, and order controlling. The targets in procurement

logistics might be contradictory: maximizing efficiency by concentrating on core

competences, outsourcing while maintaining the autonomy of the company, or minimizing

procurement costs while maximizing security within the supply process.

Production logistic

It connects procurement to distribution logistics. Its main function is to use available

production capacities to produce the products needed in distribution logistics. Production

logistics activities are related to organizational concepts, layout planning, production

planning, and control.

Distribution logistics

The main tasks are delivery of the finished products to the customer. It consists of order

processing, warehousing, and transportation. Distribution logistics is necessary because the

time, place, and quantity of production differ with the time, place, and quantity of

consumption.

Reverse logistics

It includes the management and the sale of surpluses, as well as products being returned to

vendors from buyers. Reverse logistics stands for all operations related to the reuse of

products and materials. It is "the process of planning, implementing, and controlling the

efficient, cost effective flow of raw materials, in-process inventory, finished goods and

related information from the point of consumption to the point of origin for the purpose of

recapturing value or proper disposal. The opposite of reverse logistics is forward logistics.

Forward logistics is “Process of planning, implementing and controlling the efficient, cost-

effective flow of raw materials, in-process inventory, finished goods and related information

from the point of origin to the point of consumption for the purpose of conforming to

customer requirements”

Green Logistics

Describes all attempts to measure and minimize the ecological impact of logistics activities

This includes all activities of the forward and reverse flows. This can be achieved through


intermodal freight transport, path optimization, vehicle saturation and city logistics.

Figure2.2 Simplified SCM

2.3RELATIONSHIP BETWEEN LOGISTICS AND SCMMany global transport organization activities reside under the logistics management

umbrella, including warehousing, inventory management, private i.e.in-house truck fleets and

purchased transportation such as air, water, highway or rail.

Logistics

Logistics focuses on the actual transportation and storage of goods.

Logistics Management is an increasingly important part of competitive positioning from the

perspective of the global transport industry. To stay competitive, exporters must make the

right amount of product and services available in the right place at the right time It deals with

inbound and outbound freight, communications during transit, storage and warehousing,

delivery of goods and freight, coordination among third party carries, fleet management, and

other activities directly related to the actual transportation of goods from one point to

another.

Supply Chain Management

For the most part of SCM encompasses a bigger picture than Logistics Management.

If one studies the term Supply Chain Management from a historical perspective, it would

appear SCM has become the more commonly used term, particularly with new and old

industry associations alike including or changing their name to include the words “supply

chain.”

Companies increasingly rely on SCM as a key competitive weapon. Impressive results,

including dramatic reductions in cycle time and accelerated cash flows, have been noted as a

result of effective supply chain management. Supply Chain Management is the umbrella


which covers all aspects of the sourcing and procurement of goods. SCM forms and manages

the business to business links that allow for the ultimate sale of goods to consumers.

Organizations Require Both Logistics and SCM to Succeed

Logistics management is concerned with the movement of goods and services from suppler

to consumer. SCM shares this concern, but additionally is responsible for the flow of

information and funds from supplier to consumer. Perhaps this is the reason for many

industries to believe that as long as there is a matrix-type relationship between the two, it

should be up to the individual organization to decide what emphasis works best to meet its

needs. The verdict is clear. Logistics and SCM cross paths it should be expected that SCM

and logistics will both remain intrinsically intertwined and essential to organization success

Figure 2.3 Relating marketing channels between Logistics Management & SCM


CHAPTER 3

DYNAMICS OF SUPPLY CHAINSCM is a very dynamic process in terms of the flow involved, the performances at the level

of the time, place, delivery, cost and service and the inbound and outbound logistics and

operation synchronized purchasing, procurement involved. This become more challenging

particularly in an IT enable environment and even more so lean economy. The customer

wants the best value from the delivery of order. The supply chain need alignment at its

different stages in terms of price, transportation, inventory level, and the ownership involved

it could well be in terms of the trade off in the number of purchases order versus the

inventories level carried and quantity of discount versus the saving accrued due to reduce

inventories. Uncertainties and variations in supply chain could also comprise financial risks.

There could be a distortion in demand or phantom demand created due to tendencies such as

order batching, fluctuation in pricing, on availability of point of sale (POS) data at the

retailing end leading to inaccurate demand forecasting.

Dynamic decisions are enabled by information and communication technology (ICT) which

invariably involves electronic data interchange (EDI) across all the the channel partners,

downstream and upstream. The reveres logistics of product returns, recalls, reused, empty

containers, cash refunds, and discounts from downstream to upstream could turns supply

chain processes more dynamic.

3.1THE PUSH- PULL MECHANISMThe Push Supply Chain

Under Push model, products are manufactured or procured based on anticipated customer

orders. This model is also known as Built to Inventory or Built to Sock. The name itself

reveals its functionality. Products are manufactured in anticipation of customer needs. There

are no prizes for identifying industries that use push model, it is obvious that retail heavily

uses push model. Even though direct to store or cross docks are implemented, overall retail

supply chain is based on push model. Some of the big names in the retail industry are trying

to adopt the hybrid model which is a combination of pull and push.

Some of the key characteristics are as follow


High inventory costs

Challenging working capital requirements due to low inventory turns

Huge warehousing and distribution costs

Inability to meet dynamic market conditions and

Seasonal demand and off the shelf product

Push programs represent a top down approach. The core assumption of push programs is that

demand can be anticipated and that it is more efficient and reliable to mobilize resources in

prespecified ways to serve this demand. However, in reality globalization posed several

challenges and one of them is hyper competition.

Figure 3.1 Typical Configuration Scheme of a Push System

Hyper-competition is a state, in which the rate of change in the competitive rules of the game

are evolving rapidly and business survival is becoming a challenge. As the customers are

becoming demanding, if the product is not available in the store, they are willing to look at

other options in the market place. This is forcing retailers carry huge inventories and opt for

low cost sourcing models which in turn increase the procurement cycle time. In case of

demand slump due to financial recession or change buying habits or seasonal weather

conditions, businesses are forced to create artificial demand by unleashing promotions in a

scale never seek in market place. To objective is to draw the customer to the store and try to

sell the product. Product proliferation and Scrambled Merchandising is further making push

model more complex and challenging for the retail industry and for push model.

The Pull Supply Chain

Under pull supply chain, products are manufactured or procured based on specific customer

requests. We also know it as “Built to Order” or “Configured to Order” model. We often see

this model operating in IT/High Tech Industries, where customization is the competitive


advantage. Briefly, we have seen this model in automotive industry and it is being used in

high end luxury market segment. The objective of this model is to minimize the Inventory

carrying and optimize supply. Pull model is as a response to growing uncertainty in demand

and short product cycle.

Some of the key characteristics of this model are as follow

Volatile demand situation

High rate of Customization

Minimal Inventory Carrying

Not a off the shelf product

Highly dynamic and effective distribution network.

Figure 3.2 Typical Configuration Scheme of a Pull System

Even though there are many challenges in implementing a pull supply chain in a globalized

environment, converting a push supply chain into a pull supply chain is considered as next

frontier of innovation and lean thinking. Particularly if we are able to implement pull process

for procurement activity and take advantage of Point of Sale information to provide the

demand visibility to suppliers, it would be a great innovation. Again supply chain visibility is

a very challenging aspect and costly proposition as well. However, if we are able to achieve

overcoming all hurdles, the business would be saving costs i.e. warehousing, inventory

carrying; capital costs etc. and also could introduce JIT or Cross Dock Operation which are

again cost efficient models. As the pull of material is linked to POS data and store inventory

data, the buffer inventory if any in the supply chain will get corrected automatically from

time to time eliminating excess inventory. This process would eliminate waste and save costs

and also known as agile supply chain model. Internet becomes the backbone of this model.


This model could work very well in FMCG industry if the business model is well understood

and a solution is developed and implemented efficiently.

3.2 BULLWHIP EFFECT (WHIPLASH EFFECT/ WHIPSAW EFFECT/

FORRESTER EFFECT)The bullwhip effect occurs when the demand order variability in the supply chain are

amplified as they moved up the supply chain. Distorted information from one end of a supply

chain to the other can lead to tremendous inefficiencies. Companies can effectively

counteract the bullwhip effect by thoroughly understanding its underlying causes.

A small variation on one end, which is controlled, shows up a large variation on the other end

because of a spiraling effect resembling a bullwhip.

It refers to the increase in variance in the demand as one move up in the supply chain from

retailers to distributors/ company’s warehouses. This phenomenon has been observed by

companies such as HP and P&G and it is represented by the figure as follows.

Figure 3.3 Information Distortion: The Bullwhip Effect

Example OF Bullwhip Effect Experience by Organization in Real Life

Proctor & Gamble

The bullwhip effect is seen in real life as well. It originally takes its name from executives at

Proctor & Gamble who began to see disturbing and often inexplicable variations in supply

and ordering figures on diapers, despite a relatively stable demand from consumers.The

company even saw that variability increased further when examining its own orders to its

suppliers.

Hewlett Packard


Hewlett Packard observed a similar effect to the one Proctor & Gamble found. Upon

investigating sales of a given HP printer by a retailer, the company found that orders from

the merchant exhibited far bigger movements that what was seen by changes in actual sales

of the item. Further, the same could be said of orders from HP's printer unit to another

division of the company supplying it with materials.

Beer Distribution

One example of the bullwhip effect is the beer distribution game, a hypothetical model set up

for four human players that tests the manner in which participants in a supply chain behave.

The 2002 Supply Chain World Europe Conference and Exposition found that when the

computer substituted for all the roles, it achieved a result of 228 Euro of costs. However, the

average for human players in the simulation ran 500 to 600 Euros. In one case, the costs

exceeded 1,500 Euro.

Example of the Bullwhip Effect in retailers shop

A simple example the actual demand for a product and its materials start at the customer,

however often the actual demand for a product gets distorted going down the supply chain.

Let’s say that an actual demand from a customer is 8 units, the retailer may then order 10

units from the distributor; an extra 2 units are to ensure they don’t run out of floor stock.

Figure 3.4 Impact of Bullwhip Effect

The supplier then orders 20 units from the manufacturer; allowing them to buy in bulk so

they have enough stock to guarantee timely shipment of goods to the retailer. The

manufacturer then receives the order and then orders from their supplier in bulk; ordering 40


units to ensure economy of scale in production to meet demand. Now 40 units have been

produced for a demand of only 8 units it means that the retailer will have to increase demand

by dropping prices or finding more customers marketing by advertising.

Causes of Bullwhip Effect

According to Lee, Padmanabhan and Whang (1997) there are four basic causes of bullwhip

effect, namely

1. Faulty demand forecast updating

2. Order batching

3. Price fluctuation

4. Shortage gaming

Faulty demand forecast updating

Every company in a supply chain usually does product forecasting for its production

scheduling, capacity planning, inventory control, and material requirements planning.

Forecasting is often based on the order history from the company's immediate customers.

The outcomes of the beer game are the consequence of many behavioral factors, such as the

players' perceptions and mistrust. An important factor is each player's thought process in

projecting the demand pattern based on what he or she observes. When a downstream

operation places an order, the upstream manager processes that piece of information as a

signal about future product demand. Based on this signal, the upstream manager readjusts his

or her demand forecasts and, in turn, the orders placed with the suppliers of the upstream

operation.

Order batching

In a supply chain, each company places orders with an upstream organization using some

inventory monitoring or control. Demands come in, depleting inventory, but the company

may not immediately place an order with its supplier. It often batches or accumulates

demands before issuing an order. There are two forms of order batching: periodic ordering

and push ordering.

Price fluctuation

Manufacturers and distributors periodically have special promotions like price discounts,

quantity discounts, coupons, rebates, and so on. All these promotions result in price


fluctuations. Additionally, manufacturers offer trade deals i.e. special discounts, price terms,

and payment terms to the distributors and wholesalers, which are an indirect form of price

discounts. The result is that customers buy in quantities that do not reflect their immediate

needs; they buy in bigger quantities and stock up for the future. Such promotions can be

costly to the supply chain.

Shortage gaming

The effect of "gaming" is that customers' orders give the supplier little information on the

product's real demand, a particularly vexing problem for manufacturers in products early

stages. The gaming practice is very common. It is the phantom demands by

customers/retailers in anticipation of a shortfall.

How to Counteract the Bullwhip Effect

Understanding the causes of the bullwhip effect can help managers find strategies to mitigate

it. Indeed, many companies have begun to implement innovative programs that partially

address the effect

1. Avoid multiple demand forecast updates

2. Break order batches

3. Stabilize prices

4. Eliminate gaming in shortage

Avoid multiple demand forecast updates

Ordinarily, every member of a supply chain conducts some sort of forecasting in connection

with its planning e.g., the manufacturer does the production planning, the wholesaler, and the

logistics planning, and so on. Bullwhip effects are created when supply chain members

process the demand input from their immediate downstream member in producing their own

forecasts.

Break order batches

Since order batching contributes to the bullwhip effect, companies need to devise strategies

that lead to smaller batches or more frequent resupply. In addition, the counter strategies

when an upstream company receives consumption data on a fixed, periodic schedule from its

downstream customers, it will not be surprised by an unusually large batched order when

there is a demand surge. One reason that order batches are large or order frequencies low is


the relatively high cost of placing an order and replenishing it. EDI can reduce the cost of the

paperwork in generating an order.

Stabilize prices

The simplest way to control the bullwhip effect caused by forward buying and diversions

is to reduce both the frequency and the level of wholesale price discounting.The

manufacturer can reduce the incentives for retail forward buying by establishing a uniform

wholesale pricing policy.

Eliminate gaming in shortage

Situations when a supplier faces a shortage, instead of allocating products based on orders, it

can allocate in proportion to past sales records. Customers then have no incentive to

exaggerate their order "Gaming" during shortages peaks when customers have little

information on the manufacturers' supply situation. The sharing of capacity and inventory

information helps to alleviate customers' anxiety and, consequently, lessen their need to

engage in gaming. Some manufacturers work with customers to place orders well in advance

of the sales season. Thus they can adjust production capacity or scheduling with better

knowledge of product demand.

3.3 THE MAGNITUDE OF SCIn 1998, American companies spent $898 billion in supply-related activities or 10.6% of

Gross Domestic Product

Transportation 58%

Inventory 38%

Management 4%

Third party logistics services grew in 1998 by 15% to nearly $40 billion It is estimated

that the grocery industry could save $30 billion (10% of operating cost) by using

effective logistics strategies.

A typical box of cereal spends more than three months getting from factory to

supermarket. A typical new car spends 15 days traveling from the factory to the

dealership, although actual travel time is 5 days.


Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its

laptops and desktops were not available when and where customers were ready to buy

them.

In 1993, IBM lost a major fraction of its potential sales of desktop computers because it

could not purchase enough chips that control the computer displays.

Boeing Aircraft, one of America’s leading capital goods producers, was forced to

announce write-downs of $2.6 billion in October 1997. The main reason for this is “Raw

material shortages, internal and supplier parts shortages.”

3.4 THE POTENTIAL OF SC In two years, National Semiconductor reduced distribution costs by 2.5%, delivery time

by 47% and increased sales by 34% by shutting six warehouses around the globe. Air-

freighting microchips to customers from a new centralized distribution center.

In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the

highest sales per square foot, inventory turnover and operating profit of any discount

retailer.

Procter & Gamble estimates that it saved retail customers $65 million through logistics

gains over the past 18 months. “According to P&G, the essence of its approach lies in

manufacturers and suppliers working closely together jointly creating business plans to

eliminate the source of wasteful practices across the entire supply chain”.


CHAPTER 4

NEW EMERGING WORLD CLASS PRACTICES IN

SCMSome of the strategic steps being undertaken by global players in this direction are as follows

I. Suppler base rationalization

Consolidation/ reducing supplier base to merely a few key suppliers.

II. Vendor managed inventory

To facilitating the key suppliers to take the on many of the OEM’s day to day

transactions through initiation of various programmers such as, continuous

replenishment. It is also referred as JIT-2

III. Long turn OEM buyer-supplier relationship

The long term contractual relationship with suppliers accompanied by supplier

commitments on phased cost reduction, quality, production and delivery.

IV. Joint action with supplier

Sharing of value analysis, engineering and process engineering benefits by both partner

and creation of cross functional supplier support team.

V. Customer orientation

Provision of innovative logistics practices and provision through cross docking, drop

shipping, 3PL and 4PL providers which should ultimately reduce the lead time and have

better service level for the customer.

VI. Automation in warehousing, tracing and tracking

Establishment of automated facilities in transportation and warehousing such as load-

utilization freight consolidation use of trace and track mechanisms through the web, bar

coding, radio frequency identification (RFID).

4.1 LIST OF WORLD CLASS PRACTICES TECHNIQUE IN SCM I. Vendor Managed Inventory (VMI)

II. Reverse Logistics

III. Third Party Logistics (3PL)

IV. Forth Party Logistics (4PL)M.E SEM III Seminar on “Supply Chain Management”

V. Milk Run System

VI. Transshipment

VII. Bar Coding

VIII. RFID

4.2 VENDOR MANAGED INVENTORY(VMI)This is one of the successful business models used by Wal-Mart. Wal-Mart has

mastered VMI and is the company against which many other organizations benchmark

themselves VMI helps foster a closer understanding between the supplier and manufacturer

by using Electronic Data Interchange formats, EDI software and statistical methodologies to

forecast and maintain correct inventory in the supply chain.

It is an inventory management system whereby the supplier determines the product amount

and assortment a customer such as a retailer needs and automatically delivers the appropriate

items. Vendor’s representative stationed full time at the OEM facility, having access to

selected data and authorized to decide what, when and how much to order for a particular

range of product or services.

The steps to make VMI work in the organization

To make the implementation of successful VMI in the organization, the organization should

follow the following three steps.

1. Clarify expectations.

There needs to be thorough discussion about how the system will benefit both organizations

in the long term or one of the parties, particularly the supplier, is prone to disappointment

with some of the short-term results. The objective is clear and constant communication

between the supplier and customer. When the two parties work in conjunction they can be

assured that the planning function, for both sides, will begin to smooth over time.

2. Agree on how to share information.

If the supplier and customer can agree to share information vital to restocking in a timely

manner, then the odds of a synchronized system will dramatically improve. Proprietary

information would not have to be shared between the supplier and customer, but enough

information to maintain a steady flow of goods is necessary. The customer should be willing

to share production schedules and/or forecasts to provide some visibility for the supplier.


3. Keep communication channels open.

When the two parties set out to implement a VMI program, they need tomeet and discuss

their goals and how they need to proceed in order to realize those goals. Once a

VMI program has been activated, each side needs to understand that there are going to be

some miscues. These miscues need to be studied as opportunities for learning and then used

to avoid repetitive problems in the future.

Benefits of Vendor Managed Inventory

The Benefits of VMI are numerous for both Manufacturer & Distributor.

Dual Benefits:

Data entry errors are reduced due to computer to computer communications. Speed of the

processing is also improved.

Both parties are interested in giving better service to the end customer. Having the correct

item in stock when the end customer needs it, benefits all parties involved.

A true partnership is formed between the Manufacturer and the Distributor. They work

closer together and strengthen their ties

Distributor Benefits:

The goal is to have an improvement in fill rates from the manufacturer and to the end

customer. Also, a decrease in stock-outs and a decrease in inventory levels.

Planning and ordering cost will decrease due to the responsibility being shifted to the

Manufacturer.

The overall service level is improved by having the right product at the right time.

The manufacturer is more focused than ever on providing great service.

Manufacturer Benefits:

Visibility of the Distributor’s Point of Sale data makes forecasting easier.

Promotions can be more easily incorporated into the inventory plan.

A reduction in Distributor ordering errors.

Before VMI a manufacturer has no visibility of the quantity and the products that are

ordered. With VMI, the manufacturer can see the potential need for an item before the

item is ordered.


Hurdles of Vendor Managed Inventory

The major hurdles would be lack of control by the non-vendor party. This could affect

ordering, availability, etc

Inconsistency in quality of inputs

Poor infrastructural facilities

Unreliable transport

Lack of top management support and commitment from vendors

Possibilities of misuse of confidential information gained by the vendors

4.3 REVERSE LOGISTICA critical area of the supply chain is reverse logistics. Returns can affect every channel

member from consumers, retailers and wholesalers to manufacturers. Returns are caused for

different reasons depending on who initiates them – end consumer, wholesaler or retailer and

manufacturer – and on the nature of the materials involved – packaging or products.

Reusable packaging is becoming more and more common, especially in Europe where

manufacturers are required to take back packaging materials.

Forward Logistics

“Process of planning, implementing and controlling the efficient, cost-effective flow of raw

materials, in-process inventory, finished goods and related information from the point of

origin to the point of consumption for the purpose of conforming to customer requirements”

Reverse Logistics

“Process of planning, implementing and controlling the efficient, cost-effective flow of raw

materials, in-process inventory, finished goods and related information from the point of

consumption to the point of origin for the purpose of recapturing value or proper disposal”

Reverse Logistics is the process of moving products from their typical final destination to

another point, for the purpose of capturing value otherwise unavailable, or for the proper

disposal of the products.

Reconditioning

When a product is cleaned and its repaired and when it returned it “like new” state.

Refurbishing

Similar to reconditioning, except with perhaps more work involved in repairing the product.


Remanufacturing

Similar to refurbishing, but requiring more Extensive work; often requires completely

disassembling the product.

Resell

When a returned product may be sold again as new.

Recycle

When a product is reduced to its basic elements which are reused also referred to as asset

recovery.

Size of Reverse Logistics

“Reverse logistics costs in the United States are estimated to be approximately 4% of total

U.S. logistics costs”

Roughly $47 billion in 2006.

“It is estimated that reverse logistics costs account for almost 1% of the total United States

gross domestic product”

Roughly $132 billion in 2006.Table 4.2 Forward Logistics vs. Reverse Logistics

Forward Logistics Reverse Logistics

Forecasting relatively strait forward Forecasting more difficult

One too many distribution point Many too one distribution point

Product quality uniform Product quality is not uniform

Pricing relatively uniform Pricing depends on many factor

Product life cycle mangle Product life cycle issue is more complex

Importance of speed recognized Speed often not consider a priority

Marketing method well known Marketing complicated by many factor

Inventory management consistent Inventory management is not consistence

Reverse Logistics Activities

Handling of returned merchandise

Damage

Seasonal inventory


Salvage of outdated products

Recycling and reuse

Material reuse

Remanufacturing

Hazardous materials disposition

4.4THIRD PARTY LOGISTICS(3PL)According to the Council of Supply Chain Management Professionals, 3PL refers to “a firm

that provides multiple logistics services for use by customers. Preferably, these services are

integrated, or bundled together, by the provider. Among the services 3PLs provide are

transportation, warehousing, cross-docking, inventory management, packaging, and freight

forwarding.” In a simpler way, 3PL essentially refers to the fact that a firm outsources the

logistics part of its supply chain to a third party which is known as third-party logistics

provider. Generally, these services end up integrating parts of the supply chain as they are

present in a bundled form so they also consist of some services related to

production/procurement of goods.

3PLs are external suppliers that perform all or part of a company’s logistics functions,

including: “Transportation, Warehousing, Distribution, Financial services”. Terms contract

logistics and outsourcing are sometimes used in place of 3PL.

The Various Services Provided by 3PL is as Follow

Shipment consolidation

Warehousing management

Rate negotiations

Fleet operations and management

Product returns (Reverse logistics)

Order processing

Relabeling/repacking

Inventory management

Multimodal transportation


Table 4.2 A & A’s top 10 Global 3PL (May 2012)

Rank 3PL Provider 2011 Gross Logistics Revenue

(USD Million)

1 DHL Supply Chain & Globe Forwarding 32,160

2 Kuehne + Nagel 22,181

3 DB schenker Logistics 20,704

4 Nippon Express 20,313

5 C.H Robinson Worldwide 10,336

6 CEVA Logistics 9,602

7 UPS Supply Chain Solution 8,923

8 Hyundai Glovis 8,588

9 DSV 8,170

10 Panalpina 7,358

4.5 Froth Party Logistics (4PL)The concept of a Fourth-Party Logistics (4PL) provider was first defined by Andersen

Consulting (Now Accenture).

Figure 4.2 Register Trademark of Accenture


4PLas supply chain integrator a “that assembles the resources, capabilities, and technology of

its own organization and other organizations to design, build, and run comprehensive supply

chain solutions.” Whereas a third party logistics (3PL) service provider targets a function, a

4PL targets management of the entire process. A Fourth-party logistics provider can also be

considered a consulting firm specialized in logistics, transportation, and supply chain

management.

4PLs manage and direct the activities of multiple 3PLs, serving as an integrator 4PL.

Figure 4.2 4PL Provider

Benefits of 4PL

Improved availability, increased customer satisfaction, and increased sales and profit.

Reduced inventory levels at bonds and warehouses.

Reductions in lead-times from export country to import country.

Improved reliability in lead-times from export country to import country.

Increased stock turns.

Global visibility of total end to end supply chain.

Greater collaboration and improved relationships.

4.6 MILK RUN SYSTEMThe concept of milk run logistics originates from the dairy industry. Milk-Run logistics is

becoming one of the standard systems of an overseas version of JIT distribution.

It involves material collection, unloading, and production wiz allocation of trucks at the


Vendor’s end. It involves fixed frequency/time of movement of trucks based on exact

production requirements in small lots. The collection and supply of material is exactly in tune

with the OEM’s production requirements.

Figure 4.2 Milk Run Operation

The reasons why Milk-Run logistics has been widely employed are:

1. Reduction in transportation costs due to consolidated transportation offsetting even the use

of small lot transport.

2. Improvement of the assembly manufacturer’s production line and greater accuracy of JIT

goods delivery due to synchronization. Milk-Run logistics can provide consolidated

collection of goods necessary to improve logistics procurement systems.

3. Improvement of the vehicle loading rate, shorten the total distance traveled. It can

achieve various suppliers and manufacturers of coordination, improve agility supplies and

flexibility.

4. It reduces the risk of product quality if problems, manufacturers can quickly discover and

inform the corresponding suppliers, to minimize the impact on sales.


5. It changes logistics strategies, using third-party logistics significantly reduce in-process

inventory, increased capital flows, reduce investment risks.

4.7 TRANSSHIPMENTIt is a practice involving the shipment of the items between different facilities at the same

level in the supply chain to meet some urgent needs, for e.g., to enable the risk-pooling so

that it,allows retailers to meet customers’ demand from the inventory of the other retailers.

The concept is that when a commodity is transported to a particular destination through one

or more intermediate point when each of these point in turn supply to other point.

Thus shipment passes from destination to destination & from source to source, this is called

transshipment.

This practice is more prevalent at retailer level and for this efficient communication and

quick ways and means to ship the items are a must. It would work best when all retailers are

commonly owned.

4.8 BAR CODINGInternationally, most activities in SCM make optimum use Bar Coding whether it be material

entry or supplies tracking.

Pre-delivery slips called “part receipt tags” issued by OEM to its suppliers are bar coded for

various details. - This reduces delays at inward gate due to elimination of manual entry.

Figure 4.3 Interface of Bar-coding


Advantages of using Bar-coding

Aids faster entry of material

Reduces piling up of waiting vehicles

Reduces errors made during manual entry of material

Typical problem is the careless handling by truck drivers resulting in document being

defected and difficulty at entry terminals

4.9 RFID RFID is only one of numerous technologies grouped under the term Automatic Identification

such as bar code, magnetic inks, optical character recognition, voice recognition, touch

memory, smart cards, biometrics etc. Auto ID technologies are a new way of controlling

information and material flow, especially suitable for large production networks.

The RFID technology is a means of gathering data about a certain item without the need of

touching or seeing the data carrier, through the use of inductive coupling or electromagnetic

waves. The data carrier is a microchip attached to an antenna the latter enabling the chip to

transmit information to a reader. One important feature enabling RFID for tracking objects is

its capability to provide unique identification.

Figure 4.4 RFID component


Advantages of RFID

Tag detection not requiring human intervention reduces employment costs and eliminates

human errors from data collection.

RFID tags have a longer read range than, e. g., barcodes.

Tags can have read/write memory capability, while barcodes do not.

An RFID tag can store large amounts of data additionally to a unique identifier.

Unique item identification is easier to implement with RFID than with barcodes.

Tags are less sensitive to adverse conditions i.e. dust, chemicals, physical damage etc.

Many tags can be read simultaneously.

Reduces inventory control, provisioning costs and warranty claim processing costs.


CHAPTER 5

OUTSOURCING AND POCUREMENT5.1 OUTSOURCING “The strategic use of outside resources to perform activities traditionally handled by internal

staff and resources”. The ultimate goal of the outsourcing is to bring the tangible benefits to

the business and subsequently the customer. Outsourcing is the delegation of tasks or job

from the internal production to an external entity. Most recently it has come to mean the

elimination of native staff to staff overseas where salaries are markedly lower. This is despite

the fact that the majority of outsourcing that occurs today still occurs within the country

boundaries. Out sourcing broadly refers to the following.

1) The process where functions previously performed by an organization are supplied under

contract by a third party.

2) Buying goods or services instead of producing them in house.

3) A long-term result oriented relationship with an external services provider for activities

traditionally performed within the company. Outsourcing usually applies to a complete

business process. It implies a degree of managerial control and risk on the part of the

provider.

4) The transfer of component of an organization’s internal IT infrastructure, staff, processes

or application to an external resources such as an application services provider.

Strategic outsourcing allows ease of management reduction in cost, lesser manpower and

frees up internal resources. Outsourcing can and frequently does provide both long and short

term benefits to companies that outsource provided they have strategic objectives for

outsourcing.

Three phases of outsourcing

Internal analysis and evaluation

Needs assessment and vendor selection

Implementation and management

The following services can be outsourced by company

system integration


data network

mainframe data center

voice network

internet/intranet

applications development

Reason for company outsourcing

Provide services that are scalable, secure and efficient, while improving overall service and

reducing cost.

Figure 5.1 Top Reason for Company Outsourcing

Off shoring

No commonly accepted definition off-shoring exists. Services that US-based

organizations purchase from abroad are consider in off-shoring. They may also be linked

to US firms’ overseas investment for examples US firms may invest in overseas affiliates

as a replacement for or as an alternative to domestic production. India is the leading

country for U.S. offshore outsourcing.

Near-shoring

The term used to refer to the practice of getting work done or services performed by

people in neighboring countries. Canada, Mexico to US, Sri Lanka to India rather than

in your own country.


In sourcing

The act of bringing together a function that was performed outside the organization to being

performed inside the organization is called in sourcing. It is opposite of outsourcing that is a

service performs in house. It is a reaction to outsourcing comprising. Employees aggressively

defending their core competencies against cost cutting exercise by their

Senior manager and third party provider.

Problem with Outsourcing

Loss of ControlSince the service provider is outside the organization the control power of organization on them is reduce.

Increased cash outflowThe flow of money is going outside the organization since the the who serve behalf of us is outside the country.

Confidentiality and securityThe threat of leaking of important information of document to our competitor.

Selection of supplier This is the one of the major issue for outsourcing to select the right kind of supplier who is able to fulfill the organization requirement.

Too dependent on service provider With the too much services is done outside the organization environment it is possible that the organization is too dependent on the service provider.

Loss of staff or moral problemsIf the organization hires the person outside the organization the employee in the organization may feel that the trust of the company is more than outside the person than us.

Provider may not understand business environmentThe biggest problem to hired the third person is that the person may be the outside the country and he is not able to understand the social issue and ethics of the company.

4.3 PROCUREMENTProcurement is the process of acquiring goods or services from preparation of requisition

through receipt and approval of invoice for payment.

Almost all purchasing decisions include factors such as delivery and handling, marginal

benefit, and price fluctuations. Procurement generally involves making buying decisions

under conditions of scarcity. If good data is available, it is good practice to make use of

economic analysis methods such as cost-benefit analysis or cost-utility analysis.


Figure 5.2 Supply planning procurement process step The supply procurement planning process of the case company begins with volume

calculation corresponding to the production plan for the next period. This entails

breakdown of parts and quantities required as well as identification of potential suppliers.

A master milk-run pickup route is created using information about supplier locations and

pickup volume at each supplier location. This step is currently done manually. Planners

begin from previous month’s mater route plan and perform incremental changes to the

plan according to changing volumes.

The company informs its suppliers of the volumes and pickup schedule, and enters

negotiations with each supplier. If modification to the master route is needed after the

negotiation, it is done to finalize the period’s master route.

Once the master route is completed, it is then used to schedule receiving dock activities.

This is necessary to avoid congestion and ensure high and uniform utilization of the

facility.

The master route is then used for the entire period as a template on which daily operation

is based. The daily milk-run pickup route will deviate from master route slightly

according to shifting daily volumes. This also is currently done manually.


CHAPTER 6

INFORMATION TECHNOLOGY IN SCMSCM require a systematized and time synchronized flow of information across all the supply

chain partners upstream and downstream. Many of these partners such as suppliers and

customers could be even outside the organization. The flow of information has to be real time

and to begin with it is related to the capture of customer order and its configuration, PoS data

at he retailers point the prevailing inventory status at he plant, company’s warehouse or

distribution centre (DC) and at the suppliers and subcontractor if any. For the effective and

efficient floe of information and materials, its required to have an integrated resources

planning system at the enterprise level.Supply chain management (SCM) is concerned with

the flow of products and information between supply chain members' organizations. Recent

development in technologies enables the organization to avail information easily in their

premises. These technologies are helpful to coordinates the activities to manage the supply

chain.

6.1 ROLE OF AN IT SYSTEM FOR SCMInformation must have the characteristics that can be useful. The characteristics are like

accurate, accessible in a timely manner and information must be of the right kind.

Information is a key supply chain driver because it serves as the glue that allows other

drivers to work together with the goal of creating an integrated, coordinated supply chain.

Information makes the supply chain visible to a manager. With the visibility, a manager can

make decisions to improve the supply chains performance.Managers must understand how

information is gathered and analyzed. This is where IT comes into play as IT consists of the

hardware, software and people throughout a SC that gather, analyze and execute upon

information.

6.2 IMPORTANCE OF INFORMATIONInformation is the key to the decision making in Business. Prior to the 1980s, a significant

portion of the information used to flow between functional areas within an organization, and

between supply chain member organizations. Firms that are embarking upon supply chain

management initiatives now recognize the vital importance of information and the


technologies that make this information available. In a sense, the information systems and the

technologies utilized in the supply chain represent one of the fundamental elements that link

the organizations into a unified and coordinated system. Three factors have strongly

impacted this change in the importance of information.

1) Satisfying customers have become something of a corporate obsession. Serving the

customer in the best, most efficient and effective manner has become critical, and

information about issues such as order status, product availability, delivery schedules, and

invoices has become a necessary part of the total customer service experience

2) Information is a crucial factor in the managers’ abilities to reduce inventory and human

resources requirements to a competitive level.

3) Information flows play an essential role in the strategic planning for and deployment of

resources.

6.3 FUNCTION OF IT IN SCM

I. The most Typical role of IT in SCM is reducing the function in transaction between

supply chain partner through cost effective information flow


Figure 6.1 Functional Role of IT in SCM

II. IT is viewed to have a role in supporting the collaboration & coordination of supply

chains through information sharing.

III. It can be used for Decision Support In this instance the analytical power of computers is

used to provide assistance to managerial decisions.

6.4 IT software for SCM Software Systems

Electronic Data Interchange (EDI)

Material Requirements Planning (MRP)

Manufacturing Resource Planning (MRP II)

Enterprise Resource Planning (ERP)

Supply Chain Management Systems (SCM)

Customer Relationship Management (CRM)

Internet-based Software

Network Infrastructure

Wide Area Network

Internet (for E-commerce: B2B, B2C)

6.5 ELECTRONIC DATA INTERCHANGE (EDI) EDI is an inter-organization computer-to-computer exchange of standard business

documents in a structured and machine-process able format without human intervention to

improve the speed and accuracy of the information flow.

COMPONENTS OF EDI are as follow

EDI Standard

EDI Software

Communication Medium

BENEFITS OF EDI

The major benefits of EDI in supply chain integration are as follows

Improves customer responsiveness

Reduces transaction costs and times

Increases accuracy and productivity

Strengthens supply chain relationships


Increases ability to compete globally

Limitation of EDI

There are two major limitations of EDI that restricts its scope of use which are as follows

1) It needs highly sophisticated and private IT infrastructure resulting into huge costs.

2) As EDI is an inter-organization, computer-to-computer exchange of standard business

documents in a structured and machine-process able format, hence, day-to-day flexible data

cannot be shared between supply chain partners. Supply chain integration needs more

flexible information sharing on continuous basis apart from standard business documents.

6.6 ENTERPRISE RESOURSE PLANNING (ERP)ERP systems grew out of a function called materials requirements planning (MRP) which

was used to allocate resources for a manufacturing operation. MRP systems software

ultimately became very complex allowing for efficiencies of scale not previously possible.

Even more sophisticated MRP II systems began to replace MRP systems in the 1980s By the

early 1990s, other enterprise activities were being incorporated into ERP systems.ERP is a

computerized integrated set of application software modules for different business processes

such as production, distribution, financial, human resources, procurement, supply china

management, etc., used by firms providing operational, managerial and strategic information

for making decisions strategically to improve the productivity, quality and competitive

advantage. ERP is serving as a backbone for the whole business. ERP is a term used to refer

to a system that links individual applications. For example Accounting and Manufacturing

applications into a single application that integrates the data and business processes of the

entire business. It integrates key business& management processes to provide an integrated

view of the entire organization & the activities that take place within it. ERP systems have

emerged to automate business functions and offer an integrated data solution across an

organization’s infrastructure. It provides the capability to manage & integrate

the information& services of departments throughout an entire enterprise. This allows

organizations to better manage all their resources thus achieving cost reduction and

efficiency through the integration of all information among various business processes.

Today an ERP system can encompass, but is not limited to, the following functions:

Sales and order entry.


Raw materials, inventory, purchasing, production scheduling, and shipping.

Accounting.

Human resources.

Resource and production planning.

Major ERP system

SAP R/3

Oracle

PeopleSoft (have been merged by Oracle)

Toyota uses PeopleSoft and SAP

Microsoft Dynamics (formerly Microsoft Business Solutions - Great Plains)

Figure 6.2 Various ERP links in organization

CRITICAL ERP IMPLEMENTATION ISSUES Never-ending implementation.

Importance of process mapping.

Process redesign.

Use of consultants.


Excessive cost.

Resistance to change.

Errors during implementation.

Rapid technological change.

Benefits of ERP

Improving productivity and enhancing a competitive edge.

Bringing about a tradeoff between demand and supply.

Bringing together people who work on shared tasks.

Ensuring a smoother flow of inventory and information at all levels.

Reducing the replenishment cycle time.

Overall organizational look-ahead capability and control.

Table 6.1 Leading INDIA companies and the ERP software used

Sr No Company Name ERP used

1 Tata Steel SAP

2 Hindustan Lever MFG-Pro

3 Hyundai SAP, Marshall

4 Telco SAP, Proprietary

5 Asian Paint SAP


CHAPTER 7

ISSUES, CHALLENGES AND OPPORTUNITIES IN

IMPLEMENTATION OF SCMThe corporate sector does not necessarily practice what it admires. It could due to resource

constraints or a changing management leadership, commitment, and philosophy in the

company.

7.1 KEY IMPLEMENTATION ISSUES SCM intention, orientation, organization and interrelationship

75% of the companies have not developed SCM as a stand-alone function because lack of

recognition and coherent view but it certainly needs coordination with the other

functional areas of the organization and even out side as an extended enterprise.

All the companies now realize that SCM is an important component of corporate strategy

for gaining competitive advantage.

All the companies agree that SCM invariably involves close working with the supplies in

the form of joint action, continuity and providing for verification of the each other’s

capabilities.

75% of the companies agree that SCM yields better customer services levels in terms of

customer satisfaction, loyalty, regain programmers.Most companies are of the view that

SCM is a no- nonsense function and is not possible without the use of the IT tools and

technique.

SCM keeps the focal firm on its toes in terms of a continuous benchmarking against the

competitor’s product, process and costs.

Nearly all the companies agree that working closely with suppliers at different stages is a

critical factor for the successful implementation of SCM.

SCM and collaborative forecasting and planning

Most companies agree that collaborative forecasting and planning in coordination with

supplies, distribution centre and dealers is a must for SCM.

There must be on hand availability and visibility of data across the company, particularly

at the distribution centre level for capturing and analyzing demand patterns.M.E SEM III Seminar on “Supply Chain Management”

An 80:20 rule can be followed where 20% of forecast should cover 80% of the demand

and 80% forecast covers 20% of the demand.

Forecast must be prepared on a disaggregated basis for different models/,product family/,

product lines/ DC/ customer wise.

SCM and use of IT practices and tools

It is required to chart all information processes and pathways for real time information

sharing among all channel members. It is necessary to integrate all information flows

with work processes and one should always move from the function to the processes.

It is necessary to have EDI with supplies and retailers. Most companies say that 75-90%

of their vendors are now accessible through e-mail and have their own website.

Most of the companies are doing at least 40% of their procurement through the internet.

SCM and modern manufacturing practices and system including master production

scheduling and material planning

Most companies follows the practice of making master production schedules(MPS) and

make these responsive enough to changes in demand levels to some extent normally in a

range of 10-30% based on a proprietary developed by them.

Most companies combine the MRP lot size with the economic batch size to decide

economics order quantities and also the reorder point. Most companies have done time

fencing of their schedules and plans and demonstrate a firm period schedule commitment.

SCM and transportation, logistics and warehousing

All companies agree that successful implementation of SCM greatly requires integration

of inbound and outbound logistics.

Only 30% of companies believe that 3PLs are required to facilitate and simplify logistics

to and from the focal companies.All companies believe that freight consolidation and

route rationalization pays off significantly in reducing cost of SCM.

70% companies agree that a dynamic mode of carrier and route selection could be

effective in reducing stock levels, stocks out and streamlining inventory flows.

All companies agree that customization of delivery should be based on customer specific

requirement.


60% companies have decentralized some amount of forecasting at DC level which must

have on hand inventory availability and visibility of data all the time for the purpose.

Customer relationship

All companies studied recognize the ever increasing role of customer retention, customer

continuous, contact and initiative such as customer- loyalty and affinity programmers.

Only 40% of companies have a documented well laid out process to measure customer

satisfaction and service levels and a mechanism to collect, track, assess and share the

feedback among different department of the company and the suppliers.

All companies agree that the time to market and distribute a new product is a critical

factor for SCM and customer relationship and they always try to reduce it.

All companies prefer to delay differentiation of the product till the retailers/ customers

end to provide flexibility in order configuration.

7.2 THE CHALLENGESMost companies, which are into SCM, recognized the importance of the value chain when

they had to re-engineer their business process to deliver maximum value to the internal and

external customers, and thereby, also redesign and reconfigure the information flows. This

was followed by adoption of enterprise level resources planning systems, such as ERP on any

other proprietary/legacy system, and some even extended it to their suppliers. Also, factors,

such as the time to develop a new product/ variant and market and distribute it, are becoming

a strategic competitive advantage factor. So, SCM is a strategy adopted by the companies to

beat time competitiveness and develop customer-centricity in their operations. The key

challenges can be outlined as follows.

The business environment for most consumer product is fast changing, product life cycles

(PLCs) are getting even smaller, and the demand patterns are unstable and sometimes

seasonal, which poses a great challenge for supply chain managers, particularly in terms of

demand planning.

The other problem lays in data transparency and supply chain inefficiencies due to the

cultural mindset. Reliable data may be difficult to obtain, say, on a daily basis, unless it is

directly captured from PoS electronically. Sometimes, there can be erroneous judgment of

customer needs or simply, data could be held unreliable due to the mindset factors, such as


trust, win-lose perspective, and respect or ‘mind your own business’ kind of attitude by

dealers, so common in the Asian countries, and more so in India. These factors may actually

suppress data transparency and hide supply chain problems and insufficiencies with no

chance for exposure.

The other problem pertains to logistic service providers, say, third party logistics (3PLs)

for transportation, tracking, and tracing of consignments and other services. More integration

and close coordination is required with 3PLs and/or supplier’s transporters. In fact, there is

absolute lack of integrated logistic professionals not only in the Indian industry but the

whole of Asia. In fact, there is not a single pan-Asian 3PL company that could provide

integrated sea, rail, road, and air transportation, and distribution, by virtue of which

distribution gets highly disintegrated and localized, resulting in the overall supply chain

insufficiencies, particularly in terms of time and cost. The complexity is further aggravated

by diverse geographies, economies, purchasing power, infrastructural development, lingual,

regulatory tax and tariff differences, particularly in the Indian states and more so at the pan-

Asia level.

The cost of distribution as a per cent of sales is ever increasing. The respondent companies

cited transport infrastructural problem as a cause for this. Also, too many octroi and check

post points in the country increases the cost of transportation.

Some companies feel that employees resist to outsourcing due fearing of losing their jobs and

controls. Vendors may also resist consolidation and rationalization of vendor base by the

company. Appropriate strategies are needed to tackle these changes, otherwise costs of the

supply chain escalate.

Many companies feel that visibility of data across the supply chain is still a problem, e.g.,

actual stock levels at the distributor’s and retailer’s end are still difficult to be known.

Fragmented or unorganized trade in some industries also poses a problem for demand

forecasting and replenishment particularly in the fast moving consumer goods (FMCG)

industry.

The complexity of supply chain networks is particularly serious in countries, such as India,

China, and Korea. The distribution channels in most consumer goods are multi-layered,

involving 3-4 intermediaries between the manufacturer and the customer. In the US and


Europe, 1-2 intermediaries is the norm. the market is controlled by a plethora of small and

medium-sized local wholesalers, all charging 25-30 per cent margin. There are sometimes no

national distributors and there are regulatory restrictions to controlling, distribution, and

logistic services, or foreign companies owning distribution channels. This leaves distribution

channels fragmented, insufficient, and costly.

Better infrastructural connectivity from the distributor level to a supermarket/retailer

level is needed in both consumer durables and FMCG industries.

7.3 THE OPPORTUNITIESThe following opportunities can be used to counter the varies challenges being faced,

particularly by the consumer goods industry-both fast moving and durables, in managing

their supply chains.

It seems that most companies do not have a stand-alone department or role responsible for

the supply chain, and lack an integrated view of the supply chain. In most companies supply

chain has been operating in silos. The companies had a different focus on different

objectives, namely quality, responsiveness, cost, and service focus. This is in tune with an

earlier ETIG-PwC survey (2002), which stated that only around 45 per cent of the companies

were focused on three or more areas. The highest focus in that survey was found to be on

quality (71%), followed by responsiveness (64%), cost (62%), and service (51%). That

implies that most companies lack a coherent view of what to focus in SCM. Companies need

to develop a separate with its own role and responsibility for SCM-well integrated with all

the other functions and having a strategic intent and orientation towards well-defined

objectives in quality, cost, responsiveness, and services aligned with the strategic plan. In

fact, they must devise a balanced score card approach for mapping supply chain performance

measures with strategic plans and objectives.

There should be direct involvement of the customer at the product design and planning stage,

i.e., evaluation of customer needs as far as the value of various business products is

concerned, say, on the basis of activity-based costing ABC/Pareto Analysis. There should be

a purposeful customer value/need segmentation and niche model/variant must be clearly

positioned for that.


A dynamic optimization of logistic networks is required. The clearing and forwarding agents

and 3PLs-all have to be networked and put to optimal use.

Use of technology for tracking and tracing must be encouraged, e.g., bar coding should be

made mandatory. This could help in cross-docking, up-keep of invoicing and inventory

records, upkeep of inventory replenishment and planning, movement, handling, and logistics,

particularly traceability. Companies should now embark upon use of RFID for better

replenishment and detection if pilferages, tampering and Damages-the cost of which is

around 2% in India. It would also reduce product returns and cost of reverse logistics.

Close attention needs to be paid to the monitoring of distribution cost as a per cent of sales.

For this, operating costs of various modes of transport are to be controlled and benchmarked.

The overhead costs for running a truck in India, for example, are very high. A better cost

control system must be in place to reduce these costs.

To keep transportation and warehousing in organized hands in the industry, a rating system

should be developed by the focal firm for transporters-as for vendors, long-term service level

agreements with reliable transports should be entered into. Moreover, the company owned

transportation should be always preferred. In case of outside transporters, focus must be laid

on the following factors.

Negotiation of rates

Freight consolidation/route rationalization

Flexibility for dynamic mode of carrier/route/frequency selection

Customization of delivery at customer’s end-through intra-company or even inter-

company/third-party postponement.

Indian companies still need to deploy SCM as a strategy to reduce customer response time,

improvement of service levels, and time to develop and market new variants/products.

An effective SCM cannot be implement unless single-piece manufacturing is followed in

principles in the plant, which in turn would result in reduce work-in-progress levels, better

layouts, and faster inventory turnover, thereby, reducing set-up and cycle times, and

developing multi-skilled employees.SCM will thus, go a long way in developing agility in

the operations of the company through its supply chain to meet varying needs of ‘volume’

and ‘variety’ of the customers- so crucial a factor for SCM.


Companies should develop supply chain performance benchmarks based on the linkage

with the strategic objectives, i.e., those related with corporate profits ,market share,

customer satisfaction, agility of supply chain, etc. a balanced score card approach can

be used well for such purposes.

It is necessary to integrate operating technologies with the system architecture. The

planning and scheduling systems and operating technologies on the shop floor, such as

MRP and capacity requirement planning (CRP) should be well linked with the ERP

system and its architecture.

The ultimate objective is to make the supply chain a real seamless inside the company,

and have a virtual integration amongst supply chain partners outside also.

The company must integrate and optimize the technologies in operation on the front-

end. e.g., SRM with their core ERP system. Only then resources and information can

be better leveraged, reducing overall costs and helping make better and well-informed

decisions. It is the turn of small and medium enterprises (SMEs) to embark upon SCM,

taking the lead from their OEM. They can invest in supply chain infrastructure at their

Laval to reap long-term benefits. Companies like SAP have low cost, high value

software programmers designed and developed for SCM of SMEs.


CHAPTER 8

CONCLUSIONAt the end supply chain management is about relationship management. Supply chain

management has an important role to play in moving goods more quickly to their destination.

The best companies around the world are discovering a SCM as a new powerful source of

competitive advantage. Executives are becoming aware of the emerging paradigm of inter-

network competition, and that the successful integration and management of the supply

chain management processes across members of the supply chain will determine the ultimate

success of the single enterprise. Successful supply chain management requires integrating

business processes with key members of the supply chain. If you are in supply chain

management then complexity is a cancer that you have to fight, and process management is

the weapon. The increasing the application of IT to make the scm more efficient, more

reliable across all the network and share the more accurate information across the globe is the

most innovating tool for the organization to success in the global market.


REFERANCE

Reference Books:I. Sunil Sharma, “Supply Chain Management- concept, practices and implementation”

Oxford University Press.

II. Sunil Chopra and Peter Meindl, “Supply Chain Management”. Second Edition.

Upper Saddle River: Pearson Prentice Hall, 2004.

III. Dr. Dawei Lu “Fundamentals of Supply Chain Management.”

IV. DouglasM.Lambert, “SUPPLYCHAINMANAGEMENT-Processes, Partnerships,

Performance” Third Edition.

V. Essentials of Supply Chain Management

VI. Shroeder. G, “Operations Management- Contemporary Concepts and Cases” McGraw

Hill publication.

Research PapersI. Hau L Lee, V Padmanabhan, and Seungjin Whang; “Sloan Management Review”,

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III. Thorsten Klaas,” Push-vs. Pull- Concept in Logistics Chain”, CEMS Academic

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IV. Gurinder Singh Brar and Gagan Saini “Milk Run Logistics: Literature Review and

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CHAIN MANAGEMENT” International Journal of Modern Engineering Research

(IJMER), Vol.1, Issue.2, pp-747-75


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http://www.supplychain247.com/article/2013_top_50_global_top_30_domestic_3pls

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http://www.aalhysterforklifts.com.au/index.php/about/blog-post/what_is_the_bullwhip_effect_understanding_the_concept_definition

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http://www.gartner.com/technology/supply-chain/top25.jsp

seminar report on supply chain management

Education