SCM Notes

Supply Chain management

SUPPLY CHAIN MANGEMENT  Syllabus: Pg. nos. 1. Introduction to SCM: 1.1 How SCM works? {Definition, Objectives, Describe Supply Chain] 1.2 Evolution of SCM 1.3 SCM Modules/ Structure [purchase, operation, distribution, integration] 1.4 Supply chain drivers 1.5 What is effective SCM? 2. Material management in SCM: 2.1 Scope of Material Management 2.2 Why Purchasing is an important function in SCM? 2.3 Purchasing / Procurement process 2.4 Inventory Control Systems of stock replenishment 2.5 Inventory cost in SCM 2.6 Different type of Inventory control systems 2.7 Different Techniques of Inventory Control 2.8 VMI, CMI, Green Supply Chain: 2.9 Sourcing Decision: The Make-or-Buy Decision 2.10 Supplier Selection 2.11 Supplier Relationship Management (SRM): 2.12 Vendor Evaluation & Certification: 2.13 Vendor Development: 2.14 Knowledge Management & SCM 2.15 3 PL Management services 2.16 e-procurement Systems 3. Supply Chain Operations [Planning, Making]: 3.1 Scope of Operation Management 3.2 Demand Forecasting & Forecasting techniques 3.3 CPFR concept 3.4 CODP concept 3.5 MRP & EOQ 3.6 Capacity planning 4. Distribution in SCM [ Logistics] 4.1 Importance of transportation in SCM 4.2 Objective of Transportation 4.3 Legal forms of Transportation 4.4 Modes of Transportation 4.5 Transportation Pricing 4.6 Transportation Selection 4.7 Transportation Decision 4.8 Plant & warehouse Locations 4.9 Warehousing -1-

Notes by:- Aditya Kasar

Supply Chain management 4.10 Explain Logistics 4.11 Ocean Carrier Management 4.12 Logistics Information Systems (LIS) 4.13 Customer relation management [CRM] 4.14 Vehicle Scheduling 4.15 Reverse Logistics Integration [SCM coordination and use of technology]: 5.1 The “Bullwhip” effect 5.2 SCM integration model 5.3 ERP & SCM [development, implementation, advantages, disadvantages] 5.4 SCM measurements systems 5.5 Further Integration to CRM 6. Measuring Performance: Supply Chain Metrics 6.1 Benchmarking and SCM SCORE modelling 6.2 Performance Metrics

-2-



1. Introduction to SCM: 1.1 How SCM works? 

Definition of SCM: Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed). Supply chain management flows can be divided into three main flows: I. II. III.

The product flow The information flow The finances flow Product & Service flow Recycling & returns

Raw material supplier

Intermediate component manufacturers

End Product Manufacturer (or Focal firm)

Retailers Wholesalers, Distributors

End customers Transportation & storage activities Information/planning/activity integration Fig-1.1 The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. There are two main types of SCM software: planning applications and execution applications. Planning applications use advanced algorithms to determine the best way to fill an order. Execution applications track the physical status of goods, the management of materials, and financial information involving all parties.

-3-


Supply Chain management Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company). This shared data may reside in diverse database systems, or data warehouses, at several different sites and companies. By sharing this data "upstream" (with a company's suppliers) and "downstream" (with a company's clients), SCM applications have the potential to improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to better manage current resources and plan for future needs.

1.2. Evolution of SCM:

Increased Supply chain capabilities Supply Chain Relationship Formation JIT, TQM, BPR, Supplier & Customer alliance Inventory Management MRP-I, MRP-II Traditional Mass Production

1950s

1960s

1970s

1980s

1990s

2000s

Future

Fig-1.2 I. During 1950s and 1960s, manufactures were employing mass production techniques to reduce cost and improve productivity; while relatively little attention was typically paid to creating supplier partnerships, improving process design and flexibility or improving product quality. II. In the 1960s and 1970s Material requirement planning (MRP-I) systems and Manufacturing resource planning (MRP-II) systems were developed, and the importance of effective materials management was recognized as manufacturers became aware of the impact of high levels of inventories on manufacturing and storage costs. III. In 1980s were the breakout years for supply chain management. Manufacturers utilized justin-time (JIT) and total quality management (TQM) strategies to improve quality, manufacturing efficiency, and delivery times. IV. Business Process Re-engineering (BPR), process was introduced in the early 1990s and was the result of growing interest during the time in the need for cost reduction. -4-


Supply Chain management V. The increasing popularity of the alliances between suppliers and customers in the late 1990s gave a way to Supply chain management, which is continuing today. VI. In the future it is expected that the supply chain management emphasis will concentrate on supply chain expansion, increase supply chain responsiveness, increase the emphasis on “green” supply chain, and further reducing supply chain costs.

1.3. Modules of SCM: i. Purchase module iii. Distribution module

ii. iv.

Operation module Integration module

OPERATION

PURCHASE

SCM

INTEGRATION

DISTRIBUTION

Fig-1.3 i. Purchase module: Purchasing is an extremely important element in Supply Chain Management, since incoming material quality, delivery timings, and purchase price are dependent on the buyersupplier relationship and the capabilities of the suppliers. Problems with suppliers will ultimately cause end product customer to get less and pay more. One of the most crucial issues in purchasing is supplier management. This involves assessing your supplier’s current capabilities & then figuring out how to improve them. Thus one of the key activities in supplier management is supplier evaluation. This occurs both when potential suppliers are being evaluated for a future purchase and when existing suppliers are periodically evaluated for performance purpose. A closely related activity is supplier certification. ii. Operation module: once materials components and other purchased products are delivered to the buying organisation, a number of internal operations elements become important in assembling or processing the items into finished products, ensuring that the right amount of product is produced and that the finished product meets specific quality, cost and customer service requirements. During a calendar year, seasonal demand variation commonly occurs. Firms can predict when these variation will occur, based on historic demand patterns, and use forecasting techniques to -5-


Supply Chain management guide weekly or monthly production plans. If demand does not materialize as forecasted, then the firm is left with either too much inventory or not enough. Both situations cost the firm money and can even cause permanent lost future business if a stock out has occurred. To minimize this cost firms rely on demand management strategies and systems, with the objective of matching demand to available capacity, either by improving production scheduling, curtailing demand, using a back order systems or increasing capacity. Firms usually have a Material requirement planning (MRP) software systems for managing their inventory. These systems can be linked throughout the system & its supply chain partners through Enterprise resource planning (ERP) systems, providing real time sales data, inventory, and production information to supply chain participants. iii. Distribution module: When products are completed they are delivered to customers through a number of different modes of transportation. Delivering products top customers at the right time, quality, and volume requires a high level of planning and cooperation between the firm, its customers and the various distribution elements or services employed [such as warehousing, transportation or replacing services]. For services products are produced and delivered to the customer simultaneously in most cases, so services are extremely dependent upon server capacity and successful service delivery to meet customer requirements. Transportation management decisions typically involve a trade off between cost and delivering timing or customer service. Motor carriers [trucks] are typically more expensive than rail carriers but offer more flexibility and speed, particularly for short routes. Air carriers are yet more expensive but much faster than any other transportation modes. Water carriers are the slowest but are also the least expensive. The desired outcome of distribution is customer service. Through frequent contact with customers, firm develop customer relationship management strategies regarding how to meet delivery dates, how to resolve customer complaints how to communicate with customers and to determine how to determine distribution service required. iv. Integration module: Activities in a supply chain are said to be coordinated when members of the supply chain work together when making delivery, inventory, production, and purchasing decision that impact the profits of the supply chain. If one activity fails or is performed poorly, then supply along the chain is disrupted which jeopardizes the effectiveness of entire supply chain. The integration process also requires better internal functional integration of activities within each of the participants firms, such that the supply chain acts as one entity. One additional integration topic is the use of a supply chain performance measurement system. Performance measurement must be utilized across the supply chain to help firms to keep track of their supply chain management efforts. It is crucial for firms to know whether certain strategies are working as expected or not before financial drains on the organization.

1.4. Major drivers of SCM: a) Production: This is typically related to the issues on what to produce, how much to produce and when to produce. b) Inventory: Here the decisions and issues may be concerned with how much to make and how much to store as inventory and where to store these items. c) Location: A number of locations regarding location such as where to locate plant, where to locate warehouse. d) Information: Information is the binding force having critical implications for the supply chain. Information acts as basis for making various decisions in the supply chain. It also acts as an integrator.

-6-


Supply Chain management PRODUCTION What, how, and when to produce

INVENTORY How much to make and how much to store

INFORMATION The basis for making these decision and life line of the organisation

LOCATION Where best to do what activity

TRANSPORATION How and when to move product Fig-1.4

1.5. What is effective SCM or How to make SCM effective? 1. Agile manufacturing, JIT, mass customization, efficient consumer response, and quick responsive are all terms referring to concept that are intended to make the firm more flexible and responsive to customer requirements and changes. 2. Particularly with tremendous level of competition in almost all avenues of business, firms are looking today at ways to become more responsive to their customers. 3. To achieve greater level of customer responsiveness, supply chains must identify the end customers needs look at what the competition is doing and position the supply chain’s products and services to successfully compete and then consider the impact of these requirements on the supply chain participants and the intermediate products and services they provide. 4. Once these issues have been adequately addressed among the firm in the supply chain, additional improvement in responsiveness comes from designing more effective and faster product and service delivery systems as products are passed through the supply chain and by continuously monitoring the changes according the marketplace and using the information to reposition the supply chain to stay competitive. 5. Improving customer responsiveness require firms to revaluate their supply chain relationships, to utilise business process reengineering, to reposition warehouses, design new products and services, reduce new product designs cycles, standardize processes and products. Empower and train workers in multiple skills, build customer feedback into daily operations and finally link together all of the supply chain participant’s information and communication systems.

___________________________________________________________

-7-



2. MATERIAL MANAGEMENT IN SCM 2.1. Scope of Material Management:

Scope of Material Management

MPC

Purchasing

Store Management

Inventory Management

Other Related function

1. Standardization 2. Simplification 3. Specification 4. Value Analysis 5. Ergonomics 6. Just-in-time Fig-2.1 

The function of material management can be categorised in the following ways: 1. Materials planning and control: Based on the sales forecast and production plans, the material planning and control is done. This involves estimating the individual requirements of parts preparing material budget, forecasting the levels of inventories, scheduling the orders and monitoring the performance in relation to production and sales. 2. Purchasing: This includes selection of sources of supply finalization in terms of purchase, placement of purchase orders, follow up, maintenance of smooth relations with suppliers, approval of payments to suppliers, evaluating and rating suppliers. 3. Stores management: This involves physical control of materials, preservation of stores, minimization of damage through timely disposal and efficient handling, maintenance of stores record, proper location and stocking. A store is responsible for physical verification of stocks and reconciling them with book figures, a store plays a vital role in the operation of a company. 4. Inventory control: Inventory generally refers to the materials in stock. It is also called the idle resource of an enterprise. The interval between receiving the purchased parts and transforming them into final products varies from industries to industries depending on the cycle time of manufacturer. It is therefore, necessary to hold inventories of various kinds to act as a buffer between supply chain and demand for efficient operation of the system. 5. Other related activities: -8-


Supply Chain management a) 3S: i. Standardization: It means producing maximum variety of products from the minimum variety of materials, parts, tools, and processes. ii. Simplification: The concept of simplification is closely related to standardization. Simplification is the process of reducing the variety of products manufactured. Simplification is concerned with the reduction of product range, assemblies, parts, material and design. iii. Specification: It refers to a precise statement that formulizes the requirement of the customer. It may relate to a product, process or a service. b) Value analysis: Value analysis is concerned with the costs added due to inefficient or unnecessary specification and features. c) Ergonomics (Human Engineering): The human factors or human engineering is concerned with man-machine system. Ergonomics is “the design of human task, manmachine system, and effective accomplishment of the job, including displays for presenting information to human sensors, controls for human operations and complex man machine systems”

2.2. Why Purchasing is an important function in SCM? OR Role of Purchasing in an organisation  Traditionally purchasing was regarded as being a service to production and corporate paid limited attention to issues concerned with purchasing. However as global competition intensified in the 1980’s executives realized the impact of large quantities of purchased materials and work-in-process inventories or manufacturing costs, quality, new product development, and delivery lead time. a. The primary goals of purchasing are to insure uninterrupted flow of raw materials at the lowest possible cost, to improve quality of finished goods produced, and to optimise customer satisfaction. b. Purchasing can contribute to these objectives by actively seeking better materials and reliable suppliers, working closely with and exploiting the expertise of strategic suppliers to improve the quality of raw materials, and involving suppliers and purchasing personnel in new product design and development efforts. c. Purchasing is the crucial link between the source of supply and the organisation itself, with support coming from overlapping activities to enhance manufacturability for both the customer and the supplier. d. The involvement of purchasing and strategic supplier in concurrent engineering activities is essential for selecting components and raw materials that ensure that requisite quality is designed into the product and to aid in collapsing design-to-production cycle time.

-9-



2.3. Purchasing / Procurement process:

Need Recognition Maintenance of Vendors

Maintenance of records

Payment of Invoice

Selection of Supplier

Purchasing Procedure

Placing Order

Follow-up Receiving & Inspection Fig-2.2

 The purchasing process compromises of the following steps as indicated: 1) Recognition of the need: The initiation of the process starts with the recognition of the need by the needy section. The demand is lodged with the purchase department in the prescribed Purchase Requisition form forwarded by the authorised person either directly or through the stores department. The purchase requisition clearly specifies the details, such as, specifications of materials, quality and the suggested supplier, etc. 2) The selection of the supplier: The process for the selection of the supplier involves two basic aspects; searching for all possible sources and short listing out of the identified sources. The important considerations in the selection are the price, ability to supply the required quantity, maintenance of quality standard, financial standing etc. for the repetitive orders and for the purchases of low-value, small lot items, generally the previous suppliers with good records are preferred. 3) Placing the order: Once the supplier is selected the next step is to place the purchase order. Purchase order is a letter sent to a supplier asking to supply the said material. The copies of PO are retained by storekeeper, accounts section, inspection department, purchase department, and by the department placing the requisition. 4) Follow-up of the order: Follow-up procedure should be employed wherever the costs and risks resulting from the delayed deliveries of materials are greater than the costs of followup procedure, the follow-up procedure tries to see that the purchase order is confirmed by the supplier and the delivery is promised. 5) Receiving and inspection of the material: The receiving department receives the material supplied by the vendor. The quantity are verified and tallied with the PO. The receipt of the - 10 -


Supply Chain management materials is recorded on the specially designed receiving slips or forms which also specify the name of the vendor and the purchase order number. 6) Payment of the invoice: When the goods are received in satisfactory condition, the invoice is checked before it is approved for the payment. The invoice is checked to see that the goods were duly authorised to purchase, they were properly ordered, they are priced as per the agreed terms, the quantity, and quality confirms to the order. 7) Maintenance of the records: Maintenance of records is an important part and parcel of the efficient purchase function. They are very useful for deciding the timings of the purchase and in selecting the best sources of the supply. 8) Maintenance of vendor relations: The quantum and frequency of the transactions with the same key suppliers provide a platform for the purchase department to establish good relations with them. The efficiency of the purchase department can be measured with the amount of good will it ahs with its suppliers.

2.4. Inventory Control Systems of stock replenishment:  Inventory control is a planed approach of determining what to order, when to order, and how much o\to order and how much to stock so that the costs associated with buying and storing are optimal without interrupting production and sales.  Objectives of inventory control: 1. To ensure adequate supply of products to customer and avoid shortages as far as possible. 2. To make sure that the financial investments in inventories is minimum. 3. Efficient purchasing, storing, consumption and accounting for materials is an important objective. 4. To maintain the records of inventories of all the items and to maintain the stocks within the desired limits. 5. To ensure timely action for replenishment. 6. To provide a reserve stocks for variations in lead times of delivery of materials.  Benefits of inventory control: Improvement in Customer relationship management. Smooth and uninterrupted production Efficient utilisation of working capital Economy in purchase.

2.5. Inventory Costs in SCM:  In almost any business analysis involving inventory, physical inventory levels must be converted to inventory costs. Inventory cost can be classified as direct cost and indirect costs. Direct costs include: capital costs, storage space costs, service costs and risk costs. Indirect costs include risk due to loss of business and loss of customers. Some of direct costs are as given below: 1) Capital costs: This is usually an internal cost of funds rate multiplied by the value of the product. Values such as labour costs, material costs, transportation, etc are added to the product as it moves along the supply chain; this cost tends to increase as product moves downstream.

- 11 -


Supply Chain management 2) Storage costs: Units in inventory take up physical space for heating and refrigeration, insurance, etc. An activity based cost (ABC) analysis is usually needed to determine which components of these costs are actually driven by inventory levels and which can be considered more or less fixed. 3) Risk costs: This cost varies with the nature of the business. High level of inventory usually increases the chance of product damage and creates slower feedback loops between supply chain partners. 4) Service costs: Inventory insurance falls under this category. Such service costs are volume related and again can be considered as a penalty on the business if the inventory levels are excessive.

2.6 Different types of Inventory control systems: There are two basic categories of policies for controlling inventories: i. ii.

Fixed order quantity policies Fixed time period policies

 Fixed order quantity policies: In this type of system, the order quantity is same. Based on the lead time involved, the reorder point is decided and every time the quantum of order to be placed is same. Specifically, inventory levels are continuously monitored and an order is placed whenever the inventory level drops below the predetermined reorder point. For this reason this type of policies are called as continuous review policies.  Fixed time period policies: In this system the ordering level is same. [for example every week, every month, etc.] The order quantity may be different every time based on the costs involved. These policies are called as periodic review policies. Apart from these policies sometimes other variants used are:  Two-bin system: This system is simple to operate and easy to understand. Notionally, there are two bins kept full of items. Items from the first bin are used first. The moment the first bin is exhausted, an order is placed for items and the second bin acts as buffer.

2.7. Different Techniques of Inventory Control:  In any organisation depending on the type of business, inventory is maintained. When the number of items in inventory is large and then large amount of money is needed to create such inventory, it becomes the concern of the management to have a proper control over its ordering, procurement, maintenance and consumption. The control can be for order quality and order frequency. The different techniques of inventory control are as follows:

1) ABC Analysis: In this analysis the classification of the inventory is based on annual consumption and the annual value of the items. We obtain the quantity of inventory items consumed during the year and multiply it by unit cost to obtain annual usage cost. The items are then arranged in descending order of such annual cost. Once ABC analysis has been achieved, the policy control can be formulated as follows; - 12 -


Costs (%) of usage value


100 80

60

40

20 A

0

B

20

C

40

60

80

100

No. of Items (%)

Fig--2.3 a) A-Item: Very tight control, the items being of high value. The control need be exercised at high level of authority. b) B-Item: Moderate control, the item being of moderate value. The control need be exercised at middle level of authority. c) C-Item: Item being of low value, the control can be exercised at grass root level, ie: by respective department managers. 2) HML Analysis: In this analysis classification of the inventory is based on unit price of the items. They are classified as high price, medium price, and low price items. 3) VED Analysis: In this analysis the items are classified based on criticality. They are classified as vital, essential and desirable. 4) FSN Analysis: In this analysis the classification of items is based on the consumption of the items. They are classified as fast moving, slow moving, and non moving items. 5) GOLF Analysis: In this analysis the classification of items is done on the basis of source of supply of the items. They are classified as government supply, ordinarily available, locally available, and foreign source of supply items. - 13 -


Supply Chain management 6) SOS Analysis: In this analysis the classification of existing inventory is based on the nature of supply of items. They are classified as seasonal and non-seasonal items.

2.8. VMI, CMI, Green Supply Chain:  Vendor Managed Inventory systems: 1) VMI stands for Vendor Managed Inventory, and is a common term used in many industries and channels. In some industries. 2) In traditional replenishment process, the customer has to create an order for the vendor at every step in the supply chain. 3) The customer does not give prior notification of the requirements, which meant that the vendor is complied to store safety stocks that act as a buffer foe all eventualities. 4) The customer also has safety stocks available of the same items as a protective mechanism. 5) This procedure led to larger amount of stocks in the entire supply chain and resulted in reduced level of customer service and a poorer response level. 6) Through inventory managed inventory programs, manufacturers can offer their customers a value added services by performing the replenishment-planning task for their business partners. 7) VMI is a key to reducing costs and improving business performance. 8) VMI can be used for any two points in a supply chain: a supplier of inventory (source) and a replenished location (destination). This might be a manufacturer and a distributor, a manufacturer and an internal subsidiary, a supplier and an OEM (Original Equipment Manufacturer) or many other combinations of a supplier and a replenished location. 9) VMI is enabled by specialized software. This VMI software is dedicated to the task of automating the flow of product from source to destination with the goal of improving inventory performance while reducing total supply chain costs. 10) These two partners in the supply chain automate the sharing of ERP system data regarding inventory and sales, allowing the VMI software to manage the inventory flow and stocking levels at the replenished location. 

Green Supply Chain Management: a.Producing, packaging, moving, storing, repackaging, and delivering products to their final destination can pose a significant threat to the environment in terms of discarded packaging materials, carbon monoxide emissions, noise, traffic congestions and other forms of industrial pollution. b. As the practice of supply chain management becomes more widespread, firms and their supply chain partners will be working harder to reduce these environmental problems. c.In fact relationships between companies in an integrated supply chain are much more conducive to taking a more proactive approach to reducing the negative environmental consequences of producing, moving and storing products as they move through the supply chain. The Customer Managed Inventory (CMI): 1) The Customer Managed Inventory (CMI) Model enhances inventory operations through customer management - 14 -


Supply Chain management 2) Customer Managed Inventory (CMI) is a business model that allows organizations to access control and replenish inventory from their manufacturers or suppliers. The benefits associated with CMI have given organizations a clear, completive edge in attaining and retaining customers, as well as cut operating costs significantly.

2.9. Sourcing Decision: The Make-or-Buy Decision  The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that has developed a product or part—or significantly modified a product or part—is having trouble with current suppliers, or has diminishing capacity or changing demand.  Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the strategic level is the more long-range of the two. Variables considered at the strategic level include analysis of the future, as well as the current environment. Issues like government regulation, competing firms, and market trends all have a strategic impact on the make-or-buy decision.  The increased existence of firms that utilize the concept of lean manufacturing has prompted an increase in outsourcing. Manufacturers are tending to purchase subassemblies rather than piece parts, and are outsourcing activities ranging from logistics to administrative services. I. Reasons for Buying or outsourcing: a. Lack of expertise b. Suppliers' research and specialized know-how exceeds that of the buyer c. cost considerations (less expensive to buy the item) d. Small-volume requirements e. Limited production facilities or insufficient capacity f. Desire to maintain a multiple-source policy g. Indirect managerial control considerations h. Procurement and inventory considerations i. Brand preference j. Item not essential to the firm's strategy II. Reason for Making (in-house) : a. Cost considerations (less expensive to make the part) b. Desire to integrate plant operations c. Productive use of excess plant capacity to help absorb fixed overhead (using existing idle capacity) d. Need to exert direct control over production and/or quality e. Better quality control f. Design secrecy is required to protect proprietary technology g. Unreliable suppliers h. No competent suppliers i. Desire to maintain a stable workforce (in periods of declining sales) j. Quantity too small to interest a supplier k. Control of lead time, transportation, and warehousing costs l. Greater assurance of continual supply m. Provision of a second source n. Political, social or environmental reasons (union pressure) - 15 -


Supply Chain management o. Emotion (e.g., pride)

2.10. Supplier Selection:  Factors considered for supplier selection are as follows: a. Product and process technologies: Supplier should have up to date and capable products, as well as process technologies to produce the material needed. b. Willingness to share technologies and information c. Quality d. Cost e. Reliability f. Order system and cycle time: Placing order with a supplier should be easy, quick and effective. Delivery lead time should be short, so that small lot sizes can be ordered on a more frequent basis to reduce inventory holding cases. g. Capacity h. Communication capability: Supplier should posses a communication capability that facilitates communication between parties. i. Location: Geographical location is another important factor in supplier selection. As it impacts delivery lead-time, transportation and logistical costs. j. Services: Suppliers must be able to back up their products by providing good services when needed.

2.11. Supplier Relationship Management (SRM):  Defn: Supplier Relationship Management is an all-inclusive approach to managing the affairs and interactions with the organizations that supply your company with goods and services. This includes communications, business practices, negotiations, methodologies and software that are used to establish and maintain a relationship with a supplier. Benefits include lower costs, higher quality, better forecasting and less tension between the two entities that result in a win-win relationship. Supplier Relationship Management Software (SRM): 1. Supplier relationship management (SRM) software enables businesses to manage the relationship between buyers and suppliers. 2. Procurement personnel use SRM software to define replenishment strategies, manage contracts, evaluate supplier performance, and establish strategic sourcing relationships. 3. Typically, supplier relationship management (SRM) software is integrated with a larger enterprise resource planning (ERP) system. 4. Supplier relationship management (SRM) software can also used with customer relationship management (CRM) software to speed order fulfilment. In this way, SRM software covers the buy-side of the supply chain while CRM software covers the sellside. 5. Supplier relationship management (SRM) software is designed to assist businesses with each phase of the procurement cycle. First, buyers use SRM software to submit a request for proposal (RFP) or request for quotation (RFQ) to multiple vendors. 6. In many organizations, Web-based supplier relationship management (SRM) software is used to communicate with vendors in real-time. - 16 -


Supply Chain management 7. For their part, suppliers can monitor stock levels to determine when the buyer’s inventories need replenishment. 8. Supplier relationship management (SRM) software enables businesses to select suppliers based on a variety of criteria. Buyers can compare vendors based on factors such as price, past performance, or a combination of both. 9. The use of a weighted formula is especially important when a vendor with the lowest cost fails to deliver shipments on time, or delivers raw materials that often need to be scrapped. 10. Supplier relationship management (SRM) software should reflect a procurement organization’s business rules and reflect standards such as Six Sigma, a methodology that prevents defects in manufacturing and service-related processes.

2.12. Vendor Evaluation & Certification: 1. Companies want to develop partnerships with the best suppliers to leverage supplier’s expertise and technologies to create a competitive advantage. 2. Learning more about how an organization’s key suppliers are performing can lead to greater visibility, which can provide opportunities for further collaborative involvement in value added activities. 3. A supplier evaluation and certification process must be in place so that the organisation can identify their best and more reliable suppliers. 4. Providing frequent feedback on the supplier performance can help organizations avoid major surprises and maintain good relations. 5. One of the goals of evaluating suppliers is to determine if the supplier is performing according to the buyer’s requirements. 6. An extension of supplier evaluation is supplier certification, defined by the institute for Supply Management as “an organization’s process for evaluating the quality system of key suppliers in an effort to eliminate incoming inspections”. 7. Implementing an effective supplier certification is critical to reducing the supplier base, building long-term relationships, reducing time spent on incoming inspections, improving delivery and responsiveness, recognizing excellence, developing a commitment to continuous improvement and improving overall performance.

2.13. Vendor Development:  Vendor development is defined as “any activity that a buyer undertakes to improve a suppliers performance and/ or capabilities to meet the buyers short- and/ or long term supply needs”  Vendor development requires financial and human resource investments by both partners and includes a wide range of activities such as training of the suppliers personnel, investing in the suppliers operation, and ongoing performance assessment. A seven step approach to supplier development follows: 1) Identify critical products and services: Assess the relative importance of the products and services from a strategic prospective. Products and services that are purchased in high volume, do not have good substitute, or have limited sources of supply are considered strategic supplies. 2) Identify critical suppliers: Suppliers of strategic supplies who do not meet minimum performance in quality, on-time delivery, cost, technology, or cycle time are targets for development. - 17 -


Supply Chain management 3) Form a cross functional team: The buyer must develop an internal cross-functional team with a clear agreement for the development initiative. 4) Meet with top management of supplier: The buyer’s cross-functional team meets with the suppliers top management team to discuss details of strategic alignments, supplier performance measurement, improvement, and professionalism. 5) Identify key projects: After the promising opportunities have been identified, they are evaluated in terms of feasibility, resource and time commitment and expected return on investment. 6) Define details of agreement: The partners must jointly decide the metric to be monitored such as percent improvement in quality, delivery and cycle time. 7) Monitor status and modify strategies: To ensure continuous success, management must actively monitor progress, promote exchange of information, and revise the strategy as business condition warrants.

2.14. Knowledge Management & SCM: 1. Knowledge Management (KM) is an effective approach being adopted by world-class organizations. 2. One of the challenges involves effective globalization of the knowledge based supply chains. Global supply chains are more complex and involve multiple autonomous players globally located with varying background and SCM exposures. 3. Knowledge management can offer improved global integration, knowledge implications, wide applicability and knowledge sharing (rather than information) etc. 4. There is growing need for developing KM based supply chains and their demo models to promote the benefits of knowledge sharing and knowledge advancements. 5. In the global competition, the fast changing nature of the customer demands warrants consideration for the formation of knowledge integration between partners. 6. A knowledge based view of the supply chain is necessary to understand the requirement of the organizations in the value chain partnership and vis-à-vis the firm capability. 7. The development of knowledge based supply chain depends on the nature of knowledge flow in the entire chain. 8. Timely sharing of decision knowledge amongst the chain partners can be very useful. However this requires change in managerial mindsets. 9. Its application across dynamic SCM networks reflects the benefits of integrating knowledge, which is actually spread across various components of the supply chain.

2.15. Third--Party Supply Chain Management Services:  Third-party logistics companies can allow an organization to focus energy on its core competencies and speed the process of getting a final product to market while saving production costs. Turning the logistics of procurement, manufacturing, and the distribution of goods over to a third-party allows your business to take advantage of already established processes. A logistics company has the advantage of an established vendor list, a manufacturing plant, a storage facility, and a distribution centre, so it is well-equipped to provide the manufacturing support that may save an organization time and money. The following are services that can help an organization with order fulfilment:

- 18 -


Supply Chain management Demand forecasting: A logistics company can compile data to forecast demand in order to determine an appropriate rate of replenishment. Solid demand forecasting reduces waste and minimizes inventory that remains in the warehouse. Smart spending on inventory replenishment preserves cash flow. II. Supplier management: Logistics companies often employ experienced individuals who have the negotiating expertise and established vendor relationships to secure favourable pricing on the raw goods that go into manufacturing. Once the item is manufactured, the product is then inspected and checked for quality assurance. III. Warehousing: Although warehousing includes the storage of the product in a clean, dry facility until the merchandise is ready for distribution, other services such as picking and packing, assembly, receiving, shipping, and inventory management are often available. IV. Administrative: A logistics company not only deals with the production and distribution of the goods, but also the paperwork involved, such as coding the product to keep track of what is moving in and out of the plant; invoicing; documentation of product orders, up sales, and product issues; export management, which involves screening, documenting, and recording transactions within the limits of the law; Web tracking of inventory and status of merchandise transactions; and project management services. I.

2.16. Electronic Procurement System (e-Procurement): a. The material user initiates the e-procurement process by entering a materials request and other relevant information, such as quantity and date needed, into the material requisition module. b. Next the material requisition is printed out and submitted to a buyer at the purchasing department (or submitted electronically). c. The buyer reviews the MR for accuracy and appropriate approval level. d. Upon satisfactory verification of requisition, the buyer transfers the MR data to the internet based e-procurement system and assigns qualified suppliers to bid on the requisition. e. The product description, closing dates, and bid conditions are specified on the requisition. f. Suppliers connected to the e-commerce system receives the bid instantaneously while others can receive faxed bid from service provider g. Upon closing of the bids, the buyer reviews all the bids tendered through the internet based e-procurement system and selects a supplier based on quality, cost, and delivery performance. h. Finally the purchase order is submitted electronically to the selected supplier if it is connected to the e-procurement system; otherwise a purchase order is printed and mailed to the supplier. Advantages of the e-procurement System: Benefits derived from implementing an e-procurement system include: 1) Time saving: e-procurement is more efficient when; (a) Selecting & maintaining a list of potential suppliers, (b) processing request for quotation and purchase orders and (c) making repeat purchases. 2) Cost saving: Buyers can generate more purchases, and the manual task of matching bids to materials requisition is eliminated. Other cost savings include lower prices of goods and services since more suppliers can be contacted, reduced inventory costs due to ability to purchase on a more frequent basis, fewer purchasing staff, lower administrative costs, and faster order fulfilment. - 19 -


Supply Chain management 3) Accuracy: The system enhances accuracy of communication between buyer and supplier. 4) Real time: The system enables buyers to initiate bids and suppliers to respond in real time on a 24-hour, 7 days-per week basis. 5) Mobility: the buyer can submit, process, and check the status of bids, as well as communicate with suppliers regardless of the buyer’s geographical location and time of day. 6) Trackability: Audit trails can be maintained for all transactions in electronic form. Tracking electronic bid and transaction is much easier and faster than tracking paper trails.

___________________________________________________________

- 20 -



3. SCM OPERATION MANAGEMENT 3.1 Scope of Operation Management: Location & Facilities Plant Layout

Maintenance Management

Material Management

Quality Control

Production Operation Management

Product & Planning Control

Product Design

Process Design

Fig-3.1 a. Operations management is an area of business concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient in terms of using as little resource as needed, and effective in terms of meeting customer requirements. b. It is concerned with managing the process that converts inputs (in the forms of materials, labour and energy) into outputs (in the form of goods and services). c. Operations traditionally refer to the production of goods and services separately, although the distinction between these two main types of operations is increasingly difficult to make as manufacturers tend to merge product and service offerings. d. More generally, Operations Management aims to increase the content of value-added activities in any given process. e. Fundamentally, these value-adding creative activities should be aligned with market opportunity for optimal enterprise performance. f. Following are the activities, which are listed under Production Operation management functions; i. Location of facilities ii. Plant layouts and material handling iii. Product design iv. Process design v. Production & Planning control vi. Quality control vii. Material management viii. Maintenance Management - 21 -



3.2. Demand forecasting & techniques: a. Demand forecasting is critical to the efficient functioning of the supply chain process. b. It forms the basis for the planning activities in the supply chain. An accurate forecast optimizes the inventory level and improves the supply chain's responsiveness. c. Forecasting is the establishment of future expectations by the analysis of past data, or the formation of opinions. d. Forecasting is an essential element of capital budgeting. Capital budgeting requires the commitment of significant funds today in the hope of long term benefits. e. The role of forecasting is the estimation of these benefits. 1.

Qualitative Methods: These methods rely on experts who try to quantify the level of demand from the available qualitative data. The two most widely followed methods are: i. ii.

Jury of execution opinion method: Opinions of a group of experts is called for and these are then combined to arrive at the estimated demand. Delphi Method: In this method a group of experts are sent questionnaires through mail. The responses received are summarised without disclosing the identities. Further mails are sent for clarification in cases of extreme views. The process is repeated till the group reaches to a reasonable agreement.

Techniques

Routes Top-down route

Quantitative

Bottom-up route

Qualitative Delphi method

Simple regressions Multiple regressions Time trends

Consumer Survey Jury of executive opinion Scenario projection

Moving averages Fig-3.2

2.

Quantitative Methods: - 22 -


Supply Chain management These methods forecast demand levels based on analysis of historical time series. The important methods in this category are: .i Trend projection methods: These methods involve determining the trend of consumption based on past consumption and project future consumption by extrapolating this trend. .ii Moving Average Method: According to this method, the forecast for the next period represents a simple or weighted arithmetic average of the last few observations. .iii Exponential smoothing: In statistics, exponential smoothing is a technique that can be applied to time series data, either to produce smoothed data for presentation, or to make forecasts. The time series data themselves are a sequence of observations. The observed phenomenon may be an essentially random process, or it may be an orderly, but noisy, process.

3.3. CPFR concept: a. Collaborative Planning, Forecasting and Replenishment (CPFR) is a concept that aims to enhance supply chain integration by supporting and assisting joint practices. b. CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the supply chain. c. Information shared between suppliers and retailers aids in planning and satisfying customer demands through a supportive system of shared information. d. This allows for continuous updating of inventory and upcoming requirements, making the end-to-end supply chain process more efficient. e. Efficiency is created through the decrease expenditures for merchandising, inventory, logistics, and transportation across all trading partners. CPFR model is as follows: Collaborative Planning

The CPFR Process Collaborative Business Plan

Create Sales forecast Identify exception Resolve exceptions

Create Order forecast Identify and resolve Exceptions

Collaborative Forecasting

Collaborative Replenishment

Generate Order Fig-3.3



Planning:-- 23 -


Supply Chain management Step1: Establish Collaborative Relationship The enterprise of participating builds up a set of cooperative relation of the instruction policy and rule. Mainly is for letting to participate of enterprise to each other of be in conjunction with the cooperation contain consistent consensus and the commitment. Step2 Create Joint Business Plan The enterprise commutation of participating is each from of information of enterprise strategy and the business project with build up the associated business project.





Forecasting:-Step3 Create Sales Forecast Step4 Identify Exceptions for Sales Forecast Step5 Resolve/Collaborate on Exception Items Step6 Create Order Forecast Step7 Identify Exceptions for Order Forecast Step8 Resolve/Collaborate on Exception Items Replenishment:--

The dealer and supplier together predict the need of the consumer, pointing out what condition under will produce the exception condition, and then the basis may cause exception of reason take in to solve, or adjust the project. The dealer and supplier together predict the order, and draft to repair the goods project, similarly, the exception condition that aims at the possible occurrence takes in to solve.

Step9 Order Generation Predict from order to the creation of the actual order, no matter the order is what manufactory or wholesaler send out, will consume at first the order predicted.

3.4 CODP Concept: a. In recent years the customer order decoupling point (CODP) has gained increased acceptance as an important concept when organizing value-adding activities in production and logistics. b. The CODP, which is defined as the point in the value-adding material flow that separates decisions made under uncertainty from decisions made under certainty concerning customer demand, is however normally only used for production- and distribution- related activities. c. Here we adjust the typical CODP typology and show how the engineering resources can be integrated with the production process so as to take the features of mass customization environments into account. d. It also examines existing mass customization frameworks and offers a more thorough and nuanced typology for classifying various levels of mass customization. e. Finally, the adjusted CODP typology is used as a foundation for developing a reliable order promise process for mass customizes.

3.5. MRP & EOQ:  Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) - 24 -


Supply Chain management a. Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) are predecessors of Enterprise Resource Planning (ERP), a business information integration system. b. The development of these manufacturing coordination and integration methods and tools made today’s ERP systems possible. c. Both MRP and MRPII are still widely used, independently and as modules of more comprehensive ERP systems, but the original vision of integrated information systems as we know them today began with the development of MRP and MRP-II in manufacturing. d. The vision for MRP and MRPII was to centralize and integrate business information in a way that would facilitate decision making for production line managers and increase the efficiency of the production line overall. e. In the 1980s, manufacturers developed systems for calculating the resource requirements of a production run based on sales forecasts. f. In order to calculate the raw materials needed to produce products and to schedule the purchase of those materials along with the machine and labour time needed, production managers recognized that they would need to use computer and software technology to manage the information. g. Material Requirements Planning (MRP) was an early iteration of the integrated information systems vision. MRP information systems helped managers determine the quantity and timing of raw materials purchases. h. While MRP was primarily concerned with materials, MRPII was concerned with the integration of all aspects of the manufacturing process, including materials, finance and human relations. i. Like today’s ERP systems, MRPII was designed to integrate a lot of information by way of a centralized database. j. However, the hardware, software, and relational database technology of the 1980s was not advanced enough to provide the speed and capacity to run these systems in real-time, and the cost of these systems was prohibitive for most businesses. k. Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) are both incremental information integration business process strategies that are implemented using hardware and modular software applications linked to a central database that stores and delivers business data and information. l. The goal of MRP-II is to provide consistent data to all players in the manufacturing process as the product moves through the production line. m. MRP allows for the input of sales forecasts from sales and marketing. n. These forecasts determine the raw materials demand. MRP and MRPII systems draw on a Master Production Schedule, the break down of specific plans for each product on a line. o. While MRP allows for the coordination of raw materials purchasing, MRP-II facilitates the development of a detailed production schedule that accounts for machine and labour capacity, scheduling the production runs according to the arrival of materials. p. An MRP-II output is a final labour and machine schedule. Data about the cost of production, including machine time, labour time and materials used, as well as final production numbers, is provided from the MRP-II system to accounting and finance.

 Economic Order Quantity (EOQ): a. Assume that the demand for a product is constant over the year and that each new order is delivered in full when the inventory reaches zero. b. There is a fixed cost charged for each order placed, regardless of the number of units ordered.

- 25 -


Supply Chain management c. There is also a holding or storage cost for each unit held in storage (sometimes expressed as a percentage of the purchase cost of the item). d. We want to determine the optimal number of units of the product to order so that we minimize the total cost associated with the purchase, delivery and storage of the product. e. The required parameters to the solution are the total demand for the year, the purchase cost for each item, the fixed cost to place the order and the storage cost for each item per year. f. Note that the number of times an order is placed will also affect the total cost, however, this number can be determined from the other parameters such as; 1. 2. 3. 4. 5.

The ordering cost is constant. The rate of demand is constant The lead time is fixed The purchase price of the item is constant i.e. no discount is available The replenishment is made instantaneously; the whole batch is delivered at once.

EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum.

3.6. Capacity planning: a. Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period of time. b. A discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customers.

Planning Horizon

Capacity Plan

Long Range (More than one year)

Resource Requirement Planning (RRP)

Medium Range (6 to 18 Months)

Rough-cut Capacity Planning (RCCP)

Short Range (Day / weeks)

Capacity Requirement Planning (CRP) Fig-3.4

c. The goal of capacity planning is to minimize this discrepancy. Demand for an organization's capacity varies based on changes in production output, such as increasing or decreasing the production quantity of an existing product, or producing new products. d. Better utilization of existing capacity can be accomplished through improvements in overall equipment effectiveness (OEE).

- 26 -


Supply Chain management e. Capacity can be increased through introducing new techniques, equipment and materials, increasing the number of workers or machines, increasing the number of shifts, or acquiring additional production facilities. f. Capacity is calculated: (number of machines or workers) × (number of shifts) × (utilization) × (efficiency). g. The broad classes of capacity planning are lead strategy, lag strategy, and match strategy.  Lead

strategy is adding capacity in anticipation of an increase in demand. Lead strategy is an aggressive strategy with the goal of luring customers away from the company's competitors. The possible disadvantage to this strategy is that it often results in excess inventory, which is costly and often wasteful.  Lag strategy refers to adding capacity only after the organization is running at full capacity or beyond due to increase in demand (North Carolina State University, 2006). This is a more conservative strategy. It decreases the risk of waste, but it may result in the loss of possible customers.  Match strategy is adding capacity in small amounts in response to changing demand in the market. This is a more moderate strategy. h. In the context of systems engineering, capacity planning is used during system design and system performance monitoring. i. Capacity planning is long-term decision that establishes a firms' overall level of resources. j. It extends over time horizon long enough to obtain resources. k. Capacity decisions affect the production lead time, customer responsiveness, operating cost and company ability to compete. l. Inadequate capacity planning can lead to the loss of the customer and business. m. Excess capacity can drain the company's resources and prevent investments into more lucrative ventures. n. The question of when capacity should be increased and by how much is the critical decisions.

____________________________________________________________________________

- 27 -



4. Distribution in SCM 4.1 Importance of transportation in SCM: a. Transportation is what allows products to move from point of origin to point of consumption throughout supply chain, and thus is responsible for creating time utility and place utility. b. Time utility or time value is created when customer gets product delivered at precisely right time, not earlier and not later. c. The transportation function creates time utility by determining how fast products are delivered and how long they are held in storage prior to delivery. d. Thus transportation in a supply chain setting is extremely important in that products must be routinely delivered to each supply chain partners on time and to correct locations. e. As mistakes occur in deliveries along the supply chain, more safety stocks must be held and customer satisfaction for end customer service levels deteriorate eventually causing higher costs and lower satisfaction for end consumers. f. To make up for lost time, overnight deliveries are also frequently used, causing transportation costs to escalate. g. Thus we can say that value is created for supply chain by transportation h. It is what effectively links each supply chain partner. i. Poor transportation management can bring a supply chain to its knees literally, regardless of the production cost or quality of the products produced. j. Alternatively, good transportation management can be one of the elements creating competitive advantage for supply chain.

4.2 Objective of Transportation: a. Transportation is a very key element of the logistic process and the supply chain which runs from vendors through operations to the customers. b. It involves the movement of the products, services/speed and costs, which are the critical issues in effective logistics. c. The strategy for transportation must acknowledge the following elements; i. Customer requirements: The supply chain involves the continuous and efficient movement of the product from the vendor to manufacturer to customer. Therefore the transportation program must reflect and meet the customer needs. The time and service aspects of transportation are vital. ii. Timely Shipments: Customer demands their shipment be delivered as they require— on date needed, by the carrier preferred in proper shipping packaging method and complete, both shipped complete and delivered and in good order. Being able to have a transportation program which can do this to provide customer satisfaction and can give an organisation a sustainable competitive advantage. iii. Mode Selection: How to move the product, i.e. by air versus surface? What role does transit time play? How will the inventory and service impact be measured as compared to freight charges? iv. Carrier relations: The carrier attention with volume creates a competitive interest in any business. But there is another side to this attention; business can not be divided among many carriers. This may be due to the fact that as one fractures one’s business, the negotiating or leverage position is affected and one will not be able to develop carrier alliances needed to meet the supply chain service requirements. v. Measurement: Measuring means comparing versus standards. Benchmarking can help in these matters. Benchmarking means learning what other companies do the best practices. - 28 -


Supply Chain management vi. Regulatory impact: Regulatory charges can change, for better or worse. This may affect the strategy formulation. vii. Flexibility: Change is happening. It is not question of whether or not it happens. The only question is how quickly it occurs. The strategy has to be ready to change. New customer new products, new businesses, new suppliers. New corporate emphasis. Accordingly the transportation has to respond to these changes.

4.3 Legal Forms of Transportation:

Common Carriers

Contract Carriers

Legal Forms of Transportation Private Carriers

Exempt Carriers

Fig-4.1 Transportation services are classified as follows: a. Common Carriers: They offer transportation services to all shippers at published rates between designated locations. Common carriers must offer their transportation services to the general public without discrimination, meaning they must charge the same rates for the same services to all customers. Because common carriers are given the authority to serve the general public they are the most heavily regulated of all carrier classifications. b. Contract Carriers: They are also for hire carriers like common carriers; however they are not bound to serve the general; public. Instead, contract carriers serve the specific customers under contractual agreements. Typical contracts are for movement of a specified cargo for a negotiated and agreed price. c. Exempt Carriers: They are also for hire carriers, but they are exempt from regulations of services and rates. Carriers are classified as exempt if they transport certain exempt products like produce, livestock, coal, or newspaper. The exempt status was originally established to allow farmers to transport agricultural products or public roads, but today the status has been broadened to include a number of commodities. d. Private Carriers: They are not subjected to economic regulations and typically transport goods for the company owning the carrier. Firm’s transporting their own products typically own and operate fleets large enough to make the costs of transportation less if the firm hired the service. Flexibility and control of product movements may also play a role in the ownership of private carriers.

- 29 -



4.4 Modes of Transportation: The five basic modes of transportation are as follows: a. Rail: i. Rail has pride of place in the history of transportation of almost every country of the world. ii. One of the major advantage of rail is the ability to haul large quantities of p[products over large distances. iii. Several technological innovations in recent years have generally improved rail services. These innovations are especially helpful considering the type of product carried on most rail shipments. iv. Majority of all the freight hauled by rail is coal; another major class of goods consist of agricultural products. v. Rail services are relatively slow and inflexible; however rail carriers are less expensive than air and motor carriers and can compete fairly well on long hauls. i. ii. iii. iv. v.

b. Motor Carriers: Highway transportation can be extremely flexible if a local carrier does not have the exact type of equipment. This ability to tailor the service to the specific type of traffic means added convenience to shipper. Trucker’s offer both truckload and less-than-truckload service, but most shipments by highway seems to be small, less-than-truckload variety. Motor carriers also have the advantage of not being required to build and maintain their own right of way Quality of service is a constant problem to motor carriers, loss and damage claims tend to be high, and frequently service is slow due to the necessity of re-handling large volumes of small shipments at transfer points. c. Oil Pipe lines: i. Not all pipelines carry petroleum products, slurry pipeline for example carries a pulverised product suspended in water, while the natural pipelines supply our furnaces and air conditioners. ii. Pipelines are not especially fast and in fact, rank last in speed of the major modes of transportation since they move their content at less than 5 miles per hour. iii. One of the most vexing problem in pipeline transportation is shrinkage of the product mostly due to evaporation. iv. Crude petroleum can lose upto one-quarter of a percent of its volume in transit through the line. v. Another problem is the shear size of the investment required to build the line. d. Water Transportation: i. Water transportation within the nation travels along the rivers and canals. ii. Speed is slow and made even slower when ice or floods clog the waterways; but water can carry large bulky cargoes. iii. This bulky cargo consists mainly of coal, petroleum, grain and iron ore. iv. The capacity of some modes of water transportation is quite large. v. Whether continues to be a problem, like storms, icefall etc. e. Air Transportation: i. Air, by whatever type of airline, is generally considered a premium means of transportation. ii. Air transportation is fast, but the freight rates are correspondingly high.

- 30 -


Supply Chain management iii. Unless speed is an important factor in delivering parts to prevent the shutdown of an assembly line or to meet a delivery date to a valued customer, some less expensive means of transport will usually suffice. iv. Probably the biggest headache faced by airline management is control over costs; the price of fuel skips up and down as the price of oil fluctuates. f. Intermodal Transportation: i. Intermodal transportation or combination of the various transportation modes is becoming an extremely popular method of transportation and makes the movement of goods much more efficient. ii. Most large transportation service companies today offer one-stop, door-to-door shipping capabilities—they transport good for one price, then determine the best intermodal transportation arrangements to meet customer requirements as cheaply as possible

4.5 Transportation Pricing:  Two pricing strategies used by transportation service providers are as follows; a. Cost-of-Service pricing: i. It is used when carriers desire to establish the process that varies based on their fixed and variable costs. ii. To accomplish this, firms must be able to identify the relevant costs and then accurately allocate these to each shipment. iii. Cost-of-service pricing varies based on volume and distance. iv. As shipping volume increases, the portion of fixed costs that are allocated to each shipment goes down, allowing the carriers to reduce prices. v. Large volume shipments also allow carriers to charge carload or truckload rates instead of less-than-carload or less-than-truckload rates. vi. As the shipping distance increases, prices tends to increase but not proportionally with distance, since fixed costs are essentially constant regardless of distance. i. ii. iii. iv. v.

b. Value-of-service Pricing: In this type of pricing, the carriers price their services at competitive levels the market will bear. Prices are thus based on the level of competition and the current level of demane for each service. This is profit-maximizing pricing approach, if the carrier has a service that is in high in demand with little competition, prices will tend to be quite high. As other carriers notice this profit potential of this service, competition eventually increases and prices fall. As the level of competition increases, carriers seeks way to reduce their costs to maintain profitability.

c. Pricing Negotiations: i. Negotiations tend to be based on the carriers fixed and variable costs. ii. To maintain an equitable partnership, prices are negotiated that allows carriers to cover their fixed and variable costs and make a reasonable profit. d. Rate Categories: i. Carriers prices or rates can be classified a number of ways, line haul rates—are the charges for moving goods to a non local destination; these can be further classified as class rates, exception rates, commodity rates, and miscellaneous rates. ii. Class rate are based on particular class of the product - 31 -


Supply Chain management iii. Exception rates are published rates that are lower than class rates for specific origin or destination location or volumes. iv. Commodity rates apply to minimum quantities of products to be shipped between two specific locations. v. Miscellaneous rates apply to contract rates that are negotiated between parties and to shipments containing a variety of products.

4.6 Transportation Selection:  Transportation selection decisions are not usually taken solely on minimizing per unit costs, but aim to reduce total logistic costs. Therefore to optimize the relationship with forwarders, shippers need to employ supply chain management processes to co-ordinate their operations with all parties in the chain. The main elements for transport decision making are —responsiveness, reliability and relationships. a. Responsiveness: 1) Due to the importance of time based competition in today’s JIT and VMI oriented markets, responding to customer requirements quickly enables the traditional service cost trade-off to be eliminated. 2) To achieve this time compression the agile approach is gaining much recognition—examining the supply chain from the customer’s point of view, transferring information back to decision-makers at all levels. 3) This means different groups of customers have logistical requirements and need policies tailored to their needs. 4) Hence transportation is a crucial component of agility providing the time specific link between assembly lines and customers. b. Reliability: 1) Shorter transit time results in lower inventories, while more reliability causes lower stock-out costs. 2) Consequently, if the transit time is not consistent, the shipper must increase inventories above the level that a consistent transit time would require. 3) The extended lead time involved in long sea passage are forcing companies to use the more expensive air freight option, but in the context of inventory holding cost, potential lost revenue and market flexibility, the increase freight charge may be worthwhile expense. 4) To achieve the benefit of a reliable transport operation, there is a agreement that closing the “lead time gap” is vital. 5) The lead time gap can be cut down by reducing the supply chain processes through effective design and production integration. c. Relationships: 1) The traditional approach to transport has resulted in firms separating demand-generation activities, such as advertising and promotion, from supply activities such as production and transport. 2) However there is an agreement that this separation has allowed transport management to remain focused on functional efficiencies in isolation from benefits derived from integration with the rest of the supply chain.

4.7 Transportation Decision: a. There are many important aspects of transportation decisions b. They are affected by many factors for example vehicle related costs, fixed operating costs, inventory costs, facility costs, service level costs. - 32 -


Supply Chain management c. Managers can design their transportation in number of ways such as: i. Direct shipment network: In this method supplier’s supply directly to retailers. Routing of each shipment is already specified and the supply chain manager needs to decide only about the quantity and the mode of transportation. Operation and coordination in this kind of network is very simple. Another advantage is elimination of intermediate warehouses as goods are shipped directly to retailers. ii. Direct shipping with milk runs: In this method a truck delivers products from single supplier to multiple retailers or from multiple retailers to single retailer. In this method the supply chain manger has to decide the route of each run. This method also eliminates the need of intermediate warehouses. Further it lowers the transportation costs. iii. Shipment through central distribution centre: Under this method shipment to retailers are routed through a distribution centre. The retailer stores are divided into geographical regions served by a distribution centre [DC], an extra layer between the supplier and the retailer serves two important functions; to store inventory and to act as transfer location. This strategy is also called as cross docking

4.8. Plant and warehouse locations: 

Factors influencing Plant & warehouse Locations;

Factors Influencing Plant Location

General Factors for all organisations

Uncontrollable factors 1. Govt. Policy 2. Climatic condition 3. Supporting industries 4. Community attitude 5. Community infrastructure

Specific factors

Controllable Factors 1. Proximity of markets 2. Supply of materials 3. Transportation Facilities 4. Labour & wages 5. Capital

For Manufacturing Orgn.

For service organisation

1. Dominant factors 2. Secondary factors

Fig-4.2 Following are the factors required for the location of plant in case of all type of organisations;  Controllable factors: a.Proximity of markets - 33 -


Supply Chain management b. Supply of materials c.Transportation Facilities d. Labour & wages e.Capital  Uncontrollable factors: a.Govt. Policy b. Climatic condition c.Supporting industries d. Community attitude e.Community infrastructure  Specific factors: a. Favourable labour climate b. Quality of life c.Proximity of suppliers and resources d. Utilities, taxes, and real estate costs e.Location of competitors

4.9 Warehousing: a.Firms hold inventories for a number of reasons, wherein warehouses are used to support purchasing, production and distribution. b. Firms order raw materials, parts, and assemblies, which are typically shipped to warehouse location close to buyer’s facility and then eventually transferred to the user-facility as needed. c. In a retail setting the warehouse may be regionally located, with the retailer receiving the bulk orders from many suppliers, breaking these down and reassembling outgoing orders for delivery to each retail location, then using private fleet of tucks to move the goods order to the retail locations. d. Similar distribution centres are used when manufacturers deliver bulk shipments to regional market areas, then break these down and ship outgoing order quantities to customers. e.The different types of warehouse facilities available are as follows;  Private warehouses: They are warehouses owned by the firm storing the goods. For firms with large volumes of goods to store or transfer, private warehouses represent an opportunity to reduce the cost of warehousing. Private warehousing can also enable the firm to better utilize its workforce and its expertise in terms of transportation and warehousing activities.  Public Warehouses: They are owned by for profit organisations that contract their services to other companies. Public warehouses provide a number of specialized services that firms can combine to create customized services for various shipments and goods: i. Break-bulk ii. Re-packaging iii. Assembly iv. Quality Inspections v. Material handling, equipment maintenance vi. Storage

- 34 -



4.10 Explain Logistics: a.The Definition of Logistics management is that part of the Supply Chain Management process that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements. b. These are the boundaries and relationships of Logistics Management adopted by the Council of Logistics Management: "Logistics Management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfilment, logistics network design, inventory management of third party logistics services providers. c.To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. d. It is involved in all levels of planning and execution -- strategic, operational and tactical. e.Logistics Management is an integrating function, which coordinates and optimizes all logistics activities, as well as integrates logistics activities with other functions including marketing, sales manufacturing, finance and information technology."

4.11 Ocean Carrier Management: a.The majority of world trade is transported by Ocean Carriers. It is the preferred method for transporting large volumes over great distances. b. Ocean Freight is forecasted to grow in the coming years as the use of containerization by importers increases and the global ocean transportation infrastructure continues to become more efficient. c.Although Ocean Freight costs have risen in recent years, they are still among the lowest between the different modes of transportation. d. However, this advantage of lower transport cost comes as a trade-off against longer transportation times. e.Consumer goods are primarily transported in Ocean Containers, which can enable transportation from exporter to importer the entire route without the need for intermediate cargo transfer. f. Most international containerized shipments are performed utilizing Ocean Liner Services, which are regularly scheduled stops at various Ports world-wide. g. For those with large volumes, Ocean Carriers also offer Charter Service. h. Most major Ocean Carriers have expanded their services beyond traditional ocean freight to include freight consolidation, warehousing, inland waterway, truck and rail service for door-to door service under a single contract of carriage.

4.12 Logistics Information Systems: a. The LIS employed by a company determines the efficiency and competitiveness of the company in the marketplace. b. The ability to optimize logistics costs and service levels is affected by the LIS. c. Today's managers require information regarding both the spatial and temporal dimensions of a company's raw materials and finished products. d. Such knowledge enables optimizing the cost of moving and storing products as well as satisfying customer demands. e. In addition, a competitive advantage is obtained in the marketplace by companies that produce better logistics service at lower logistics costs.

- 35 -


Supply Chain management f. The implementation of a LIS is motivated by a number of objectives including logistics service optimization, cost optimization, information integration, and customer linking. g. As companies attempt to compete in world markets, considerable attention is directed toward the quality of logistics service that can be utilized to differentiate the product in the marketplace. h. The physical completion of the sales transaction creates logistics service, acceptable or unacceptable to the customer. i. To satisfy customer logistics service requirements, companies are proactively managing logistics service levels by monitoring service levels of specified, quantifiable performance criteria. j. A LIS is a critical link in the provision of service performance measurements and the achievement of customer logistics service satisfaction. k. The level of customer service provided by logistics is constrained by the cost of providing the logistics service. l. Optimization of logistics costs requires an analysis of the multiple logistics system component options that can be developed to achieve a desired logistics service goal. m. The various logistics system designs require varying amounts of resources and incur differential costs. n. Achievement of cost optimization for a desired level of logistics service necessitates an information system that is capable of providing cost data relative to existing performance so that system control, modification, and comparison with the cost of alternative systems are possible. o. The integration of information from varied sources within the company is a goal that many companies are establishing. p. Information integration makes available to management from one or a limited number of sources multiple bits of information than previously were generated, analyzed, and stored by many throughout the organization. q. The integrated information source permits management to examine the operation of the organization in total, not in a fragmented, functionally isolated basis. r. Logistics cost and services are of considerable importance to the overall quality and efficiency of the operation, and logistics information is a critical component for integrated information. s. A LIS is critical to the achievement of this level of buyer-seller coordination.

4.13 Customer Relationship Management: a. Customer relationship management is a broadly recognized, widelyimplemented strategy for managing and nurturing a company’s interactions with customers and sales prospects. b. It involves using technology to organize, automate, and synchronize business processes—principally sales related activities, but also those for marketing, customer service, and technical support. c. The overall goals are to find, attract, and win new customers, nurture and retain those the company already has, entice former customers back into the fold, and reduce the costs of marketing and customer service. d. Once simply a label for a category of software tools, customer relationship management has matured and broadened as a concept over the years; today, it generally denotes a company-wide business strategy embracing all customer-facing departments and even beyond. - 36 -


Supply Chain management e. When an implementation is effective, people, processes, and technology work in synergy to develop and strengthen relationships, increase profitability, and reduce operational costs. f. Departments within enterprises—especially large enterprises—tend to function in their own little worlds. g. Traditionally, inter-departmental interaction and collaboration have been infrequent and rivalries not uncommon. h. More recently, the development and adoption of the tools and services has fostered greater fluidity and cooperation among sales, customer service, and marketing. i. This finds expression in the concept of collaborative customer relationship management, which uses technology to build bridges between departments. j. The objective is sharing and harnessing information from all quarters to improve the quality of customer service, and increase customer satisfaction and loyalty as a result. k. Owing to these and related factors, many of the top-rated and most popular products come as integrated suites. l. Despite all this, many companies are still not fully leveraging these tools and services to align marketing, sales, and service to best serve the enterprise and its customers. m. Often, implementations are fragmented; isolated initiatives by individual departments to address their own needs.

4.14 Vehicle Scheduling: Purpose Vehicle Scheduling is part of the component Transportation Planning and Vehicle Scheduling (TP/VS). This component enables the transportation planner to optimally use available capacities of trucks, trains, ships, and airplanes with the goals of more efficiently planning loading capacities and lowering costs, since most customers nowadays depend completely on external transportation companies for optimum transportation (which means deliveries that are on time and cost saving). Integration Within Transportation Management, the component TP/VS includes the tactical and operative planning area, which is enhanced for transportation by components of the Logistics Execution Systems (LES) area. In this way, deliveries and shipments are planned in transportation planning. After they are released from TP/VS, automatic deliveries and shipments can be created in LES. For this transferred data, make settings in APO Customizing by choosing Advanced Planner and Optimizer (APO) Transportation Planning/Vehicle Scheduling (TP/VS) Interfaces. In the APO System, the areas TP/VS, Global ATP and Production Planning are tightly integrated. Features The TP/VS component contains the following functions: • • • •

Transportation planning and transportation consolidation Vehicle scheduling and route determination in a dynamic environment Transportation mode and selection of carrier Multi-pick and multi-drop functions - 37 -


Supply Chain management •

Management by exception

4.15 Reverse Logistics: a.Reverse logistics stands for all operations related to the reuse of products and materials. b. 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. c. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. d. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics." e.The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. f. Normally, logistics deal with events that bring the product towards the customer. g. In the case of reverse, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer. h. In today's marketplace, many retailers treat merchandise returns as individual, disjointed transactions. "The challenge for retailers and vendors is to process returns at a proficiency level that allows quick, efficient and cost-effective collection and return of merchandise. i. Customer requirements facilitate demand for a high standard of service that includes accuracy and timeliness. j. It’s the logistic company's responsibility to shorten the link from return origination to the time of resell." k. By following returns management best practices, retailers can achieve a returns process that addresses both the operational and customer retention issues associated with merchandise returns. l. Further, because of the connection between reverse logistics and customer retention, it has become a key component within Service Lifecycle Management (SLM), a business strategy aimed at retaining customers by bundling even more coordination of a company's services data together to achieve greater efficiency in its operations.

_______________________________________________________________________________

- 38 -



5. SUPPLY CHAIN TECHNOLOGY

COORDINATION

AND

USE

OF

5.1 The “Bullwhip” Effect: a.The bullwhip effect is the magnification of demand fluctuations, not the magnification of demand. b. The bullwhip effect is evident in a supply chain when demand increases and decreases. c.The effect is that these increases and decreases are exaggerated up the supply chain. d. The essence of the bullwhip effect is that orders to suppliers tend to have larger variance than sales to the buyer. e.The more chains in the supply chain the more complex this issue becomes. This distortion of demand is amplified the farther demand is passed up the supply chain. f. Because customer demand is rarely perfectly stable, businesses must forecast demand to properly position inventory and other resources. g. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, companies often carry an inventory buffer called "safety stock". h. Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. i. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop to reduce inventory. j. The effect is that variations are amplified as one move upstream in the supply chain (further from the customer). k. The causes can further be divided into behavioral and operational causes: i. Behavioural causes:  Misuse of base-stock policies  Misperceptions of feedback and time delays  Panic ordering reactions after unmet demand  Perceived risk of other players' bounded rationality ii. Operational causes:  Dependent demand processing • Forecast Errors • Adjustment of inventory control parameters with each demand observation  Lead Time Variability (forecast error during replenishment lead time)  Lot-sizing/order synchronization • Consolidation of demands • Transaction motive • Quantity discount  Trade promotion and forward buying  Anticipation of shortages • Allocation rule of suppliers • Shortage gaming • Lean and JIT style management of inventories and a chase production strategy

- 39 -


Supply Chain management 

           

How to counter the Bullwhip Effect: a. Theoretically the Bullwhip effect does not occur if all orders exactly meet the demand of each period. b. This is consistent with findings of supply chain experts who have recognized that the Bullwhip Effect is a problem in forecast-driven supply chains, and careful management of the effect is an important goal for Supply Chain Managers. c. Therefore it is necessary to extend the visibility of customer demand as far as possible. d. One way to achieve this is to establish a demand-driven supply chain which reacts to actual customer orders. e. In manufacturing, this concept is called Kanban. This model has been most successfully implemented in Wal-Mart's distribution system. f. The result is near-perfect visibility of customer demand and inventory movement throughout the supply chain. g. Better information leads to better inventory positioning and lower costs throughout the supply chain. h. Barriers to the implementation of a demand-driven supply chain include the necessary investment in information technology and the creation of a corporate culture of flexibility and focus on customer demand. i. Another prerequisite is that all members of a supply chain recognize that they can gain more if they act as a whole which requires trustful collaboration and information sharing. j. Methods intended to reduce uncertainty, variability, and lead time: Vendor Managed Inventory (VMI) Just in Time replenishment (JIT) Strategic partnership Information sharing Smooth the flow of products Coordinate with retailers to spread deliveries evenly Reduce minimum batch sizes Smaller and more frequent replenishments Eliminate pathological incentives Every day low price policy Restrict returns and order cancellations Order allocation based on past sales instead of current size in case of shortage

5.2 SCM integration model:

- 40 -


Supply Chain management Identify critical supply chain partners.

Develop supply chain performance measures for each of the key processes.

Assess and improve external process integration and supply chain performance.

Review / Establish corporate, marketing, manufacturing, sourcing, and logistics supply chain strategies.

Align supply chain strategies and key process objectives.

Assess and improve internal integration of key supply chain processes.

Develop internal; performance measures for each of the key processes.

Extend process integration to second tier supply chain partners and beyond.

Revaluate annually or as required.

Fig-5.1 a. Identify Critical Supply chain trading partners:  Identifying only the primary trading partners allow the firms to concentrate its time and resources on managing the important process links with these companies, enabling the supply chain to perform well.  Mapping the network of primary trading partners is something that should be done to help the firm decide which businesses to include in its supply chain management efforts. b.

Review and establish supply chain strategies:  On an annual basis, management must identify the basic supply chain strategies associated with each of its products or services.  If an end product is competing based on quality, then supply chain members should also be using strategies consistent with delivering high-quality products, along with competitive price and service levels.  If end products are competing on basis of cost then strategies and functional policies among each supply chain participants must be consistently aimed at achieving low cost as intermediate product and services are purchased, produced and moved along the supply chain.

c.Align supply chain strategies with key supply chain process objectives:  Once the overriding strategy has been identified for each of the supply chain end products, managers need to identify the important processes linking each of the primary supply chain partners and establish process objectives to assure that resources and effort are effectively deployed within each firm to support the overall end-product strategy.  The key supply chain processes are as follows: i. CRM ii. Customer Service Management iii. Demand Management iv. Order Fulfilment v. Manufacturing Flow Management vi. SRM - 41 -


Supply Chain management vii. Product Development and Commercialization viii. Returns Management d.

Develop internal performance measures for key processes effectiveness:  Before companies can measure performance among supply chain partners, they must first build good internal performance measurement capabilities across functions.  Performance measures need to drive a consistent emphasis on the overall supply chain strategy and corresponding process objective.  In order to assure that processes are supporting the supply chain strategies the supply chain strategy performance is continuously measured using a set of metric for each process.

e.Assess and improve internal integration of key supply chain processes:  The formation of cross functional teams to develop the key process objectives and accompanying performance measures is a good starting point in achieving internal process integration.  The primary enabler of integration though is ERP system.  ERP system provides a view of the entire organization, enabling decision makers within each functions to have information regarding customer orders, manufacturing plans, workin-process and finishing goods inventories, out-bound goods in transit, purchase orders, inbound goods in transit, purchased item inventories and financial and accounting information. f. Develop supply chain performance measures for each of the key processes:  The firm should also develop external performance measures to monitor the links with trading partners in the key supply chain management processes.  These measures should align closely with the internal performance measures for each process but may vary based on purchasing, production, distribution, customer service and other variation across the participating firms. g.

Assess and improve external process integration and supply chain performance:  Building, maintaining and strengthening the relationships between suppliers, customers is accomplanished through use of external process integration.  As process integration increases among supply chain partners, so, too does supply chain performance.  When firms have achieved reasonably good measures of internal process integration, they are ready to move on to external integrating key supply chain processes.

h.

Extend process integration to second tier supply chain partners:  Today supply chain software suppliers are developing systems that integrate more easily with other applications, allowing trading partners to exchange information on forecast, sales, purchase, and inventories.  Prior to the development of these supply chain software applications, integrating processes beyond first tier suppliers and customers was some what more difficult and time consuming.

i. Re-evaluate annually or as required:  In light of the dramatic and fast paced changes occurring with the development of supply chain information systems and the frequent changes most likely occurring with the new products, new suppliers, and new markets, trading, partners should revisit the integration - 42 -


Supply Chain management model annually to identify changes within supply chain and to assess the impact these changes have on integration efforts. 5.3

- 43 -



6. Measuring Performance: Supply Chain Metrics 6.1 Benchmarking and SCM SCOR Model:

Supplier Plan

The firm Plan

Customer Plan

Supplier Make Deliver



Return

Return

Return

Fig-6.1 a. The Supply Chain Operation reference model (SCOR) is a process reference model that has been developed by the SC council as the cross-industry standard for SCM. b. Process Reference model integrates the well known concepts of BPR, benchmarking and process measurement into a cross functional frame work. c. The process reference model consist of: i. ii. iii. iv. v.

Standard description of management process Framework of relationship among standard processes. Standard metrics to measure process performance. Management practices that produce best in class performance. Standard alignment to software features and functionality.

d. Once a complete management process is captured in standard process reference model form it can be; i. ii. iii. iv.

Implemented purposefully to achieve advantage Describe unambiguously and communicated properly Measured, managed, & controlled Tuned and returned to specific purpose

e. The SCOR model has been developed to describe business activities associated with all phases of satisfying customer demand

- 44 -


Supply Chain management f. At the core of this model is a pyramid of four levels that represents the path a company takes on the road to supply chain improvements. i. Level-1: It provides definition for plan source & delivers process time the basic structure of the reference model is as follows: 







Plan: Under this process company should access supply resources, aggregate & prioritize demand requirements, plan inventory, production & rough cut capacity of all products all channels are evaluated under this heading. Source: Under this process, sourcing information is managed, various activities like vendor certification & fed back sourcing information management vendors contracts are conducted also activities involved with receiving materials like, obtain, receive, inspect, hold & issue material. Make: This process is concerned with production, execution & managing infrastructure, specifically under production execution activities like manufacturing, testing, packaging, holding & releasing products is under taken here. Deliver: This process consist of order management & ware house management.

ii. Level-II: It defines various core process categories that are possible components of Supply chain organisation can configure their ideal or actual operations using this process. iii. Level-III: It provides information required for successful planning & setting goals for supply chain improvements. This includes defining process elements, setting target benchmarks defining best practices & system solving capabilities. iv. Level-IV: It focuses on implementation i.e.: putting specific supply chain improvements into action these are not designed with industry standard models as implement can unique to each company.

6.2 Performance Metrics: a. An old age “ You can’t improve what you can’t measure” is particularly true for buyer supplier alliances measures related to quality cost deliver & flexibility have traditionally being use to evaluate how well suppliers are doing. b. Information provided by suppliers performance well be use to improve efficiency in the entire supply chain, thus goal of any good performance evaluation system is to provide metrics that use understandable easy to measure & focus on real value added results for both supplier and buyer. c. By evaluation supplier performance organisation hope to identify suppliers with exceptional performance to improve supplier communication reduces, risk & manage the partnership as organised reported data. d. Over the past several years (TCO) Total cost: a broad framed performance metric has been widely discussed in the supply chain literature. TCO is defined as all cost associated with the maintenance of goods & services & comprise of pre transaction, transaction & post-transaction cost. Explanation of theses three major cost are as follows;

- 45 -


Supply Chain management i. Pre-transaction cost: These costs are incurred prior to order & the receipt of purchase. ii. Transaction cost: These costs include cost of good service & the placing & receiving the order e.g. purchase price, preparation of order& delivery cost. iii. Post- transaction cost: These cost are incurred after the goods are in the process of company, e.g. field failures, companies goods & reputation e. TCO provides co active approach for understanding cost & supplier performance leading to reduce cost. f. However the challenges to effectively identify the key cost drivers needed to determine total cost ownership.

_______________________________________________________________________________

ii. ii. iii.

- 46 -


SCM Notes

Recommend Documents