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Rakesh Kumar Singh

Name : RAKESH KUMAR SINGH

Roll No. : 510910259

Learning Centre : Systems Domain (2779)

Subject : Sales, Distribution and

Supply Chain Management

Assignment No. : Set – II (MK0001)

Date of Submission : 2010

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Rakesh Kumar Singh

MBA Semester – 3
MK0001 – Sales, Distribution and Supply Chain Management
Assignment Set- 2

Q.1 a. List out the obstacles in supply chain and suggest measures to overcome them. (8 marks)
b. Give an example for an ethical issue in sales and distribution. (2 marks)

Ans: Developing an effective supply chain is not easy. A company must have the right technology
and the support of the best suppliers for it to work. However, even once that obstacle has been
overcome, another major issue may still loom ahead: finding real cost-reduction in the supply chain.
Unfortunately, the unanticipated costs of running the supply chain often surprise managers and force
companies to make some tough decisions. Thankfully, understanding what causes or drives these costs
is half the battle.

There are actually six main causes of cost problems in supply chains. Usually a supply chain will
not exhibit all of these problems but they commonly do have a combination of numerous ones since
many of them are related. One of those causes is simply that the business and its partners have not
clearly thought about what they are doing.

Anyone who has ever put together a supply chain knows that it is a truly ambitious endeavour
that is truly worth doing right. However, many companies lack sufficient direction to accomplish such a
goal. Along those same lines is a second cause: confusion. When so many different elements come
together, confusion is almost inevitable initially, especially if there was not enough planning, training,
or communication among those elements.

Another problem deals with the way supply chain success is measured. Too many companies
continue to use outdated financial yardsticks as the sole indicator of the success of a project or of the
business. This approach does not work for supply chains since its main goal is not necessarily to only to
improve profits but to balance supply and demand among all of the chain’s elements. Using profits and
revenues as the main unit of success measurement means that many partners may begin to sacrifice
quality or to make other drastic changes which seem to help the bottom line but which destroy the
supply chain’s foundation.

A third cause of extra costs involves barriers. Those already involved with supply chains
probably already understand that small changes are magnified at each level of the supply chain. A minor
price cut at the distributor level may be a major problem for vendors supplying the raw materials. In
order to minimize these effects, businesses must be able to overcome the barriers that exist between
each separate organization involved in the supply and between the different departments operating
within one’s own company. Unfortunately crossing these boundaries is not always as easy as it sounds.
However, dealing with these situations before they arise and choosing supply chain partners who are
open to that level of collaboration can help alleviate many of these problems.

Finally, supply chains often suffer because either one or several links in the chain are unable or
are resistant to change or when attempts are made to make everyone involved in the link adhere to
strict guidelines. Being willing to adapt and to be flexible is one of the biggest challenges supply chain
partners must face. An insistence that the status quo be the way to go will ultimately cost all parties
involved a great deal and might actually destroy the supply chain.
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While there are a number of ways to avoid these cost problems, they all boil down to one thing:
take pre-emptive action. When a supply chain waits for a problem to arise and then deals with it, the
consequences have already occurred and the damage may not be able to be reversed. Instead, companies
need to sit down with their supply chain partners and discuss issues like flexibility, barriers, metrics, and
direction. By going over these concepts in advance, the companies can ensure that everyone is on the
same page and that anyone who is not willing to be part of the group can get out before they get too
deeply involved.

Overall supply chains can be tremendous assets to companies and their vendors, but they often come
with a price. Businesses must be willing to change their attitudes, their routines, and their ideas of how
things need to run. A failure to do this means that not only will the supply chain fail, but the businesses
involved will likely lose a great deal of money in the process.

Major Trends in Supply Chain Management are:

Co-makership: Co-maker ship is defined as the development of a long-term relationship with a limited
number of suppliers on the basis of mutual confidence. The common benefits of co-maker ship are
shorter delivery lead times, reliable delivery promises, less schedule disruption, lower stock levels, faster
implementation of design changes, fewer quality problems, stable competitive prices and higher priority
given to orders. The basic philosophy of co-maker ship is that the supplier should be treated as an
extension of the customer’s factory with the emphasis on continuity and a seamless end-to-end pipeline.
The trend towards co-maker ship should increase with the growth in trend towards outsourcing. The
principle of co-maker ship can be extended in both directions in the supply chain – upstream to
customers and downstream to distributor retailers and even end users.

Use of Third Party Logistics: Outsourcing operations like storage, transportation, delivery, etc.,
improve service levels, enhance flexibility and reduce costs. Outsourcing also helps to reduce
investments in assets like trucks and warehouses, and enables organizations to access new technologies
more easily and even penetrate new markets. However, certain issues need examination. The service
provider may offer the same service to a competitor to recover the investment costs and hence, the pay
off may not materialize. The organization’s image is closely linked to that of the service provider, Hence,
a decision to use third party logistics should be based on the organisation’s needs, the service provider’s
capabilities, the terms and conditions, and the resulting pay off.

Principle of Postponement: Organisations can determine the appropriate point in the supply chain at
which the product is completed in its saleable form. Delaying the final labelling, assembly or packaging
until the last moment is known as principle of postponement. The objective of this principle is to
minimize the risk of carrying finished product inventory at various points in the supply chain by
delaying product differentiation to the latest possible moment before customer purchase. Stocking and
transportation cost savings are attained by keeping products at the highest echelon level as possible and
by moving goods through the supply chain in large, generic quantities. Some examples of postponement
are – delaying the labelling process till the customer’s order is received, shipping products in bulk and
transferring them to smaller containers at warehouses, delaying final assembly until actual receipt of a
customer’s order, and stocking petroleum, paints, etc., in unblended state and performing blending
operations against actual orders. However, postponement should not lead to a compromise on the
desired service level.

Use of ERP/DRP Techniques: Enterprise Resource Planning (ERP) systems are information
integrators and they help to bind various business processes in an enterprise. ERP also helps in the
streamlining and re-engineering of various processes. It helps in focusing on value-added activities and
eliminating the non-value adding activities. Because of tremendous developments in information
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technology (IT), ERP has led to improvements in various activities related to in-bound logistics,
transportation, materials management, accounting, finance, etc.

DRP is a tool which estimates inventory requirements at stocking locations, and ensures that
supply sources are able to meet the demand. DRP incorporates policies on safety stocks and
information as well as the relation between demand forecasts, inventory levels, and manufacturing and
distribution schedules. The logic used is analogous to material requirements planning. The
manufacturing lead times, in turn, are linked to manufacturing schedules. DRP assists not only in short-
term distribution planning, but also in anticipating future production and distribution resources so as
to match supply and demand. It helps to quickly adjust to vagaries of the market place with minimum
inventories. Its potential is particularly significant in a multi-echelon environment owing to its approach
to incorporate dependencies at various echelon levels. Since minimal inventories are held, DRP can be
viewed as a key requirement for a just-in-time production and logistics system.

(b) The current conflict between the recording industry and a portion of its customers who are
involved in illicit copying of music files arose from innovations involving the compression and
electronic distribution of files over the internet. This paper briefly describes some of the challenges
faced by the recording industry, and examines some of the ethical issues that arise in various industry
and consumer responses to the opportunities and threats presented by these innovations. The paper
concludes by highlighting the risks associated with responses that threaten further innovation,
ultimately reducing the chances of finding solutions that hold appeal for all parties.

Q.2 a. Find out the recent trends in channel management and how they have helped in creating
value in channel performance. (5 marks)
b. What do you mean by supply chain integration? What are its benefits? (5 marks)

Ans: Wholesaling: Wholesaling refers to the activities involved in selling to organizational buyers
who intend to either resell or use for their own purposes. A wholesaler is an organization providing the
necessary means to: 1) allow suppliers (e.g., manufacturers) to reach organizational buyers (e.g., retailers,
business buyers), and 2) allow certain business buyers to purchase products which they may not be able
to purchase otherwise. According to the 2002 Census of Wholesale trade, there are over 430,000
wholesale operations in the United States.

While many large retailers and even manufacturers have centralized facilities and carry out the same
tasks as wholesalers, we do not classify these as wholesalers since these relationships only involve one
other party, the buyer. Thus, a distinguishing characteristic of wholesalers is that they offer distribution
activities both for a supplying party and for a purchasing party. For our discussion of wholesalers we
will primarily focus on wholesalers who sell to other resellers such as retailers.

Retailing: The term ‘retailing’ refers to ‘the activities involved in selling commodities directly to
consumers’.

Retailing consists of the sale of goods or merchandise for personal or household consumption
either from a fixed location such as a department store or kiosk, or from a fixed location and related
subordinated services.

Defined here as sales of goods between two distant parties where the deliverer has no direct
interest in the transaction, the earliest instances of distance retailing probably coincided with the first
regular delivery or postal services. Such services would have started in earnest once man had learned
how to ride a camel, horse, etc.
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When individuals or groups left their community and settled elsewhere, some missed foodstuffs
and other goods that were only available in their birthplace. They arranged for some of these goods to
be sent to them. Others in their newly adopted community enjoyed these goods and demand grew.
Similarly, new settlers discovered goods in their new surroundings that they dispatched back to their
birthplace, and once again, demand grew. This soon turned into a regular trade. Although such trading
routes expanded mainly through the growth of travelling salesmen and then wholesalers, there were still
instances where individuals purchased goods at long distance for their own use.

A second reason is that distance selling increased was through war. As armies marched through
territories, they laid down communication lines stretching from their home base to the front. As well as
garnering goods from whichever locality they found themselves in, they would have also taken
advantage of the lines of communication to order goods from home.

In commerce, a retailer buys goods or products in large quantities from manufacturers or

importers, either directly or through wholesalers, and then sells individual items or small quantities to
the general public or end-user customers, usually in a shop, also called a store. Retailers are at the end of
the supply chain. Marketers see retailing as part of their overall distribution strategy.

Shops may be on residential streets, or in shopping streets with few or no houses, or in

shopping centres. Shopping streets may or may not be for pedestrians only. Sometimes a shopping
street has a partial or full rooftop to protect customers from precipitation. Online retailing, also known
as e-commerce, is the latest form of non-shop retailing.

Shopping generally refers to the act of buying products. Sometimes, this is done to obtain
necessities such as food and clothing; sometimes, it is done as a recreational activity. Recreational
shopping often involves window shopping (just looking, not buying) and browsing and does not always
result in a purchase.

Q.3 a. Show how new information technologies have brought about changes in the supply and
distribution activities of a particular organisation. Do you think it has helped in reaching out to the
consumers more effectively? Give reasons for your answer. (10 marks)

Ans: The internet has vastly expanded the value of the goods and services business trade
electronically. The internet era has revolutionized commerce, making electronic commerce a reality.
The major force of electronic commerce is driven by the fact that it results in lowering purchasing cost,
a reduction of inventories, lowering cycle time, more efficient and effective customer services, lowering
sales and marketing cost and new sales opportunities. E-commerce has three dimensions.

1. Reach is about access and connection. It means simply how many customers a business can
access or how many products it can offer. Reach is the most visible difference between electronic
and physical businesses, and it has been the primary competitive differentiation for business thus
far.

2. Richness is the depth and detail of the information that the business gives the customer or
collects about the customer. Richness holds enormous potential for building close relationships
with customers in a future dominated by e-commerce.

Affiliation is about whose interests in business it represents. Until now, affiliation hasn’t been a
serious competitive factor in physical commerce because, in general, no company ever devised a way to
make money by taking the customer’s side. E-retailers with navigational functions are shifting their
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affiliation towards customers. Traditionally, manufacturers and retailers must find ways to fight, co-opt,
or imitate their e-commerce competitors’ affiliation strategies.

Improved productivity, faster financial flows, improved quality, improved customer service,
reduced costs, shortened supply chain, faster product development, reaching new markets,
improvement in cash flows etc. are the advantages of IT.

IT has helped in making the supply chain faster, flexible and responsive. An organisation needs
to invest in IT carefully to make its supply chain more responsive. Various flows in supply chain such as
material, information and money can be effectively managed through IT. Specifically:

• Strategic decisions on the supply chain design can increase customer satisfaction and save
money at the same time – the classic win-win situation through IT.

• By sharing information, supply chain partners are able to respond more rapidly to known
demand and to do so with less inventory in the system as a whole and, hence, at lower cost.

• Reduction of operating costs by proper coordination of the planning of various stages of the
supply chain is enabled through IT.

• By minimising the need for excess parts and simplifying the overall design, it will be easier for
companies to customise or vary the product according to each customer’s needs and requirements.

• Rapid introduction of a new or modified product is possible through IT.

• Greater product customisation, or manufacturing to order, would come at relatively low unit
cost through IT.

• There is sharing of planning and scheduling information due to collaboration and integration
among departments within the company and outside departments. This is something that is highly
correlated to the supply chain performance.

• Effective inventory management, having just the right amount of the right merchandise on the
shelves for just the right amount of time minimises overstocking and markdowns, and so boosts
profitability. This is possible through IT.

• Detailed analysis of item performance, what-if scenario evaluation, and exception reporting and
handling is facilitated through IT.

IT and supply chain

The application of IT to the logistics function has had a major impact on added value in the
value chain. One particular application, Electronic Data Interchange (EDI), has added to the value
input with:

• More accurate and rapid information flows,

• Improved logistics system productivity,

• Closed trading relationships,

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• Improved cash flows, and

• A reduction in forecasting errors.

Equally, it may be said that EDI would not function adequately, if at all, without the benefits of
electronic point of sale (EPOS) data capture. EPOS enables real and live transactional data to be used
(through the facility of EDI) to manage production operations and inventory allocations and levels.
Hindustan Lever Ltd. (HLL) is an excellent example of a value delivery system. By using an integrated
combination of information systems and EDI systems, it has managed to delay the finishing of the
product until the very last moment. With the advent of the internet, the supply chain is becoming more
and more customer centric.

The value chain concept is an ideal vehicle from which this notion can be developed. The
benefits of using this concept are:

• It identifies the roles and tasks to be undertaken in the total process of customer satisfaction.

• Having identified roles and tasks, they may be evaluated in cost terms, and decisions made
concerning trade-off potential and the extent to which intermediaries may be involved.

• The analysis may be used to determine more accurate costs for providing the service
requirements of customers using an activity-based costing methodology.

The key to the development of the supply chain concept has been the rapid progress made by
information and the fact that the cost of making information available to more decision makers has
steadily decreased, while concurrently, the physical costs of business such as facilities and inventory have
steadily risen.

Another major influence accompanied these phenomena—the developments made in just-in-

time (JIT). The change in manufacturing philosophy brought about by the Japanese Kanban (just-in-
time) concept, which was specifically devised to eliminate waste (any activity or process which does not
directly add value to the product service), has clear implications for logistics. For example, holding
excess inventory was seen as wasteful and, therefore, companies should minimize, even eliminate
inventories. JIT introduced the commitment to short (but consistent) lead times, minimum levels of
inventory but, at the same time, optimal levels of customer service.

The rationale behind the concept is that stocks of components (or finished items for resale)
should be planned to arrive only at the time they are actually needed. In effect, it saves money on
downstream inventories by placing greater reliance on improved responsiveness and flexibility. Hence,
quick response (QR) systems (the distribution equivalent) are attractive. The implications for
distribution management are not difficult to identify. Clearly, there is an information requirement
here, and the development of EPOS and EDI has made the concept of minimal stocks/optimal service
much more feasible.