Module I

BUSINESS ENVIRONMENT TODAY

Liberalised & Hurtling Towards Full Globalisation

Revolutionary Developments in Technology

Short Product Life-Cycles

Shift in Manufacturing - Retailer Relationships

Mounting Pressures from
Consumer Groups
Environmentalists
Adds to Increased Business Complexity of 4C
Constant Change is Now A Permanent Feature
BUSINESS COMPLEXITY- 4C
Customers
Market
Trends
External Environment
Within Company
Competition
Complexity
- Simplest Ideas Exploited
- Barriers to Entry Increasing
- Technology Rates Rising
Completeness
Move to Integrate
Solutions, Not just
Products or Services
Customer Focus
New Standards Emerging in
Product Quality/ Price/
Delivery Services/ Flexibility
Competitiveness
- Reduced Monopolies
on Technology
- Work Done Almost
Anywhere
- Time and Quality
are Competitive
Resources
Increased Volatility that Necessitates Change In Ways of
Managing Customers/ Products/ Suppliers/ Employees
PLAN FOR CHANGE
Develop Plans to Manage Both Long & Short Term
Changes
Implement Supply Chain Management Concept
Create Responsive Systems & Institutions
Manage Change to Companys Advantage
Create Customer Oriented Workforce At All
Levels
Emphasise Flexibility in Planning/ Operations &
Management To Hone Competitive Edge
A Paradigm Shift
RELAY RACE
Baton Slipped & Fell
3 MAJOR REASONS FOR FAILURE
Participants Objectives -
Goals at Change-Over Points -
Participants Busy Improving
Own Performance
NO ONE FOR OVERALL
SUCCESS
CONFLICTING
DIFFERENT
Purchase
Material Flow
Materials Production Distribution
Customer Service
Sales
FUNCTIONAL ORGANIZATION
SCM Concept Integrates Functions/ Companies Along Supply Chain
Each Function Has Its Individual Goal
All Functions Work Within Silos To Meet Individual Goals
Company Unable to Match Customer Service Levels At
Competitive Costs
Baton -
Material/ Goods/ Information
SUPPLY CHAIN
Within & Beyond the
Company
Is considered a
SINGLE ENTITY
SUPPLY CHAIN MANAGEMENT CONCEPT
All MOVEMENT Activities
in
SUPPLY CHAIN
Constitute
TOTAL SYSTEM
FUNCTIONAL ORGANIZATION
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Sales Distribution Production Purchase
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Information 1
Order
Modified Order
Information 2
Information 3
Information 4
Information C
Information S
Fragmented Information Flows
Arms Length Arms Length
Information Flows
SCM IMPLEMENTED ORGANIZATION
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Sales Distribution Production Purchase
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Information Flow
Seamless Information Flow
Orders
Delays
Forecasts
Order Status
Payments
Information Flows
SUPPLY CHAIN - WHAT
Organizations (Stages) Involved Directly & Indirectly
In Satisfying Customer- Needs
Supply Chain Comprises Value-Adding Organizations
Manufacturers Suppliers Transporters Warehouses
Distributors Customers Retailers
Functions That Fulfill Customer Requests Within An
Organization Internal Supply Chain/ Logistics
Internal Supply Chain Includes Functions Related To
Materials Management
Distribution
Customer Service
Marketing
Operations
Finance
Directly Involved Indirectly Involved
SUPPLY CHAIN AS A NETWORK
Company
Supplier Chains
Customer
Chains
Nodes
Links
Network of Facilities & Distribution Options Performing
Material Procurement
Transformation Into Intermediates & Finished Products
Distribution of the Products to Customers
Supply Chains Necessary for Production & Distribution Of
Both Tangible Products & Intangible Services
In Traditional (Functional) Organizations Marketing/
Manufacturing/ Distribution/ Purchasing Organizations Along the
Supply Chain Operate Independently
This Result in Less Than Optimal Working in Traditional Firms
that Leads to Higher Costs & Subsequent Loss of Business To
Competition
Supply Chain Management is the Strategy For Bringing This
Integration Within & Beyond Companies To Fight the Competition
Companies Felt Urgent Need for Integration Among Departments
& Independent Companies Working Along the Supply Chain
Each Function Have Their Own & Often Conflicting Objectives
Marketing High Sales Through High Customer Service
Manufacturing High Throughputs / Low Variety For Low Costs
Distribution Large Variety with Low inventory
Purchasing Low Costs with Little Consideration for Inventory
SUPPLY CHAIN MANAGEMENT NEW STRATEGY
INTEGRATED SUPPLY CHAIN MANAGEMENT
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1 tier
Suppliers
Procurement Transmission Assembly BSR Depots
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COMPANY
Material Flows
Information Flows
Financial Flows
Inbound
Logistics
Outbound
Logistics
External
Supply Chain
Managing the Flows Most Profitably
Dealers
External
Supply Chain
In-plant Logistics
Logistics/
Internal Supply Chain
Reverse Logistics Flows
INTEGRATED SUPPLY CHAIN
DEFINITION
INTEGRATION of all Activities Associated with
Transformation and Flow of Goods from Raw Material
to Finished Products and Suppliers to the End Users,
Related Information Flow both UP and DOWN the
Supply Chain and Financial Flow from Customers to
Suppliers, through Improved Supply Chain Relations,
for Achieving Sustainable Competitive Advantage
SUPPLY CHAIN MANAGEMENT
SCM Implemented Company Creates Healthy Bottom
Line Today and Conditions for Same Tomorrow
INTEGRATION IN SUPPLY CHAIN
Process Integration
Collaborative Working with Buyer and Seller
Joint Product Development
Common Systems
Shared Information
Integration in Supply Chain
Critical for Organizational Success
System Integration
Suitable ERP System Over- Laid with DSS
Focussed on Processes, Suppliers and Customers
Chains that Enhance Competitiveness
STRATEGIC APPROACH IN SCM
Needs Strategic Orientation in Deciding
Activities under its Control
Unifying ALL ACTIVITIES Related To The Process
From Product Conception To Consumption

Tying Together Diverse And At Times Conflicting
Activities In The Organisation

SC Management Influences Large Chunks Of Costs
Directly Related To Current And Future Profits
TOTAL SUPPLY CHAIN
Suppliers Manufacturers
Distribution Centers
Warehouses
Customers
All Facilities Impact COSTS, Though in Varying Degrees
Efficient and Cost-Effective ACROSS Total Supply Chain
Decisions/Activities at Strategic-Tactical-Operational Levels
Inventory
Costs
Manufacturing
Costs
Transportation Costs
Material
Costs
Transportation Costs Transportation Costs
CONFLICTING GOALS
IN SC MANAGEMENT
Low Material Cost

Low Costs of Logistics

Low Overheads
Low level of
Tied-up Capital
in Inventories

Low Inventory
Management
Costs
High Level of
Customer Service
Towards
Markets and
Production
SUPPLY CHAIN MANAGEMENT - GOALS
Achieved By Juggling
The Logistics Mix
ELEMENTS OF LOGISTICS MIX
Inventory
Facilities Locations & Numbers
Communications
Unitisation (Packaging)
Transportation
Procurement & Purchase
Distribution)
Customer Service
Trade-Off Made Among Elements of Logistics Mix To
Enhance Customer Service With Lower Costs
TRADE - OFFS IN SC MANAGEMENT
Lot Size - Frequency of Purchase/ Production
Inventory Transportation Cost
Lead Time Transportation Cost
Product Variety Inventory Cost
Warehousing Transportation Cost
Cost Customer Service
Advanced IT & Creative Network Design
Reduce Impact of Trade- Offs
EVOLUTION OF SUPPLY CHAIN MANAGEMENT
Purchase
Material
Control
Production
W/H &
Transport
Customer Service
Materials
Management
In-Plant
Management
Logistics
Material Flow
Customer Service
Sales
Admin
Material Flow
Integration Within Organisation
1960
1970
Inventory
Inventory
Functional Integration
Inventory
Inventory
In-Plant
Management
EVOLUTION OF SUPPLY CHAIN MANAGEMENT
Materials
Management
INTEGRATED SUPPLY CHAIN MANAGEMENT
Logistics/
Internal Supply Chain
Suppliers
Customers
Suppliers
Suppliers
Customers
Arms length Partnership
Arms Length
Co-Maker
Co-Maker
Logistics
Arms length Partnership
Integration Beyond Organisation
1980
1990
2000
Material Flow Customer Service
Arms Length
Internal Integration
Customers
BASIC ELEMENTS OF SCM
PLAN (Developing Strategies)
For Managing Resources Efficiently To Delivery Value to Customer
Developing Metrics To Monitor SCM Performance
SOURCE
Choose the Right Suppliers To Support Delivering Quality
Developing Metrics To Monitor SCM Relationships
Develop Processes For Sourcing & Managing Supplies
MAKE
Making Schedules for Production/ Testing/ Packaging/ Delivery
Metrics To Monitor Quality/ Output/ Labour & Asset Productivity
DELIVER (Logistics)
Coordinating Customer Order Receipt & Timely/ Correct Delivery
Developing Distribution Network of Transporters & Warehouses
Setting Up Invoicing System to Receive Payments
REVERSE LOGISTICS (Customer Returns)
Creating Network/ Processes To Support Customers Facing Difficulty
with Delivered Products - Return/ Payment/ Discount Procedures
SCM Objective is To Get the Right Product/ Services in
Right Quantities at The Right Place and Right Time At
Minimal Cost
Customer Satisfaction Achieved When SCM Objective is
Fulfilled in Providing Customer Service
SCM OBJECTIVES
Other Objective is To Maximize Overall Value Generated
Value - Difference Between Worth of the Product To
Customer & Cost Incurred by the Supply Chain
SC Profitability is the Profit Shared Across the Whole
Supply Chain
SC Profitability Closely Related To Value Generated
Customer Satisfaction Measured Using Metrics
Order Fill-Rate
On-Time Delivery
SUPPLY CHAIN MANAGEMENT ISSUES
Inventory
Raw Material/ Product (Component) Inventory (RPI)
Work-in-Process (WIP)
Finished Products/ Goods Inventory (FGI)
Inventory That has Become Obsolete Called End-Off-Life
(EOL) Write Off
Flexibility
Ability to Respond Quickly to Changes in the Environment
Flexibility in Supply Chain is Highly Dependent on Flexibility
of All Independent Entities in the Supply Chain
The SCM Objective Translates into the following SCM Issues
Flexibility
Delivery Reliability
Delivery Time (Lead Time)
Inventory Levels
DECISION HIERCHY IN SCM
Higher Level
Middle Level
Lower Level
Strategic
Level
Tactical
Level
Operational
Level
Long-Term Decisions Having Long-Term Effect
Medium-Term Decisions Mid-Term Effect
Day-To-Day Decisions Short-Term Effect
Higher Level Decisions Set Conditions Within Which Lower Level
Decisions Have to be Made
Strategic Level Decisions Relate to Location/ Production/
Inventory Policy/ Transportation Modes to Be Used
Tactical Level Decisions Relate to Monthly Production Plan/
Monthly/ Weekly Supply Schedule
Operational Level Decisions Relate to Daily Allocation of Jobs/
Employing Casual Labour/ Scheduling Staff for Front-Office Duty
Sales
Function
Logistics
Function
Production
Function
Purchase
Function
Strategic
Tactical
Objectives
& Policies
Plans &
Forecasts
Schedules
& Controls
ORGANISATIONAL LINKING MECHANISM
IN SCM IMPLEMENTED ORGANISATION
Operational
SUPPLY CHAIN MANAGEMENT DECISIONS
Sourcing Decisions
Quality of Product
Choosing Right Suppliers/
Vendors
Preferred Location of Supplier
How Much Product to Order
Which Transportation Mode to
Use
Production Decisions
Location of Plant (Domestic/
International)
Make vs. Buy
Capacity of Plants
Product Quality Low-Cost Leader/
Some other Differentiation Strategy
Inventory Decisions
How much Inventory To Hold
(Safety Stock)
How Much To Order
When To Order
Scheduling Technique (JIT/ JIC)
Logistics Decisions
Transportation (30% of Log Cost)
Road (Truck/ Vehicle)
Rail
Air
Water
Multi-Modal Transportation
Location of Plants/ Warehouse/ DC
Supply Chain Management Decisions Must Ensure
Seamless Flow of Communication/ Material/ Finances
Reduction in Inventory While Maintaining High Customer Service Levels
Reduction in Supplier Base & Developing Supplier Relationship To
Reduce Overall Costs
Standardize Parts For Reducing Variety For Reducing Inventory
INTERDEPENDENCY IN SUPPLY CHAIN
Customer
Service
Flexibility Inventory
Higher Customer Service Comes with Higher Costs To Hold/ Carry Higher
Inventory (Inventory Carrying Costs=(30-40)% of Inventory Value)
Higher Flexibility in Supply Chain Helps in Providing Higher
Customer Service Even with Lower Inventory i.e. at Lower Costs
High Flexibility is Ability of Changing/ Adapting to Customer Demand/
Change in Demand Quickly (Shorter Lead Times)
SCM Strives for Providing Higher Customer Service at Lower Costs
SCM Applies Trade-Off Between System Flexibility & Inventory
To provide The Desired Level of Customer Service
OPTIMIZING SCM PERFORMANCE
SCM Performance Optimized By Achieving Coordination &
Collaboration Among All Member Companies in Supply Chain &
Managing Relationships Among Them
Within Company Coordination Provided Through
Integration of Logistics Activities of Purchasing/ Prod. Planning
& Scheduling/ Inventory Management/ Distribution/ Customer Service
In Multi-Plant Companies Production & Related Decisions Closely
Coordinated to Ensure Improvement in Overall Performance
Improved Integration & Coordination in Total Supply Chain
Achieved With Help of Logistics Information Systems (LIS)
Integration - By Providing Real-Time Information Enabling All Members To
Work Together For Achieving SCM Goals
Coordination Coherent Operations of the Entire System Achieved By
Managing Dependencies Among Functional Activities
SCM Ensures Integration & Coordination in Total Supply Chain
Using Enhanced ERP/ Inter Organizational Systems (IOS)/
Executive Support Systems (ESS)/ Decision Support Systems (DSS)
CHANGED FOCUS IN COMPANIES
Traditional Focus SCM Focus
Purchasing as a Reactive Function Sourcing/ Vendor Development
are Strategic/ Proactive Function
Emphasis - Rules/Regulations/ Emphasis - Networking/
Procedures With limited/ Developing Long-Term
Short-Term View of Entire Process Relationships
Compartmentalized/ Silo View System Oriented/ Process View
Cost/ Price-Based Value-Based
Not Much Importance to High Importance to Managing
Information Management Information
Single-Dimensional Performance Multi-Dimensional Performance
Measures Measures
Limited Role of IT Significant Role of IT as Enabler
Critical Success Factors
For
Supply Chain Management
Integration
Coordination
Collaboration
Integrated Information System
Systems + Communications
Management Agreements
+
Commitment from ALL
DIFFICULT TO REPLICATE BY COMPETITORS
BENEFITS TO THE COMPANY
Improved CUSTOMER SERVICE

Reduction in TIED-UP CAPITAL

Reduction in ADMINISTRATIVE COSTS

Sharper COMPETITIVE EDGE

Sustained GROWTH

Increased SHAREHOLDER VALUE
SUCCESSFUL INDIAN SCM COMPANIES
Industry Major Companies
Apparels Madura Coats/ Reliance
Automobiles Maruti/ Hero Honda/ Tata Motors/ M & M
Chemicals/ Paints Asian Paints/ Reliance/ Goodlass Nerolac
Consumer Durables LG/ Godrej/ Samsung
FMCG HUL/ P&G/ Coke/ Pepsi
Packed Food Godrej/ Cadbury/ Parle/ Amul/ Dabur
Computers Wipro/ HCL
Newspaper Times of India/ Hindustan Times
Petroleum Products IOC/ Bharat Petroleum
Pharma Dr. Reddys Lab/ Dabur/ Ranbaxy
Unorganized Mumbai Dabbawala
SUPPLY CHAIN ACTIVITIES ARE FOCUSSED
ON
PARAMETERS OF CUSTOMER SERVICE AND
SUPPLY CHAIN ORGANIZATION HAS THE
RESPONSIBILITY, AUTHORITY & COMPETENCE
TO
MANAGE THE 3 FLOWS IN THE BEST INTEREST
OF
THE WHOLE SUPPLY CHAIN
IN ESSENCE
RELAY RACE
THE BOAT RACE
Seamless Integration
One Objective
Single Entity
Any Questions Pl?