STRATEGIC APPLICATION OF

IT -
SUPPLY CHAIN
MANAGEMENT

Book by
Sunil Chopra , Peter
Meindl, D.V. Kalra 1
 Supply Chain
All facilities, functions, activities,
associated with flow and
transformation of goods and
services from raw materials to
customer, as well as the associated
information flows.
An integrated group of processes to
“source,” “make,” and “deliver”
products
 Traditional View: Cost breakdown
of a manufactured good

Profit
Profit 10% Supply Chain
Cost

Supply Chain Cost 20% Marketing

Cost

Marketing Cost 25%

Manufacturing
Cost
Manufacturing Cost 45%
spent for supply chain activities are invisible to the customers.
What can Supply Chain
Management do?
Estimated that the grocery industry could save
$30 billion (10% of operating cost) by using
effective logistics and supply chain strategies
◦ A typical box of cereal spends 104 days from factory to
sale
◦ A typical car spends 15 days from factory to dealership
◦ Faster turnaround of the goods is better?

National Semiconductor used air transportation

and closed 6 warehouses, 34% increase in sales
and 47% decrease in delivery lead time .
Magnitude of Supply Chain
Management
Compaq estimates it lost $0.5 B to $1 B in sales
in 1995 because laptops were not available when
and where needed

P&G (Proctor&Gamble) estimates it saved retail

customers $65 M (in 18 months) by collaboration
resulting in a better match of supply and demand

Intermittent and insufficient information flow due

to a fragmented supply chain can lead to poor
supplier and customer relationships and huge
costs – to the tune of £1.2 billion per year,
according to Oracle.
SCM SUCCESS STORIES
Importance of SCM understood
by some
 AMR Research:
◦ "The biggest issue enterprises face today is
intelligent visibility of their supply chains-both
upstream and down"
 Forrester Research:
◦ "Companies need to sense and proactively respond
to unanticipated variations in supply and demand
by adopting emerging technologies such as
intelligent agents. To boost their operational agility,
firms need to transform their static supply chains
into adaptive supply networks”
 Gartner Group:
◦ “90% of enterprises that fail to apply supply-chain
management technology and processes to increase
their agility will lose their status as preferred
suppliers”
GARTNER SUPPLY CHAIN TOP 25
2013
14. Nike
1. Apple 15. Starbucks
2. McDonald's 16. PepsiCo
3. Amazon.com 17. H&M
4. Unilever 18. Caterpillar
5. Intel 19. 3M
6. Procter & Gamble 20. Lenovo Group
7. Cisco Systems 21. Nestlé
8. Samsung Electronics 22. Ford Motor
9. The Coca-Cola Company
23. Cummins
10. Colgate-Palmolive 24. Qualcomm
11. Dell 25. Johnson &
12. Inditex Johnson
13. Wal-Mart Stores
Table 1. The Gartner Supply Chain
Table 1. Top
The Gartner 25Chain
Supply forTop2015
25 for 2015

Rank Company

1 Amazon
2 McDonald's
3 Unilever
4 Intel
5 Inditex
6 Cisco Systems
7 H&M
8 Samsung Electronics
9 Colgate-Palmolive
10 Nike
11 Coca-Cola
12 Starbucks
13 Walmart
14 3M
15 PepsiCo
16 Seagate Technology
17 Nestlé
18 Lenovo Group
19 Qualcomm
20 Kimberly-Clark
21 Johnson & Johnson
22 L'Oréal
23 Cummins
24 Toyota Motor
25 Home Depot
 Table 1. The Gartner Supply Chain Top 25 for 2017
Three-
Peer Gartner Three-
Year CSR
Opinion1 Opinion1 Year Inventory
Weighted Component Composite
Rank Company (169 (38 Weighted Turns3
Revenue Score5 Score6
voters) voters) ROA2 (10%)
Growth4 (10%)
(25%) (25%) (20%)
(10%)
1 Unilever 2,074 649 10.2% 6.8 1.9% 10.00 6.39
2 McDonald's 1,264 442 13.9% 174.5 -4.2% 3.00 5.27
3 Inditex 1,192 337 16.3% 3.7 12.0% 10.00 4.98
4 Cisco Systems 1,018 524 8.3% 13.5 0.8% 10.00 4.82

5 H&M 901 208 22.0% 3.0 12.5% 10.00 4.63

6 Intel 952 486 10.5% 4.0 4.6% 7.00 4.42
7 Nestlé 1,159 345 7.9% 5.1 -0.6% 10.00 4.10
8 Nike 1,290 207 16.2% 3.8 7.9% 6.00 4.07
Colgate- 843 313 18.0% 5.0 -4.9% 6.00 4.03
9
Palmolive
10 Starbucks 926 143 20.3% 11.1 12.7% 4.00 3.80
11 PepsiCo 974 356 8.5% 9.0 -1.8% 6.00 3.67
12 3M 553 210 15.3% 4.2 -1.1% 10.00 3.54
Johnson & 878 269 11.8% 2.6 0.4% 7.00 3.50
13
Johnson
Coca Cola 1,579 232 7.8% 5.7 -4.2% 4.00 3.46
14
Company
15 Nokia 315 133 5.8% 5.6 46.3% 10.00 3.32
16 BASF 579 298 6.1% 4.0 -10.6% 10.00 3.21
Schneider 546 325 4.2% 5.1 -0.3% 10.00 3.15
17
Electric
Wal-Mart 1,312 225 7.5% 8.0 0.6% 3.00 3.11
18
Stores
19 HP Inc. 399 275 6.6% 9.8 -5.4% 10.00 3.06
20 L'Oréal 657 174 10.4% 2.8 5.1% 5.00 2.72
21 Kimberly-Clark 607 163 11.8% 6.5 -2.6% 5.00 2.68
22 BMW 681 129 3.7% 4.1 6.6% 10.00 2.62
23 Diageo 481 190 8.9% 0.9 -1.7% 7.00 2.57
24 Lenovo 498 223 1.5% 14.0 7.2% 7.00 2.50
Samsung 958 100 7.3% 15.1 -3.6% 4.00 2.46
25
Electronics
 SCM Generated Value

Minimizing supply chain costs

while keeping a reasonable service
level
customer satisfaction/quality/on time
delivery, etc.

This is how SCM contributes to the

bottom line
Supply Chain Processes
  SUPPLY CHAIN MANAGEMENT –
THE E-BUSINESS NETWORK
– “Starting an e-business takes ideas
capital & technical survey”.
– “Operating one, however, takes Supply
Chain Management skills”.
– A successful SCM strategy is based on
accurate order processing, just-in-time
inventory management & timely order
processing fulfillment.
– SCM’s increasing importance illustrates
how a tool that was theoretical 10
years ago, is now a hot competitive
weapon. 13
 enterprise system that uses it to help
support & mange the links between
company’s key business process &
those of its suppliers, customers &
business partners.
– The goal of SCM is to create a fast,
efficient & low cost network of business
relationship or supply chain to get a
product from concept to market.
– Companies today are using internet
technologies to create inter-enterprise
e-business systems for SUPPLY CHAIN
MANAGEMENT & STREAMLINING
TRADITIONAL SUPPLY CHAIN14
– SCM is divided into:-
(1) supply planning system
ex:- demand/supply forecasting.
(2) supply execution application
Ex:- inventory mgmt./Logistics mgmt./ Ware
house mgmt.
– EDI:- earliest use of information technology
for supply chain management.
– SCM:- s/w & internet technology can help
companies re engineer & integrate the
functional SCM processes that support SCM
life cycle.

15
  
SUPPLY CHAIN LIFECYCLE:-
COMMIT SCHEDULE MAKE
DELIVER
 
SCM
FUNCTIONAL:- SOURCING
  FORECAST/DEMAND PLANNING
PROCESS /PROCURE
CUSTOMER ORDER
DISTRIBUTION NETWORK & WARE HOUSE
OPERATION
PRODUCTION TRANSPORTATION &
LOGISTICS SHIPMENT MGMT.

16
  
THE INTERNET
 
 
SCM SHARED COLLABORATIVE
INTEGRATED:- MARKET DATA FULFILLMENT
SOLUTION

MANUFACTURER RETAILER CUSTOMER

SUPPLIER

17
 CONCEPT OF SUPPLY CHAIN
MANAGEMENT

 UNDERSTANDING THE SUPPLY CHAIN

– A supply chain involves all parties who
are, directly or indirectly, associated in
fulfilling a customer request.
– Supply chain includes not only the
manufacturer & supplier, but also
transporters, ware houses, retailers &
customers themselves

Ex:- a customer walking to purchase soap

in walmart.
18
 Detergent supply
chain:
P&G or other Third Albertson’s Customer wan
manufacturer party DC Supermarket detergent

Chemical
Plastic cup Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)

Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)
 Flows in a Supply Chain

Material
Information
Supplier Customer
Funds

The flows resemble a chain reaction. A supply

chain is dynamic & involve the constant
flow of Information, Products and Funds
between different stages.
– In the Wal-Mart Example., Provides the
product as well as pricing & availability
information to the customer & the
customer transfers funds to Wal-Mart.
– Wal-Mart provides P.O.S data as well as
replenishment orders to the ware house
or distributor who transfers the
replenishment order via trucks back to
store.
– Wal-Mart transfers funds to distributor
after replenishment.
– The distributor also provides pricing info.
& Sends delivery schedule to Wal-Mart.
– Similar information, material & funds flow
21
 on-line from dell computer:- the supply
chain includes customer, dell & all of
dell’s suppliers & their suppliers.
– The website provides the customer with
information regarding pricing, product
variety & product availability.
– Having made a product choice, the
customer enters the order information &
pays for the product.
– The customer may later return to the
website to check the status of the order.
– Stages further up the supply chain use
customer order information to fill the order.
That process involves additional flow of
Information, Product & funds between 22
 Above examples illustrates that the
customer is an integral part of the
supply chain. Primary purpose of any
supply chain is to satisfy customer
needs, in the process generating
profit for self.

 Supply chain activities begin with a

customer order & end when a
customer has paid for the purchase.
 The task of SCM is to design, plan,
and execute the activities at the
different stages so as to provide
the desired levels of service to 23
 CHAIN OF SUPPLY:-
- SUPPLY MFGR’ DISTRIBUTOR

RETAILER CUSTOMER
 PROCESS VIEW OF A SUPPLY CHAIN
– A supply chain is a sequence of processes
& flows that take place within & between
different stages & combine to fill a
customer need for a product.
– Two different views of the process
performed in a supply chain:-
1. CYCLE VIEW:- The process in a supply
chain are divided into a series of cycles
between two successive stages of a
24
 CUSTOMER
CUSTOMER
ORDER CYCLE
------------------------- RETAILER
REPLENISHMENT
CYCLE
------------------------- DISTRIBUTOR
MANUFACTURING
CYCLE
-------------------------- MANUFACTURER
PROCUREMENT
CYCLE
-------------------------- SUPPLIER

SUPPLY CHAIN PROCESS CYCLE 25

 
CUSTOMER ORDER CYCLE
–CUSTOMER ARRIVAL
–CUSTOMER ORDER ENTRY
–CUSTOMER ORDER FULFILMENT
–CUSTOMER ORDER RECEIVING.

REPLENISHMENT CYCLE
–RETAIL ORDER TRIGGER
–RETAIL ORDER ENTRY
–RETAIL ORDER FULFILLMENT
–RETAIL ORDER RECEIVING
 
26
 MANUFACTURING CYCLE
– ORDER ARRIVAL FROM WAREHOUSE
/DISTRIBUTOR /RETAILER OR CUSTOMER
– PRODUCTION SCHEDULING
– MANUFACTURING & SHIPPING.
– RECEIVING AT THE DISTRIBUTOR/RETAILER
OR CUSTOMER
 
 PROCUREMENT CYCLE
– MATERIAL DELIVERY FOR MANUFACTURING
– ORDER COMPONENTS RAW MATERIALS:
CAN BE DETERMINED PRECISELY ONCE
MANUFACTURING SCHEDULE IS DECIDED.
27
2. PUSH/PULL VIEW:- The process in a
supply chain is divided in to two
categories depending on whether they are
executed in response to a customer order
or in anticipation of a customer order.
– Pull processes are initiated by a customer
order.
– Push processes are initiated & performed
in anticipation of customer orders. 
– Pull processes may also be referred as
reactive process.

28
 Push vs Pull System
What instigates the movement of the work in the
system?

InPush systems, work release is based on downstream

demand forecasts
◦ Keeps inventory to meet actual demand
◦ Acts proactively
 e.g. Making generic job application resumes today (e.g.: exempli gratia)

InPull systems, work release is based on actual

demand or the actual status of the downstream
customers
◦ May cause long delivery lead times
◦ Acts reactively
 e.g. Making a specific resume for a company after talking to the
recruiter
 Push/Pull View of Supply
Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
Push-Pull boundary
 CUSTOMER
CUSTOMER
PROCESS

ORDER CYCLE
PULL

-------------------------
CUSTOMER
ORDER RETAILER

REPLENISHMENT &
MANUFACTURING CYCLE
PROCESS

----------------------------------
PUSH

MANUFACTURER
PROCUREMENT
CYCLE
---------------------------------- RAW
MATERIAL
SUPPLIER 31
SCM Strategy
 Competitive strategy
A company's competitive strategy is defined as
the set of customers needs it seeks to satisfy
through product & services

Walmart – Low price & product availability

McMaster- Carr sells maintenance , repair &
operations products .
Its Competitive strategy is built around
convenience , availability & responsiveness

Blue Nile – Online retail of diamonds – 70,000

stones
Zales - store where customer walks in , tries and
then takes the jewelry (1000 stones)

Competitive strategy is based on how

 Linking SC and Business
Strategy
Competitive (Business) Strategy

Product Development Marketing

Strategy Strategy Supply Chain Strateg
-Portfolio of products
-Frequent
-Timing of product
discounts
introductions -Coupons

New Marketing
Product and Operations
Distribution
Se
Development Sales

nce, Accounting, Information Technology, Human Reso

Strategies:
Product
Development
It relates to Technologies
for future operations (via
patents) and Set of
products/services
 Be the technology leader
IBM workstations
 Offer many products
Dell computers
 Offers through contractors
Cisco
 Manufacturing in all major
market
Toyota
 Offer products for locals
Tata’s Nano at $2500=100000
rupees
Strategies
 Marketing and sales strategy relates to
positioning, pricing and promotion of
products/services
◦ e.g. Sabse Sasta Din
◦ e.g. EDLP = every day low price
 At Wal-Mart
◦ e.g. Demand smoothing via coupons
 BestBuy

 Supplychain management strategy relates to

procurement, transportation, storage and delivery
◦ e.g. Never use more than 1 supplier for every input
◦ e.g. Never expedite orders just because they are late
◦ e.g. Always use domestic suppliers within the sales season
 Fitting the SC to the customer or vice
versa?

Understand the customer Wishes

Understand the Capabilities of your SC

Matchthe Wishes with the

Capabilities

Challenge: How to meet extensive

Wishes
 Achieving Strategic Fit: Consistent
SCM and Competitive strategies
Fit SC to the customer

Understanding the Customer

◦ Range of demand, pizza hut stable
◦ Production lot size, seasonal products Implied
◦ Response time, FMCG (Demand)
◦ Service level, product availability Uncertainty for
◦ Product variety SC
◦ Innovation Implied trouble
◦ Accommodating for SC
poor quality
 Contributors to Implied Demand
Uncertainty

Commodities Customized
Detergent products High
Long lead time Fashion Clothing
steel Emergency steel,
for
Price Customer Need Responsiveness
maintenance/replacemen
t
Low Implied Demand Uncertainty Hig
h

Short lead times, product variety,

distribution channel variety, high rate of innovation and
high customer service levels all increase
the Implied Demand Uncertainty
 SUPPLY CHAIN PERFORMANCE
ACHIEVING STRATEGIC FIT

– Competitive strategy of an organization is

supported by a corresponding supply chain
strategy.
Ex:- walmart & fedex. Case
– To achieve strategic fit, a company must
ensure that its supply chain
strategy/capability is able to satisfy
customer need.

40
 Following steps are involved
understanding the customer & supply
chain uncertainty.
1. Understanding the Supply Chain
capability.
2. Achieving strategic fit – Supply Chain vs
customer need
(1) - Qty. of product needed
- Response time acceptable
- Variety of product needed
- Service level reqd.
- Price of product
- Desired rate of innovation in the
product by customer
41
(2) how does the firm respond to meet
customer demand in uncertain
environment?
-Respond to wide range of qty.
demanded & meet short lead time.
- Handle large variety of products
- meet high service level
- Handle supply uncertainty

(3) The final step in achieving Strategic

Fit is to match supply chain responsiveness
with uncertain demand & supply.

42
Achieving Strategic Fit: Wishes vs.
Capabilities

Responsive
(high cost)
supply
chain

of c
Responsive n e gi
nesspectru Zo ate
r t
m St Fi

Efficient
(low cost)
supply
chain Certain Implied Uncertain
demand uncertaint demand
y spectrum
 Loosing the Strategic Fit:
Webvan
 Webvan was an online "credit and delivery" grocery business
started a merger with HomeGrocer in Sept 2000 and
completed in May 2001.
 Declared bankruptcy in July 2001. Why?
◦ “Webvan was so behemoth that could deliver anything to anyone
anywhere that it lost sight of a more mundane task: pleasing grocery
customers day after day”.
◦ Short to midterm cash mismanagement. Venture capital of $1.2 B run
out.
◦ Merger costs: duplicated work force, integration of technology,
realignment of facilities.
 Peapod has the same business model but more focused in
terms of service and locations. It actually survives with its
parent company Royal Ahold’s (Dutch Retailer) cash.
◦ Delivers now at a fee of $6.95 within a day.
Integration
Integration is the central theme
in SCM
Building synergies by integrating
business functions, departments
and companies
Supply Chain
Drivers and
Obstacles
 Drivers of Supply Chain Performance
COMPETITIVE STRATEGY 
 

How to achieve
Efficiency Responsiveness

Supply chain structure

Logistical
Inventory TransportationFacilities
Drivers

Cross-
Information Sourcing Pricing Functional
Drivers
 FIT
– Quantity of the product needed –
emergency orders
– Increasing variety of products
– Decreasing Product Life Cycle
– Increasingly Demanding Customers
– The response Time that customers are
willing to wait.
– Globalization.
– Price of the Product
– Number of channels through which a
product may be acquired.
– Fragmentation of supply chain ownership.

48
 SCM Approach
– Primary focus is to serve customers
with excellent goods & services with
minimum cost & response time.
– Order fulfillment mechanisms of
SCM will be to cater the actual
consumer needs or to replenish the
sales of immediate past.
– SCM is the demand driven situation
where consumer defines his
requirements & orders.
– Hence demands generated in SCM are
either based on live customer order or
(4)INFORMATION TECHNOLOGY FOR
SUPPLY CHAIN MANAGEMENT
– In the it perspective, SCM is all about
improving logistics, flow of information &
funds.
– It plays a key role in SCM for optimization,
simulation & analysis capability.
Functional role of it in SCM can be
summarized as:-
– Transaction execution
– Collaboration & co-ordination
– Decision support.

50
 Role of Internet in SCM :-

– Providing information availability

– Enabling single point contact of
data
– Allowing decisions based on total
supply chain information.
– Enabling collaboration with supply
chain partners.
– E Commerce
– Better visibility than EDI

51
 Role of ERP in SCM :-

– Provides transactional tracking

– Global visibility of information
from within the company and
across SCM
– Real time information to improve
quality of decisions.
– Information in ERP system provide
for Analytical Decision Support
system

52
 Information Technology in a Supply
Chain: Analytical Applications

Strategic

SCM

Planning APS Transport & Inventory Dem Plan

Planning
Supplier
Apps
Transport execution & CRM/SFA
MES
WMS
Operational

Supplier Manufacturer Distributor Retailer Customer

APS -ADVANCED PLANNING & SCHEDULING SOFTWARE

MES- Manufacturing Execution Systems 
WMS – warehouse Management System
CRM – Customer Relationship Management
SFA – Sales force Management
 Manufacturing Execution
Systems (MES)
MES are information technology systems that manage
manufacturing operations in factories.
MES typically include:
Management of product definitions. This may include
storage, version control and exchange with other
systems of master data like product production rules, bill
of material, bill of resources, process set points and
recipe data all focused on defining how to make a
product.
 Product lifecycle management
This may include registration, exchange and analysis of
resource information, aiming to prepare and execute
production orders with resources of the right capabilities
and availability.
Scheduling (production processes). These activities
determine the production schedule as a collection of
work orders to meet the production requirements,
Dispatching production orders. Depending on
the type of production processes this may
include further distribution of batches, runs and
work orders, issuing these to work centers and
adjustment to unanticipated conditions.
Collection of production data. This includes
collection, storage and exchange of process
data, equipment status, material lot information
and production logs in either a data historian or
relational database.
Production performance analysis. Create useful
information out of the raw collected data about
the current status of production, like Work In
Progress (WIP) overviews, and the production
performance of the past period  
ADVANCED PLANNING & SCHEDULING
SOFTWARE (APS)
– APS is similar to production planning &
capacity planning s/w.
– It considers inventory & bill of material,
inventory stocking & replenishment levels
& order generation policy.
BUSINESS APPLICATION & ROLE OF EDI
– EDI was one of the earliest uses of
information technology for supply chain
management
– EDI involves electronic exchange of
business transaction documents over the
internet & other networks between supply
chain trading partners (organizations,
56
– Data representing a variety of
business transaction documents
(Purchase orders, Invoices, RFQ,
(quotation) Shipping advice etc.)
are automatically exchanged
between computer using standard
document message formats.
– EDI s/w converts the company
own document formats.
– EDI is an example of complete
automation of supply chain
process
– EDI over internet uses secure
private network technology for
B2B applications. 57
– EDI automatically tracks inventory
changes, triggers orders, invoices &
other transaction documents.
– By digitally integrating the supply
chain, EDI streamlines process, saves
time & increases accuracy.

 ROLE of SCM vs ROLE of IT.

– The role of IT in SCM is to support the
SCM objectives with inter enterprise
SCM systems.

58
 SCM SCM
OBJECTIVES OUTCOME
WHAT?
ESTABLISH STRATEGIC . OBJECTIVES
OBJECTIVES, . SUPPLY POLICIES
POLICIES, (SERVICE LEVEL)
& OPERATING . NETWORK DESIGN
FOOT PRINTS
HOW MUCH? . DEMAND FORECAST
DEPLOY RESOURCE TACTICAL . PRODUCTION,
TO MATCH SUPPLY PROCUREMENT &
& DEMAND LOGISTICS PLAN
. INVENTORY TARGET
WHEN? WHERE? . WORK CENTRE
SCHEDULE, OPERATIONAL SCHEDULING
MONITOR, . ORDER/INVENTORY
CONTROL & TRACKING
ADJUST PRODUCTION
DO, . ORDER CYCLE
BUILD & EXECUTION . MATERIAL
TRANSPORT MOVEMENT 59
 LOGISTICS MANAGEMENT –
1)CUSTOMER ORDER PROCESSING
FLOW OF ACTIONS:-
– Filling up order form
– Decide specification of product
– Decide delivery schedule
– Decide location of delivery
– TECHNOLOGY:-
• EDI
• ERP
• WEB PORTAL.
2)LOCATION ANALYSIS:-
Flow of actions:-
–Cost of transportation of raw Material
–Shelf life
–Availability of resources 60
3) INVENTORY CONTROL
FLOW OF ACTIONS:-
– On hand inventory analysis
– Getting material of right type quality, qty
& at right time.
– Lead time
– Cost vs importance of raw material 
techniques:-
• Economic order qty
• Selective inventory control (abc, ved
analysis etc)
• Order forecasting using statistical tools.
4) MATERIAL HANDLING
FLOW OF ACTIONS:-
61
– Type of material (raw/finished goods etc.)
– Material handling requirement (fragile,
inflammable etc)
– Cost ratio of material handling to material
cost.
– Material breakage/pilferage
– Cost of handling/number of handling
TECHNIQUES:-
• Operational research
• Material flow analysis
• Computerised material retrieval system
• Advanced storage & retrieval system

62
5) PACKAGING
– Packaging requirement (fragile/ac etc.)
– Primary packaging / secondary packaging.
– Cost of packaging
– Transport requirement (vibration / water
proof)
TECHNIQUES:-
• BAR CODING
• GPS TRACKING/RFID
• ECO-FRIENDLY/REUSABLE PACKAGING
• STANDARDISED BOX/CONTAINER

63
6) TRANSPORTATION
– Mode of transport
– Speed of transport
– Cost of transport
Techniques:
• Container transport
• Direct shipment

7) WARE HOUSING
– Location of ware house.
– Inventory level at ware house.
– Shelf life of product.
– Storage requirement of product.
– Strategic location.
64
 DISTRIBUTION MANAGEMENT – SCM
– Refers to getting the right product to the
right place at the right time
– Distribution decisions have significant
implications on:-
 Product margin & profit.
 Marketing budgets.
 Final retail pricing.
– Distribution channels include one or more
of the following:-
• Retail – stores selling to final buyers
• Wholesale – intermediary distribution
channel that usually sells to retail stores.

65
 DIRECT MAIL – Sell directly to buyers at
retail price plus shipping via mail.
 TELEMARKETING – Sell directly to buyers
at retail price via phones
 CYBER MARKETING – Sell directly to buyer
at retail price or b2b products & services
at wholesale price via computer network.
 SALES FORCE – Salaried employees or
commission agents who sell the company
products.
 
DISTRIBUTION PLANNING S/W Calculate
what products need to be received at
what Location & at what time-helps to
create distribution requirement plans
66
 Before a system can calculate the
shipment plan it must understand what
inventory is available to meet demand at
any time & what demand cannot be met.
 
 PLANNING TASK BECOMES COMPLEX WITH
LIMITED SUPPLY, CUSTOMER PRIORITIES,
SHIPMENT COSTS ETC.
 

67
 INVENTORY MANAGEMENT
– Key to successful distribution business
– Deals with receipt & movement of goods,
valuation of goods, availability of goods at
any time, obsolescence etc.
– Customer satisfaction depends on
inventory management.
– Reactive inventory system:- responds to
inventory needs by retailer deciding how
much to order from wholesalers.
Wholesalers in turn order independently
from suppliers.
 

68
 SCM SOFTWARE PRODUCTS

– WARE HOUSE EXPERT

– TRANSPORT EXPERT
– ROUTNG EXPERT
– YARD EXPERT
– LOADING EXPERT
– DELIVERY EXPERT
– CONTAINER EXPERT
– BILLING EXPERT

69
- S/w for managing ware house
- Today, distribution centres & ware houses
are becoming complex operational
centres, requiring skills, tools & processes
that were not seen in traditional ware
houses.
- These complex logistics operations, to
improve productivity or reduce costs to
gain competitive advantage, must use
good s/w to lead & optimize associated
activities.
- Ware house expert is the ware house
management s/w which works beyond
record keeping, placing & locating Stocks.
70
- It provides real-time operational view
- This s/w is based on microsoft technology
& provides one of the best tool for
managing the supply chain & suitable for
both large & small supply chain operation

 TRANSPORT EXPERT:-
- This is a transportation scheduling tool
that allows optimal & flexible assignment
of trucks, delivery vans & driver schedules.
- It helps logistics managers, shippers &
third parties at the same time to Evaluate
shipment alternatives to find the most
efficient shipping method
71
- It optimizes carrier selection, management
of freight rates & carrier contracts,
shipment document generation, electronic
communication of transportation needs to
carriers & real time, exception based
visibility of shipment status to partners &
customers.

KEY FUNCTIONALITY OF THE S/W:-

• FRIEGHT RATING & CALCULATION
INCLUDING FUEL SURCHARGE ETC.
• Least cost shipment rating & volume
targets.
• Optimized order and shipment 72
• Freight bill audit and payment
 ROUTING EXPERT S/W:-
- Decision making tool for optimum routing
plans using advanced algorithms, to
maximize R.O.I in transportation resources.
- Enables to create route plans that optimize
& balance both delivery profitability &
customer service.
- S/w enables optimization based on weight
calculation & parameters such as
minimum cost, maximum service level,
minimum resources (trucks/trailers etc)
- Offers powerful cost optimization tool to
enable savings of 10% - 30% on
transportation costs.
- Works with geographical tools (maps) 73and
• KEY FUNCTIONALITY
- Offers fleet tracking & monitoring
- Plans dynamic or static routes
- Calculates actual vs planned
- Fine-tunes the planned routes based on
real time location & actual results
- Based on user defined weighted rules.
- Delivers national/regional/street level
planning and scheduling.
• BENEFITS
- Increase customer service level
- Save transportation cost
- Optimize distribution resources 74
- Works with geographical tools (maps) &
real time location systems (Rtls)
 YARD EXPERT S/W
(CARGO/CONTAINER MGMT. SYSTEM)
- This s/w provides ability to track relevant
information for trailers & containers (who
brought in, who owns it),
- status information (where is it, how long it
is there, what is on it),
- usage information (where & when it is
supposed to be)
- S/w provides effective task organization
using RF technology for truck drivers,
system directed task Mgmt. 75
 what trailers need to be moved & their
location in the yard & the location they are
going to and allocation of drivers to do the
job.
Match work tasks with available trailers.
KEY FUNCTIONALITY
- Allows capacity to manage all yard
location, zones & trailers in the
organization
- Manages goods in the yard in real time
through a graphical display
- Plans & executes loads.
- Provides security check-in & check-out
functions 76
- Complete inventory visibility
- Optimization of trailers & trucks
- Manage & utilize yard resources

 DELIVERY EXPERT S/W

- Automated proof of delivery (POD) is
enabled with this s/w resulting in improved
customer service.
- Using hand held pc, this s/w verifies
tracking numbers at point of delivery &
collect signature
- This information is transmitted to
organizations server & delivery information
can be instantly viewed
77
 KEY FEATURES
- Real time delivery tracking
- Digital signature capture
- View delivery progress
- View delivery detail & signature

BENEFITS
- Higher efficiency
- Reduced errors
- Improve customer satisfaction
- Cost saving
- Fully integrated with other supply chain
activities.
78
 BILLING EXPERT S/W
- Handles billing system for the supply chain
logistics with increased billing accuracy
- S/w allows to review invoices & ensure
appropriate discounts including auditing &
posting of charges.
- Based on real time data extracted from
other supply chain activities
- Creates billing records that are based on
user defined rules
- Enables easy tracking & assign charges to
any scm activity resulting in accurate
visibility on Cost & improved profitability

79
 BENEFITS
- Tracks all inventory handling, storage by
unit/client or store
- Affixes charges to all internal or client
driven activities
- Billing done on actual activity
- Provides invoice generation through ERP
integration
- Increased billing accuracy & profitability

80
 net unified data model which provides a
single accurate view of the entire supply
chain.
- Companies can implement demand driven
principles & manage their increasingly
complex, global supply chains.
- Speeds up implementation, optimize
performance & maximize R.O.I

OTHER TECHNOLOGIES FOR SCM

1) GLOBAL POSITIONING SYSTEM (GPS)
- GPS Technology can be used for
Determining the position of any object on
earth, with high amount of accuracy & in
81
any weather
 space
- GPS system basically works on the
measurement of distance between
satellite & receiver
- Extensively used technology in transport
logistics to keep track of goods movement
on road transport for fleet management
• Use of GPS in fleet management
– To know the exact movement of goods
carrier
- To know how long the truck has spent in
various places
– Determine the cargo status & if any
breakdown en route & plan for recovery
vehicle 82
2)BAR CODE & RF APPLICATION IN SCM:-
- Bar codes are used for automated
scanning & capturing product details (part
no., Price, description etc.)
- Data captured by bar code scanner is used
for inventory control, keeping track of
movement of goods, Inventory analysis
etc
- BAR Coding automates record keeping of
inventory.

83
RF TAGES
- Used for keeping track of movement of
goods, control on pilferage.
- RF tags attached to a product emits radio
frequency signals that are captured by
sensor device to detect movement of the
product
- Sometimes magnetic tags are also used &
the magnetic field is detected by sensors
to identify movement of goods, package
etc.

84
RFID Capabilities
RFID Capabilities (cont.)
- Technology that connects objects to
internet.
- So, they can be tracked & enable sharing
of data
Concept: uses a transponder (a
microchip) with antenna on the item & use
a reader (device with antenna) to read
data off the microchip using radio waves.
- The reader passes off the information to a
computer for processing.
Three bacic categories:-
1. Passive RF ID tags – do not have a
transmitter. Only reflect back the Energy
received
Powered from the readers 87
2. ACTIVE RF ID TAGS – USED IN LARGE
ASSETS, SUCH AS CARGO CONTAINERS,
RAIL CARS – WHICH NEED TO BE TRACKED
OVER LONG DISTANCE (EX:- IN A
DISTRIBUTION YARD)
longer distance (electronic tolls)
tags cannot be close to the reader
larger memories
powered by internal battery source
expensive, larger, heavier, about 10 years life

3. Memory tags
Read-only
Read/Write 88
Combination
SCM benefits from RFID
Tracking helps in
◦ Inventory reduction
◦ Increased visibility
◦ Improved decision making
◦ Improved collaboration amongst the
partners
◦ Improved pricing
◦ Fewer stock-outs
Magnitude of benefits
◦ Area of application
◦ Level of application (pallet, case, item)
SCM Benefits from RFID
Manufacturing Process
◦ Track the production of the part
◦ Instructions to produce
◦ Feedback to the ERP system about the
status
◦ Efficient bottleneck management
Distribution Process
◦ Efficient consignment handling
◦ Pallets with mixed cases (non-uniform)
benefit more
◦ Warehouse management
◦ Shorter order-to-cash cycle
SCM Benefits from RFID
Collaboration
◦ Increased matching of supply and demand
◦ Reduction in bull-whip effect
◦ Improvement in forecasting and demand
management
Improvement in Inventory Shrinkage
◦ Two percent of total sales is lost in
inventory shrinkage
 Employee theft (48%)
 Shoplifting (32%)
 Administrative and paper error (15%)
 Vendor fraud (5%)
 Increase in number of empty packets
SCM Benefits from RFID
Collaboration
◦ Increased matching of supply and demand
◦ Reduction in bull-whip effect
◦ Improvement in forecasting and demand
management
Improvement in Inventory Shrinkage
◦ Two percent of total sales is lost in
inventory shrinkage
 Employee theft (48%)
 Shoplifting (32%)
 Administrative and paper error (15%)
 Vendor fraud (5%)
 Increase in number of empty packets
SCM Benefits from RFID
Stockouts
◦ Constitute a major issue in retail
industry
◦ Appx. 11% of the top 2000 SKUs are
out of stock at any time
◦ 13% for fast moving/promoted goods
◦ RFIDs smart shelves can help to
reduce the problem
Pricing
◦ Helps in ‘Differential’ and ‘Dynamic’
Pricing
 Bar Code Vs. RFID
More data , faster rate, long distance

 Bar code 12-14 bit info. Vs. RFID 64-512bit

 Read several items in same time
 Don’t need to open cases or pallets to read individual items
 Manufacturing batch, production history, product handling
instructions, storage or delivery instructions, expiration
dates, warrantee and other details
 RFID- Unique coding, products individually tracked
(Visibility as well as Utilization)
 Bar Code Vs. RFID
Bar Code Deficiency RFID Solution
Line of sight technology Able to scan and read from different
angles and through certain
material.

Unable to withstand harsh conditions Able to function much better in such

(dust, corrosive), must be cleaned conditions
and not difformed.

No data adition option Write enable

No unique identification Unique codeing is possible and item
can be tracked at individual level
Slow and labour intensive Fast and less labour intensive
Easy to tamper and copy Difficult to copy and tamper
Little potential for further development Technology advancement is posible,
new chip, better packaging.
Hand Held Application
Categories

Batch Wireless

Fixed Station
Application Examples
Wireless / Batch
Inventory Management
Where is it? What is it?
What is inside the box?
Material Handling
Aggregate / De-aggregate
What have I assembled or disassembled?
How many do I have? Do I have enough?
Material Handling
By Destination
Where is it going? Where has it been?
Should it be here?
Material Handling
Inspecting / Maintaining
Has this been repaired?
Is this under warrantee?
Has this been inspected?
Is this complete?
What is the asset’s status or state?
 Reduction In Out-of-
Smart stock
shelves
– Automatic indication out-of-stock, level
measurement, wrong item in wrong place,
expired product
Differentiating items ( slow/fast moving)
- Responsive …optimizing demand –price
- Know customer preference quickly
1% uplift in shelf availability equates to
0.5% sales increase
◦ Reduced out of stocks by approximately 16
percent in 12 stores (wal-mart)
Price is displayed on shelves –
◦ Quick, instantaneous price change
Ease Of Real Time Data
Sharing
RFID will solve the perennial problem
of forecasting in apparel industry

The easy realtime time data sharing

between the store and manufacturrer
will bring the flexibility

Suppliermanaged inventory – Wal-

Mart + P&G
 EDI FOR SCM
- EDI was one of the earliest uses of
information technology for supply chain
management
- EDI involves electronic exchange of
business transaction document over the
internet & other networks between supply
chain trading partners (organizations,
customer & supplier)
- Data representing a variety of business
transaction documents (Purchase orders,
Invoices, RFQ, shipping advice etc.) Are

101
 Automatically exchanged between computer
using standard document message formats.
EDI s/w converts the companies own
document formats into standardised EDI
formats.
- EDI is an example of complete automation of
supply chain process
- EDI over internet uses secure private network
technology for b2b applications.
- EDI automatically tracks inventory changes,
triggers orders, invoices & other transaction
documents.
- By digitally integrating the supply chain, EDI
streamlines process, saves time & increases
accuracy
102
Summary Information Technology:
A Supply Chain Enabler
 Bar code and
Information links
point-of-sale
all aspects of supply chain
 ◦ data creates an instantaneous computer record of a sale
E-business
 Radio frequency
◦ replacement identification
of physical (RFID)
business processes with
◦ electronic
technologyones
can send product data from an item to a
reader viadata
 Electronic radiointerchange
waves (EDI)
 Internet
◦ a computer-to-computer exchange of business
◦ documents
allows companies to communicate with suppliers,
customers, shippers and other businesses around the
world, instantaneously
 GPRS
◦ Tracking of deliveries
 BEACONS
◦ Tracking an assest
 A Case Study

Seven Eleven Japan (SEJ)

Factual Information on Seven Eleven
Japan (SEJ)
 Largest convenience store in Japan with market value of $95 B. The third
largest retail company in the world after Wal-Mart and Home Depot.
 Established in 1974.
 In 2000, total sales $18,000 M, profit $620 M.
 Average inventory turnover time 7-8.5 days.
 Stock value increased by 3000 times from 1974 to 2000.
 In 1985, there were 2000 stores in Japan, increasing by 400-500 per
year.
 Return on equity 14% over 2000-2004.
 A SEJ store is about the half the size of a US 7-eleven store,
that is about 110 m2.
 Sales:
◦ Products
 32.9% Processed food: drinks, noodles, bread and snacks
 31.6% Fast food: rice ball, box lunch and hamburgers
 12.0% Fresh food: diary products
 25.3% Non-food: magazines, ladies stockings and batteries.
◦ Services: Utility bill paying, installment payments for credit companies, ATMs,
photocopying
 More on SEJ
More factual info:
 Average sales about twice of an average US store
 SKU’s offered in store: Over 3,000 (change by time of day, day of week,
season)
 Virtually no storage space
 No food cooking at the stores

Japanese Images of Seven Eleven:

 Convenient
 Cheerful and lively stores
 Many ready made dinner items I buy
 Famous for its great boxed lunch and dinner
 - On weekends, when I was single, I went to buy lunch and dinner

SC strategy:
Micro matching of supply and demand (by location, time of day, day of week,
season)
 Information Strategy
Quick access to up to date information (as opposed to data):
 In 1991, SEJ implemented Integrated Service Digital Network to link stores,
headquarter, DCs and suppliers

 Customer checkout process

◦ Clerk records the customer’s gender, (estimated) age and purchased items.
These Point of Sales (POS) data are transmitted to database at the headquarters.
 Store hardware: Store computer, POS registers linked to store computer,
Graphic Order Terminals, Scanner terminals for receiving

 Daily use of the data

◦ Headquarters aggregate the data by region, products and time and pass to
suppliers and stores by next morning. Store managers deduce trend information.
 Weekly use of the data
◦ Monday morning, the CEO chairs a weekly strategy formulation meeting attended
by 100 corporate managers.
◦ Tuesday morning, strategies are communicated to Operation Field Counselors
who arrive in Tokyo on Monday night.
◦ Tuesday afternoon, regional elements (e.g. weather, sport events) are factored
into the strategy. Tuesday nights, field counselors return back to their regions.
Facilities Strategy
 Limited storage space at stores which have only 125-150 m2 space
◦ Frequent and small deliveries to stores
 Deliveries arrive from over 200 plants.
 Products are grouped by the cooling needs
◦ Combined delivery system: frozen foods, chilled foods, room temperature and hot
foods.
◦ Such product groups are cross-docked at distribution centers (DC). Food DCs store
no inventory.
◦ A single truck brings a group of products and visits several stores within a
geographical region
◦ Aggregation: No supplier (not even coke!) delivers direct
 The number of truck deliveries per day is reduced by a factor of 7 from 1974 to
2000. Still, at least 3 fresh food deliveries per day. Goods are received faster
with the use of scanners.
 Have many outlets, at convenient locations, close to where customers can walk
 Focus on some territories, not all: When they locate in a place they blanket
(a.k.a. clustering) the area with stores; stores open in clusters with
corresponding DC’s.
◦ 844 stores in the Tokyo region; Seven Eleven had stores in 32 out of 47 prefectures in
2004. No stores in Kobe.
◦ Success rate of franchise application <= 1/100
http://
www.chonday.com/Videos/how-th
e-amazon-warehouse-works

https://
www.youtube.com/watch?v=byP
NuEjVQes