MEL751:

Module on Supply Chain

Management

Dr S G Deshmukh
 Good resource books on SCM…
http://sheffi.mit.edu/sites/default/files/SCMOpe
rations-10greatSCMbooks.pdf
 Plan of 4 Sessions
• SCM-Basics
• SCM-Strategy
• Performance Measurement
• Other issues
 Outline of this session …
• Background
• Basics of SCM
• Typical issues in SCM
• Closing Remarks
 Traditional Planning Approach
Characterized by Sequential, Decomposed, Slow

Procurement Manufacturing Sales & Distribution

(Material) (Capacity) (Demand)

C
U
S
T
O
M
E
R

Optimize to Optimize to Optimize to

Mfg objectives Logistics obj Sales & Mktg obj
Traditional Approach-Contd
decisions made in silos

Suppliers Producer Customer

• Internally focused
• Local Optimization was the king—little emphasis on
Collaboration
• Growth and overall profitability compromised by local
cost reduction
• Reactive rather than proactive
 C
U
S
Supply Chain Approach T
O
M
E
R
S

Sales
S
U
P Distribution
P
L
I
E
Manufacturing
R
S
Purchasing

• Looks at the entire chain

• Global rather than local focus
• Integrated rather than fragmented approach
 Supply Chain Management
• A set of approaches
• Utilized to efficiently integrate suppliers, manufacturers,
warehouses, and stores
• To produce, merchandize and distribute it
• Of the right quantities
• To the right locations
• At the right time
In order to minimize system wide
costs while satisfying service
level requirements
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 Customers,
demand
Field centers
Sources: Regional Warehouses:
plants Warehouses: sinks
stocking
vendors stocking points
ports points

Supply

Inventory &
warehousing
costs
Production/
purchase Transportation Transportation
costs costs costs
Inventory &
warehousing
costs
Most Supply Chains consist of many “threads”
which make up a network, or “chain of chains”

SOURCE MAKE DELIVER

SOU
RCE
MAK
E
DEL
IVER

SOURCE MAKE DELIVER

SOU
RCE
MAK
E
DEL
IVER

SOURCE MAKE DELIVER

Multiple Production
Operations within a
Multiple Suppliers Business Multiple Customers
 Observation..
• A Supply Chain (SC) includes all the participants and
processes involved in
the satisfaction of customer demand:
transportation, storages, retailers, wholesalers,
distributors and manufacturers.

• Supply Chains is a complex system in which

coordination is one of the key elements of
management.
 Elements of Supply Chain
Management
Element Typical Issues
Customers Determining what customers want
Forecasting Predicting quantity and timing of demand
Design Incorporating customer wants, mfg., and time
Processing Controlling quality, scheduling work
Inventory Meeting demand while managing inventory
costs
Purchasing Evaluating suppliers and supporting
operations
Monitoring supplier quality, delivery, and
Suppliers
relations
Location Determining location of facilities
Logistics Deciding how to best move and store
materials
 Supply Chains

“We can meet demand because we spent

the last few years paying a lot of
attention … to simplify supply chain, cut
cost, shorten cycle times, and bring more
science to the art of meeting customer
demand.”
(B. Bacheldor, “Steady Supply”, Informaticweek, November
24, 2003.)
 What’s New in Supply Chain?

• Global competition
• Well informed more powerful Customers &
Enhanced Customer Expectations
• Shorter product life cycle aided by technology
• New, low-cost distribution channels
• Internet and E-Business strategies
 Flows in a Supply Chain
Information

Product

Funds

Supplier Customer

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 Example of a Typical Supply Chain: IBM Europe PC Supply Chain

Warehouse

Port
PC Assembly
Plant Retailers

Suppliers 1.2 Million PC/Yr. 13 Transshipment Country-wide

(International) Glasgow U.K. Points (TPs) in Europe Distribution
Centers (DCs)
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Major Questions to be Addressed

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 Supply Chain
Objective
To minimize system wide
costs while satisfying service
level requirements

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 Challenges in supply chain
What is the difficulty in managing
supply chain ?
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 Dependency in Supply Chain
Output of Microsoft
Output of Seagate becomes Input to
becomes Input to Warehouses
Microsoft and Sony

S Microsoft
U
P
P
L
I
E
R Sony
S Seagate

What do we mean by dependency?

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 Dependency in Supply Chain

S Microsoft
U
P
P
L
I
E
R Sony
S Seagate

Which Supply chain are we focusing?

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 Dependency in Supply Chain
• Each supply chain entity is a part of some supply
chain
• Decision at one entity is dependent on the
decisions of other entities of supply chain
• At the same time a supply chain entity has to
meet its organization strategy
• Supply chain strategy must be aligned with
organizational strategy
• Supply chain strategies cannot be determined in
isolation

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 Consideration of all entities to meet supply
chain objectives

• Supply chain facilities dispersed all over the

globe
• Different and conflicting objectives among
supply chain entities
• Supply chain dynamics

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 Supply chain facilities dispersed all over
the globe- National Semiconductor
More than 20000 different routes
More than 12 different airlines carriers

Customers located all over

Wafer fabrication
the world
facility Apple, Delphi, Ford, IBM, HP,
Testing and
Siemens
assembly
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Different and conflicting objectives among
supply chain entities
What a manufacturer
What a supplier expects? expects?
• Manufacturer should
• To get the delivery as and
commit to purchase large
when required as per
quantities in stable volumes
customer’s demand
with flexible delivery dates

What a manufacturer What a distributor/

expects? warehouse expects?
• Manufacturer wants to • Distributor wants to
make large production reduce as much inventory
batches as possible

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 Uncertainty/ Risk is inherent in Supply
Chain
• Supply chain dynamics
– Customer demand
– Supplier capabilities
– Supply chain relationships
– Dominance changes
• System variations over time
– Seasonal fluctuations
– Advertising and promotions
– Competitor’s pricing strategies
– Cost parameters
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 Drivers of supply chain
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing

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 Drivers of supply chain
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing

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 Facilities

‘From’ ‘To’

Inventory is stored
Inventory is assembled
Inventory is fabricated

Production/ assembling/storage sites

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Components of Facilities Decisions
• Where to locate the facilities?
• What should be the capacity and what
function that facility will perform?
• What operations methodology to use?
• Which warehousing methodology to use?

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 Drivers of supply chain
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing

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 Why to hold inventory?
Buffer
for
in smoot
r
e n
a
t d produ h
c ction
Un ema
d
s po ns e
e
Longer Quick r mer
t o
Production runs t o c u s

Lever to balance the customer service, cost and

operational objectives of a company
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 Drivers of supply chain
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing
13 per cent of the country's GDP is spent on logistics and supply chain
management. If this expenditure were to be reduced by 1 per cent, it would
save the economy $7.5 million a year.
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 Transportation
Moving inventory from point to point in a supply
chain
Combinations of transportation modes and routes

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 Transportation: Role in the Supply Chain
Fast or slow
transportation
mode Distance to
be covered
Quantity to
be shipped
Route to be
Number of
selected
facilities to
serve
 Drivers of supply chain
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing Connection between the various stages in
the supply chain

Arshinder, Assistant Professor, IIT

36
Madras
 Information:
Role in the Supply Chain
• Connection– allows coordination between
stages
• Crucial to daily operation of each stage in a
supply chain
– production scheduling, inventory levels
 Drivers of supply chain
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing

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 Sourcing:
Role in the Supply Chain
• Set of business processes required to purchase
goods and services in a supply chain
• Supplier selection, single vs. multiple
suppliers, contract negotiation
 Drivers of supply chain
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing

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 Pricing:
Role in the Supply Chain
• Pricing determines the amount to charge
customers in a supply chain
• Pricing strategies can be used to match
demand and supply
 Components of Pricing Decisions
• Pricing and economies of scale
• Everyday low pricing versus high-low pricing
• Fixed price versus menu pricing
• Overall trade-off: Increase the firm profits Vs
limited assets
All the drivers drive the supply chain based on
the Business or supply chain strategy

Customer service Vs Supply chain

cost
Balance it
 A Framework for Structuring Drivers:
Supply chain decision making framework

Competitive Strategy

Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross Functional Drivers

 Supply Chain Design/Strategy

• Supply chain strategy or design decides what the chain’s configuration will be and
what processes each stage will perform
• Strategic decisions made by companies include

– the location and capacities of production and warehousing facilities

– products to be manufactured or stored at various locations

– modes of transportation to be made available along different shipping legs,

and
– type of information system to be utilized
 Supply Chain Planning

• Supply chain planning defines a set of operating policies that govern

short-term operations, include

– locations used to supply markets

– planned buildup of inventories
– subcontracting of manufacturing
– replenishment and inventory policies
– policies regarding stock-out
– timing and size of marketing promotions
 Uncertainty In Supply Chain

 Erroneous forecasts
 Late deliveries
 Poor quality
 Canceled orders
 Erroneous information
 Problems in Transportation network
 Impact of government policies
 Measuring Supply Chain Performance
• Delivery—on time.
• Quality—customer satisfaction & loyalty
• Time
– Total replenishment time
– Cash to cash time
• Cost
– Total delivered cost
– Value added efficiency
• Others—e.g. inventory turns
 Supply Chain Performance Drivers

1.Quality
2.Cost
3.Flexibility
4.Velocity
5.Customer service
 Velocity
• Inventory velocity
– The rate at which inventory(material) goes through the
supply chain
• Information velocity
– The rate at which information is communicated in a
supply chain
Select Examples of SC in India
Type of Industry Select Examples

Apparel Madura Coats, Reliance

Automobile Maruti, Hero-Honda, Telco,

Mahindra & Mahindra

Chemicals/Paints Reliance, Asian Paints,

Goodlass Nerolac
Consumer Durables Samsung, LG, Godrej

Fast Moving Consumer Hindustan Lever, Proctor &

Goods Gamble, Coca-Cola, Pepsi
Food Godrej, Cadbury, Parle, Amul,
Dabur
Computers Wipro, HCL

Newspaper Bennett Coleman & Co(Times of

India,) HT Media Ltd (Hindustan
Times)
Some areas of concern in SCM
 Phenomenon Observed
in Supply Chain
Order Size

Customer
Customer
Demand
Demand

Retailer
RetailerOrders
Orders
Distributor
Distributor Orders
Orders

Production
ProductionPlan
Plan

Time
Bullwhip Effect
The bullwhip effect is a phenomenon observed in
supply chains wherein the demand variability
increases as one moves upstream from retailers
to distributors to manufacturers

Retailers
Warehouses/
Distributors

Manufacturers
The Bullwhip Effect describes the phenomenon in which order
variability is amplified as it moves up the supply chain from end-
consumers through distribution and manufacturing to raw material
suppliers
Wild swings in orders due to lack of coordination and
trust among supply chain members
 Example

Procter & Gamble: Diapers

• Smooth consumer demand
• Fluctuating sales at retail stores
• Highly variable demand on distributors
• Wild swings in demand on manufacturing
• Greatest swings in demand on suppliers
Bullwhip Effect
Example: P&G Diapers
Bullwhip is Bad

It distorts the order information and amplifies order variability.

 Impact of Bullwhip Effect:

-- Inventory: More safety stock needed

-- Transportation: Lower utilization of transportation
Higher costs
-- Warehousing: More warehouse capacity needed
-- Manufacturing: Lower capacity utilization

-- Customer Service: Lower service level, more likely to cause

stockouts and lost sales
 Remark..

• Stakeholders along supply chain

– Have different and frequently conflicting objectives.
– Often operated independently.
• The network can oscillate in very large swings as each organization
in the supply chain seeks to solve the problem from its own
perspective(local view) rather than looking at the entire chain
holistically (global view).
• Variability increases as one moves up the supply chain
 Major causes

 Inadequate Forecasting
 Order batch sizing
 Price fluctuation
 Rationing and shortages
 No information sharing
 Remedial measures to counteract bullwhip
effect..

 Reduce variability and uncertainty.

Reduce lead times.
Alliance arrangements.
Information sharing
Supply Chain Management in IR

Freight
Materials Management
Management

Supply
Chain of
IR
Customer Care IT Initiatives
Management

New Initiatives
 Materials management
Stocking Depots
In order to ensure uninterrupted supply of materials, Zonal
Railways and Production Units run 200 Stocking Depots over the
railway network. These Depots stock over 1.8 lakh materials
components of various descriptions.
• Disposal of Unserviceable Items
Creation of revenues through disposal of surplus and obsolete
items and industrial wastes. During 2006-07, the total value
realised through disposal of various unserviceable items was
Rs.1,832 crore.
• Procurement of Iron & Steel Materials
IR’s requirement of iron & steel materials is met indigenously.
• Agencies for Procurement
Zonal Railways and Production Units procure most of the materials.
They need on their own but for purchase of some items. Certain
purchases are reserved for procurement through the Director
General of Supplies and Disposals (DGS&D). Some items through
Small Scale Sector and KVIC.
 Supply Chain of International Freight movement

Customs

Destination of Shipping Indian CONCOR/

the goods Companies Railways FHEL

Freight forwarding
agents of companies
Financial Institutes like MAERSK
(International
Banks and 3PL provider
Insurance
companies)
Customer
 Profile of CONCOR

• Container Corporation of India Ltd. (CONCOR) was

incorporated in March 1988 under the Companies Act, and
commenced operation from November 1989 taking over the
existing network of 7 ICDs from the Indian Railways. Having the
largest network of 57 Inland Container Depots (ICDs) /
Container Freight Station (CFSs) in India.

• It has also expanded to cover management of Ports, air cargo

complexes and establishing cold-chain.

• The company developed multimodal logistics support for

India’s International and Domestic containerization and trade
and is committed to providing responsive, cost effective,
efficient and reliable logistics solution to its customers.
 Core Business
CONCOR's core business is characterized by three distinct activities, that of a
carrier, a terminal operator, and a warehouse operator.
Carrier
• Terminal operator (57 terminals, of which 48 are export-import container
depots, and 9 exclusive domestic container depots)
• Warehouse Operator

CONCOR's terminals provide a spectrum of facilities in terms of

warehousing, container parking, repair facilities, and even office
complexes. CONCOR adds value to the logistics chain by offering
services such as
• Transit warehousing for import and export cargo
• Bonded warehousing, which enables importers to store cargo and
ask for partial releases, thereby deferring duty payment
• Less than Container Load (LCL) consolidation, and reworking of LCL
cargo at nominated hub
• Air cargo clearance using bonded trucking
International and domestic tariff handled in TEUs
 Container Specifications
• 20/40 ft. conventional end open containers These are usually built to ISO
standards, and are used for the movement of conventional dry cargo. For
domestic movement, CONCOR has inducted a fleet of approx. 12000 such 20
ft. containers either under direct ownership or on lease for internal
movements within the country.

• 20/40 ft High Cube containers These containers offer the added advantage of
extra volumetric capacity due to their additional height, and are especially
useful of movement of light but bulky cargo.

• 20 ft Side Access Containers These containers are used exclusively for

domestic traffic movements within the country. They offer the advantage of
having doors on the side panels, and this makes it convenient for use in
locations where chassis stuffing operations have to be used. CONCOR has
currently about 3300 such self owned domestic SA containers in its fleet.

• 22 ft High Cube Domestic Containers These containers have also been

exclusively introduced by CONCOR for the purpose of carrying cargo that
requires greater volumetric capacity or container length. CONCOR has
currently about 2000 such self owned domestic 22ft containers in its fleet.
 Observations
• Information and Inventory are to be exploited
properly . There is a trade-off between these
• IT to be used as an enabling tool for managing the
chain
• IT – ERP, Web based information system, RFID,
Communication systems etc.
• Infotech capabilities for restructuring and
rationalizing the chain
 Infotech Capabilities supporting Supply Chain

Functionalities Covered
All export / import functionalities have been covered as mentioned below:
• Imports
1. Book Delivery of Containers
2. Filing of Request for Customs Examination Job-order
3. Generation of Gate Pass for Cargo/Container Removal
• Exports
1. Filing of CFN (Cargo Forwarding Note)
2. Export Container Booking
3. Empty / Loaded Container Arrival / Departure Permits
4. Leasing of Empty Containers between Shipping Lines
• Billing
Customer billing takes place at all the stages automatically and the amount gets debited from his pre-
deposit amount being maintained in the system.
• Queries / Reports
Various Queries and Reports have been provided to keep track of containers at every stage and also to
find out due amount to be paid to CONCOR.
• Net Banking Module
Any customer can credit his Pre-Deposit Account, operational in our CCLS system from any of the
major banks directly. The customer logs in to the system and selects one of the banks where his
account is and the amount he wants to transfer. On this, concerned bank’s Internet Banking site gets
activated, through which debit transaction takes place and instant credit information is passed to
CONCOR in a secured way.
 New Initiatives 

Fresh and Healthy Enterprises Limited (Cold Chain)

Considering its future growth requirements and as part of
business strategy, CONCOR has identified the business space of
Agricultural Business for exploiting the opportunities for
diversification & expansion of its core business. “Fresh and
Healthy Enterprises Limited” has been formed in February 2006.
Mobile Train Radio Communication (MTRC)
Global Service Mobile (GSM) based MTRC system is being
introduced on ‘A’, ‘B’ & ‘C’ routes of IR for communication
between train crew and stationary operating staff such as
Station Masters, Controllers, field maintenance staff, etc.
Railway’s V-SAT Hub
IR is planning to commission its own V-SAT hub at New Delhi to
facilitate connectivity from the remote FOIS locations using V-
SAT terminals. Presently, about 200 remote sites are planned for
connectivity. V-SAT system has the potential to meet voice and
data communication requirements of remote locations that are
lacking in telecom infrastructure.
 Supply chain challenges identified
• Freight transportation
– Higher lead times (More than 72 hours)
– Higher lead time for retrieval of empty containers (more than 36 hours
at times)
– Shortage of wagons
– Ware housing space limitation
– Warehousing needs use of scientific techniques
– Loss and pilferages during transit
– Poor automation of material handing at railway stations
– Space limitation for expansion for existing stations
– Inadequate linking with other modes of transport
• Passenger’s transportation
– Large gap between capacity and demand
– Delayed schedules
– Poor linking with other modes of transport
– Poor catering facilities in-train and on-platform
• Customer care
– Imbalance between service providers and volume of customers
– Security and safety of the customer
– Unhygienic conditions
 Some suggestions..

• Revamping of the tracks to increase maximum speed of the trains.

• Dedicated tracks and freight corridors between major destinations.
• Identification and coding of containers should be modernized using
devices like RFID etc.
• Linking with other modes of the transportation should be improved
to facilitate easy inter-modal journey.
• Leveraging Information technology for high responsiveness towards
customer’s needs like reservations, ticketing, booking of goods, Cloak
rooms, retiring rooms.
• IT enabled reforms are used by mainly elite group of customers.
Whereas, masses, which do not have approach to modern ICT
facilities are still deprived of such benefits. Thus better reachability
must be targeted.
 Concluding Remarks..

• Indian Railways offers unique challenges as well as opportunities for SCM. In

past few years , IR has shown it’s commitment towards fast paced adoption and
implementation of state-of-the-art IT.
• A remarkable turn-around in terms of profit earned despite keeping the fares
stagnant for long time mainly due to better materials management, optimal
utilization of available resources and better man-management.
• However, there are still many grey areas in terms of facilities to customers, safety
measures and infrastructure development.
• With surplus of Rs 25,000 Crores, the Indian railway must gear up to solve real
problems like enhancement of average speed, cutting down the journey time and
providing more comfortable and safe journey to its customers.
• The internal supply chain alignment with specific customer requirements can be
the solution for many of the problems faced by Indian Railways.
deshmukh.sg@gmail.com

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THANK YOU

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