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

CustomersMarketTrends

External Environment

Within Company

Competition

Complexity- Simplest Ideas Exploited

- Barriers to Entry Increasing- Technology Rates Rising Completeness

Move to IntegrateSolutions, Not just Products or Services

Customer FocusNew 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 Company’s 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

Participant’s Objectives -

Goals at Change-Over Points -

Participants Busy Improving Own Performance

NO ONE FOR OVERALLSUCCESS

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 CHAINWithin & Beyond the

Company Is considered a SINGLE ENTITY

SUPPLY CHAIN MANAGEMENT CONCEPT

All MOVEMENT Activities in

SUPPLY CHAIN Constitute

TOTAL SYSTEM

FUNCTIONAL ORGANIZATION

CUSTOMERS

SalesDistributionProductionPurchase

SUPPLIERS

Information 1

OrderModified Order

Information 2Information 3

Information 4

Information CInformation S

Fragmented Information FlowsFragmented Information Flows

Arms Length Arms LengthInformation Flows

SCM IMPLEMENTED ORGANIZATION

CUSTOMERS

SalesDistributionProductionPurchase

SUPPLIERS

Information Flow

Seamless Information FlowSeamless 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

CompanySupplier Chains

CustomerChains

NodesLinks

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

2 tier Su

pp

liers

1 tier Suppliers

Procurement Transmission Assembly BSR Depots

Cu

stom

ers

COMPANY

Material Flows

Information Flows

Financial Flows

Inbound Logistics

OutboundLogistics

External Supply Chain

Managing the Flows Most ProfitablyManaging 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 BottomSCM Implemented Company Creates Healthy BottomLine Today and Conditions for Same TomorrowLine 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 ChainIntegration in Supply ChainCritical for Organizational SuccessCritical 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 CentersWarehouses

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 CostsTransportation Costs

CONFLICTING GOALS IN SC

MANAGEMENT

• Low Material Cost

• Low Costs of Logistics

• Low Overheads

• Low level of Tied-up Capitalin Inventories

• Low Inventory Management

Costs

High Level of Customer Service

TowardsMarkets andProduction

SUPPLY CHAIN MANAGEMENT - GOALSSUPPLY CHAIN MANAGEMENT - GOALSSUPPLY CHAIN MANAGEMENT - GOALSSUPPLY CHAIN MANAGEMENT - GOALS

Achieved By JugglingThe 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

ProductionW/H &

Transport

Customer Service

MaterialsManagement

In-PlantManagement Logistics

Material Flow Customer Service

SalesAdmin

Material Flow

Integration Within Organisation

1960

1970

Inventory Inventory Functional Integration

Inventory Inventory

In-PlantManagement

EVOLUTION OF SUPPLY CHAIN MANAGEMENT

MaterialsManagement

INTEGRATED SUPPLY CHAIN MANAGEMENT

Logistics/ Internal Supply Chain

Suppliers

CustomersSuppliers

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

StrategicLevel

TacticalLevel

OperationalLevel

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

LogisticsFunction

ProductionFunction

PurchaseFunction

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

CustomerService

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 ManagingInformation Management Information

Single-Dimensional Performance Multi-Dimensional PerformanceMeasures 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. Reddy’s Lab/ Dabur/ Ranbaxy

Unorganized Mumbai Dabbawala

SUPPLY CHAIN ACTIVITIES ARE FOCUSSED ON

PARAMETERS OF CUSTOMER SERVICE ANDSUPPLY CHAIN ORGANIZATION HAS THE

RESPONSIBILITY, AUTHORITY & COMPETENCETO

MANAGE THE 3 FLOWS IN THE BEST INTEREST OF

THE WHOLE SUPPLY CHAIN

IN ESSENCE

RELAY RACE

THE BOAT RACE

Seamless IntegrationOne Objective

Single Entity

Any Questions Pl?