LOGISTICS AND SUPPLY CHAIN MANAGEMENTFor PG-A, PG-B, MMS By Dr. R.S. Ghosh IESMCRC, Bandra

UNDERSTANDING THE SUPPLY CHAINy A Supply Chain is dynamic which involves the constant flow ofy Information y Product y Funds between different stages

y E.g.: Walmart provides the product, as well as pricing and

availability information to the customer. The customer transfers funds to Walmart. Walmart conveys point-of-sales data and replenishment orders to the warehouse or distributor who transfers the replenishment order via trucks back to the store. Walmart transfers funds to the distributor after replenishment.

THE SUPPLY CHAIN UMBRELLAPurchasing 2. Inbound Transportation 3. Quality Control 4. Demand and Supply Planning 5. Receiving, Materials Handling, and Storage 6. Materials/Inventory Control 7. Order Processing 8. Production Planning, Scheduling and Control 9. Warehousing/Distribution. 10. Shipping 11. OutboundTransportation 12. Customer Service1.

A typical supply chain may involve a variety of stages. These supply chain stages include: y RM Suppliers y Manufacturers y Wholesalers/Distributors y Retailers y Customers The primary purpose for existence of any supply chain is to satisfy customer needs, in the process generating profits for itself. SC activities begin with a customer order and end when a satisfied customer has paid for his or her purchase CUSTOMER RETAILER DISTRIBUTOR SUPPLIER MANUFACTURER

THE EXTENDED VALUE CHAINInfrastructure HR IT Finance R&DC U S T O M E R

SupplierS1 S2 S3

Materials (Through inbound logistics)

Operations Marketing Retail & Sales Service (Outbound Logistics)

Customer Service

Materials Management

Distribution Management

Appropriate design of the SC will depend on both aspects:1. 2.

Customer needs Roles of the stages involved

OBJECTIVE OF A SCyThe major objective of every SC is to maximize the overall value

generated.yThe value in a SC generated is the difference between what the

final is worth to the customer and the effort the SC expends in fulfilling the customers request.yFor most commercial SC, value will be strongly correlated with SC

profitability i.e. the difference between the revenue generated from the customer and the overall cost across the supply chainyThus, SCM involves the management of flows between and among

stages in a SC to maximize total supply chain profitability.

DECISION PHASES IN A SCySuccessful SCM requires many decisions relating to the flow of

information, product and funds.yThese decisions fall into 3 categories depending on the frequency

of each decision and the time frame over which a decision phase has an impact.1. 2. 3.

Supply Chain Strategy or Design Supply Chain Planning Supply Chain Operation

SUPPLY CHAIN STRATEGY OR DESIGNy In this category, a company decides how to structure the supply

chains configuration location, capacities of production, warehouse facilities, distribution facilities and type of information systems to be utilizedy Firm must ensure that the supply chain configuration supports the

companys strategic objectives and increases the supply chain surplusyFrequency of such decisions: Low yTime Frame: Long ( 3 to 5 years)

SUPPLY CHAIN PLANNINGy In this phase, the time frame considered is quarter to a year y Supply chain configuration is considered to be fixed yCompanies start the planning phases with a forecast for the coming

year of demand in different marketsy Planning includes decisions regarding which markets will be

supplied from which locations, the subcontracting of manufacturing, inventory policies to be followed, etc.yPlanning establishes parameters within which a SC will function

within over a specified period of time

SUPPLY CHAIN OPERATIONyTime Horizon:Weekly or daily yIn this phase, companies make decisions regarding individual customer

orders. The goal of SC operations is to handle incoming customer orders in the best possible manner. i.e. Order Delivery

SC OPERATIONOrder from market Demand from customer Procurement Supply to customer Manufacturing Distribution

PROCESS VIEW OF A SUPPLY CHAIN1. Cycle View

Customera) b) c) d)

Customer Order cycle Retailer Replenishment cycle Distributor Manufacturing cycle Manufacturer Procurement cycle Supplier

PROCESS VIEW OF A SUPPLY CHAIN (CONTD.)2.

Push/Pull view Customer Order Cycle Pull Processes Customer Order arrives Procurement, Manufacturing, Replenishment cycle

Push processes

DIFFERENCE BETWEEN PULL/PUSH VIEW OF SUPPLY CHAIN PROCESSESy In PULL processes, execution is initiated in response to a

particular customer order.y In PUSH processes, execution is initiated in anticipation of

customer orders.

SUPPLY CHAIN PERFORMANCE WITH ACHIEVING STRATEGIC FIT & SCOPECompetitive StrategyyA companys competitive strategy defines the set of customer needs

that it seeks to satisfy through its products or services.yE.g. Walmart aims to provide high availability of a variety of

reasonable quality products at low prices. Most products sold at Walmart are commonplace (everything from home appliances to clothing) and can be purchased elsewhere. What Walmart provides is low price and product availability.yTo see the relationship between competitive and supply chain

strategies, we start with the value chain for a typical organization.

1. 2.

3. 4. 5.

The Value Chain begins with new product development, which creates specifications for the new product of any firm. Marketing and Sales generate demand by publicizing the customer priorities that the product and services will satisfy. Marketing also brings customer input back to new product development. Operations transforms input into output by using by using new product specification. Distribution takes the product to the customer and sometimes brings the customers feedback about product. Service responds to customer requests during or after the sale. Finance, accounting, IT and HR provide support, and facilitate the functioning of the value chain

THE VALUE CHAIN IN A COMPANYNew Product Development Marketing & Sales Operations Distribution Service

To execute a companys competitive strategy, all these functions play a significant role and each should develop its own strategy. Here, strategy refers to what each function will try to do particularly well. 1) A product development strategy specifies the portfolio of new products that a company will try to develop. It also focuses whether the development effort will be made internally or outsourced 2) A marketing and sales strategy specifies how the market will be segmented and how the product will be positioned, priced and promoted

SUPPLY CHAIN STRATEGYy

A Supply Chain strategy determines the nature of procurement of raw and packing materials, transportation of materials to and from the company, manufacture of the product or operation to provide the service. From a value chain perspective, supply chain strategy specifies what operations, distribution and service will try to do particularly well. In addition, in each company, strategies will also be devised for finance, accounting, IT and HR. Supply chain strategy includes what may traditionally call supplier strategy, operations strategy and logistics strategy. Major decisions regarding inventory, transportation, operating facilities and information flows in the supply chain are all part of supply chain strategy. The value chain emphasizes the close relationship between all the functional strategies within a company.

y

y

y

ACHIEVING STRATEGIC FITA companys success or failure is closely linked to the following factors: 1) The competitive strategy, supply chain strategy and all functional strategies must fit together to form a coordinated overall strategy. Each functional strategy must support other functional strategies and help a firm reach its competitive strategy goal.2)

The different functions in a company must appropriately structure their processes and resources to be able to execute these strategies successfully.

To achieve strategic fit, a company must ensure that its supply chain capabilities support its ability to satisfy the targeted customer segments.

3 BASIC STEPS TO ACHIEVING STRATEGIC FITa) b) c)

Understanding the customer and supply chain uncertainty Understanding the supply chain capabilities Achieving strategic fit

OTHER ISSUES AFFECTING STRATEGIC FIT1. 2. 3.

Multiple products and customer segments Product Life cycle Competitive changes over time

SUPPLY CHAIN DRIVERSThere are 6 major drivers: 1. Facilities 2. Inventory 3. Transportation 4. Information 5. Sourcing 6. Pricing

MAJOR ROLES OF SC DRIVERS1. 2.

Determine the supply chain performance in terms of responsiveness and efficiency. Determine how strategic fit is achieved across the supply chain

1.

Facilities: These are the places in the supply chain network where product is stored, assembled or fabricated. 2 major types of facilities are:i. ii.

Production sites Storage Sites

Inventory: These are RM, work-in-process, finished goods within a supply chain. 3. Transportation: This involves moving inventory from pointto-point in the supply chain. Transportation can take the form of many combinations of modes and routes. 4. Information: This consists of data and analysis concerning facilities, inventory, transportation and customers throughout the supply chain. Information is potentially the biggest driver of performance in the supply chain as it directly affects each of the other drivers. It helps management with the opportunity to make supply chains more responsive and efficient.2.

Sourcing: This is very important for both the responsiveness and efficiency of a supply chain 6. Pricing: This is directly affecting supply chain performance5.

SC OBSTACLES TO ACHIEVING STRATEGIC FIT1.

2. 3. 4. 5.

Increasing Variety of Products: The increase in product variety complicates the supply chain by making forecasting and meeting demand much more difficult Decreasing product life cycles Increasingly demanding customers Fragmentation of Supply Chain ownership Globalization

SUPPLY CHAIN DECISION-MAKING FRAMEWORKCompetitive Strategy Supply Chain Strategy Efficiency Supply Chain Structure Logistical Drivers Facilities Information Inventory Sourcing Transportation Pricing

Responsiveness

Cross-Functional Drivers

FACILITIESRole in the Supply Chain: Facilities are the locations to or from which the inventory is transported. Within a facility, inventory is either transformed into another state (manufacturing) or it is stored (warehousing). Role in the competitive strategy: Facilities are a key driver of supply chain performance in terms of responsiveness and efficiency. If the customer demands and is willing to pay for the responsiveness that having numerous facilities adds, then this facilities decision helps meet the companys competitive strategy goals.

INVENTORYRole in the supply chain: Inventory is held throughout the supply chain in the form of RM, WIP and FG. Inventory is a major source of cost in a supply chain and has a huge impact on responsiveness. Role in the competitive strategy: Inventory plays a significant role in a supply chains ability to support a firms competitive strategy

COMPONENTS OF INVENTORY DECISIONS1)

Cycle Inventory: This is the average amount of inventory used to satisfy demand between receipts of supplier shipments. The size of cycle inventory is a result of the production, transportation or purchase of material in large costs. Safety Inventory: This is the inventory held in case demand exceeds expectation; it is held to counter uncertainty. Seasonal Inventory: This is built-up to counter predictable variability in demand. Level of Product availability: It is the fraction of demand that is served on time from product held in inventory. A high level of product availability provides a high level of responsiveness but increases costs.

2)

3)

4)

TRANSPORTATIONy Role in the supply chain

Transportation has a large impact on both responsiveness and efficiency. The type of transportation that any company uses also affects the inventory and facility locations in the supply chain.y Role in the competitive strategy

The role of transportation in a companys competitive strategy figures prominently in the companys consideration of the target customers needs.

ROLE OF DISTRIBUTION IN THE SUPPLY CHAINy Distribution refers to the steps taken to move and store a product

from the supplier stage to a customer stage in the supply chain. y Distribution occurs between every pair of stages in the supply chain. y RM and components are moved from the manufacturer to the end consumer. y Distribution is a key driver of the overall profitability of a firm because it affects both the supply chain cost and the customer experience directly. y Worlds most profitable companies like Wal-Mart, Seven-Eleven Japan, and P&G have built the success of their entire business around outstanding distribution design and operation

PLANNING DEMAND IN SUPPLY CHAINRole of forecasting in a SC is influenced by the following major decisions:i. Production (Scheduling Inventory control, Aggregate Planning, Purchasing) ii. Marketing (Sales force allocation, promotion, new product introductions) iii. Finance (Capital investment of Budgetary planning) iv. Personal (Workforce planning, Hiring and Layoffs)

CHARACTERISTICS OF FORECASTSi.

Long-Term Forecasts: These are usually less accurate than short term assumption, i.e. in this case always a large standard deviation of error is considered. Aggregate Forecasts: These are usually more accurate as compared to longterm forecasts.

ii.

MAJOR COMPONENTS OF A FORECASTa) b) c) d) e) f)

Past Demand LeadTime of Product Marketing Efforts State of Economy Planned Price Discount Competitors Evaluation

CLASSIFICATION OF FORECASTING METHODSi. ii. iii.

iv.

Qualitative: (Primarily subjective and rely on human judgement) Time Series: (Based on the assumption on past demand history, i.e. historical) Causal: (In this the demand forecast is highly co-related with certain factors in the environment i.e., the state of economy, interest rate of the country etc) Simulation: (This method imitates the consumer choices that give rise to demand to arrive at a forecast)

BASIC APPROACH TO DEMAND FORECASTINGThe following basic 6 steps approach helps an organization perform effectively forecasting: 1. Understand the objective of forecasting 2. Integrate demand planning and forecasting throughout the supply chain 3. Understand and identify customer segments 4. Identify the major factors which influence the demand forecast 5. Determine the appropriate forecasting technique 6. Establish performance and error measures forecast.

AGGREGATE PLANNING IN THE SUPPLY CHAIN OBJECTIVEMain objective of the aggregate plan is to satisfy demand in way that maximize profit for the firm. To create an aggregate plan a company must specify the planning horizon, usually between 3 and 18 months.

AGGREGATE PLAN OF ANY ORGANIZATION IS PREPARED BY THE FOLLOWING INFORMATION:1. 2. 3. 4. 5.

Production Quantity from regular time and overtime: used to determine no. of workers and supplier purchase levels. Inventory held: used to determine how much warehouse space and working capital is needed. Backlog/Stockout Qty: Used to determine what the customer service levels will be Workforce hired/laid off: used to determine any labor issues. Machine Capacity increase or decrease: Used to determine if new production equipment needs to be purchased or idled.

MANAGING SUPPLY AND MANAGING INVENTORIES IN SUPPLY CHAINManaging Supply: A firm or organization can vary supply of product by controlling a combination of the following two factors: 1. Production Capacity 2. Inventory The objective is to maximize profit for any firm is the difference between revenue generated from sales and total cost associated with material, capacity and inventory. In general, organizations use a combination of varying capacity and inventory to manage supply.

MANAGING CAPACITYWhen any organization manage capacity to meet predictable variability, it use a combination of the following approaches:a)

b)

Time Flexibility fromWorkforce: In this approach, a firm used flexible work hours by the workforce to manage capacity to better meet demand. In many cases plants do not operate continually and are left idle during portions of the day or week. As a result spare plant capacity exists in the form of hours when the plant is not operational. Use of seasonal Workforce: In this approach, a firm uses a temporary workforce during the peak season to increase capacity to match demand. The tourism industry often uses seasonal workers. Toyota regularly uses seasonal workforce in Japan to match supply and demand better.

MANAGING CAPACITY (contd.)c)

d)

e)

Use of Subcontracting: In this approach, a firm subcontracts peak production so that internal production remains level and can be done cheaply. This is most useful for urgent demand of Sales and Export at a time Use of dual facilities (Specialized and Flexible): In this approach a firm builds both specialized and flexible facilities. In specialized facilities company produce a relatively stable output of products over a time in a very efficient manner. In flexible facilities, organization produce a wide varying volume and variety of products but a higher unit cost. Designing product flexibility into the production processes: In this approach, a firm has flexible production lines whose production rate can be easily be varied for maintaining different lines of production with different product families.

MANAGING INVENTORYWhen managing inventory to meet predictable variability, firms use a combination of following strategies: i. Using common components across multiple products: ii. Build inventory of high-demand or predictable-demand products:

MANAGING DEMANDSupply chain can influence demand by using appropriate price and promotion decisions. Price decision is often made by taking the best utilization of materials and other resources. Promotion decisions are often made by retailers without taking into account the impact on the rest of the supply chain. The key point for managing demand is how supply chain members can collaborate on pricing and aggregate planning (both demand and supply management) decisions to maximize supply chain profitability

ROLE OF CYCLE INVENTORY IN THE SUPPLY CHAINCycle inventory is the average inventory in a supply chain due to either production or purchases in lot sizes that are larger than those demanded by the customer. Cycle inventory is primarily held to take advantage of economies of scale and reduce cost within the supply chain. Increasing the lot size or cycle inventory often decreases the cost incurred by different stages of a supply chain. Cycle Inventory exists in a supply chain because different stages exploit economics of scale to lower total cost. These costs considered including material cost, fixed ordering cost and holding cost.

ROLE OF SAFETY INVENTORY IN THE SUPPLY CHAINSafety inventory is the inventory carried for the purpose of satisfying demand that exceeds the amount forecasted for a given period. Safety inventory is carried because demand forecasts are uncertain and a product shortage may result if actual demand exceeds the forecast demand.

DETERMINING APPROPRIATE LEVEL OF SAFETY INVENTORYThe appropriate level of safety inventory is determined by the two factors: a) The uncertainty of both demand and supply b) The desired level of product availability In all cases as the uncertainty of supply or demand grows, the required level of safety inventory increases.

IMPORTANCE OF THE OPTIMAL LEVEL OF PRODUCT AVAILABILITYThe level of product availability is measured using the cycle service level or the fill rat, which are metrics for the amount of customer demand satisfied from available inventory. The level of product availability also referred to as the customer service level is one of the primary measures of a supply chains responsiveness. A better supply chain can use a high level of product availability to improve its responsiveness and attract customers by increasing revenue for the supply chain.

FACTORS AFFECTING OPTIMAL LEVEL OF PRODUCT AVAILABILITYa) b)

Cost of over-stocking the product of any firm Cost of under-stocking the product of any firm

LOGISTICS MANAGEMENTy Logistics is generally considered as the science pertaining to the

movement of materials and services along with its information y In current scenario Logistics Management is defined as the process of moving and positioning inventory to meet customer requirement. y Logistics came from French word Logistique y During the late 17th century all the functional relations of military operations referred as Logistics movement of Military or Military Logistics.

MAJOR DIFFERENCE BETWEEN LOGISTICS AND SCMMany operations experts mention Logistics is the major element of SCM and it has emerged out of Unionization of Distribution and Material functions Evolution: The word logistic was first associated with the UK Military in 1905 as a branch of war. Business Application: The greater Logistics was first practiced in early 1950s, simultaneously the military logistics had found significant applications in civilian sector, leading to the development of business logistics, logistical engineering and Management and finally contract logistics operations

Logistics FunctionsInbound Logistics (Materials Management) Outbound Logistics (Distribution Management)

Difference between Logistics V/S SCM So currently Logistics could be referred as more strategic whereas SCM is more operational.

ELEMENTS OF LOGISTICSLogistics Management consist of 8 Element or Wings 1) CUSTOMER ORDER PROCESSING y Flow of Action :i) Filling up the order form ii)Deciding the specification and quality check list of the product iii)Deciding the delivery schedule & location of deliveryy

Important Factors :i) Cost of order processing ii) Capability of the organization for producing a component iii) Detailed list of specification

y

Technique:i) Electronic data interchange(EDI) ii)E-ERP or CIPER iii) Web portal.

2.LOCATION ANALYSISy Flow of Action :

i)Cost of transportation of raw material & finished goods ii)Availability & Type of land iii)Availability of secondary resources iv)Availability desired manpower at affordable cost v)Communal harmony vi)Government regulation & taxation y Important Factors: i) Cost of operations as percentage ii) Shelf life of product y Technique: i) Centralized audit & compiles report.

3.INVENTORY CONTROLFlow of actions: On hand inventory analysis Communicating the quality ,quantity & timing of material with the supply points iii) Getting the material of right quantity ,quality and at the right timey i) ii) y i) ii) y

Important Factors: Inventory control at planning stage and lead time Cost vs. importance f raw material Technique: DRP and replenishment order control Fixed order internal system Economics order quantity with ROP system Selective inventory control (ABC,VED,FSN analysis etc.) Order forecasting using statistical tools

i) ii) iii) iv) v)

4.MATERIAL HANDLINGy Flow Of Material:i) Type of material (RM,PM & finished goods) ii) Material handling requirements(fragile,Inflammable) ii)Cost ratio of material handling to material cost iv) Material default location and traceability

y Import Factors:i)Material breakage ii)pilferage iii)Cost of material Handling iv)Number of handling

y Technique:i)Operational research ii)Material flow analysis iii) Computerized material retrieval system

5.PACKAGINGy Flow Of Actioni)Packaging requirement for the material ii) Primary packaging material iii)Secondary packaging materials iv)Cost of packaging v)Transportation requirement for packaging (vibration proof, water or moisture tight)

y Important Factors:i)Protection to product ii)Communicating the message to customers iii)Customer requirement for packaging iv)Reserve logistics for packaging v) Cost of packaging

y Techniques:i) ii) iii) iv) v)

Standarized box packaging Counterrization of packaging Eco-friendly packaging material Bar coding RFID

6.TRANSPORTATIONyi) ii) iii) iv) v) vi)

Flow Of Action:Mode of transportation Cost of product Speed of transportation Ambience requirement of material (refrigeration, vacuum) Cost of transportation Urgency of the product to customer

y

Important Factors

i)Urgency of the product ii)Cost of product iii)Cost of transportation

y

Technique

i)Containerized transportation ii) Cool chain transport iii) Multi-model logistics iv) Cross docking v) Direct shipment

7.WAREHOUSING y Flow Of Actioni) ii) iii) iv) v)

Location of the warehouse Inventory level of the warehouse Storage requirement of the product Packaging & repackaging requirement of the product Shelf life of the product

yi) ii) iii) iv)

Important FactorsAvailability of the space Availability of proper material handling system Strategic location Packaging & re-packaging facilities

yi) ii)

TechniquesThird party logistics Third party warehousing

8. CUSTOMER SERVICESFlow Of Action i) Contractual services offered to client ii) Type of customer services required for the product iii) Location and service level of the service centre iv) Cost of service y Important Factors: i) Contractual requirement of the customer services ii) Service quality and reverse logistics y Technique: i)Annual maintenance contracts and free replacements ii)Limited trial period iii) Guarantee & warrantee iv)CRM of the organizationsy

TRANSPORTATION IN SCMBasic role of transportation in SCM(logistics functions)a)The planning of any transportation system goes into the choosing of right kind of a carrier b)The services of any transportation according to different requirement of various industry c)Finally the quality of any transportation system mean the total operations efficiency in the supply chain function

HUB & SPOKE MODEL:In the case of H & S model hub is the location that holds inventory for a large region with each spoke leading to a smaller distribution centre which holds inventory for a smaller region. The main driver of the H & S model is the proximity to the customer with the aim to supply for maximum amount of customer in minimum time

MODES OF TRANSPORTATION AND THEIR PERFORMANCE IN SCM1)Air : up to 500 lbs 2)Package Carriers : up to 150 lbs 3) Truck : About 55% to 60 % 4)Rail : About 15% 5)Water : 75 % of international logistic operations 6)Pipeline : For crude petroleum, refined petroleum products and Natural gas 7)Intermodal : Combination of water, rail & truck Mostly very time bound operation

1.AIR :y Air carrier are fairly fast but expensive compare to other modes of

transportation hence transportation by air is an effective option only for time sensitive, high value density goods. but is likely to play an important role in the future

y Currently air transport account for a very small percentage of freight

2.PACKAGE CARRIER :y This are transportation companies such as Fedex , UPS and the other

postal services which carry small packages ranging from letters to shipments weighing about 150 lbs. packages

y Package carrier use air, truck & rail to transport time critical smaller

y Packages carriers are the preferred mode of transport for e- business

such as Dell and well known companies

3.TRUCKy Trucks are the dominant mode of transport y In India accounting for about 55%-60% of freight movement. y Though trucking is more expensive than rail transport , it offers

the advantage of door to door shipment and shorter delivery of time. y India has the largest road network of 3.32 million km and it is estimated that truck- freight rates in India are among the lowest in the world

4.RAIL :y Rail transport is the ideal mode of transport for low value density

products, which are not sensitive to time. y Though freight cost is lower, it suffers from long and unreliable lead times y In India the railways are completely under government ownership so this is totally under regulated control system or centralized y Indian railways carries about 30% freight movement in India 5.WATER : y Water transport is one of the cheapest modes of transport and is used extensively for international cargo y The main disadvantage of this transportation mode is very slow among all the mode of transportation y Another disadvantage in this transportation mode is delays at port for further clearing and forwarding. y India has an extensive cost line of 7520 km and most of the ports are engage for bulk movement of cement,jute,steel & engg. goods

6)PIPELINE:y Pipeline are generally used for bulk transportation of

predictable volumes of specialized products like crude petroleum, refined petroleum products and natural gas. y The investment cost for pipelines transportation is very high, so only the biggest industrial sectors like petroleum and natural gases could be able to afford the same but in terms of maximum level of supply chain optimization the pipeline method is ideal

7)INTERMODAL:y Transportation is the use of more than one mode of transport to

move a shipment to its destination y A variety of intermodal combinations are possible in global trade y In India the most common being used are rail-truck and water rail

DISTRIBUTION MANAGEMENTy Distribution usually refers to getting the right product to the y y

y y

right place at the right time Distribution can be defined as the channel structure used to transfer products from an organized to its customer Distribution management means the activities associated with the movement of materials , usually finished goods or parts from the manufacture or supplier to the customer Distribution strategy refers the various distribution decisions involved in different stages of any distribution system E.g. : since financial planning services to final delivery to the customer

Distribution decisions have significant implications on: Product margins & profits Final retail pricing Sales management practices

Distribution channels include the following options: a) Retail: The stores selling to final buyers for ultimate uses. b) Wholesale: An intermediary to distribution channel that usually sells to any retail store for business uses.

DISTRIBUTION PLANNINGy Distribution planning refers as the design to calculate the various

y

y

y y

y

products need to be received in different locations and at a particular time/schedule. Distribution planning helps organizations to create their Distribution Requirement Plans(DRPs) and establish distribution lead times for delivery. Therefore we could say DRP is a tool, which estimates inventory requirements at the stocking locations and ensures that supply sources are able to meet the demand. In current business scenario the two key factors require to meet the DRP are just in time production and the logistics system. Finally Distribution requirement planning is a planning approach which considers multiple distribution stages and the characteristics associated with each stage. Practically DRP is the logical extension of MRP(Mfg. requirement planning)

DISTRIBUTION STRATEGIESDistribution strategies can be of the following types: y Cross Docking y Milk Runs y Direct Shipping y Hub & Spoke Model y Pool Distribution

A. Cross Docking: This is the movement of materials

from the receiving docks directly to the shipping docks. Usually in cross docking refers a flow of concept and we dont want product to stop anywhere in the distribution system. Advantage:i. Cross docking helps reduce direct cost associated with excess inventory by eliminating unnecessary handling and storage of product. ii. It also focus from supply chain to demand chain iii. It also helps to improve the speed of flow of the products from the supplier to the store.

B. Milk Runs: This refers a route in which a truck either

delivers product from a single supplier to multiple retailers or goes from multiple suppliers to single retailers. Advantage:a. Reduces cost b. Proximity of Suppliers c. Reduces Inventory

C. Direct Shipping: This refers to the method of distribution

in which the goods come directly from the suppliers to the retail stores. This system eliminates the involvement of intermediate facilities. Advantage:i. Elimination of intermediaries ii. Save time iii. Less damage iv. Improved accuracy

D. Hub & Spoke Model

Pool Distribution: This refers the distribution of product to numerous destination points(customers, stores or shop points) within a particular geographic region. Advantage:i. Multiple shipments for a specific region ii. This is simple & cost effective iii. Reduce delivery time & cost for high value customer.E.

WAREHOUSINGy A warehouse is a location with adequate facilities

where volume shipments are received from any production centre, broken down, reassembled into combinations representing a particular order or orders and shipment to the customers location or locations. y Common warehousing decisions for any company should involve the following criteria: Number of warehouses Types of warehouses Location of the warehouses

TYPES OF WAREHOUSESy Usually companies might own private warehouses or

rent space in public warehouses or both. y Basic Eight types of Warehouses: 1. Bonded Warehouses: These are bonded under customs and Excise Act and municipal corporation regulations. 2. Field Warehouses: Which are managed by a public warehousing agency in the premises of a factory or company under a bank guarantee for the certified goods.

3. Cold Storage: These are provided for perishables against payment of storage for the space utilized by different parties. 4. Agriculture Warehouses: These are used for storing agricultural produce grown in a certain area. 5. Distribution Warehouses: These are large and automated designed to receive goods from suppliers, take orders and deliver goods to customers in retail. 6. Buffer Storage Warehouses: These are usually built at strategic locations with adequate transport and technical communication. 7. Facilities: Storing food grains, fertilizers etc in response to the of the Government or 8. Export-Import Warehouses: These are located ports from where trade/business is

WAREHOUSING OPERATIONS1. 2. 3. 4. 5. 6. 7. 8. 9.

Receiving Goods Identifying Goods Sorting Goods Dispatching Goods Holding Goods Retrieving Goods Marshalling Goods Dispatching Goods Preparing Documents (Records & Advices)

SITE SELECTION PROCESSy Before making a site selection decision, companies

need to closely examine or evaluate the current distribution network and the impact of adding , subtracting or consolidating facilities on the entire organization . y Before a site selection decision can be made, all the functional heads of the organizations including marketing, sales, distribution , operations, finance & export must participate in this analysis.

y At the first step of the site selection decision: Process

requires a clear understanding of the underlying strategy to be developed and communicated to all function involved in the decision. y Most organizations attempt to add on consolidate facilities rather than realigning the entire distribution strategy.

FACTORS INFLUENCING DISTRIBUTION NETWORK DECISIONy Certain factors come into play when analyzing the

impact a new warehouse will have on a companys distribution network. These factors(variables) are two categories: 1. Quantitative: Cost Drivers which are tangible and relatively easy to define (Facility cost, utility cost, Labour cost, transportation cost) 2. Qualitative: Which are difficult to understand and to measure. These are customer service levels and top management preference.

STEPS OF WAREHOUSE SITE SELECTION PROCESSy Creating a strategic plan y Developing location strategies to support the plan y Getting buy-in from all levels and functions y Using site selection models to assist in analyzing

various scenarios An organization should be able to select the best site scenario according its cost , operating factors and expected customer service levels.

WAREHOUSE LAYOUT AND DESIGNy General Layout: One of the most important decisions

when running a warehouse is layout. y Layout means the physical arrangement of storage racks, loading and unloading areas, equipment, offices, rooms and all other facilities.

IMPORTANCY OF LAYOUT DECISIONSLayout decisions are important for three basic reasons: 1. These require substantial investments of both money and effort 2. These involve long term commitments. 3. These have significant impact on the cost and efficiency of short-terms operations.

MAJOR ESSENTIAL ELEMENTS OF A COMMON WAREHOUSE ARE:y An arrival bay or dock through which goods coming y y y y

from suppliers are delivered, checked and sorted A storage bay or dock, where the receiving goods are kept as stock. A departure bay or dock, where customer orders are assembled and sent out. A material handling system, for moving goods around An information system, which records the location of all the goods, arrivals from suppliers, departures to customers and other relevant information.

STORAGE AREAS IN WAREHOUSEIn any common warehouse two storage areas generally maintain. y Goods arrive and put in to a bulk storage which is the main storage areay The packages in the bulk store are broken into individual

units and moved into a smaller picking store which is used as assemble storage area.

LAYOUT OF RACKINGIn most warehouses, materials are stored in some form of shelving or racking. In order to understand and get the right materials we need to consider the following criteria: a) The type of racking to be used: b) The best layout for the racking: c) Storing of different items on the racks:

LOGISTICS (WAREHOUSE) AUTOMATION:y Logistics automation is the application of computer

software and/or automated machinery to improve the efficiency of any logistics or warehouse operations. Usually this refers to operations within a warehouse or distribution centre, with broader tasks undertaken by SCM systems and ERP systems.

COMPONENTS USED IN LAS1. Fixed Machinery: a) Automated Cranes b) Conveyers c) Sortation Systems 2. Mobile Technology By using Radio data terminals 3. Software: a) Integration software b) Operational Control Software c) Business Control Software

BENEFITS OF WAREHOUSE AUTOMATIONA typical warehouse or distribution will receive stocks of variety of products from suppliers and store these until the receipt of orders from customer whether retail branches or other companies. A common LAS provides the following benefits: i. Automated Goods in Processes: ii. Automated Goods Retrieval for orders: iii. Automated Dispatch Processing

WAREHOUSE MANAGEMENT SYSTEMAt initial stage this has referred as a system to control movement and storage of materials within a warehouse, the role of WMS is expanding to including light Mfg, transportation management and complete accounting systems. The core objective of any modern WMS is to control the movement and storage of materials within an operation.

MAJOR CLAIMS ON WMSa) b) c) d) e)

WMS reduces inventory WMS reduces labour cost WMS increases storage capacity and helps distribution WMS increases customer services WMS increases inventory accuracy

OTHER FUNCTIONALITY IN WAREHOUSE MANAGEMENT SYSTEMIntegration with Automated Material Handling Equipment: ii. Advanced Shipment Notification(ASN): iii. Cycle Counting: iv. Labour tracking & Capacity planning: v. Activity based costing/billing: This functionality is primarily designed for third party logistics operations which is activity based. vi. Browser Based: By using modern software packages. Browser based, web enabled and e-WMS are some new terms benefits to 3PL operationsi.

THIRD PARTY WAREHOUSINGGlobally, the warehousing industry has reached the $100 billion in the last decade owing to the growth in world trade and expansion of international markets as well as increasing application of new technology. Globally, warehousing industry is classified into 3 different types: i. Public Warehousing ii. Private Warehousing and iii. Contract Warehousing.

This has dedicated customers with long-term agreement is the fastest growing segment of the industry globally and the growth @12-15% since last 5 years. y In India this industry is dominated by central warehousing corporation, Punjab warehousing corporation, in India around 450 warehouses provide storage capacity of 7.4 million tones for a wide range of products.y

VALUE ADDED WAREHOUSINGCurrently the public and private warehouse operations are focusing on packaging or re-distribution. With the maximum using of IT-enabled supply chain, DC evolved to meet the needs todays customer. The DC is ideally situated in the supply chain to collect information and knowledge about all the supply chain activities.

THIRD-PARTY LOGISTICS(3PL)y Third-party logistics refers to the concept of outsourcing the

logistics and distribution of a manufacturing or service firm to a logistics service provider so that the manufacturing firm could focus on its core competencies of new product development, manufacturing and marketing those products. y Third party logistics is the activity of outsourcing activities related to logistics and distribution, The 3PL industry includes Logistics Solution Providers(LSPs) and the shippers whose business processes they support companies option for 3PL for the following reasons:

i. ii. iii. iv. v. vi. vii. viii.

Improved Strategic Focus: Resource constraints: Lowered costs: could be reduced inventory management cost around 15-30% Expansion of markets: More professional and scientific approach to logistical problem Improvement in service levels with improved response time Efficient management of inventory resulting in better utilization of working capital Increased flexibility: A 3PL contract provides freeing up resources for other uses.

INFRASTRUCTURE REQUIRED FOR 3PLThe following type of infrastructure is a prerequisite for a good 3PL: i. Warehouse ii. Fleet of vehicles iii. Quality Hardware and software to take care of information required by the system. iv. Advanced material Handling capabilities v. Competent consultants with good team of spirits vi. Trained Manpower vii. Reach in terms of Geography.

STEPS WHILE CONSIDERING A 3PL SERVICE PROVIDERy The Mfg. company should consider the following key points

before proceeding any 3PL service: i. Knowing where to go: ii. Knowing the needs and objectives:

FACTORS TO BE CONSIDERED A 3PLA. General company considerations

Capabilities C. Quality D. Client Relationship E. Labor RelationsB.

MEASURING & EVALUATING 3PL PERFORMANCE:The following are the metrics of 3PL 1. Transportationa. b. c.

On-time shipment On-time Delivery Transportation cost per mile

2.a. b. c. d. e. f. g.

WarehousingPercentage of order ships in each consignment Unit cost of warehousing Pricing accuracy in warehouse Order fulfillment Item fulfillment Inventory accuracy Loss and damage

3.a. b.

Cost:Service costs Cost Reduction

4.a. b.

QualityReports Process Improvement

5.a. b.

Availability:Customer Satisfaction Handling routine

FACTORS TO BE CONSIDERED IN EVALUATING A 3PLA. General Company Considerations

Capabilities C. Quality D. Client Relationship E. Labor RelationsB.

FOURTH-PARTY LOGISTICS (4PL)y The 4PL was a term coined by Accenture Consulting in the mid y

y y

y

90s. The term was coined as a result of an extensive survey carried out by the organization on customer satisfaction, which indicated that the customer expectations regarding costs by using 3PL service providers were not up to the mark. According to the Accenture Consulting the 4PL defines as: An integrator that assembles the capabilities, technology and resources of its own organization and other organizations to design, build and run comprehensive supply chain solutions For any firm to establish the 4PL must have enhance skills in investing and maintaining the infrastructure and resources that makes it the manager of multiple 3PL service providers crucial to the client organization.

MAJOR TECHNOLOGY COMPONENT OF 4PL SERVICESi.

Global Positioning System: GPS is the only technology which could be used for determining the position of any object on earth with a high amount of accuracy and in any climate. Global Information System:GIS technology is a computerized system capturing the position of an object and then processing, enhancing, querying, analyzing and storing it with spatially referenced data containing the consumer profile of that particular area which can be definitely help a sales organization in creating consumer demographics.

ii.

The key components of modern GIS are the integrated Hardware and software. By using GPS and GIS improves the transportation management system which shows the real time data of the traffic conditions or the conditions of the weather. These two technologies could be used for effective route optimization and modern fleet management operations.

FOUR KEY COMPONENTS IN 4 PL SOLUTIONSArchitect or Integrator

Control Room (Intelligence)4 PL

Supply Chain Info mediatory

Resource Provides

1.

The Architect/Integrator: Supply chain visionary, Multiple customer relationship, supply chain re-engineers, project management and continuous innovation. The Control Room: Experienced logisticians, decision support, managing multiple 3PLs and continuous improvement. The Supply Chain Informediary(Information Nervous System): IT infrastructure, IT system integration, Real time data tracking, conversion of data to information and technical support. The Resource Providers: Transportation & warehouse assets provider, Cross-dock, property facility, Manufacturing outsourcing, Procurement and co-packing services.

2.

3.

4.

CHALLENGES FACED BY THE 4PL INDUSTRYi.

Indian mindset is itself a great challenge: Application of 4PL needs a lot of understanding & support from the top management. Low awareness regarding the 4PL concept: Some 3PL firms have either misunderstood the definition by Accenture or purposely ignore for other reason. Some 3PL players offering additional IT services & started marketing as 4PL, which could be referred as 3PL plus. The relevant technology and the resource required for any 4PL are not available in India easily.

ii.

iii.

iv.

INFORMATION TECHNOLOGY FOR SCMA. Need for IT in SCM

The 3 major reasons for considering IT for SCM are: i. DataTransfer ii. Information Retrieval iii. Machine Process Control

B. IT tools for business

i. ii.

iii.

iv.

IT systems (tools) could be used for modern business in following areas: Project Management Computer Aided Design (CAD) / Computer Aided Manufacturing (CAM) CAD allows for 3 dimensional design of parts using computer programs CAM translates such designs into actual products Computer Integrated Manufacturing (CIM) CIM prefers the integrated use of computer-aided techniques in manufacturing Manufacturing Execution System (MES) This primarily consists of one or more modules used to track inventory and production and to insure and document the proper execution of manufacturing processes.

B. IT tools for business (contd.)

Management Information System (MIS): This refers to a mainframe or minicomputer designed to provide management personnel with up to data information on an organizations performance or business activities vi. Decision Support System (DSS): This is an automated management information system.There are 2 major types of DSS:v.

Enterprise wide DSS: Linked to large data warehouse and serves many functions b) Desktop DSS: Single user DSS on an individual PCa)

vii. Expert Systems:

This is a computer application based on artificial intelligence which attempts to duplicate the ability of human experts to perform a specific task. Eg: application on banking and insurance sectors. iv. Knowledge Management: This is a concept in which an enterprise gathers, organises, shares and analyzes its knowledge in terms of resources, documents and people skills.

B. IT tools for business (contd.) ix. Enterprise Resource Planning (ERP):

This refers to an integrated, multi-module application software packages designed to serve and support several business functions across any organization. x. Customer Relationship Management (CRM): This is a set of methodologies, software and usually internet capabilities which helps modern managers to build up long term relationship with customers. xi. Supply Chain Management: It is the process of optimizing the delivery of goods, services and information from supplier to ultimate user or consumer.

MAJOR IT APPLICATIONS IN MODERN SCMIT applications have the following major benefits in modern SCM a) Provides multiple ways of achieving objectives b) Major constraints could be understood well in advance. c) Provides a defined set of steps to attain the set of objectives

Evolution of SCM systemMRP MRP II ERP E-ERP SCM

Functional Roles of IT in SCMy Transaction Execution y Collaboration and co-ordination y Decision SupportCAD/ CAM/ CIM PDMS ERP CRM SCM

Product Data Management System

THANKYOU