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SUPPLY CHAIN MANAGEMENT

What is Supply chain management?


A supply chain is the group of components (suppliers, distribution points, transportation providers) necessary to bring your product from its raw material state to the end user.
Supply chain management is the term used for controlling and regulating your supply chain. A simple supply chain model consists of four components:

Supplier Manufacturer Warehouse or Distribution Center End User

supplies the raw materials produces the product stores and ships the product receives the product

Sources

Converter s Product and Service Flow Information Flow Funds Flow Suppliers Distributors

Retailers

Consumers

Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed).

Effective supply chain management: Traditionally, marketing, distribution, planning, manufacturing, and purchasing organizations operated independently along the supply chain. These organizations 2

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functioned with their own objectives which were often conflicting. Supply chain management is a strategy through which such integration can be achieved.

History
The 1980s the term Supply Chain Management (SCM) was developed, to express the need to integrate the key business processes, from end user through original suppliers.The basic idea behind the SCM is that companies and corporations involve themselves in a supply chain by exchanging information regarding market fluctuations, production capabilities.

GOAL OF SUPPLY CHAIN MANAGEMENT


GOAL To reduce organization in efficiencies The process of coordinating activities among SUPPLIER PRODUCTION FACILITIES DISTRIBUTION CENTRES AND CUSTOMERS

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Components of SCM
1. PlanThis is the strategic portion of SCM.A big piece of SCM planning is developing a
set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.

2. SourceNext, supply chain managers must develop a set of pricing, delivery and
payment processes with suppliers and create metrics for monitoring and improving the relationships. And then, SCM managers can put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments.

3. MakeThis is the manufacturing step. Supply chain managers schedule the activities
necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chain.

4. DeliverThis is the part that many SCM insiders refer to as logistics, where companies
coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.

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5. ReturnThis can be a problematic part of the supply chain for many companies. Supply

chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products.

SUPPLY CHAIN MANAGEMENT FLOWS


It can be divided into three main flows:

SUPPLY CHAIN MANAGEMENT FLOW

The product flow

The information flow

The finances flow

The product flow includes the movement of goods from a supplier to a customer,
as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery.

The financial flow consists of credit terms, payment schedules, and consignment
and title ownership arrangements.

Elements of the Supply Chain


A simple supply chain is made up of several elements that are linked by the movement of products along it. The supply chain starts and ends with the customer.
Customer: The customer starts the chain of events when they decide to

purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility.
Planning: The planning department will create a production plan to produce

the products to fulfill the customers orders. To manufacture the products the company will then have to purchase the raw materials needed.

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Purchasing: The purchasing department receives a list of raw materials and

services required by the production department to complete the customers orders. The purchasing department sends purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the required date.
Inventory: The raw materials are received from the suppliers, checked for

quality and accuracy and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored until they are required by the production department.
Production: Based on a production plan, the raw materials are moved

inventory to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. After the items have been completed and tested, they are stored back in the warehouse prior to delivery to the customer.
Transportation: When the finished product arrives in the warehouse, the

shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. When the goods are received by the customer, the company will send an invoice for the delivered products.

Supply Chain Management LEVELS


To ensure that the supply chain is operating as efficient as possible and generating the highest level of customer satisfaction at the lowest cost, companies have adopted Supply Chain Management processes and associated technology. Supply Chain Management has three levels of activities that different parts of the company will focus on: strategic; tactical; and operational.

Strategic

Strategic network optimization, including the number, location, and size of warehouses, distribution centers, and facilities Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics Product lifecycle management, so that new and existing products can be optimally integrated into the supply chain and capacity management Information Technology infrastructure, to support supply chain operations Where-to-make and what-to-make-or-buy decisions

At this level, company management will be looking to high level strategic decisions concerning the whole organization, such as the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets.

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Tactical

Sourcing contracts and other purchasing decisions. Production decisions, including contracting, scheduling, and planning process definition. Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. Milestone payments Focus on customer demand.

Tactical decisions focus on adopting measures that will produce cost benefits such as using industry best practices, developing a purchasing strategy with favored suppliers, working with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory

Operational
Daily production and distribution planning, including all nodes in the supply chain. Production scheduling for each manufacturing facility in the supply chain (minute by minute). Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory. Production operations, including the consumption of materials and flow of finished goods. Outbound operations, including all fulfillment activities and transportation to customers. Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.

Decisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse.

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Benefits of SCM Companies implementing Supply Chain Management may realize benefits of SCM as: Reduced inventory Reduced distribution costs Reduced time to market Reduced market risks through effective co-ordination and communication Improved quality of product/service Improved inventory management Increased ability to implement just-in-time delivery Increase in on-time deliveries Increased factory responsiveness Order cycle time reduced 8

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Increased revenue Increased visibility of processes Increased customer service Create competitive advantage

Supply Chain Management Technology


If a company expects to achieve benefits from their supply chain management process, they will require some level of investment in technology. The backbone for many large companies has been the vastly expensive Enterprise Resource Planning (ERP) suites, such as SAP and Oracle. Since the wide adoption of Internet technologies, all businesses can take advantage of Web-based software and Internet communications. Instant communication between vendors and customers allows for timely updates of information, which is key in management of the supply chain.

ISSUES TO SUPPLY CHAIN MANAGEMENT SUCCESS

Supply chain success just doesn't happen. It takes focus and effort across the entire company organization and with outside suppliers and service providers. Logistics touches every part of a company. So supply chain management must be multidimensional in its approach and scope. And this takes process, people and technology. This is true whether you are a wholesaler, retailer or manufacturer. And it is true if you are lean and need to be agile, flexible and collaborative. Supply chains can be long and complex, stretching between different countries. A firm may have many customers, each with different order and shipment requirements and destinations. PROCESS. Process means a practice, a series of actions, done for a specific purpose, such as satisfying customers. Supply chain process is a flow of activities with the goal of meeting the requirements of a customer. It includes all internal functions, logistics, distribution, sourcing, customer service, sales, manufacturing and accounting. It includes external companies. The series flows backward--from delivering each customer order each order as demanded back through the performance of suppliers to provide needed finished products, components, parts and assemblies. PEOPLE. People make organizations and are important to supply chain success. They need to have functional expertise and skills. They need to know how to manage and operate warehouses, inventory, transportation, purchasing. They need both a tactical view for everyday business and a strategic vision of where and how their function fits in the supply chain and how to make it better. 9

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TECHNOLOGY. Supply chain management is sometimes define, or incorrectly defined, in terms of technology. Process can be defined as technology, with an overemphasis on hardware and software, and not on the purpose of the process. CONCLUSION. Supply chain success involves process, people and technology. It gives definition to the company purpose. It enables all participants to know what is required. This in turn provides agility to handle exceptions and to adapt to changes. Having those three elements is important to having metrics, ones that are useful across the organization. All three working together in a company provides coordinated, unified effort to use supply chain management as a driving force in customer satisfaction and in having competitive advantage, with service and productivity.

Over view of SCM

PEPSI COLA MULTAN


Pepsi Multan was incorporated in 1963 but it started its production in 1967. Allah Nawaz Khan Tareen (Ret. DIG) got license of 7-UP. But in 1973, it became Pepsi Cola franchise. Now a day MD of Pepsi Cola Multan is Alamgeer Khan Tareen son of Allah Nawaz Khan Tareen. At start Pepsi Multan was having only one production plant made by Netherlands. and was only producing 7-Up 10

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because it was the only brand produced by Parent Company. In 1973, PEPSI acquired 7-Up in Canada so the Multan franchise started producing PEPSI and Marinda along with 7-Up & became PEPSI franchise.

PRODUCTS
PEPSI COLA Pepsi cola is their most successful brand with most of the market share .In Pepsi they are producing following brands

175 ml 250 ml 1000 ml 1500 ml

7-UP 7-Up is also popular in old age group of people. 7-Up is a lemon lime drink. In 7-Up they are producing following brands

175 ml 250 ml 1000 ml 1500 ml

MIRINDA Mirinda is the most popular drink in teenagers. In Mirinda they are producing following brands

250 ml 1000 ml 1500 ml

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MOUNTAIN DEW Pepsi cola has recently launched a new product in Pakistan known as Mountain Dew which is now a days most popular cold drink amongst adult group. In Mountain Dew they are producing only one brand 250 ml bottle.

PEPSI INGREDIENTS:-

Water At least 86% of soft drink is purified water. In the case of diet soft drinks 96%. water comprises around

Sweeteners

Such as sugar (sucrose from sugar cane) or non-nutritive sweeteners. Sugar is used in Pepsi, 7UP, Mountain Dew and Mirinda. The most popular and most widely non-nutritive sweetener used is Aspartame. Flavours Pepsi uses flavors to develop characteristic tastes associated with our beverages. These come from a variety of sources; natural, artificial and nature identical. They are usually derived from a number of ingredients used in special combinations. Carbon Dioxide Effervescence gives soft drinks their special bubbly appeal and is added During production by injecting C02 into the product on the way to the filler.

Colors Colors are added to Pepsi Cola products to enhance the esthetic appeal and appearance of products whether they are the typical brown of our colas or the yellows of Mountain Dew.

These may be both natural and artificial. 12

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Understanding the Supply Chain of Pepsi The objective of every supply chain should be to maximize the overall value generated. The value of a supply chain generates is the difference between what the final product is worth to the customer and the costs the supply chain incurs in filling the customers request. (Chopra, Meindl2006) Supply Chain Strategy or Design: During this phase a company decides how to structure the supply chain over the next several years. The company makes long term decisions in regards to location and capacities of production and warehousing facilities, the products to be manufactured or stored at various locations, the modes of transportation to be made, information systems and so on. The company has to provide and manage transport for the delivery of products as well as the arrangement of third party services for the procurement of products. The shipping department handles orders and the transport department decides the vehicles for safe delivery. Material planning and sourcing is carried out as well. Sources of supply of raw material both local and foreign are identified and terms and conditions are negotiated. Capacity planning is also done at this stage. Sales forecasting and production planning depends upon the capacity of the organization with respect to: 1. Production (180,000 converted 250 ML crates per day).
2.

Storage: Raw and packing (80,000 Sq Ft)3.Storage:

Supply Chain Planning As the above configurations have been set, planning must be done within the above stated constraints. The goal of planning is to maximize the supply chain surplus. Planning establishes parameters within which a supply chain will function over a period of time. Companies start the planning phase with a forecast for the coming year of demand. Pepsi carries out sales forecasting for local demand as well as for export purposes to countries such as Afghanistan. The annual sales target is conveyed to the supply chain
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department of Haideri Beverages. Planning is carried out on a monthly, weekly and daily basis at Haideri.. Supply Chain Operation: Company makes decision regarding individual customer orders. The goal of supply chain operations is to handle incoming customer orders in the best possible manner. During this phase,f irms allocate inventory or production to individual orders, set a date that an order is to be filled ,generate pick lists at a warehouse, allocate to shipping, set delivery and so on. There is less uncertainty about demand. At Haidri, the production, sales and supply chain departments get together to decide the inventory usually on a weekly basis. Process views of a supply chain: Cycle View of Supply Chain:
1 . Customer Order Cycle Customer arrival Customer order entry Customer order fulfilment Customer order receiving 2 . Replenishment Cycle Retail order trigger Retail order entry Retail order fulfilment Retail order receiving 3 Manufacturing Cycle 14

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Order arrival Production scheduling Manufacturing and Shipping Receiving 4 . Procurement Cycle Supplier / Manufacturer interface

Push/Pull View of Supply Chain: With push process execution is initiated in anticipation to a customer order. Pepsi has a seasonal demand. Just in time concept is applicable in non-seasonal period and not applicable in seasonal period. All processes that are part of the procurement cycle, manufacturing cycle, replenishment cycle, and customer order cycle are push processes

.
Pull Process: Push Process: Push-Pull Boundary: Push Systems Pull Systems Execution is initiated in response to a customer order (increased responsiveness) Execution is initiated in anticipation to a customer order (increased efficiency) Which processes are of each type MRP supported Require fast information transmission and sharing

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Cycles
Customer Order

Pull

Replenishmen t

Customer arrival Customer order entry Customer order fulfilment C Customer order receiving Retail order trigger Retail order entry Retail order fulfillment R Retail order receiving Order arrival from distributors Production scheduling Manufacturing and Shipping Receiving (distributors, retailers, c customers

Manufacturi ng

Push

Procurement

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Pepsi Sales order and processing: The Shipping Manager receives sales order from Sales Team, distributors through telephone, fax & email one day before dispatch. The sales are made to base distributors on advance payment against orders then shipping manager plans according to the demand of distributors on daily basis Marketing and Sales Strategies: PepsiCo has developed the national marketing, promotion and advertising programs that support its many brands and brand image; oversees the quality of the products; develops new products and packaging, and coordinates selling efforts Supply Chain Strategy Step 1 : The Customer and Supply Chain Uncertainty a) Identifying customer needs: Haidri needs to understand the customer needs for each targeted segment and the uncertainty the supply chain faces in satisfying these needs. As Haidri deals with beverages, which are a fast moving consumer good, it knows the requirements of consumers. Pepsi is considered as a drink which is refreshing during summer, and taken regularly during winter, with demand hikin garound festivals such as Eid and occasions such as weddings. Haidri caters to both cities and rural areas. It understands the needs of both. As demand for beverages is seasonal, the quantity of product needed for each lot is taken care of with past demand in mind.
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Consumers generally require a small response time, high service level, reasonable price and some variety (for example Health conscious people favor diet versions of sodas).

b) Demand uncertainty and implied demand uncertainty: Demand for Pepsi varies by product. For example there is a greater demand for Pepsi ascompared to Mirinda Apple, which is new. Hence, Pepsi has a low demand uncertainty as compared to Mirinda Apple. The product Pepsi is approaching its maturity stage in the PLC whereas Mirinda Apple is in the introductory stage. Pepsis implied demand uncertainty varies with the product type as well as the customer needs. Due to decreased lead time (the customer may purchase its competitors product if Pepsi is not available at that time), need for greater variety and higher level of service, implied demand uncertainty increases. This is true for cities where unmet demand by Pepsi is met by Coca Cola, and other such competitors. S u p p l y u n c e r t a i n t y i s a l s o a f f e c t e d b y n e w p r o d u c t s . N e w p r o d u c t s h a v e h i g h e r s u p p l y uncertainty. c) Uncertainty for the capability of the supply chain: After determining the demand uncertainty it is important to take a look at the uncertainty resulting form the supply chain. Pepsi is not a new product and its market is going towards maturation. The company does not have many difficulties in delivering a product and has a fixed delivery schedule (on daily basis). Pepsi hence has a predictable supply and some.what uncertain demand depending on market conditions. The efficiency and responsiveness varies according to the consumer needs, implied demand uncertainty, product type and market segments. In remote areas the company focuses on being somewhat efficient as other modes of transportation could turn the product to be highly expensive
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Pepsi is more inclined towards being somewhat efficient. In cities, the company focuses its attention on being highly responsive as Pepsi has to meet short lead time, meet a high service level, handle a large variety of products and respond to wide ranges of quantity demanded especially at the retail stage Framework for Structuring Drivers:
Figure

The framework is based on a motive to create strategic fit between the competitive and supply chain strategy. Pepsi Competitive strategy stands to provide a large variety of products very quickly; simultaneously the supply chain strategy stands to materialize the availability of that variety of products. Pepsi mainly follows a responsive supply chain strategy. Alignment of Pepsis business strategy to a corresponding supply chain strategy is achieved through proper deployment of supply chain drivers. Pepsi has to deal with different set of market segments simultaneously. Most of the time the approach needs to b e r e s p o n s i v e e n o u g h t o g r o w substantially to be able to compete with uncertain demand, while in many areas demand is certain and very much predictable, so there it incorporates an efficient supply chain strategy.
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The Inventory Driver: Haidri has established a comprehensive plan to ensure the sufficient inventory levels to keep up with the market demand effectively. For this purpose the main inventory storage has been established within the main plant area Kahuta road, Rawalpindi. It has the storage capacity of 1 2 0 , 0 0 0 S q F t a n d t h e area is being utilized both horizontally and vertically. The shipping department is in charge for storage and subsequent displacement of the product orders. The inventory capacity is being utilized and maintained in coordination with the production department and is based on the term production estimates. Apart from the main storage house, Haidri has established more than 10 storage facilities nearer to the market in Rawalpindi and Islamabad. Increasing inventory makes the supply more responsive to the customers. At Haidri Beverages, managers bear a high inventory cost to ensure maximum levels of inventory and to reduce the production and transportation costs. The Transportation Driver: Transportation driver has a large impact on the responsiveness of the business. Faster transportation of the products allows Haidri to maintain sufficient levels of stock on the shelves. Haidris transportation network is the collection of routes, modes and locations along which the product can be shipped. With the help of several distributors the product is being supplied to the market. There are multiple supply and demand points within the twin cities which cater to the market demand. Haidri decides and selects different modes of transportation having different Characteristics with respect to the speed and size of shipment. The transportation network has been designed with a view to ensure responsiveness and boost the availability of the product. For Haidri using fast mode of transport increases responsiveness as well as the transportation cost but lowers the inventory holding cost.
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The Information Driver Connects all the supply chain stages effectively allowing them to coordinate and maximize total supply chain profitability. It is also crucial to the daily operations of each stage in the supply chain. The unit manager utilizes the production scheduling system that is based on information on demand to create a schedule that allows Haidri Beverages to produce the right amount of product. The warehouse in charge uses this information to create visibility of the warehouses inventory items. Information sharing helps this firm improve its responsiveness within the market. It helps to accurately forecast demand and realize frequency of updates, measurements of the effects of seasonal factors influencing the production, measurements of variances from the plan and the ratio of demand variability to order variability. Timely and accurate information enables the distribution managers to fix potential stock out or oversupply problems. The Facility Driver In order to ensure the responsive strategy implementation, the role of facilities is of prime importance in the supply chain of Haidri Beverages. Pepsi has established a flexible and a product-focused production facility in order to respond effectively to the variability in demand. The storage facilities are designed in order to provide maximum possible capacity for the inventory. The large amount of excess capacity allows the facility to be very flexible and to respond to wide surges in demands placed on it. In alignment with the responsive supply chain strategy the facilities have been geographically located close to the market. Distribution Channels Direct distribution:
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Delivery of post mix cylinders & handling of key accounts: The key accounts are different wholesalers, restaurants and hotels like Pizza Hut, KFC, and which serve as a place for key sale. These are known as national key accounts and are very important in terms of competition. Indirect distribution: Through Base market distributors Through Outstation distributors Before delivering the product some certain guiding principles are followed for the assessment of distributors capability by Haidri: Applicant must have 20 to 25 vehicles (depending on the area Applicant must have 20,000 cases of empty bottles. Applicant must deposit Rs.1, 000,000 as a security. Haidri uses light and heavy vehicles for safe delivery of goods to the distributors for timely delivery. It follows the just in time concept which is applicable in Non-seasonal period and not applicable in the seasonal period. Design Options for Distribution Network: Distributor Storage with Carrier Delivery: In Pepsi inventory is not held by the manufacturers at the factories but is held by distributors/retailers in intermediate warehouses and package carriers are used to transport the products from the intermediate location to the final customer. This requires distributor storage to keep high levels of inventory because distributor/retailer aggregates demand uncertainty to a lower level
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than the manufacturer. Transportation costs for Pepsi are somewhat lower because an economic m o d e o f t r a n s p o r t a t i o n ( e . g . truckload) can be employed for inbound shipments to the warehouse, which is closer to the customer. Facility cost is high because of a loss of aggregation and often end up with higher processing costs. The information structure needed is not that complex. The distribution warehouse serves as a buffer between manufacturer and customer. Real time visibility between customers and warehouse is needed whereas as visibility between c u s t o m e r a n d m a n u f a c t u r e r i s n o t r e q u i r e d . R e s p o n s e t i m e i s a l s o r e d u c e d . C u s t o m e r convenience is high and order visibility with manufacturer storage becomes easier. Distributor storage is well suited for medium to fast moving goods and it can also handle higher level of variety than retail stores. Value of Distribution System: There are basically two components of distribution: Storage The storage facilities of Haidiri Beverages are designed in order to boost the timely availability of the product. For this purpose the distributors are fully equipped with facilities that are needed to ensure intensive supply of the product. The storage facilities are designed to contain the maximum possible inventory items that are needed at any given time. Haidiri Beverages has established several storage units nearer to the market in order to boost availability. Transportation conducts inventory movement from point to point in supply chain of Haideri Beverages. It incorporates a combination of modes and routes at different stages. Transportation choices have a large impact on the responsiveness strategy of the business.Haidiri has several contracts with several distributors with multiple transport facility that ensure the maximum possible transport of inventory within a short period of time. The distribution does n o t wo r k b e t w e e n s p e c i f i c supply chain components but it performs a basic function o f integration amongst all supply chain components.
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