Summer 2011- May drive

Master of Business Administration - MBA Semester III OM0012 Supply Chain Management - 4 Credits (Book ID: B1234) Assignment - Set- 1 (60 Marks)

Name: Roll No:

Manish Rajan Rajput 571012050

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Q1.

How has the concept of Supply Chain Management evolved over the years? Depict in chronological order.

Evolution of Supply Chain Management

The concept of Supply Chain is as old as that of trade and can be traced back to 5000 years BC in India. All across the world, there are several indications of the concept of Supply Chain having existed for thousands of years. However, the chronicled record of the practice of certain basic concepts of Supply Chain Management can be traced back to the industrial revolution in eighteenth century. On the other hand, the above period is characterized by individual companys attempts to maximize the efficiency of their own businesses, at which many companies excelled. Therefore, the relationships between different organizations that were interfacing with each other as supplier-customer were very hostile, and genuine to what every organization sought for turned out to be a WIN-LOSE situation, i.e. a customer would benefit at the cost of his supplier, or the supplier would gain at the cost of the customer. The Toyota Production System, which is hailed as the second industrial revolution, started changing the situation, as the new attempts and practices in manufacturing were based on co-operation and collaboration between companies. With the advent of Manufacturing Resource Planning (MRP) and Enterprise Resource Planning (ERP) systems organizations began evolving as an integrated and cohesive unit and the concept of Internal Supply Chain gained ground. Consequently, thereafter the interface in the markets was those of tightly integrated units dealing with other tightly integrated companies. The concept of Supply Chain Management was born and this evolved further. Thus, while the concept of Supply Chain is very old, the concept of Supply Chain Management is quite recent.

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Q2.

Customer service is vital for Logistics operations. Discuss.

Answer:
Customer Service in Logistics operations Customers are now at ease while dealing with Logistics companies. Real-time availability of information is helping courier companies attract new customers. Technology adoption has helped to meet service levels with customers and it is one of the key strategies to acquire and retain customers. The impact of Logistics in the ability of a company to satisfy its customers cannot be overstated. All other efforts at modernization, within a company would not bear fruit until the Logistics system is carefully designed to facilitate the smooth and efficient flow of goods in the system. India has to improve its roads and transport network as per the international standards in order to solve the Logistics problems.

The goal of any Logistics system is to maintain or improve customer service. In the Push mode of operation, the penalties of higher safety stock, larger warehouse, and inter-warehouse transfer are not the only penalties. Stock rotation becomes more difficult to maintain. Handling of all the products at each warehouse involves unloading, staging, storing, picking, staging and loading for shipment. All these activities involve an element of cost. In addition, there is a potential for product damage each time a product is handled.

As the majority of the product is stored at the warehouses, the plant needs to maintain a low inventory of finished goods. This allows the plant to utilize its space for production and eliminate the need for a full warehouse staff. Finally, by having the products deployed in the warehouses, the plants have the capability of shipping full truckloads and thereby reducing the system-wide transportation costs.

Flexibility and ease of response seem to have driven Logistics vendors to develop their solutions themselves rather than outsourcing them. They feel that their business requirements are complex and sophisticated and that they need an in-house team to build custom solutions. For example, Blue Dart has a quick response team which studies the business requirements of its customers and develops appropriate solutions. It also has technical people spread across the country who work alongside customers to solve any problems.

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Q3.

The utility of forecasts can be enhanced through collaborative forecasting among supply chain partners. Explain?

Answer:

The utility of forecasts can be enhanced through collaborative forecasting among supply chain partners by: 1 Production: Scheduling, inventory control, aggregate planning, purchasing 2 Marketing: Sales-force allocation, promotions, new product introduction 3 Finance: Plant/equipment investment, budgetary planning 4 Personnel: Workforce planning, hiring, layoffs It is essential that these decisions not to be segregated by functional area or even by enterprise, as they influence each other and are best made jointly. For example, Coca-Cola considers the demand forecast over the coming quarter and decides on the various promotions.

The promotion information is then used to update the demand forecast. The updated forecast is essential for the bottlers, who are often independent of Coca-Cola, to plan their production as it may require additional investment and hiring decisions. A bottler operating without the updated forecast based on the promotions unlikely to have sufficient supply available for Coca-Cola.

This example illustrates the importance of collaboration (both within the functions of a company as well as among companies in a supply chain). Mature products with stable demand are usually easiest to forecast. Staple products at a supermarket, such as milk or paper towels fit this description. Forecasting and the accompanying managerial decisions are extremely difficult when either the supply of raw materials or the demand for the finished product is highly variable.

Some examples of items that are difficult to forecast include fashion goods and many high-tech products. Good forecasting is very important in these cases because the time window for sales is narrow and if a firm has produced more or less, it has a little chance to recover. For a product with a long life cycle, in contrast the impact of a forecasting error is less significant.

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Q4.

Lack of co-ordination in a Supply Chain leads to deterioration of service and an increase in cost within the Supply Chain. Explain

Lack of co-ordination in a Supply Chain leads to deterioration of service and an increase in cost within the Supply Chain. Supply Chain co-ordination improves if all stages of the Supply Chain put effort together to increase total Supply Chain profits. For this, it is necessary that each stage of the Supply Chain take into account the impact of its action on other stages of the Supply Chain. A lack of co-ordination
results either because of different stages of Supply Chain with conflicting objectives or because information flows between different stages is distorted. When a different owner owns each stage of the Supply Chain then each stage tries to maximize its own profits resulting in actions that often diminish total Supply Chain profits. Supply Chain often consists of stages with a large number of different owners. For example, a large automobile manufacturing firm may have thousands of suppliers and each of these suppliers may have several other suppliers in turn. In addition, nowadays Supply Chains produce a wide range of product. All these aspects cause distortion in information as it flows within the Supply Chain. Distortion occurs because members of the Supply Chain do not share complete information at various stages. Therefore, the major challenge for Supply Chains is to achieve co-ordination in spite of multiple ownership and increased product variety. Many firms have experienced an effect which is called Bullwhip effect or Whiplash effect in which fluctuations in orders increase as they move up the Supply Chain from retailers to wholesalers and to manufacturers to their suppliers. The Bullwhip effect distorts the demand information within the Supply Chain by means of different stages which have a very different estimation of what demand looks like. The Bullwhip effect results in a loss of Supply Chain co-ordination. It is difficult to achieve co-ordination within a Supply Chain if each stage of the Supply Chain optimizes its local objective without considering the impact on the entire Supply Chain. Proper co-ordination would increase the total Supply Chain profits. Information distortion is another reason for lack of co-ordination. For example, availability in the estimation of demand at various stages in the Supply Chain due to Bullwhip effect has an impact on various measures of performance in a Supply Chain. These measures of performance are: 1 Manufacture cost 2 Inventory cost 3 Replenishment lead time 4 Transport cost 5 Labor cost for shipping and receiving 6 Level of product availability and 7 Relationships across the Supply Chain 8 5

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The Bullwhip effect moves a Supply Chain away from efficiency by increasing cost and decreasing responsiveness. It reduces the profitability of Supply Chain by making it more expensive to provide a given level of product availability.

Q5.

Elaborate the concept of Supply Chain Management and its integration with the 'quality consciousness movement'.

the key to survival for any enterprise is the high quality of its product(s) and service(s). Enterprise has to focus on continuous achievement of higher standards of customer satisfaction. This can be achieved by; understanding and predicting customer needs to provide it at the least possible cost, in the least possible time, and ahead of competition. This creates the need for a pragmatic approach to streamline the system and the need to differentiate an organization committed to the above characteristics. In order to stay ahead of competition and be better prepared for change, organizations need to incorporate Collaborative Planning, Forecasting, and Replenishment (CPFR) both internally and externally. Based on information shared among trading partners, collaborations occur on sales forecast, order forecasts, seasonality of products, pricing models, proposed promotional strategies, safety stock rules, minimum order quantities, store realignments, and order strategy. Successful CPFR implementation leads to business growth for all trading partners. CPFR is an Internet based data-sharing business process that avoids data-entry errors, results in reduced inventory carrying costs, reduced operating expenses, and thereby ensures product availability across the Supply Chain.

Meaning of Collaborative Planning, Forecasting and Replenishment Collaborative Planning, Forecasting, and Replenishment (CPFR) is a menu-driven business process by which, we integrate the company goals throughout the supply and demand process. This is done by collaboratively forecasting and continuously replenishing inventory with the customers by offering process, collaboration, and technology solutions. According to Katz and Hannah, "CPFR tools work as metal detectors to identify business issues that need immediate attention". Traditionally, suppliers and retailers did their individual forecasts and eventually ended up blaming one another for any shortcomings from their respective forecasts. CPFR demands that the supplier and retailer collaborate by sharing information such as the Point of Sale data, inventory stocks, out of stock data, proposed promotion and pricing strategies, and planned production schedule. It also demands to subsequently evolve a shared and agreed upon forecast. This calls for a very strong commitment and a high level of trust from both the supplier and the retailer. CPFR aims to improve Supply Chain integration by supporting and assisting joint practices. CPFR seeks co-operative management of inventory through joint visibility and replenishment of products throughout the Supply Chain. Information shared between suppliers and retailers assists in planning and satisfying customer demands through a supportive system of shared information. This allows for continuous updating of inventory and upcoming requirements, making the end-to-end Supply Chain process more efficient. Efficiency is created through the reduction of expenditures for merchandising, inventory, logistics, and transportation across all trading partners. The emergence of business as a global activity unfettered by the constraints of geographical and political boundaries has necessitated a re-adjustment of attitudes with reference to the manner of doing business

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Q6.

Give a brief introduction on all steps involved in Procurement process?

Answer:
1. Purchase Requisition (PR)/Purchase Indent (PI): This is the initiating document for all purchase activities in an organisation. No purchase should take place without the purchase requisition. The purchase requisition comes from the indenting department to the procurement department. The indenting department is the one having the need for the requisitioned product. For example, Machine x which has to work continuously on all the three shifts is having a problem. The operator complains of an unhealthy sound while the machine is running. The maintenance department after checking the machine locates the fault to a worn out bearing. This needs replacement. A request for replacement bearing is made to the stores. The store supplies the bearing and finds that the stock of that bearing has reached the minimum order level. The time has come to refill the stock. This is the starting point for generation of PR. Felt need is the root cause of all purchases. The stores department makes the PR (in multiple copies) and forwards it to purchase department and other concerned departments as per the practise of the company. Once the procurement department receives the PR, the purchase activity is set in motion. The PR requests for a number of details that needs to be filled in by the indenter. They will be in a printed form with necessary blanks to be filled in. Generally the details required are: 1 Indenting/Requisitioning department 2 Product required with description & specifications 3 Quantity and when is required 4 Indenters name, department & signature 5 Approval by the appropriate authority 6 Date of requisition 7 Other details as per organisation practises Depending on the organisational practises and the item, the department in need of the product/service can raise the PR. 2. Floating the purchase enquiry/tender: This is the next step in the process. It must be clarified here that the accuracy and correctness of the PR/PI is the responsibility of the indenting department. However, the procurer/procurement department has to check the PR as it is expected to get all necessary clarifications before proceeding further with the process. Once the PR/PI is found acceptable, the procurement department sends its enquiries to potential suppliers. The procurement department has the responsibility to source the product/service. Therefore, the onus is on them to locate the suppliers/vendors. The procurement department equipped with the information of the sources of supply then floats its enquiry to a list of vendors who are rated. Generally, the enquiry floated is of two kinds. They are: 1 Limited Enquiry or Limited Tender 2 Open Enquiry or Open Tender.

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Limited Enquiry/Limited Tender: As the name suggests, the enquiry is sent to a limited/restricted number of suppliers/vendors. This is a practise in cases where the product is technical in nature and/or the vendor has proved his capabilities to the procurer by getting his manufacturing/technical/ supplying ability assessed by the competent team of the procurer. Some of the products would be spares for aircrafts, engine parts for automobiles, branded computers, castings, forgings and so on. Besides, it could be because of the urgency of need, like in the case of bearing procurement in our example earlier. This process can also be used when there is an annual maintenance contract.

Some of the government departments in Bangladesh and Pakistan have floated limited tenders to suppliers of computer hardware, software, peripherals. This is because there are mainly distributors of Dell, HP and IBM. All of them are internationally acclaimed brands and the distributors have good service support and capability to source necessary software and peripherals. The main advantage of limited enquiry is that it will reduce the paper work associated with the procurement process and shorten the cycle time of procurement. Open Enquiry/Open Tender: This is the common process of floating the enquiry. Here the enquiry is floated to all possible vendors of the product as per the list available with the purchase department. It could also be an advertisement in the national dailies. Government department and large corporate use this process to source products. This is used for all kinds of products. For example, a 5 star hotel enlisting vendors for supply of fresh vegetables and fruits, dairy and poultry and meat products. The procurement department issues an advertisement in the national and local newspapers. The consequence is a wide coverage of the need/requirement. The responses could be from all parts of the state/country. The choice of vendors becomes wider. Due to expected high response, the vendors could quote a very competitive price and offer better terms. Besides, there will be new supply sources being added to the database list. All enquiries/tenders will have the following details. This list covers some of the major points of an enquiry/tender and is not exhaustive. They are: 1 Tender Number 2 Tender opening date & time 3 Item(s) to be quoted for 4 Specifications, if any 5 Closing date and time for receipt of tender 6 Cost of tender form 7 Tender deposit/Ernest money, if any 8 Details of after sales service support, if required 9 Mode of payment to the winning bidder 10 Rights of the agent 11 Responsibility of supplier if tender is won 12 Conditions of tender 13 Guidelines to agent 14 Contractual needs if any 15 Format of agreement to be entered into by the supplier. These and other points, if any, can be covered in the enquiry itself or as additional attached information with the tender form. The general practise is to have the enquiry proposed. The tender documents that are a paid product will contain all details including instruction to agent. The quotations are expected to be in a sealed envelope. The envelope is superscripted by the agent with all the details of tender for identification purposes. 8

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3. Receiving quotations: The normal procedure is to receive the sealed tenders in a box kept exclusively for this purpose. The box will carry a legend on it giving title of tender, closing date, and tender opening date. The box is kept under lock and key until the last date for receipt of tender. At the end of the scheduled time, the box will be taken to the specified place of opening the tender.

4. Opening the quotation/tender, tabulating and analysing: The quotations are to be opened on the tender opening day at the appointed place in the presence of the agents/representative. The tenders are superficially scrutinised for required enclosures including earnest deposit. The first
round of elimination of agents takes place at this stage. Any agent not providing all the required data can be eliminated at this stage.

The rate quoted by each agent is announced from the offers made. The records are made of the quotations when being read out at the time of opening the tender/quotation. This is the first stage of the tender/quotation process. 5. Short listing promising vendors/suppliers: We have the list made above. This contains the details of all the vendors who quoted against the tender. The list is tabulated and is rearranged in the descending order of price. 6. Technical Evaluation: The technical committee evaluates the quotations on the technical capabilities and lists them. Both the technical evaluation list and the price evaluation list are now combined to make a final shortlist of all the agents. Based on this, generally the lowest priced agent is chosen. Generally, this shortlist will have the lowest three tenders. 7. Commercial negotiations: There are times when procurer calls the short listed potential suppliers for negotiations. The negotiations could cover topics of price, extended warranty, and offer of additional quantities of spares and consumables. When the negotiations are completed, one of the short listed agents emerges the winner. This supplier/vendor gets the order for supply of goods/services. The negotiation generally takes place between the procurement committee and the management team of the vendor. The agreement arrived at, is recorded and is signed for reference for both the parties. 8. Purchase Order (PO) release: The negotiations with each of the short listed agents would finally lead to one of them who will best match the requirements of the purchase committee both technically and commercially. This person will be the chosen supplier. The purchase committee will place all the deliberations on record and will be signed by both the vendor and the procurer. This is the final stage of the purchase process.