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Supply Chain Management

Prof. Samir K Srivastava


WebPage: http://www.iiml.ac.in/?page_id=2682&link=8/
E-Mail: samir@iiml.ac.in

Indian Institute of Management


Lucknow

Session Details

1/6/2016

Supply Chain Management

Evaluation
Group Assignment and Quizzes : 20 Marks
Quizzes: 10 Marks
Group Assignment: 10 Marks
Mid Term Examination: 30 Marks

PENALTIES

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Supply Chain Management

What is a Supply Chain?

All stages involved, directly or indirectly, in


fulfilling a customer request
Encompasses all the facilities, functions and
activities in producing and delivery of a
product/service from suppliers to customers.
Includes manufacturers, suppliers, transporters,
warehouses, distributors, retailers, customers
Customer is an integral part of the supply chain
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A Simplified Typical Supply Chain

Figure 10.1
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The Supply Chain is Multi-Enterprise

Focus
Company
Suppliers

Customers
Customers/
End users

Suppliers
suppliers

Source

Convert

Distribute

Product and information flow

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What is a Supply Chain (Contd.)

Movement of products and services; also


movement of information and funds
Probably more accurate to use the term supply
network or supply web
Within each company, the supply chain includes
all functions involved in fulfilling a customer
request (product development, marketing,
operations, distribution, finance, customer
service)
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The Immediate Supply Chain for an Individual Firm

Transportation
Warehousing

Transportation

Customers

Information
flows

Factory

Transportation

Vendors/plants/ports
Warehousing
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Transportation
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LNG Supply Chain

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Agri-Product Supply Chain


Contract Farmer

Aggregator

Contact Farmer
PH

DC

Food Processors
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Organized Retail

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Exports

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Army Supply Chain


Combat Vehicles

Tactical Vehicles

Construction Equipment

Trailers

Materiel Handling Equipment Tactical Bridges


Fuel & Water Dist Equipment Sets, Kits & Outfits
Chemical Defense Equipment Shop Equipment
Howitzers

Large Caliber Guns

Mortars

Rifles

Machine Guns

Ammunition

Aircraft Armaments

Watercraft

Demolitions & Explosives

Non-Tactical Vehicles

Fuel & Lubricant Products

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Supply Chain of a Typical OEM

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Mc Donald India Supply Chain

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Financial Supply Chain Management

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Supply Chain in Banking


Context

Banking Industry

Demand Forecasting

Statistical Forecasting to develop time


phased cash depletions out of branches and
ATMs
Multi echelon inventory planning leveraging Inventory reduction: 5-15%,
target customer service levels to determine Customer Service levels in
cash required at vaults , branches and ATMs echelon planning and safety
stock
Using EOQ models to minimize
Physical distribution of Cash,
transportation (transaction costs) and
Managing Cash balances at
carrying costs (oppty cost of money)
customer / business accounts

Inventory Planning

Inventory
replensihment
Supply Planning

Transport(Network
Planning)
Location strategy

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Distribution plans based on forecast and


target cash levels at vault and branch and
ATMs
Shortest paths and Dynamic Network
modelling plans
For profitable Branches and even Head
offices (Application of CG and more
advanced Location models)
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Target Savings (efficiency)

Transportation costs 1-5%

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Supply Chain Network in Telecom Industry

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Scope of the Supply Chain for Most Firms


Supply Chain

Physical supply
(Materials management)
Sources of
supply

Physical distribution

Plants/
operations
Transportation
Inventory management
Order processing
Material acquisition
Packaging
Warehousing
Materials handling
Information sharing

Customers
Transportation
Inventory management
Order processing
Product scheduling
Packaging
Warehousing
Materials handling
Information sharing

Focus firms internal supply chain


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Flows in a Supply Chain

Orders
Products/ Services

Customer

Supplier
Funds
Information

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The Importance of Supply Chain Flows


Close connection between design and management
of supply chain flows (product, information, and
cash) and supply chain success
Supply chain decisions can play a significant role in
the success or failure of a firm
Dell: Success
Quaker Oats (Snapple): Failure
IRCTC
Flipkart/ Jabong
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Supply Chain Management Defined


SCM is the integration of all activities associated with the
flow and transformation of goods from raw materials
through to end user, as well as information flows, through
improved supply chain relationships, to achieve a
sustainable competitive advantage.
Handfield and Nichols

The manufacturers and its suppliers, vendors and


customers i.e., all the links in extended enterprise,
working together to provide a common product and/or
service to the marketplace that the customer desires and
is willing to pay for throughout the life cycle of the
product and/or serviceOptimum management of shared
resources for operations synergy.
Fred A. Kuglin
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Supply Chain Management (Contd.)


SCM is an evolving management philosophy (1) that seeks
to unify productive competencies and resources of the
company and channel partners into an integrated supply
system. (2) focused on developing innovative solutions
and synchronizing the flow of market place products,
services and information. (3) to create unique
individualized sources of customer value.
A set of approaches utilized to efficiently integrate
suppliers, producers, stocking centers at all levels, and
retail stores so that goods are produced / acquired
and distributed in right quantities, to right locations
and at right time in order to minimize system-wide
costs while satisfying service level requirements.
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Supply Chain Management (Contd.)


SCM is an integrating function with primary responsibility
of linking major business functions and business
processes within and across companies into a cohesive
and high-performance business model.

Council of SCM Professionals, 2007

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Process View of Supply Chains


SUPPLIERS AT ALL LEVELS
PROCUREMENT / PURCHASING / BUYING
RAW MATERIAL

MANUFACTURING / ASSEMBLY
WARE HOUSING
LOGISTICS

CUSTOMER ORDER FULLFILMENT


DISTRIBUTION

DIRT

CUSTOMER / CONSUMER USE

DIRT

POST CONSUMER CYCLE


INTEGRATED , ECONOMIC AND OPERATING SYSTEM
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Cycle View of Supply Chains


Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor
Manufacturing Cycle

Manufacturer
Procurement Cycle

Supplier
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Push/Pull View of Supply Chains

Customer Order
Cycle

Procurement,
Manufacturing and
Replenishment cycles

PUSH PROCESSES

PULL PROCESSES

Customer
Order Arrives
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Evolution of Supply Chain Management


Term first coined by
Oliver and Webber in 1982

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Integrated Supply Chain


Phase 1:
Independent
supplychain
entities
Phase 2:
Internal
integration

Suppliers

Suppliers

Purchasing

Purchasing

Production

Production

Distribution

Distribution

Customers

Customers

Internal supply chain

Phase 3:
Supplychain
integration

Suppliers

Internal
supply
chain

Customers

Integrated supply chain

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BASIC QUESTION - Why SCM?


Higher inventory in the chain adds costs due to
wastage; blocks funds.
Risk of holding obsolete products and simultaneous
possibilities of stockouts
Need of faster response to market
Need to design a responsive distribution network
Need to integrate suppliers, manufacturers,
warehouses to produce and deliver right products at
the right time in desired quantity, minimizing system
wide costs and maximizing system wide profits
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Impact of Better Supply Chain Management


Supply Chain
Impacts

Typical
Benefits

Improved productivity
Revenue

Reduced downtime
Improved customer service

Profitability

Lower distribution costs


Costs

Better purchasing leverage


Collaboration with 3rd parties

Shareholder
Value

revenue

10-30%
costs

Better contract management


Working
Capital

Lower inventories
Maximum asset utilisation
Reduced lead times

Invested
Capital

10-20%
Inventory
Reduction

Shorter build to order times


Fixed
Capital

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2 - 10 %

Fewer physical assets


(i.e.,plants, warehouses,
material handling equipment,
trucks, tanks, ships etc.)

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10-30%
assets

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The Objective of a Supply Chain


Create time/ place utility of product and/ or service
effectively and efficiently to maximize value created
Supply chain value: difference between what the final
product is worth to the customer and the effort the
supply chain expends in filling the customers request
Value is correlated to supply chain profitability
(difference between revenue generated from the
customer and the overall cost across the supply chain)
Sources of supply chain revenue: the customer
Sources of supply chain cost: flows of information,
products, or funds between stages of the supply chain
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The Objective of a Supply Chain (contd..)

To co-evolve capabilities of each constituent to


generate new sources of product and service
value, new processes and technologies, and
new form of vertical integration and scale of
economies for survival and growth.
Supply chain success should be measured by
total supply chain profitability, not profits at an
individual stage.

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An Extended Supply Chain

Research &
Development

Raw
Material
Supplier

Market
Research

Bulk
Customer
Manufacturer

Distributor

Retailer

Retailer
Customer

Financial Services/ Logistics Services Providers

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Examples of Supply Chains Worldwide

Dell / Compaq
Toyota / GM / Ford
McMaster Carr / W.W. Grainger
Amazon / Borders / Barnes and Noble
Webvan / Peapod / Jewel
ULL/ Proctor & Gamble/ Gillette
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A Few Examples of Supply Chains in India


Type of Industry

Select Examples

Apparel

Madura Coats, Reliance, Arvind Mills

Automobile

Maruti, Hero-Honda, Telco, Mahindra &


Mahindra, Ashok Leyland

Chemicals/Paints

Reliance, Asian Paints, Goodlass Nerolac

Consumer Durables

Samsung, LG, Godrej

Fast Moving Consumer Goods

Hindustan Lever, Proctor & Gamble,


Coca-Cola, Pepsi, Marico Industries

Food

Godrej, Cadbury, Parle, Amul, Dabur

Computers

Wipro, HCL

Newspaper

Bennett Coleman & Co (Times of India)


HT Media Ltd (Hindustan Times)

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Approaches to SCM
Academic Approach
Industry Approach

Modelling for
Distribution,
Inventory
Service

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Integration
Implementation
Bottom Line Improvement

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Supply Chain Decisions


Activity Short Term Decision

Long Term Decision

Source Type, quality, quantity,


when
How to sequence?
Make
How to run?
How to load?
Move

Who to supply?
What relationship?
Where to locate?
What to produce?
What network?

Store

Where to store?
How to store?

Deliver What to sell?


How to sequence?
How to service?
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Where to locate?
What capacity?
What is demand?
What to produce?
What to do?
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Strategic, Tactical and Operational Decisions


Decision area Strategic

Tactical

Transportation Mode selection

Seasonal equipment
leasing

Operational
Dispatching

Inventories

Location, Control policies Safety stock levels Order filling

Order
processing

Order entry, transmittal,


and processing system
design

Processing
orders, Filling
back orders

Purchasing

Development of supplier- Contracting,


buyer relations
Forward buying

Expediting

Warehousing Handling equipment


selection, Layout design
Facility
location
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Space utilization

Order picking
and restocking

Number, size and


location of warehouses
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Supply Chain Drivers


Efficiency

Sourcing

Facilities

Responsiveness
Supply chain structure

Transportation

Inventory

Pricing

Information

Drivers

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Facilities

Role in the supply chain


the where of the supply chain
manufacturing or storage (warehouses)

Role in the competitive strategy


economies of scale (efficiency priority)
larger number of smaller facilities (responsiveness
priority)

Example : Toyota and Honda


Components of facilities decisions
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Components of Facilities Decisions


Location
centralization (efficiency) vs. decentralization
(responsiveness)
other factors to consider (e.g., proximity to
customers)
Capacity (flexibility versus efficiency)
Manufacturing methodology (product focused versus
process focused)
Warehousing methodology (SKU storage, job lot
storage, cross-docking)
Overall trade-off: Responsiveness versus efficiency
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Inventory

Role in the supply chain

Role in the competitive strategy

Components of inventory decisions

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Inventory: Role in the Supply Chain

It exists because of a mismatch between supply


and demand
Source of cost and influences responsiveness
Impacts
Material flow time: Order fulfillment time
Throughput
I = RT (Littles Law)
I = inventory; R = throughput; T = flow time
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Inventory: Role in Competitive Strategy

If responsiveness is a strategic competitive


priority, a firm can locate larger amounts of
inventory closer to customers
If cost is more important, inventory can be
reduced to make the firm more efficient
Example Nordstrom

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Components of Inventory Decisions


Cycle inventory
Average amount of inventory used to satisfy demand between
shipments
Depends on lot size

Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing
sales

Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible
production
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Transportation

Role in the supply chain

Role in the competitive strategy

Components of transportation decisions

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Transportation: Role in the Supply Chain

Moves the product between stages in the supply


chain
Impact on responsiveness and efficiency
Faster transportation allows greater
responsiveness but lower efficiency
Affects inventory and facilities
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Transportation: Role in the Competitive Strategy

If responsiveness is a strategic competitive


priority, then faster transportation modes can
provide greater responsiveness to customers who
are willing to pay for it
Use slower transportation modes for customers
whose priority is price (cost)
Consider inventory and transportation trade-off
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Components of Transportation Decisions

Mode of transportation:
air, truck, rail, ship, pipeline, electronic
transportation
vary in cost, speed, size of shipment, flexibility

Route and network selection


route: path along which a product is shipped
network: collection of locations and routes

In-house or outsource
Overall trade-off: Responsiveness versus
efficiency
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Yeh mera India !

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Indian Scenario
SCM and logistics spend in India: approximately 13.5% of the GDP
Around 18% of GDP in China and about 9% of GDP in the US.
Transportation cost in India: nearly 40% of the cost of production.
Total road length: 33 lakh km (Available at: http://www.nhai.org)
Trucking: 70% of transportation and 60% of all logistics cost.
Road is followed by rail and finally coastal shipping.
Water (probably the cheapest mode of transport) is barely used.
Air as a mode is limited to a small percentage of courier shipments.
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Source: http://lpisurvey.worldbank.org/

Logistics Performance Index (LPI)


Int.
LPI
rank

Country

LPI
2014

Customs

Logistics
International
Logistics
Tracking & Timeliness
Infrastructure Shipments Competence
tracing

Germany

4.12

4.10

4.32

3.74

4.12

4.17

4.36

Netherlands

4.05

3.96

4.23

3.64

4.13

4.07

4.34

United States

3.92

3.73

4.18

3.45

3.97

4.14

4.14

10

Japan

3.91

3.78

4.16

3.52

3.93

3.95

4.24

16

Australia

3.81

3.85

4.00

3.52

3.75

3.81

4.00

28

China

3.53

3.21

3.67

3.50

3.46

3.50

3.87

35

Thailand

3.43

3.21

3.40

3.30

3.29

3.45

3.96

46

Lithuania

3.18

3.04

3.18

3.10

2.99

3.17

3.60

50

Mexico

3.13

2.69

3.04

3.19

3.12

3.14

3.57

54 India

3.08 2.72

2.88

3.20

3.03

3.11

3.51

55

Croatia

3.05

2.95

2.92

2.98

3.00

3.11

3.37

60

Argentina

2.99

2.55

2.83

2.96

2.93

3.15

3.49

72

Pakistan

2.83

2.84

2.67

3.08

2.79

2.73

2.79

90

Russian
Federation

2.69

2.20

2.59

2.64

2.74

2.85

3.14

145 Myanmar

2.25

1.97

2.14

2.14

2.07

2.36

2.83

158 Afghanistan

2.07

2.16

1.82

1.99

2.12

1.85

2.48

160 Somalia

1.77

2.00
1.50
1.75
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1.75

1.75

1.88
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Yeh bhi mera India !

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Information

Role in the supply chain

Role in the competitive strategy

Components of information decisions

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Information: Role in the Supply Chain

The connection between the various stages in the


supply chain allows coordination between
stages
Crucial to daily operation of each stage in a
supply chain e.g., production scheduling,
inventory levels

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Information: Role in the Competitive Strategy

Allows supply chain to become more efficient


and more responsive at the same time (reduces
the need for a trade-off)
Information and Communications technology
Which information is most valuable?
Example : Andersen Windows
Example : Dell
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Components of Information Decisions

Push (MRP) versus pull (demand information


transmitted quickly throughout the supply chain)
Coordination and information sharing
Forecasting and aggregate planning
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software

Responsiveness versus efficiency trade-off


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Survey Results

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Considerations for Supply Chain Drivers

Driver

Efficiency

Responsiveness

Inventory

Cost of holding

Availability

Transportation

Consolidation

Speed

Facilities

Consolidation / Proximity /
Dedicated
Flexibility
What information is best suited for
each objective

Information

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Local Optimization vs. Global Optimization


Local Optimization

Sourcing
Planning

Manufacturing
Planning

Distribution
Planning

Demand
Planning

Global Optimization
Collaboration/ Negotiations/Contracts/Information Sharing and DSS

Sourcing
Planning

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Manufacturing
Planning

Distribution
Planning

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Demand
Planning

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Supply Chain Challenges

Achieving Global Optimization


Conflicting Objectives
Complex network of facilities
System Variations over time

Managing Uncertainty
Matching Supply and Demand
Demand is not the only source of uncertainty

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