Fundamentals of SCM

ISE
INDUSTRIAL & SYSTEMS ENGINEERING

IIT KHARAGPUR
Fundamentals of Supply
Chain Management
Prof. Manoj Kumar Tiwari
ISE, IIT Kharagpur
“Call it distribution or logistics or supply chain management. By
whatever name it is the sinuous, gritty, and cumbersome process by
which companies move material, parts, and products to customers.”
… Fortune (1994)
ISE
IIT KHARAGPUR
ISE
IIT KHARAGPUR
Worldwide e-commerce sales

ISE IIT KHARAGPUR
Top 10 Fortune 500 Companies

2005 2018
Companies Revenue ASSETS ($M) Companies Revenue ASSETS ($M)
($Millions) ($Millions)
1 Wal-Mart 288,189.0 120,624.0 Walmart 500,343 204,522
Stores, Inc
2 Exxon Mobil 270,772.0 195,256.0 Exxon Mobil 244,363 348,691
Corporation Corporation
3 General Motors 193,517.0 479,603.0 Berkshire 242,137 702,095

Hathaway
4 Ford Motor 172,233.0 292,654.0 Apple 229,234 375,319
5 General Electric 152,363.0 750,330.0 UnitedHealth 201,159 139,058
Group
6 ChevronTexaco 147,967.0 93,208.0 McKesson 198,533 60,969
7 ConocoPhillips 121,663.0 92,861.0 CVC Health 184,765 95,131
8 Citigroup 108,276.0 1,484,101.0 Amazon.com 177,866 131,310
9 American Intl. 98,610.0 800,000.0 AT&T 160,546 444,097
Group
10 Intl. Business 96,293.0 109,183.0 General Motors 157,311 212,482
Machines
ISE
IIT KHARAGPUR
Top 8 challenges faced by logistics industries
Challenges Factors causing
1 Fuel costs Raise in fuel prices
2 Business Process New advances in business processes
Improvement
3 Improved Customer expectation: Fast shipping at low cost & GPS
Customer Service facility
4 Economy Increasing compliance regulations, declining demand
etc.
5 Driver Shortage & Hiring despite the lower demand
Retention
6 Government Regulations by federal, state and local authorities
regulations
7 Environmental Anti-idling, emission reduction
Issues
8 Technology Purchasing or developing and implementing the
Strategy & improved technologies
Implementation
ISE
IIT KHARAGPUR
Top 4 challenges faced in SCM and how to overcome
Challenges
1. Inability to control and Track Inventory in Multiple Warehouses/Stores
2. Lack of visibility into inventory management
3. Anticipating purchase and production needs
4. Lack of product traceability
How to Overcome these Challenges

 Have clear control over business processes
 ‘Quick fixes’ to respond variable demand
 Chose right kind of ERP system
 Be aware of importance that globalization plays in today’s SCM
ISE
IIT KHARAGPUR
ISE
IIT KHARAGPUR
Case of USA
$2.15 trillion in 2016
Data Source: http://www.scdigest.com/firstthoughts/17-06-22.php?cid=12610

ISE
IIT KHARAGPUR
Case of China
Data Source: https://www.statista.com/statistics/264807/percentage-of-expenditure-on-logistics-of-the-gdp-of-china-since-1994/

ISE
IIT KHARAGPUR
Case EU countries
A study on EU logistics market estimated that the logistics operations amount to
€876 billion (2012) in the EU.
2008 2009 2010 2011 2012

Log.Exp. EU27 889.0 857.0 937.0 917.0 876.0
in billions
Share in GDP 7.1% 7.3% 7.6% 7.2% 6.8%
Logistics expenses (as a percentage of GDP) in EU27 countries
Source:
https://ec.europa.eu/transport/sites/transport/files/themes/strategies/studies/doc/2015-01-freight-logistics-lot1-logistics-sector.pdf
ISE
IIT KHARAGPUR
Case of India
Cost of logistics is very high in India, which at about 14 per cent of GDP,
 Assocham-Resurgent India (2016) stated that the country can save $50 billion
if logistics costs reduce from 14 per cent to 9 per cent of GDP
 Roads carry about 60 per cent of the freight cargo in India.
Bharatmala and Sagarmala are two of the recent ambitious project being
undertaken by Indian Government to improve logistics in India.
Source: https://economictimes.indiatimes.com/industry/transportation/shipping-/-transport/how-new-govt-division-plans-to-reduce-indias-
logistics-cost-to-less-than-10-of-gdp/articleshow/62395133.cms
ISE
IIT KHARAGPUR
Bharatmala & Sagarmala
Bharatmala Pariyojana:
Improvement in efficiency of existing
corridors through development of
Multimodal Logistics Parks and
elimination of choke point.
Sagarmala Project: Vision of the
Sagarmala Programme is to reduce
logistics cost for EXIM and domestic
trade with minimal infrastructure
investment.
Zara has been described as ‘the most innovative and
devastating retailer in the world’.
ISE
IIT KHARAGPUR
ISE
IIT KHARAGPUR
Zara’s Supply Chain
Zara, which set out with the intention to keep tight control over its value chain,
pioneered what we know today as “fast fashion,”.
 Zara has developed its business around reacting to new trends very quickly, instead
of focusing on forecasting them accurately.
 The focus is on forecasting the kind and amount of fabric it will buy.
 It can design, produce and deliver a new garment and put it on store displays in 2
weeks.
 The firm is able to be so responsive through a competitor-crushing combination of
vertical integration and technology-orchestrated coordination of suppliers, just-
in-time manufacturing, and finely-tuned logistics.
ISE
IIT KHARAGPUR
Zara’s Supply Chain
Zara’s Peculiarities
 In an industry where nearly every major player outsources manufacturing to low-

cost countries, Zara is highly vertically integrated, keeping huge swaths of its
production process in-house.
 The firm shuns advertising. Zara devotes just 0.3% of its sales on ads, compared to
the 3-4% spent by rivals and discounted sales are rare.
Odisha State Medical Corporation Limited (OSMCL) has the key functions like
timely procurement of quality medicines, surgical, equipment, instruments,
furniture etc., through fair, transparent and competitive bidding process.
ISE
IIT KHARAGPUR
ISE
IIT KHARAGPUR
Drug Distribution Network
30 District headquarter hospitals

27 Sub-divisional hospitals
275 Drugs Minimal High 377 Community health centres
Cost
Stock- Service
Efficient
63 Surgical outs level 1305 Primary health centres
3 Medical colleges
TARGET
6 Special institutions
ISE
IIT KHARAGPUR
Objectives
Demand Forecasting Inventory Management

Predict drug demand Develop a dynamic
around the year and inventory policy for central
across various districts and district warehouses
Transport & Infrastructure &

Supply Planning IT support system
Determine Cost optimal IT based data tracking
vehicle routes for drug and management
supply service system
ISE
IIT KHARAGPUR
ISE
IIT KHARAGPUR
Coal Import Terminal
 Domestic production of coal is not able to cope with increasing demand

 Ever-growing import of coal poses a big challenge to plan and manage
terminal operations
 Operations can be divided into four main categories:
Ship transport mode operation
Cargo handling operation
Storage operation
Inland transport mode operation
20
ISE
IIT KHARAGPUR
Problem Faced by the Port
 Difference in expected and actual arrival time of ships and rakes  force the
port planners to make changes in the decisions
 Terminal equipment breakdown and resource unavailability  re-planning of
certain activities.
 Integration of operations: coal shipment, stockpiles and railing
 Increase in the Utilization of Berth, Stockyard, rake Loading Stations
 Minimizing the delays in unloading of ship and loading of rakes.
 Maximization of the throughput
21
ISE
IIT KHARAGPUR
Questions Need to be Answered
• Which one to berth

Ship • When to berth
• Where to unload in mechanized stockyards and manual sidings

Stockyard • How to create required space - manual shifting and when to start
• How to load- mechanized/manual

Rake • When to load
ISE
IIT KHARAGPUR
Heuristics Based Decision Support Model
Berth
Status Solution
Ship INPUT DSM OUTPUT

Schedule
Physical Parameters
 Manual shifting rate
 Mech. ship unloading rate
INPUT  Manual ship unloading rate
 Mechanized rake loading rate
Rake  Manual rake loading rate
Schedule
Stockyard
Status
DSM
Berthing Decision
OUTPUT Berthing Schedule
A Decision model to capture the complete dynamic Stockyard Plan
Rake Loading Schedule
aspects of port operation
ISE
IIT KHARAGPUR
Introduction
The Vehicle allocation model represents the problem of packing the items
(products) in different combination of vehicles such that transportation cost is
minimum.
ISE
IIT KHARAGPUR
Problem Model
 Consider a firm that produces and distributes n different products to the

customers.
 Each product has its unique weight and volume. Each truck is unique in terms
of its weight and volume capacity.
 Considers the delivery of products between single source and destination pair
 Now, consider a model of vehicle allocation in which these different product
combinations have to be allocated to each vehicle in such a way that the
total cost of delivery is minimized.
ISE
IIT KHARAGPUR
Pictorial representation
ISE
IIT KHARAGPUR
Product description
Product Weight Volume(Vol/C Demand

(Wt/Cs – Kg) s - m3)
Product 1 13.8 0.0911 72092
Product 2 2.1 0.0089 28706
Product 3 23.0 0.0417 153592
Product 4 13.3 0.0321 103256
Product 5 7.4 0.0372 40246
::::::::::::::: ::::: ::::::: :::::::
Product 40 19.1 0.0362 317215
ISE
IIT KHARAGPUR
Truck description
Truck Truck Type Allowed Allowed Hiring Cost
Code Weight Volume
(Wt/Cs – (Vol/Cs - m3)
Kg)
IN01 Open truck 9,000 23 15,375
IN02 20-FT CONT (9 MT) 9,000 30 13,326

24-FT CONT (15
IN05 MT) 15,000 41.4 19,476
IN21 Open Truck (15MT) 15,000 30.5 20,400
IN40 30-FT CONT(7MT) 7,000 57 18,450

28-FT CONT (15
IN49 MT) 15,000 53 19,476
Issue
Supply Chain of Currency Notes
Briquetting
Department
Printing Press Destruction
Fresh note vault Chest note vault
Currency Chest Currency Chest
Bank Branch Bank Branch
Public
ISE
IIT KHARAGPUR
Potential Areas of Improvement
 Accurate Demand Forecasting at all levels.

 Inventory policies for RBI, bank branches and ATMs
 Inventory level of currency making paper
 Manufacturing and Service operations
 Supply Chain network analysis
 Automation in warehouses, cash handling
 Ergonomics of cash handling
ISE
IIT KHARAGPUR
ISE
IIT KHARAGPUR
Supply Chain Management
A supply chain is a complex logistics system in which raw materials are

converted into finished products and then distributed to the final users
(consumers or companies)
It includes suppliers, manufacturing centers, warehouses, DCs and retail
outlets.
To get the right materials to the right place at the right time, while optimizing a
given performance measure (e.g. minimizing total operating costs) and
satisfying a given set of constraints (e.g. a budget constraint)
ISE
IIT KHARAGPUR
What is logistic system
Logistics deals with the planning and control of material flows and related
information in organizations. To decide how and when raw materials, semi-
finished and finished goods should be acquired, moved and stored.
 A logistics system is made up of a set of facilities linked by transportation
services
 Facilities are sites where materials are processed, e.g. manufactured, stored,
sorted, sold or consumed.
 They include manufacturing and assembly centers, warehouses, distribution
centers (DCs), transshipment points, transportation terminals, retail outlets,
mail sorting centers, garbage incinerators, dump sites, etc.
ISE
IIT KHARAGPUR
Supply Chain Flows
Figure: A Typical supply chain, representing material flow

ISE
IIT KHARAGPUR
Supply Chain Flows
Figure: Directions of Supply Chain Flows

ISE
IIT KHARAGPUR
Supply Chain Operations
ISE
IIT KHARAGPUR
Supply Chain Operations
Ever since the early 1970s supply chain organizations have taken on
increasingly distributed structures,
The supply chain is operated by several independent companies, the

relationships between the companies of a supply chain may be transaction
based and function specific, or they can be strategic alliances.
Example of strategic alliances:

Third-party logistics (3PL)
Vendor managed inventory
ISE
IIT KHARAGPUR
Vertically Integrated Supply Chain
Vertical integration is when the same company controls the supply chain from
manufacturing to end sales.
 A company can either integrate forward in

a forward integration or backward in a
backward integration.
 A backward integration occurs when a
company decides to own another company
that makes an input product to the
acquiring company's product.
 An example of this is if a car manufacturer
acquires a tire manufacturing company.
 Zara is one fine example of vertical
integration
ISE
IIT KHARAGPUR
Logistics System’s Activities
Logistics systems are made up of three main activities:

 Order processing,
 Inventory management
 Freight transportation.
ISE
IIT KHARAGPUR
Order processing
Order processing is strictly related to information flows in the logistics system

and includes a number of operations
 Customers may have to request the products by filling out an order form.
 These orders are transmitted and checked.
 The availability of the requested items and customer’s credit status are then
verified.
 Later on, items are retrieved from the stock (or produced), packed and delivered
along with their shipping documentation.
 Finally, customers have to be kept informed about the status of their orders.
ISE
IIT KHARAGPUR
Inventory management
Inventories are stockpiles of goods waiting to be manufactured, transported

or sold
Typical examples:
 Components and semi-finished products (work-in-process) waiting to be
manufactured or assembled in a plant
 Merchandise (raw material, components, finished products) transported
through the supply chain (in-transit inventory)
 Finished products stocked in a DC prior to being sold
 Finished products stored by end-users (consumers or industrial users) to
satisfy future needs
ISE
IIT KHARAGPUR
Reasons why a logistician may wish to hold inventories in some facilities of the
supply chain
Improving service level
Reducing overall logistics cost
Coping with randomness in customer demand and lead times
Making seasonal items available throughout the year
Speculating on price patterns
Overcoming inefficiencies in managing the logistics system
ISE
IIT KHARAGPUR
Holding an inventory can, however, be very expensive for a number of

reasons
 A company that keeps stocks incurs an opportunity (or capital) cost represented
by the return on investment the firm would have realized if money had been
better invested
 Warehousing costs must be incurred, whether the warehouse is privately
owned, leased or public
Aim of inventory management is to determine stock levels in order to

minimize total operating cost while satisfying customer service requirements.
ISE
IIT KHARAGPUR
Retailer-managed vs Vendor-managed resupply
• In vendor-managed inventory, vendors monitor customer sales (or
consumption) and inventories through electronic data interchange (EDI), and
decide when and how to replenish their customers.
• Vendors are thus able to achieve cost savings through a better coordination of
customer deliveries while customers do not need to allocate costly resources
to inventory management.
• Vendor managed resupply is popular in the gas and soft drink industries
ISE
IIT KHARAGPUR
Push vs Pull vs JIT Inventory Management Philosophies
 In a pull (or make-to-order (MTO)) system, finished products are

manufactured only when customers require them. Hence, in principle, no
inventories are needed at the manufacturer.
 In a push (or make-to-stock (MTS)) system, production and distribution
decisions are based on forecasts. As a result, production anticipates effective
demand, and inventories are held in warehouses and at the retailers
 Just-in-time: Attempts to synchronize stock flows so as to just meet demand
as it occurs, this minimizes the need for inventory
ISE
IIT KHARAGPUR
PUSH - Allocate supply to each PULL - Replenish inventory with
warehouse based on the forecast order sizes based on specific needs
for each warehouse of each warehouse
Demand
forecast
Warehouse #1
Q1
A1
A2 Q2 Demand
Plant forecast
Warehouse #2
A3
Q3
A = Allocation quantity to each warehouse

Q = Requested replenishment quantity Demand
by each warehouse Warehouse #3 forecast
ISE
IIT KHARAGPUR
Inventory and transportation policies
Inventory and transportation policies are intertwined.

 When distributing a product, three main strategies can be used:
o Direct shipment,
o Warehousing
o Cross docking
ISE
IIT KHARAGPUR
Direct Shipment
Goods are shipped directly from the manufacturer to

the end-user (the retailers in the case of retail goods)
 Direct shipments eliminate the expenses of operating a DC
and reduce lead times
 If a typical customer shipment size is small and customers are
dispersed over a wide geographic area, a large fleet of small
trucks may be required.
 Direct shipment is common when fully loaded trucks are
required by customers or when perishable goods have to be
delivered timely
ISE
IIT KHARAGPUR
Warehousing
Warehousing is a traditional approach in which goods are

received by warehouses and stored in tanks, pallet racks or
on shelves
 When an order arrives, items are retrieved, packed and
shipped to the customer.
 Warehousing consists of four major functions:
 Reception of the incoming goods,
 Storage,
 Order picking and
 Shipping
ISE
IIT KHARAGPUR
Cross docking
Cross docking also referred to as just-in-time distribution

is a relatively new logistics technique.
 A cross dock is a transshipment facility in which incoming
shipments (possibly originating from several
manufacturers) are sorted, consolidated with other products
and transferred directly to outgoing trailers without
intermediate storage or order picking.
ISE
IIT KHARAGPUR
Centralized versus decentralized warehousing.
 In centralized warehousing, a single warehouse serves the whole market,

while in decentralized warehousing the market is divided into different zones,
each of which is served by a different (smaller) warehouse.
 Decentralized warehousing leads to reduced lead times since warehouses
are much closer to customers. On the other hand, centralized warehousing is
characterized by lower facility costs because of larger economies of scale.
ISE
IIT KHARAGPUR
Distribution channels
A few manufacturing firms sell their own products to end users directly, but
in most cases intermediaries participate in product distribution.
 These can be sales agents or brokers, who act for the manufacturer, or
wholesalers, who purchase products from manufacturers and resell them to
retailers, who in turn sell them to end-users.
 A distribution channel is a path followed by a product from the manufacturer
to the end-user.
 A relevant marketing decision is to select an appropriate combination of
distribution channels for each product
ISE
IIT KHARAGPUR
Distribution channels
 Channels 1–4
correspond to
consumer goods
 Channels 5–7
correspond to
industrial goods
Figure: illustrates the main distribution channels.

ISE
IIT KHARAGPUR
Channel 1
In channel 1, there are no intermediaries.

 This approach is suitable for a restricted number of products (cosmetics and
encyclopedias sold door-to-door, handicraft sold at local fleamarkets, etc.)
ISE
IIT KHARAGPUR
Channel 2
In channel 2, producers distribute their products through retailers (e.g. in the tire
industry)
ISE
IIT KHARAGPUR
Channel 3
Channel 3 is popular when ever manufacturers distribute their products only in

large quantities and retailers cannot afford to purchase large quantities of goods
(e.g. in the food industry)
ISE
IIT KHARAGPUR
Channel 4
Channel 4 is similar to channel 3 except that manufacturers are represented by

sales agents or brokers (e.g. in the clothing industry)
ISE
IIT KHARAGPUR
Channel 5
Channel 5 is used for most industrial goods (raw material, equipment, etc.).
Goods are sold in large quantities so that wholesalers are useless.
ISE
IIT KHARAGPUR
Channel 6
Channel 6 is the same as channel 5, except that manufacturers are represented

by sales agents or brokers.
ISE
IIT KHARAGPUR
Channel 7
Channel 7 is used for small accessories (paper clips, etc.).

ISE
IIT KHARAGPUR
Freight transportation
It allows production and consumption to take place at locations that are

several hundreds or thousands of kilometers away from each other
 Companies in developed countries can take advantage of lower
manufacturing wages in developing countries
 Perishable goods can be made available in the worldwide market
 Freight transportation often accounts for even two-thirds of the total logistics
cost
 Major impact on the level of customer service
ISE
IIT KHARAGPUR
Freight consolidation
Freight consolidation can be achieved in three ways

 Facility consolidation: Small shipments that have to be transported over long
distances may be consolidated so as to transport large shipments over long
distances and small shipments over short distances
 Multi-stop consolidation: Less-than-truckload pick-up and deliveries
associated with different locations may be served by the same vehicle on a
multi-stop route
 Temporal consolidation: Shipment schedules may be adjusted forward or
backward so as to make a single large shipment rather than several small ones
ISE
IIT KHARAGPUR
Modes of transportation
There are five basic modes (ship, rail, truck, air and pipeline), which can be
combined in several ways in order to obtain door-to-door services
Table: Main features of the most common containers used for

transporting solid goods
* Tare is the weight of an empty vehicle

or container.
ISE
IIT KHARAGPUR
Modes of transportation
When selecting a carrier (or mode of transportation), a shipper must take

two fundamental parameters into account
 Cost of transportation
 Transit time
ISE
IIT KHARAGPUR
Cost of transportation
 The cost of a shipper’s operated transportation service is the sum of all costs
associated with operating terminals and vehicles
 The price of a transportation service is simply the rate charged by the carrier
to the shipper
 According to recent surveys, transportation by truck is approximately seven
times more expensive than by train, which is four times more costly than by
ship
ISE
IIT KHARAGPUR
Transit time
Transit time is the time a shipment takes to move between its origin to its
destination.
 It is a random variable influenced by weather and traffic conditions
 A comparison between the average transit times of the five basic modes is
provided in the figure below:
TL = truckload
LTL = less-than-truckload
ISE
IIT KHARAGPUR
Transit time
The standard deviation and the coefficient of variation (standard deviation over
average transit time) of the transit time are two measures of the reliability of a
transportation service (shown in table below)
ISE
IIT KHARAGPUR
Rail transportation
 Rail transportation is inexpensive (especially for long-distance movements),

relatively slow and quite unreliable
 Railroad is a slow mover of raw materials (coal, chemicals, etc.) and of low-
value finished products (paper, tinned, food, etc.)
This is due mainly to three reasons:
 Convoys transporting freight have low priority compared to trains
transporting passengers
 Direct train connections are quite rare
 A convoy must include tens of cars in order to be worth operating
ISE
IIT KHARAGPUR
Transportation using trucks
Trucks are used mainly for moving semi-finished and finished products.
 Road transportation can be truckload (TL) or less-than-truckload (LTL)
 A TL service moves a full load directly from its origin to its destination in a
single trip.
 If shipments add up to much less than

the vehicle capacity (LTL loads), it is
more convenient to resort to several
trucking services in conjunction with
consolidation terminals rather than use
direct shipments (see the figure)
Figure : Example of LTL transportation
ISE
IIT KHARAGPUR
Air transportation
 Air transportation is in principle very fast, it is slowed down in practice by

freight handling at airports
ISE
IIT KHARAGPUR
Intermodal transportation
Although there are in principle several combinations of the five basic modes
of transportation, in practice only a few of them turn out to be convenient
 The most frequent intermodal services are

 air–truck (bird back) transportation
 train–truck (piggy back) transportation
 ship–truck (fishy back) transportation
ISE
IIT KHARAGPUR
Intermodal transportation
Containers are the most common load units in intermodal transportation and
can be moved in two ways
 Containers are loaded on a truck and the truck is then loaded onto a train, a
ship or an airplane (trailer on flatcar)
 Containers are loaded directly on a train, a ship or an airplane (container on

flatcar)
ISE
IIT KHARAGPUR
Third-party logistics (3PL)
It allows the company to focus on its core business while leaving

distribution to a logistics outsourcer
 3PL is suitable whenever the company is not willing to invest much in
transportation and warehousing infrastructures, or whenever the company is
unable to take advantage of economies of scale because of low demand
 3PL causes the company to lose control of distribution and may possibly
generate higher logistics costs
ISE
IIT KHARAGPUR
ISE
IIT KHARAGPUR
Logistics Managerial Issues
In a logistics strategy, managers aim at achieving a suitable compromise

between three main objectives:
 Capital reduction
 Cost reduction
 Service level improvement
ISE
IIT KHARAGPUR
Capital reduction
The objective is to reduce as much as possible the level of investment in the

logistics system (which depends on owned equipment and inventories)
This can be accomplished in a number of ways, for example
 By choosing public warehouses instead of privately owned warehouses, and

by using common carriers instead of privately owned vehicles
 Capital reduction usually comes at the expense of higher operating costs

ISE
IIT KHARAGPUR
Cost reduction
Here the objective is to minimize the total cost associated with

transportation and storage
 For example, one can operate privately owned warehouses and vehicles
(provided that sales volume is large enough)
ISE
IIT KHARAGPUR
Service level improvement
Service level is the expected probability of not hitting a stock-out during the
next replenishment cycle, and thus, it is also the probability of not losing
sales.
 The level of logistics service greatly influence customer satisfaction which in
turn has a major impact on revenues
 Improving the logistics service level may increase revenues, especially in
markets with homogeneous low-price products where competition is not
based on product features
 The level of logistics service is often expressed through the order-cycle time
ISE
IIT KHARAGPUR
Service level improvement
Order-cycle time is the elapsed time between the instant a purchase order
(or a service request) is issued and the time goods are received by the
customer (or service is provided to the user)
When a retailer outlet issues an order, the following events may occur
 if the goods required by the outlet are available at the associated RDC,
the merchandise will be delivered shortly
 otherwise, the RDC has to resupply its stocks by placing an order to the
CDC, in which case the shipment to the retailer will be further delayed
 if the goods are not available even at the CDC, the plants will be
requested to produce them
ISE
IIT KHARAGPUR
Logistics Decisions Includes
 When designing and operating a logistics system, one needs to address
several fundamental issues
 Should new facilities (manufacturing and assembly centers, CDCs, RDCs,
etc.) be opened?
 What are their best configuration, size and location?
 Should any existing facility be divested, displaced or sized down?
 Where should materials and components be acquired and stored?
 Where should manufacturing and assembly take place?
 Where should finished goods be stored?
ISE
IIT KHARAGPUR
 Should ware houses be company-owned or leased?
 Where should spare parts be stocked?
 How should production be planned?
 How should warehouses operate?
 Should goods be stored in racks or should they be stacked?
 Should goods be retrieved by a team of human order pickers or by automated
devices?
 When and how should each stocking point be resupplied?
ISE
IIT KHARAGPUR
 What mode of transportation should be used to transport products?
 Should vehicles be company-owned or leased?
 What is the best fleet size?
 How should shipment be scheduled?
 How should vehicles be routed?
 Should some transportation be carried out by common carriers?
ISE
IIT KHARAGPUR
Classification of Logistics Decisions
Logistics decisions are traditionally classified as:

 Strategic
 Tactical and
 Operational
ISE
IIT KHARAGPUR
Strategic decisions
 Strategic decisions have long-lasting effects (usually over many years)

 They include logistics systems design and the acquisition of costly resources
(facility location, capacity sizing, plant and warehouse layout, fleet sizing)
 Because data are often incomplete and imprecise, strategic decisions
generally use forecasts based on aggregated data (obtained, for example, by
grouping individual products into product families and aggregating individual
customers into customer zones).
ISE
IIT KHARAGPUR
Tactical decisions
 Tactical decisions are made on a medium term basis (e.g. monthly or

quarterly)
 It include production and distribution planning, as well as resource allocation.
 Resource allocation includes:
 storage allocation
 order picking strategies
 transportation mode selection
 consolidation strategy
 Tactical decisions often use forecasts based on disaggregated data
ISE
IIT KHARAGPUR
Operational decisions
 Operational decisions are made on a daily basis or in realtime and have a

narrow scope.
 It include warehouse order picking as well as shipment and vehicle
dispatching.
 Operational decisions are customarily based on very detailed data
ISE
IIT KHARAGPUR
Decision support methods
Quantitative analysis is essential for intelligent logistics decision-making,

wherein Operations Research offers a variety of planning tools.
Situations in which quantitative analysis may be helpful:
 If a logistics system already exists, one may wish to compare the current
system design (or a current operating policy) to an industry standard
 One may wish to evaluate specified alternatives. In particular, one may wish
to answer a number of what-if questions regarding specified alternatives to
the existing system.
 One may wish to generate a configuration (or a policy) which is optimal (or
at least good) with respect to a given performance measure.
ISE
IIT KHARAGPUR
Decision support methods
Following are Decision Support methods employed in Logistics & Supply

Chain Management
o Benchmarking
o Simulation
o Optimization
ISE
IIT KHARAGPUR
Benchmarking
Benchmarking consists of comparing the performance of a logistics system

to a ‘best-practice’ standard, i.e. the performance of an industry leader in
logistics operations.
 The most popular logistics benchmarking is based on the supply chain
operations references (SCOR) model
 The SCOR model makes use of several performance parameters that range
from highly aggregated indicators (named key performance indicators
(KPIs)) to indicators describing a specific operational issue
ISE
IIT KHARAGPUR
Simulation
Simulation enables the evaluation of the behavior of a particular

configuration or policy by considering the dynamics of the system
 A simulation model can be used to estimate the average order retrieval time
in a given warehouse when a specific storage policy is used
 Whenever a different alternative has to be evaluated, a new simulation is run
 Simulation models can easily incorporate a large amount of details, such as
individual customer ordering patterns.
 However, detailed simulations are time consuming and can be heavy when a
large number of alternatives are considered
ISE
IIT KHARAGPUR
Optimization
 Several classes of logistics problems are ‘Easy’ (polynomial) optimization
problems which can be consistently solved within a reasonable time even if
instance size is large.
 for example, in linear programming (LP) problems and, in particular, of
linear network flow (NF) problems (linear programs with tens of thousands of
variables and constraints can be optimized quickly on a personal computer).
 However, other logistics problems like production planning, location
decisions, vehicle routing and scheduling, etc. can only be modelled as IP or
MIP problems.
 Most integer programming (IP), mixed-integer programming (MIP), and
nonlinear programming (NLP) problems are difficult to optimize.
Emerging Trends in Logistics
ISE
IIT KHARAGPUR
ISE
IIT KHARAGPUR
Supply Chain Sustainability?
It is the management of environmental, social and economic impacts, and the
encouragement of good governance practices, throughout the lifecycles of goods
and services.
Its objective is to create, protect and grow long-term environmental, social and
economic value for all stakeholders involved in bringing products and services to
market.
ISE
IIT KHARAGPUR
Internet of Things
The internet of things (IoT) is a network of objects equipped with radio
frequency identification (RFID) chips and similar technologies so that the objects
could communicate and interact with each other
Benefits of IoT in Supply chain
•Visibility
•Operational Efficiency
•Customer Service
•Inventory Management
•Loss Management
Source: SAP the CEO Perspective

ISE
IIT KHARAGPUR
Blockchain in
Supply Chain
ISE
IIT KHARAGPUR
Blockchain in
Supply Chain
Image shows how IoT enabled package transmits required status information along
the way and how each transaction is shared among all the partners in a blockchain
(Source: ibm)
ISE
IIT KHARAGPUR
Drone Delivery
Unmanned aerial vehicles, or drones, have the potential to significantly

reduce the cost and time of making last-mile deliveries and responding
to emergencies.
 In general, drones are less expensive to maintain than traditional

delivery vehicles such as trucks, and can lower labor costs by
performing tasks autonomously
ISE
IIT KHARAGPUR
Drone Delivery
 Delivering with drones may be faster than delivering with traditional

delivery vehicles, as drones are not limited by established infrastructure
such as roads, and generally face less complex obstacle avoidance
scenarios.
ISE
IIT KHARAGPUR
E-commerce:
 B2C e-commerce sales worldwide reached US$1.471 trillion in 2014, a jump of
almost 20% over 2013.
 The growth of e-commerce parallels that of globalization and information
technologies.
ISE
IIT KHARAGPUR
Emerging Trends in e-commerce
Cross-border commerce
• Alibaba.com
Customer centricity
• Amazon.com
Omni-channel
• Walmart.com
ISE
IIT KHARAGPUR
Approaches to Cross-border
Generally cross-border can be done in 3 ways
o Cross-border business
o Creating whole business environment in another country
o Cross-border brand
o Business done using distributorship or franchisees

Order Product
o Cross-border commerce
Country 1
Country 2
Send Product
ISE
IIT KHARAGPUR
“For any business in today’s world, not expanding internationally is practically a

sin”
- Alexander Gordin
 Cross-border commerce is rapidly growing from $233 billion in 2014 to

estimated $994 billion in 2020.
 Every company should do cross border feasibility study.
ISE
IIT KHARAGPUR
Buyers
Increased disposable
income
Product availability
Product authenticity
Product affordability
Government
Encouraging E-commerce platform
Full support
cross-boarder
commerce
Cross border Payment simplified
Lower duties commerce Logistics evolving
Streamlined
customs
Sellers
Growth
Profitability
ISE
IIT KHARAGPUR
Omni-channel
Omni-channel is a multichannel approach to sales that seeks to provide the

customer with a seamless shopping experience whether the customer is
shopping online from a desktop or mobile device, by telephone or in a
bricks and mortar store.
ISE
IIT KHARAGPUR
Omni-channel
Customer
Buy, fulfill return – anywhere
Seamless experience
Free shipping/returns
Inventory visibility
Loyalty programs
Broad selection
Logistics Unique experience Retailer
Combined Distribution Seamless inventory
Center & Fulfillment Center Seamless continuous
Combined Return Center & improvement
Liquidation Center Ready to connected
Get Local Inventory
Speed of Delivery Omnichannel consumer
Personalized
Order Management experience
Systems Mobile wallet
Drop Ship/Click & collect Save-the sale
Adaptability/ Peak Seasons Localized formats
Merchandising
Master Data Management
Analytics
Campaign management
Channel inventory allocation
Planning & forecasting
Social media
Private label
ISE
IIT KHARAGPUR
e-Business Operations
eBusiness is about conducting

business both internally and/or
externally by electronic means,
e.g., over the Internet, intranet or
extranet and that it involves not
only buying and selling but also
operating automated, efficient
internal business processes
servicing customers and
collaborating with suppliers and
business partners
Fig: e-Business application framework.

ISE
IIT KHARAGPUR
• Information Exchange • Compatible goals • Joint goals identification

• Communication • Individual identities and responsibility
• Complementary Goals • Ability to work apart • Work together
• Alignment of activities
Coordination Cooperation Collaboration

ISE
IIT KHARAGPUR
 Coordination: means the use of communication and information exchange to

reach mutual benefits among parties by working harmoniously
 Cooperation: involves all the aspects of coordination but also incorporate a
resource sharing dimension to support goal achievement. Commonly
cooperation will exhibit a division of labour component among all
participants and therefore aggregate value is the result of adding the
individual parts.
 Collaboration: Here all parties share information, resources and
responsibilities to jointly plan, implement, and assess the set of activities
required to achieve a common goal, thus jointly creating value addition
ISE
IIT KHARAGPUR

Fundamentals of SCM

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Fundamentals of SCM

Transféré par

Droits d'auteur :

Formats disponibles

ISE

INDUSTRIAL & SYSTEMS ENGINEERING

Worldwide e-commerce sales

Top 10 Fortune 500 Companies

3 General Motors 193,517.0 479,603.0 Berkshire 242,137 702,095

How to Overcome these Challenges

$2.15 trillion in 2016

Data Source: http://www.scdigest.com/firstthoughts/17-06-22.php?cid=12610

Data Source: https://www.statista.com/statistics/264807/percentage-of-expenditure-on-logistics-of-the-gdp-of-china-since-1994/

2008 2009 2010 2011 2012

Share in GDP 7.1% 7.3% 7.6% 7.2% 6.8%

Logistics expenses (as a percentage of GDP) in EU27 countries

 In an industry where nearly every major player outsources manufacturing to low-

30 District headquarter hospitals

Demand Forecasting Inventory Management

Transport & Infrastructure &

 Domestic production of coal is not able to cope with increasing demand

• Which one to berth

• Where to unload in mechanized stockyards and manual sidings

• How to load- mechanized/manual

Ship INPUT DSM OUTPUT

 Consider a firm that produces and distributes n different products to the

Product Weight Volume(Vol/C Demand

IN02 20-FT CONT (9 MT) 9,000 30 13,326

IN21 Open Truck (15MT) 15,000 30.5 20,400

IN40 30-FT CONT(7MT) 7,000 57 18,450

Printing Press Destruction

Fresh note vault Chest note vault

Currency Chest Currency Chest

Bank Branch Bank Branch

 Accurate Demand Forecasting at all levels.

A supply chain is a complex logistics system in which raw materials are

Figure: A Typical supply chain, representing material flow

Figure: Directions of Supply Chain Flows

The supply chain is operated by several independent companies, the

Example of strategic alliances:

 A company can either integrate forward in

Logistics systems are made up of three main activities:

Order processing is strictly related to information ﬂows in the logistics system

Inventories are stockpiles of goods waiting to be manufactured, transported

Holding an inventory can, however, be very expensive for a number of

Aim of inventory management is to determine stock levels in order to

 In a pull (or make-to-order (MTO)) system, finished products are

A = Allocation quantity to each warehouse

Inventory and transportation policies are intertwined.

Goods are shipped directly from the manufacturer to

Warehousing is a traditional approach in which goods are

Cross docking also referred to as just-in-time distribution

 In centralized warehousing, a single warehouse serves the whole market,

Figure: illustrates the main distribution channels.

In channel 1, there are no intermediaries.

Channel 3 is popular when ever manufacturers distribute their products only in

Channel 4 is similar to channel 3 except that manufacturers are represented by

Channel 6 is the same as channel 5, except that manufacturers are represented

Channel 7 is used for small accessories (paper clips, etc.).

It allows production and consumption to take place at locations that are

Freight consolidation can be achieved in three ways

Table: Main features of the most common containers used for

* Tare is the weight of an empty vehicle

When selecting a carrier (or mode of transportation), a shipper must take

 Rail transportation is inexpensive (especially for long-distance movements),

 If shipments add up to much less than

 Air transportation is in principle very fast, it is slowed down in practice by