Summary Module 2

Important points Module 2
Design cost 5 to 15% of product cost but contribute 70% to delivery cost
Traditional design Approach: Over the wall, Sequential design process.
Design for SC: Simplification, standardization, customization, Quality & sustainability
Design for Logistic: assumes that SC & product are designed simultaneously to Optimize Efficiency,
affordability and quality
 Efficient packing, minimize manufacturing and assembling time, maximize standardization

 Unitization / containerization (design product to fit into standard size of box
 Product in kits, plastic garbage pails which fits into one other
Standardization:
Standardized product: that can be made in large quantities because of very few designs, when the
standardized product is production equipment, it is called standardized procurement meaning
equipment is designed to allow for design variance and adaption to new customer demand
Component commonality: when single part is used to replace variety of similar parts like same bolt size
Universality: Extending the design of a product currently sold in a single market so that it can be sold in
other markets “one size fits all”- Unisex cloths – Shorter product cycle
Modularization:
Modular design: Use of standardized parts for flexibility and variety. Using same item to build variety of
finished goods.
Modular design is type of component commonality ….
Integral design: All components are designed to work together in one specific product. Clothing” Normal
shirt is modular design while uniform is integral design
Simplification:
Improving Quality and cutting cost by removing complexity from a product or service
Concurrent Engineering / simultaneous engineering/ participative design – parallel events instead of

sequential
Design for manufacture and assembly: Tradeoff: may be some design features are omitted which are
required by customer
Design for service: Simplification of parts and process to improve the after sale service of product –
Changing cartridges (lower total cost of ownership) – Tardeoff: may compete with other design goals
like development cost or aesthetics
Quality: Design should meet the market need (high quality can move product from order qualifier to
order winner)
Aslam Soni soniaslam@hotmail.com

1. Transcendent quality: an ideal, a condition of excellence
2. Product – base quality: based on product attribute
3. User base quality: fitness for use
4. Manufacturing base quality: Conformance to requirements
5. Value -base quality: degree of excellence at acceptable price
6. Quality of conformance: absence of defects
7. Quality of design: degree of customer satisfaction with products characteristics and features
Quality function deployment: A methodology designed to ensure that all major requirements of
customer are identified and subsequently met or exceeded through the product
Customization: product adapted to customer needs
Mass customization: creation of high volume product with variety and low manufacturing cost due to
high production volume - delayed differentiation, modular design – Require more expertise of
employees at point of sale as customers may have to be guided in their selection of custom products /
final assembly
Postponement: Countermeasure against bullwhip effect bcoz it reduce the need of safety stock in
multiple varieties
Product differentiation: NON price basis – Availability, durability, quality or reliability
Sustainability:
Design for environment:
 Provision for reuse / recycling

 Reduce energy consumption
 Avoidance or mitigated danger of hazardous materials
 Use of lighter components and less material
Design for logistic: (box to pack and return etc)
Design for manufacture / green manufacturing: design of product that allow to use components in other
products as well.
Mass marketing:
Sending same message to all potential customers. For staple / general need product but this is not only
for standardized product, it can also be used for customized product
Niche Marketing:
Design message for one or more market segments
Market research: In house / 3P contract - for new products as well as for existing products
 Finding potential market (sale person may provide 1st clue)

 Analyzing markets (who, where, when, what, why)
 Refining product design to fit in market (features / price)

When it comes to forecasting demand, Marketing has natural biased towards optimism
Demand generation: translating demand identified into active demand using various forms of
communications with potential customer
1. Educating customer
a. Right message
b. Right media
c. Right customer
2. Educating supply chain partner
Influencing demand: 4P’s of marketing
Product:
Price: strategic decision based on competitor price, perceived value and brand identity. Price is another
way to differentiate in some customer segments like in credit card, waiver for annual fees for high value
customers.
 Demand may rise as price falls but even it has some limits
 Some products sell better at a price slightly higher than competitor (status appeal)
 In some products / markets “every day low price” concept
Placement: traditional – one way vs contact channel strategy
Infomercials –placement: some time product sells best when made available by special order or
infomercials
Accessible, Reliable, complete, secure / error free, direct, convenient, fast, flexible
Different channels for one market segment like air tickets
Placement may be customized need for fast delivery (regular speed/ overnight)
Promotion:
Packaging: (color / image / word)
Educational packing vs functional packing / visually appealing ( services are too packed for sale like
presentation of meal)
Branding: (Name / logo / image) – part of educating customers about a new product is choosing a name
and logo that emphasis product characteristics that will attract target segments - an apple for teacher
Selling: cross over point: when demand of product can no longer sustain a profitable price
Managing customer orders to supply: Creating, monitoring, modifying and execution of plan to
generate capacity to meet demand
Customer will not wait:
 Global competition
 Multiple brands

 Market saturation
 Availability of online suppliers
 Alternative stores
Matching customer order is basic requirement of customer satisfaction, loyalty, and development of life
time customers
Approaches to matching
1. Maintain inventory
2. Extending lead time
3. Rationing order deliveries
Serve order from inventory (out of stock / over stock) vs order promising
Backward vs forwards scheduling
Customer relationship management
Fast fashion: Zara, New Design within two weeks
Zara running two chains, one for staples and one for fast fashion
CRM applications: Collaboration, Operation and analytical
Components of CRM Strategy: Customer in the middle – Provide 360 degree view of customer
 Enterprise business System (customer data base, transaction maintenance, sales support data,
sales order status, financial details)
 Web system
 Marketing
 External data (supports the creation of collaborative partnership among the company’s
suppliers, resellers and channel partners. This information is used to generate high desirable
bundle of products and promotion, attractive packing design, order fulfillment, product
merchandising and also used to identify transportation choices.
 CRM applications
 Analytics
 Service
Formal monitoring and feedback process.
Performance metrics to be revised to assess performance
Plan, do, check, Act
CRM strategy for various Types of customer: (Just as product, customer also have life cycle - Goal is to
increase number of loyal customers)
1. Prospective customers
a. Product research

b. Product pricing
c. Audience segmentation
d. Promotional message
e. Contact channel
2. Vulnerable customers
a. Early and accurate identification of vulnerable customers and analyzing the most
effective customer retention program
b. Predictive churn model; uses customer information (demographic and individual
customer purchasing history and trends) to anticipate in what groups and at what level
customer attrition may occur
c. Business loss 50% of customers in 5 years
3. Win back customers
a. Communication should be made as soon as possible within one week after the customer
has discontinued service
4. Loyal customers
a. Cross selling / up selling
b. Less vulnerable to loss and will therefore not incur the cost to win back
Effectiveness of CRM complain related to types of customer:
 More prospective customer result in 3 to 4 increase in profits
 More churn reduction in vulnerable customers resulted in 15 to 20% profits
 More won back customers resulted in 10 to 20% increase in profit
 More cross selling and up selling to loyal customers resulted in2 to 3 increase in product
When performing job rotation or learning activities, a best practice is to get experienced while working
with less profitable customer segment so as not to endanger more profitable segment (except win back
customer, where it is always priority to contact most profitable segment first and usually not as training
exercise)
Customer data warehouse: (information about customer, product and market place)
 Storage and update of data

 Selection of effective data mining tools
 Decision support system
 Benefits of CDW
o Strategic marketing / improve segmentation
o New product development
o Channel management / effective channel
o Sales productivity
o One to one marketing
Cloud base data base: (alternative to CDW)
Aligning CRM strategies with product life cycle:
1. Development

a. Align product with what customer wants.
b. Involve customer in product design
c. Select test customer segment and test both product and promotional plan against LPIs
such as cost, profit goals, customer satisfaction, market penetration or improvement in
competitive position
d. Questions to ask during testing phase
i. Is the product whatthis segment is looking for,
ii. Is the price correct
iii. Is this the correct channel
iv. Is the audience hearing and responding to promotions
v. What customer care issues have arisen and what infrastructure is needed for
those issues
2. Introduction
a. CRM supports promotional program
b. Purpose to increase awareness of customer
3. Growth
a. Due to increase in sales, distributors may be expanded at this point
b. Many competitors may enter in the market
c. Organizations promotional cost may increase in order to sustain market share
d. Business must commit increases resources both to satisfying the market needs and
gathering and analyzing data in on going manner
4. Maturity
a. The most profitable stage
b. Need to increase sales promotions
c. Custom care activities
d. Implement promotional campaigns to sell off stock at only modest discount
5. Decline
a. Customer care is very important
b. Provide means to migrate customer to new product
CRM process depends on Data,
Failure of CRM:
 Less focus on customer and more on technology

 More focus on product than on needs
 Wrong metrics to measure success
 Poor technology of CRM software
 Management commitment
CRM tools: (table 2-73 on page 2-390)
1. Account management
2. Sales force automation
3. Business intelligence

a. Information collected by an organization on customers, competitors, products or
services and processes.
b. DSS
c. Data mining tools
4. Marketing automation
Keys to successful CRM implementation:
1. A thorough, well throughout architecture needs to be determined in beginning stage of the

process
a. asses current level of integration and plan for higher level on integration
b. System should enhance efficiency not sacrifice it
c. Level of integration
i. Disconnected technology
ii. Interfacing technology
iii. Internally integrated technology
iv. Multi enterprise technology
2. Implementation should be coordinated throughout the organization
3. Everyone must know the extent to which he or she will use the system and must be trained
accordingly
4. Technology implementation should be measured against customer needs and expectations
Measuring customer service:
Customer interaction centers (CIC)
 Response to inquiries ( prompt & accurate )

o Time between initial contact and response time
o Errors detected in response
o Executive complaints
o For tele marketing ( busy signals, average waiting / answer time, number of
disconnected calls, % of repeated calls from same customer
 Order processing (fast and accurate)
o Order cycle time
 Level of service (reliability in delivery)
 Product or service quality
 Customer satisfaction (voice of customer)
Partner relation management (PRM)
Customer experience management (CEM) Tangible + non tangible exp at time of last purchase
Challenges in implementing CRM
1. Reengineer Organizational structures and redefine workforce role

2. Create virtual organizations
3. Reexamine existing technologies
Cultural difference in CRM and SRM

Supplier Relationship management:
Supplier selection:
Traditional approach:
 Company – Maximize profit for company without considering impact on supplier

 Supplier – Price increase / higher margin to increase profit without impact on customer need
 Contracts may cover short term transactional agreements
Supply chain thinking focus on long term success of all partners
Supplier Search and Selection: Criteria
 Strategic supply plan

 Technical specifications
 Desired quality
 Supplier financial strength
 Corporate social responsibility
 Total cost of ownership (design & development cost, operational and transportation cost and
ongoing maintenance cost
Lowering total cost of goods sold is of strategic importance to company. Dollar decrease in cost doesn’t
not have same impact of dollar increase in sales
Supplier search can use traditional methods (approved vendor lists, referral or prior relationships, use
of location specific consulting organizations, issuing formal request for quotations “RFQ’s” or invitation
to tender “ITT”) or internet enabled methods .
Order qualifiers: List of suppliers who meet the minimum search criteria.
Order winner: score high on weighted average value.
Corporate social policy also called corporate citizen policy – business model still focus on profit but also
defines the need of community and environment
Negotiations:
Traditional Negotiations Tactics Also called position based tactics
1. Hard negotiators: Win / lose

2. Soft negotiators: Lose / Win
New Approach: Win / Win Negotiations:
 Separate people from problem

 Focus on interest not position
 Invent option for mutual gain
 Insist on use of objective criteria
Types of contract:

1. Contract – Buy on market – PO – Verbal ok as well
2. Annualized contract – On going relationship
3. Bilateral contract. A relationship in one which one party make promise to other party
4. Contract for international sale of goods
5. Trading partner agreement – Partnership / collaboration / strategic alliance
Internet – enable sourcing: (Increase velocity)
 Applications of spend analysis

 Sourcing
 Procurement
 Strategic sourcing
 Contract management
SaaS: Software as a service, Purchase SRM software, ERP system,
Contact Performance
1. Contract Deployment (to get the agreement functioning as intended – Main purpose is to
ensure the smooth transition to new supplier and successful adoption across the organization)-
it is an ongoing function
2. Compliance agreement
3. Measuring supplier success and avoiding pitfall
Alignment with supply chain need
 Lower total cost with efficient and effective delivery

 Technical commination ability
 Efficient and effective supplies / JIT
Developing and implementing SRM strategies
1. Define SRM strategy

a. Must review corporate , marketing, manufacturing and supply chain strategies
b. It must know its goals, resources and limitation before it decides which supplier can play
role in corporate strategies and level of integration that is desirable
c. Can use Pareto analysis to see % of spend with suppliers
2. Develop criteria and enroll partners
a. Profitability, growth and stability
b. Other criteria as discussed in start of chapter
3. Prepare partners
a. Management TEAM for SRM
b. Standard contracts with some suppliers and customized contracts with some
c. System and controls to be developed like information style, redefining jobs,
infrastructure
4. Conduct pilot
5. Implement full program
6. Monitor and improve

a. SRM is not static, it is dynamic process where pursuit of collaborative joint objectives
and sharing of innovative ideas can result in the achievement of profitable goal.
b. A focus on continuous improvement by both Supplier and organization is core of SRM
Risk Management:
 Risk audit
 Risk response plan
o For direct as well as indirect suppliers which can have impact on flow
Creating alliance with suppliers:
Strategic alliance: A relationship formed by two or more organizations that share (to increase
performance of both companies) – Require flexibility, involvement and listening. Investment of time,
resources and personnel. Require high interpersonal skills
 Information
 Join investment
 Common process
Strategic alliance can entail interaction between many functions such as Engineering, marketing,
production planning, inventory or quality management.
Goal of strategic alliance
 Cost reduction
 Quality improvement
 Better delivery
 Flexibility
 New product introduction
Alliance vs Joint venture: (No equity vs sharing of equity). Join venture can be for one project only where
they share in revenues, expense and control. Creation of new entity in join venture by contributing
equity
Traditional Purchase supplier relationship – One contact point
Strategic alliance relationship – Multiple contact points
Limitations of strategic alliance:
 Consolidation of suppliers may decrease the economic effect of competition.

 Alliance that dominate the marketplace can dull the competitive edge
 Some alliances dull their organizations core competency
 Not every relationship should be collaborative, and many organizations will continue to keep
some suppliers at arm’s length
Considerations before alliance:
1. Strategic importance

a. Nature of component
b. If component is critical to competitive differentiation, involves propriety knowledge or
process then 1st priority to manufacture in-house and If organization doesn’t have
capabilities then develop alliance
2. Number of suppliers
3. Complexity
a. Relationship of component and final product
b. Complexity of supply chain
c. More value added points in SC then need of better SCM & SRM
4. Uncertainty
5. New relationships.
a. Take time before entering into alliance with new supplier or in market where
organization is new
Reasons for strategic alliance:
 Add value to product

 Enable strategic growth
o Overcome barriers to entry
o Develop new opportunities
 Increase market access
 Strengthen operations
 Increase organizational expertise
 Build organizational skills
 Enhance financial strength
Commitment required for strategic alliance:
1. Commitment to change
2. Commitment to relationships
a. Developing a new alliance is more costly that retaining an existing one
b. Provide sufficient time and resources
c. Periodic review
3. Commitment to communications
a. Information flow in both direction
b. Interaction at all levels
4. General guidelines
 Process not event (merger is an event but alliance is a process)
o Focus too much on deal and after that focus fades and alliance may suffer
 Technology
 Corporate strategy
 Uncertain market places
 External forces
 Underlying problems
o Ineffective management
o Lack of resources

o Failure to honor commitment
o Cultural differences
o Process difference
Steps in creating and maintaining an alliance:
 Align internally
o People who will be involved to be brought in as early as possible
 Select the proper partners
o Evaluate differences in
 Corporate culture
 Operating style
 Business practices
 Negotiate a win / win deal
 Establish ground rules
o Develop guidelines, process and controls
 Appoint a dedicated alliance manager
o Promote partner relationships
o Build join initiatives
o Bring them to market to generate revenues and acquire customers
 Encourage collaboration
o Skills for resolving conflicts, negotiating, solving problems jointly and conducting difficult
conversations must be developed in all employees involved
 Engage in collaborative corporate mindset
 Manage multi faced relationships
o Potential conflict of interest
 Conduct pulse check
 Plan for change
Use of SRM technology
Benefits of SRM technology:
 Streamline connections between purchaser and supplier as well as between member of cross
functional teams
 Reduce transaction cost
 Helps existing ERP to achieve potential
 Reduce cycle time
 Reduce sourcing period
 Comparison summary of RFQ’s etc with analysis
 Past performance of vendors
 Past record
 Fast communication
Portals and trading exchange:
Not only for SRM but also for customers, transportation management etc

Portal:
A multiservice web site that provide access to data that may be secured by each user’s role. Use can
aggregate data and perform basis analysis. Individuals can make custom views and perform self service
functions
Ownership of portal can be independent, private or jointly owned and used by a consortium of
organizations
Types of portal:
Yahoo.com, Amazon.com
Organizations internets and intranets
Trading exchange;
 Low cost per transaction

 Increase market reach for both buyers and sellers
 Stock exchange is an example
Types of trading exchange – based on ownership
 Public
 Private
 Consortia / 3P
 Virtual trading exchange
Auctions:
 Winning a bid constitute a contract

 Determine value of good or service on the open market
 Best for commodities
 Auctions should be avoided when delivery time, reliability or quality are important
Types of auctions:
1. Classic or forward auction (one seller and multiple buyer – highest bidder gets the good
2. Reverse auction – Internet auctions: supplier attempt to underbid their competitors, company
identities are known by buyer only
3. Dutch auctions – one seller but multiple buyers but finite quantities of same item for sale. Price
starts high and lowered periodically
4. Demand management auctions – to liquidate excess supplies like room in hotels, buyers and
sellers must be indifferent to other party
5. Stock – market style auctions – multiple buyers and sellers, dynamic price
B2B Digital transaction model:
 One buyer and one seller – Direct to order

 One buyer and many sellers - reverse auctions

 Many buyers and one seller – Auctions
 Many buyers and many sellers – Exchange
Supplier Co-location, colocation, collocation: locating a supplier or multiple supplier in a single

location. Benefits include highly integrating operations, generate ideas and design for new product.
Supplier at your site is an example of co-location
Measuring SRM:
1. Track the performance of all suppliers to some extent with focus on critical component suppliers
that have had prior quality issues
2. Collaboration with suppliers on performance measurements, reporting and improvements.
3. Automate key supplier performance activities
4. Standardize supplier performance measurement procedures across the organizations
Supplier performance measurement:
 Delivery, Quality, reliability, technology, cost reduction

 Communication of level of satisfaction In addition to providing quantitative analysis and results
can help with continual improvement efforts
Supplier rating system:
Supplier performance measures vs standards
1. Scorecards
a. Supplier have access to their own scorecards can address specific areas of concerns
immediately
b. Scorecards to be sent to suppliers at least quarterly
2. Performance alerts
3. Surveys
Challenges in implementing SRM
 Re engineering organizational Structures and re defining job roles

 Create virtual organizations
 Reexamine existing technologies
Inventory planning and control
Inventory planning
Activities and techniques to determine
 Desired level of items (RM / FG/ WIP)

 Order quantities
 Safety stock
Centralized inventory planning: Can reduce inventory levels but may respond slowly to local market
demand

Decentralized Inventory Planning: (reduce coordination expense but lead to bullwhip effect and more
inventory levels)
Hybrid inventory planning
Locations of inventory: Can be placed any place in distribution network where it can serve a valid
purpose as buffer between stages of supply chain, reduce overall cost, and meet customer service goals
1. Warehouse / distribution centers

a. Site selection
b. No of facilities in system
c. Layouts
d. Method of receiving, sorting and retrieving goods
2. Pipelines (in transit) inventory
3. Echelons
a. A level of supply chain node
b. Optimize no of echelons
c. Location of echelons
d. Decision support system
e. Benefits of echelons
i. Buffer
ii. Transportation cost (break bulk & consolidation)
iii. Immediate access to inventory
iv. Reduce inventory for slow moving
4. Echelon inventory
Inventory cost:
 Landed cost
o Purchase price + transportation cost + customs cost
 Carrying cost / handling cost: May be as high as 40% of inventory value but unlikely less than
15%
o Rent / depreciation, operating cost, taxes, insurance
o Material handling cost, including lease payment of equipment, depreciation, power etc
o Labor cost
o Investment cost including weighted average cost of capital, inventory taxes, premium
for inventory insurance
o Pilferage, scrap, obsolesce
 Ordering cost / setup cost
o Order processing
o Office supplies
o Clerical labor
o Forms
o Payment transfer
 Backorder cost
o Lost sales

o Lost customers
Determining order quantities:
 Lot for lot (net requirement = order quantity)

 Fixed order quantities- As per shipping container, MOQ, For stable customer demand, simplest
and cheapest
 Economic order quantities (intersection of carrying cost, ordering cost, quantity – total cost)
o When demand is constant and known
o Lead time is constant and known
o Item ordered arrive in one go not in stages
o No quantity discounts
Inventory ordering systems:
1. Order point system

a. Point when new order must be placed
b. Time between replenishment orders is not fixed but varies based on actual demand
during the reorder cycle
c. If average demand or lead time changes, order point will also change or level of safety
stock should also change
d. Order intervals are not fixed
2. Periodic review system
a. Need for order is reviewed on fixed interval
b. Order quantities are allowed to vary
c. Order intervals are fixed
3. Min / max system
a. Both order timing and quantity are allowed to vary
Safety stock and safety lead time:
Methods for safety stock:
1. Fixed amount: for stable demand

2. Coverage, variable demand
3. Statistical
High vs low safety stock vs high vs low customer service – balanced approach
Frequency of ordering and safety stock: more frequency of ordering needs more safety stock level. In
frequent orders means high inventory levels and high inventory carrying cost and most risk of stock outs
Organization of storage locations
 Random storage locations / floating inventory storage

 Fixed location storage
 ABC classification (when secure or fast moving storage area)
 Group functionally related items together
 Group high velocity items together

 Group items by similar physical characteristics
 Group reserve stock separately
Methods of tracking inventory (inventory shrinkage)
 Identify the item

 Verify the item
 Create record of transaction
 Execute the inventory movement
Periodic counting vs cycle counting
Managing the supply chain
Metrics should cut across functions and organizations in the supply chain to promote collaboration and
interdependencies
As it is not feasible to measure and monitor every supply chain goal / activity so manager have to chose
a reasonable number of metrics that are related to SC strategy
Some of strategic attributes of SC are
 Velocity
 Visibility
 Variability
 Collaboration
 Trust
 Customers focus
 Flexibility
Customer focused metrics
1. Availability
a. Stock out frequency
b. Order fill rate
2. Time needed to deliver customer orders
a. Speed of performance
b. Delivery consistency
c. Flexibility
d. Malfunction recovery
3. Product support
a. Response time to inquiries
b. Response accuracy
c. Customer complaints
4. Overall satisfaction
a. Repeat purchase
b. Referral to other potential customers
Operational metrics:

1. Level 1 plan, source, make, deliver, return, enable
2. Level 2 make to stock, make to order, engineer to order
3. Level 3 mAke to order, production schedule, issue product etc
4. Level 4 – issue prodyct – print pick list, pick items etc but score doesn’t detail level 4 as it is
industry specific
Five core competencies of Supply chain:
1. Reliability
a. Perfect order fulfilment
2. Responsiveness
a. Order fulfilment cycle time = order process time + dwell time
b. Average order cycle time = sum of actual time of all orders / total number of orders
3. Agility
a. Upside SC flexibility ( no of days required to achieve unplanned sustainable 20%
increase in quantities delivered
b. Upside SC adoptability: amount of increased production an organization can achieve and
sustain in 30days of time
c. Downward SC adoptability: reduction in quantities ordered sustainable in 30 days prior
to delivery with no inventory or cost penalties
d. Value at risk
4. Cost
a. Supply chain cost
b. Supply chain management cost
c. Cost of goods sold
i. Direct material
ii. Direct labor
iii. Overhead
5. Assets
a. Fixed and working capital
b. Cash to cash cycle time
i. Days of sales outstanding + inventory days of supply – days of account payable
ii. Days of sales outstanding = (Receivable / annualized revenue ) X 365
iii. Inventory days of Supply = (Inventory / annualized COGS) X 365
iv. Days of payable outstanding = (Payable / cost of sales ) X 365
c. Return on SC fixed assets
i. SC revenue – COGS – SCM cost / Supply chain fixed assets
Efficient vs responsive supply chain (inventory volumes and demand uncertainty)
Attributes of efficient supply chain
 Stable demand
 Low forecast errors
 Little or no adoption to changes in structures of market (location of demand “ regional split” and
vendors don’t change

 Long product life cycle
 Production introductions are not frequent
 Limited variety of products
Attributes of responsive supply chain
 Fluctuating demand
 High forecast errors
 Adoptions to changes in structure of market
 Uses real time system for customer data and purchases
 Short product life cycle
 May use multiple warehouse for close proximity to customer
 May maintain extra capacity or redundancy
 It may use 3rd party rapid transit providers for rapid delivery
 Capacity cushions, safety capacity and protective capacity
Low volumes – low uncertainty = Make to stock
High volumes – low uncertainty = Make to stock
Low volumes – high uncertainty = make to order
High volumes – high uncertainty = assemble to order
Making supply chain resilient:
By building in redundancy (safety stock, multiple suppliers and intentionally setting low utilization
capacities) or by building flexibility (mechanism or indicators to out in place that can sense threats and
react quickly and accordingly
Sales and operational planning (S&OP):
Mission is balance supply and demand at aggregate level, to align operational planning with financial
planning and link strategic planning with day to day sales and operational activities
S&OP meetings:
 Data gathering / product review

o Involves product and brand management
o Status of new product development, product changes or other organizational process
change initiatives that could affect supply or demand
 Demand planning
o Product and brand management, sales and marketing
o Highest ranking demand side professional such as VP sales / marketing chair this
meeting “ not demand manager”
o Demand manager serves as facilitator
o Review is at product family level, subfamilies are reviewed only as an exception basis

o Demand review meeting is a place to review performance metrics in relation to demand
and forecast accuracy
 Supply planning
o Use consensus demand plan to generate production plan
o If demand plan is matched then production plan is same as demand plan other wise one
or more alternatives plans generated that propose solutions to supply and demand
mismatch
 Smoothening
 Extra shifts / over time/ air lift
 Reduce numbers
 Financial review
o Organization business and financial goals (demand plan as well as alternate supply
plans)
o Finalize projection on revenues, profits, cash flows, need of capital investment for each
alternative and provide a recommendation for the plan that best meet the financial goal
as well as financial constraints such as budget, cash glow or capital expenditure limits
 Pre meeting
o Demand, supply and finance professionals
o Demand manager set the agenda for executive meeting
 Executive meeting
Sustainability
Present benefit without compromising needs of future generation
Triple bottom line
 Environment
 Economic
 Social
Re invest in Company growth and also re invest and track its contribution and impact on environment
and social
Triple bottom line – from Business plan and plan should spell out
 Mission
 marketing
 Operations
 Pricing
 Growth strategies
The economic perspective: (tangible and short term)
The economic and financial performance is tangible and short term
Sustainable business practice that is economically viable. The company must remain profitable and
competitive

Macro and micro consideration:
Microeconomics focus on decisions that people make in terms of resource allocation and price of
products and services. How to optimize its production and capacity in order to lower its prices and be
more competitive
Macroeconomics focus on bigger, broader picture, the overall behavior of economy as well as what is
happening with different industries - Net export etc
Leading (that indicate future trends) and lagging ( reflect the changes that already occurred) economic
indicators:
Leading economic indicators:
 Building permits
 Initial unemployment insurance claims
 Orders for plant equipment
 WManufacturers order for durable goods and materials
 Changes to the total amount of money in an economy that is available at specific point of time
(bank lending typically decline when inflation rises faster than the money supply and this make
the economic expansion difficult)
 Standard & poor 500 index
 The difference between short term and long term interest rates
 The level of consumer optimism about the economy
 Inverted yield curve (short term yield is higher than long term means upcoming recession vs flat
/ hump – shaped yield curve (
Lagging indicators:
 Unemployment rate
 Outstanding business and commercial loans
 Comparison of inventory to sales
 Changes in company profits
 Spending by business
 The consumer price index (increase in prices of consumer related service products usually occur
within first few months of a recession and taper off the start of recovery )
 Average duration of unemployment
Balancing short term and long term performance:
Month end targets: Sales and finance manager push for short term targets comprising on supply chain
KPI’s / best practices (1st week vs last week sales variations) Incentive of sales force etc should be based
on revenue as well as profit margin
Wrong metrics: Sometime wrong metrics being used short term customer services better that it actually
is. Customer request date vs promising date
Creating large anticipated inventory for seasons. Segment your product for right stock (short cycle time
– innovative product and long cycle time – stable demand)

Manipulating customer orders or inventory on balance sheet. FAUX sales vs SC variability
Holding / delaying receiving shipments to close month end at less inventory or if sales target achieved
stopping sales to avoid over selling in financial reporting period
The environmental perspective: (tangible)
 Resource usage
 Sustainable and safe production procedure
 Reverse logistic
ISO – international organization for standards:
160 countries
NGO
19500 standards
GMP – Good manufacturing prqactices
Benefits of ISO:
 Help improve efficiency. Productivity and bottom line

 Facilitate national and international trade, prevent the barriers
 Reduce negative impact on environment
 Promote best practices
Basics of ISO concept:
1. Voluntary (but may become market requirement)

2. Market driven
3. Consensus: standards are reviewed after every five years
4. Registration
5. Generic management standards
a. Many ISO standards are highly specific to particular product, material or process
however ISO 9000 and ISO 14000 series standard are example of generic standards
b. ISO – 9000 Quality management system
c. ISO 14000 – environmental management system
d. ISO certification reviewed after every 3 years
e. ISO becomes an expected requirement in RFI (Request for information), RFP (request for
proposal) and RFQ (request for quotation)
Government and regulatory compliance:
 Material content reporting (handling of dangerous product / hazardous products – HAZMAT.

Risk to health, safety and property.
 A toxic substance requires a very different handling than a toxic gas.
 International hazard symbols are internationally recognized icons that are more important than
test because it can be understood by people who speak different languages

 UNRTDG – United Nations recommendations on the transport of dangerous goods 1956 –
known as orange book
 IMDG – The international maritime dangerous goods code was developed in 1060
 Amendments are made after every two years
 ICAO - international civil aviation organization & IATA international Air transport authority
 ROH – restriction of hazardous substances in electronics
 WEEE – Waste electrical and electronic equipment
Some specific regulatory concerns in transport of dangerous goods:
 Identification and classification (shipping and technical name on container, emergency response
to be pasted)
 Packaging
 Training
 Documentation
Green Score:
 Reliability
 Responsiveness
 Flexibility
 Cost
 Asset management
The social perspective: (tangible and long term – ISO 26000)
1. Sustain working conditions

2. Fair wages
3. Opportunities for less developed countries to participate
Guidelines of ISO 26000:
1. Organizational governance
2. Human rights
3. Labor practices
4. The environment
5. Fair operations practices
6. Consumer issues
7. Community involvement an development
Green progress
 Product efficiency
 Business operation efficiency
 Stewardship
Other sustainability frameworks, guidelines and standards:
1. Human rights

2. Labor
3. Environment
4. Anti-corruption
GRI – What to report & how to report
Organization for economic cooperation and development (OECD)
 Support organizations visibility and accountability, accessibility and transportation
Risk Management
Risk management is the process of
 Identifying risk
 Analyzing risk exposure
 Determining how to best handle those exposure
Supply chain risk opportunities
 Resource availability
 Technology
 Market access
 Human expertise
 Transport capability
 Globalization
Risk managers:
 MAP the entire SC and understand interdependencies

 Identify potential failure points along the supply chain
 Create risk awareness throughout the supply chain
 Devise methods to lessen risk before they become a costly problem
 Prioritize fund allocation for risk management to minimize overall risk
 Implement risk prevention plan
Forms of risk:
1. Personnel risk (internal fraud / human error)

2. Physical assets (loss of business environments / assets)
3. Technology (virus damage / system failures)
4. Relationships (liabilities, law suits, loss of reputation)
5. External / regulatory (external fraud, Gov incentives / restrictions)
External and internal SC risk on page 2-32 exhibit 2-5
Risk assessment process:
 Scope of risk
 Time frame of risk

Risk for specific time like warranties or ongoing risk like hijacking
1. Identify the risk

a. Critical assets
b. Source of risk
c. Potential area of impact
d. Identified risk
2. Analyze the risk level
a. Consequence(impact of different scenarios’ s from significant to worst case)
b. Likelihood (probability)
c. Risk rating = Probability of occurrence X Magnitude of risk
3. Evaluate the risk
a. Acceptance of risk
b. Risk Tolerance vs risk averse
c. Prioritization (based on urgency & safety, cost to reduce risk, organization reputation,
and legal obligations)
Risk register is summary report of qualitative risk, quantitative risk and response plan
One way to risk tolerance is to include flexible SC strategies, diversification & redundancy, such as ability
to produce same part at all plants rather than specializing at each plant
Basic risk response plan:
 Avoid
 Accept
 Transfer
 Mitigate
Risk response cost vs benefit
Best cost analysis of risk = Anticipated cost of occurrence X probability of occurrence
Mitigating significant risk:
1. Generating preventing action plan

2. Implementing preventive action plan
a. Defining goals
b. Setting expectations & targets
c. Project approval
d. Release of funds
e. Project management
f. execution
3. Preparing contingency plans
a. Step by step instructions and plans – priorities of restoring services etc
b. Don’t rely on extra stores of inventory, they will never be sufficient
4. Coordinating SC risk management and sharing risk among SC partners
a. Goal should be to minimize overall system risk not our risk

5. Response to events
Risk response plan vs risk response planning
Security and regulatory concerns:
 Key security and regulatory issues:

 Ensuring physical security of transportation and storage
 System to deny access of unauthorized person
 Keeping SC information system secure from hacking etc
 Deciding whether to voluntarily comply with global antiterrorism activities (C-TPAT “customer
trade partnership against terrorism”)
 Maintaining proper financial controls
 Limitation of flammable material that can be stored in warehouse
Source materials that involve trade secretes either domestically or only in countries with robust trade
secrete protections
Counterfeiting:
 Encourage distributors to look for counterfeit and inform when counterfeits are found
 Educate employees and channel partners regarding counterfeit problems
 Less effective ways : Advertising the inferior or danger of counterfeits to customer or rewarding
distributors for not purchasing counterfeit has proven less effective
Complex electronics and chemicals may experience custom delays. Sourcing these goods domestically
may the only way to reduce the risk
Prohibited goods: one risk is having the out of dates information which can be prevented by regular
checking
Labelling and documentation: Delayed differentiation and delayed packing can reduce risk. Multilingual
documentation is another way to reduce risk (not only for country of export and imp0rt but for
countries from where this product will pass)
Electrical and electronic equipment sold in EU must be free of six substances identified to be toxic to
humans and environment: cadmium, hexavalent chromium, lead, mercury and two classes of poly
brominated plastic
Organization specific sustainability programs
 Energy to produce
 Global warming contribution
 Material efficiency
 Additional attributes like use of renewable energy in manufacturing the product
Wooden pallets not controversial because they may contain insects – ISPM 15 (international standard
for phytosanitary measures regulation) – heat and chemical treatment of wooden pallets, re use / repair
damaged pallets

Benefit of converting to sustainable shipping material includes lower rejection at ports and possible
innovation of even less costly shipping method
Product traceability:
ISO 31000 – principles and guidelines of risk management (it is practical document that seeks to assist
organization in developing their own approach to the management of risk but it is no a standard that
organization can seek certification)
The ISO 31000 , at a high level is an iterative process that starts with an executive level mendate and
commitment towards risk management
Globalization
World is flat
Horizontal marketplace: Online market place used by buyer and sellers from multiple industries which
lowers prices and lowering transaction cost
Business and competition around the globe is very complex compered to local business due to language,
culture, regulations etc differences
Exhibit 2-14 on page 2-74 Roles of import – export participants
Soga socha – term used in Japan for trading partner companies like ETC (export trading companies)
Currency consideration: (inco-terms)
 Counterparty risk
 Currency exchange risk
 Currency hedging
 Letter of credit
o LC is issued
 Buyer request letter of credit from his country bank
 Bank issues letter of credit based on company’s credit standing
o Seller bank is notified
 Seller through his country bank verifies that buyer bank is trustworthy
o Seller ship cargo
o Seller asks its bank for money
o Sellers bank ask buyers banks for money
o Buyers bank wait for cargo
o Everyone gets paid
Harmonized tariff schedule
 Seller and buyer should have some idea what is being shipped / required
 Nature of product and duty to be paid
 Six digit code in 200 countries and over 98% of trade through this code
 Each country may add4 digits so total it will be 10 digit code

Free trade zone / foreign trade zone:
 Exemptions from custom formalities, duties and quotas

 Exemption from duties or quotas of re-export
 Deferral of duties on import
 Avoidance of fines
 Inspection of merchandise before paying duties
 Cost effective storage
 Manufacture and assembly without inverted duties – when the duty on imported component is
higher than finished product, it is called inverted duty.
Trading block:
 Free trade areas / zones

 Preferential trade agreements: allow their member countries to have preferential access to
certain products from other member countries
 Customs unions: made up of free trade area with common external staff
 Common markets: made up of free trade area in which physical, technical and fiscal barriers are
reduced as much as possible
 Economic unions: make up common market and custom unions
 Customs and monetary unions: made up of customs and currency unions, share same external
trade policy and currency
 Economic and monetary unions: made up of common markers, custom unions and monetary
unions
A side effect of NAFTA is growth of companies known as “Maquiladora” – facility for manufacturing or
assembly of duty free components
Types of invoices:
 Commercial invoice
 Pro forma commercial invoice
 Consular invoice (must be written in language of importing county)
ATA carnet
Bill of lading:
Carriers contract and receipts of goods that carrier will ship
Also serves to document claim if shipment is delayed, damaged or lost
1. Export bill of lading

a. Exporters dock to its country port
2. Ocean bill of lading
a. Port to port portion of shipment
3. Straight bill of lading
a. By contrast, straight bill of lading is nonnegotiable and governs cargo that must be
delivered straight to the consignee

4. Clean bill of lading
a. Issued by carrier to certify that goods arrived at the ship undamaged, if the goods
appear to be damaged then the carrier will note that on original bill of lafing and will not
issue clean bill of lading
Shippers bears the responsibility for losses that results from perils of sea, act of GOD, acts of public
enemies, or its own negligence. (Ocean carriers have fewer legal responsibilities than overland carries)
Declared value and duty drawback
Value added tax (asses against CIP + import duties
Inco term: International commercial terms
 Title transfer
 Responsibility of insurance and cost during shipping
Terms for any mode or modes of transport
1. Ex work- EXW
2. Free carrier – FCA
3. Carriage paid to – CPT
4. Carriage and insurance paid to - CIP
5. Delivered at terrmaina – DAT
6. Delivered at place – DAP
7. Delivered duty paid – DDP
Term for sea and inland waterway transport
 Free alongside ship – FAS

 Free on Board – FOB
 Cost and freight – CNF
 Cost, freight and insurance - CIF
Table of inco terms exhibit 2-19 on page 2-99
Bribery:
 Commercial bribery
 Bribery of public officials
 Bribery of foreign representative
Globalization:
Globalization with localization
Form of Postponement where a product or service is developed for distribution globally but is modified
the needs of local market
Multicounty strategy:


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Important points Module 2

Traditional design Approach: Over the wall, Sequential design process.

Design for SC: Simplification, standardization, customization, Quality & sustainability

 Efficient packing, minimize manufacturing and assembling time, maximize standardization

Modular design is type of component commonality ….

Concurrent Engineering / simultaneous engineering/ participative design – parallel events instead of

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Customization: product adapted to customer needs

Product differentiation: NON price basis – Availability, durability, quality or reliability

Design for environment:

 Provision for reuse / recycling

Design for logistic: (box to pack and return etc)

Design message for one or more market segments

 Finding potential market (sale person may provide 1st clue)

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Influencing demand: 4P’s of marketing

Placement: traditional – one way vs contact channel strategy

Different channels for one market segment like air tickets

Packaging: (color / image / word)

Customer will not wait:

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Backward vs forwards scheduling

Customer relationship management

Fast fashion: Zara, New Design within two weeks

CRM applications: Collaboration, Operation and analytical

Formal monitoring and feedback process.

Performance metrics to be revised to assess performance

Plan, do, check, Act

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 Storage and update of data

Cloud base data base: (alternative to CDW)

Aligning CRM strategies with product life cycle:

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CRM process depends on Data,

 Less focus on customer and more on technology

CRM tools: (table 2-73 on page 2-390)

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Keys to successful CRM implementation:

1. A thorough, well throughout architecture needs to be determined in beginning stage of the

Measuring customer service:

Customer interaction centers (CIC)

 Response to inquiries ( prompt & accurate )

Partner relation management (PRM)

Challenges in implementing CRM

1. Reengineer Organizational structures and redefine workforce role

Cultural difference in CRM and SRM

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 Company – Maximize profit for company without considering impact on supplier

Supply chain thinking focus on long term success of all partners

Supplier Search and Selection: Criteria

 Strategic supply plan

Order winner: score high on weighted average value.

Traditional Negotiations Tactics Also called position based tactics

1. Hard negotiators: Win / lose

New Approach: Win / Win Negotiations:

 Separate people from problem

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Internet – enable sourcing: (Increase velocity)

 Applications of spend analysis

SaaS: Software as a service, Purchase SRM software, ERP system,

Alignment with supply chain need

 Lower total cost with efficient and effective delivery