Dissertation title:

Supply Chain Management

 The supply chain
management-simplified
Supply chain management (SCM) is the combination of art and science that
goes into improving the way your company finds the raw components it
needs to make a product or service and deliver it to customers. The
following are five basic components of SCM.
1. Plan – This is the strategic portion of SCM. You need a strategy for
managing all the resources that go toward meeting customer demand for
your product or service. A big piece of planning is developing a set of metrics
to monitor the supply chain so that it is efficient, costs less and delivers high
quality and value to customers.
2. Source – Choose the suppliers that will deliver the goods and services
you need to create your product. Develop a set of pricing, delivery and
payment processes with suppliers and create metrics for monitoring and
improving the relationships. And put together processes for managing the
inventory of goods and services you receive from suppliers, including
receiving shipments, verifying them, transferring them to your manufacturing
facilities and authorizing supplier payments.
3. Make – This is the manufacturing step. Schedule the activities necessary for
production ,testing, packaging, and preparation for delivery. As the most metric-
intensive portion of the supply chain, measure quality levels, production output and
worker productivity.

4. Deliver (Logistics) – This is the part that many insiders refer to as logistics.
Coordinate the receipt of orders from customers, develop a network of warehouses,
pick carriers to get products to customers and set up an invoicing system to receive
payments.

5. Return – The problem part of the supply chain. Create a network for receiving
defective and excess products back from customers and supporting customers who
have problems with delivered products.
Aligning the Supply Chain with
Business Strategy

A company’s supply chain is an integral

part of its approach to the markets it
serves. The supply chain needs to
respond to market requirements and do
so in a way that supports the company’s
business strategy.
 For example :
let’s consider two companies and
the needs that their supply chains
must respond to. The two
companies are Reliance Fresh
and Best Price, which is a part of
Wal-Mart.
 Reliance Fresh
The Reliance Fresh customers is looking for convenience
and not the lowest price. That customer is often in a hurry and
prefers that the store be close by and have enough variety of
products so that they can pick up small amounts of common
household or food items that they need immediately. Clearly the
supply chain for R.F needs to emphasize responsiveness. That
group of customers expects convenience and will pay for it
 Best Price- Wal Mart

Best Price- Wal Mart customers are looking for the lowest
price. They are not in a hurry and are willing to drive some distance
and buy large quantities of limited numbers of items in order to get the
lowest price possible. The Best Price supply chain needs to focus
tightly on efficiency. The Best Price customer is very price conscious
and the supply chain needs to find every opportunity to reduce costs so
that these savings can be passed on to the customers
Steps to use in aligning your supply
chain with your business strategy.

 Understand the Markets Your Company

Serves
 Define Core Competencies of Your
Company
 Develop Needed Supply Chain
Capabilities
Understand the Markets Your Company Serves

 What kind of customer does your

company serve?
 What kind of customer does your
customer sell to?
 What kind of supply chain is your
company a part of?
Define Core Competencies of Your
Company
 What kind of supply chain participant is
your company?
 Is your company a producer, a distributor,
a retailer, or a service provider?
 What does your company do to enable
the supply chains that it is part of?
 What are the core competencies of your
company?
 How does your company make money?
Develop Needed Supply Chain
Capabilities
Supply Chain Capabilities development is guided by the
decisions made about the five supply chain drivers. Each
of these drivers can be developed and managed to
emphasize responsiveness or efficiency depending on
the business requirements .
1. Production
2. Inventory
3. Location
4. Transportation
5. Information
To demystified above points: we take the example of any FMCG company

Biscuit (Parle-G)
Supply Chain
 Flows in Supply Chain

Material

Manufact Distribut
urer or Retailer Custom
Funds
er

Info
 CMU
(Central Manufacturing Unit)

Depot
Distributor

Retailer

Custome
r
• CMU (Central Manufacturing Unit)
Located at Vadgaon

• PDP (Pre Dispatch Plan)

 Number of vehicles sought from the CMU

 Packing size of material demanded

 Tentative demand for coming month

Normally 390~400 boxes are delivered in one full truck load

(LPT).
Distribution Strategy
Parle Factory

Distributor Distributor
(Institutional) (Retailer)

Institutions
Eg. Hospitals Retailer

Customer
Distributor Selection

 Filling Application Form

 Visit of ASM.
 Certification.
 Bank guarantee of 2.5 Lacs/truck load.
 Payment Term Finalization – RTGS( Real Time
Gross Settlement )within 4 days of receipt of

material.
 Distributor code generation.
 Contract between Manufacturer & Distributor: renewed
yearly.
 Expected Target growth rate of distributor:
50-55%.
 Failure to meet Minimum sales commitment may lead to
creation of additional distributor or cancellation of
existing distributor.
 Complain solving mechanism
 Regular Audits
Distributor License & Registration

 Food License From Corporation

-- Yearly Renewed
 Shop Act

Both required for stocking of goods.

 Material
unloading,
Physical
counting

Fax on
Informs
PDP date
Transporter,
28/29th
Material
to CMU
Loading

Acknowledges Fax,
Generates Invoice,
Sends mail to delivery
Info Flow between Manufacturer
& Distributor
 On the morning of delivery day, a fax is sent to the CMU
office for confirmation of the demand.

 CMU confirms the fax receipt & accordingly raises the

invoice. With 12.5% VAT & Inco terms as FOR . At the
same time, the dispatch department is communicated for
vehicle arrangement & loading of the material.

 Software used @ Parle CMU: SAP

Onthe morning of delivery day, a fax is sent to the
CMU office for confirmation of the demand.

CMU confirms the fax receipt & accordingly raises

the invoice.

Inco term: FOR .

At the same time, the dispatch department is

communicated for vehicle arrangement & loading of
the material.
Funds Flow between Manufacturer & Distributor
Cost Components at the Distributor

 Basic Rate
 VAT @ 12.5% (Claimed while filing returns)
 Secondary Freight (Paid by Manufacturer)
-- 0.1% of the invoice amount
 Octroi @ 4% (Deducted in the bill itself)
-- Aundh Octroi Booth
-- Commission agent of the distributor
(charges 1% of the Octroi amount)
 Rs. 20 as surcharge to local authorities for making &
processing the bill
 Payment is made to the manufacturer by
RTGS (Real Time Gross Settlement. RTGS system is a funds transfer mechanism where
transfer of money takes place from one bank to another on a 'real time' and on 'gross' basis)

within 4 days of receipt of material.

 Profit Margin of Distributor-Approx 4%
Material Flow from Manufacturer to
Distributor
CMU Distributor
Transportation Time
2 Hours Approx
Material •Material
checked for unloaded
damage •Distributor
and loaded signs the invoice
in LPT copy against the
quantity received
& mention the
shortages, if any
Packing Types
Price (Rs.) No. of Biscuits/Packet Weight/packet (Gm.)
1 4 16
2 8 44
3 12 66
4 16 83.5
5 20 99
10 40 209
15 60 313.5
20 80 418
40 160 (40*4) 825
Packaging
 Entire Packaging done at the CMU.
 7 carton stacking limit
Broken & Damaged Goods
 Breakages & damages: Not common as checking is done
at the delivery end while loading.

 Ifthey do occur, debit note is raised by the distributor to

the CMU along with a mail.

 Shelf life of biscuits: 6 months

The expired unsold material, if any, is burned/scrapped at
distributor’s end & only empty labels are send back to the
CMU to avoid additional unnecessary transportation
charges.

 The reimbursement against the rejected material depends

upon the authority level i.e. SM, DSM, & NSM.
 At the Distributor

 Distributors Warehouse: xyz place

 Area: 550 Sq. foot
 All kinds of protection against rain, moisture,
rodents and insects taken by the distributor
 Hygiene maintained well
Distributors Storehouse
Products Dealt with by Distributor
Funds Flow between Distributor & Retailer

 Payment from retailer:15-21 days of credit

 Software used: Tally
 Retailers profit margin:

MRP – Landing cost

 Material & Info Flow from Distributor to
Retailer

 FIFO system (Fist in first out) is followed by

Distributors to avoid expiry losses

 Delivery on the next day itself

 Sales cycle – 8 days

 Geographical limit: Pune City

 Route plan prepared as per area to be covered.(12
identified routes)
 Transportation used: 3 wheelers (3)
Weekly Transport Plan
Interesting Facts about Parle-G

"Parle-G" boasts of being the largest selling biscuit in

the world
It enjoys 70% market share in India in the glucose
biscuit category.
The brand is estimated to be worth over Rs 2,000
crore (Rs 20 billion).
 Asper Distributor, Parle- G is operated at no
“profit no loss” as a part of social service

 Taste
and product well established among
people and hence used to promote other
products
 Designing the network; planning
demand and supply in supply chain
Demand Forecasting (Plan):
Supply chain management decisions are
based on forecasts that define which products
will be required, what amount of these
products will be called for, and when they will
be needed. The demand forecast becomes
the basis for companies to plan their internal
operations and to cooperate among each
other to meet market demand. All forecasts
deal with four major variables that combine to
determine what market conditions will be like
Demand Forecasting (Plan)
contd.
Those variables are :
1. Demand refers to the overall market demand for a group of related products or
services. Is the market growing or declining? If so, what is the yearly or quarterly rate of growth
or decline? Or maybe the market is relatively mature and demand is steady at a level that has
been predictable for some period of years. Also, many products have a seasonal demand
pattern. For example, snow skis and heating oil are more in demand in the winter and tennis

rackets and sun screen are more in demand in the summer.

2. Supply is determined by the number of producers of a product and by the lead times that
are associated with a product. The more producers there are of a product and the shorter the
lead times, the more predictable this variable is. When there are only a few suppliers or when
lead times are longer, there is more potential uncertainty in a market. Like variability in demand,
uncertainty in supply makes forecasting more difficult. Also, longer lead times associated with a
product require a longer time horizon over which forecasts must be done. Supply chain forecasts
must cover a time period that encompasses the combined lead times of all the components that

.
go into the creation of a final product
Demand Forecasting (Plan)
variables contd.

3. Product Characteristics include the features of a product that influence

customer demand for the product. Is the product new and developing quickly like many
electronic products or is the product mature and changing slowly or not at all, as is the
case with many commodity products? Forecasts for mature products can cover longer
timeframes than forecasts for products that are developing quickly. It is also important to
know whether a product will steal demand away from another product. Can it be
substituted for another product? Or will the use of a product drive the complementary use
of a related product? Products that either compete with or complement each other should
be forecasted together

4. Competitive Environment refers to the actions of a company and its

competitors. What is the market share of a company? Regardless of whether the total
size of a market is growing or shrinking, what is the trend in an individual company’s
market share? Is it growing or declining? What is the market share trend of competitors?
Market share trends can be influenced by product promotions and price wars, so
forecasts should take into account such events that are planned for the upcoming period.
Forecasts should also account for anticipated promotions and price wars that will be
initiated by competitors.
 Aggregate Planning
Once demand forecasts have been created, the next
step is to create a plan for the company to meet the
expected demand. This is called aggregate planning and
its purpose is to satisfy demand in a way that maximizes
profit for the company. The planning is done at the
aggregate level and not at the level of individual stock
keeping units (SKUs). It sets the optimum levels of
production and inventory that will be followed over the
next 3 to 18 months. There are three basic approaches
to take in creating the aggregate plan
Aggregate Planning contd. :
They involve trade-offs among three
variables. Those variables are:
1) amount of production capacity;
2) the level of utilization of the
production capacity;
3) the amount of inventory to carry
 Product Pricing (Plan)
Companies and entire supply chains can influence
demand over time by using price. Depending on how
price is used, it will tend to either maximize revenue or
gross profit. Typically marketing and sales people want
to make pricing decisions that will stimulate demand
during peak seasons. The aim here is to maximize total
revenue. Often financial or production people want to
make pricing decisions that stimulate demand during
low periods. Their aim is to maximize gross profit in
peak demand periods and generate revenue to cover
costs during low demand periods.
 Inventory Management
(Plan)
Inventory management is a set of techniques that are
used to manage the inventory levels within different
companies in a supply chain. The aim is to reduce the
cost of inventory as much as possible while still
maintaining the service levels that customers require.
Inventory management takes its major inputs from the
demand forecasts for products and the prices of
products. With these two inputs, inventory
management is an ongoing process of balancing
product inventory levels to meet demand and
exploiting economies of scale to get the best product
prices.
Inventory Management (Plan) contd. :

There are three kinds of inventory:

1) cycle inventory; Cycle inventory is the inventory required to meet product
demand over the time period between placing orders for the product

2) seasonal inventory; Seasonal inventory happens when a company or a

supply chain with a fixed amount of productive capacity decides to produce and
stockpile products in anticipation of future demand. If future demand is going to
exceed productive capacity, then the answer is to produce products in times of low
demand that can be put into inventory to meet the high demand in the future ; and

3) safety inventory ;Safety inventory is necessary to compensate for the

uncertainty that exists in a supply chain. Retailers and distributors do not want to run
out of inventory in the face of unexpected customer demand or unexpected delay in
receiving replenishment orders so they keep safety stock on hand.
 Procurement (Source)
Traditionally, the main activities of
a purchasing manager were to
beat up potential suppliers on
price and then buy products from
the lowest cost supplier that could
be found.
 Procurement (Source) continue:

The procurement function can be broken into five

main activity categories:

1. Purchasing
2. Consumption Management
3. Vendor Selection
4. Contract Negotiation
5. Contract Management
Credit and Collections (Source)
Credit and collections is the sourcing process that a
company uses to get its money. The credit operation
screens potential customers to make sure the
company only does business with customers who will
be able to pay their bills. The collections operation is
what actually brings in the money that the company
has earned. Approving a sale is like making a loan for
the sale amount for a length of time defined by the
payment terms. Good credit management tries to fulfill
customer demand for products and also minimize the
amount of money tied up in receivables. This is
analogous to the way good inventory management
strives to meet customer demand and also minimize
the amount of money tied up in inventory.
To simplify further with following example
of McDonald venture in INDIA

McDonald's - A Global Phenomenon.

McDonald's opened its doors in India in October 1996. Ever
since then, our family restaurants in Mumbai, Delhi, Pune,
Ahmedabad, Vadodara, Ludhiana, Jaipur, Noida Faridabad,
Doraha, Manesar and Gurgaon have proceeded to
demonstrate, much to the delight of all our customers, what
the McDonald's experience is all about.
McDonald's - A Global
Phenomenon cont.
Our first restaurant opened on
15th April 1955 in Des Plaines,
Illinois, U.S.A. by founder Ray
Kroc.Almost 50 years down the
line, we are the world's largest
food service system with more
than 30,000 restaurants in 100
countries, serving more than 46
million customers every day
Locally Owned.
McDonald’s in India is a 50-50 joint venture partnership between
McDonald’s Corporation [USA] and two Indian businessmen. Amit
Jatia’s company Hardcastle Restaurants Pvt. Ltd. owns and operates
McDonald's restaurants in Western India. While Connaught Plaza
Restaurants Pvt. Ltd headed by Vikram Bakshi owns and operates the

Northern operations

Respect for local culture.

McDonald's India has developed a special menu with vegetarian
selections to suit Indian tastes and preferences. McDonald's does not
offer any beef or pork items in India. Only the freshest chicken, fish and
vegetable products find their way into our Indian restaurants.
In addition, we've re-formulated some of our products using spices
favoured by Indians. Among these are McVeggie™ burger, McAloo Tikki™
burger, Veg. Pizza McPuff™ and Chicken McGrill™ burger. We've also
created eggless sandwich sauces for our vegetarian customers. Even our
soft serves and McShakes™ are egg-less, offering a larger variety to our
vegetarian consumers.
Supply Chain.

Supply Chain

Overview Cold Chain LocalSourcing Suppliers

Overview
Did you know that every year, Rs. 50,000 crore worth of food
produce is wasted in India? This is mainly because of the
lack of proper infrastructure for storage and transportation
under controlled conditions. McDonald's is committed to
providing quality products while supporting other Indian
businesses. And so, we spent a few years setting up a
unique Supply Chain, even before we opened our first
restaurant in India.
A Supply Chain is a network of facilities including - material
flow from suppliers and their "upstream" suppliers at all
levels, transformation of materials into semi-finished and
finished products, and distribution of products to customers
and their "downstream" customers at all levels. So, raw
material flows as follows: supplier - manufacturer – distributor
– retailer – consumer. Information and money flows in the
reverse direction. The balance between these 3 flows is what
a Supply Chain is all about.
 Cold Chain.
The Cold Chain is necessary to maintain the integrity of food
products and retain their freshness and nutritional value. The
Cold Chain is an integral part of the Supply Chain
Setting up the Cold Chain has involved the transfer of state-
of-the-art food processing technology by McDonald's and its
international suppliers to pioneering Indian entrepreneurs,
who have now become an integral part of the Cold Chain.
The term Cold Chain describes the network for the
procurement, warehousing, transportation and retailing of
food products under controlled temperatures. McDonald’s
restaurants store products to be used on a daily basis, within
a temperature range of –18ºC to 4ºC. About 52% of our food
products need to be stored under these conditions before
they are used.
 Local Sourcing
McDonald's India today purchases more than 96% of its products and supplies
from Indian suppliers. Even our restaurants are constructed using local
architects, contractors, labour and maximum local content in materials.
Vital Links in our Cold Chain.
All suppliers adhere to Indian government regulations on food, health and
hygiene while continuously maintaining McDonald's recognised standards. As
the ingredients move from farms to processing plants to the restaurant,
McDonald's Quality Inspection Programme (QIP) carries out quality checks at
over 20 different points in the Cold Chain system. Setting up of the Cold Chain
has also enabled us to cut down on operational wastage
Hazard Analysis Critical Control Point (HACCP) is a systematic approach to
food safety that emphasizes prevention of illness or presence of microbiological
data within our suppliers' facilities and our restaurants rather than its detection
through inspection. Based on HACCP guidelines, control points and critical
control points for all McDonald's major food processing plants and restaurants in
India have been identified. The HACCP verification is done at least twice in a
year and certified.
 Suppliers.
Trikaya Agriculture - Supplier of Iceberg Lettuce.

A specialized nursery with a team of

agricultural experts.
Drip and sprinkler irrigation in raised
farm
beds with fertilizer mixing plant.
Pre-cooling room and a large cold room
for post harvest handling.

A large cold room and a refrigerated van

for transportation where the
temperature and the relative humidity
of this crop is maintained between 1º C
and 4º C and 95% respectively.
Vista Processed Foods Pvt. Ltd. - Supplier of Chicken
and Vegetable range of products

A joint venture with OSI Industries Inc., USA,

and McDonald's India Pvt. Ltd. Vista Processed
Foods Pvt. Ltd. produces a range of frozen
chicken and vegetable foods. A world class
infrastructure at its plant at Taloja, Maharashtra,
has:
Separate processing lines for chicken and
vegetable foods.
Capability to produce frozen foods at
temperature as low as -35 Degree Celsius to
retain total freshness.
International standards, procedures and support
services
Dynamix Diary - Supplier of Cheese

Dynamix has brought immense benefits to

farmers in Baramati, Maharashtra by
setting up a network of milk collection
centres equipped with bulk coolers.  Easy
accessibility has enabled farmers augment
their income by finding a new market for
surplus milk.  The factory has:

Fully automatic international standard

processing facility.
Capability to convert milk into cheese,
butter/ghee, skimmed milk powder,
lactose, casein & whey protein and
humanised baby food.
Stringent quality control measures and
continuous Research & Development
 Amrit Food - Supplier of long life UHT Milk and Milk Products for
Frozen Desserts.
Amrit Food, an ISO 9000 company, manufactures widely popular brands - Gagan
Milk and Nandan Ghee at its factory at Ghaziabad, Uttar Pradesh. Its plant has:
State-of-the-art fully automatic machinery requiring no human contact with
product, for total hygiene. Installed capacity of 6000 litres / hour for producing
homogenised UHT (Ultra High Temperature) processed milk and milk products.
Strict quality control supported by a fully equipped quality control laboratory
Radhakrishna Foodland - Distribution Centre.

An integral part of the Radhakrishna Group,

Foodland specialises in handling large
volumes, providing the entire range of
services including procurement, quality
inspection, storage, inventory management,
deliveries, data collection, recording and
reporting.  Salient strengths are:
A one-stop shop for all distribution
management services.
Dry and cold storage facility to store and
transport perishable products at
temperatures up to - 22 Degrees Celsius.
Effective process control for minimum
distribution cost
Now we consider Information Systems that
Support the Supply Chain
Information technology can support internal
operations and also collaboration between
companies in a supply chain. Using high
speed data networks and databases,
companies can share data to better manage
the supply chain as a whole and their own
individual positions within the supply chain.
The effective use of this technology is a key
aspect of a company’s success.
All information systems are composed of technology that
performs three main functions:

 data capture and communication;

 data storage and retrieval; and
 data manipulation and reporting
Data Capture and Data
Communications
 The Internet
 Broadband
 EDI Electronic Data Interchange (EDI) is a technology that was developed
to transmit common types of data between companies that do business with
each other. It was first deployed in the 1980s by large companies in the
manufacturing, automobile, and transportation industries. It was built to
automate back office transactions such as the sending and receiving of
purchase orders (known as an “850” transaction), invoices (an “810”),
advance shipment notices (an “856”), and backorder status (an “855”) to
name just a few. It originally was built to run on big, mainframe computers
using value added networks (VANs) to connect with other trading partners
 XML (eXtensible Markup Language) is a technology that is
being developed to transmit data in flexible formats between computers and
between computers and humans.
 Data Storage and Retrieval
This activity is performed by database
technology. A database is an organized
grouping of data that is stored in an electronic
format. The most common type of database
uses what is called “relational database”
technology. Relational databases store
related groups of data in individual tables and
provide for retrieval of data with the use of a
standard language called structured query
language (SQL).
 Data Manipulation and
Reporting
Different supply chain systems are created
by combining processing logic to
manipulate and display data with the
technology required to capture,
communicate, store, and retrieve data. The
way that a system manipulates and
displays the data that flows through it is
determined by the specific business
operations that the system is designed to
support.
Information systems contain the processing logic needed by the
business operations they support. There are several kinds of
systems that support supply chain operations:

• Enterprise Resource Planning (ERP)

• Procurement Systems
• Advanced Planning and Scheduling
• Transportation Planning Systems
• Demand Planning
• Customer Relation Management (CRM) and Sales Force
Automation (SFA)
• Supply Chain Management (SCM)
• Inventory Management Systems
• Manufacturing Execution Systems (MES)
• Transportation Scheduling Systems
• Warehouse Management Systems (WMS)
 TRANSPORTATION AND
DISTRIBUTION
MANAGEMENT
Transportation functionality
Transportation is the most visible of all functions of
logistics and high contributor to logistics cost. We can
see trucks, containers and wagonloads of material
being moved from place to place as an activity directly
associated with trade and business. We should also
appreciate that this is an activity that adds highest
amount of cost to the activity of making inputs and
outputs available to consumers. Transportation function
moves the products to meet
customer expectations at minimum cost.
Transportation expenses as a percentage of total
logistics expenses.
Source: Bob Delaney, Cass Logistics

 InventoryCarrying 20%
 Administration 4%
 CS/OP 6% ( customer service & order processing)
 Warehousing 26%
 Transportation 44%
Functions of transportation
 Product movement :Raw Material, Semi Finished items,
WIP, Finished goods, packaging material, rejected material -
movement is required up or down the supply chain. How is this
done? What Resources are used?
 Product Storage: Temporary storage in stationary vehicles
or Vehicles kept moving on a circuitous route
Principles of transportation
 Economy of scale :It is common knowledge that per
unit transportation cost comes down as the bulk of the
items transported increases.
 Economy of distance: The transportation cost per
kilometer comes down as the distance moved increases
 Participants in Transportation
Decisions
Parties to a transportation decision are those who have a stake in the
transportation. They are:

1. Shipper: shipper is a party who wants to transport the goods to his customer
in a business transaction
2. Consignee is the party to whom the goods are sent
3. Carrier is the service provider who carries the consignment from shipper to
consignee.
4. Government has a role to play as they are keenly interested in transportation
and have a stake in it. Transportation makes business happen which is
fundamental to the economy of any society. Economic prosperity to the
society is the objective of the government of the day. Government also
collects tax on the transaction. Government represents general public whose
interest they have to protect.
5. General public is another party who has a large stake in the transaction
involving transportation. Public want goods produced at different parts of not only
country but also world
 What is transportation mode?
Mode of transport identifies transportation
method or form .Mode selection is an important
decision in transportation strategy as it has an
impact on cost transportation. Rail, Road,
Water, Pipeline & Air are well known modes of
transport extensively used in logistics.
Impact of transportation mode on other costs associated with
transportation

 Movement costs: cost of power to drive the vehicle of

transport depends on the mode selected
 Inventory costs: It is quite clear that inventory holding
costs are temporal costs and are directly proportional to
the transit time. Longer the inventory is in transit larger
are the costs. Transit capital remains blocked during
transit time and unavailable for use.
 Obsolescence: Specially, when the transit time is quite
large the inventory can become redundant when it
arrives at the point of use.
Impact of transportation mode on other costs associated with
transportation cont :

 Packaging: These costs are mode dependent as bad

road condition needs robust packaging and smooth
transit does not need such packaging
 Insurance: This cost obviously proportional to risk of
damage and loss in transit as this is the liability of
carrier.
 Breakage: This depends on smoothness of transit and
handling system associated with the mode.
 Pilferage: This cost can be eliminated by switching to
options like container transport
DESIGN OPTIONS FOR A TRANSPORTATION NETWORK

 Direct shipment network - From shipper directly to retailers

 Direct shipping with milk runs: Single supplier to a number of
retailers - deliver like a milkman. From a number of suppliers deliver to
a single retailer.
 All shipments via Central Distribution Center Suppliers send the
supplies to Distribution centers and Distribution center caters to the
needs of retailers.
 Shipping via Distribution Center Using Milk Runs Small lot sizes to
large number of retailers from DC.
 Tailored Network Tailor made to the company needs. This may be a
new network synthesized from above models
In nutshell to exhibit clear picture of SCM we have a
tour of Supply Chain of Japanese car maker giant
Toyota
 TOYOTA
SUPPLY CHAIN MANAGEMENT
INTRODUCTION
 Toyota Motor Corporation
 Founded 1937
 Founder Kiichiro Toyoda
 Headquarters Toyota City, Japan;
 Industry Automotive, Robotics Financial services and
Biotechnology
 ProductsEconomy/mainstream/luxury vehicles
 Revenue USD $203.26 billion (2009)
 Employees 316,121
SCM

Minimizing supply chain costs

while keeping
a reasonable service level
customer satisfaction
quality
on time delivery, etc.
Objective
Right product
Right price
Right store
Right quantity
Right customer
Right time

Higher profit
The right
Product + + +
The right
Price
The right
Store
The right
Quantity + The right
Customer +
The right
Time
= Higher
Profits
TOYOTA SUPPLY CHAIN
PARTS/ CUSTOME
SERVICE R
CENTERS
DEALE
R

OVERSEA DISTRIBU
S TOR
NETWORK WAREHOU
(EXIM) SE
ASSEMBL
COMPONENT Y PLANT
S SUPPLIER RAW
GROUP MATERIAL
SUPPLIERS
 INTEGRATED SCM
INTERNATIONA
L
COLLABORATI
RAW ON END
MATERIA CUSTOME
L R
SUPPLIER
S

1ST & 2ND

TIRE
SUPPLIER
S DEALER

WAREHOU
MANUFACTURI
SE
NG PLANTS
SMOOTHER MATERIAL FLOW
SUPPLIERS
 Organized suppliers into functional tiers
 First-tier suppliers: worked together in a product-
development team
 Second-tier: made individual parts

 Encouraged cooperation and communication among

first-tier suppliers
 Cross- sharing of personnel through
 Toyota sending personnel to suppliers to compensate for
greater workload
 Toyota transferring senior managers to suppliers for top
positions
SUPPLIERS
 “marketprice minus” system, not “supplier
cost plus” system
 Value analysis reduces costs
 Production smoothing enables suppliers to
maintain a constant volume of business
 Focus is on long-term relationships that
underscores cooperation, teamwork
Procurement
Suppliers are the partners
Suppliers are the integral elements of Toyota
Located within 56 miles radius
Security to the suppliers for guaranteed order
gradual mutual improvement, rather than price through
bidding as a way to choose a supplier
Trained suppliers as per requirement
Suppliers partnership hierarchy
Kaizen and learning
Joint improvement activities
Information sharing
Compatible capabilities
Control system
Interlocking structure
Mutual understanding and trust
Managing suppliers
Suppliers are extensions of Toyota
Care and develop as own associates
Long term partnership
Tier structure : levels of responsibility
Strict cost target and timing
Integrated system (JIT)
Purchasing challenges
Normal expectation : 3 to 4 % price
reduction per year after model year launch
Meet best price with Toyota quality
Trim master goal : 30% price reduction for
new vehicle launch
Key to logistics performance
Packaging : mixed box size, small pallet
size
Dedicated transportation service
Consistent daily route, period route
revision
Good timing at all connection points
Order fluctuation allowance built into route
capacity plans
Manufacturing
Toyota Production System
 Best quality
 Lowest cost

 Shortest lead time

 Best safety

 High morale

Through shortening the production flow by

eliminating the waste
Manufacturing
Continuous improvement
 JIT
 People and teamwork

 Jidoka – quality (make problem visible)

 Waste reduction

 Leveled production

 Stable and standardize process

 Visual management

 Kanban – flow of correct information

DISTRIBUTION
 In Japan, Toyota’s sales and marketing work is
divided into four distribution channels
 Toyota (mostly high-end, large cars),
 Toyopet (medium size),
 Toyota Corolla(compact), and
 Netz Toyota (compact).
 Overall,Toyota offers about 60 car models, with each
channel offering only 15-25 models.
 The Toyota dealers as a whole have approximately
5,000 outlets and 120,000 employees.
DISTRIBUTION
 Thisway, each dealer can develop deep
knowledge of all models he has for sale, and
can make an effort to sell all car models
assigned to him, rather than only the few
most profitable ones.
DISTRIBUTION
 Toyotaapplies the “Toyota Way” to manage
dealers, based on three basic principles:
 Dealers are free to make independent decisions,
and Toyota can only help them to invest in the
right things to improve. Such a strategy
motivates dealers to be more proactive.
 Both the dealers and Toyota must prosper
jointly.
 Competition is a means to improve.
DISTRIBUTION
Toyota works with one distributor in each
country
Toyota markets cars in about 170 countries
through its overseas network consisting of
more than 160 importers/distributors and
numerous dealers.
Overall, China is the highest-growth market.
TOYOTA GROUP WORLDWIDE
 Thanks
for listening……….
Suggestions/ queries ??