SCM DEFINED

The supply chain is the network of organizations

that are involved through upstream and down
stream linkages, in different processes and activities
that produce value in the form of products and
services in the hands of the ultimate customer.

Supply Chain may be defined as flow of
materials through procurement, manufacturing,
distribution, sales & disposal.
Dynamics of Material Flow
Supplier Plant RS Logistics Retailer
SCM FLOWS
MATERIAL
MONEY
INFORMATION
Procurement Manufacturing Distribution Logistics
Supply Chain Relationship
What is SCM ?

Buying
Selling
Making
Moving
Ware
housing
SCM is a business network covering from buying,
making, moving, warehousing to selling



Traditional SCM
SCM
SCM
Facilitate Specialization
Facilitate Specialization
nn Intermediaries provide Exchange efficiencies Intermediaries provide Exchange efficiencies
Connectivity is King for product delivery
when and where
Intermediaries Intermediaries
Customer Customer
Producer Producer
Cost

Reduced inventories

Reduced waste

Reduced total system costs

Service

Establishment of a collaborative framework

Near real time information flow
Reduced variation and increased quality
Business growth opportunities
Preferred source for new opportunities
Expanded benefits to other customers
Supply Chain Benefits
The 3 Ts
Key Ingredients
For Improving
Supply Chain
Efficiencies
Timeliness
Velocity
Acceleration
Trust
Collaboration
Empowerment
Sharing
Inf ormation(eg. open schedules)
Accountability
Understanding the process
Transparency
Ability to see the real situation
The Three Ts
Transactional
Efficiency
Critical Data to improve:
Multiple handling
Transit damage
Process delays
Excess freight
Delays
End-to-end
cycle-time
Warehouse fees
Inventory turns
Yield
Late Deliveries
Perceived Value
Intrinsic Value
The Supply Chain Iceberg
Supply Chain Decisions
OPERATIONAL
TACTICAL
STRATEGIC
Procurement Distribution Manufacturing Logistics
SCM FOCUS / LEARNINGS
SERVICE COST
FLOW OF INFORMATION / MATERIAL AND CASH
INPUTS AND OUTPUTS

ELEMENTS OF SCM
INVENTORY MANAGEMENT
WAREHOUSING
TRANSPORTATION
Shortage
Excess
1. The stock of material lying with you for which payments
are made but which are yet to be delivered to the
customers and paid for by them.

2. Material stocked to meet the expected demand in the
market.

3. An idle resource which locks the capital.
What is inventory

Shortage
Excess
Why inventories are necessary

1. To satisfy the customer demands without time lag.
2. To cover time required for procurement of material.
3. To cater to fluctuations in demand.
4. Seasonal demand of products.
5. Production constraints of suppliers.
6. To retain supplier goodwill.

Inventory Exercise
WORK OUT INVENTORY NORMS BASED ON SERVICE
FREQUENCY, SALES AND DEMAND VARIABILITY &
TRANSIT TIME VARIABILITY
Consider sales qty. 300 CLDS per month, Demand
variability 20 %, Supply variability of + / - 2 Days &
Service frequency of 1 / week





Costs



Opportunity cost curve.









Total costs










A



Inventory + Service costs.







Low

Service levels

High



I
Interpretation:


At low service levels, costs due to lost opportunities are very high.



When service levels are raised, inventory + service costs increase
marginally but costs due to lost opportunities come down
drastically.



Enlarged view of portion marked at A is shown in the next graph for further explanation.

Service Level & Inv. Costs
























Zone of
Indifference

Zone of
Perfection.



















Zone of
Improvement
ENLARGED VIEW OF PORTION A
Explanation:

1. In zone of improvement , as service level goes up by
increasing stocks and incurring in extra expenditure for giving
better service, the gains obtained due to better sales outweigh
the costs incurred.
2. In zone of indifference, the gains and costs are more or less
balanced.
3. In zone of perfection, as service levels are raised to near to
100%, the costs outweigh the gains but in modern competitive
environment, this may become a necessity for survival
Scientific Replenishment System
The Use of Safety Stock
I
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v
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t
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r
y

o
n


H
a
n
d

I
n
v
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n
t
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o
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H
a
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Stock out
Time
Stock out
is avoided
Time
Safety Stock
ABC Analysis

Based on principle of management by exception.
Unit value is not a consideration. Analysis is based on
total consumption value of items in predetermined time span.
Criticality/importance of item is not a consideration
All the items are divided in three categories.
Decisions are based on 80 : 20 rule.
ABC Analysis Exercise
Classifying inventory
according to some measure
of importance and
allocating control efforts
accordingly.

A - very important
B - mod. important
C - least important
Annual
value
of items
A
B
C
High
Low
Few
Many
Number of Items
DECISION PARAMETERS FOR ABC ANALYSIS
ADEQUACY OF STOCKS

FREQUENCY OF STOCK CHECKING

LOCATION IN WAREHOUSE
FSN Analysis
Based on speed of movement of material.
1. Some materials have regular and high volume demand and move
Fast (F),
2. some material have intermittent and unpredictable demand and
hence move Slow (S)
3. and a few items have practically no takers and hence keep on lying
in stores for long period of time and categorized as Non moving
(N).
FAST MOVING
SLOW MOVING NON MOVING
INVENTORY FOCUS / LEARNINGS
What is Inventory and why do we need inventory ?

How do we avoid non moving and slow moving
inventory?

How do we classify and analyze inventory?

ELEMENTS OF SCM
INVENTORY MANAGEMENT
WAREHOUSING
TRANSPORTATION
ELEMENTS OF WAREHOUSING
LOCATION
LAYOUT
IDENTIFICATION
MATERIAL HANDLING
Layout principles
Ease of receipts, storage and issues.
Uninterrupted movement of material,
men and equipment.
Optimum utilization of space.
Ease of locating the material.
Safety. & Security.
Better supervision.
Flexibility
Building. : Preferably single storied,
enough height, proper lighting and
ventilation, protection against
hazards like fire and lightening.

1. Tagging.
2. Labeling.
3. Writing, painting,
engraving, stamping,
etching, color coding
on the part/case/box.
4. Bar coding.

Identification of Material

IMPROVED STORAGE SYSTEM
EXERCISE
Features of a good warehouse

1. Place for everything and everything in its
place.
2. FMFO First Manufactured and First Out
principle.
3. Maintenance of prompt and correct
records.
4. Fast and courteous service to customers.
5. Minimum damages to the material.
6. Protection against pilferage.
7. Regular verification and inspection of
material.
8. Regular inventory taking and
reconciliation.
9. Maintaining inventory within specified
norms.

Learning's from the topic

1. How do we keep our warehouse in more orderly manner ?
( Understanding Location and layout of the warehouse )
2. What activities we must do in the warehouse to ensure proper
identification & tracing of the material
3. How can we reduce our labour cost in the warehouse. What
mechanization we can do in our warehouse?
4. How can we ensure better material movement inside the
warehouse?
ELEMENTS OF SCM
INVENTORY MANAGEMENT
WAREHOUSING
TRANSPORTATION
Logistics Management

'Logistics is the process of strategically managing
the procurement, movement and storage of materials
(and related information flows) through the
organisation and its marketing channels
Objectives of Transport Management

1. Cost Optimization
2. Improved service
3. Transportation/logistics as a competitive
differentiator.
4. Time to market

CARRIER
SELECTION
OUTSOURCING
Vs. OWN VEHICLE
VEHICLE TYPE
( SIZE )
CUSTOMERS PER
VEHICLE & TRIPS
PER VEHICLE
( ROUTING )
Carrier Selection and Routing

The practical meaning of the 4 Cs of selecting
transportation services

1. Competition
2. Cost
3. Comparison
4. Compromise
Sources Destinations
Your responsibility is to assist in defining

Right Product in the
Right Quantity from the
Right Source to the
Right Destination in the
Right Condition at the
Right Time for the
Right Cost.

Transport Costs

Fixed cost Variable cost
Vehicle cost ( Depreciation )
License fee
Insurance cost
Driver salary
Interest cost
Road tax
Administration Cost
Labour cost ( Laoding &
Unloading )
Fuel, Consumables & Oil cost
Factors Affecting Carrier Decision
Carrier makes investment to maximize return on assets.
For this he has to consider following costs

1. Vehicle-Related Cost : This is fixed cost in short term incurred for
purchasing or leasing the carrier.

2. Fixed Operating Cost : This includes any cost associated with
terminals, Road Tax, and labor.

3. Trip-Related Cost : This includes the price of labor and fuel incurred
for each trip independent of the quantity transported and depends on
the length and duration of the trip.

4. Quantity Related cost : This includes loading / Unloading cost and
part of fuel cost that varies with the quantity being transported.

5. Overhead cost : This includes, planning & scheduling cost, IT cost.

Routing & Scheduling In Transportation

This refers to the selection of customers to be visited by the
particular vehicle and the sequence in which they will be visited.

For the companies to be successful, they have to do the routing and
scheduling in such a way that they reduce the cost of transportation at the
same time make the deliveries fast and meet the promised level of
responsiveness to the customers.

To achieve this, the objective is to minimize cost by

Decreasing the number of vehicles,
Reducing total distance traveled,
Reducing total travel time &
Reducing service failures ( delays )
Routing & Scheduling In Transportation

The objective of the supplier is to

Pick the items needed and to load them on trucks for delivery
Decide which vehicle will deliver to which customers & the route
that each truck will take.
Ensure that no vehicle is overloaded at the same time try to load
all the vehicles fully.
To do this, the technique that can be used is Savings Matrix
Method.
Identify The Savings Matrix - The trip RS

Cust X

RS
Means the visit starts at RS & goes to Customer X & returns to RS
The savings ( X, Y ) is the distance saved if the trips
RS RS

Cust X Cust Y

RS RS

Are combined to make a single trip RS

Cust X

Cust Y

RS
This saving is calculated by following formula
S ( X, Y ) = Dist ( RS, X) + Dist ( RS, Y ) Dist (X, Y)
Assign Customers to Vehicles or Routes
Select the route with highest savings and combine the 2 routes if the total
load is less than the permitted load. Keep combining this way to get the
route plan.
Sequence Customers within Routes
The goal here is to minimize the distance each vehicle must travel. The
procedure for this is as follows:

Farthest Insert : Given, a vehicle trip for each customer, evaluate the
minimum increase in length if this customer is inserted at a suitable point
in the trip and insert the customer with the largest minimum increase to
obtain the new trip.

Nearest Insert : Given, a vehicle trip for each customer, evaluate the
minimum increase in length if this customer is inserted at a suitable point
in the trip and insert the customer with the smallest minimum increase to
obtain the new trip.
Routing & Scheduling Exercise
Learnings & Assignments



1. Is selection of vehicle critical for the business? How to select a vehicle
for transportation?
2. How to decide sequence for delivery of goods to the retailers?
3. Is Outsourcing of transport vehicles more beneficial for us or Having
own vehicles more beneficial for us?

SCM Key Performance Measures

FMFO Deliveries during the month
FMFO Adherence % ge = ----------------------------------------------------------
Total deliveries made during the month.


Orders Delivered On Time & Full
Commitment % ge ( OTIF ) = -----------------------------------------------------
Orders Received in a month


Transport cost + Labour Cost + storage cost
SCM COST / TN = ---------------------------------------------------------------------
Total sales


Product
Attributes
Planning
Request For
Quotation
Availability
Purchase Order
Order
Confirmation
Call-Off
Order Status
Inventory Status
Product
Quality
Usage
Inventory
Change
Product
Performance
Delivery
Message
Goods Receipt
Invoice
Credit/Debit Note
Business
Acknowledgement
Information Request
Complaint
Complaint Request
Plan Make Deliver Source Utility
SCM Process categorized according to the Supply-Chain
Councils, Supply-Chain Operations Reference (SCOR)
model
Supply Chain Model Foundation
Bullwhip Effect
Factors contributing to the Bullwhip Effect:

Forecast Errors
Lead Time Variability
Batch Ordering
Price Fluctuations
Product Promotions
Inflated Orders


Methods intended to reduce uncertainty,
variability, and lead time:

Vendor Managed Inventory (VMI)
Just In Time replenishment (JIT)
Strategic partnership

Bullwhip Effect
Bullwhip Effect
Causes of Bullwhip Effect
Demand Signal Processing
(frequent updates of forecasts;
only next echelon orders
considered)
Order Batching (to realise
logistic Economies of scale +
Reducing order processing
costs)
Price Fluctuations (resulting in
over-reactions)
Supply Rationing
(Proportionate rationing;
unrestricted order acceptance +
free return policy)
Counter-Measures for BWE
Avoid multiple demand forecasts
Order based on ultimate customer
demand
Use EDI+POS+VMI
Choose a good forecasting method (PLC
has a major say)
Move from decentralized DM to
centralized planning (visibility+control is
better)
Remove layers in channel if possible
Eg: HP, Apple, IBM, P&G/Walmart

Counter-Measures for BWE
Break order batches
Increase frequency of ordering (OP costs
reduced by EDI)
Resort to standardization to minmize OP costs
Use 3PL to make small batch replenishments
economical
Aggregate across retail outlets to utilize FTL EoS
Reduce safety stocks by cutting lead times
Eg: 3PL using Fedex, P&GStabilize prices
EDLP (P&G)
Special purchase contracts
Eliminate shortage gaming
Allocate based on past sales (Sun)
Share capacity and information (HP, Motorola)
Limit flexibility wrt time (HP, Seagate)