class 1-intro-class lecture with notes

Upload: laraib-khan

Post on 02-Jun-2018

229 views

Category:

Documents


0 download

TRANSCRIPT

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    1/36

    SUPPLY CHAINMANAGEMENT

    Introduction to SCMClass-1

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    2/36

    Running a profitable business aint easy!

    How to make money on bottled water?And on selling Fried chicken/beef burger!If that is easy, how about fighting a war.

    Wars are won/ lost by disrupting enemysupply linesDeliver 4 shells with 6 guns and youllsurrender.

    Video Reference: https://www.youtube.com/watch?v=Mi1QBxVjZAw

    The video film (https://www.youtube.com/watch?v=Mi1QBxVjZAw) we have just seen portrayed anexample of what is involved in running a simple bottled water business. Through that simple exampleof a super-simple product we begin to see that the companies face challenges when they buythings, make things, move things, sell things and service things. The businesses need to give theircustomers, the product they want, when they want, as often as they want for a reasonable price whilestill managing to make a profit. Whose job it is make sure that all of these things happen flawlessly,with minimal effort and of course at minimum cost. Of Supply Chain Manager! The Supply ChainManager needs to be able to do all of these things. We can extend this example to a service supplychain like the hotel example we saw in the video film.When you buy a burger from McDonald or a Zinger from KFC, have you thought where all of theingredients came from that produced your sandwich? Depending on the restaurants location,McDonalds and KFC source their ingredients from both local and global suppliers. The challenge isto ensure that all restaurants in their network have enough ingredients to meet customer demand.This requires planning, implementing, and controlling the efficient, effective flow and storage of goodsand services to deliver the burger to you.If this still seems easy, think of the effort that goes into running an organization such as an army. AnAmerican General was asked to define the logistics function. The definition given was The scienceof planning and carrying out the movement and maintenance of forces.... those aspects of military

    operations that deal with the design and development, acquisition, storage, movement, distribution,maintenance, evacuation and disposition of material; movement, evacuation, and hospitalization ofpersonnel; acquisition of construction, maintenance, operation and disposition of facilities; andacquisition of furnishing of services.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    3/36

    Logistics

    The word logistics was first associatedwith the military in 1905 as a branch of warthat pertains to the movement and thesupply for armies.

    Now, business and service managers uselogistics to fine tune their processes

    The organization of resources to fight a war is not new. Armies do not walk onempty stomach (Napoleon). In 4 th century BC, Alexander the Great's campaign arerecognized as model for logistics. He is known to use the following techniques.He maximized swiftness of action and flexibility of the army by eliminating the usualtraveling team of servants, wagons, and spouses from the marching army.

    He developed alliances with conquered and friendly locals, which enabled his armyto be constantly provided magazines of provisions. (Inspired by Thebes, many citiessurrendered to Alexanders army before fighting, and subsequently pledged theirsupport and supplies to the Macedonian army.)He marched along rivers to provide easy access to sea transport, which coulddeliver tons of supplies compared to 200 pounds per beast of burden.He set up bases to provide shelter and supplies prior to the armys arrival. (Thesebases were supplied by surrendered cities, ships, or allies.)While the organizing resources for war is not new, the term used to describe theoperations; logistics was coined in 1905 as a branch of war that pertains to themovement and the supply for armies.Now, business and service managers use logistics to fine tune their processes.Logistics concept was introduced due to the need for planning and coordinating thematerial flow from source to user as an integrated system, rather than managing theflow of goods as a series of independent activities.We can define logistics management as a means to satisfy the customer needsthrough coordination of material and information flows that extend from the marketthrough the firms operations and beyond that to the suppliers.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    4/36

    Definition of Logistics

    Logistics - ...the process of planning, implementing, andcontrolling the efficient, effective flow and storage of goods,services, and related information from point of origin topoint of consumption for the purpose of conforming tocustomer requirements." (Reference: Council of LogisticsManagement)

    (Note that this definition includes inbound, outbound,internal, and external movements, and return of materials)

    Best logistics strategy is not just to get the product from the

    supplier to the customer the fastest and always be in stockfor all organizations. If this were true, most organizationswould not be profitable today.

    The definition of logistics given here is by the Council of Logistics Management.This definition describes logistics management as a means to satisfy the customer needsthrough coordination of material and information flows that extend from the market through the firmsoperations and beyond that to the suppliers.One of the important aspect of conforming to customer requirement (returns) is not covered in this

    definition. Returns is an essential part of supply chain management. Products require return fora variety of reasons such as overstock, safety or quality defects, damaged, expiredor near the end of their shelf life. This handling of returns is a routine part of thesupply chain operations and must be considered so.

    The definition given above basically covers the forward logistics. Another term;reverse logistics, has been coined to include the returns. The reverse logistics isdefined as:

    Process of planning, implementing and controlling the efficient, cost-effective flowof raw materials, in-process inventory, finished goods and related information fromthe point of consumption to the point of origin for the purpose of recapturing value or

    proper disposal.

    The objective of meeting the customer requirement has to be balanced with thecosts. The logistics strategy is not just to get the product from the supplier to thecustomer the fastest and always be in stock for all organizations. If this were true,most organizations would not be profitable today.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    5/36

    THE PURPOSE OF ALOGISTICS SYSTEM

    RIGHT QUANTITIES of theRIGHT GOODS to theRIGHT PLACES at theRIGHT TIME in theRIGHT CONDITION at theRIGHT COST.

    Creating a logistics strategy is a balancing actCreating a logistics strategy is a balancing act which takes many variables into account. which takes many variables into account.

    The specific objective of an ideal logistics system is to ensure the flow of supply tothe buyer, the:right productright quantities and assortments

    right placesright timeright cost / price and,

    right conditionThis implies that a firm will aim at having a logistics system which maximizes thecustomer service and minimizes the distribution cost. However, one canapproximate the reality by defining the objective of logistics system as achieving adesired level of customer service i.e., the degree of delivery support given by theseller to the buyer. Thus, logistics management starts with ascertaining customer

    need till its fulfillment through product supplies and, during this process of supplies,it considers all aspects of performance which include arranging the inputs,manufacturing the goods and the physical distribution of the products

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    6/36

    /SC /SC

    SCM Evolution

    Battaglia developed a model which indicates the way in which SCM has evolvedfrom its main constituent functions from the 1960s to date. It indicates that theevolution has involved a shift from highly fragmented to much more integratedapproaches with the 1990s characterized as the decade of Total Integration.

    During the Evolving Integration decade (the 1980s) various functional areasbecame integrated into materials management and physical distribution thesethen became further integrated under the logistics umbrella. SCM extends thisintegration further by linking logistics with manufacturing, information technology(IT), marketing, sales and strategic planning. The model provides a useful visualrepresentation of the way in which companies have attempted to move awayfrom the functional stovepipe or silo approach to more integrated approaches,facilitated by IT . It is interesting to note that this model is analogous to two otherthree phase approaches to logistics evolution.

    The evolution of logistics management and the role of logistics managers is oftendescribed in the following three phases:

    1. Functional management (19601970): Functions such as purchasing, shippingand distribution are each managed separately.

    2. Internal integration (1980s): The management of the supply chain functions of asingle facility is unified and it becomes the responsibility of a single individual.

    3. External integration (1990s): The management of supply chain functionsthroughout the chain is unified.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    7/36

    SCM Evolution

    Internal

    SC evolution from fragmentation to evolving integration. Developments ininformation technology supported the integration process. Availability of Internalserver based IT allowed internal integration while the availability of web basedinformation technology allowed the suppliers and customers integration with theinternal supply chain resulting in fully integrated logistics/SC.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    8/36

    Supply Chain- Definition

    Supply Chain is a sequence of firms that performactivities required to create and deliver a goodor service to consumers or industrial users.The network of organizations that fulfill customerneeds

    Can either be product or service orientedProduct: cars, computers, etc.Service: MBA students, Hospitals

    By definition, incorporates multiple firms ororganizations not under central control

    Despite the popularity of the term Supply Chain Management, both in academia andpractice, there remains considerable confusion as to its meaning. Some authorsdescribe SCM in operations terms involving flow of products and materials, someview it as a management philosophy, and some view it as a management processThe US-based Council of Supply Chain Management Professionals (CSCMP)defines SCM as follows:Supply chain management encompasses the planning and management of allactivities involved in sourcing and procurement, conversion, and all logisticsmanagement activities. Importantly, it also includes coordination and collaborationwith channel partners, which can be suppliers, intermediaries, third-party serviceproviders, and customers. In essence, SCM integrates supply and demandmanagement within and across companies. There is a growing recognition that firms cannot achieve their true competitivepotential by operating in isolation. The philosophy of SCM is based firmly on arecognition that it is only by working in a more integrated manner that competitiveadvantage can be maximized. These aspects are covered in this definition.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    9/36

    Supply Chain Management

    Supply Chain Management encompassesall Logistics Management activitiesImportantly it also includes coordinationcollaboration with channel partners whichcan be suppliers, intermediaries, third partyservice providers and customersIn essence, Supply Chain Management

    integrates supply and demandmanagement within and across companies.

    The US-based Council of Supply Chain Management Professionals (CSCMP)defines SCM as follows:Supply chain management encompasses the planning and management of allactivities involved in sourcing and procurement, conversion, and all logisticsmanagement activities. Importantly, it also includes coordination and collaborationwith channel partners, which can be suppliers, intermediaries, third-party serviceproviders, and customers. In essence, SCM integrates supply and demandmanagement within and across companies.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    10/36

    Types of Industrial Supply Chains

    The industrial supply chain consists of threekey sectors:

    1. Primary (or extractive) sector2. Secondary (or manufacturing) sector3. Tertiary sector industries

    The industrial supply chain consists of three key sectors:1. Primary (or extractive) sector - providing raw materials such as oil and coal orfood stocks like wheat and corn. Some raw materials are sold immediately forconsumption, such as coal to power stations. Others are used further up the supplychain to be made into finished goods.2. Secondary (or manufacturing) sector industries make, build and assembleproducts. Examples include car manufacturers or bakers who use primary products.For example, Textile Mills purchase cotton from the primary sector.3. Tertiary sector industries do not produce goods. They provide services such asin banking, retailing, leisure industries or transport.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    11/36

    Primary (or extractive) sector

    Provide raw materials such as oil and coalor food stocks like wheat and corn.Some raw materials are sold immediatelyfor consumption, such as coal to powerstations.Others are used further up the supply

    chain to be made into finished goods.

    Primary or extractive chainsProvide raw materials such as oil and coal or food stocks like wheat and corn.Some raw materials are sold immediately for consumption, such as coal to powerstations.

    Others are used further up the supply chain to be made into finished goods.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    12/36

    Secondary & Tertiary Sectors

    Secondary (or manufacturing) sector industriesmake, build and assemble products. Examplesinclude car manufacturers or bakers who useprimary products.Tertiary sector industries do not producegoods. They provide services such as inbanking, retailing, leisure industries or transport.

    Secondary sector businesses obtain their raw materials from primary suppliers suchas cotton or oil producers. In some cases, they add further value to productsalready processed by a secondary sector business e.g. using tyres produced byanother company as an input to their product (car).Large-scale manufacturers need to consider many different aspects of theiroperations:Where to locate the business this could be near to materials suppliers. Forexample, power stations are often sited near to coal sources to reduce deliverycosts. Frozen peas factories may be near farms to ensure the product is fresh.Kelloggs ingredients are grown in many countries. It is more important for itsmanufacturing sites to be near to distribution channels and customers so productscan reach shelves quickly.Size and scale they need large factories with adequate space for equipment and

    production processes. They also need to accommodate the frequent delivery ofincoming materials and outgoing finished goods.The final stage in the industrial supply chain is the tertiary sector. The tertiary sectorprovides services. It does not manufacture goods. This sector involves:Retailers like supermarkets that purchase manufactured goods from secondarysector businesses and sell them to the consumersService companies who may deal in, for example, finance, computer systems,warehousing or transportation.Storing stock and transporting it are key activities that link all three parts of thesupply chain.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    13/36

    Simplistic Supply Chain

    Supplier Manufacturer Wholesaler/

    Distributer Retailer Customer

    Information

    Product

    Funds

    Supply chain management is far more than just order fulfillment. It encompasses allthe processes from product generation through end of-life recycling and disposal.The traditional linear functional view of the supply chain shows material, informationand finances flowing towards the customers with the focus on order fulfillmentbetween each player in the supply chain. A process view focuses on the product lifecycle with each of the players involved with many different process and material,information and finances flowing both ways.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    14/36

    More Realistic Supply Chain

    The Firm

    Wholesa ler Wholesaler

    Retailer Retailer Retai ler Reta iler

    1st Tier Supplier 1st Tier Supplier

    3rd Tier Supplier

    2nd Tier Supplier

    3rd Tier Supplier

    2nd Tier Supplier

    Consumer/ Customer Base

    Resources BaseInformationFlow

    ProductFlow

    Sell Side

    Buy Side

    D own

    s t r e am of

    t h ef i r m

    U p s t r e am of

    t h ef i r m

    From the perspective of the manufacturer shown in the middle of the figure, connections areshown with the supplier (commonly referred to as a Tier 1 supplier) and then to thesuppliers supplier (commonly referred to as a Tier 2 supplier). We can trace upstream untilwe reach the resource base. On the downstream side, we can trace the customer (Tier 1customer) and then to the customers customer (Tier 2 customer) until we reach the finalcustomer (the consumer).An important characteristic of supply chains is the involvement of multiple tiers of suppliersand customers - both internal and external. Every organization has suppliers and customers;therefore, any firm that an organization does business with will also have links to suppliersand customers.

    It is not logical to focus on each tier extensively. In some cases, a fourth-tier supplier mightnot even be known. However, understanding that the supply chain has multiple tiers -beyond just a supplier and a customer - will help supply professionals know what to focustheir efforts and time on while making good decisions that do not negatively affect othertiers.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    15/36

    Traditional View of Suppliers &Businesses

    Porters Power ModelVery similar to Fords

    If a supplier makes a penny, that is a penny that Ford couldhave made

    i.e., classic adversarial relationship

    Multiple suppliers to spread riskMaintain internal manufacturing capability, just-in-case

    Vertical Integration

    Optimization of a relatively static chainLong life products

    The traditional view of supplier management, advocates minimizing dependence onsuppliers and maximizing bargaining power. Michael Porter describes this view ofsupplier management as follows:In purchasing then the goal is to find mechanisms to offset or surmount thesesources of suppliers power. . . Purchases of an item can be spread amongalternate suppliers in such a way as to improve the firms bargaining power.This traditional view shared by Ford as shown above meant dilution of supplierpower and vertical integration (purchasing the supplier) even if it meant working inan area which was not the firms core competency.Another aspect of traditional businesses was the product life. The same productcould be produced year after year and the businesses only had to improve/optimizea relatively static chain.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    16/36

    More Advanced View of SCM

    Minimize number of suppliersWork on Just-in-time suppliesVirtual Integration

    Control not ownership

    Adaptive & Responsive supply chainsRisk management & mitigation

    The new businesses focus on total cost of ownership and by minimizing number ofsuppliers they become large buyer of the suppliers output. They can use thisbuyers power to negotiate a good price, insist on zero defect supplies. In case azero defect supply can be assure the supplies could be delivered just before theyare required eliminating the need for large inventories. Instead of vertical integrationthe buying power and mutual interest gives the firm a virtual control over thesupplier.Another current priority is getting the tools we need to create an adaptive andresponsive supply chain strategy. A responsive supply chain is distinguished byshort production lead-times, low set-up costs, and small batch sizes that allow theresponsive firm to adapt quickly to market demand, but often at a higher unit cost.Supply chain risk is about any threat of interruption to the workings of the supplychain. Risk may be generated as a result of risks that are either internal or externalto the company, Mitigation is a hedge against risk built into the operationsthemselves and, therefore, the lack of mitigating tactics is a risk in itself.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    17/36

    Discuss the key differences between the supplychain for a service and a manufacturing

    organization.

    The commonalities between manufacturing supply chain and service supply chainhave not been discussed much in extant literature. This is natural given thatservicing and manufacturing share so much similar processes and the ultimategoals are both operational and/or financial success. Many operations managementeducators who are manufacturing operations researchers are unwilling to accept theidea that service should be studied in different ways, using different theories, skills,competencies, and language One reason for the denial to have service studiesas a new field is that manufacturing and servicing businesses really have a lot incommon. The set of commonalities are very likely much larger than the set ofdifferences as shown above

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    18/36

    Discuss the key differences between the supplychain for a service and a manufacturing

    organization.

    The inherent particularities of service industries can be generally summarized as follows: laborintensive, customer involvement and service heterogeneity, intangibility, simultaneity of productionand consumption, and customer-supplier duality:Labor intensive: delivery of service products often involves many manual processes that require theinteraction of human beings. Hence, solutions that use standardization and automation to improveoperational efficiency are less applicable in the service industryCustomer involvement and service heterogeneity: customer often plays a critical role in servicedelivery process or sometimes even the service initiation process itself, for example, electronicsrepair service.Intangibility: service provided is often intangible, such as education. Intangibility leads to three issues,namely, difficulty to store, difficulty to account for, and difficulty to identify suppliers. An intangiblegood can be stored probably only in scientific novels. This characteristic significantly shifts the focusof management from buffering by inventory to managing capacity and ensuring capacity flexibilityCustomer-supplier duality: The best example for the duality is the electronics repair service. In thatcase, a customer supplies the malfunctioning electronics and receives the service to fix it. Fourimplications of the duality are:

    - Service can not start until the supply of inputs from customers.

    - Service tends to be heterogeneous.- Service has to be labor intensive.- Service location is closer to customers.Reference: Ming Zhou, Taeho Park, (2009), Commonalities and Differences between Service andManufacturing Supply Chains: Combining Operations Management Studies with Supply ChainManagement, California Journal of Operations Management Volume 7, Number 1, pp 136-143

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    19/36

    Creating a Strategic Advantage

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    20/36

    Creating a Strategic Advantage

    What are the strategic objectives of theorganization?- Strategic Analysis of the Competition

    - Evaluate Channel Structure

    The answers to the above question will give an organization aroad map to set its customer service policy. This policy isthen translated to the channel structure to best meet the

    organizations goals in the most efficient and effectivemanner for a competitive advantage

    Strategic objectives focuses on winning market share, overtaking key competitorson product quality or customer service or product innovation, achieving lower overallcosts than rivals, boosting the companys reputation with customers, winning astronger foothold in international markets, exercising technological leadership,gaining a sustainable competitive advantage, and capturing attractive growthopportunities.Strategic objectives need to be competitor-focused and strengthen the companyslong-term competitive position. A company exhibits strategic intent when it pursuesambitious strategic objectives and concentrates its competitive actions and energieson achieving that objective. The strategic intent of a small company may be todominate a market niche. The strategic intent of an up-and-coming company maybe to overtake the market leaders. The strategic intent of a technologicallyinnovative company may be to create a new product. Small companies determinedto achieve ambitious strategic objectives exceeding their present reach andresources, often prove to be more formidable competitor than larger, cash-rich

    companies with modest strategic intents.The strategic analysis of the competitor allows a company to decide its strategy togain an edge over the competitor. The answers to the above question will give anorganization a road map to set its customer service policy.

    This policy is then translated to the channel structure to best meet theorganizations goals in the most efficient and effective manner for a competitiveadvantage

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    21/36

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    22/36

    Competitive Advantage Commercial Success

    Commercial Success

    Cost Advantage Value Advantage

    Cost Advantage helps in productivity advantage andsuccessful companies have:

    PRODUCTIVITY ADVANTAGE: lower cost profile

    VALUE ADVANTAGE: product offering

    IDEALLY, A COMBINATION OF BOTH

    Since cost advantage helps in achieving productivity advantage, we can concludethat successful companies either have:Productivity advantageValue advantage, or

    Ideally, a combination of both.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    23/36

    Productivity Advantage

    Asset UtilizationInventoryReductionIntegration withsuppliers

    Realcostperunit

    Cumulative volume

    Comes from experience in efficientproduction, greater sales volume, economyof scale and declining of all costs withincrease in volume.

    Productivity advantage is in terms of a lower cost profile, while value advantage is interms of a product offering a differential plus over competitive offerings.Productivity advantage is characterized by low cost of production due to greater

    sales volume, economics of scale enabling fixed costs to be spread over a greatervolume and the impact of the experience curve.As per the experience curve shown above, the rate of output of workers improvesas they become more skilled in processes and tasks, on which they work and allcosts, not just the production costs, decline at a given rate as volume increases.Thus the experience curve provides a relationship between the real unit costs andcumulative volume. It also implies that cost declines apply only to value additionsi.e. costs other than bought out supplies.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    24/36

    Value Advantage

    Strategy based upon differentiated valueProduct image & reputationService: Delivery service, after salesservice, technical support, financialpackageCustomer/company relationship

    CUSTOMERS DONT BUY PRODUCT,THEY BUY BENEFITS

    Adding value through differentiation is extremely powerful means of achievingcompetitive advantage. Brand image and reputation are powerful value advantages.Company reputation for quality and reliability gives a new product a head start.Another method of adding value is service. Service relates to the process ofdeveloping relationship with the customers through provision of an augmented offerin forms such as delivery services, after sles services, financial packages, technicalsupport.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    25/36

    Productivity & Value Advantage Matrix

    Commodity Market

    Little or no productor value advantage

    Cost Leader

    Mainly Productivityadvantage

    Service Leader

    Mainly valueadvantage

    Cost & Service Leader Excel in value chain

    activities and also haveproductivity advantage

    Productivity Advantage

    V al u

    eA

    d v an

    t a g e

    Capacity Utilization

    Asset Utilization

    Inventory Reduction

    Integration with suppliers

    Customizedservices

    Reliability

    Responsiveness

    1 2

    3 4

    Successful companies seek to achieve a position based upon both productivityadvantage as well as value advantage.For companies in quadrant-1, the market is an uncomfortable place as theirproducts cannot be differentiated from their competitors offerings and they do nothave any cost advantage. These are commodity markets.Companies in quadrant-2 adopt cost leadership strategies. Traditionally, these arebased on economies of scale. Also, a significant route to achieving cost advantageis through logistics/SC management. In many industries, logistics constitutes amajor proportion of total costs, hence by reengineering logistics processessubstantial cost reduction can be achieved.

    Companies in quadrant-3, seek differentiation through service excellence sincemarkets are becoming more and more service sensitive, Customers expect greaterresponsiveness and reliability from suppliers, reduced lead times, just-in-timedelivery, and value added services.

    Companies in quadrant-4, are distinctive in the value they deliver and are also costcompetitive. Thus competitors find it extremely hard to attack these companies.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    26/36

    Right Place at the right time

    Due to increased competition and productimprovements power of brand value isdeclining.Technological difference betweencompany product is also decliningAvailability at the point of sales isimportant to retain even an old satisfiedcustomer, otherwise the sale will be lost tocompetitor

    Customer service is a major valueadvantage .

    As businesses recognize the importance of brand image, quality and reliability manycompeting industries/businesses have acquired very similar brand image (e.g. notmuch difference between Pepsi and Coke). Technical difference are also erodingand many competing products have similar technical specifications too.This means that if product A is not available where the customer is, the sale couldbe lost to the competitor. Hence, marketing of product is crucially important to winthe customer. Customer service is a major value advantage

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    27/36

    Impact of Logistics & Customer Serviceon Marketing

    For the consumer the customer service, brand value,corporate image and availability are importantconsiderations.Marketing is improved with strong ties with intermediarysuch as large retail outlets creating customer franchisesas well as what the consumer is looking for.The consumer and customer franchises need aneffective supply chain to result in market effectiveness.

    ConsumerFranchise X X =

    CustomerFranchise

    Supply ChainEfficiency

    MarketEffectiveness

    Brand Value

    Corporate Image

    Availability

    Customer Service

    Partnership

    Quick Response

    Flexibility

    Reduced Inventory

    Low Cost Suppliers

    Market Share

    Customer Retention

    Superior ROI

    Marketing Effectiveness

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    28/36

    Barriers to SC Integration

    Barriers to Logistics/SC Integration arisefrom inappropriate

    Organization StructureMeasurement SystemsInventory OwnershipInformation TechnologyKnowledge Transfer Capability

    Organization StructureTraditional organization structure prevents any cross-functional process from beingimplemented. Each functional area concerns itself with achieving its own functionalexcellenceReason: Most managers are rewarded for achieving functional excellenceSignificant modification of how an organization deals with cross-functional matters is

    essential for successful process integrationMeasurement SystemsTraditional measurement systems have also made cross-functional coordination difficult.Managers must learn to view their specific functions as part of a process rather than asstand-alone activities and accept increased costs within their functional area for the sake oflower costs throughout the processMeasurement system must not penalize functional managers, otherwise logistical integrationwill be more theory than practice .Inventory OwnershipThe cost-benefit relationship and the risks related to incorrectly located or obsolete inventorymust be considered.Information TechnologyPerformance measurement, information system applications tend to be designed alongorganization lines. Many databases limited to specific functions and not easily accessed ona cross-functional basisLogistical/SC integration requires sharing of critical data across functional areas.Knowledge Transfer Capabilityknowledge containment tends to foster the functional orientation by developing a workforcecomposed of specialists. The failure to transfer knowledge can also create a barrier tocontinued integration when an experienced employee leavesFailure of many firms to develop procedures and systems for transferring cross functionalknowledge is a barrier to logistics integration

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    29/36

    Elements of Supply ChainCompetency

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    30/36

    Planning & Coordination Flows

    Planning Flows

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    31/36

    Planning & Coordination Flows

    OPERATIONAL FLOWS

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    32/36

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    33/36

    Inventory Management PolicyCustomer SegmentationProduct RequirementTransportation IntegrationTime Based RequirementCompetitive Performance

    CustomerSegmentation

    ProductRequirement

    TransportationIntegration

    Time-basedrequirements

    Competitiveperformance

    Inventory Management Policy Selective Deployment

    Customer SegmentationMore weightage to highly profitable and customers with growth

    potential. Inventory needs to be focused on highly profitable customers (part ofsegmented logistics)

    Product RequirementsIn most cases, there is substantial difference in volume and

    profitability across product lines. Selective inventory policy demands moreimportance to be given to product line profitability. An enterprise takes more care ofits highly profitable items.Transport Integration

    Regional warehousing saves transportation costs which may offset thecost of holding inventoryTime based requirements

    Produce and supply products when required to save on inventorycosts. In cases when the raw materials and products can be delivered quickly,safety stock can be reduced for lower inventory costsCompetitive Performance

    Inventories need to be analyzed with competitors in mind.Unnecessarily higher inventories make a company uncompetitive. Analyze!

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    34/36

    Superior Network Design

    SC facilities typically include manufacturingplant, warehouses, cross-dock operations,outsourced facilities and retail storesAll logistical facilities must be managed as a

    part of companys logistical/SC network.The design network including information andtransportation, also handles customer orders,maintains inventory and materials.Network design needs to be modified toaccommodate changes in demand and supply,product mix, suppliers supplies andmanufacturing requirements.

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    35/36

    1. What is supply chain management?2. What are the sources of competitive advantage

    in supply chain?3. What are the implications of supply chain

    management in logistics?4. Explain the concept of value advantage. How

    value advantage can be achieved throughcustomer service and production activities?

    5. How logistics and customer service affectmarketing?

    Reference: Logistics Management by Satish C.Ailwadi and R. Singh, Prentice Hall of India,2005

  • 8/11/2019 Class 1-Intro-Class Lecture With Notes

    36/36

    The end