WORK SHOP ON SUPPLY CHAIN MANAGEMENT

OUTBOUND

LOGISTICS

MANAGEMENT

C K NAGENDRA GUPTHA,

Dept. of I E M, R V College of Engineering

Companies are facing rapidCompanies are facing rapidchange and are under a variety of pressureschange and are under a variety of pressures

• An increased focus on Globalization• An increased focus on Supply Chain Management

TODAY’S OPERATING ENVIRONMENTTODAY’S OPERATING ENVIRONMENT

MassCustomization

Reduce Timeto Markets

Introduce New Products

Frequently

Customize productsin Niche Markets

Sell Globally

CompaniesCompanies

Reduce Costs

CUSTOMER EXPECTATIONS

• Many players in each industry - domestic / international / unorganised: competition in all segments

• Expectations being shaped by products & services across industries

• Unwilling to bear inefficiencies / costs of suppliers

• Increasing need for customized services & products

• Need for responsiveness in fast changing scenarios

• Loyalty cannot be taken for granted

WHAT DOES THIS MEAN FOR THE MANUFACTURER?

• “Loyal consumers” may switch to competition if desired product is not available / delivered

• Retailers expect immediate response to product / service needs

• Distributors are unwilling to carry inventory beyond accepted norms

• Cost of inventory in the supply chain is eventually borne by manufacturer

COMPETITIVE PRESSURES

Rapid SKU proliferation

To address different customer segments:

•Increasing need for wide variety

•Great push to introduce new products rapidly

ForecastingErrors

Long cycle times

High uncertainty

LEADING TO….

•Poor responsiveness

•Inventory build-up at various stages

… a sluggish & inefficient supply chain

• Being responsive to market needs &

changes

• Optimise on inventory levels across the

chain: vendor, mfr., distributor, retailer, etc

• OTIF: Order fulfillment on time in full

OBJECTIVES OF SCM:

WHAT IS SUPPLY CHAIN MANAGEMENT?

??

????

??

??

??

If you think it is to...

Manage the component parts from Suppliers

Manage inbound freight

Manage outbound freight

Manage product distribution

Manage logistics and warehouses

SUPPLY CHAIN MANAGEMENT

SCM requires managing the flow of information & material….

across suppliers, manufacturer, CFAs, distributors, retailers etc. to meet customer

expectations

A WELL-DESIGNED SUPPLY CHAIN ADDRESSES ISSUES THROUGHOUT THE CHAIN:

Time to Market

Lead Times / cycle times

Inventory formation and accumulation

Information and demand flow

Product flow

Planning & procurement processes

Distribution and logistics

SUPPLY CHAIN DESIGN

Information

Supplier Supplier Manufacturer Wholesale Distribution Sales Level 3 Level 2

Means:

Evolves to:

- Seam less Flow- Eliminate waste- Reduce cycle time

Profitability Customer SatisfactionROAEPS

Materials & Products

Waste Waste Waste Waste Waste

INFORMATION FLOW : A CRITICAL COMPONENT OF SCM

• Flow of information up & down the chain is as important as Material Flow

• Helps reduce uncertainty• Improves credibility & defines customer

expectations• In the internet age - it will be a must for

all supply chains• IT is playing a big role in keeping

communication flowing

IMPROVING INFORMATION FLOW IS CRITICAL TO ACHIEVING A WORLD

CLASS SUPPLY CHAIN

2

18

37

43

0

0 10 20 30 40 50

Not Important

Somewhat Important

Important

Very Important

Critical

% of Respondents

METHODS TO IMPROVE INFORMATION FLOW: ROLE OF IT

• ERP systems– Focus on transaction processing – Integrates various functions within the organisation– Ensures connectivity across geographic locations– Provides a clean & single information back bone– Is fast becoming an industry standard– Helps the organisation to become process oriented

• E-connectivity– Is useful as a medium for connectivity across various entities– Cheaper , faster , non-hierarchical (network)

ROLE OF IT… CONTD.

• SCM Packages– Used mainly as a decision support tool in the planning

function– Optimise various planning processes: forecasting, demand

planning, factory planning, etc.. – Helps modify the planning process based on real time

changes or constraints in the operations e.g.: likely order completion date due to unforeseen delays, etc

– Draw basic information from ERP / other transaction processing systems

PERFORMANCE MEASURES

• Motivation of supply chain links can improve only if performance measures are put in place

• Focus of performance measures on Interfaces between entities of the chain in place of independent individual entity performance

• Performance measures need to be derived from overall objective of supply chain - I.e. they need to be aligned across the chain

PERFORMANCE MEASURES

Some common examples:• Production alignment to demand

• Order Fulfilment ratio (On time in full) or Availability cover

• Forecasting efficiencies

• Distribution efficiency

• Vendor rating on delivery reliability, lead times

• Inventory turns

• Cycle times / Response time / Average Lead time

SCOPE OF SCM

• Demand Planning• Production Planning• Distribution planning• Supply Chain Strategies• Information management • Performance Measures

EXTENDING THE SUPPLY CHAIN TO INCLUDE OUR BUSINESS ASSOCIATES

Aligned Distribution

The New LinkSynchronized Production

Trade

SUPERMARKET

RDS/WOTSuppliersFactory

Tomorrow - Demand Communication

CFA

Tomorrow - Inventory Visibility

Today

Before SAP

Showroom

SUPERMARKET

RDS

Factory

CFACorporate

RO

Today - with SAP R/3

Showroom

SUPERMARKET

RDS

Factory

CFACorporate

RO

SAP R/3

HOW IS THIS HELPING US?

• Facilitation of CRP flow

• Better distribution and stock correction

• Smarter demand planning

• Rapid demand communication

• Responsive supply chain - changes in demand / supply being incorporated

TOMORROW - A “PULL” BASED SYSTEM ACROSS THE SUPPLY CHAIN

ConsumerShowroomPlantsSuppliers

RDS

CFA

Extended CRP system

THE EXTENDED SUPPLY CHAIN

A win-win situation

– Secondary sales data will be available to us leading to sharper forecasting

– Pull system will ensure leaner inventories across the chain

– Increased availability of A category products for BAs

– Leading to better customer service (End & intermediate customers)

Fit Between Competitive & Functional Strategies

Components of Logistics Management

Management Actions Planning Implementation Control

Natural resources (land,

facilities, & equipment

Human resources

Financial resources

Information resources

Marketing orientation

(competitive advantage)

Time & place utility

Efficient movement to

customer

Proprietary asset

Raw materials

In-process inventory

Finished goods

Logistics Management

Suppliers

Vendors

•Customer service •Demand forecasting•Distribution

communication •Inventory control•Material handling•Order processing •Parts and service support

•Plant & warehouses site selection

•Procurement•Packaging•Return goods handling•Salvage and scrap disposal •Traffic and transportation •Warehousing and storage

Logistics Activities

Inputs into Logistics

Outputs of Logistics

CHANNELS OF DISTRIBUTION

CHANNELS OF DISTRIBUTION

• A channel of distribution can be defined as the collection of organization units either internal or external to the manufacturer, which performs the functions involved in the product marketing.

• The functions of marketing include:

– Buying - Providing marketing Information

– Selling - Grading

– Transporting - Financing

– Storing

The channel member performs one or more of the above functions

Alternative Channels of Distribution for Consumer Goods

Alternative Channels of Distribution for Industrial Goods

Manufacturer Manufacturer Manufacturer Manufacturer

Industrial User

Agent or broker

Industrial user

Industrial Distributor

Industrial user

Agent or broker

Manufacturer

Industrial User

How Intermediaries Reduce the Cost of Market Contact between Supplier & Customer

Distribution Channels – Grocery Products Manufacturer

Suppliers

Manufacturer

Plant

Another plant

Field Warehouses

Wholesalers Chain store warehouses

Co-ops Military

Retailers

Consumers

Product flows Information flows

Key:

Inventory Positions and Major Flows in a channel of distribution

Supplier Manufacturer Wholesalers Retailers

Orders

Payments

Information

Product

Orders

Payments

Information

Product

Orders

Payments

Information

Product

Variable cost of product

$5 Variable cost of material

$10 Variable cot of product

$60 Variable cost of product

$80

Full manufactures cost

$7 Acquisition costs $1 Other acquisition costs

$2 Other acquisition costs

$2

Selling price $10 Other variable costs

$14 Selling price $80 Selling price $150

Total variable cost of product

$25

Full manufactured cost

$40

Selling price $60

CHANNELS OF DISTRIBUTION - Functions

• Reduce number of market contacts

• Provide utility by – sorting out, accumulating, allocation, and assorting.

• Routinization of transactions

• Reduce costs of – selling, transportation, inventory carrying, storage and order processing

CHANNELS OF DISTRIBUTION – Channel structure

• Postponement – of changes in form and identity of a product and inventory location to the last possible point in the marketing process. E.g. mixing of paint,

• Speculation – Converse of postponement, reduces costs through economies of scale

CHANNELS OF DISTRIBUTION – Design process

• Establish channel objectives

• Formulate a channel strategy

• Determine channel structure alternatives

• Evaluate channel structure alternatives

• Select channel structure

CHANNELS OF DISTRIBUTION – Design process

• Determine alternatives for individual channel members

• Evaluate and select individual channel members

• Measure and evaluate channel performance

• Evaluate channel alternatives when performance objectives are not met

CHANNELS OF DISTRIBUTION – Design considerations

Market coverage objectives– Customer buying behavior– Type of distribution – intensive, exclusive and

selective– Channel structure– Control

Customer service objectivesAvailabilityorder cycleCommunication

CHANNELS OF DISTRIBUTION – Design considerations

Product characteristics– Value - Perishability– Technicality - Market

concentration– Seasonality - Market acceptance– Substitutability - Width and Depth– Bulk

Profitability

CHANNELS OF DISTRIBUTION – Quick Response

• Quick seeks to maximize customer

satisfaction by having the right inventory in

the right place, without incurring the

expenses associated with excess inventory

Channel Cost / Revenue Analysis – Contribution Approach with a charge for assets Employed

Channel Alternative

1 2 3 4 5

Net Sales Cost of good sold (variable manufacturing cost)Manufacturing contribution

Marketing and logistics costs Variable costs:

Sales commissionsTransportation Warehousing (handling in and out)Order processing Charge for investment in accounts receivable Segment contribution margin

Channel Cost / Revenue Analysis – Contribution Approach with a charge for assets Employed

Channel Alternative

1 2 3 4 5

Assignable nonvariable costs (costs incurred specifically for the segment during the period):

Bade debtsDisplay racks Sales promotion SalariesSegment related advertising Other

Segment controllable margin

Charge for assets used by segment Net segment margin