Program & Batch: PGDM 2014-16

Term: IV

Course Name: SUPPLY CHAIN MANAGEMENT

Name of the faculty: DR. PARIJAT UPADHYAY

Topic/ Title : SUPPLY CHAIN NETWORK DECISIONS

Original

or Revised Write-up:

ORIGINAL

Group Number: GROUP 3

Contact No. and email of Group Coordinator:

Debasish Chatterjee9654608011

Group Members: Sl. Roll No. Name

1 1401-01013 Akshat K2 1401-01074 Kajal V3 1401-02060 Kaushik T4 1401-03044 Ayyappan A5 1401-03052 Debasish C6 1401-03064 Sashidhar G7 1401-02071 Manik G

ContentsSupply Chain Network...........................................................................................................................4

Framework for Supply Chain Network Design Decisions.......................................................................5

Factors influencing Network Design Decisions......................................................................................5

Strategic Factors:...............................................................................................................................6

Macroeconomic Factors:...................................................................................................................6

Political Factors:................................................................................................................................6

Infrastructure Factors........................................................................................................................6

Technology Factors............................................................................................................................6

Issues Pertinent to Facilities..................................................................................................................6

Life Span of the facilities:...................................................................................................................6

Example.........................................................................................................................................7

Focus on Tax and Tariffs....................................................................................................................7

Example.........................................................................................................................................7

Network Design issues in uncertain environment.................................................................................8

Essar Oil Retail Outlets......................................................................................................................8

DISTRIBUTION NETWORK DECISIONS....................................................................................................9

Definition of Distribution Network:...................................................................................................9

Factors Influencing Distribution Network Design..............................................................................9

Design Options for a Distribution Network......................................................................................10

Manufacturer storage with direct shipping.................................................................................10

Manufacturer Storage with Direct Shipping and In-Transit Merge..............................................11

Distributor Storage with Carrier Delivery....................................................................................12

Distributor Storage with Last Mile Delivery.................................................................................13

Manufacturer or Distributor Storage with Consumer Pickup......................................................13

Retail Storage with Customer Pickup...........................................................................................14

Selecting a Distribution Network Design.........................................................................................15

CASE 1: Chennai as an Automobile hub...............................................................................................16

CASE 2: P&G........................................................................................................................................17

Present Supply Chain Network........................................................................................................17

Heading Towards Automated Supply Chain Network......................................................................17

References...........................................................................................................................................18

Supply Chain NetworkThe network amongst different companies that are involved in producing, handling and/or distributing a particular product is known as the Supply Chain Network. All the players in the network work in integration to provide the right product, at the right price, at the right place and at the right time. The following diagram, will explain the difference between Supply Chain and Supply Chain Network:

Supply Chain Network in basic terms Involves determining following process design: Procurement

Location of your suppliersHow to procure raw materials and components

ManufacturingWhere to locate the manufacturing plants/assembly linesManufacturing process

Finished GoodWhere to hold inventories, number of warehouses, their location etc.How to distribute to markets - transportation and distribution logistics etc.

Customer Fulfilment is the key driver that drives all above decisions.

Framework for Supply Chain Network Design Decisions

In other words, Supply Chain Network Design examines: For every network element, it derives cost estimates How to reduce costs and optimize costs Examines cost impact on all available product lines and all probable permutations and

combinations to predict profitability

Factors influencing Network Design DecisionsNetwork Design decisions are primarily taken considering the multiple factors that could influence the supply chain costs. Some of the factors that could be listed are

Strategic Factors Macroeconomic Factors Technological Factors Political Factors Infrastructure Factors Socioeconomic factors

PHASE 1Supply Chain

Strategy

PHASE 3Desirable Sites

PHASE 2Regional Facility

Configuration

COMPETITIVE STRATEGY

INTERNAL CONSTRAINTSCapital, growth strategy,

existing network

GLOBAL COMPETITION

COMPETITIVE ENVIRONMENT

TARIFFS AND TAX INCENTIVES

REGIONAL DEMANDSize, growth, homogeneity,

local specifications

POLITICAL,EXCHANGE RATE,

AND DEMAND RISKAGGREGATE FACTORS AND

LOGISTICS COSTS

PRODUCTION TECHNOLOGIES

Cost, scale/scope impact, support required, flexibility

AVAILABLE INFRASTRUCTURE

PRODUCTION METHODSSkill needs, Response Time

PHASE 4Location Choices

LOGISTICS COSTSTransport, Inventory,

coordination

FACTOR COSTSLabour, Materials,

Site Specific

Strategic Factors: Firms will have to take network decision based on its competitive advantage. It has to take a call on responsiveness or efficient supply network to leverage their capabilities. This is the single most important factor that impacts majority of the decisions.

Example: Low cost electronic manufacturers like Flextronics and Foxconn gives a higher priority to decisions that are in favour of low costs. Whereas apparel manufacturer like Zara that bets on fast fashion, look to improve the responsiveness. Again firms will have to base their decision primarily on their strategy.

Macroeconomic Factors:Firm that would like to have international presence should primarily consider macro-

economic factors of the economies in which they operate. Global firm’s primary challenge is to tweak their business model in accordance to the macroeconomic factors. This will have a significant impact on the decision regarding the supply chain network.

Example: Host of automobile companies set their facilities in China due to the government policies. The policy stated that the cars sold in China should have at least 70% of the raw materials procured to be sourced from a local vendor.

Political Factors: Firms also face severe bureaucratic control even when operating in a free economy. Political

stability plays a crucial role in protecting the resources of the firm and the subsequent supply chain processes. There are few indices like GPRI which could help firms to assess a country’s political influence on the firm.

Example Reliance Fresh retail’s aggressive expansion was stalled due to the intervention of multiple state government. The state government claimed that the Reliance’s model was disruptive to the small vendors and Kirana stores. Therefore the company had to shut shops in few places in the country.

Infrastructure FactorsInfrastructure plays a vital role in placing a facility. Choice of an area where the

infrastructure is not up to the mark could lead to additional spending by the firm. So the availability of transport, utilities and skilled labour is a prime parameter for taking network design decision.

Technology FactorsFirms that operate with the technology that requires lesser fixed cost are most likely to

experience higher economies of scale. It also enables the firm to establish more plants closer to market to serve the customers better.

Example: Beverage companies like Coca Cola, Pepsi operates with facilities that can be built at lower cost. So to reduce cost on transportation, they build multiple facilities closer to their local markets.

Issues Pertinent to FacilitiesLife Span of the facilities:Managers have to be mindful of the location of the facilities and clearly define the purpose of it. Once it is done, it is imperative to choose the technology that is to be deployed. As the plant gets older, the technology deployed may get obsolete with the rapid change in the business environment. There are companies that have taken full advantage of elongated operations of

facilities. This has reaped them a good amount of profits. But many of the other companies were falling short in the same parameter and hence had lost lot of money.

Example Nokia Chennai Factory

The state of the art facility of Nokia in Chennai was once the largest assembler of electronics in the world. The factory once assembled 15 million phones a month. But several tax disputes caught up with the company which ran into serious trouble. Although the factory at its peak was the most efficient, it was not sold to Microsoft even when the entire company was bought. This was primarily due to the technology installation which could predominantly produce feature phones. With the world moving towards smartphones, there was a little headroom for growth to Nokia in the feature phone space.

Microsoft found the facility unattractive owing to its feature phone production capability. This was not in line with Microsoft’s vision as it kept the Chennai Plant out of its acquisition ambit.

Focus on Tax and TariffsThis is an important consideration for global companies to cash in on tax sops and offers available to them. Many firms are building their facilities at a country where the cost of taxes are very low and thereby gaining a huge cost advantage. China used to do this mechanism during 1990’s, but due to its unprecedented growth and higher cost in labour had made China no longer attractive to such incentives.

ExampleMexican Automobile Story

Mexico in recent times has become a brutal force in Automobile industry. This was primarily due to government’s investment policies which encourages many automobile giants to set shop and roll out production. The geographical advantage also lets Mexico to get connected to both Pacific and Atlantic Ocean. With the second largest automobile market US, right on top of Mexico, many automobile firms has capitalized this near shoring capabilities and started to reap profits.

Network Design issues in uncertain environmentEssar Oil Retail OutletsBuoyed by the huge energy demand and a strong back end integration gave Essar Oil an opportunity to be in Petrol retailing space which has very limited competition from private companies. But an aggressive pricing by state oil enterprises has left no place for margins to Essar and as a result has to shut their outlets. The subsidy offered by the government and the regulation of prices has bought Essar down to its knees. The entire supply chain network of Essar including the resources in transportation and skilled labours were all left jobless due to the external environment and government intervention in pricing.

This case was similar to Reliance retail fuel outlets which had to shut down most of its bunks due to unsustainable operations. Reliance recently had opened it fuel network due to deregulation in fuel pricing and that the resources are left long without any operations leading to depreciation in its investments. The opening of the outlets is a good news but the retail oil segment is an extremely price sensitive segment and often bought under the lens of the government leading to little control for such firms to persist.

DISTRIBUTION NETWORK DECISIONSDefinition of Distribution Network: An interrelated course of action of individuals, storerooms and transportation frameworks that moves merchandise and administrations from makers to purchasers. A conveyance system is the framework a company uses to get items from the producer to the retailer. A quick and dependable dissemination system is crucial to a fruitful business on the grounds that clients must have the capacity to get items and services when they need them.

Factors Influencing Distribution Network DesignAt the highest level, execution of distribution network ought to be assessed along two measurements:

Meeting customer needs Cost related to meeting customer needs

Meeting the customer needs will influence the firm’s revenues, which along with cost, will decide the profitability factor of the delivery network.

Now, the customer service consists of a lot of components, however the following measures are influenced by the distribution network:

Response time: The time between the point when a customer requests for a product and the point when the customer receives delivery.

Product variety: The count of various products that a customer looks for from the distribution network.

Product availability: The likelihood of having an item in stock when a client requests. Customer experience: The simplicity with which the client can submit and get their request Order visibility: The capacity of the client to track their request from position to conveyance. Ability to Return: The simplicity with which a client can return unsuitable stock and the

capacity of the system to handle such returns.

Changing the design of distribution network affects the following costs related to supply chain: Inventories Transportation Facilities and handling Information

Downright logistics expenses are the total of stock, transportation, and facility costs for a supply network system. As the quantity of facilities is expanded, complete logistics costs first abatement and afterward increment as indicated in Figure. Every firm ought to have in any event the quantity of offices that minimize downright logistics costs. As a firm needs to further lessen the reaction time to its clients, it may need to build the quantity of offices past the point that minimizes logistics costs. A firm ought to include offices past the expense minimizing point just if supervisors are certain that the increment in incomes on account of preferable responsiveness is more prominent over the increment in expenses due to the extra offices.

Design Options for a Distribution NetworkThere are two key decisions when designing a distribution network:

How will the product be delivered to the customer? Will product distribution involve any intermediary or intermediate location?

In view of the decisions for the two choices, there are six unique distribution network plans: Manufacturer storage with direct shipping Manufacturer storage with direct shipping and in-transit merge Distributor storage with package carrier delivery Distributor storage with last mile delivery Manufacturer / distributor storage with costumer pickup Retail storage with customer pickup

We now portray every option and talk about its qualities and shortcomings.

Manufacturer storage with direct shippingIn this alternative, item is dispatched straightforwardly from the maker to the end client, bypassing the retailer (who takes the request and starts the delivery). This choice is also known as drop transportation. All inventories are put away at the maker. Data streams from the client, through the retailer, to the maker, while item is transported specifically from the producer to clients.

Cost Factor Performance Inventory Lower expenses in total. Profits of total are most astounding for low volume,

high esteem things. Profits are extensive if item customization can be delayed at the producer

Transportation Higher transportation costs in view of expanded separation and dis-aggregate shipping

Facilities and handling

Lower office costs because of aggregation. Some saving money on taking care of expenses if producer can oversee little shipments or ship from production line.

Information Huge investment in IT infrastructure to coordinate maker and retailerService Factor PerformanceResponse time High reaction time of between 1-2 weeks on account of expanded separation

and two stages for request preparing. Reaction time may fluctuate by item, hence complicating the system

Product variety Simple to give a very high level of mixed bagProduct availability

Simple to give a high level of item accessibility in light of aggregation by manufacturer

Customer experience

Great regarding home conveyance however can experience the ill effects if order from several makers is sent in partial shipments

Order visibility More troublesome but more essential from a client administration point of view

Ability to Return Extravagant and hard to actualize

Manufacturer Storage with Direct Shipping and In-Transit MergeDissimilar to pure drop shipping where every item in the request is sent straightforwardly from every producer to the end client, in-transit merge consolidates bits of the request originating from distinctive areas so that the client gets a single delivery.

Example: At the point when a client requests a PC from Dell alongside a Sony screen, the bundle transporter grabs the PC at the Dell manufacturing plant, the screen at the Sony industrial facility and consolidations the two together at a centre before making a single delivery to the client.

Cost Factor Performance Inventory Same as drop shippingTransportation To some degree lower transportation costs than drop-shippingFacilities and Handling expenses higher than drop transportation at transporter level,

handling receiving expenses lower at client levelInformation Investment is to some degree higher than for drop-shippingService Factor PerformanceResponse time Like drop transportation, may be barely higherProduct variety Same as drop shippingProduct availability Same as drop shippingCustomer experience

Better than drop shipping in light of the fact that single delivery has to be received

Order visibility Same as drop shippingAbility to Return Same as drop shipping

Distributor Storage with Carrier DeliveryUnder this choice, stock is not held by producers at the manufacturing plants yet is held by wholesalers/retailers in intermediate warehouse centres and package carriers are utilized to transport items from the warehouses to the final client.

Example: Amazon.com as well as industrial distributors like W.W. Grainger use this method along with a combination of drop shipping from a producer.

Cost Factor Performance Inventory Higher than manufacturer storage. Difference is not vast for quicker

moving things Transportation Lower than manufacturer storage. Decrease is most astounding for

quicker moving things Facilities and handling

To a degree higher than manufacturer storage. The distinction can be vast for slow moving things

Information Less complex compared to manufacturer storageService Factor PerformanceResponse time Faster than manufacturer storage Product variety Lower than manufacturer storage Product availability Higher expense to give the same level of accessibility as storage by

manufacturersCustomer experience More efficient than manufacturer storage with drop shipping Order visibility Simpler than manufacturer storage Ability to Return Simpler than manufacturer storage

Distributor Storage with Last Mile DeliveryLast mile delivery refers to the wholesaler/ retailer conveying the item to the client's home as opposed to utilizing a package carrier.

Example: Webvan , Peapod, and Alberston's are a few firms that have used last mile delivery for the grocery industry.

Cost Factor Performance Inventory Higher than wholesaler storage along with package carrier delivery Transportation High cost given minimal scale economies. Higher than whatever other

dispersion choice Facilities and handling

Facility costs higher than manufacturer storage or wholesaler storage with package carrier delivery, however lower than a chain of retail locations

Information Like distributor storage with package carrier deliveryService Factor PerformanceResponse time Brisk. Same day to 24 hour delivery Product variety To some degree not as much as merchant storage with package carrier

delivery yet bigger than retail locations Product availability More extravagant to give accessibility than some other choice with the

exception of retail locations Customer experience Great, especially for bulky orders Order visibility Less of an issue and simpler to actualize than manufacturer storage or

merchant storage with package carrier delivery Ability to Return Less demanding to actualize than different choices. Harder and more

extravagant than a retail arrangement

Manufacturer or Distributor Storage with Consumer PickupStock is put away at the manufacturer or merchant distribution centre however clients submit their requests online or on the telephone and afterward come to assigned pickup points to gather their requests.

Example: 7dream.com worked by 7 Eleven Japan, which permits clients to get online requests at an assigned store. A B2B illustration is W. W. Grainger where clients can get their request at one of the Grainger retail outlets. On account of 7dream.com, the request is conveyed from a maker or merchant stockroom to the pickup area. On account of Grainger, a few things are put away at the pickup area while others may come from a central location.

Cost Factor Performance Inventory Can give similar results as any other options depending on the inventory

locationTransportation Lower than the utilization of package carriers, particularly if utilizing a

current delivery systemFacilities and handling

Office expenses can be high if new offices must be assembled. Expenses are lower if existing offices are utilized. The handling cost in the pickup site might be on the higher side

Information Critical investment in infrastructure neededService Factor PerformanceResponse time Like package carrier delivery with manufacturer or merchant storage.

Same day delivery feasible for things stored locally at pickup site Product variety Like other manufacturer or merchant storage alternatives Product availability Like other manufacturer or merchant storage alternatives Customer experience Lower than different choices on account of the absence of home delivery.

In zones with high thickness of populace loss of accommodation may be little

Order visibility Troublesome however importantAbility to Return To some degree easier given that pickup area can deal with returns

Retail Storage with Customer PickupStock is stored locally at retail locations. Clients either stroll into the retail location or put in a request online or on the telephone, and pick it up at the retail location

Example: Reliance Mart

Cost Factor Performance Inventory Higher than all different alternatives Transportation Lower than all different alternatives Facilities and handling

Higher than different alternatives. The increment in handling expense at the pickup site can be noteworthy for online and telephone requests

Information Some investment in infrastructure needed for online and telephone requests

Service Factor Performance

Response time Same day (prompt) pickup possible for things put away locally at pickup site

Product variety Lower than all different alternatives Product availability More costly to give than all different choices Customer experience Identified with whether shopping is seen as a positive or negative

experience by client Order visibility Minor for in store requests. Troublesome, however essential, for online

and telephone requests Ability to Return Less demanding than different choices given that pickup area can deal

with returns

Selecting a Distribution Network DesignA system designer needs to consider item qualities and system necessities when settling on the fitting delivery network. Just specialty companies will wind up utilizing a solitary delivery network. Most companies will be best served if they go for a combination of conveyance systems. The combination utilized will rely on item qualities and additionally the key position that the firm is focusing on.

A positioning of 1 demonstrates the best execution along a given measurement and the relative execution declines, as the positioning gets higher.

CASE 1: Chennai as an Automobile hubChennai is a preferred destination for automobile industry looking to establish in India. The city favours and houses many global automobile firms. Its proximity to port and encouraging investment

policies has enabled Chennai to elevate itself in the global automobile map. Some of the companies that has facilities in Chennai

These are the factors that encourage Chennai to be among the top automobile hub in the world. They are

Solid Vertical Integration Geographical Advantage Abundance of low cost labour and Land Encouraging investment policies Export Hub House of R&D Rise in Indian Home market

CASE 2: P&G

Present Supply Chain NetworkPresently P&G Supply Chain Network is based upon Consumer-driven supply system and Continuous replenishment methodology, which at a high level imply P&G trigger retail shipments in view of real information about what clients are purchasing in stores and what item is leaving the retailer's distribution centres, instead of the suppositions and unpredictable requesting examples of retail purchasers that was practiced before. They have an EDI system that integrate warehouse, retailer and manufacturer.

Heading Towards Automated Supply Chain NetworkP&G, the customer products giant, which possesses the Fairy, Bold, Olay and Pantene brands, has streamline and automate processing to satisfy retailers' requests. The computerized framework moves the item through the store network with 'zero touch' where conceivable. The new administration focus would have the capacity to convey the full item range to its retail clients "on one truck". Clients put in a request through a P&G centralized computer application called Cosmos. Record and stock data is handled utilizing SAP R/2 running on a centralized computer at the P&G's European server farm in Brussels. The request is then stacked into the warehouse management system, which processes the client request by flagging shuttle autos and conveyor belts over a radio system to recover pallets of items from the distribution centre. The pallets are moved from the mechanized distribution centre to one of 11 organizing lines. P&G, put resources into a 18-month undertaking to connection existing IT frameworks to this new Automated Processing.

References1. http://www.scdigest.com/assets/FirstThoughts/11-08-05.php?cid=4822 2. http://www.computerweekly.com/news/2240050722/PG-implements-zero-touch-supply-chain-

integration3. http://www.transportation.northwestern.edu/docs/research/

Chopra_DistributionSupplyChain.pdf4. http://sydney.edu.au/business/__data/assets/pdf_file/0009/136746/gauravp-presentation.pdf 5. http://www.caldwellpartners.com/reshoring-and-near-shoring-becoming-increasingly-viable-

manufacturing-options/ 6. http://www.ibtimes.com/mexico-auto-industry-why-are-kia-motors-bmw-nissan-mercedes-

headed-south-border-1671486 7. http://qz.com/81739/adios-motor-city-how-mexico-is-becoming-the-worlds-best-place-to-make-

cars/ 8. http://automotiveproductsfinder.com/APFCONTENT/coverstory/chennai-to-become-the-worlds-

largest-auto-cluster.php 9. http://www.aalhysterforklifts.com.au/index.php/about/blog-post/common_warehousing_issues 10.https://www.ce.udel.edu/UTC/Presentation%2009/ChuoranWangThesis.pdf