supply chain models & logistics network

8/12/2019 Supply Chain Models & Logistics Network

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DECISION IN SUPPLY CHAIN

Successful supply chain management involve severaldecision with varying time frames.

These can be classified in to two broad categories:1. Supply chain Design Decision2. Supply Chain Operation Decision

Prof. Rajeev Sharma, BIMTECH, Greater Noida


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Design Decision-I nvolves

What should be the design of Supply chain, type ofsupply chain to be used ( model to be followed) What activities to be carried out by Focal Firm & what

to be outsourcedHow to select entities/Partner to perform outsourcedactivities and what should be the nature of therelationship with those entities.

Decision pertain to capacity & location of variousfacilities.( Manufacturing, Warehousing, etc..)

It is a long term decision and are very expensive to alter in shortnotice.( Couple of years)



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Operation Decision- Involves

They are the short term decision regarding themanagement of supply chain operations.

Their time horizon of tactics ranges from Week to half orfull year some time. Even a Day decision is some timeunavoidable.

They involve following decisions.Demand forecastingProcurement planning & controlProduction planning & controlDistribution planning & control



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Inventory management

Information processing management Transportation & transit management Warehousing & storage management

Customer order processing

Vendor relation managementCustomer relation management

Channel partners management



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Lets understand

Turning out profit regularly is a tedious task for anyorganization



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Companies resort tomany a practices ranging from sales revenuemaximization to introduction of new product lineeven.

It may help in short term but does

not guarantee long term viability and growth.



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The only way to havesustained profitability is by resortingto operational excellence model

In horizontalorganizations or industry e.g. hi tech industry orretail etc Operational performance or

excellence is tightly connected to supply chainperformance.



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We have witnessed the companies resorting to thefollowing current methods now a days to attain theoperational excellence by implementingsophisticated advance planning systems, operationmanagement software's, and many a time real timeInventory management systems.



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These practices have reduced inventory size, andhave resulted into better inventory managementpractices also reduced cost structure.



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SCOR Model



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Myth

But the focus ofthese process & systems is operational and does notquite influence the design , manufacturing andsupply chain decisions that sets basic targets forsupply chain performance of a product line.



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That means other thanoperational excellence there is some thing whichresults into better supply chain design &performance .



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That can be productdevelopment phase of the product line



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Productdevelopment phase offers a large opportunity todesign superior supply chain performance and also itoffers wide latitudes in term of product design,component settlement, manufacturing flow type andsupply chain strategy type that can be used toachieve superior SC performance.



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How?

Lets explore



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There are three metrics which supports the profitability of the Supply chains they are recognized as the performance measures ofthe design of supply chains from product lineperspective.

AvailabilityLead time

Total costThey stand good from the operational performance point

of view also



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Product Design

New product development is a crucial part of business.

New product serve to provide growth opportunities and a competitiveadvantage for the firm.

Increasingly there is challenge to introduce new product more quickly without sacrificing quality.

New product design greatly affects operations by specifying the productsthat will be made, it is a prerequisite for production to occur.

Some time existing product can constrain the technology availableFor the new products.



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Product design should be closely coordinated with operations

Product Design

Process

Affects fourdecision areas

of operations

Quality Capacity

Inventory



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There are three fundamentally different ways to introduce newproducts

Market Perspective: Market is the primary basis for determiningthe product a firm should make, with little regards for existingtechnology. Customer needs are determined and then the firmorganizes the resources and processes needed that are made.Technology Push: Here technology is the primary determinant ofthe product that the firm should make, with little regard for themarket. The firm should pursue a technology based advantage bydeveloping superior technologies and products.Inter-functional view: This view holds both that product should

not only fit the market needs but also have technical advantage as well. To accomplish this all functions ( marketing engg.,operations, sales, purchase, accounts, HR) should cooperate todesign the new products needed by the firm.



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This is the product development processNew product Development process

3 Phases

Concept development

Product Design

Pilot Production/Testing



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Modified Form

NPD-Process

Concept Development

Product Design

Pilot Production

Preliminary Process Design

Final process Design



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Philosophies behind product design

Remember NPD process is one of the frequentmisalignment.No matter how excellent the advanced planning or

Technology, misalignment between the productdesign and operation is a common occurrence.Technology misalignment occurs when the productdesigned by engineering cannot be made by

operations.



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Misalignment occurs due to following factors

When technologies are new or unproven or not wellunderstood.Operation can also have an infrastructure that ismisaligned with new product in terms of labor skills,control system, quality assurance and organization.

Reward systems might reinforce the use of currenttechnology rather than the new processes needed.



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There are two philosophies behind designingProduct

Sequential processConcurrent engineering



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Sequential process

The traditional approach proceeds in stages and steps. It is assumedthat technology will be transfer in stages as a handoff betweenmarketing, engineering and operations, with each functioncompleting its work before the next one starts.

Dept. 01 Dept. 02 Dept. 03Effort

Time



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Concurrent Engineering

Here, all function are involved from beginning, by forminga new product development team, as soon as conceptdevelopment is started.In first stage Marketing has the major effort, but otherfunction also have a role.During the product design phase, marketing reduces itseffort, but not to zero, while engineering has the majorrole.

Finally operations picks up the lead as new product istested and launched into the market.



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Further. There is not only the need for meeting customerrequirement but also ensure that the product ismanufacturable.Thus we design Design for manufacturability (DFM) isan approach that consist of two things1. Simplification of product2. Manufacture of multiple products using common parts,processes and modules.

There are three ways to simplify this product designingprocess

It will covered in later stage.



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Process Design

This is among the most important decision made bythe operation managers.This decision involves design and improvement of

the process of producing & selling goods & Services.



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Process selection decision

PSD determines the type of process used o make theproduct or service.PSD are strategic in nature.PSD requires great deal of cross functional coordinationPSD tend to be capital intensive and cannot be easilychanged.PSD reasons in the type of flow of the production anddistribution process pertaining to product or service.



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Process classification decision

Two main type of process classification are provided1. Classification based on product flow

Continuous ProcessBatch Process

2. Classification based on customer orderMade to stockMade to order Assemble to orderEngineer to order



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Classification based on productflow



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Continuous Process Flow

Characteristic1. Standard product Specification2. Product layout

3. Use of SPM4. Preventive maintenance5. High Initial capital layout

6. Low WIP7. Expose to Capacity bottlenecks



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Batch Process

Characteristic1. Non-Standard product Specification2. Process layout

3. Use of GPM4. Break down maintenance5. Low Initial capital layout

6. High WIP7. Expose to Volume based bottlenecks



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Batch Process Contd

One way to measure the efficiency of Batchproduction process is to calculate throughput ratio(TR) Total processing time for the job

Total time in operation

TR=

X 100



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Classification based on customerorder



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Contd..

Here in MTS customer order cannot be identified during production.The production cycle is being operated to replenish stocks. Customercycle follows a complete separate cycle of stock withdrawal. What is being produced at any point of time may bear littleresemblance to what is being ordered. Production is geared to futureorder and replenishment of inventory.Performance measure of MTS process include percentage of ordersfilled from inventory. This is called as service level.Other performance measures are

1. length of time it takes to replenish inventory2. Inventory turnover ratio3. Capacity utilization etc



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Made to Order (MTO) Process

MTO Process

Product-ion

CustomerCustomer Order

Product



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Contd.

In MTO process individual orders can be identifiedduring production. i.e. job in process can beidentified with a customer.Here cycle of Production, procurement & order

replenishment cycle begins once the customerorder cycle ends or received.The key performance measure of an MTO processis the length of time it takes to design and make theproduct. Another measure is Number of orderscompleted on time.



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MTS Vs. MTO

In first the Pre-Production Speculation time is higher orlarge with respect to post production time, whereas insecond Production and post order time is higher or large with respect to the pre-production.

In first process is keyed to replenishment of inventory withorder fulfillment from inventory. whereas in second processis keyed to customer order.MTO can provide high variety and flexibility but expensive,

w.r.t MTSEfficiency in MTS is measured by Service level. In MTO byresponse time to its customer.



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Engineer to Order (ETO) Process

It is on the same line of MTO with little change in itsprimary stage, here even the designing of the productis also considered as the part of the process, i.e. it isengineered from its very basic, till finished productengineered to the design of the customer is delivered.E.g. A.C Plant, cooling Tower, ETP plant etc..



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Assemble to order ( ATO) Process

It is the Hybrid of both the processes MTO & MTSIt works on the theory of Modulation & postponement.( To be discussed later)It Like MTS carries inventory but in modular form & It likeMTO assembles the Modules into finish product whenorder is received. Thus fulfilling the requirement of boththe processes.



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ATO

Customer

Forecastorder

Production

OfSub assemblies

InventoryOf Subassemblies

AssemblyOf

Orders

Subassemblies

Product Customer order



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The V flow Type

Characteristics of the V flow typeIt occurs when a few basic raw material are processed into variety ofend items.In V type SC the upstream elements are fairly uniform and simplified. As a product moves down stream it is split into different specifications,product codes or SKUs.So in its down stream end of supply chain presents great opportunityfor mis allocation in a V Type SC.Material Mis allocation are exacerbated by the desire to enhance,

efficiency, resulting material being released earlier than needed. Theseactions results in excess inventory of some products and shortage ofother highlighted earlier.



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The A Type flow

Characteristics of the V flow typeIt occurs when a many basic raw material are processed into one or few enditems.In A type SC the upstream elements are highly complex, as it may becharacterisded by hundreds or may be thousands of individual parts andcomponents that moves through a variety of supply chain elements to a point of

final assembly.In A type SC the downstream elements are fairly uniform and simplified.So in its up-stream end of supply chain presents great opportunity for misallocation in a A Type SC.Such mis allocation can occur when upstream parts are being produced forforecasted product that is eventually not sold ( MTS state of model). Thefinished goods inventory in this case represents the mis allocated capacity andmaterials for every sub component and components in that finished item. Thismis allocation of course have domino impact on other component that were notmade ( But should have been).



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T Type Flow

Characteristics of the T flow typeIt occurs in a situation where number of components are assembledinto wide variety of end products.They are commonly found in ATO model. where customer lead time arerelatively short.The T Type & V Type flows share the common characteristics ofdivergence , how so ever it is more concentrated in the flow stage forthe T type SC.Mis allocation can be avoided here by delaying commitment ofresources and material until receipt of firm order.



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Marriage concept. While the nature of the product will dictate the VAT Work flow configuration, customer requirements will

influence the demand fulfillment strategy.In the ideal world there is a marriageSC with T type of product flow is readily amenable to a ATO mode of Process flow depicting high BatchProduction process.Similarly it is tempting to conjecture that a supply chain with V type flow is amenable to a MTO operations. While A Type flow is more amenable to a MTS mode ofoperation because of the relatively fewer products beingprocessed.

Do you believe it sohmmmmmm !!!!!



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Then ?

Change models to flow

E.g. A to ATO/ MTO or V to MTS/ ATO or T toMTS/MTO how do you find these changes !!!



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S L t d t d P d t P M t i


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So Lets understand Product Process Matrix Product StructureProduct Life Cycle Stage

Low volumeLow standardOne of kind

Multiple ProductsLow volume

Few major Product

Higher VolumeHigher volume, HighStandard

Commodity Product

Jumbled Flow

Batch Flow

Hybrid Flow

Continuous Flow

PROCESS

FLOW

Commercial Printer

Heavy Equp.

Auto mobile

Sugar Refinery



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Focused Operations Vs. Mass Customization

Often a company will have products with different volumes anddifferent levels of standardization. When Company mixes allthese products in the same factory, it can lead to disaster. Soan idea of focused product operation comes into evolution.Lack of focus in manufacturing and service operations is

generally attributed to a concept called as EOS. Even productproliferation in the market served by the company has led toincompatible product being mixed together in the samefacility. In the name of efficiency due to economies od scale,different mission are being served by the same operation.

The solution is to arrange each product as Plant with in plant (PWP) i.e. to have focus operations. Which may sacrifice someEOS while doing better job of meeting marketing requirementsand improving profitability.



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Several types of focused dimension need to be considered1. Product Focus2. Process Focus3. Technology Focus4. MTS, MTO, ATO, ETO5. New Product and mature product6. Several of these dimensions may be combined when

focusing operations.



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With the advent of flexible manufacturing operations masscustomization is now possible.Traditional mass production is based on EOS( Scale) highStandardization (low Variety) , has now converted into EOS( Scope)i.e. variety with its focus on

common process rather than common product Its basic focus is making different products for same customerrather same product for different customer.But it must be at the same cost as mass production.

This theory advent the evolution of modern supply chain of masscustomization.There are four forms of mass customization.

They are .



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Four forms

Mass customization of servicesModular Production/ ATO

Fast ChangeoverPostponement



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This model also exploits the benefits of modularizationduring downstream movement, consolidation, reducing thecomplexity in manufacturing and helps making demandpatterns more predictable.

Modularization is for inbound logistics, wherepostponement is for out bound logistics.



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ASIAN PAINTS- A CASE

Asian Paints ( AP) Indias largest company & Asias 3 rd largestcompany with annual turnover of $940 million ( Rs. 36.7 billion)Focus on providing fast moving paints product throughintegrated supply chain. AP owns three layers of supply chain-

The paint factoryRegional distribution centersSales depot AP is using postpone-ment Distribution strategy which allows tomeet varying customer demand with minimal inventory in supplychain.


Where postponement strateg means all s b parts & Process material


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Where postponement strategy means all sub parts & Process material& Component are carried in knockdown form till last stage andassembled or blended according to the demand of the customer oron order basis.

HOW IT WORKSConsider 500 SKUs 10 base & 50 shades in each base.01.If retailer has to keep each SKU, think of inventory size and cost.02. If retailers keeps only those which are in high demand as per

trend , chances of loosing potential customer persists.


Cl i l Vi


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Classical View

CustomerChoose

RetailersCheck

Available

Unavailable

Delay in deliverycustomer

Product delivered

On time



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Adopt postponementNOW RETAILER NEEDS

Retailers need to stock 10 base and 10 chemicals i.e only 20 SKUsColor optical reader machineBlending equipmentOn receiving the order retailer needs to go through the coloroptical reader to develop appropriate blend of color And then to

blend it thru blender to give the customer needs.Since paint is not impulse buy customer can wait for few time toget its demand fulfilled.


P t t St t g


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Postponement Strategy

CustomerSpecifies color

Optical readerSuggests mix

Retailer blendsChemical +Base

Paint to obtaincolor

15-20 minutes wait

Choice of Color deliveredCustomer satisfied.



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2nd Model SCOR Model

Global Supply Chain Council introduced this modelKnown as Supply chain operation reference model.



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RIGID

It represents classical vertical integrated supply chainIts basic objective is to exploit Economies of scaleIt maintains large inventory size.


P r o c u r e m e n t & M g f

.

Make

C o m p o n e n t & S u

b

a s s e m

b l i e s

Assemble

L a b e l

i n g & p r

i c i n g

Packaging


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Flexible Network

It uses many subcontractors to make almost everycomponent.Known demand triggers the assembly of finalproduct.Its responsive and follows Economies of scale.


A

M P

P

PM

M


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k


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Postponement Network

It again exploits the Scale economies but as scopeand also customize the product as flexible Network.


PP

P

M A

k k


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Network Framework

Postponement Flexible

Rigid Modular


OutboundPostponement

Inbound OutsourcingLOW

LOW

High

High


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ENTRY OF IIIrd PARTY LOGISTICS PROVIDERS

Traditionally many firms are managing their logisticsinternally. But now days company have realized thatthey need to focus on their core business activitiesand to outsource non core activities to the 3 rd partyLogistics providers. Who shift the benefit of EOS andprofessionalism in the given area.


E h I fi C di i C bili i


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Enhance Inter-firm Coordination Capabilities.

Successful coordination across the global network ofcompanies has been a comparatively new phenomenain corporate world. It has been realized that for anetwork to function meaning fully one needs a firm toplay the role of the strategic center. Many companieslike Nike, Benetton, Sun & Toyota have successfullymanaged complex networks played the part of strategiccenter and hence emerged as a role model to othercompanies. Playing as strategic center means leadingor orchestrating system. Howsoever industry is still onthe learning curve of this model.


S l h i f VF C


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Supply chain of VF Corp.

VF corporation major brand LEE & WRANGLERGlobal sales of $6.5billionIt has 850000 SKUs of style color & size.60% of the SKUs changes twice every year.Its global average lead time is 6 months which is 1 week

with in US We have to shorten the 6 months lead time, were ourproduct is for 40 days on water, were as from other timeit is having 1.5 months for procurement of raw materialand the left over time is for operations of sewing, cutting,and laundering.

Source: Victoria cooper(2006) planning of global scale, Supply chain leader,4-8 October./


Ch ll f M i S l h i i I di


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Challenges of Managing Supply chain in India.

Taxation structure drives location decision

Poor state of Logistics infrastructure


Supply chain Challenge for the Indian FMCG


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Sector

Managing Availability in the complex DistributionSet up: The Indian FMCG Sector has to work in a very complexdistribution system, comprising multiple layers of numerous smallretailers between the company & end Customer. Also the number ofSKUs has also increased exponentially over the last few years so

ensuring the availability of the material till the last stage of thechain has become the nightmare for the organizations. E.g. Maricoindustries managing 1.6 million retailers spread over India.


Marico Industries


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Marico IndustriesIt has 1.6 million retailers spread geographically over Pan India.More than 95% retailers are grocery stores, each occupying less

than 300sq. Meters.To reach all areas of nations 18 million consumers monthly itdistributes its 35 million consumer pack per month by 1000distributors.These distributors stock & sell these outputs to 1.6 million retailerdirectly or through roughly 2500 stockists.Currently the company's distributional network covers everyIndian community with a population of 20000 or more and theplan is to penetrate more of the rural areas where 70 percents ofIndias people live. Currently its rural sales and distribution network ranks amongthe top three in the industry and contributes 24% to thecompanys sales.


Supply Chain at Marico Industries


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Supply Chain at Marico IndustriesPlants

Depots

Distributors

Retailers

Urban Consumer

SuperDistributor

Stockist

Retailers

Rural Consumer



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Working with smaller Pack Size: To increase marketpenetration Indian companies have realized that they need toreach out the consumer present at the lower end of the economicpyramid. To reach customer at that level they are needed to offersmaller pack size . This means higher packaging &transportation cost to the companies. So they are likely to balancemarket penetration & logistic cost.Entry of national players in the traditional fresh productsector. The product of the local players are to be handled byNational Players in this modern era. E.g. Atta to be manufactured by ITC and yogurt by nestle. So they have to move fromcentralized production system to more decentralized one. So balancing freshness, cost & quality is the major issue before them


Dealing with a Complex Taxation structure:


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Smuggled goods accounts 15% percent of the totalgoods flow in India.Dealing with counterfeit goods: According to therecent surveys by ASSOCHAM counterfeits accountedto loss of sales worth Rs.300 billion for FMCG sectorevery year. Vicks vaporub of P&G accounts to 54% lossdue to its counterfeitsOpportunistic Games played by thedistribution channel: It is common notion in FMCGdistribution that 50% of the promotion actually reachesthe final customer. Rather than playing the role offacilitator they try to grab a significant part of thepromotion budget themselves. Printing of illegalcoupons & Shifting of goods from one local market toanother without accounting etc. are the wrong workings of the partners.



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supply chain models & logistics network

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