Supply Chain Management: Indian Institute of Management Lucknow

Supply Chain Management
Prof. Samir K Srivastava

WebPage: http://www.iiml.ac.in/?page_id=2682&link=8/
E-Mail: samir@iiml.ac.in
Indian Institute of Management

Lucknow
Session Details
1/6/2016
Evaluation
Group Assignment and Quizzes : 20 Marks
Quizzes: 10 Marks
Group Assignment: 10 Marks
Mid Term Examination: 30 Marks
PENALTIES
1/6/2016
What is a Supply Chain?
All stages involved, directly or indirectly, in

fulfilling a customer request
Encompasses all the facilities, functions and
activities in producing and delivery of a
product/service from suppliers to customers.
Includes manufacturers, suppliers, transporters,
warehouses, distributors, retailers, customers
Customer is an integral part of the supply chain
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A Simplified Typical Supply Chain
Figure 10.1
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The Supply Chain is Multi-Enterprise
Focus
Company
Suppliers
Customers
Customers/
End users
Suppliers
suppliers
Source
Convert
Distribute
Product and information flow
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What is a Supply Chain (Contd.)
Movement of products and services; also

movement of information and funds
Probably more accurate to use the term supply
network or supply web
Within each company, the supply chain includes
all functions involved in fulfilling a customer
request (product development, marketing,
operations, distribution, finance, customer
service)
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The Immediate Supply Chain for an Individual Firm
Transportation
Warehousing
Transportation
Customers
Information
flows
Factory
Transportation
Vendors/plants/ports
Warehousing
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Transportation
LNG Supply Chain
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Agri-Product Supply Chain

Contract Farmer
Aggregator
Contact Farmer
PH
DC
Food Processors
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Organized Retail
Exports
10
Army Supply Chain

Combat Vehicles
Tactical Vehicles
Construction Equipment
Trailers
Materiel Handling Equipment Tactical Bridges

Fuel & Water Dist Equipment Sets, Kits & Outfits
Chemical Defense Equipment Shop Equipment
Howitzers
Large Caliber Guns
Mortars
Rifles
Machine Guns
Ammunition
Aircraft Armaments
Watercraft
Demolitions & Explosives
Non-Tactical Vehicles
Fuel & Lubricant Products
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11
Supply Chain of a Typical OEM
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12
Mc Donald India Supply Chain
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13
Financial Supply Chain Management
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14
Supply Chain in Banking

Context
Banking Industry
Demand Forecasting
Statistical Forecasting to develop time

phased cash depletions out of branches and
ATMs
Multi echelon inventory planning leveraging Inventory reduction: 5-15%,
target customer service levels to determine Customer Service levels in
cash required at vaults , branches and ATMs echelon planning and safety
stock
Using EOQ models to minimize
Physical distribution of Cash,
transportation (transaction costs) and
Managing Cash balances at
carrying costs (oppty cost of money)
customer / business accounts
Inventory Planning
Inventory
replensihment
Supply Planning
Transport(Network
Planning)
Location strategy
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Distribution plans based on forecast and

target cash levels at vault and branch and
ATMs
Shortest paths and Dynamic Network
modelling plans
For profitable Branches and even Head
offices (Application of CG and more
advanced Location models)
Target Savings (efficiency)
Transportation costs 1-5%
15
Supply Chain Network in Telecom Industry
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16
Scope of the Supply Chain for Most Firms

Supply Chain
Physical supply
(Materials management)
Sources of
supply
Physical distribution
Plants/
operations
Transportation
Inventory management
Order processing
Material acquisition
Packaging
Warehousing
Materials handling
Information sharing
Customers
Transportation
Inventory management
Order processing
Product scheduling
Packaging
Warehousing
Materials handling
Information sharing
Focus firms internal supply chain

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17
Flows in a Supply Chain
Orders
Products/ Services
Customer
Supplier
Funds
Information
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The Importance of Supply Chain Flows

Close connection between design and management
of supply chain flows (product, information, and
cash) and supply chain success
Supply chain decisions can play a significant role in
the success or failure of a firm
Dell: Success
Quaker Oats (Snapple): Failure
IRCTC
Flipkart/ Jabong
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Supply Chain Management Defined

SCM is the integration of all activities associated with the
flow and transformation of goods from raw materials
through to end user, as well as information flows, through
improved supply chain relationships, to achieve a
sustainable competitive advantage.
Handfield and Nichols
The manufacturers and its suppliers, vendors and

customers i.e., all the links in extended enterprise,
working together to provide a common product and/or
service to the marketplace that the customer desires and
is willing to pay for throughout the life cycle of the
product and/or serviceOptimum management of shared
resources for operations synergy.
Fred A. Kuglin
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20
Supply Chain Management (Contd.)

SCM is an evolving management philosophy (1) that seeks
to unify productive competencies and resources of the
company and channel partners into an integrated supply
system. (2) focused on developing innovative solutions
and synchronizing the flow of market place products,
services and information. (3) to create unique
individualized sources of customer value.
A set of approaches utilized to efficiently integrate
suppliers, producers, stocking centers at all levels, and
retail stores so that goods are produced / acquired
and distributed in right quantities, to right locations
and at right time in order to minimize system-wide
costs while satisfying service level requirements.
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21
Supply Chain Management (Contd.)

SCM is an integrating function with primary responsibility
of linking major business functions and business
processes within and across companies into a cohesive
and high-performance business model.
Council of SCM Professionals, 2007
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22
Process View of Supply Chains

SUPPLIERS AT ALL LEVELS
PROCUREMENT / PURCHASING / BUYING
RAW MATERIAL
MANUFACTURING / ASSEMBLY
WARE HOUSING
LOGISTICS
CUSTOMER ORDER FULLFILMENT

DISTRIBUTION
DIRT
CUSTOMER / CONSUMER USE
DIRT
POST CONSUMER CYCLE

INTEGRATED , ECONOMIC AND OPERATING SYSTEM
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Cycle View of Supply Chains

Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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Push/Pull View of Supply Chains
Customer Order
Cycle
Procurement,
Manufacturing and
Replenishment cycles
PUSH PROCESSES
PULL PROCESSES
Customer
Order Arrives
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25
Evolution of Supply Chain Management

Term first coined by
Oliver and Webber in 1982
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26
Integrated Supply Chain

Phase 1:
Independent
supplychain
entities
Phase 2:
Internal
integration
Suppliers
Suppliers
Purchasing
Purchasing
Production
Production
Distribution
Distribution
Customers
Customers
Internal supply chain
Phase 3:
Supplychain
integration
Suppliers
Internal
supply
chain
Customers
Integrated supply chain
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27
BASIC QUESTION - Why SCM?

Higher inventory in the chain adds costs due to
wastage; blocks funds.
Risk of holding obsolete products and simultaneous
possibilities of stockouts
Need of faster response to market
Need to design a responsive distribution network
Need to integrate suppliers, manufacturers,
warehouses to produce and deliver right products at
the right time in desired quantity, minimizing system
wide costs and maximizing system wide profits
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28
Impact of Better Supply Chain Management

Supply Chain
Impacts
Typical
Benefits
Improved productivity
Revenue
Reduced downtime
Improved customer service
Profitability
Lower distribution costs

Costs
Better purchasing leverage

Collaboration with 3rd parties
Shareholder
Value
revenue
10-30%
costs
Better contract management

Working
Capital
Lower inventories
Maximum asset utilisation
Reduced lead times
Invested
Capital
10-20%
Inventory
Reduction
Shorter build to order times

Fixed
Capital
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2 - 10 %
Fewer physical assets

(i.e.,plants, warehouses,
material handling equipment,
trucks, tanks, ships etc.)
10-30%
assets
29
The Objective of a Supply Chain

Create time/ place utility of product and/ or service
effectively and efficiently to maximize value created
Supply chain value: difference between what the final
product is worth to the customer and the effort the
supply chain expends in filling the customers request
Value is correlated to supply chain profitability
(difference between revenue generated from the
customer and the overall cost across the supply chain)
Sources of supply chain revenue: the customer
Sources of supply chain cost: flows of information,
products, or funds between stages of the supply chain
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30
The Objective of a Supply Chain (contd..)
To co-evolve capabilities of each constituent to

generate new sources of product and service
value, new processes and technologies, and
new form of vertical integration and scale of
economies for survival and growth.
Supply chain success should be measured by
total supply chain profitability, not profits at an
individual stage.
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An Extended Supply Chain
Research &
Development
Raw
Material
Supplier
Market
Research
Bulk
Customer
Manufacturer
Distributor
Retailer
Retailer
Customer
Financial Services/ Logistics Services Providers
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Examples of Supply Chains Worldwide
Dell / Compaq
Toyota / GM / Ford
McMaster Carr / W.W. Grainger
Amazon / Borders / Barnes and Noble
Webvan / Peapod / Jewel
ULL/ Proctor & Gamble/ Gillette
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A Few Examples of Supply Chains in India

Type of Industry
Select Examples
Apparel
Madura Coats, Reliance, Arvind Mills
Automobile
Maruti, Hero-Honda, Telco, Mahindra &

Mahindra, Ashok Leyland
Chemicals/Paints
Reliance, Asian Paints, Goodlass Nerolac
Consumer Durables
Samsung, LG, Godrej
Fast Moving Consumer Goods
Hindustan Lever, Proctor & Gamble,

Coca-Cola, Pepsi, Marico Industries
Food
Godrej, Cadbury, Parle, Amul, Dabur
Computers
Wipro, HCL
Newspaper
Bennett Coleman & Co (Times of India)

HT Media Ltd (Hindustan Times)
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34
Approaches to SCM
Academic Approach
Industry Approach
Modelling for
Distribution,
Inventory
Service
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Integration
Implementation
Bottom Line Improvement
35
Supply Chain Decisions

Activity Short Term Decision
Long Term Decision
Source Type, quality, quantity,

when
How to sequence?
Make
How to run?
How to load?
Move
Who to supply?
What relationship?
Where to locate?
What to produce?
What network?
Store
Where to store?
How to store?
Deliver What to sell?

How to sequence?
How to service?
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Where to locate?
What capacity?
What is demand?
What to produce?
What to do?
36
Strategic, Tactical and Operational Decisions

Decision area Strategic
Tactical
Transportation Mode selection
Seasonal equipment
leasing
Operational
Dispatching
Inventories
Location, Control policies Safety stock levels Order filling
Order
processing
Order entry, transmittal,

and processing system
design
Processing
orders, Filling
back orders
Purchasing
Development of supplier- Contracting,

buyer relations
Forward buying
Expediting
Warehousing Handling equipment

selection, Layout design
Facility
location
1/6/2016
Space utilization
Order picking
and restocking
Number, size and

location of warehouses
37
Supply Chain Drivers

Efficiency
Sourcing
Facilities
Responsiveness
Supply chain structure
Transportation
Inventory
Pricing
Information
Drivers
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38
Facilities
Role in the supply chain

the where of the supply chain
manufacturing or storage (warehouses)
Role in the competitive strategy

economies of scale (efficiency priority)
larger number of smaller facilities (responsiveness
priority)
Example : Toyota and Honda

Components of facilities decisions
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Components of Facilities Decisions

Location
centralization (efficiency) vs. decentralization
(responsiveness)
other factors to consider (e.g., proximity to
customers)
Capacity (flexibility versus efficiency)
Manufacturing methodology (product focused versus
process focused)
Warehousing methodology (SKU storage, job lot
storage, cross-docking)
Overall trade-off: Responsiveness versus efficiency
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40
Inventory
Components of inventory decisions
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41
Inventory: Role in the Supply Chain
It exists because of a mismatch between supply

and demand
Source of cost and influences responsiveness
Impacts
Material flow time: Order fulfillment time
Throughput
I = RT (Littles Law)
I = inventory; R = throughput; T = flow time
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42
Inventory: Role in Competitive Strategy
If responsiveness is a strategic competitive

priority, a firm can locate larger amounts of
inventory closer to customers
If cost is more important, inventory can be
reduced to make the firm more efficient
Example Nordstrom
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43
Components of Inventory Decisions

Cycle inventory
Average amount of inventory used to satisfy demand between
shipments
Depends on lot size
Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing
sales
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible
production
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44
Transportation
Components of transportation decisions
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45
Transportation: Role in the Supply Chain
Moves the product between stages in the supply

chain
Impact on responsiveness and efficiency
Faster transportation allows greater
responsiveness but lower efficiency
Affects inventory and facilities
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46
Transportation: Role in the Competitive Strategy
If responsiveness is a strategic competitive

priority, then faster transportation modes can
provide greater responsiveness to customers who
are willing to pay for it
Use slower transportation modes for customers
whose priority is price (cost)
Consider inventory and transportation trade-off
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47
Components of Transportation Decisions
Mode of transportation:
air, truck, rail, ship, pipeline, electronic
transportation
vary in cost, speed, size of shipment, flexibility
Route and network selection

route: path along which a product is shipped
network: collection of locations and routes
In-house or outsource
Overall trade-off: Responsiveness versus
efficiency
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48
Yeh mera India !
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49
Indian Scenario
SCM and logistics spend in India: approximately 13.5% of the GDP
Around 18% of GDP in China and about 9% of GDP in the US.
Transportation cost in India: nearly 40% of the cost of production.
Total road length: 33 lakh km (Available at: http://www.nhai.org)
Trucking: 70% of transportation and 60% of all logistics cost.
Road is followed by rail and finally coastal shipping.
Water (probably the cheapest mode of transport) is barely used.
Air as a mode is limited to a small percentage of courier shipments.
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Source: http://lpisurvey.worldbank.org/
Logistics Performance Index (LPI)

Int.
LPI
rank
Country
LPI
2014
Customs
Logistics
International
Logistics
Tracking & Timeliness
Infrastructure Shipments Competence
tracing
Germany
4.12
4.10
4.32
3.74
4.12
4.17
4.36
Netherlands
4.05
3.96
4.23
3.64
4.13
4.07
4.34
United States
3.92
3.73
4.18
3.45
3.97
4.14
4.14
10
Japan
3.91
3.78
4.16
3.52
3.93
3.95
4.24
16
Australia
3.81
3.85
4.00
3.52
3.75
3.81
4.00
28
China
3.53
3.21
3.67
3.50
3.46
3.50
3.87
35
Thailand
3.43
3.21
3.40
3.30
3.29
3.45
3.96
46
Lithuania
3.18
3.04
3.18
3.10
2.99
3.17
3.60
50
Mexico
3.13
2.69
3.04
3.19
3.12
3.14
3.57
54 India
3.08 2.72
2.88
3.20
3.03
3.11
3.51
55
Croatia
3.05
2.95
2.92
2.98
3.00
3.11
3.37
60
Argentina
2.99
2.55
2.83
2.96
2.93
3.15
3.49
72
Pakistan
2.83
2.84
2.67
3.08
2.79
2.73
2.79
90
Russian
Federation
2.69
2.20
2.59
2.64
2.74
2.85
3.14
145 Myanmar
2.25
1.97
2.14
2.14
2.07
2.36
2.83
158 Afghanistan
2.07
2.16
1.82
1.99
2.12
1.85
2.48
160 Somalia
1.77
2.00
1.50
1.75
1.75
1.75
1.88
51
1/6/2016
Yeh bhi mera India !
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52
Information
Components of information decisions
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53
Information: Role in the Supply Chain
The connection between the various stages in the

supply chain allows coordination between
stages
Crucial to daily operation of each stage in a
supply chain e.g., production scheduling,
inventory levels
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Information: Role in the Competitive Strategy
Allows supply chain to become more efficient

and more responsive at the same time (reduces
the need for a trade-off)
Information and Communications technology
Which information is most valuable?
Example : Andersen Windows
Example : Dell
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Components of Information Decisions
Push (MRP) versus pull (demand information

transmitted quickly throughout the supply chain)
Coordination and information sharing
Forecasting and aggregate planning
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
Responsiveness versus efficiency trade-off

1/6/2016
56
Survey Results
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57
Considerations for Supply Chain Drivers
Driver
Efficiency
Responsiveness
Inventory
Cost of holding
Availability
Transportation
Consolidation
Speed
Facilities
Consolidation / Proximity /
Dedicated
Flexibility
What information is best suited for
each objective
Information
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Local Optimization vs. Global Optimization

Local Optimization
Sourcing
Planning
Manufacturing
Planning
Distribution
Planning
Demand
Planning
Global Optimization
Collaboration/ Negotiations/Contracts/Information Sharing and DSS
Sourcing
Planning
1/6/2016
Manufacturing
Planning
Distribution
Planning
Demand
Planning
59
Supply Chain Challenges
Achieving Global Optimization

Conflicting Objectives
Complex network of facilities
System Variations over time
Managing Uncertainty
Matching Supply and Demand
Demand is not the only source of uncertainty
1/6/2016
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Supply Chain Management

Prof. Samir K Srivastava

Indian Institute of Management