MBA SEMESTER-3

OM0012

SUPPLY CHAIN MANAGEMENT - OM0012

ASSIGNMENT SET
Q1. Explain the different modes of transportation.
A. The movement of goods from one place to another within a supply chain is known as
transportation. The mode of transport consists of the type of transport used.. The following
are the different modes of transportation used by supply chains:
Air transportation
Airlines have a high preset rate in the usage of equipments and infrastructure. Labour
and fuel are mostly related to the movement and are independent of the amount of cargo
on a flight. Air carriers offer a very fast and expensive mode of transportation. Airlines
carry a significant amount of freight, for products where speed of delivery is more
important than the cost. Even though it is expensive to use this mode of transportation, it
reduces the travel time from days to a few hours. The trade-off here is between money
and time.

Surface transportation
It is another basic mode of transportation where road is the medium of transport. This
mode can be divided into truck, rail, and pipeline. Trucks are the commonly used
transportation system within a State, between States, or sometimes across the country.
Railway services are considered as the ideal mode for carrying large, heavy, or highdensity products over long distances. It is suitable for time-insensitive and heavy weight
shipments . In pipeline mode , huge pipes are laid down between a manufacturing plant
and a delivery point to transport fluids and gases .Any chemically stable substance can be
transported through a pipeline. Other materials which are transported through pipelines
are sewage, slurry, water, and beer.
Pipelines have the advantage of moving large quantities over long distances. And the
disadvantages of being slow, inflexible and only carrying large volumes of certain types
of fluid.

Water transportation
It includes cargo ships, oil tankers, and so on. It is ideally suited for carrying heavy loads
at low cost. In most of the countries, it is the cheapest mode for carrying such loads.
There are basically three types of water transport rivers , canals and ocean transport .
Water transport system is limited to areas that have good infrastructure and good
economic conditions. The cost involved in building port infrastructure and maintaining is
high. This increases the terminal cost of the transportation. Because of this, the
waterways are preferred only for high quantity goods transport like steel and
petrochemicals. Water transport is usually used for international trades. Water transport
often gets affected by weather conditions. High fuel consumption could add up as a
disadvantage

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Intermodal transportation
It is a combination of at least two or more modes of transportation. For example, a
manufacturer using water transport to ship goods from one country to another, and then
using the road transport to get the goods to a customer.
When there are more than two modes of transportation involved, it is called a
multimodal transportation.
The cost involved in employing intermodal transportation is less as compared to other
modes. Fluctuations in the prices rarely occur unlike in the other modes.
Intermodal transportation which involves ships and trains is beneficial to the environment
because of reduced emission of carbon dioxide into the atmosphere.
Intermodal transportation is the most timely, efficient, cost effective, and environmental
friendly mode of transportation.

Q2.What is risk pooling? Why is it important in supply

chain management? List the four main types of risk
pooling.
A. Risk Pooling
Risk pool is a term used in risk management, mostly in insurance companies. Under this
system, insurance companies come together to form a pool, which can provide protection to
insurance companies against catastrophic risks such as floods, earthquakes, etc.
Risk pooling is an important concept even in supply chain management. It involves the use of
centralized inventory to gain benefits when demand is higher than average at some retailers
and lower than average at others.
The idea behind risk pooling is to redesign the supply chain, the production process, or the
product. This is done either to reduce the uncertainty the firm faces or to be cautious about
the uncertainty so that the firm is in a better position to mitigate the consequence of
uncertainty.
There are several types of risk pooling strategies that are used in supply chain management.
Each of these strategies can help any firm to work effectively. A firm needs to choose the
strategy that is appropriate for a situation.
The four types of risk pooling are:
Location pooling
Location pooling is used to decrease the inventory while holding service constant, or to
increase service while holding inventory cost, or is used to combine inventory reduction and
service increase. Location pooling is used to broaden the product line, since it reduces the
demand uncertainty which is measured with the coefficient of variation.

Product pooling

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Product pooling is a process of keeping the products separate, but forcing one or more of
their coefficients to be same or similar. Product pooling has always been used as a measure to
deal with the risks involved in marketing the agricultural goods. This type of pooling also
generates potential benefits through the provision of market power. Product pooling is most
effective, if the coefficient of variation of the Universal product is lower than the coefficient
of variation (COV) of the individual products. This method is widely used for stocking food
and associated products. For example, different kinds of rice could be stocked together at a
common location and then supplied to customers, based on the demand.
Lead time pooling
Lead time pooling risk by dividing the replacement orders among the multiple suppliers is a
sourcing policy which has been in demand for the academic researchers for more than 20
years. It has many advantages over the other pooling types. Lead time pooling is a way to
reduce the safety stock which has to meet the service targets or the expected number of
backorders for a prescribed level of safety. It also reduces the cycle stock.
This type of pooling is further divided into two more types. They are delayed differentiation
and consolidated distribution
Capacity pooling
There are several recent trends motivating the companies to merge the capacities which were
dedicated to specific customers. The focus on modularization in manufacturing systems
helped to redesign the parts which are produced at the same manufacturing capacity and
therefore, the separate production processes for parts can be merged later

Q3. Explain the different types of purchases in portfolio

analysis.
A .Explanation of the concepts
Portfolio analysis classifies purchases into four categories which provides strategic
importance of each type of purchase, which helps to improve the performance of the
company. They are as follows:

Routine commodity
Routine commodity includes many standard items with low price. For example,
stationery, food items, fuel and so on are the routine commodities. These commodities are
readily available in the market. Many suppliers compete in the market by offering the
lowest possible prices for these commodities. The routine commodities have many
purchases and hence they use a disproportionate amount of administration. Therefore, the
focus of purchasing here is to minimize the overhead costs by standardization,
consolidation of purchases and substitution of standard products.

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Bottleneck
Bottleneck occurs when a single supplier is the only source of providing materials
required by a company that has stringent specifications and no other suppliers can
provide those materials. For example, consider a company producing scanners which has
strict specifications for components used in the scanner. This company purchases
components from a specific supplier. Though such materials are not expensive, the
unique specification limits the number of suppliers. Here, the suppliers who sell these
items have a dominant position and they certainly exploit the purchasers.

Leverage
Leverage occurs when there is medium-to-high expenditure. In this kind of purchase,
many suppliers are involved in limiting the supply risk. The items purchased are of
industry standards that are used by every department in any organization. This type of
purchase involves combining requirements of each department, negotiating a deal with a
few suppliers and ensuring significant business over an extended period. Here, the
suppliers gain more efficient operations with lower unit costs and overheads. In turn,
suppliers must provide a high level of services that include managing on-site stocks,
delivering the items within the specified time and flexibly responding to changing
conditions. Today, suppliers use e-auctions for such items.

Strategic Purchase
Strategic purchasing occurs when there are unique and expensive items that are very
important for a companys success. Few specialized suppliers sell such items. For
example, certain chemicals, cutting edge technology, aero engines, etc., are some of the
critical items that very few specialized suppliers sell. With such small number of
suppliers in the market, the purchasing activity tends to develop long term relationship
between a company and a supplier. This in turn develops the suppliers capabilities and
thus provides benefits to both the purchasing organization and suppliers.

Q4. Describe the reasons for bullwhip effect and explain

the methods to decrease bullwhip effect.
A .Reasons for bullwhip effect
Bullwhip effect is an increase in the demand variation in a supply chain from downstream to
upstream.
The main reasons for bullwhip effect are:
Demand forecasting
Demand forecasting is the process of estimating the future demand of products or
services. The decision makers in the supply chain are responsible for creating a demand
forecast. The orders that reach the manufacturer are an exaggerated demand and not the
actual product demand. As a result, variability occurs in product scheduling, capacity
planning and inventory management of the manufacturer and hence the bullwhip effect.
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Lead time
Lead time is defined as the time interval from when a customer places an order to the
time the customer receives the order. Variability increases with an increase in lead time. A
longer lead time results in a small change in the estimate of demand variability. This
implies a considerable change in the safety stock and reorder level, leading to a change in
the order level. This, in turn, results in an increase in the variability and hence leads to
bullwhip effect.

Batch ordering
Retailers use batch ordering intermittently to place a large order. The wholesalers then do
not receive any orders from the retailers for a long time interval. Therefore, the
wholesalers find a distorted and highly variable pattern in the orders placed. Hence, batch
ordering results in an increase in the variability and this in turn leads to bullwhip effect.

Price fluctuation
In order to increase the customer demand for a product, distributors often introduce
various schemes such as rebates and coupons. This results in a variation in the demand
for a product. Moreover, if the price of a product fluctuates frequently, retailers stock the
product when the price comes down. This variability in price leads to the bullwhip effect.

Inflated orders
Most retailers place inflated orders when there is a shortage of a product. This inflated
order often magnifies the bullwhip effect. Retailers and distributors place inflated orders
mainly when they expect a product to be in short supply in the near future. However,
when the product supply regularises, the retailers and the distributors place their standard
order resulting in distortions and variations in the demand. This increases the effect of
bullwhip.
.
Methods to decrease
Reducing uncertainty We can effectively reduce the bullwhip effect by reducing
uncertainty. We can do this by centralizing the demand information. Centralizing the demand
information makes the demand of the customers as well as the retailers visible to all partners
of the supply chain.
Reducing variability We can diminish the bullwhip effect by reducing variability in the
customer demand process. It is possible to reduce the variability of customer demand with the
help of an Everyday Low Pricing Strategy (EDLP). EDLP strategy provides a product at a
consistent price to the customer rather than offering periodic price promotions.
Lead-time reduction We can reduce the variation in the supply chain by decreasing the
lead time. Variability increases with an increase in lead time. The longer the lead time, the
larger is the variability. Therefore, by reducing the lead time, we can reduce the effect of
bullwhip as well.
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Strategic partnerships We can eliminate the bullwhip effect by using many strategic
partnerships. Information sharing in strategic partnership reduces the variability in the supply
chain. The strategic partnerships can eliminate the bullwhip effect by changing the manner in
which the information is shared and inventory is managed in a supply chain.

Q5. Explain the concept 3PL? What are the advantages

and disadvantages of using 3PL?
A. Explanation of 3PL

Third-party logistics (3PL) is the use of an external company to perform few or all of a
companys logistics management and product distribution functions. 3PL is a true
strategic alliance because it involves complex relationships that are not included in a
traditional logistics - supplier relationship.
Modern 3PL provides continuous services and involves long-term commitment, process
management, and multiple functions. Modern 3PL are more stabilized than the short-term
engagement of external firms to perform specific services, which are single-function
specific.
3PL providers range from small companies to large companies, which earn large amount
of revenues. The 3PL companies are considered as an important part of supply chain.
Certain 3PL companies own assets such as machinery, goods-carriage transport facilities
and properties
3PL companies provide a wide range of supply chain services that include:
Import and export management
Freight forwarding
Customs and freight consolidation
Transporting
Public and contract warehousing
Order fulfillment
Distribution

Advantages and Disadvantages

A firm can gain the following competitive advantages by using 3PL:
Focus on core strengths 3PL allows a company to focus on its core competencies.
It enables a company to use its limited resources for its core functions.
Provide technological flexibility The 3PL providers constantly update their IT
skills and equipment depending on the changes in requirements and developments in
technology.

Provide other flexibilities 3PL also provides greater flexibility in the operations of
a company. A company can achieve flexibility in geographic locations by using
different 3PLs who provide regional warehousing in different areas. A company can

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also achieve flexibility in service offerings, resources and workforce size through the
use of 3PLs.

Savings on investments An organization can save on capital investment required

for logistics assets like land, vehicles and warehouses by using 3PL.

Some of the disadvantages of 3PL are as follows:

Cost Outsourcing logistical functions to a 3PL may increase the cost of the
operations. Hence, a company needs to ascertain the potential benefits by doing a cost
benefit analysis of a 3PL arrangement.

Just-In-Time (JIT) issues JIT is a business model in which raw materials are
delivered just before the actual usage. This model, hence, entails frequent shipment of
goods. If the 3PL company is not familiar with the JIT process, then a lot of issues
may develop. For example, if the 3PL company does not deliver fresh vegetables on
time, then a five star hotel with a large clientele may face problems in its food
preparation.

Loss of control A company can lose most of the control of its logistics functions. A
company may not be able to confirm the shipping dates all the time to its customers if
it uses a 3PL.

Damage to goods If the 3PL company does not handle the freight properly, then it
may get damaged. The insurance company provides compensation for the damage
only after a thorough investigation. The company also needs to make a new shipment
to its client. Hence, this could result in a considerable loss of time and resources to the
company.

High exit barrier Generally, 3PL contracts are for a long-term, and have penalty
clauses for early termination

Q6. Explain the framework and impacts of integrating IT

with SCM?
A .Framework
The integration of IT with SCM framework consists of six entities as shown in figure:
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The six entities depicted in figure are:

Knowledge and IT management It includes IT training and education, investment
in capital knowledge, e-training, e-learning, multimedia, cross-functional training,
group wares.

E-commerce It provides access to alternative markets, networking opportunities,

advancement in technology, reduced costs, faster processes, open communication,
CRM, e-work, and the ability to compete in the international market.

Infrastructure It deals with Internet connectivity, IT investment, ERP, EDI, ecommerce platform, XML, MAN, WAN, LAN, intranet, extranet, training and
education.

Virtual enterprise It includes partnerships based on competencies, integrated

network of firms, virtual teaming, manufacturing, logistics, ERP systems, ecommerce that includes B2B, B2A and B2C.

Implementation of IT It requires support from top management, cross-functional

project teams with IT skills, reengineering of business process, QFD, CE, LCA,
project management, measuring performance and metrics.

Strategic planning of IT It requires participation of top management for framing

long-term business goals, competing in international markets, introducing virtual
enterprises, attain mergers and acquisitions, creating new markets and integrated
systems.

Impacts
Integrating IT with SCM impacts the following factors of a supply chain:
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Applications related to order processing Integrating IT with SCM has improved

the process of placing orders and checking order status. It has resulted in reduction of
cost in order processing, as detection and correction of errors are done more
accurately and easily.

Management of purchases in the supply chains Integration of IT with SCM has

improved the management of purchases in the supply chains. There are many
applications that assist in the communication with vendors, in checking price quotes,
and in making purchases.

Tracking shipments to regional warehouses Integrating IT with SCM provides

organizations with information on the performance of the delivery service it is using.
This also enables the managers to ensure that the delivery services in use, are meeting
their agreed timelines. Reporting, processing, and settlement of claims are now easier
using the IT tracking system applications.

Inventory management IT has become vital in inventory management, which is

one of the important aspects of the supply chain. It has facilitated organizations to
establish EDI information programs with their customers.

Customer relations IT assists organizations in delivering the best services to their

customers. It has provided organizations with the facility to offer their customers,
access to all the information that may be required and also provides various ways for
the customers to contact them, with respect to issues related to the services. IT also
assists in integrating customer information. Overall, it is of great use to both
customers and the firms.

Supplier relations The introduction of IT in SCM has led to closer buyer and
supplier relationship, through high levels of information sharing.
Thus, we can conclude that integrating IT with SCM is beneficial as it enables interorganizational communication and this in turn, decreases cycle time and enhances
collaboration.

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