LOGISTICS AND SUPPLY CHAIN MANAGEMENT

Dr. R. S. Ghosh

EVOLUTION OF SCM
Materials management

Physical distribution management

Logistics management

Integrated logistics management

Supply chain management

Integrated supply chain management

UNDERSTANDING THE SUPPLY CHAIN

A Supply Chain is dynamic which involves the constant flow of

Information Product Funds

between different stages

E.g.: Walmart provides the product, as well as pricing and availability information to the customer. The customer transfers funds to Walmart. Walmart conveys point-of-sales data and replenishment orders to the warehouse or distributor who transfers the replenishment order via trucks back to the store. Walmart transfers funds to the distributor after final replenishment.

THE SUPPLY CHAIN UMBRELLA

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Purchasing Inbound Transportation Quality Control Demand and Supply Planning Receiving, Materials Handling, and Storage Materials/Inventory Control Order Processing Production Planning, Scheduling and Control Warehousing/Distribution. Shipping Outbound Transportation Customer Service

A typical supply chain may involve a variety of stages. These supply chain stages include: RM Suppliers Manufacturers Wholesalers/Distributors Retailers Customers The primary purpose for existence of any supply chain is to satisfy customer needs, in the process generating profits for itself. SC activities begin with a customer order and end when a satisfied customer has paid for his or her purchase CUSTOMER RETAILER DISTRIBUTOR SUPPLIER MANUFACTURER

THE EXTENDED VALUE CHAIN

Infrastructur e Materials (Through inbound logistics) HR IT Financ R&D e
C U S T O M E R

Supplier S1 S2 S3

Operation Marketin Retail Custom s g & Sales Service er

(Outboun d Logistics)

Service

Materials Management

Distribution Management

Appropriate design of the SC will depend on both aspects:

1. 2.

Customer needs Roles of the stages involved

OBJECTIVE OF A SC

The major objective of every SC is to maximize the overall value generated. The value in a SC generated is the difference between what the final is worth to the customer and the effort the SC expends in fulfilling the customers request.

For most commercial SC, value will be strongly correlated with SC profitability i.e. the difference between the revenue generated from the customer and the overall cost across the supply chain
Thus, SCM involves the management of flows between and among stages in a SC to maximize total supply chain profitability.

DECISION PHASES IN A SC

Successful SCM requires many decisions relating to the flow of information, product and funds. These decisions fall into 3 categories depending on the frequency of each decision and the time frame over which a decision phase has an impact.
1. 2.

Supply Chain Strategy or Design Supply Chain Planning

3.

Supply Chain Operation

SUPPLY CHAIN STRATEGY OR DESIGN

In this category, a company decides how to structure the supply chains configuration location, capacities of production, warehouse facilities, distribution facilities and type of information systems to be utilized

Firm must ensure that the supply chain configuration supports the companys strategic objectives and increases the supply chain surplus Frequency of such decisions: Low
Time Frame: Long (3 to 5 years)

SUPPLY CHAIN PLANNING

In this phase, the time frame considered is quarter to a year

Supply chain configuration is considered to be fixed Companies start the planning phases with a forecast for the coming year of demand in different markets Planning includes decisions regarding which markets will be supplied from which locations, the subcontracting of manufacturing, inventory policies to be followed, etc. Planning establishes parameters within which a SC will function within over a specified period of time

SUPPLY CHAIN OPERATION

Time Horizon: Weekly or daily In this phase, companies make decisions regarding individual customer orders. The goal of SC operations is to handle incoming customer orders in the best possible manner. i.e. Order Delivery

SC OPERATION
Order from market Manufacturing Procurement

Demand from customer

Supply to customer

PROCESS VIEW OF A SUPPLY CHAIN

1.

Cycle View

Customer
a)

Customer Order cycle

Retailer

b)

Replenishment cycle
Distributor

c)

Manufacturing cycle
Manufacturer

d)

Procurement cycle
Supplier

PROCESS VIEW OF A SUPPLY CHAIN

2.

Push/Pull view

Customer Order Cycle

Pull Processes

Customer Order arrives Procurement, Manufacturing, Replenishment cycle Push processes

DIFFERENCE BETWEEN PULL &PUSH VIEW OF SUPPLY CHAIN PROCESSES

In PULL processes, execution is initiated response to a particular customer order.

in

In PUSH processes, execution is initiated in anticipation of customer orders.

SUPPLY CHAIN PERFORMANCE WITH ACHIEVING STRATEGIC FIT & SCOPE

Competitive Strategy

A companys competitive strategy defines the set of customer needs that it seeks to satisfy through its products or services.
E. g. Walmart aims to provide high availability of a variety of reasonable quality products at low prices. Most products sold at Walmart are commonplace (everything from home appliances to clothing) and can be purchased elsewhere. What Walmart provides is low price and product availability.

To see the relationship between competitive and supply chain strategies, we start with the value chain for a typical organization.

1.

The Value Chain begins with new product development, which creates specifications for the new product of any firm. Marketing and Sales generate demand by publicizing the customer priorities that the product and services will satisfy. Marketing also brings customer input back to new product development. Operations transforms input into output by using by using new product specification. Distribution takes the product to the customer and sometimes brings the customers feedback about product.

2.

3.

4.

5.

Service responds to customer requests during or after the sale.

Finance, accounting, IT and HR provide support, and facilitate the functioning of the value chain

THE VALUE CHAIN IN A COMPANY

New Product Development Marketing & Sales Operations Distribution Service

To execute a companys competitive strategy, all these functions play a significant role and each should develop its own strategy. Here, strategy refers to what each function will try to do particularly well. 1) A product development strategy specifies the portfolio of new products that a company will try to develop. It also focuses whether the development effort will be made internally or outsourced 2) A marketing and sales strategy specifies how the market will be segmented and how the product will be positioned, priced and

SUPPLY CHAIN STRATEGY

A Supply Chain strategy determines the nature of procurement of raw and packing materials, transportation of materials to and from the company, manufacture of the product or operation to provide the service. From a value chain perspective, supply chain strategy specifies what operations, distribution and service will try to do particularly well. In addition, in each company, strategies will also be devised for finance, accounting, IT and HR. Supply chain strategy includes what may traditionally call supplier strategy, operations strategy and logistics strategy. Major decisions regarding inventory, transportation, operating facilities and information flows in the supply chain are all part of supply chain strategy. The value chain emphasizes the close relationship between all the functional strategies within a company.

ACHIEVING STRATEGIC FIT

A companys success or failure is closely linked to the following factors: 1) The competitive strategy, supply chain strategy and all functional strategies must fit together to form a coordinated overall strategy. Each functional strategy must support other functional strategies and help a firm reach its competitive strategy goal.
2)

The different functions in a company must appropriately structure their processes and resources to be able to execute these strategies successfully.

To achieve strategic fit, a company must ensure that its supply chain capabilities support its ability to satisfy the targeted customer segments.

3 BASIC STEPS TO ACHIEVING STRATEGIC FIT

a)

Understanding uncertainty

the

customer

and

supply

chain

b)

Understanding the supply chain capabilities Achieving strategic fit

c)

OTHER ISSUES AFFECTING STRATEGIC FIT

1.

Multiple products and customer segments Product Life cycle Competitive changes over time

2.

3.

SUPPLY CHAIN DRIVERS

There are 6 major drivers: 1. Facilities 2. Inventory 3. Transportation 4. Information 5. Sourcing 6. Pricing

MAJOR ROLES OF SC DRIVERS

1.

2.

Determine the supply chain performance in terms of responsiveness and efficiency. Determine how strategic fit is achieved across the supply chain

1.

Facilities: These are the places in the supply chain network where product is stored, assembled or fabricated. 2 major types of facilities are:
i. ii.

Production sites Storage Sites

2.

3.

4.

Inventory: These are RM, work-in-process, finished goods within a supply chain. Transportation: This involves moving inventory from one point to another point in the supply chain function. Transportation can take the form of many combinations of modes and routes. Information: This consists of data and analysis concerning facilities, inventory, transportation and customers throughout the supply chain. Information is potentially the biggest driver of performance in the supply chain as it directly affects each of the other drivers. It helps management with the opportunity to make supply chains more responsive and efficient.

5.

6.

Sourcing: This is very important for both the responsiveness and efficiency of a supply chain Pricing: This is directly affecting supply chain performance

SC OBSTACLES TO ACHIEVING STRATEGIC FIT

1.

2. 3.

4.
5.

Increasing Variety of Products: The increase in product variety complicates the supply chain by making forecasting and meeting demand much more difficult Decreasing product life cycles: Increasingly demanding customers: Fragmentation of Supply Chain ownership: Globalization:

SUPPLY CHAIN DECISION-MAKING FRAMEWORK

Competitive Strategy Supply Chain Strategy Efficienc y
Responsivene Supply Chain Structure ss

Logistics Drivers
Facilities
Informatio n

Inventor y Sourcing Cross-Functional Drivers

Transportatio n

Pricing

FACILITIES
Role in the Supply Chain: Facilities are the locations to or from which the inventory is transported. Within a facility, inventory is either transformed into another state (manufacturing) or it is stored (warehousing).
Role in the competitive strategy: Facilities are a key driver of supply chain performance in terms of responsiveness and efficiency. If the customer demands and is willing to pay for the responsiveness that having numerous facilities adds, then this facilities decision helps meet the companys competitive strategy goals.

INVENTORY
Role in the supply chain: Inventory is held throughout the supply chain in the form of RM, WIP and FG. Inventory is a major source of cost in a supply chain and has a huge impact on responsiveness.

Role in the competitive strategy: Inventory plays a significant role in a supply chains ability to support a firms competitive strategy

COMPONENTS OF INVENTORY DECISIONS

1)

Cycle Inventory: This is the average amount of inventory used to satisfy demand between receipts of supplier shipments. The size of cycle inventory is a result of the production, transportation or purchase of material in large costs. Safety Inventory: This is the inventory held in case demand exceeds expectation; it is held to counter uncertainty. Seasonal Inventory: This is predictable variability in demand. built-up to counter

2)

3)

4)

Level of Product availability: It is the fraction of demand that is served on time from product held in inventory. A high level of product availability provides a high level of

TRANSPORTATION
Role in the supply chain Transportation has a large impact on both responsiveness and efficiency. The type of transportation that any company uses also affects the inventory and facility locations in the supply chain.

Role in the competitive strategy The role of transportation in a companys competitive strategy figures prominently in the companys consideration of the target customers needs.

ROLE OF DISTRIBUTION IN THE SUPPLY CHAIN

Distribution refers to the steps taken to move and store a product from the supplier stage to a customer stage in the supply chain. Distribution occurs between every pair of stages in the supply chain. RM and components are moved from the manufacturer to the end consumer. Distribution is a key driver of the overall profitability of a firm because it affects both the supply chain cost and the customer experience directly. Worlds most profitable companies like Wal-Mart, SevenEleven Japan, and P&G have built the success of their entire business around outstanding distribution design and operation

PLANNING DEMAND IN SUPPLY CHAIN

Role of forecasting in a SC is influenced by the following major decisions:i. Production: (Scheduling Inventory control, Aggregate Planning, Purchasing) ii. Marketing: (Sales force allocation, promotion, new product introductions) iii. Finance: (Capital investment of Budgetary planning) iv. Personal: (Workforce planning, Hiring and Layoffs)

CHARACTERISTICS OF FORECASTS
i.

Long-Term Forecasts: These are usually less accurate than short term assumption, i.e. in this case always a large standard deviation of error is considered. Aggregate Forecasts: These are usually more accurate as compared to long-term forecasts.

ii.

MAJOR COMPONENTS OF A FORECAST

a) b) c)

Past Demand Lead Time of Product Marketing Efforts

d)
e) f)

State of Economy
Planned Price Discount Competitors Evaluation

CLASSIFICATION OF FORECASTING METHODS

i.

ii.

iii.

iv.

Qualitative: (Primarily subjective and rely on human judgement) Time Series: (Based on the assumption on past demand history, i.e. historical) Causal: (In this the demand forecast is highly co-related with certain factors in the environment i.e., the state of economy, interest rate of the country etc) Simulation: (This method imitates the consumer choices that give rise to demand to arrive at a forecast)

BASIC APPROACH TO DEMAND FORECASTING

The following basic 6 steps approach helps an organization perform effectively forecasting:
1.
2.

Understand the objective of forecasting

Integrate demand planning and forecasting throughout the supply chain

3. 4.

Understand and identify customer segments

Identify the major factors which influence the demand forecast

5. 6.

Determine the appropriate forecasting technique

Establish performance and error measures forecast.

AGGREGATE PLANNING IN THE SUPPLY CHAIN OBJECTIVE

Main objective of the aggregate plan is to satisfy demand in way that maximize profit for the firm. To create an aggregate plan a company must specify the planning horizon, usually between 3 and 18 months.

AGGREGATE PLAN OF ANY ORGANIZATION IS PREPARED BY THE FOLLOWING INFORMATION:

1.

2.

3.

4.

5.

Production Quantity from regular time and overtime: used to determine no. of workers and supplier purchase levels. Inventory held: used to determine how much warehouse space and working capital is needed. Backlog/Stock out Qty: Used to determine what the customer service levels will be Workforce hired/laid off: used to determine any labor issues. Machine Capacity increase or decrease: Used to determine if new production equipment needs to be purchased or idled.

MANAGING SUPPLY AND MANAGING INVENTORIES IN SUPPLY CHAIN

Managing Supply: A firm or organization can vary supply of product by controlling a combination of the following two factors: 1. Production Capacity 2. Inventory The objective is to maximize profit for any firm is the difference between revenue generated from sales and total cost associated with material, capacity and inventory. In general, organizations use a combination of varying capacity and inventory to manage supply.

MANAGING CAPACITY
When any organization manage capacity to meet predictable variability, it use a combination of the following approaches:
a)

Time Flexibility from Workforce: In this approach, a firm used flexible work hours by the workforce to manage capacity to better meet demand. In many cases plants do not operate continually and are left idle during portions of the day or week. As a result spare plant capacity exists in the form of hours when the plant is not operational. Use of seasonal Workforce: In this approach, a firm uses a temporary workforce during the peak season to increase capacity to match demand. The tourism industry often uses seasonal workers. Toyota regularly uses seasonal workforce in Japan to match

b)

MANAGING CAPACITY (contd.)

c)

Use of Subcontracting:
In this approach, a firm subcontracts peak production so that internal production remains level and can be done cheaply. This is most useful for urgent demand of Sales and Export at a time

d)

Use of dual facilities (Specialized and Flexible):

In this approach a firm builds both specialized and flexible facilities. In specialized facilities company produce a relatively stable output of products over a time in a very efficient manner. In flexible facilities, organization produce a wide varying volume and variety of products but a higher unit cost.

e)

Designing product flexibility into the production processes:

In this approach, a firm has flexible production lines whose production rate can be easily be varied for maintaining different lines of production with different product families.

MANAGING INVENTORY
When managing inventory to meet predictable variability, firms use a combination of following strategies:
i.

Using common components across multiple products. Build inventory of high-demand or predictabledemand products:

ii.

MANAGING DEMAND
Supply chain can influence demand by using appropriate

price and promotion decisions. Price decision is often made

by taking the best utilization of materials and other resources. Promotion decisions are often made by retailers

without taking into account the impact on the rest of the

supply chain. The key point for managing demand is how supply chain members can collaborate on pricing and aggregate planning (both to demand maximize and supply supply chain

management)

decisions

profitability

ROLE OF CYCLE INVENTORY IN THE SUPPLY CHAIN

Cycle inventory is the average inventory in a supply chain due to either production or purchases in lot sizes that are larger than those demanded by the customer. Cycle inventory is primarily held to take advantage of economies of scale and reduce cost within the supply chain. Increasing the lot size or cycle inventory often decreases the cost incurred by different stages of a supply chain. Cycle Inventory exists in a supply chain because different stages exploit economics of scale to lower total cost. These costs considered including material cost, fixed ordering cost and holding cost.

ROLE OF SAFETY INVENTORY IN THE SUPPLY CHAIN

Safety inventory is the inventory carried for the

purpose of satisfying demand that exceeds the

amount forecasted for a given period. Safety inventory is carried because demand forecasts are uncertain and a product shortage may result if actual demand exceeds the forecast demand.

DETERMINING APPROPRIATE LEVEL OF SAFETY INVENTORY

The appropriate level of safety inventory is

determined by the two factors:

a) b)

The uncertainty of both demand and supply The desired level of product availability

In all cases as the uncertainty of supply or demand grows, the required level of safety inventory increases.

IMPORTANCE OF THE OPTIMAL LEVEL OF PRODUCT AVAILABILITY

The level of product availability is measured using the cycle

service level which are metrics for the amount of customer

demand satisfied from available inventory. The level of product availability also referred to as the customer service level is one of the primary measures of a supply chains responsiveness. A better supply chain can use a high level of

product availability to improve its responsiveness and attract

customers by increasing revenue for the supply chain.

FACTORS AFFECTING OPTIMAL LEVEL OF PRODUCT AVAILABILITY

a) b)

Cost of over-stocking the product of any firm.

Cost of under-stocking the product of any firm.

LOGISTICS MANAGEMENT
Logistics is generally considered as the science pertaining to the movement of materials and services along with its information In current scenario Logistics Management is defined as the process of moving and positioning inventory to meet customer requirement. Logistics came from French word Logistique During the late 17th century all the functional relations of military operations referred as Logistics movement of Military or Military Logistics.

MAJOR DIFFERENCE BETWEEN LOGISTICS AND SCM

Many operations experts mention Logistics is the major element of SCM and it has emerged out of Unionization of Distribution and Material functions Evolution: The word logistic was first associated with the UK Military in 1905 as a branch of war. Business Application: The greater Logistics was first practiced in early 1950s, simultaneously the military logistics had found significant applications in civilian sector, leading to the development of business logistics, logistical engineering and Management and finally contract logistics operations

LOGISTICS FUNCTIONS
Inbound Logistics (Materials Management) Outbound Logistics (Distribution Management)

Difference between Logistics V/S SCM So currently Logistics could be referred as more strategic whereas SCM is more operational.

ELEMENTS OF LOGISTICS
Logistics Management consist of 8 Element or Wings

1) CUSTOMER ORDER PROCESSING

Flow of Action :

i) Filling up the order form

ii)Deciding the specification and quality check list of the product iii)Deciding the delivery schedule & location of delivery

Important Factors : i) Cost of order processing ii) Capability of the organization for producing a component iii) Detailed list of specification

Technique:
i) Electronic data interchange(EDI) ii)E-ERP or CIPER iii) Web portal.

2.LOCATION ANALYSIS

Flow of Action : i) Cost of transportation of raw material & finished goods ii) Availability & Type of land iii) Availability of secondary resources iv) Availability desired manpower at affordable cost v) Communal harmony vi) Government regulation & taxation Important Factors: i) Cost of operations as percentage ii) Shelf life of product Technique: i) Centralized audit & compiles report.

3.INVENTORY CONTROL
i) ii)

iii)
i) ii)

Flow of actions: On hand inventory analysis Communicating the quality ,quantity & timing of material with the supply points Getting the material of right quantity ,quality and at the right time Important Factors: Inventory control at planning stage and lead time Cost vs. importance f raw material

Technique: i) DRP and replenishment order control ii) Fixed order internal system iii) Economics order quantity with ROP system iv) Selective inventory control (ABC,VED,FSN analysis etc.) v) Order forecasting using statistical tools

4. MATERIAL HANDLING

Flow Of Material:

i) Type of material (RM,PM & finished goods)

ii) Material handling requirements(fragile, inflammable) ii) Cost ratio of material handling to material cost

iv) Material default location and traceability

Import Factors:

i) Material breakage ii) Pilferage iii) Cost of material Handling iv) Number of handling

Technique:

i) Operational research
ii) Material flow analysis iii) Computerized material retrieval system

1) Packaging
Flow Of Action i) Packaging requirement for the material ii) Primary packaging material iii) Secondary packaging materials iv) Cost of packaging v) Transportation requirement for packaging (vibration proof, water or moisture tight)

Important Factors: i) Protection to product ii) Communicating the message to customers iii)Customer requirement for packaging iv)Reverse logistics for packaging v) Cost of packaging

i) ii) iii) iv)

v)

Techniques: Standardized box packaging Containerization of packaging Eco-friendly packaging material Bar coding
RFID

6. TRANSPORTATION
i) ii) iii) iv) v) vi)

Flow Of Action: Mode of transportation Cost of product Speed of transportation Ambience requirement of material (refrigeration, vacuum) Cost of transportation Urgency of the product to customer

Important Factors i) Urgency of the product ii) Cost of product iii) Cost of transportation Technique i) Containerized transportation ii) Cool chain transport iii) Multi-model logistics iv) Cross docking v) Direct shipment

7. WAREHOUSING
i) ii) iii) iv) v)

Flow Of Action Location of the warehouse Inventory level of the warehouse Storage requirement of the product Packaging & repackaging requirement of the product Shelf life of the product Important Factors Availability of the space Availability of proper material handling system Strategic location Packaging & re-packaging facilities Techniques Third party logistics Third party warehousing

i)
ii) iii) iv) i) ii)

8. CUSTOMER SERVICES Flow Of Action i) Contractual services offered to client ii) Type of customer services required for the product iii) Location and service level of the service centre iv) Cost of service Important Factors: i) Contractual requirement of the customer services ii) Service quality and reverse logistics Technique: i) Annual maintenance contracts and free replacements ii) Limited trial period iii) Guarantee & warrantee iv) CRM of the organizations

TRANSPORTATION IN SCM
Basic role of transportation in SCM(logistics functions) a) The planning of any transportation system goes into the choosing of right kind of a carrier b) The services of any transportation according to different requirement of various industry c) Finally the quality of any transportation system mean the total operations efficiency in the supply chain function
HUB & SPOKE MODEL: In the case of Hub & Spoke model, hub is the location which holds inventory for a large region with each spoke leading to a smaller distribution centre which holds inventory for a smaller region. The main driver of the Hub & Spoke model is the proximity to the customer with the aim to supply for maximum amount of customer in minimum time.

MODES OF TRANSPORTATION AND THEIR PERFORMANCE IN SCM

1)Air : up to 500 lbs 2)Package Carriers : up to 150 lbs 3) Truck : About 55% to 60 %

4)Rail : About 15%

5)Water : 75 % of international logistic operations. 6)Pipeline : For crude petroleum, refined petroleum products and Natural gas. 7)Intermodal : Combination of water, rail & truck. (Mostly very time bound operation).

1.AIR :

Air carrier are fairly fast but expensive compare to other modes of transportation hence transportation by air is an effective option only for time sensitive, high value density goods.
Currently air transport account for a very small percentage of freight but is likely to play an important role in the future

2.PACKAGE CARRIER :

This are transportation companies such as Fedex , UPS and the other postal services which carry small packages ranging from letters to shipments weighing about 150 lbs. Package carrier use air, truck & rail to transport time critical smaller packages Packages carriers are the preferred mode of transport for ebusiness such as Dell and well known companies

3.TRUCK

Trucks are the dominant mode of transport

In India accounting for about 55%-60% of freight movement.

Though trucking is more expensive than rail transport , it offers the advantage of door to door shipment and shorter delivery of time.

India has the largest road network of 3.32 million km and it is estimated that truck- freight rates in India are among the lowest in the world

4.RAIL :

Rail transport is the ideal mode of transport for low value density products, which are not sensitive to time.
Though freight cost is lower, it suffers from long and unreliable lead times

In India the railways are completely under government ownership so this is totally under regulated control system or centralized
Indian railways carries about 30% freight movement in

India

5.WATER :

Water transport is one of the cheapest modes of transport and is used extensively for international cargo The main disadvantage of this transportation mode is very slow among all the mode of transportation Another disadvantage in this transportation mode is delays at port for further clearing and forwarding.

6)PIPELINE:

Pipeline are generally used for bulk transportation of predictable volumes of specialized products like crude petroleum, refined petroleum products and natural gas.

The investment cost for pipelines transportation is very high, so only the biggest industrial sectors like petroleum and natural gases could be able to afford the same but in terms of maximum level of supply chain optimization the pipeline method is ideal

7)INTERMODAL:

Transportation is the use of more than one mode of transport to move a shipment to its destination A variety of intermodal combinations are possible in global trade In India the most common being used are rail-truck and water rail

DISTRIBUTION MANAGEMENT

Distribution usually refers to getting the right product to the right place at the right time Distribution can be defined as the channel structure used to transfer products from an organized to its customer Distribution management means the activities associated with the movement of materials , usually finished goods or parts from the manufacture or supplier to the customer Distribution strategy refers the various distribution decisions involved in different stages of any distribution system E.g. : since financial planning services to final

Distribution decisions have significant implications on:

Product margins & profits Final retail pricing Sales management practices

Distribution channels include the following options: a) Retail: The stores selling to final buyers for ultimate uses. b) Wholesale: An intermediary to distribution channel that usually sells to any retail store for business uses.

DISTRIBUTION PLANNING

Distribution planning refers as the design to calculate the various products need to be received in different locations and at a particular time/schedule. Distribution planning helps organizations to create their Distribution Requirement Plans(DRPs) and establish distribution lead times for delivery. Therefore we could say DRP is a tool, which estimates inventory requirements at the stocking locations and ensures that supply sources are able to meet the demand. In current business scenario the two key factors require to meet the DRP are just in time production and the logistics system. Finally Distribution requirement planning is a planning approach which considers multiple distribution stages and the characteristics associated with each stage. Practically DRP is the logical extension of MRP(Mfg. requirement planning)

DISTRIBUTION STRATEGIES
Distribution strategies can be of the following types: Cross Docking Milk Runs Direct Shipping Hub & Spoke Model Pool Distribution

Cross Docking: This is the movement of materials from the receiving docks directly to the shipping docks. Usually in cross docking refers a flow of concept and we dont want product to stop anywhere in the distribution system. Advantage:i. Cross docking helps reduce direct cost associated with excess inventory by eliminating unnecessary handling and storage of product. ii. It also focus from supply chain to demand chain iii. It also helps to improve the speed of flow of the products from the supplier to the
A.

Milk Runs: This refers a route in which a truck either delivers product from a single supplier to multiple retailers or goes from multiple suppliers to single retailers. Advantage:a. Reduces cost b. Proximity of Suppliers c. Reduces Inventory
B.

Direct Shipping: This refers to the method of distribution in which the goods come directly from the suppliers to the retail stores. This system eliminates the involvement of intermediate facilities. Advantage:i. Elimination of intermediaries ii. Save time iii. Less damage iv. Improved accuracy
C.

Hub & Spoke Model E. Pool Distribution: This refers the distribution of product to numerous destination points(customers, stores or shop points) within a particular geographic region. Advantage:i. Multiple shipments for a specific region ii. This is simple & cost effective iii. Reduce delivery time & cost for high value customer.
D.

WAREHOUSING

A warehouse is a location with adequate facilities where volume shipments are received from any production centre, broken down, reassembled into combinations representing a particular order or orders and shipment to the customers location or locations. Common warehousing decisions for any company should involve the following criteria:

Number of warehouses Types of warehouses Location of the warehouses

TYPES OF WAREHOUSES
Usually companies might own private warehouses or rent space in public warehouses or both. Basic Eight types of Warehouses: 1. Bonded Warehouses: These are bonded under customs and Excise Act and municipal corporation regulations. 2. Field Warehouses: Which are managed by a public warehousing agency in the premises of a factory or company under a bank guarantee for the certified goods.

3. Cold Storage: These are provided for perishables against payment of storage for the space utilized by different parties. 4. Agriculture Warehouses: These are used for storing agricultural produce grown in a certain area. 5. Distribution Warehouses: These are large and automated designed to receive goods from suppliers, take orders and deliver goods to customers in retail. 6. Buffer Storage Warehouses: These are usually built at strategic locations with adequate transport and technical communication. 7. Facilities: Storing food grains, fertilizers etc in response to the of the Government or 8. Export-Import Warehouses: These are located ports from where trade/business is usually organize.

WAREHOUSING OPERATIONS
1.

2.
3. 4. 5. 6. 7. 8.

9.

Receiving Goods Identifying Goods Sorting Goods Dispatching Goods Holding Goods Retrieving Goods Marshalling Goods Dispatching Goods Preparing Documents (Records & Advices)

SITE SELECTION PROCESS

Before making a site selection decision, companies need to closely examine or evaluate the current distribution network and the impact of adding , subtracting or consolidating facilities on the entire organization . Before a site selection decision can be made, all the functional heads of the organizations including marketing, sales, distribution , operations, finance & export must participate in this analysis.

At the first step of the site selection decision: Process requires a clear understanding of the underlying strategy to be developed and communicated to all function involved in the decision. Most organizations attempt to add on consolidate facilities rather than realigning the entire distribution strategy.

FACTORS INFLUENCING DISTRIBUTION NETWORK DECISION

1.

2.

Certain factors come into play when analyzing the impact a new warehouse will have on a companys distribution network. These factors(variables) are two categories: Quantitative: Cost Drivers which are tangible and relatively easy to define (Facility cost, utility cost, Labour cost, transportation cost) Qualitative: Which are difficult to understand and to measure. These are customer service levels and top management preference.

STEPS OF WAREHOUSE SITE SELECTION PROCESS

Creating a strategic plan Developing location strategies to support the plan Getting buy-in from all levels and functions Using site selection models to assist in analyzing various scenarios An organization should be able to select the best site scenario according its cost, operating factors and expected customer service levels.

WAREHOUSE LAYOUT AND DESIGN

General Layout: One of the most important decisions when running a warehouse is layout. Layout means the physical arrangement of storage racks, loading and unloading areas, equipment, offices, rooms and all other facilities.

IMPORTANCY OF LAYOUT DECISIONS

Layout decisions are important for three basic reasons:
1.

2. 3.

These require substantial investments of both money and efforts. These involve long-term commitments. These have significant impact on the cost and efficiency of short-terms operations.

MAJOR ESSENTIAL ELEMENTS OF A COMMON WAREHOUSE:

An arrival bay or dock through which goods coming from suppliers are delivered, checked and sorted. A storage bay or dock, where the receiving goods are kept as stock. A departure bay or dock, where customer orders are assembled and sent out. A material handling system, for moving goods around. An information system, which records the location of all the goods, arrivals from suppliers, departures to customers and other relevant information.

STORAGE AREAS IN WAREHOUSE

In any common warehouse two storage areas usually maintain for effective operations:

Goods arrive and put in to a bulk storage which is the main (primary) storage area of warehouse. The packages in the bulk store are broken into individual units and moved into a smaller picking store which is used as assemble storage (secondary) area.

LAYOUT OF RACKING
In most warehouses, materials are stored in some form of shelving or racking. In order to understand and get the right materials we need to consider the following criteria:
a)

b)
c)

The type of racking to be used; The best layout for the racking; Storing of different items on the racks;

LOGISTICS (WAREHOUSE) AUTOMATION:

Logistics automation is the application of computer software and/or automated machinery to improve the efficiency of any logistics or warehouse operations. Usually this refers to operations within a warehouse or distribution centre, with broader tasks undertaken by SCM and ERP systems.

COMPONENTS USED IN LOGISTICS AUTOMATION SYSTEM

1. Fixed Machinery: a) Automated Cranes b) Conveyers c) Sortation Systems

2. Mobile Technology: By using Radio data terminals

3. Software: a) Integration software b) Operational Control Software c) Business Control Software

BENEFITS OF WAREHOUSE AUTOMATION

A typical warehouse or distribution will receive stocks of variety of products from suppliers and store these until the receipt of orders from customer whether retail branches or other companies. A common LAS provides the following benefits: Automated Goods in Processes, Automated Goods Retrieval for orders, Automated Dispatch Processing,

i. ii.

iii.

WAREHOUSE MANAGEMENT SYSTEM

At initial stage this has referred as a system to control movement and storage of materials within a warehouse, the role of WMS is expanding to including light Mfg, transportation management and complete accounting systems. The core objective of any modern WMS is to control the movement and storage of materials within an operations cycle to fulfill the target.

MAJOR CLAIMS ON WMS

a)

b)
c)

d) e)

WMS reduces inventory. WMS reduces labour cost. WMS increases storage capacity and helps distribution. WMS increases customer services. WMS increases inventory accuracy.

OTHER FUNCTIONALITY IN WMS

i.

ii. iii. iv.

v.

vi.

Integration with Automated Material Handling Equipment. Advanced Shipment Notification(ASN). Cycle Counting. Labour tracking and Capacity planning. Activity based costing/billing: This functionality is primarily designed for third party logistics operations which is activity based. Browser Based: By using modern software packages. Browser based, web enabled and eWMS are some new terms benefits to 3PL operations.

REVERSE LOGISTICS
Reverse logistics stands for all operations related to the re-use of products and materials. The management of these operations can be referred to a Product Recovery Management (PRM). PRM is concerned with the care for products and materials after they have

been used. Reverse logistics refers to all logistic activities-to collect,

disassemble and process used products, product parts, and/or materials in order to ensure a sustainable (environment friendly)

recovery process.

An example to which everyone can relate to is the soft drink bottles. Empty soft drink bottles are sent back to bottling plant via the same distribution channel. Here the bottles are segregated from the damaged ones and then washed and re-used again for further business.

Reverse logistics deals mainly with five basic principles:

What alternatives are available to recover products, product parts and materials?

Who should perform the various recovery activities? How should the various activities be performed? Is it possible to integrate the activities that are typical for reverse

logistics with
classical production and distribution systems?

What are the costs and benefits of reverse logistics, both from an

economical as

IMPORTANCE AND MAGNITUDE OF REVERSE FLOWS

In the opinion of some individual, reverse flows for logistics

and supply chains are a relatively new phenomenon. In

actuality, reverse flows have been a part of logistics and supply chains for many years. Consumer goods companies and

transportation companies have always dealt with damaged

products that often required returns at some level. For example, many warehouses had a section set aside to repackage cases where only part of the case was damaged. Transportation companies dealt with customers who would not accept damaged products and accepted liability for the value of the

Many additional traditional examples of re-use, recycling,

etc., could be offered to make the case that reverse flows have been a part of the business operations of some companies for many years. The recent increased focus on reverse flows is attributable to the significant increase in the

need for reverse flows.

For purposes of further discussion and analysis, the

following eight categories of reverse flows are offered:

i)

Products that have failed; are unwanted, damaged, or defective;

ii)

Products that are old, obsolete, or near the end of their shelf life but still have some value for salvage or resale. Products that are unsold from retailers, usually referred

iii)

to as overstocks that have resale value.

iv)

Products being recalled due to a safety or quality defect that may be repaired or salvaged. Products needing pull and replace repair before being put back in service.

v)

vi)

Products that can be recycled such as pallets, containers,

computer inkjet cartridges, etc.

vii)

Products or parts that can be re-manufactured and

re-sold.

viii) Scrap metal that can be recovered and used as a Raw material for further manufacturing.

REVERSE LOGISTICS SYSTEMS Vs. CLOSED LOOPS Reverse logistics: The process of moving or transporting goods from their final destination for the purpose of capturing value or for proper disposal. Closed loop Supply Chains Designed and managed to explicitly consider both forward and reverse flows activities in a supply chain function.

NEED FOR REVERSE LOGISTICS

Traditionally, manufacturers did not feel responsible for their products after consumer use. The bulk of used products were

dumped or incinerated with considerable damage to the

environment. Today, consumers and authorities expect

manufacturers to reduce the waste generated by their products. Therefore, waste management has received increasing attention. Lately, the emphasis has been shifting towards recovery, due to the high costs and environmental burdens of disposal. Firms have become more and more responsible for collecting,

dismantling and upgrading of used products and packaging

The main reasons to become active in reverse logistics are:

i) Environmental laws that force firms to take back their products and take care of further treatment. ii) Economic benefits of using returned products in the production process instead of paying high disposal costs.

iii) The growing environmental consciousness of consumers.

Distribution is one of the key elements in the reverse logistics chain. The fundamental principles in this area are: What is an efficient and effective structure for a reverse distribution network, especially industry specific (car industry, electronics or consumer durable)?

Which recovery activities should be conducted in which facilities?

How to integrate the reverse distribution network with the original distribution network?

An important condition for recycling and re-use is the separation into useable and not-useable items. The flow of useable items can be a substitute for ordered parts. Many uncertainties arise with respect to time, quality and quantity of the returned products.

THIRD PARTY WAREHOUSING

Globally, the warehousing industry has reached the $100 billion in the last decade owing to the growth in world trade and expansion of international markets as well as increasing application of new technology. Globally, warehousing industry is classified into 3 different types: Public Warehousing, Private Warehousing, Contract Warehousing.

i. ii. iii.

This has dedicated customers with long-term agreement is the fastest growing segment of the industry globally and the growth @12-15% since last 5 years. In India this industry is dominated by central warehousing corporation, Punjab warehousing corporation, in India around 450 warehouses provide storage capacity of 7.4 million tones for a wide range of products.

VALUE ADDED WAREHOUSING

Currently the public and private warehouse operations are focusing on packaging or redistribution. With the maximum using of ITenabled supply chain, DC evolved to meet the needs todays customer. The DC is ideally situated in the supply chain to collect information and knowledge about all the supply chain activities.

THIRD-PARTY LOGISTICS (3PL)

Third-party logistics refers to the concept of outsourcing the logistics and distribution of a manufacturing or service firm to a logistics service provider so that the manufacturing firm could focus on its core competencies of new product development, manufacturing and marketing those products. Third party logistics is the activity of outsourcing activities related to logistics and distribution, The 3PL industry includes Logistics Solution Providers(LSPs) and the shippers whose business processes they support companies option for 3PL for the following reasons:

i.

ii.
iii.

iv. v.

vi.

vii.

viii.

Improved Strategic Focus: Resource constraints: Lowered costs: could be reduced inventory management cost around 15-30% Expansion of markets: More professional and scientific approach to logistical problem Improvement in service levels with improved response time Efficient management of inventory resulting in better utilization of working capital Increased flexibility: A 3PL contract provides freeing up resources for other uses.

INFRASTRUCTURE REQUIRED FOR 3PL

The following type of infrastructure is a prerequisite for a good 3PL: i. Warehouse ii. Fleet of vehicles iii. Quality Hardware and software to take care of information required by the system. iv. Advanced material Handling capabilities v. Competent consultants with good team of spirits vi. Trained Manpower vii. Reach in terms of Geography.

STEPS WHILE CONSIDERING A 3PL SERVICE PROVIDER

i.

ii.

The Mfg. company should consider the following key points before proceeding any 3PL service: Knowing where to go: Knowing the needs and objectives:

FACTORS TO BE CONSIDERED A 3PL

A.

B.
C. D. E.

General company considerations Capabilities Quality Client Relationship Labor Relations

MEASURING & EVALUATING 3PL PERFORMANCE:

The following are the metrics of 3PL 1. Transportation
a.

b.
c.
2.

On-time shipment On-time Delivery Transportation cost per mile

Warehousing
a.

b.
c. d. e.

f.
g.

Percentage of order ships in each consignment Unit cost of warehousing Pricing accuracy in warehouse Order fulfillment Item fulfillment Inventory accuracy Loss and damage

3.

Cost:
a. b.

Service costs Cost Reduction

4.

Quality
a. b.

Reports Process Improvement

5.

Availability:
a. b.

Customer Satisfaction Handling routine

FACTORS TO BE CONSIDERED IN EVALUATING A 3PL

A.

B.
C. D. E.

General Company Considerations Capabilities Quality Client Relationship Labor Relations

FOURTH-PARTY LOGISTICS (4PL)

The 4PL was a term coined by Accenture Consulting in the mid 90s. The term was coined as a result of an extensive survey carried out by the organization on customer satisfaction, which indicated that the customer expectations regarding costs by using 3PL service providers were not up to the mark. According to the Accenture Consulting the 4PL defines as: An integrator that assembles the capabilities, technology and resources of its own organization and other organizations to design, build and run comprehensive supply chain solutions For any firm to establish the 4PL must have enhance skills in investing and maintaining the infrastructure and resources that makes it the manager of multiple 3PL

MAJOR TECHNOLOGY COMPONENT OF 4PL SERVICES

Global Positioning System: GPS is the only technology which could be used for determining the position of any object on earth with a high amount of accuracy and in any climate. Global Information System: GIS technology is a computerized system capturing the position of an object and then processing, enhancing, querying, analyzing and storing it with spatially referenced data containing the consumer profile of that particular area which can be definitely help a sales organization in creating consumer demographics.

The key components of modern GIS are the integrated Hardware and software. By using GPS and GIS improves the transportation management system which shows the real time data of the traffic conditions or the conditions of the weather.
These two technologies could be used for effective route optimization and modern fleet management operations.

FOUR KEY COMPONENTS IN 4 PL SOLUTIONS

Architect or Integrator

Control Room (Intelligence)

4 PL
Supply Chain Info mediatory

Resource Provides

1.

The Architect/Integrator: Supply chain visionary, Multiple customer relationship, supply chain reengineers, project management and continuous innovation. The Control Room: Experienced logisticians, decision support, managing multiple 3PLs and continuous improvement. The Supply Chain Inform diary(Information Nervous System): IT infrastructure, IT system integration, Real time data tracking, conversion of data to information and technical support.

2.

3.

4.

The Resource Providers: Transportation & warehouse assets provider, Cross-dock, property facility, Manufacturing outsourcing, Procurement and co-packing services.

CHALLENGES FACED BY THE 4PL INDUSTRY

i.

Indian mindset is itself a great challenge: Application of 4PL needs a lot of understanding & support from the top management. Low awareness regarding the 4PL concept: Some 3PL firms have either misunderstood the definition by Accenture or purposely ignore for other reason. Some 3PL players offering additional IT services & started marketing as 4PL, which could be referred as 3PL plus. The relevant technology and the resource required for any 4PL are not available in India

ii.

iii.

iv.

INFORMATION TECHNOLOGY FOR SCM

Need for IT in SCM The 3 major reasons for considering IT for SCM are: i. Data Transfer ii. Information Retrieval iii. Machine Process Control
A.

B.

i. ii.

iii.

iv.

IT tools for business IT systems (tools) could be used for modern business in following areas: Project Management Computer Aided Design (CAD) / Computer Aided Manufacturing (CAM) CAD allows for 3 dimensional design of parts using computer programs CAM translates such designs into actual products Computer Integrated Manufacturing (CIM) CIM prefers the integrated use of computer-aided techniques in manufacturing Manufacturing Execution System (MES) This primarily consists of one or more modules used to track inventory and production and to insure and document the proper execution of manufacturing processes.

B. v.

vi.

IT tools for business (contd.) Management Information System (MIS): This refers to a mainframe or minicomputer designed to provide management personnel with up to data information on an organizations performance or business activities Decision Support System (DSS): This is an automated management information system. There are 2 major types of DSS:
a) b)

Enterprise wide DSS: Linked to large data warehouse and serves many functions Desktop DSS: Single user DSS on an individual PC

vii.

iv.

Expert Systems: This is a computer application based on artificial intelligence which attempts to duplicate the ability of human experts to perform a specific task. Egg: application on banking and insurance sectors. Knowledge Management: This is a concept in which an enterprise gathers, organizes, shares and analyzes its knowledge in terms of resources, documents and people skills.

B. ix.

x.

xi.

IT tools for business (contd.) Enterprise Resource Planning (ERP): This refers to an integrated, multi-module application software packages designed to serve and support several business functions across any organization. Customer Relationship Management (CRM): This is a set of methodologies, software and usually internet capabilities which helps modern managers to build up long term relationship with customers. Supply Chain Management: It is the process of optimizing the delivery of

MAJOR IT APPLICATIONS IN MODERN SCM

IT applications have the following major benefits in modern SCM a) Provides multiple ways of achieving objectives b) Major constraints could be understood well in advance. c) Provides a defined set of steps to attain the set of objectives

Evolution of SCM system

MR P MRP II ER P EERP
SC M

Functional Roles of IT in SCM

Transaction Execution Collaboration and co-ordination Decision Support SC

CAD/ CAM/ CIM M

ER P
CR M

PDM S Product Data Management System

Key objectives of IT in SCM

i.

ii.
iii.

iv.

Providing information availability and visibility Enabling single point of contact for data Allowing decisions based on total supply chain information Enabling collaboration with different supply chain partners

The key in benefitting from IT strategically is to redesign business processes.

Major issues with SCM system

Major issues while implementing SCM solutions are as follows: a) Complexity b) Dependence on others c) Procurement and implementation

Advanced Planning and Scheduling (APS)

This is an advanced software

APS benefits
i.

ii.
iii.

Maximized on-time delivery Improved delivery visibility Improved collaboration between planning and purchasing

SCM in Electronic Business

E-Business is a superset set of e-commerce.

The impact of e-business is as follows: i. It integrates many types of information. ii. It lets users access information rapidly online. iii. It encourages collaborative teams and collective action. iv. It influences departments to share business knowledge.

e-Business has 2 components:

i.

ii.

Online Shopping: The scope of information and activities provide customer buying decision. Online Purchasing: The technology infrastructure for the exchange of data and purchase of product is through the internet.

Myths of e-Business
Based on realistic and diligent ROI efforts:-

Myth #1: Implementing SCM solutions always creates benefits.

Myth #2: The internet has dramatically reduced supply chain cycle times. Myth #3: SCM portals are just another short-term fad. Myth #4: Everything inside the four walls works just fine. Myth #5: Investing in SCM applications will always result in a rapid return.

Difference between Traditional Business and e-Business

In traditional business, the buyers could touch the products or get chances to examine them. In e-business, these are not possible. In traditional business, manufacturers or service providers could only meet a limited number of buyers. In e-business, huge number of buyers can be involved at any time.

TYPES OF E-BUSINESS
i.

Business to Business (B2B) Business to Consumer (B2C) Consumer to Consumer (C2C)

ii.

iii.

iv.

Consumer to Business (C2B)

TECHNOLOGIES OF E-BUSINESS
i.

ii.
iii. iv. v. vi. vii.

Electronic Data Interchange (EDI) Bar codes Electronic mail Internet World Wide Web Product data exchange Electronic forms

MAJOR ISSUES IN SUPPLY CHAIN DESIGN

Which organization in the supply chain should

drive the supply chain design? Let us first consider

situations where this is a relatively straightforward question to answer. Erecting the structural framework is, no doubt, an easier task for supply chains that have a dominant organization in the supply chain.

For instance, some organizations such as Barilla

and Toyota that took on the responsibility for designing and managing the supply chain. In general, the organization driving the supply chain is usually the one primarily responsible for the brand image.

The brand owner could be: an upstream manufacturer such as Intel, who would have a significant influence on the supply

chain because of the technology driven inputs to

the supply chain, for example, through new product introduction. a downstream manufacturer such as HUL, which through a network of own and contract manufacturing could position brands and provide market inputs to the rest of the supply chain.

 a retailer such as Wal-Mart, which provides a large part of the final exposure to the market place. a trading company in commodities, which is usually

largely anonymous to the general business world,

but which wields considerable influence through

volumes of purchases.
Firms that provide transportation, warehousing or

Logistics services tend to diversify their business

across many different products and services.

Consequently, these firms are generally unlikely to be brand owners. However, with international outsourcing, a number of these firms have vertically integrated into a number of businesses associated with logistics, such as global sourcing, quality

certification, and transportation through different

modes.

In general, there are relatively very few supply chains that have a dominant player. However, even when there is no clearly dominant authority in the supply chain, it will benefit the members in the supply chain if they are at least aware of the steps

they can follow to make their supply chain more

competitive. The true competitive edge is realized

only when all key members in the supply chain

jointly agree to work with these steps.

STEPS FOR DESIGNING AND MANAGING LEAN SUPPLY CHAINS

THE LEAN SUPPLY CHAIN ROAD MAP
Develop Systems Thinking Understand Customer Value Value Stream Mapping Benchmark Best Practices

Performan ce Metrics

Create Flow

Design to Manage Demand Volatility

DEVELOP A SYSTEMS PERSPECTIVE

The systems perspective recognizes that if each element in the supply chain tries to optimize its own operations in isolation, everyone suffers in the long run. Thus, if each organization in the supply chain makes decisions in isolation without input from its immediate upstream and

downstream supply chain partner, that only serves

to exacerbate the bullwhip effect.

Moving from a local optimization framework to a global optimization framework poses a tremendous challenge for organizations, as it is a radical shift

from the traditional approach towards managing an

organization.

An example, consider a supply chain consisting of

just two organizations, A and B, where A is a supplier to B. Suppose A receives a mandate to reduce finished goods inventory and responds accordingly.

From a local perspective, the performance of A is enhanced. However, if the inventory reduction at A is done in isolation, without any corresponding improvement in the pattern of Bs demands on its suppliers, then A might be putting itself in jeopardy

because it will be unable to react quickly to

unforeseen changes in demand from B. In fact, from Bs perspective, A will be perceived as less flexible, and so B may either decide to carry some inventory of its own or find another supplier.

UNDERSTAND THE CUSTOMERS AND THEIR EXPECTATIONS

What is customer value?

This is a crucial question addressed next. In the

supply chain design, we must always address the question on whether the supply chain is designed to be responsive to customer needs and values.

There is an opportunity for the supply chain partners to challenge the way in which product is traditionally being delivered. Understanding customer value means that we should, at the minimum, identify the attributes your product must

have. We must identify the order qualifiers and

order winners for your product. Order qualifiers are

attributes that the product must have for the

customer to even consider purchasing it from you.

Order winners are the attributes that will get you the customers order. Order qualifiers and order winners determine the competitive priorities your supply chain should focus on. Should it be speed to market, product design, product quality, on-time

delivery, or a combination of these? The answer to

this question depends on what is important to the

customer base.

Order qualifiers and order winners are important to the designer of the supply chain because they facilitate the dialogue between marketing, which

identifies the voice of the customer, and operations,

which is responsible for delivering on these

attributes.
Order qualifiers and order winners are dynamic attributes. Changes in the market place and changes in technology can change the order qualifiers and order winners.

Once

order

winners

and for

order the

qualifiers

are

identifies, operations must evolve different product delivery strategies different market segments. Supply chains can be characterized as build-to-stock(BTS), assemble-to-order(ATO), build-

to-order (BTO), and engineer-to-order(ETO). The BTS

supply chain provides the fastest response to the

customer, but is accomplished with pre-build end

item speculation.

In contrast, BTO and ETO provide a long response time to the initial customer order, but this is accomplished with little pre-build speculation. The customer must wait for most of the parts and components to work through the supply chain as

custom parts. The ATO configuration provides a

middle ground where the response time to the customer is confined to the assembly time. This is accomplished with pre-build speculation of components and modules, rather than end items.

To develop a customer time-based demand profile that identifies customer expectations in terms of lead time, and develop finished goods inventory strategies accordingly. To understand how the customer time-based demand profile could be used,

consider, for instance, a product such as under-thecounter dishwashers. Customers for this dishwasher

are individual homeowners, retail stores, or building

contractors.

The individual homeowner is either one who is in need of a dishwasher now, because his dishwasher is broken and not repairable, or is shopping around to replace a functioning dishwasher. For the homeowner whose dishwasher is broken, the

lead time expectation on the order could be zero or,

at most, one day. For the retail store owner, the lead time expectation could be one or two days, whereas for the building contractor, the lead time expectation could be one week.

For the individual homeowner shopping around for a dishwasher, the lead time could even be as high as a month; this customer may wait until she gets a real good deal. Clearly, there are different types of customers, each with their own lead time

expectations.

The time-based demand profile is a very useful tool to match customer expectations with operations capabilities. For instance, suppose the lead time for the organization to fulfill demand is between two to four weeks. All orders requiring delivery in less than

two weeks would have to be met with finished

goods inventory.

Customers that place such orders can be classified

as At-Once customers. Customers placing orders that fall within the lead time windows are classified as At-Lead-Time Customers, and those that are prepared to wait for more than four weeks would be Beyond-Lead-Time customers.

Global Distribution Channels

Global distribution has the option of distributing products in foreign markets by: Direct Exporting: Indirect Exporting: In both the cases the marketers can use intermediates or indirect channels, direct channels or combination of both. The different types of intermediates (Domestic Overseas) could be categorized as: Commissioning buying agents, Country controlled buying agents, Export management companies, Export merchants, Export agents, Piggy-backing

a) b)

Foreign Intermediaries
The different types of foreign intermediaries are:

Foreign Sales representatives, Foreign Sales agents, Foreign stocking and non-stocking agents, State controlled trading companies.

Distribution Policy
Global distribution policy usually cover the following factors:
a)

Questions of control, size of margins, length of channels, terms of sale and channel ownership. Resources commitment plans for the distribution management and keeping profit goals in a foremost position. Specific market goals expressed in terms of volume, market share and margin requirements to be accomplished. ROI, share volume and long run potential as well as guidelines for solving routine distribution problems. The relationship between long and short term goals, the extent of the companys involvement in the distribution system as well as the extent of its ownership of middlemen.

b)

c)

d)

e)

Distribution Issues
The issues involved in the process of moving a product from one country to another country are:
a)

Comparison of modes of transportation (surface, water, air, multimodal). Cargo / Transportation insurance. Packing. Freight forwarder and custom house broker. Documentation.

b) c) d) e)

Marine Cargo Insurance

In international business, movement of goods between continents can take place by ocean or air transportation. Marine cargo insurance covers loss or damage at sea, though in practice, it applies to shipments by mail, air and ship. It provides broader coverage than domestic cargo insurance. The two form of marine insurance are:
1) 2)

Special coverage (one-time), Open Policy

Freight Forwarding and Packaging

A freight forwarder is responsible for forwarding of freight locally as well as internationally. A freight forwarder could be an exporters agent who leads the physical distribution necessary to move cargo to overseas destinations in the most efficient and economic manner. While the freight forwarder works for exporters, the custom house broker performs functions for importers. In global business, packaging can be of two distinct types:
A. B.

Industrial (exterior) packaging, Consumer (interior) packaging.

Industrial packaging is to prepare and protect merchandise for shipment and storage and forms 30% of total packaging cost. Consumer packaging is generally for the purpose of getting sales acceptance.

Documents for Global Distribution

Various documentation and procedures have to be followed for export in the Indian context. Various documents to be prepared are:
1)

Principal Documents: ( Commercial invoice, Packing list, Marine insurance policy, Bill of exchange, Later of credit, Airway bill, Export inspection certificate, Certificate of origin, Shipment advice). Auxiliary documents: ( Shipping instructions forms, Application for export inspection agency, Shipping order, Mate receipt, Port challan).

2)