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WORK SHOP ON SUPPLY CHAIN MANAGEMENT
OUTBOUND
LOGISTICS
MANAGEMENT
C K NAGENDRA GUPTHA,
Dept. of I E M, R V College of Engineering
Companies are facing rapidCompanies are facing rapidchange and are under a variety of pressureschange and are under a variety of pressures
• An increased focus on Globalization• An increased focus on Supply Chain Management
TODAY’S OPERATING ENVIRONMENTTODAY’S OPERATING ENVIRONMENT
MassCustomization
Reduce Timeto Markets
Introduce New Products
Frequently
Customize productsin Niche Markets
Sell Globally
CompaniesCompanies
Reduce Costs
CUSTOMER EXPECTATIONS
• Many players in each industry - domestic / international / unorganised: competition in all segments
• Expectations being shaped by products & services across industries
• Unwilling to bear inefficiencies / costs of suppliers
• Increasing need for customized services & products
• Need for responsiveness in fast changing scenarios
• Loyalty cannot be taken for granted
WHAT DOES THIS MEAN FOR THE MANUFACTURER?
• “Loyal consumers” may switch to competition if desired product is not available / delivered
• Retailers expect immediate response to product / service needs
• Distributors are unwilling to carry inventory beyond accepted norms
• Cost of inventory in the supply chain is eventually borne by manufacturer
COMPETITIVE PRESSURES
Rapid SKU proliferation
To address different customer segments:
•Increasing need for wide variety
•Great push to introduce new products rapidly
ForecastingErrors
Long cycle times
High uncertainty
LEADING TO….
•Poor responsiveness
•Inventory build-up at various stages
… a sluggish & inefficient supply chain
• Being responsive to market needs &
changes
• Optimise on inventory levels across the
chain: vendor, mfr., distributor, retailer, etc
• OTIF: Order fulfillment on time in full
OBJECTIVES OF SCM:
WHAT IS SUPPLY CHAIN MANAGEMENT?
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If you think it is to...
Manage the component parts from Suppliers
Manage inbound freight
Manage outbound freight
Manage product distribution
Manage logistics and warehouses
SUPPLY CHAIN MANAGEMENT
SCM requires managing the flow of information & material….
across suppliers, manufacturer, CFAs, distributors, retailers etc. to meet customer
expectations
A WELL-DESIGNED SUPPLY CHAIN ADDRESSES ISSUES THROUGHOUT THE CHAIN:
Time to Market
Lead Times / cycle times
Inventory formation and accumulation
Information and demand flow
Product flow
Planning & procurement processes
Distribution and logistics
SUPPLY CHAIN DESIGN
Information
Supplier Supplier Manufacturer Wholesale Distribution Sales Level 3 Level 2
Means:
Evolves to:
- Seam less Flow- Eliminate waste- Reduce cycle time
Profitability Customer SatisfactionROAEPS
Materials & Products
Waste Waste Waste Waste Waste
INFORMATION FLOW : A CRITICAL COMPONENT OF SCM
• Flow of information up & down the chain is as important as Material Flow
• Helps reduce uncertainty• Improves credibility & defines customer
expectations• In the internet age - it will be a must for
all supply chains• IT is playing a big role in keeping
communication flowing
IMPROVING INFORMATION FLOW IS CRITICAL TO ACHIEVING A WORLD
CLASS SUPPLY CHAIN
2
18
37
43
0
0 10 20 30 40 50
Not Important
Somewhat Important
Important
Very Important
Critical
% of Respondents
METHODS TO IMPROVE INFORMATION FLOW: ROLE OF IT
• ERP systems– Focus on transaction processing – Integrates various functions within the organisation– Ensures connectivity across geographic locations– Provides a clean & single information back bone– Is fast becoming an industry standard– Helps the organisation to become process oriented
• E-connectivity– Is useful as a medium for connectivity across various entities– Cheaper , faster , non-hierarchical (network)
ROLE OF IT… CONTD.
• SCM Packages– Used mainly as a decision support tool in the planning
function– Optimise various planning processes: forecasting, demand
planning, factory planning, etc.. – Helps modify the planning process based on real time
changes or constraints in the operations e.g.: likely order completion date due to unforeseen delays, etc
– Draw basic information from ERP / other transaction processing systems
PERFORMANCE MEASURES
• Motivation of supply chain links can improve only if performance measures are put in place
• Focus of performance measures on Interfaces between entities of the chain in place of independent individual entity performance
• Performance measures need to be derived from overall objective of supply chain - I.e. they need to be aligned across the chain
PERFORMANCE MEASURES
Some common examples:• Production alignment to demand
• Order Fulfilment ratio (On time in full) or Availability cover
• Forecasting efficiencies
• Distribution efficiency
• Vendor rating on delivery reliability, lead times
• Inventory turns
• Cycle times / Response time / Average Lead time
SCOPE OF SCM
• Demand Planning• Production Planning• Distribution planning• Supply Chain Strategies• Information management • Performance Measures
EXTENDING THE SUPPLY CHAIN TO INCLUDE OUR BUSINESS ASSOCIATES
Aligned Distribution
The New LinkSynchronized Production
Trade
SUPERMARKET
RDS/WOTSuppliersFactory
Tomorrow - Demand Communication
CFA
Tomorrow - Inventory Visibility
Today
Before SAP
Showroom
SUPERMARKET
RDS
Factory
CFACorporate
RO
Today - with SAP R/3
Showroom
SUPERMARKET
RDS
Factory
CFACorporate
RO
SAP R/3
HOW IS THIS HELPING US?
• Facilitation of CRP flow
• Better distribution and stock correction
• Smarter demand planning
• Rapid demand communication
• Responsive supply chain - changes in demand / supply being incorporated
TOMORROW - A “PULL” BASED SYSTEM ACROSS THE SUPPLY CHAIN
ConsumerShowroomPlantsSuppliers
RDS
CFA
Extended CRP system
THE EXTENDED SUPPLY CHAIN
A win-win situation
– Secondary sales data will be available to us leading to sharper forecasting
– Pull system will ensure leaner inventories across the chain
– Increased availability of A category products for BAs
– Leading to better customer service (End & intermediate customers)
Fit Between Competitive & Functional Strategies
Components of Logistics Management
Management Actions Planning Implementation Control
Natural resources (land,
facilities, & equipment
Human resources
Financial resources
Information resources
Marketing orientation
(competitive advantage)
Time & place utility
Efficient movement to
customer
Proprietary asset
Raw materials
In-process inventory
Finished goods
Logistics Management
Suppliers
Vendors
•Customer service •Demand forecasting•Distribution
communication •Inventory control•Material handling•Order processing •Parts and service support
•Plant & warehouses site selection
•Procurement•Packaging•Return goods handling•Salvage and scrap disposal •Traffic and transportation •Warehousing and storage
Logistics Activities
Inputs into Logistics
Outputs of Logistics
CHANNELS OF DISTRIBUTION
CHANNELS OF DISTRIBUTION
• A channel of distribution can be defined as the collection of organization units either internal or external to the manufacturer, which performs the functions involved in the product marketing.
• The functions of marketing include:
– Buying - Providing marketing Information
– Selling - Grading
– Transporting - Financing
– Storing
The channel member performs one or more of the above functions
Alternative Channels of Distribution for Consumer Goods
Alternative Channels of Distribution for Industrial Goods
Manufacturer Manufacturer Manufacturer Manufacturer
Industrial User
Agent or broker
Industrial user
Industrial Distributor
Industrial user
Agent or broker
Manufacturer
Industrial User
How Intermediaries Reduce the Cost of Market Contact between Supplier & Customer
Distribution Channels – Grocery Products Manufacturer
Suppliers
Manufacturer
Plant
Another plant
Field Warehouses
Wholesalers Chain store warehouses
Co-ops Military
Retailers
Consumers
Product flows Information flows
Key:
Inventory Positions and Major Flows in a channel of distribution
Supplier Manufacturer Wholesalers Retailers
Orders
Payments
Information
Product
Orders
Payments
Information
Product
Orders
Payments
Information
Product
Variable cost of product
$5 Variable cost of material
$10 Variable cot of product
$60 Variable cost of product
$80
Full manufactures cost
$7 Acquisition costs $1 Other acquisition costs
$2 Other acquisition costs
$2
Selling price $10 Other variable costs
$14 Selling price $80 Selling price $150
Total variable cost of product
$25
Full manufactured cost
$40
Selling price $60
CHANNELS OF DISTRIBUTION - Functions
• Reduce number of market contacts
• Provide utility by – sorting out, accumulating, allocation, and assorting.
• Routinization of transactions
• Reduce costs of – selling, transportation, inventory carrying, storage and order processing
CHANNELS OF DISTRIBUTION – Channel structure
• Postponement – of changes in form and identity of a product and inventory location to the last possible point in the marketing process. E.g. mixing of paint,
• Speculation – Converse of postponement, reduces costs through economies of scale
CHANNELS OF DISTRIBUTION – Design process
• Establish channel objectives
• Formulate a channel strategy
• Determine channel structure alternatives
• Evaluate channel structure alternatives
• Select channel structure
CHANNELS OF DISTRIBUTION – Design process
• Determine alternatives for individual channel members
• Evaluate and select individual channel members
• Measure and evaluate channel performance
• Evaluate channel alternatives when performance objectives are not met
CHANNELS OF DISTRIBUTION – Design considerations
Market coverage objectives– Customer buying behavior– Type of distribution – intensive, exclusive and
selective– Channel structure– Control
Customer service objectivesAvailabilityorder cycleCommunication
CHANNELS OF DISTRIBUTION – Design considerations
Product characteristics– Value - Perishability– Technicality - Market
concentration– Seasonality - Market acceptance– Substitutability - Width and Depth– Bulk
Profitability
CHANNELS OF DISTRIBUTION – Quick Response
• Quick seeks to maximize customer
satisfaction by having the right inventory in
the right place, without incurring the
expenses associated with excess inventory
Channel Cost / Revenue Analysis – Contribution Approach with a charge for assets Employed
Channel Alternative
1 2 3 4 5
Net Sales Cost of good sold (variable manufacturing cost)Manufacturing contribution
Marketing and logistics costs Variable costs:
Sales commissionsTransportation Warehousing (handling in and out)Order processing Charge for investment in accounts receivable Segment contribution margin
Channel Cost / Revenue Analysis – Contribution Approach with a charge for assets Employed
Channel Alternative
1 2 3 4 5
Assignable nonvariable costs (costs incurred specifically for the segment during the period):
Bade debtsDisplay racks Sales promotion SalariesSegment related advertising Other
Segment controllable margin
Charge for assets used by segment Net segment margin