SUPPLY CHAIN MANAGEMENT

UNIT I
Supply Chain Management can be defined as the management of flow of products and
services, which begins from the origin of products and ends at the product’s consumption. It
also comprises movement and storage of raw materials that are involved in work in progress,
inventory and fully furnished goods.
The main objective of supply chain management is to monitor and relate production,
distribution, and shipment of products and services. This can be done by companies with a
very good and tight hold over internal inventories, production, distribution, internal
productions and sales.

In the above figure, we can see the flow of goods, services and information from the
producer to the consumer. The picture depicts the movement of a product from the producer
to the manufacturer, who forwards it to the distributor for shipment. The distributor in turn
ships it to the wholesaler or retailer, who further distributes the products to various shops
from where the customers can easily get the product.
Supply chain management basically merges the supply and demand management. It uses
different strategies and approaches to view the entire chain and work efficiently at each and
every step involved in the chain. Every unit that participates in the process must aim to
minimize the costs and help the companies to improve their long term performance, while
also creating value for its stakeholders and customers. This process can also minimize the
rates by eradicating the unnecessary expenses, movements and handling.
Here we need to note that supply chain management and supply chain event management
are two different topics to consider. The Supply Chain Event Management considers the
factors that may interrupt the flow of an effective supply chain; possible scenarios are
considered and accordingly, solutions are devised for them.
Supply Chain Management - Advantages
In this era of globalization where companies compete to provide the best quality products to
the customers and satisfy all their demands, supply chain management plays a very
important role. All the companies are highly dependent on effective supply chain process.
Let’s take a look at the major advantages of supply chain. The key benefits of supply chain
management are as follows −
 Develops better customer relationship and service.
 Creates better delivery mechanisms for products and services in demand with
minimum delay.
 Improvises productivity and business functions.
 Minimizes warehouse and transportation costs.
 Minimizes direct and indirect costs.
 Assists in achieving shipping of right products to the right place at the right time.
 Enhances inventory management, supporting the successful execution of just-in-time
stock models.
 Assists companies in adapting to the challenges of globalization, economic upheaval,
expanding consumer expectations, and related differences.
 Assists companies in minimizing waste, driving out costs, and achieving efficiencies
throughout the supply chain process.
Supply Chain Management - Goals
Every firm strives to match supply with demand in a timely fashion with the most efficient
use of resources. Here are some of the important goals of supply chain management −
 Supply chain partners work collaboratively at different levels to maximize resource
productivity, construct standardized processes, remove duplicate efforts and
minimize inventory levels.
 Minimization of supply chain expenses is very essential, especially when there are
economic uncertainties in companies regarding their wish to conserve capital.
 Cost efficient and cheap products are necessary, but supply chain managers need to
concentrate on value creation for their customers.
 Exceeding the customers’ expectations on a regular basis is the best way to satisfy
them.
 Increased expectations of clients for higher product variety, customized goods, off-
season availability of inventory and rapid fulfillment at a cost comparable to in-store
offerings should be matched.
 To meet consumer expectations, merchants need to leverage inventory as a shared
resource and utilize the distributed order management technology to complete orders
from the optimal node in the supply chain.
Lastly, supply chain management aims at contributing to the financial success of an
enterprise. In addition to all the points highlighted above, it aims at leading enterprises using
the supply chain to improve differentiation, increase sales, and penetrate new markets. The
objective is to drive competitive benefit and shareholder value.
Supply chain management is a process used by companies to ensure that their supply chain
is efficient and cost-effective. A supply chain is the collection of steps that a company takes
to transform raw materials into a final product. The five basic components of supply chain
management are discussed below −
Plan
The initial stage of the supply chain process is the planning stage. We need to develop a plan
or strategy in order to address how the products and services will satisfy the demands and
necessities of the customers. In this stage, the planning should mainly focus on designing a
strategy that yields maximum profit.
For managing all the resources required for designing products and providing services, a
strategy has to be designed by the companies. Supply chain management mainly focuses on
planning and developing a set of metrics.
Develop (Source)
After planning, the next step involves developing or sourcing. In this stage, we mainly
concentrate on building a strong relationship with suppliers of the raw materials required for
production. This involves not only identifying dependable suppliers but also determining
different planning methods for shipping, delivery, and payment of the product.
Companies need to select suppliers to deliver the items and services they require to develop
their product. So in this stage, the supply chain managers need to construct a set of pricing,
delivery and payment processes with suppliers and also create the metrics for controlling
and improving the relationships.
Finally, the supply chain managers can combine all these processes for handling their goods
and services inventory. This handling comprises receiving and examining shipments,
transferring them to the manufacturing facilities and authorizing supplier payments.
Make
The third step in the supply chain management process is the manufacturing or making of
products that were demanded by the customer. In this stage, the products are designed,
produced, tested, packaged, and synchronized for delivery.
Here, the task of the supply chain manager is to schedule all the activities required for
manufacturing, testing, packaging and preparation for delivery. This stage is considered as
the most metric-intensive unit of the supply chain, where firms can gauge the quality levels,
production output and worker productivity.
Deliver
The fourth stage is the delivery stage. Here the products are delivered to the customer at the
destined location by the supplier. This stage is basically the logistics phase, where customer
orders are accepted and delivery of the goods is planned. The delivery stage is often referred
as logistics, where firms collaborate for the receipt of orders from customers, establish a
network of warehouses, pick carriers to deliver products to customers and set up an
invoicing system to receive payments.
Return
The last and final stage of supply chain management is referred as the return. In the stage,
defective or damaged goods are returned to the supplier by the customer. Here, the
companies need to deal with customer queries and respond to their complaints etc.
This stage often tends to be a problematic section of the supply chain for many companies.
The planners of supply chain need to discover a responsive and flexible network for
accepting damaged, defective and extra products back from their customers and facilitating
the return process for customers who have issues with delivered products.

Supply chain management can be defined as a systematic flow of materials, goods, and
related information among suppliers, companies, retailers, and consumers.
Types
There are three different types of flow in supply chain management −

 Material flow
 Information/Data flow
 Money flow

Let us consider each of these flows in detail and also see how effectively they are applicable
to Indian companies.
Material Flow
Material flow includes a smooth flow of an item from the producer to the consumer. This is
possible through various warehouses among distributors, dealers and retailers.
The main challenge we face is in ensuring that the material flows as inventory quickly
without any stoppage through different points in the chain. The quicker it moves, the better
it is for the enterprise, as it minimizes the cash cycle.
The item can also flow from the consumer to the producer for any kind of repairs, or
exchange for an end of life material. Finally, completed goods flow from customers to their
consumers through different agencies. A process known as 3PL is in place in this scenario.
There is also an internal flow within the customer company.
Information Flow
Information/data flow comprises the request for quotation, purchase order, monthly
schedules, engineering change requests, quality complaints and reports on supplier
performance from customer side to the supplier.
From the producer’s side to the consumer’s side, the information flow consists of the
presentation of the company, offer, confirmation of purchase order, reports on action taken
on deviation, dispatch details; report on inventory, invoices, etc.
For a successful supply chain, regular interaction is necessary between the producer and the
consumer. In many instances, we can see that other partners like distributors, dealers,
retailers, logistic service providers participate in the information network.
In addition to this, several departments at the producer and consumer side are also a part of
the information loop. Here we need to note that the internal information flow with the
customer for in-house manufacture is different.
Money Flow
On the basis of the invoice raised by the producer, the clients examine the order for
correctness. If the claims are correct, money flows from the clients to the respective
producer. Flow of money is also observed from the producer side to the clients in the form
of debit notes.
In short, to achieve an efficient and effective supply chain, it is essential to manage all three
flows properly with minimal efforts. It is a difficult task for a supply chain manager to
identify which information is critical for decision-making. Therefore, he or she would prefer
to have the visibility of all flows on the click of a button.

After understanding the basic flows involved in the supply chain management, we need to
consider the different elements present in this flow. Thus, the different components of the
flow of supply chain are described below.
Transportation
Transportation or shipment is necessary for an uninterrupted and seamless supply. The
factors that have an impact on shipment are economic uncertainty and instability, varying
fuel prices, customers’ expectations, globalization, improvised technologies, changing
transportation industry and labor laws.
The major elements that influence transportation should be considered, as it is completely
dependent on these factors for order completion as well as for ensuring that all the flows
work properly. The major factors are −
Long-term Decisions
Transportation managers should acknowledge the supply freight flow and accordingly
design the network layout. Now, when we say long term decision, we mean that the
transportation manager has to select what should be the primary mode of transportation.
The manager has to understand the product flows, volume, frequency, seasonality, physical
features of products and special handlings necessities, if any. In addition to this, the manager
has to make decisions as to the extent of outsourcing to be done for each and every product.
While considering all these factors, he should carefully consider the fact that the networks
need not be constant.
For example, in order to transport stock to regional cross dock facilities for sorting,
packaging and brokering small loads to individual customers, stock destinations can be
assembled through contract transportation providers.
Lane Operation Decisions
These functional decisions stress on daily freight operations. Here, the transportation
managers work on real time information on products’ requirements at different system nodes
and must collaborate every move of the product that is both inbound and outbound shipping
lanes so as to satisfy their services demands at the minimal possible cost.
Managers who make good decisions easily handle information and utilize the opportunities
for their own profit and assure that the product is moved to them immediately, whenever it is
demanded, that too in the right quantity. At the same time, they are saving cost on
transportation also.
For example, a shipment has landed from a supplier who is based in New Jersey and in the
same week, a product needs to be dispatched to New York as it becomes available for
movement. If the manager is aware of this information in advance, he would prepare
everything as per the demand and the products could be shipped out immediately.
Choice and Mode of Carrier
A very important decision to be made is to choose the mode of transportation. With the
improvement in the means of transportation, modes of transport that were not available in
the traditional transportation modes in the past can be now be a preferred choice.
For example, rail container service may offer a package that is cost-efficient and effective
as compared to a motor transport. While making a decision, the manager has to consider the
service criteria that need to be met, like the delivery time, date special handling
requirements, while also taking into consideration the element of cost, which would be an
important factor.
Dock Level Operations
This involves the last level of decision-making. This comprises planning, routing and
scheduling. For example, if a carriage is being loaded with different customers’ orders, the
function of the dock-level managers is to assure that the driver is informed of the most
efficient route and that loads are placed in the order of the planned stops.
Warehousing
Warehousing plays a vital role in the supply chain process. In today’s industry, the demands
and expectations of the customers are undergoing a tremendous change. We want everything
at our door step – that too with efficient price. We can say that the management of
warehousing functions demands a distinct merging of engineering, IT, human resources and
supply chain skills.
To neutralize the efficiency of inbound functions, it is ideal to accept materials in an
immediately storable conveyance, like a pallet, case or box. For labelling the structure, tool
selection and business process demand the types and quantities of orders that are processed.
Further, the number of stock-keeping units (SKU’s) in the distribution centres is a crucial
consideration.
The Warehouse Management Systems (WMS) leads the products to their storage location
where they should be stored. The required functionality for the completion and optimization
of receiving, storing and shipping functions is then supplied.
Sourcing and Procurement
Sourcing and procurement are a vital part of the supply chain management. The company
decides if it wants to perform all the exercises internally or if it desires to get it done by any
other independent firm. This is commonly referred as the make vs buy decision, which we
will be discussing in brief in another chapter.
Returns Management
Returns management can be defined as the management that invites the merger of
challenges and opportunities for inbound logistics. A cost-effective reverse logistics
program links the available supply of returns with the product information and demand for
repairable items or re-captured materials. We have three pillars that support returns
management processes. These are as follows −
 Speed − It is a must to have quick and easy returns management and automate
decisions regarding whether to produce return material authorizations (RMAs) and if
so, how to process them. Basically, the tools of speed return processing include
automated workflows, labels & attachments and user profiles.
 Visibility − For improving the visibility and predictability, information needs to be
captured initially in the process, ideally prior to delivering the return to the receiving
dock. Most effective and easily implementable approaches for obtaining visibility are
web-based portals, carrier integration and bar-coded identifiers.
 Control − In case of returns management, synchronizing material movements is a
common issue that needs to be handled. The producers need to be very cautious and
pay close attention to receipts and reconciliation and update the stakeholders of
impending quality issues. In this case, reconciliation activates visibility and control
all over the enterprise. The key control points in this process are regulatory
compliance, reconciliation and final disposition and quality assurance.
Software solutions can assist in speeding up the returns management by supporting user
profiles and workflows that state supply chain partners and processes, by labelling and
documentation that tracks the material along with the web-based portals and by exception-
based reporting to deliver information for timely reconciliation. These characteristics, when
executed with the three pillars mentioned above, support a reliable and predictable returns
process to count value across the company.
Post - Sales Service
Now that the ordered shipment is over, what is the next step? The post sales service in
supply chain tends to be an increasingly essential factor as businesses offer solution instead
of products.
The post sales services comprise selling spare parts, installing upgrades, performing
inspection, maintenance and repairs, offering training & education and consulting.
Presently, with the growing demands of the clients, a high volume of after sales service
proves to be a profitable business. Here, the services are basically heterogeneous and the
value-added services are different from those provided prior to sales service.

Decision phases can be defined as the different stages involved in supply chain management
for taking an action or decision related to some product or services. Successful supply chain
management requires decisions on the flow of information, product, and funds that fall into
three decision phases.
Here we will be discussing the three main decision phases involved in the entire process of
supply chain. The three phases are described below −
Supply Chain Strategy
In this phase, decision is taken by the management mostly. The decision to be made
considers the sections like long term prediction and involves price of goods that are very
expensive if it goes wrong. It is very important to study the market conditions at this stage.
These decisions consider the prevailing and future conditions of the market. They comprise
the structural layout of supply chain. After the layout is prepared, the tasks and duties of
each is laid out.
All the strategic decisions are taken by the higher authority or the senior management. These
decisions include deciding manufacturing the material, factory location, which should be
easy for transporters to load material and to dispatch at their mentioned location, location of
warehouses for storage of completed product or goods and many more.

Supply Chain Planning

Supply chain planning should be done according to the demand and supply view. In order to
understand customers’ demands, a market research should be done. The second thing to
consider is awareness and updated information about the competitors and strategies used by
them to satisfy their customer demands and requirements. As we know, different markets
have different demands and should be dealt with a different approach.
This phase includes it all, starting from predicting the market demand to which market will
be provided the finished goods to which plant is planned in this stage. All the participants or
employees involved with the company should make efforts to make the entire process as
flexible as they can. A supply chain design phase is considered successful if it performs well
in short-term planning.
Supply Chain Operations
The third and last decision phase consists of the various functional decisions that are to be
made instantly within minutes, hours or days. The objective behind this decisional phase is
minimizing uncertainty and performance optimization. Starting from handling the customer
order to supplying the customer with that product, everything is included in this phase.
For example, imagine a customer demanding an item manufactured by your company.
Initially, the marketing department is responsible for taking the order and forwarding it to
production department and inventory department. The production department then responds
to the customer demand by sending the demanded item to the warehouse through a proper
medium and the distributor sends it to the customer within a time frame. All the departments
engaged in this process need to work with an aim of improving the performance and
minimizing uncertainty.

Supply chain performance measure can be defined as an approach to judge the performance
of supply chain system. Supply chain performance measures can broadly be classified into
two categories −
 Qualitative measures − For example, customer satisfaction and product quality.
 Quantitative measures − For example, order-to-delivery lead time, supply chain
response time, flexibility, resource utilization, delivery performance.
Here, we will be considering the quantitative performance measures only. The performance
of a supply chain can be improvised by using a multi-dimensional strategy, which addresses
how the company needs to provide services to diverse customer demands.
Quantitative Measures
Mostly the measures taken for measuring the performance may be somewhat similar to each
other, but the objective behind each segment is very different from the other.
Quantitative measures is the assessments used to measure the performance, and compare or
track the performance or products. We can further divide the quantitative measures of supply
chain performance into two types. They are −

 Non-financial measures
 Financial measures
Non - Financials Measures
The metrics of non-financial measures comprise cycle time, customer service level,
inventory levels, resource utilization ability to perform, flexibility, and quality. In this
section, we will discuss the first four dimensions of the metrics −
Cycle Time
Cycle time is often called the lead time. It can be simply defined as the end-to-end delay in a
business process. For supply chains, cycle time can be defined as the business processes of
interest, supply chain process and the order-to-delivery process. In the cycle time, we should
learn about two types of lead times. They are as follows −

 Supply chain lead time

 Order-to-delivery lead time
The order-to-delivery lead time can be defined as the time of delay in the middle of the
placement of order by a customer and the delivery of products to the customer. In case the
item is in stock, it would be similar to the distribution lead time and order management time.
If the ordered item needs to be produced, it would be the summation of supplier lead time,
manufacturing lead time, distribution lead time and order management time.
The supply chain process lead time can be defined as the time taken by the supply chain to
transform the raw materials into final products along with the time required to reach the
products to the customer’s destination address.
Hence it comprises supplier lead time, manufacturing lead time, distribution lead time and
the logistics lead time for transport of raw materials from suppliers to plants and for
shipment of semi-finished/finished products in and out of intermediate storage points.
Lead time in supply chains is governed by the halts in the interface because of the interfaces
between suppliers and manufacturing plants, between plants and warehouses, between
distributors and retailers and many more.
Lead time compression is a crucial topic to discuss due to the time based competition and
the collaboration of lead time with inventory levels, costs, and customer service levels.
Customer Service Level
The customer service level in a supply chain is marked as an operation of multiple unique
performance indices. Here we have three measures to gauge performance. They are as
follows −
 Order fill rate − The order fill rate is the portion of customer demands that can be
easily satisfied from the stock available. For this portion of customer demands, there
is no need to consider the supplier lead time and the manufacturing lead time. The
order fill rate could be with respect to a central warehouse or a field warehouse or
stock at any level in the system.
 Stockout rate − It is the reverse of order fill rate and marks the portion of orders lost
because of a stockout.
 Backorder level − This is yet another measure, which is the gauge of total number of
orders waiting to be filled.
 Probability of on-time delivery − It is the portion of customer orders that are
completed on-time, i.e., within the agreed-upon due date.
In order to maximize the customer service level, it is important to maximize order fill rate,
minimize stockout rate, and minimize backorder levels.
Inventory Levels
As the inventory-carrying costs increase the total costs significantly, it is essential to carry
sufficient inventory to meet the customer demands. In a supply chain system, inventories
can be further divided into four categories.

 Raw materials
 Work-in-process, i.e., unfinished and semi-finished sections
 Finished goods inventory
 Spare parts
Every inventory is held for a different reason. It’s a must to maintain optimal levels of each
type of inventory. Hence gauging the actual inventory levels will supply a better scenario of
system efficiency.
Resource Utilization
In a supply chain network, huge variety of resources is used. These different types of
resources available for different applications are mentioned below.
 Manufacturing resources − Include the machines, material handlers, tools, etc.
 Storage resources − Comprise warehouses, automated storage and retrieval systems.
 Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.
 Human resources − Consist of labor, scientific and technical personnel.
 Financial resources − Include working capital, stocks, etc.
In the resource utilization paradigm, the main motto is to utilize all the assets or resources
efficiently in order to maximize customer service levels, reduce lead times and optimize
inventory levels.
Financial Measures
The measures taken for gauging different fixed and operational costs related to a supply
chain are considered the financial measures. Finally, the key objective to be achieved is to
maximize the revenue by maintaining low supply chain costs.
There is a hike in prices because of the inventories, transportation, facilities, operations,
technology, materials, and labor. Generally, the financial performance of a supply chain is
assessed by considering the following items −
 Cost of raw materials.
 Revenue from goods sold.
 Activity-based costs like the material handling, manufacturing, assembling rates etc.
 Inventory holding costs.
 Transportation costs.
 Cost of expired perishable goods.
 Penalties for incorrectly filled or late orders delivered to customers.
 Credits for incorrectly filled or late deliveries from suppliers.
 Cost of goods returned by customers.
 Credits for goods returned to suppliers.
In short, we can say that the financial performance indices can be merged as one by using
key modules such as activity based costing, inventory costing, transportation costing, and
inter-company financial transactions.

Strategic sourcing can be defined as a collective and organized approach to supply chain
management that defines the way information is gathered and used so that an organization
can leverage its consolidated purchasing power to find the best possible values in the
marketplace.
We cannot build up the significance of operating in a collaborative manner. Several decades
have witnessed a major transformation in the profession of supply chain, from the
purchasing agent comprehension, where staying in repository was the criterion, to emerging
into a supply chain management surrounding, where working with cross functional and cross
location teams is important, to achieve success.

Strategic sourcing is organized because of the necessity of some methodology or process. It

is collective because one of the most essential necessities for any successful strategic
sourcing attempt is of receiving operational components, apart from the procurement,
engaged in the decision-making and assessment process.
Supplier Market Assessment
The second step includes frequent assessment of the supplier market for pursuing substitute
suppliers to present incumbents. A thorough study of the supplier marketplace dynamics and
current trends is done. The major element of the key products design is should-cost. Along
with it, an analysis on the major suppliers’ sub-tier marketplace and examination for any
risks or new opportunities are also important.

Now, it is not recommended to analyze the should-cost for every item. There are many
instances where conservative strategic sourcing techniques tend to work better. But in the
instances where the application of strategic sourcing is not applicable, the should-cost
analysis supplies a valuable tool that drives minimizing of cost and regular progress efforts
of the supplier.
Supplier Survey
The third step is developing a supplier analysis for both incumbent and potential substitute
suppliers. This analysis assists in examining the skills and abilities of a supplier. In the
meanwhile, data collected from incumbent suppliers is used for verifying spend information
that suppliers have from their sales systems.

The survey team considers the above-mentioned areas for gathering information. The areas
are as follows −

 Feasibility
 Capability
 Maturity
 Capacity
The analysis is done to examine the potential and skills of the market to satisfy the customer
demands. This analysis helps in the examination done at the initial stage to find out if the
proposed project is feasible and can be delivered by the identified supply base.
This analysis also supplies an initial caution of the customer demands to the market and
enables suppliers to think about how they would react to and fulfill the demand. Here the
motto is to motivate the appropriate suppliers with the right structural layout to respond to
the demands.

The network design in supply chain determines its physical arrangement, design, structural
layout and infrastructure of the supply chain. Here the major decisions to be made are on the
number, locations and size of manufacturing plants and warehouses and the assignment of
retail outlets to warehouses, etc. This stage witnesses some other major sourcing decisions
as well. The basic time duration for planning horizon is few years.
Many major decisions involving the long-term location, capacity, technology and supplier
selection have to be made by considering the probable uncertainties present in the market
development accompanied by changing economic and legal conditions.

The network design in supply chain concentrates mainly on the development of multi-stage
stochastic optimization methods required for decision support under demand, freight rate
and exchange rate uncertainty. Here, we will discuss the various strategies to study the
uncertainty and scenario modeling.
 Warehouse location − When companies expand their branches into various new
locations, they need new storage places as well. Here the company faces a warehouse
location problem. Within the set of probable choices in locations, the one that has
minimal fixed costs and operational costs by fulfilling the required demand is
chosen.
 Traffic network design − With the growing population, the traffic in cities is
increasing. Because of the higher transportation demand, the traffic networks have
also to be widened. Since the budget allotted is usually limited, the major issue is to
determine which projects should be constructed to develop the flow inside a traffic
network.
 Reshoring − This phenomenon has emerged recently because of the rising cost and
other circumstances. It is the exercise of bringing outsourced products and services
back to the source point from which they were originally shipped. It outlines the
process of moving some or all producing back to its original source.
Networks Models
Supply chain networks present different types of models that help us understand the various
optimization methods used for studying the uncertainty and scenario modeling. There are six
distinct supply chain network models, as given below.

 Producer storage with direct shipping

 Producer storage with direct shipping and in-transit merge (cross docking)
 Distributor storage with package carrier delivery
 Distributor storage with last mile delivery
 Producer or distributor storage with costumer pickup
 Retail storage with customer pickup
The supply chain network basically deals with three major entities: Producer, Distributor
and Merchant. Two different options are available, i.e., customer pickup or door delivery.
For example, if the door delivery option is opted for, there is transport between producer and
distributor, distributor and merchant and producer and merchant.
The distribution system decision is made on the basis of the choice of the customers. This in
turn results in the demand for the product or products and cost of the distribution
arrangement.
New companies may come to a halt through the application of a single type of distribution
network. Mostly, companies go for merging of different types for distinct products, different
customers and different usage situations, coming back to the different optimization models
mentioned above. Now we will discuss each model in brief.
Producer storage with direct shipping
In this model, goods are moved directly from the manufacturer’s location as the starting
point to the end customer’s location as the destination point bypassing the retailer. The
retailer is the person who takes the order and initiates the delivery request. This option is
also called drop-shipping, with product delivered directly from the manufacturer’s location
to the customer’s destination.
Producer storage with direct shipping and in-transit merge
It is somewhat congruent to pure drop-shipping or moving, but the difference is that pieces
of the order come from different locations and they are merged into one so that the customer
gets a single delivery.
Distributor storage with package carrier delivery
This comes into action when the inventory is not owned by the manufacturers at the plants;
instead it is owned by the merchants/retailers in intermediate warehouses and package
carriers are used for shipment of goods from the intermediate location to the final customer.
Distributor storage with last mile delivery
This type results when the merchant/retailer delivers the goods ordered by the customer to
the customer’s home instead of using a package carrier.
Producer/distributor storage with customer pickup
In this type, the inventory is stored at the warehouse owned by the manufacturer or producer
but the customers place their orders online or through phone and then come to pick up points
allotted for collecting their orders.
Retail storage with customer pickup
This is mostly applied on situations when inventory is locally stored at retail stores;
customers walk into the retail shop or order something online or on the phone and pick it up
at the retail store.

As seen under the major objectives of supply chain, one of the basic objectives of SCM is to
make sure that all the activities and functions within as well as across the company are
managed efficiently.

There are instances where efficiency in supply chain can be ensured by efficiencies in
inventory, to be more precise, by maintaining efficiency in inventory reductions. Though
inventory is considered a liability to efficient supply chain management, supply chain
managers acknowledge the need of inventory. However, the unwritten rule is to keep
inventory at a bare minimum.
Many strategies are developed with the objective of streamlining inventories beyond the
supply chain and holding the inventory investment as low as possible. The supply chain
managers tend to maintain the inventories as low as possible because of inventory
investment. The cost or investment related with owning inventories can be high. These costs
comprise the cash outlay that is necessary for purchasing the inventory, the costs of
acquiring the inventories (the cost of having invested in inventories rather than investing in
something else) and the costs related with managing the inventory.
Role of Inventory
Before understanding the role of inventory in supply chain, we need to understand the
cordial relationship between the manufacturer and the client. Handling clients, coping up
with their demands and creating relationships with manufacturer is a critical section of
managing supply chains.
There are many instances where we see the concept of collaborative relationship being
marked as the essence of supply chain management. However, a deeper analysis of supply
chain relationships, especially those including product flows, exposes that at the heart of
these relationships is inventory movement and storage.
More than half of it relies on the purchase, transfer or management of inventory. As we
know, inventory plays a very important role in supply chains, being a salient feature.
The most fundamental functions that inventory has in supply chains are as follows −

 To supply and support the balance of demand and supply.

 To effectively cope with the forward and reverse flows in the supply chain.
Companies need to manage the upstream supplier exchanges and downstream customer
demands. In this situation, the company enters a state where it has to maintain a balance
between fulfilling the demands of customers, which is mostly very difficult to predict with
precision or accuracy, and maintaining adequate supply of materials and goods. This balance
can be obtained through inventory.

Pull System
The pull-based supply chain is based on demand-driven techniques; the procurement,
production and distribution are demand-driven rather than predicting. This system doesn’t
always follow the make-to-order production. For example, Toyota Motors Manufacturing
produces products yet do not religiously produce to order. They follow the supermarket
model.
According to this model, limited inventory is kept and piled up as it is consumed. Talking
about Toyota, Kanban cards are used to hint at the requirement of piling up inventory.
In this system, the demand is real and the company responds to the customer demands. It
assists the company in producing the exact amount of products demanded by the clients.
The major drawback in this system is that in case the demand exceeds than the amount of
products manufactured, then the company fails to meet the customer demand, which in turn
leads to loss of opportunity cost.
Basically in the pull system, the total time allotted for manufacturing of products is not
sufficient. The production unit and distribution unit of the company rely on the demand.
From this point of view, we can say that the company has a reactive supply chain.
Thus, it has less inventories as well as variability. It minimizes the lead time in the complete
process. The biggest drawback in pull based supply chain integration is that it can’t
minimize the price by ranking up the production and operations.
Differences in Push and Pull System
The major differences between push and pull view in supply chain are as follows −
 In the push system, the implementation begins in anticipation of customer order
whereas in the pull system, the implementation starts as a result of customer’s order.
 In the push system, there is an uncertainty in demand whereas in pull system, the
demand remains certain.
 The push system is a speculative process whereas the pull system is a reactive
process.
 The level of complexity is high in the push system whereas it is low in the pull
system.
 The push based system concentrates on resources allocation whereas the pull system
stresses on responsiveness.
 The push system has a long lead time whereas the pull system has a short lead time.
 The push system assists in supply chain planning whereas the pull system facilitates
in order completion.
To conclude, the push based supply chain integrations works with an objective of
minimizing the cost whereas the pull based supply chain integration works with an objective
to maximize the services it provides.
Push & PUll System
Mostly we find a supply chain as merger of both push and pull systems, where the medium
between the stages of the push-based and the pull-based systems is referred as the push–pull
boundary.
The terms push and pull were framed in logistics and supply chain management, but these
terms are broadly used in the field of marketing as well as in the hotel distribution business.

To present an example, Wal-Mart implements the push vs. pull strategy. A push and pull
system in business represents the shipment of a product or information between two
subjects. Generally, the consumers use pull system in the markets for the goods or
information they demand for their requirements whereas the merchants or suppliers use the
push system towards the consumers.
In supply chains, all the levels or stages function actively for the push and the pull system.
The production in push system depends on the demand predicted and production in pull
system depends on absolute or consumed demand.
The medium between these two levels is referred as the push–pull boundary or decoupling
point. Generally, this strategy is recommended for products where uncertainty in demand is
high. Further, economies of scale play a crucial role in minimizing production and/or
delivery costs.
For example, the furniture industries use the push and pull strategy. Here the production unit
uses the pull-based strategy because it is impossible to make production decisions on the
basis on long term prediction. Meanwhile, the distribution unit needs to enjoy the benefits of
economy of scale so that the shipment cost can be reduced; thus it uses a push-based
strategy.
Demand-Driven Strategies
The demand-driven strategies were first developed to understand the impact of inactivity
and collection, as information fertilizes the supply chain from the source of demand to the
suppliers.
Within a mentioned supply lead time, normally the manufacturers manufacture sufficient
goods to satisfy the needs of their clients predicted. But this is only somewhat accurate at the
granular level at which inventory decisions are made.
Anyways, when the actual demand varies from the demand predicted, the first thing to be
done is to adjust the supply levels needed in accordance with each step of the supply chain.
But because of time delay between changing demands and its detection at several at points
along the supply chain, its impact is amplified, resulting in inventory shortages or excesses.

The inventory levels of the companies are disturbed because of the overcompensation done
by the companies either by slowing down or speeding up production. These fluctuations
prove to be a costly and inefficient affair for all participants.
Basically, the demand-driven strategies or the demand-driven supply chain is completely
based on the demand as well as the supply part of marketing. So it can be uniquely
organized in terms of the demand side and supply side initiatives.
The demand-side initiatives concentrate on efficient methods to acquire the demand signal
closer to the source, observe the demand to sense the latest and most accurate demand signal
and shape the demand by implementing and following promotional and pricing strategies to
gear up demand in accordance with business objectives.
On the other hand, the supply side initiatives mostly need to do with reducing reliance on the
prediction by developing into an agile supply chain accompanied by faster response when
absolute demand is known.
All the strategies discussed above are addressed under the demand-driven strategy, but we a
company following all of them is rare. In fact, we can conclude that companies concentrate
on different markets on the basis of features of the market and industry.

Companies that opt to participate in supply chain management initiatives accept a specific
role to enact. They have a mutual feeling that they, along with all other supply chain
participants, will be better off because of this collaborative effort. The fundamental issue
here is power. The last two decades have seen the shifting of power from manufacturers to
retailers.
When we talk about information access for the supply chain, retailers have an essential
designation. They emerge to the position of prominence with the help of technologies. The
advancement of inter organizational information system for the supply chain has three
distinct benefits. These are −
 Cost reduction − The advancement of technology has further led to ready
availability of all the products with different offers and discounts. This leads to
reduction of costs of products.
 Productivity − The growth of information technology has improved productivity
because of inventions of new tools and software. That makes productivity much
easier and less time consuming.
  Improvement and product/market strategies − Recent years have seen a huge
growth in not only the technologies but the market itself. New strategies are made to
allure customers and new ideas are being experimented for improving the product.
It would be appropriate to say that information technology is a vital organ of supply chain
management. With the advancement of technologies, new products are being introduced
within fraction of seconds increasing their demand in the market. Let us study the role of
information technology in supply chain management briefly.
The software as well as the hardware part needs to be considered in the advancement and
maintenance of supply chain information systems. The hardware part comprises computer's
input/output devices like the screen, printer, mouse and storage media. The software part
comprises the entire system and application program used for processing transactions
management control, decision-making and strategic planning.
Here we will be discussing the role of some critical hardware and software devices in SCM.
These are briefed below −
Electronic Commerce
Electronic commerce involves the broad range of tools and techniques used to conduct
business in a paperless environment. Hence it comprises electronic data interchange, e-mail,
electronic fund transfers, electronic publishing, image processing, electronic bulletin boards,
shared databases and magnetic/optical data capture.

Electronic commerce helps enterprises to automate the process of transferring records,

documents, data and information electronically between suppliers and customers, thus
making the communication process a lot easier, cheaper and less time consuming.
Electronic Data Interchange
Electronic Data Interchange (EDI) involves the swapping of business documents in a
standard format from computer-to-computer. It presents the capability as well as the practice
of exchanging information between two companies electronically rather than the traditional
form of mail, courier, & fax.
The major advantages of EDI are as follows −

 Instant processing of information

 Improvised customer service
 Limited paper work
 High productivity
 Advanced tracing and expediting
 Cost efficiency
 Competitive benefit
 Advanced billing
The application of EDI supply chain partners can overcome the deformity and falsehood in
supply and demand information by remodeling technologies to support real time sharing of
actual demand and supply information.
Barcode Scanning
We can see the application of barcode scanners in the checkout counters of super market.
This code states the name of product along with its manufacturer. Some other practical
applications of barcode scanners are tracking the moving items like elements in PC
assembly operations and automobiles in assembly plants.
Data Warehouse
Data warehouse can be defined as a store comprising all the databases. It is a centralized
database that is prolonged independently from the production system database of a
company.
Many companies maintain multiple databases. Instead of some particular business processes,
it is established around informational subjects. The data present in data warehouses is time
dependent and easily accessible. Historical data may also be accumulated in data warehouse.
Enterprise Resource Planning(ERP) Tools
The ERP system has now become the base of many IT infrastructures. Some of the ERP
tools are Baan, SAP, PeopleSoft. ERP system has now become the processing tool of many
companies. They grab the data and minimize the manual activities and tasks related to
processing financial, inventory and customer order information.
ERP system holds a high level of integration that is achieved through the proper application
of a single data model, improving mutual understanding of what the shared data represents
and constructing a set of rules for accessing data.
With the advancement of technology, we can say that world is shrinking day by day.
Similarly, customers' expectations are increasing. Also companies are being more prone to
uncertain environment. In this running market, a company can only sustain if it accepts the
fact that their conventional supply chain integration needs to be expanded beyond their
peripheries.

The strategic and technological interventions in supply chain have a huge effect in
predicting the buy and sell features of a company. A company should try to use the potential
of the internet to the maximum level through clear vision, strong planning and technical
insight. This is essential for better supply chain management and also for improved
competitiveness.
We can see how Internet technology, World Wide Web, electronic commerce etc. has
changed the way in which a company does business. These companies must acknowledge
the power of technology to work together with their business partners.
We can in fact say that IT has launched a new breed of SCM application. The Internet and
other networking links learn from the performance in the past and observe the historical
trends in order to identify how much product should be made along with the best and cost
effective methods for warehousing it or shipping it to retailer.

In this chapter, we will throw some light on two specialized supply chains −

 Agile Supply Chain

 Reverse Supply Chain
Agile Supply Chain
An agile supply chain can be defined as a chain of supply that has the potential to respond to
changing requirements in a way that accelerates the delivery of ordered goods to customers.
In simple words, supply chain agility is a custom adopted by many companies for choosing
a dealer. As we know, a supply chain with flexibility and the ability to quickly react to
emergency requirements can help the business answer more efficiently to its customers.
Apart from flexibility, speed and accuracy are also signature marks of this type of supply
chain.

To acknowledge the advantages of an agile supply chain, we have to learn about the
elements of any type of supply chain. These include elements like collection of orders and
processing, supply of materials to create the goods used to complete orders, packaging and
transport of finished goods, and the quality of customer service that is advertised throughout
the process from the point of sale to the actual delivery and beyond.
Thus, for considering the functions of supply chain as agile, each one of these elements must
be managed efficiently and coordinated in such a way that makes it possible to adapt to
changing circumstances.
With the help of an agile supply chain, merchants can easily respond to the varying
requirements of customer with relatively less time required. For example, if a client has
already placed a sizable order but demands the product to be delivered few days prior to the
projected delivery date, a merchant with a truly agile supply chain can easily accommodate
that change in the client’s situation, at least in part. Working collaboratively, the merchant
and the customer develop a strategy to permit the delivery of as much of the order as
possible within the new time frame required.
There are times when merchants need to think creatively along with some flexibility in
terms of scheduling production time, selecting shippers and basically looking closely at each
step in the order completion process to search for ways to reduce the time required to
successfully accomplish those tasks and abide with the customer’s request.
Reverse Supply Chain
Reverse supply chain states the evolution of products from customer to merchant. This is the
reverse of the traditional supply chain evolution of products from merchant to customer.
Reverse logistics is the process of planning, executing, monitoring and controlling the
efficient and effective inbound flow and storage of secondary goods and information related
to the purpose of recovering value or proper disposal. Some examples of reverse supply
chain are as follows −
  Product returns and handling product displacement.
 Remanufacturing and refurbishing exercises.
 Management and sale of surplus, along with returned equipment and machines from
the hardware leasing business.
Different types of reverse supply chain arise at different stages of the product cycle. Mostly
reverse supply chain is designed to carry out the below given five key processes −
 Product acquisition − Accumulating the used product from the user by the reseller
or manufacturer because of some manufacturing defect or some other reason. It is
basically considered as a company’s growth strategy.
 Reverse logistics − Shipping of products from their final destination for auditing,
sorting and disposition.
 Inspection and disposition − Examining the condition of the product returned along
with making the most profitable decision for reusing it in some other way.
 Remanufacturing or refurnishing − Returning the product to its original source
from where it was ordered in the very first place along with specifications. This is
done basically when there is a manufacturing or furnishing defect in the goods.
 Marketing − Establishing secondary markets for the goods that have been recovered
by the merchant from the client who initially ordered it in the beginning but chose to
return it.
In short, we can say that the enterprises that closely coordinate with their forward supply
chains are the one that have been most successful with their reverse supply chains. These
two chains create a closed-loop system. For example, the company designs a product layout
according to the manufacturing decisions followed by recycling and reconditioning. Bosch
is a beautiful example of reverse supply chain. It constructs sensors into the motors of its
power tools, which signs if the motor is worth reconditioning.
Technology plays a great role here by reducing the inspection and disposition costs,
sanctioning the company to make a profit on the remanufactured tools. In fact, along with
reverse supply chains, forward thinking results in big dividends.

The Eight Components of Supply Chain Management

Simple bread and butter with which we eat each day, actually gets to us through several
processes. In this instance, bread begins its journey with the farmer who sows the seeds and
sells the wheat to the businessman, who in turn sells it to the baker who bakes the bread. This
is a description of supply chain management in a nutshell. In other words, supply chain
management is a network of those businesses that are interconnected with each other in either
the manufacturing of products, or delivering services, that are required by consumers.
It is very important for businesses to ensure two things for their supply chain to be effective,
one is the supply chain should be cost effective and second it should deliver the results on
time. We began with the description of supply chain management of bread. It is a very simple
one. There are many complicated supply chain management processes that differ with the
size of the business as well as the complexity of the chain and the number of products
involved at each step. Thus, supply chain management begins at the origin of the product or
service, and ends at the delivery and consumption of the same by the end user.
There are a million things which we use or consume in our everyday lives, and supply chain
management weaves through it all, creating a harmonious and efficient environment. Any
break in this chain can actually result in disruption of the system with a domino like effect.
Supply chain management is made up of a few components that are very important as well as
critical to the system. We shall discuss each of the components in brief.

1. Planning
This is one of the most important stages. Before the beginning of the entire supply chain, it is
essential to finalise the strategies and put them into place. Checking the demand for the
product or service, checking the viability, costing, profit, and manpower etc., are vital.
Without a proper plan or strategy in place, it will be well-nigh impossible for the business to
achieve effective and long term benefits. Therefore, enough time has to be devoted to this
phase. Only after the finalisation of the plans and consideration of all pros and cons, can one
proceed further. Every business needs a plan or blueprint or a roadmap based on which the
strategies are made. Planning helps to identify the demand and supply trends in the market
and this, in turn, helps to create a successful supply chain management system.

2. Information
The world today is dominated by a continuous flow of information. In order to be successful,
it is essential that a business stays abreast with all the latest information about the various
aspects of its production. The market trends of supply and demand for a particular product
can be best understood if the information is properly and timely disseminated through the
many levels of the business. Information is crucial in a knowledge-based world economy, and
ignorance about any aspect of business may actually spell doom for the prospects of the
business.

3. Source
Suppliers play a very crucial role in supply chain management systems. Products and services
sold to the end user are created with the help of different sets of raw materials. It is therefore
necessary that suitable quality raw materials are procured at cost effective rates. If a supplier
is unable to supply on time, and within the stipulated budget, the business is bound to suffer
losses and gain a negative reputation.
It is crucial that a company procures good quality resources so it can create good quality
products and maintain its reputation in the market. This necessitates a strong role for
suppliers in the supply chain management system.

4. Inventory
For a highly effective supply chain management system it is essential that an inventory is
kept and thoroughly maintained. An inventory means the ready list of items, raw materials
and other essentials required for the product or service. This list has to be regularly updated
to demarcate available stock and required stock. Inventory management is critical to the
function of supply chain management, because without proper inventory management the
production, as well as sale of the product, is not possible. Businesses have now started to pay
more attention to this component simply because of its impact on the supply chain.

5. Production
Production is one among the most important aspects of this system. It is only possible when
all the other components of the supply chain are in tandem with each other. For the process of
production to start it is essential that proper planning and supply of goods, as well as the
inventory, are well maintained. The production of goods is followed by testing, packaging
and the final preparation for delivery of the finished product.

6. Location
Any business, that wants to survive as well as flourish, needs a location which is profitable
for the business. Take for example, a carbonated drink factory is set up in an area where
water supply is scarce. Water is a basic necessity of such business. The lack of water could
hamper the production as well as affect the goodwill of the company. A business cannot
survive if it has to share an already scarce raw material with the community. Hence, a
suitable location, which is well connected, and very close to the source of essential resources
for production is vital to a business’ prosperity. The requirement and availability of
manpower must also be considered while setting up a business unit.

7. Transportation
Transportation is vital in terms of carrying raw materials to the manufacturing unit and
delivering the final product to the market. At each stage, timely transportation of goods is
mandatory to sustain a smooth business process. Any business which pays attention to this
component, and takes good care of it, will benefit from the production and transportation of
its goods on time.
It is essential that a company works towards a safe and secure transportation process. Be it in-
house or a third-party vendor, the transportation management system must ensure zero
damage and minimal loss in transit. A well-managed logistics system along with flawless
invoicing are the two pillars of secure transportation.

8. Return of goods
Among the various components that create a strong supply chain is the facility for the return
of faulty/malfunctioning goods, along with a highly responsive consumer grievance redress
unit.
No one is infallible. Even a machine may malfunction once in a million times if not more. As
a part of a strong business process, one may expect the return of goods under various
circumstances. Even the best quality control processes may have unavoidable momentary
lapses. In the case of such lapses, inevitably followed by consumer complaints, a business
must, instinctively, recall the product/s and issue an apology. This not only creates a good
customer bonding, but also maintains goodwill in the long run.
The eight components discussed here are interdependent and ensure a smooth supply chain
management system. It ensures the success and reputation of a business. A business must
focus on all these components in order to create a flawless supply chain.
Businesses that have a strong supply chain management system in place always put great
emphasis on all the components listed, and also ensure that management, as well as the teams
at various levels, play by the rules. Profit is the bottom line and to make sure that the business
achieves it, it is essential that the supply chain does not have any gaps. Any snag should be
dealt with immediately and the weak links repaired or removed.
 Demand and supply are two of the most important aspects of a business. For any business to
be successful, trends, with respect to demand and supply, need to be studied carefully while
implementing an effective plan of execution. A supply chain management system is required
not just for the timely manufacture of goods; it is also a very critical system for ensuring that
consumer requirements are met effectively.
The most common features of supply chain management software include:
 Inventory management - for tracking and managing the availability of raw materials,
stocked goods or spare parts. This feature can also help with asset management, barcode
integration and future inventory and price forecasting.
 Order management - for automating purchase order processes. For example, generating and
tracking purchase orders, scheduling of supplier deliveries, and creating pricing and product
configurations.
 Logistics and shipping status - for coordinating transportation channels, improving delivery
performance and boosting customer satisfaction. Warehouse management features can help
with storage optimisation, labelling, labour management and more.
 Forecasting - for anticipating customer demand and planning procurement and production
processes accordingly. Efficient forecasting can help remove the need to buy unnecessary
raw materials or store excess finished goods on warehouse shelves, hence reducing costs.
 Return management - for inspection and handling of damaged or faulty goods, and
processing of refunds or insurance claims.
Many supply chain systems also include extra options or modules that can support other
processes, such as contract management, product life cycle management and more.

SCM CURRENT SCENARIO

Changing business dynamics and intensifying competition have brought about new
challenges for supply chain professionals. Globalization, shortened product lifecycles,
stringent regulations and volatile markets have made effective supply chain management a
prerequisite for business success and growth. So supply chain professionals are constantly
assessing their supply chains to make sure that gaps are filled and inefficiencies corrected
promptly.

And these market demands and economic conditions have brought about some interesting and
noteworthy trends in supply chain management:

More Emphasis on Visibility: Increasingly supply chain professionals are realizing the need
for more visibility in supply chains. So today's supply chain solutions focus on offering
analytics data that facilitate decision-making, as opposed to merely providing static visibility.
These solutions provide consolidated, real-time analytics and share them with relevant stake-
holders, thereby making information more actionable.

Improved Responsiveness: Traditionally supply chains have been driven by forecasts, and
supply of inventory has been based on predicted demand. However, this model does not work
in the current dynamic market scenario. Manufacturers are now expected to be highly
responsive to changing market demands. And this has led to the emergence of tools which
enable better visibility, communication, and collaboration, and empower manufacturers by
making their supply chains more responsive, flexible and versatile.

Enhanced Collaboration & Communication: Globally distributed operations, outsourced

manufacturing, and multiple regulatory standards necessitate better co-ordination and timely
communication in supply chains. And these are crucial aspects in supply chain management
today. So there is growing emphasis on the need for efficient collaboration and
communication, to enable judicious decision-making. Hence supply chain solutions are also
increasingly catering to this need.

Low Investment & High ROI with Advanced Software: Unfriendly economic conditions
have forced manufacturers and supply chain professionals to cut down on their IT budgets.
This has led to the growing use of SaaS-based applications in supply chain management,
which offer advanced, and integrated information management capabilities. Unlike traditional
applications these solutions are on-demand services which can be deployed easily without
having to install complex software or hardware. These do not require high capital investment
or expensive maintenance. These are low cost solutions, but guarantee high ROI.

Increased Use of Supply Chain Consulting: Manufacturers have realized that today’s
supply chains are highly dynamic in nature and therefore require dedicated time, and
resources. Hence they are now resorting to supply chain consultant, who offer their expertise
to help resolve issues and manage supply chains more efficiently. Their vast experience helps
in overcoming challenges and in making supply chains more flexible and responsive.

Globalization of manufacturing has revolutionized economies worldwide. While low-cost

regions are being used for manufacturing, they also pose a unique set of challenges which
need to be addressed. Global supply chain models are susceptible to increased risks, lack of
visibility, reduced control and collaboration. And the above-mentioned trends in supply chain
management reveal that manufacturers are trying to overcome the limitations of global supply
chain models in order to build seamless supply chains.

STRATEGIC ISSUES IN SCM

Three Key Issues in Supply Chain Management

Key Issue #1: Globalization

Globalization presents several critical supply chain management challenges to enterprises and
organizations:

First, to reduce costs across the supply chain, enterprises are moving manufacturing
operations to countries which offer lower labor costs, lower taxes, and/or lower costs of
transport for raw materials. For some companies, outsourcing production involves not only a
single country, but several countries for different parts of their products.

However, outsourcing not only extends the production process globally, but also the
company’s procurement network. Having suppliers in different geographic locations
complicates the supply chain.

Companies will have to deal with, coordinate, and collaborate with parties across borders
regarding manufacturing, storage, and logistics. Furthermore, they have to extend or maintain
fast delivery lead times to customers who want to receive their products on schedule despite
the increased complexity in the manufacturer’s supply chains. Finally, they also have to
maintain real-time visibility into their production cycle — from raw materials to finished
goods — to ensure the efficiency of their manufacturing processes.

Second, as companies expand sales into global markets, localization of existing products
requires a significant change in the supply chain as companies adapt their products to
different cultures and preferences. There is an inherent risk of losing control, visibility, and
proper management over inventory , especially if enterprise applications are not
integrated. This requires managing diverse structures of data across geographies effectively.

For example: many manufacturers in Asia still handle trading partner communications via fax
and email while suppliers in North America and Europe have utilized EDI for decades. As
technology matures, suppliers in emerging markets may skip EDI altogether and move to a
more modern API driven approach to communication just as developing countries have
skipped land lines in favor cell phones.

Supply chain practitioners need to ask if their enterprise technology is prepared to handle
these diverse forms of communication that arise from Globalization, and build a business
case to stay prepared.

Key Issue #2: Fast-changing Markets

Consumer behavior is affected by cultural, social, personal, and psychological factors that are
quickly being changed by technology and globalization. Social media is creating new
pressures for consumers to conform while putting pressure on enterprises to utilize these
sources of information to respond to changing preferences in order to stay interesting and
relevant.

Like globalization, the fast-changing consumer market also brings with it supply chain
management challenges:

First, products have shorter life cycles due to rapidly changing market demands. Enterprises
are under pressure to keep up with the latest trends and innovate by introducing new
products, while keeping their total manufacturing costs low because they understand that
trends will not last for a long time. This also demands a flexible supply chain that can be
utilized for manufacturing other products and for future projects.

Second, aside from new products, companies also need to constantly update product
features. Enhancing product features requires enterprises to redesign their supply chain to
accommodate product changes.

Finally, innovation presents a challenge in forecasting demand for new products. The
constant innovation necessitated by fast-changing markets also means enterprises will
constantly have to anticipate demand for new products. Enterprises need to create and
maintain an agile supply chain that can respond well to spikes and dips in demand and
production needs.

Companies should be asking if they have all the data needed to make planning decisions to
address challenges created by fast-changing markets. For example, if stated lead times from
suppliers are longer than actual times, this will lead to higher inventory levels than are
actually required and affect costly decisions around network planning and
 optimization. Omnichannel retail has reated silos of sales data that have to be blended and
harmonized to detect demand signals earlier in the planning process as well.

Key Issue #3: Quality and Compliance

Aside from influencing consumer behavior, social media highlights the importance of having
high-quality products. According to research conducted by eMarketer, reading reviews,
comments, and feedback is the top social media activity that influences online shopping
behavior. Furthermore, social media has not only raised consumers’ expectations of product
quality, but has also amplified the damages caused by product recalls. Thus, enterprises are
under increasing pressure to create high-quality products and to create them consistently.
They can do so by addressing quality at every level of the supply chain, such as raw materials
procurement, manufacturing, packaging, logistics, and product handling.

Product quality often goes hand-in-hand with compliance. Enterprises need to ensure that
they meet local and international regulatory standards in manufacturing, packaging, handling,
and shipping of their products. Aside from passing quality control and safety tests, enterprises
are also required to prepare compliance documents such as permits, licenses, and certification
which can overwhelm them and their supply chain management systems.

Emerging capabilities like IoT, Smart Packaging, and Blockchain are changing how
compliance is enforced and measured. However, these innovations will produce streams of
data that can’t be handled with the enterprise technology of the past 20 years. Managers
should carefully consider where these investments make sense and asking IT if the business is
utilizing platforms based on micro-services and big data to support these heavy data lifting
requirements.

Supply chain management courses share a great deal of insights into how this is done. But
these are the same factors which also give rise to key issues that can impact the process in a
serious manner.

Let us take a quick look at what these issues are and how to overcome them.
1. Rapidly changing economies – SCM is all about logistics and moving goods from one
location to the other. Sometimes or rather, many a times, these locations are cross countries.
The world’s economic landscape is changing so fast that the pace at which supply chains need
to work has been crunched into a shorter time frame. Some goods are needed faster than they
were earlier, for younger economies. Companies now need to cater to consumers who want
their products delivered within the shortest time-frame. These are changes that are big issues
which get percolated down to the manufacturing and logistics time-frames. Being aware and
agile is the only way to tackle this.
2. Seamless flow of data – While many tools are available, seamless flow of data from across
various entities, to ensure smooth transitions, is a big issue. Since SCM is so time-bound, data
has a huge role to play in its success. Finding the right set of tools that can effectively collate
and match data coming from consumers, as well as suppliers, and create a relevant information
roadmap, is what is challenging.
3. Cost Control – The cost of transportation is always high. No matter how hard a company
tries, one of the biggest costs to take a product from one point to the other, no matter what the
product is, is an issue. Because it means incurring large costs, to ensure compliance in terms
of quality and timeliness. Companies are trying to deal with this by localizing the process of
 end-user delivery to a large extent. That results in better economies of scale and process
efficiencies too.
4. The right talent – Supply chain is a specialized area. Finding individuals who have the right
set of skills, knowledge and attitude is a big issue. It needs a different kind of mindset, along
with the skills.

VALUE CHAIN MANAGEMENT

What is a value chain?

A value chain is the full range of activities – including design, production, marketing and
distribution – businesses conduct to bring a product or service from conception to delivery.
For companies that produce goods, the value chain starts with the raw materials used to make
their products, and consists of everything added before the product is sold to consumers.

Value chain management is the process of organizing these activities in order to properly
analyze them. The goal is to establish communication between the leaders of each stage to
ensure the product is placed in the customers' hands as seamlessly as possible.

Definition
Value chain management (VCM) is a strategic business analysis tool used for the seamless
integration and collaboration of value chain components and resources. VCM focuses on
minimizing resources and accessing value at each chain level, resulting in optimal process
integration, decreased inventories, better products and enhanced customer satisfaction.
VCM was introduced in the mid-1980s by Michael Porter, a business strategy authority and
long-time Harvard Business School professor. VCM has evolved into a universally applied
business management strategy, and is a powerful strategic planning tool that extends from
organizations to distribution and supply networks.

VCM requires the following components:

 Integrated chain strategy, planning and scheduling

 An efficient supply chain
 Full and interdependent chain resource management and optimization
 Integrated customer insight data and information

Porter's value chain

Harvard Business School's Michael E. Porter was the first to introduce the concept of a value
chain. Porter, who also developed the Five Forces Model to show businesses where they rank
in competition in the current marketplace, discussed the value chain concept in his book
"Competitive Advantage: Creating and Sustaining Superior Performance" (Free Press, 1998).

"Competitive advantage cannot be understood by looking at a firm as a whole," Porter wrote.

"It stems from the many discrete activities a firm performs in designing, producing,
marketing, delivering and supporting its product. Each of these activities can contribute to a
firm's relative cost position and create a basis for differentiation."
 In his book, Porter splits a business's activities into two categories: primary and support.

Primary activities include the following:

 Inbound logistics are the receiving, storing and distributing of raw materials used in the
production process.
 Operations is the stage at which the raw materials are turned into the final product.
 Outbound logistics are the distribution of the final product to consumers.
 Marketing and sales involve advertising, promotions, sales-force organization,
distribution channels, pricing and managing the final product to ensure it is targeted to the
appropriate consumer groups.
 Service refers to the activities needed to maintain the product's performance after it has
been produced, including installation, training, maintenance, repair, warranty and after-
sale services.

The support activities help the primary functions and comprise the following:

 Procurement is how the raw materials for the product are obtained.
 Technology development can be used in the research and development stage, in how
new products are developed and designed, and in process automation.
 Human resource management includes the activities involved in hiring and retaining
the proper employees to help design, build and market the product.
 Firm infrastructure refers to an organization's structure and its management, planning,
accounting, finance and quality-control mechanisms.

The benefits of effective VCM include:

 Improved bids and proposals Effective VCM improves your ability to capture, track and
manage customer and marketing requirements to better estimate design, planning,
procurement, production and service activities for more accurate cost estimates — all with
complete traceability.

 Better product planning, research, and development Good VCM includes developing a
cross-functional team approach to planning, developing, delivering and servicing products
focused on program performance, cost reduction and product quality. This enables you to
more effectively plan and implement simultaneous projects while managing resource
allocation, costs, scheduling and deliverables more efficiently.

 Standardized processes VCM calls for repeatable and measurable business processes to
better manage the product master data to ensure that customer expectations and commitments
are met. Active VCM enables release and change processes to be better managed from
concept to implementation. Standard, reliable and repeatable processes contribute
significantly to reducing overall operational inefficiencies and waste.

 Improved vendor management Synchronizing design and sourcing teams with vendors
ensures that outsourced components and subsystems are managed to meet performance,
quality, schedule and cost requirements while avoiding design flaws, excess inventory and
waste.
 Post-sales service and support Through VCM, you’re able to better manage and track in-
service product configuration changes coordinated among field service, customer support and
engineering resources.

 Reduced costs Optimizing all the value chain components listed above can result in
substantial end-to-end cost savings from streamlined processes, reduced inefficiencies and
waste, better inventory control and improved product quality.

 Improved profitability The ultimate result of a comprehensive and robust VCM program is
enhanced revenues and better profit margins, contributing to greater overall success.

Value Chain Management

The concept of a “value chain” was first introduced by Michael Porter in his
book, Competitive Advantage: Creating and Sustaining Superior Performance, back in 1985.
It includes the components or steps that are required from start to finish for a business to
make a product or supply a service. Value chain management, then, is the process of
monitoring or managing all the steps needed to achieve those end goals. Those include:

1. Procurement
2. Production
3. Quality Control
4. Distribution

Supply Chain Management (SCM)

Supply chain management exists to manage the flow of products from suppliers to the end
user – consumers. A litany of processes takes place along the supply chain, which must be
effectively controlled for the company to deliver goods to consumers while remaining
profitable and competitive.
There are five (5) main components of supply chain management:

1. Creating and designing a product to meet consumer demand

2. Sourcing the materials needed to produce the products
3. Manufacturing the product
4. Delivering the product to consumers
5. Accepting and processing returns of defective products

Supply chain management often focuses on cost of materials and efficient transport or
delivery to mitigate cost. When done effectively, it reduces costs for the consumer while
increasing profits for the manufacturer.

The Differences Between VCM and SCM

The primary difference between value chain management and supply chain management is
that SCM is the management of all parties involved in fulfilling a customer request.
VCM is a set of interrelated activities performed by chain participants a company uses to
create a competitive advantage.
While both ultimately end with the consumer receiving their goods, VCM focuses on how the
organization will be competitive and profitable while doing so, while SCM focuses on how to
efficiently and effectively meet customer needs.
Both have similar goals: making customers happy with your products while operating
efficiently, but take slightly different (but complementary) paths to get there.
CUSTOMER RELATIONSHIP MANAGEMENT

When your company communicates with your customers the process can involve many
different people within both organizations using a variety of different methods. The main tool
that is used is an order that is communicated by your customer to your sales department.
However, this is only one of many communications that should be managed. To ensure that
your company can provide the best customer service experience possible the use of customer
relationship management (CRM) software should be considered.

Typical CRM software will allow you to track and organize its contacts with its current and
prospective customers. The software allows your employees to store information about
customers and customer interactions which then can be accessed by employees in different
departments within your company.

There are three areas which your company interacts with your customers.

 Front Office Contacts - These involve the direct contact your employees have with
your customers which can include phone calls, e-mail, instant messages and face to
face communication.
 Back Office Operations – These are processes that are used to facilitate the front
office, such as finance communications, marketing, customer billing, and advertising.
 Business Contacts – Your employees will interact with customers and suppliers
through networking, industry events, and trade associations.

Key Elements of CRM

CRM can be broken down into a number of different components which many software
vendors have developed packages for. For the most part, there are three areas which are core
to successful customer relationship management; Customer Service, Sales Force Automation
and Campaign Management.

Customer Service

The customer service function in your company represents the front office functions that
interact with your customers. These are the business processes that allow your company to
sell products and services to your customers, communicate with your customers with regards
marketing and dealing with the after sales service requirements of your customers. Each
interaction with the customer is recorded and stored within the CRM software where it can be
retrieved by other employees if needed.
Sales Force Automation

Your company’s sales department is constantly looking for sales opportunities with existing
and new customers. The sales force automation functionality of CRM software allows the
sales teams to record each contact with customers, the details of the contact and if follow up
is required. This can provide a sales force with greater efficiencies as there is little chance for
duplication of effort. The ability for employees outside of the sales team to have access to
this data ensures that they have the most recent contact information with customers.

This is important when customers contact employees outside of the sales team so that
customers are given the best level of customer service.

Campaign Management

The sales team approach prospective customers in the hope of winning new business. The
approach taken by the sales team is often focused on a campaign, where a group of specific
customers is targeted based on a set of criteria. These customers will receive targeted
marketing materials and often special pricing or terms are offered as an inducement. CRM
software is used to record the campaign details, customer responses, and analysis performed
as part of the campaign.

Popular CRM Software

CRM software has been popular over the last twenty years and a number of software
packages have been popular during that time. Siebel Systems was founded by Thomas Siebel
back in 1993 and developed popular Sales Force Automation and CRM packages. In 2002,
Siebel controlled 45% of the CRM market and in 2005 it was purchased by Oracle.

Epiphany was founded around the same time as Siebel and launched a very popular modular
CRM package. Epiphany was purchased by SSA in 2005, which was in turn purchased by
Infor in 2006. The Epiphany CRM software is now marketed as Infor CRM Epiphany.

Salesforce.com is a leading CRM product that is not traditional software that is installed at a
client but is offered over the internet, which is commonly referred to a software-as-a-service
(SaaS). Salesforce.com was founded in 1999 and now has over 55,000 customers.

SAP, which is more commonly known as a vendor of enterprise resource planning (ERP)
software, offers a very popular CRM package. SAP’s CRM product is often purchased by
companies who are already SAP customers because of the ease of integration.

HOW DOES CRM WORK?

Lead generation and customer data are essential for CRM to work. Without understanding
and analyzing the customer or market requirements, a business cannot hope to optimize
customer experience and, therefore, generate new business.

CRM isn’t only about marketing, it is an integration of all the processes that deal with
customers, which include – sales, marketing, customer service and support as well as
collecting customer data, analyzing it and implementing the findings to the business process.
 Marketing: CRM has its base in marketing and is closely related to it. Marketing has evolved
over the years from focusing on direct sales to customer relationship marketing. The focus
has now shifted to creating loyal customers by offering not just a product, but an experience.

 Sales Force Automation: The job of the sales department is to create strategies to maintain
and build customer relationships in order to generate revenue. In order to fulfil this part of
their duties, the sales department needs to be automated, collect data regarding the customers,
their age, sex, address, phone numbers, personal details, professional details, preferences and
spending patterns etc. to create a profile that can be used to enhance customer relationship.

 Customer Service and Support: One of the most important factors for customer satisfaction
is customer service and support. The after sales service and support offered by a business
determines the continuing customer relationship. If the service and support system is not
adequate, the customer relation will suffer.

 Insights and Analytics: The entire CRM process is dependent on information technology
and data analysis. All the customer data is collected and analyzed using the software. This
gives businesses insights into their customers, their preferences and buying patterns,
providing it with guidelines to improve overall customer experience.

CRM STRATEGIES AND MODELS

CRM strategies are about building a customer relationship model that is so successful that it
is hard for competitors to break the customer loyalty. There are five basic models on which
CRM of any business can be based. These models are not hard and fast rules, but should be
adapted as per the requirements of a business. These models are:

IDIC Model
This model was established by Pepper and Rogers in 2004. The IDIC model is a four-step
approach to CRM. These four steps are:

1. Identify your customers and understand them and their individual requirements.

2. Differentiate your customers based on their value to the business and what they require from
it.

3. Interact with the customer to understand their expectations and values.

4. Finally, Customize your services and products to reflect the needs of your customer.

QCi Customer Management Model

Quality Competitive Index Model or QCi is a model of CRM that focuses on the customer
rather than processes. QCi is based on three activities, which are Acquisition, Retention, and
Penetration. These are the activities that a business needs to perform so as to retain and
acquire customers. It also needs technology to assist the processes. QCi Model includes
activities that are related to employees, people, organization, and technology.
 Payne’s Five Process Model
Payne’s five processes model is based on the fact that the aim of CRM is to enhance
acquisition and retention of customers by building and maintain a relationship with a valuable
customer. The process is divided into five processes that are:

 strategy development process,

 value creation process,

 multichannel integration process,

 performance assessment process and finally,

 information management or analytical process.

Gartner’s CRM Model

This model was developed by Gartner Inc., a leading IT company. According to this model, a
business needs to focus on 8 things to successfully implement CRM.

These include – developing CRM vision,

 CRM strategies,

 designing valued customer experiences,

 creating CRM processes,

 CRM Technology,

 CRM information,

 CRM metrics and organizational collaboration.

Buttle’s CRM Value Chain Model

Buttle’s CRM Value Chain model is probably the most commonly used model for CRM.
There are two stages to the model – the primary stage and the secondary stage. The secondary
stage is created to provide support to the primary stage. Both the stages have to work together
to enable CRM.

WHAT IS CRM VALUE CHAIN MODEL?

The concept of a value chain was derived by Michael Porter. He put forth the idea of the
value chain as a means of identifying all actions, processes or stages that are involved in
creating outputs from inputs. These outputs are offered to a customer who is at the end of the
line of the value chain. The amount a customer is willing to pay for a product or a service is
its value. The revenue for a business is the total value less the cost that it has incurred in
providing the product to the customer. CRM Value Chain Model is a set of strategies that a
business ought to follow when developing their CRM strategies. Most modern businesses
work on the principle of Customer Relationship Management as it helps to deliver value to
customer and creates, as well as, manages the relationship of a business with its customers in
a more effective manner. A valuable relationship with one strategically significant customer
can lead to customer loyalty, retention and finally to referrals to other potential customers.

Based on Buttle’s CRM Value Chain Model

The CRM Value Chain Model looks at all the stages that are required to build a relationship
with a customer. These can be categorized as Primary Stages and Support Stages.

Who is a strategically significant customer?

A customer who creates great value for a business is deemed to be a valuable customer for
the business. In order to retain such a customer for a period of time, the business has to
follow some strategies. Only about 20% of all the customers of a business can be said to be
strategically significant customers. They generate more revenue, value and loyalty for a
business and the business has to deal with them in an entirely different manner than the rest
of its customers. Strategically significant customers (SSC) buy more, are trend setters, and act
as referrals for the business.

There are four types of SSC. The one on top is the High lifetime value customer as these
customers create the greatest value for the business. Lifetime value potential of a customer is
derived by calculating the present value of all future profits that a business might earn from
one single customer. One thing to consider is that not all high volume customers can be
regarded as high lifetime value customers. The next type of SSC is known as Benchmarks.
These are the well-known customers, and that other consumers are likely to emulate. The
third type is the Inspirations. These are customers who inspire a company to change its
products or reduce costs. The last of the SSC are what are referred as the cost magnets. These
customers pay for a large percentage of fixed costs so that the product can be sold to smaller
consumers at a profitable margin.

5 PRIMARY STAGES FOR IMPLEMENTATION OF CRM VALUE CHAIN

The CRM Value Chain Model consists of several stages or processes. These are divided into
two main categories Primary Stages and Secondary Stages. Above is a diagrammatic
representation of the CRM Value Chain Model.
 Primary Stages of the CRM value chain include the following processes:

1. Customer portfolio analysis,

2. Customer intimacy,

3. Network development,

4. Value proposition development and finally

5. Manage customer lifecycle.

Each of these stages has many concepts, processes and tools that are used to enable the
strategy. These primary stages help to locate and study a customer and his habits, interact
with the customer to develop a relationship. Once the relationship is established, to provide
the customer services that would mutually benefit the customer and the company, and finally
to maintain the relationship. CRM needs to be supported by a strong will to serve the
customer and the desire to build a lasting relationship. CRM can only succeed if the customer
is satisfied and happy with the product and the service of the business. Let us look at how this
is achieved.

Stage 1: Customer portfolio analysis

The first thing that a business needs to do is to identify the customers that it needs to target.
These are the customers who create the most value for the company, and the company sees
them as the most desirable customers. This stage is implemented through analysis of data that
the company has collected about its customers. It gives insights to companies so they can
define their strategies to interact more effectively with a customer, to understand the
customers and their needs and also to discover the high lifetime value customers of the
business.

Stage 2: Customer intimacy

Once all the information about the customers is in hand, it is time to engage with the
customers and interact with the ones that are most valuable, to know them and to provide
them greater value than the competitors would, in order to retain them. The business needs to
know its customers well if it wishes to retain them. This is done through collecting and
mining data through various channels. All relevant data regarding a customer is provided at
the point of contact in order to create a better relationship between a customer and the
business.

Stage 3: Network development

The term network here includes all stages of interaction between the business and its
customers. It includes all your strategy partners, the suppliers, staff, investors, partners and
anyone who can influence interaction between the business and the consumer. The aim is to
ensure that the customer enjoys the interaction with the company and is satisfied and happy
with the business, its services, product, and employees. With the customer data available at
all points of contact, it would make it easier for the network to work together in order provide
better service to the customer.
Stage 4: Value proposition development
Once a business has learned as much as they can about a customer and have made a decision
about who they would prefer to serve, they can now identify and create sources of value for
their chosen customers. This can be done by creating tailor-made offers and experiences that
will meet all the requirements, preferences and expectations of the customer. This is a shift in
business policy from the traditional strategy of concentrating on a product to focusing on
providing better service to the consumer and concentrating on reducing process costs and
improving service to create more value. The focus is on creating value for the customer.

Stage 5: Manage customer lifecycle

The lifecycle of a customer is defined as his journey from the stage of being a prospect right
through to the end of the line where the prospect has become a customer, and is subsequently
happy and satisfied with his relationship and experience with the business and its services,
and is ready to turn into an advocate for the business. To manage the lifecycle of a customer,
the company needs to look at both the processes and the structure of its organization. The
processes will require attending to the acquisition, retention and finally the development of
the customer. The structure will need to focus on the ways to manage the customer
relationship.

Basics of Purchase Planning

Purchase planning for a wholesale distribution operation is a critical issue. Since purchasing
is linked directly to stocking levels, it can mean the difference between profit and loss. In
wholesale distribution, stock is sold at a unit cost very close to the purchase price, so
overstocking will immediately have a negative effect on profits.

When purchasing, order points are critical: it is essential to order enough stock with each
order to reduce carriage costs and take advantage of bulk discounts, but over-ordering can
result in overstocking, so a balance should be struck to maximize profits. Purchasing
managers need to consider whether to take a reactive or proactive approach to purchase
planning by weighing the different advantages and disadvantages of each.

A reactive approach to purchasing, such as a “just in time” (JIT) approach, means that the
business only purchases stock as and when needed. This approach reduces working capital
tied up in stock. However, delays by suppliers may result in stock outages and reduced
customer confidence, leading to reduced sales and revenue. A proactive approach
to procurement means that there is always enough stock to meet demand, but stock must be
managed effectively to avoid overstocking. In practice, elements of both approaches are used
to produce a strategy that serves both customer and business needs effectively.

Key Considerations
There are four main factors to consider when developing a procurement strategy:

Customer Needs
The customer is the first consideration for any business; without customers, there is no
revenue. In the wholesale distribution of goods, the customer is often part of a wider supply
chain, so reliability is essential. Procurement planning needs to ensure stock availability at all
times, and this should be the primary aim when purchasing.

Business Needs
Ensuring a solid flow of revenue through good customer relations may be important, but the
business needs to be on a firm footing to be in a position to serve the customer. Overstocking
will reduce working capital, potentially jeopardizing the ability to grow and diversify. It can
also lead to stock obsolescence, reducing profitability. The purchasing strategy therefore
needs to balance business needs against customer needs.

Warehousing and Storage Capabilities

Warehousing has its own carrying costs that are extraneous to core operations, such as
staffing and building service costs. It is essential that the business makes full use of the
facilities in order to maximize revenue potential. The purchasing strategy must also take the
maximum storage capacity into account – overstocking can reduce the available capacity, so
orders should fit in with demand. Similarly, the business should be able to move well-stocked
items to warehouses where there is a deficiency to preserve storage space.

Budget
As well as the purchase costs of stock, the business needs to consider how supply chain
support functions fit the company budget. The purchasing strategy needs to reduce costs such
as warehouse staffing and HR management while core operations need to be streamlined for
maximum efficiency to reduce the cost of functions that deplete profits.

Best Purchasing Practices

In order to make purchasing decisions that take the above factors into consideration, it is
essential to a have complete overview of supply chain operations. Purchasing software is
essential to link customer orders with purchasing in order to inform purchasing decisions.

Similarly, purchasing software can be linked to stocking software to give real-time oversight
of warehouse operations which enables stock to be moved to where it is needed, preventing
overstocking and obsolescence.

This increase in efficiency will reduce the cost of support functions and increase profits. In
addition, the historical data produced by the software will facilitate a hybrid approach to
purchasing strategy; as well as being able to react to ad-hoc orders, historical data can be
used to predict seasonal variations and peaks in demand, aiding a proactive approach to
purchasing.

With these benefits from purchase planning, the best software to start with for a warehouse is
Enterprise Resource Planning (ERP) software. To get an overview of choosing the right ERP
 for your business and to see what some of the top ERPs have to offer, check out our white
paper The Guide to ERP Systems.

What is demand planning?

Demand planning is a supply chain management technique by which
businesses analyze historical sales data to create reliable forecasts of future
demand. This not only allows businesses to plan for upcoming trends, but
also to evaluate the success of past decisions, creating a continuous cycle of
review and refinement.

Demand planning helps businesses:

 Improve the accuracy of revenue forecasts

 Optimize inventory according to peaks and troughs in demand
 Maximize profitability from each sales channel or product
 Minimize warehousing and inventory holding costs
 Reduce the need for safety stock
 Effectively manage distribution networks
 Make data informed decisions about sales and marketing strategies
 Expand into new markets or countries
 Respond quickly to changing market conditions

In other words, the ability to generate a precise demand forecast has a major
impact on virtually every area of a business.The quality of the forecast is
important too: even a minor improvement in forecast accuracy can have a
ripple effect across a business, reducing inventory buffers, dead stock, and
unnecessary manual labor, whilst maximizing supply chain efficiencies.
These improvements help drive greater customer satisfaction, and ultimately,
higher profitability.

The demand planning process in a nutshell

Demand planning workflows look slightly different from business to
business, depending on the individual needs of a company and how it
operates. Generally speaking, though, the process is as follows:

1. Import historical sales data – Using a demand planning system, the

business creates a central repository for sales data, which will form the
basis for their demand forecast.
2. Create a demand forecast – An initial forecast is generated using a
demand planning tool that analyzes the historical data.
3. Utilize other data sources – Customer feedback or other data sources are
analyzed to help inform demand planning strategies.
 4. Create a consensus forecast – A demand forecast is created taking into
account multiple data sources e.g. historical sales data, customer feedback,
etc.
5. Align forecast with business decisions – Tactical decisions about
resources, inventory, distribution, shipping, and so on are made based on
the demand forecast.
6. Ongoing adjustments to the plan – As more data becomes available,
tweaks to the formula are made to meet demand on an ongoing basis.

This process turns data into insight, enabling teams to discover and plan
ahead based on fact rather than guesswork.

Aspects of Demand Planning

These aspects of demand planning include the following:

 Statistical Forecasting - Demand planning exercises usually start with statistical forecasting.
While there are various methods of statistical forecasting, with each of them catering to
behaviors shown through products and markets. These models include univariate, linear,
multivariate, season, and others. Determining which model to use can be a complex and time
consuming process, but it is essential in order to ensure for a beneficial outcome.
 Consensus Planning - The demand planning tool should be able to support consensus
planning features. This is due to demand planning rarely being the work from a single
department. Demand planning is a collaborative effort between various departments and it is
important to make sure that the tool captures input from everyone.
 Lifecycle Management - Planning for demand based on the lifecycle of the product can be
complex, but not impossible. This may not be an introduction of a new product or phasing out
of existing products, but rather it be replacing an existing product with a new product or
multiple products. Therefore, product substitution should be a vital aspect within demand
planning.

Utilizing demand planning can aid your production facility tremendously and it can be made
much simpler through utilizing a software that is capable. PlanetTogether’s advanced
planning and scheduling software offer demand planning components that can give an
accurate representation of your future demand.

Six simple steps that can go a long way toward ensuring success and a sustained
demand planning process with effective demand planning process flow.

Step No.1: Document the Process Roadmap

Depending on the stage of maturity of the demand planning process, an organization has to
have a clear and documented process roadmap for improvement, which should include:

A.) Gap analysis of the existing process, and defined/agreed improvement areas along with
an outline of future needs and requirements to close the gap.
B.) Priorities of above requirements in stages: short term (3-6 months), medium term (6-18
months), and long term (18 months–36 months). Priorities should be based on quantified
benefits that they will bring to the organization. Most process improvement roadmaps focus
on qualitative improvements, which should be avoided as much as possible.

C.) Roadmap for each stage. The roadmap should be a SMART (specific, measurable,
achievable, relevant, and time bound) output.

D.) Critical Success Factors (CSFs) for each stage. The management team should actively
participate, support, and follow up on the CSFs.

Speak the language of the CEO and CFO; that is, strictly in monetary terms
pertaining to each demand planning initiative.

Step No. 2: Bridge Cross-Functional Disconnects

This probably remains one of the biggest challenges in a demand planning process. Conflicts
of interest, silo approaches to work, lack of awareness, and turf wars are quite common in the
corporate environment. However, some simple measures to build cross-functional teamwork
and get everyone on board can help. Involve people across functions when developing a
demand planning process roadmap. It builds awareness, ownership, and fosters a spirit of
partnership. Here is a great article on building relationships and resolving conflict.

Focus on organizational goals of every activity that is being undertaken

Such goals will quickly bring things into the spotlight while generating buy-in from the top
leadership. Be it operational meetings, S&OP, business plans, or targets, etc., make sure that
the focus on organizational goals is not compromised. It will reduce friction, and actively
promote the function critical for business.

Start with the big picture and then work down to the details

Too often when discussions are based on details, the larger picture is lost. Demand planners
should lead the discussion starting from a bigger picture, and then move on to details. It is
more important to do so when it comes to critical decisions that could cause conflict or inter-
departmental friction.

Share success and avoid blame games

This builds trust and ensures that the process is credible and sustainable. One thing that works
well is when demand planners start meetings with a note/slide on what worked well as a team
and what more could be achieved by working together.

In mature organizations, Sales, Marketing, Supply Chain, and Finance jointly

own demand-planning KPIs.

Step No. 3 Build Organizational Awareness and Commitment

In business nothing speaks better than money! The best way to build awareness and
commitment is to quantify your goals and objectives clearly and in financial terms. Speak the
language of the CEO and CFO; that is, strictly in monetary terms pertaining to each demand
planning initiative.

A.) Talk about how each percent improvement in demand planning accuracy can contribute
to the company’s profitability. To accomplish it, we have to improve forecast accuracy, say,
from X% to Y%.

B.) If focusing on product life cycle management, then quantify the probable financial benefit
arising from improving its process.

C.) If implementing a collaborative planning process with a customer, then quantify the
benefits in financial terms that are likely to accrue to both the company and the customer.

Step No. 4: Define Key Performance Indicators

KPIs (Key Performance Indicators) are not to measure people. They are the indicators of
process performance. The idea behind KPI measures is to focus on improvement and
improvement alone. I have seen many organizations where people calculate KPIs only for
evaluating the performance of individuals, and/or for a management presentation. Similarly, I
have seen people looking for avenues to improve KPI scores if they are linked to
compensation. All this dilutes the purpose of KPI measurement. Here are a few of my
suggestions:

A.) Review KPIs regularly and religiously. Look for ways to improve the process. Evaluate
the process, and identify its root causes. If low KPIs require focus on capability development
(people, skills, knowledge etc.), then concentrate on developing those capabilities

B.) Make sure that the demand planning process’s performance is linked across functions,
and KPIs are owned across functions. In mature organizations, Sales, Marketing, Supply
Chain, and Finance jointly own demand-planning KPIs.

C.) Every month put the KPIs on display where everyone can see how things are going. What
is shared is seen. Very often KPI measures are not shared adequately or frequently. If they are
visible, they are likely to be discussed. That is a start!

A tool or system by itself does not solve any problems. People do. Training is
necessary to ensure that the organization is benefiting from their applications.

Step No. 5 Implement Required Systems and Tools

A robust IT infrastructure and tools help improve productivity and profitability. It is

imperative to understand the learning curve required in implementing a forecasting tool or a
demand planning setup. Here are a few things that should be kept in mind while
implementing systems and tools:

A.) Ask yourself what incremental benefit you will get by implementing a given tool. Make a
business case with quantified financial parameters. Only if you are convinced should you
proceed to make a request for such a tool.
B.) Don’t implement half measures. In many organizations with advanced ERP systems, the
biggest chunk of forecasting continues to be done in MS Excel. Either invest in smart
affordable Excel-based forecasting applications available in the market, or invest in training
and resources needed to make the most from the existing ERP systems. A tool/system by
itself does not solve any problems. People do. Therefore, investment in training and
development is necessary to ensure that the organization is benefiting from their applications.
Such investments often add up to millions of dollars, and should not be wasted.

Step No. 6: Manage Change

A demand planning process should be equipped to absorb change in the business

environment. Typically, the process is challenged when a business is not heading in the right
direction. At other times, when business is good, the process might not get proper attention.
So managing the change is critical. To accomplish that you must:

A.) Sell demand planning to your organization, while understanding fully your business
environment.

B.) Communicate, communicate, and communicate regularly. At least once a quarter share
with your stakeholders process roadmaps, tangible benefits arising from it, successes
achieved, improvement areas, etc. Do so positively and with zest.

C.) Make sure that demand planners are seen as high performing individuals in an
organization. No role allows the kind of business visibility that a demand planner gets in an
organization—from customers to production and suppliers. To attract talent, sell the demand-
planning role as a stepping-stone for bigger strides in your organization.

D.) Rotate your demand planners once every two to three years. Give them a new category to
handle or assign new responsibilities to them. The demand-planning role is a high pressure
job and can get very predictable if the process maturity in an organization is high. It can get
monotonous after two to three years if the job is not redefined properly.

E.) In tough times, the leadership function should assume the role of guiding the demand
planning process. They should ensure that the process is not challenged for quick gains. In a
volatile business environment, it is critical that the demand planning role is duly recognized
for the value that it can bring to the organization.

These simple steps can add significantly to the value of the organization. I hope readers will
find them useful and insightful enough to put them to practice!

Make or Buy Decisions of a Product: Introduction, Factors and Functional Aspects

The make or buy decision refers to the problem encountered by an organization when
deciding whether a product or service should be purchased from outside sources or
manufactured internally. Theoretically, every item, which is currently purchased from an
outside supplier, is always a candidate for internal manufacture and every item currently
manufactured in house is a potential candidate for purchase.

The majority of the make or buy decisions are made on the basis of price. But this is only one
of the criteria, which is to be evaluated in this strategic decision. Many non cost factors
encourage long term contracts with the suppliers to aid in the achievement of production and
quality levels and encourage investments in appropriate resources and new ideas.

This results in excellent, mutually beneficial customer-supplier relationships developed over

long periods based on trust and achievement of common objectives. Most have the make or
buy decisions are complex, time consuming and affect many parts of the organization. Senior
management involvement is required in a number of the stages of this strategic decision.

Make or Buy Decision When?

The following situations demand for the evaluation of make or buy decisions:
1. When the organization introduces new products.

2. The fluctuating demand for the company’s products.

3. When the organization carries out value analysis or cost reduction programs.

4. Deteriorating quality and delivery commitment of the supplier if presently the item is
bought.

5. The scarcity of funds for investment in additional plant and equipment.

Factors Influencing Make or Buy Decision:

1. Volume of Production:
The quantity or volume of production affects the make or buy decision to the greater extent.
If the volume of production is high, it favors the make decision and low volume favors buy
decisions.

2. Cost Analysis:
The cost analysis refers to the determination of costs to make an item as well as the cost to
buy it. The cost to make include – the material cost, direct lab our cost, set up and tooling up
costs, depreciation, administrative overheads, interest, insurance, taxes and inventory
carrying costs of raw materials and work in process. The cost to make also includes the
appropriate allowances, spoilage of work or scrap, and the risk associated with doing
business.

The cost to buy an item should include -purchase price of the item or component,
transportation cost, sales tax and octopi, procurement cost, carrying cost, receiving and
incoming inspection costs. The analysis of these two costs helps take decision whether to
make or buy.

3. Utilization of Production Capacity:

The organization, which has created large production capacity, favors the decision to make

4. Integration of Production System:

The vertical integration favors the make decision where as horizontal integration favors buy
decision.

5. Availability of Manpower:
Availability of skilled and competent manpower favors makes decision where as scarce
manpower prefers buy decision.
6. Secrecy or Protection of Patent Right:
This condition favors the make decision.

7. Fixed Cost:
A lower fixed cost favors the decision to make and higher fixed cost the make decision.

8. Availability of competent suppliers or vendors

9. Quality and reliability of vendors

Functional Aspects of Make or Buy Decision:

Make or buy decision should be viewed with both long term and short term perspectives in
mind. Some of the effects are tangible and others are intangible.

These are classified as follows:

1. Financial aspects

2. Technological Aspects

3. Marketing Aspects

4. Purchasing Aspects

5. Strategic Aspects

1. Financial Aspects:
The make decision is always demands an investment in plant, machineries and equipment.
The investments can be categorized in to fixed cost and variable cost. The buy decision is
associated with only variable cost. Expressing all factors in to money terms carries out a
thorough and comparative analysis. Then the decision is to be taken based on which one is
more economical, to make or to buy.

2. Technological Aspects:
The make or buy decision is influenced by:
(a) The access to the latest technology to the organization.

(b) Feasibility and terms and conditions of technology transfer

(c) Outdating of technology

(d) Product life cycle.

3. Marketing Aspects:
The marketing aspects have the influence on make or buy decision. When there is a fierce
competition, an organization tries to enhance the quality and cut down the costs. The make
decision assures the quality and reliability of the parts. Under the situation of increasing
market share and a good future sales potential company can have an additional investment
potential and hence can opt for make decision.
When there is a doubt about the market potential, the company should opt for buy decision.
The large organizations pay greater attention to quality which favors the make decision to
maintain quality and reliability of items.

4. Purchasing Aspects:
The decision is influenced by:
a. The availability of items or components in sufficient quantities

b. The delivery commitments must be reliably met.

c. The acceptable quality and price level of the product

d. Economy in transportation from the source to the organization

e. Competence and reliability of vendors.

5. Strategic Aspects:
Any decision that is to be taken including make or buy decision should be taken with due
consideration to overall objective of the organization. Due importance should be given to the
economy, secrecy and flexibility in taking decision regarding make or buy.

6. Intangible Aspects:
Intangible aspects like environmental factors, labour union acceptance, goodwill, support to
ancilliariasation and growth of SSI units, technical assistance to vendors also influences the
make or buy decision.

Economic and no Economic Factors Influencing Make or Buy Decisions:

Decisions regarding whether to make or buy the components involve both economic and non
economic factors. Economically, an item or component is a candidate for in house
production, if the company has sufficient capacity and if the components value is high
enough to cover the variable costs of production and make some contribution towards the
fixed cost. Low volumes favor buying, which incurs very little or no fixed costs. Fig 2.9.
shows the relationship between cost factors.

The non-economic factors are:

a. Availability of infrastructure and skilled personnel

b. Desire for alternate sources of supply

c. Employee preferences and stability concerns

d. Need to maintain trade secrets

e. Desire to expand in to new product line

f. Forward or backward integration

g. Long lasting and mutually rewarding relationships with vendors

Make-or-Buy Analysis
If you’re starting a new product-based business, you face some important decisions. One is
whether to make vs buy the products you’re going to sell. To decide, businesses conduct a
make-or-buy analysis, which helps them determine which approach is the most cost-effective
for the products they’re going to sell.
A make-or-buy analysis should weigh some or all of the following, as well as any other
factors unique to your specific business:
 Cost: All other things considered, this will often be the one deciding factor. You’ll want
to get accurate estimates in order to pin down the costs to make vs. buy your items.
 Availability: The truth is, in many instances, you won’t have the option to buy the item.
If you’re selling something unique or what you buy would require a manufacturer to do
so customization that it’s cost prohibitive, the decision will tip in favor of making your
own products.
 Expertise: You may have a great product you want to sell, but someone else has the
expertise to put it together. If you spend months attempting and ultimately failing at
creating the product yourself, you’ll lose any money you might have saved by just
buying it.
 Resources: If you don’t already have access to the people, facilities and equipment
necessary to make your products, you’ll need to factor in the costs of adding those
resources versus purchasing the items from a company that already has these things in
place.
 Available cash: The truth is, making a large up-front purchase costs money. It’s
important to make sure you have or can get the capital necessary to buy the products. If
you can put together 100 items a week in your home office, you may be able to start
collecting orders and sell enough to put money aside to add employees and buy factory
space as your business grows.

Stages of a Global Sourcing Strategy

Spend Matters welcomes this guest article by Shruti Agrawal, director at Excella Worldwide.
Global product sourcing refers to a procurement strategy through which an enterprise works
to identify the most cost-effective location for product manufacturing, even if that location
may be in a foreign country.
 For instance, a cement manufacturing company may find that the costs of raw materials and
manufacturing are lower in some foreign country because manpower is cheaper there. The
company would therefore opt to shut down its domestic operations and set up a plant in that
foreign country.
The general sourcing process can be divided into the following 5 stages, explained below.
Stage 1: Preliminary Research – Investigation and Tendering
At this stage, the enterprise identifies the core and non-core operational activities, analyzes
customer and market requirements and identifies competitors. The idea is to develop the
firm’s business objectives, prospective markets and brand positioning.
The strategic sourcing scope is also outlined through a business plan developed by the
executive and the sourcing specialist, and the preliminary work strategy and baseline for
measuring performance is established and documented as a procurement process plan.
Stage 2: Market and Supplier Evaluation
At this stage, the enterprise develops a detailed list of supplier selection benchmarks, which is
used to select the most appropriate suppliers that fit the requirements. Based on the findings
of the process, the sourcing strategy may be tweaked further and a final costing model is
released. The operational and economic benefits of the project will then be estimated. RFIs
will then be sent out to the shortlisted suppliers.
Stage 3: Selection of the Supplier (Sourcing Event)
Based on the results of the RFI dispatch, a final list of suppliers is selected and negotiation
for products is carried out, culminating in a supply agreement. Technical assessment of final
supply candidates is conducted to come up with the savings estimates for each. Finally, an
implementation schedule outlining timelines for various suppliers is developed.
Stage 4: Implementation
A performance analysis schedule should be developed, outlining all activities in the
implementation process. The implementation team should be constituted by the procurement
agent and the schedule and strategy should be published. Agreements related to shared
supply, resources and logistical arrangements are developed.
At this stage, expected internal and external results from the suppliers should be documented.
Periodic measurement and reporting of actual performance should be carried out.
Stage 5: Performance Monitoring
Performance of suppliers is measured, both independently and in relation to the resources and
processes applied by supply partners. This should be carried out routinely and reported
accordingly. In-depth evaluation of the efficacy of collaborative efforts with each supplier is
obtained, and the partners involved continuously isolate problems and find out ways these
can be solved for improved performance.
The objective of performance monitoring is to maintain the most efficient procurement
process, one that is flexible and dynamic, easily adapting to a changing market environment.

A Good Global Sourcing Strategy Addresses

 Cost – the main purpose of product sourcing strategy is to take advantage of lower labor
costs in foreign countries. However, the procuring organization will face additional costs that
don’t factor into domestic transactional costs. These include broker fees, freight charges,
taxes called, insurance, duties and bank fees.

 Laws – the sourcing specialist together with the supplier should consider what body of law
shall be applied to their contractual agreement, i.e., the buyer’s country’s law, the supplier’s
country’s law or the law applicable through a signed treaty between the 2 countries.
 Currency – some buyers may insist on transactions in their own currency for the sake of
simplicity. However, a prudent buyer will consider the possibility of using the supplier’s
currency where the buying country’s currency may become stronger in the period between
agreement and supply and eventual payment.

 Lead time – global purchases have a significantly longer lead time than domestic sources.
The reason is that overseas travel is slower, unless air travel is used. In addition, there is time
taken in the custom clearance process, which does not apply for domestic sources.

 Culture and language – where the procurement agent is unfamiliar with the culture and
language of the supplier, the risks of misunderstanding, miscommunication and
offensive/awkward encounters significantly increases.

 Transportation – whereas domestic sourcing necessitates the use of a single mode of

transportation, global sourcing frequently includes multiple modes of transport, e.g.,
combining air or water transportation with road transport to bring goods from the supplier to
the supplier’s port, to your own port and finally to your place of business.
 Methods of payment – in global sourcing, a letter of credit is used for payment, which
necessitates the cooperation of the banks of the supplier and buyer.

Legal aspects of buying and selling a business.

Whether we like it or not, when buying or selling businesses, the legal aspects need to be
addressed in order to protect both the buyer (Purchaser) and the seller (Vendor), which will
require a “contract of sale” agreement. Whilst no deal is the same, deals often follow a
process where there are 5 key stages:-

Pre-Sale
The key here is to ensure that appropriate advisers in place; such as tax, financial and legal
advisers. Before discussions for sale or purchase get underway make sure that there is a
Confidentiality Agreement or Non-Disclosure Agreement (NDA) in place. This will help
ensure that matters remain confidential during negotiations and remain so, should the deal fall
through, with important documentation returned to the Vendor.

Heads of Agreement
This is an important document which will detail what is included (or excluded) in the sale,
the price and payment structure, pre-conditions of sale, together with an outline of warranties
and indemnities. It needs to be carefully drafted to ensure that the confidentiality terms of the
Non-Disclosure Agreement are included. It will also need to confirm any periods of
exclusivity to complete the sale, which is the main legal aspect of this document.

Due Diligence
Vendors are required by Purchasers to complete what can often be a lengthy questionnaire
covering all aspects of the business for sale, ranging from accounts, to litigation, to regulatory
compliance and property/environmental issues. Very often due diligence specialists are used
to carry out investigation work, reporting back their findings to the Purchaser. It is essential
that this process is policed properly as due diligence work may impact on warranties and
indemnities a Vendor may be asked to give in due course. Also, if the business is not as
described by the Vendor, it may result in the offer being revised or withdrawn.

The Contract of Sale

The Contract of Sale (Agreement) should include all terms required, using clear
straightforward language. The type of contract will be tailored to meet the parties’
requirements and therefore, the document will be unique to each sale. This will apply whether
the transaction is a share or asset sale, a management buy-in (MBI) or buy-out (MBO), a sale
to family members, a joint venture or merger, or part sale.

Typically, an Agreement will include the sale price, completion arrangements, warranties and
tax covenants, limitations on claims and third party rights. From a practical view, it will also
need to deal with the non-disclosure of confidential information known to both parties and
competition issues between the parties. It may be necessary to consider provisions covering
situations where there are on-going contracts or staff transferring from one employer to
another.

Warranties/Indemnities/Disclosure
Clearly, a Purchaser will want wide ranging warranties, whilst a Vendor will want to ensure a
warranty is qualified to avoid a claim! A practical solution is needed which meets the needs
of both.
The key for a Vendor is to ensure that the warranties given are accurate. Careful
consideration needs to be given as to the promises being made about the business for sale. A
practical view should be taken on negotiating limitations for potential liabilities by setting a
time limit for claims, agreeing a threshold on claims (eg an aggregate limit or agreed excess),
or setting a cap on the maximum amount which can be claimed.
From the Purchaser’s viewpoint, the key is to ensure that all relevant information is disclosed
at the Due Diligence stage and that information is not distilled by ineffective warranties or
indemnities. The potential impact of inaccurate information being provided must be
considered and a view taken. Due diligence work is therefore, a vital and essential part of the
buying & selling process, forming a bridge from the initial offer to legal completion.

Cost Management:

Meaning, Techniques & Advantages

What is Cost?
Cost is defined as the monetary valuation of effort, material, resources, time consumed, risk
and opportunity forgone in production / delivery of a good or service. It is simply put as the
amount that has to be paid or given up for something to be acquired.

What is cost management?

It is defined as the process of planning and controlling the budget of the business. It helps in
predicting the expenses of the business so that one can avoid going over budget, thereby
being an integral part of business management.
Cost management involves different cost accounting methods that have the goal of improving
business cost efficiency by reducing costs or atleast having measures in place to restrict the
growth of costs.
Cost can be managed by

 Cost estimation
 Cost budgeting and
 Cost Control

Cost management system helps in identifying, collecting, classifying and collating

information that can be used by managers in planning, controlling and taking decisions to
keep costs in the desirable limits.

Why adopt cost management?

Before any project is taken up, it is appropriate to define the objectives to avoid any kind of
cost over-runs. They also help in keeping away over or underestimation of costs. A well
defined project helps in facilitating appropriate management of the costs, making the project
a profitable one for the undertaker. Through cost management, unexpected costs can also be
appropriately dealt with as and when they occur as the forecast would reflect it.

Factors affecting cost management

 Growth in information technology

 Global and overall domestic competition
 Growth of service and manufacturing sectors

Cost management techniques

Managing a business has containing cost of utmost importance. Below are mentioned some of
the techniques through which the overall cost of the business can be controlled and
maintained within the required limits.
Capitalize on technology
This is one of the methods that help in streamlining the business. The latest of technology
helps in getting quality of higher standards, less time consumption with higher productivity
and keeps the employee count within the desirable range. All of this very strongly reflects in
the overall cost of the business.
Time management
The one who owns the business definitely knows the value of time for his / her business.
However, it is important to pass down the relevance across the hierarchy of business to view
the desired results. It is very essential to make the employees understand the value of time
and how to be efficient to do more work in the same time span. This is one of the methods
that will help increase the productivity without adding to the labor cost.
Inventory management
One of the major cost as well as ways of generating revenues is through inventories. First and
foremost one needs to chalk out the inventory requirements, the quantity check that needs to
be stored, vendor costs etc as all of this helps in knowing the requirements of the business
and helps avoid stocking excess inventory and deploy the capital elsewhere rather than tying
up in the inventory stocks.
Outsourcing
Outsourcing is one way that helps take employees on third party roles especially when it is
for one time projects. This saves the employer from taking the cost onto his books. This is
definitely done keeping in mind that the outsourcing partners are of the standards that do not
hamper the quality of services to the customers of the business. Besides the employees,
certain projects also can be outsourced, which helps in saving the additional employee costs
onboard as well as get access to outside talent and technology, helping in optimizing the
resources.
Updated market sense
It is very important to be updated with the trends in the markets as it is game of survival of
the fittest. One has to be constantly in touch with the vendors and see that renewal of the
contracts keep happening with the trend in prices. This will help in negotiating for the best
prices available rather than dragging on the set prices of long term contracts.
Control of headcount
The second most important cost to a business is the employee cost. Although we take
employees as assets or the backbone of the business, one needs to keep in mind that they also
have cost associated with them. Besides the regular pays and salaries, workplace, licenses,
softwares are the additional costs added per employee. That is why, it is essential that the
manager knows how to reduce the employee costs, either by taking less number of people
onboard, or by taking more of low cost employees rather than few high costs ones.

Advantages of cost management

 It helps in controlling the project specific cost, in turn also the overall business cost.
 One can predict the future expenses and costs and accordingly work towards the
expected revenues.
 Predefined costs can be maintained as records for the business.
 It helps in taking those actions that are necessary to assure that the resources and
business operations aim at attaining the chalked objectives and goals.
 It helps in analysing the long term trends of the business.
 The actual cost incurred can be compared to the budgeted to see if any component of
the business is spending more than expected.
 It helps in analysing the business positioning in terms of making an acquisition
factoring the cost component involved.

Conclusion
Cost management is indeed one of the essential requisites for the success of any project or
business for that matter. When one knows the scope for the cost that the business can bear, it
becomes much easier to set the goals and accordingly work towards it.

Negotiation in Purchasing:
Definition, Objectives and Techniques!

Negotiation is essentially relating to quality, date of delivery, prices etc. so that a satisfactory
settlement is reached. As a result of negotiation, the supplier reduces the price.
In case of repeat orders, prices negotiation may take place even before receiving the
quotation if there is an increase in price.

The following are the areas of negotiation.

(a) Reduction in price.

(b) Higher trade discount on bulk purchases.

(c) Reduction in packing charges.

(d) Free delivery upto buyers end.

(e) Cash discount which can be claimed for prompt payment to the supplier.

Negotiation in Purchasing:
Negotiation refers to trading deliberations which generally lead to lowering of prices by the
vendors. However, it would not be proper to think that negotiation supply refers to bargaining
for lower prices. In a broad sense, negotiation aims at obtaining the maximum value of
money spent on purchasing. The purchase manager must be skillful and well informed. His
skill of negotiation improves with every fresh purchase.

Definition:
The dictionary meaning of negotiation is “conferring/ discussing” or bargaining to reach
agreement in business transactions.” Negotiation can be defined as a process of planning,
reviewing and analyzing used by a buyer and seller to reach acceptable agreements or
compromises. Negotiation covers all aspects of business and not just price. It is a decision
making process.

Objectives:
The following are the objectives of negotiation:
(a) To settle a fair and reasonable price.

(b) To ensure that the contract is performed on time.

(c) To remove obstacles this may be there in future.

(d) To exercise control over the manner in which the contract is performed.

(e) To persuade the supplier to give maximum co-operation to the buyer’s company.

(f) To develop cordial relations with competent suppliers.

Is Negotiation Essential?
In the following cases, negotiation is essential.

(i) When competitive bidding is missing.

(ii) When quality and service are important in addition to price.

(iii) When business risks can’t be accurately determined, the seller unnecessarily increases
the price which can be reduced only by negotiation.

(iv) When time required to produce an item is very long.

(v) When production schedule is frequently affected by new orders as a result of changed
technology. It requires changes in drawings, designs and specifications.

(vi) Decisions relating to make or buy require great deal of negotiation.

(vii) Terms and prices must be thoroughly negotiated to prevent unreasonable dictation by the
seller.

Techniques of Negotiation:
The following are the techniques of negotiation:
1. Organise the Issues:
An agreement should be reached as a result of negotiation. An experienced negotiator seldom
allows the negotiation to break down. For this purpose, all issues have to be organised
effectively.

2. Learning from Unions:

Unions develop skills of highest order for negotiation and we can learn a lot from unions in
this regard. Labour leaders make themselves fully equipped before entering into talks with
management.

3. Be sure of opponent’s authority:

The authority of the vendor to sign the contract is much superior. The buyer should make
sure that the seller’s representation has authority to conclude the contract.

4. Negotiate on Home Grounds:

The buyer should hold the negotiations at its own office. It has a number of advantages.

5. Determine Concessions:
The buyer should determine in advance the concessions he is prepared to make to the seller.

6. The buyer should not be on defensive:

The best bargain is to ask the supplier to justify this price, quality, quantity etc. A good
offense is the best defense.

7. Use diversions:
During negotiations, if tempers go very high, it is better to ease the tension by cracking a joke
or a coffee break.

8. Miscellaneous:
The other techniques of negotiation include:
(a) Use of positive statements.

(b) Listen to the seller with full attention.

(c) Be considerate to the seller.

(d) The successful negotiator makes fewer concessions.

Purchasing Negotiation (3 Requirements for Success in Supplier Negotiations)

Purchasing Negotiation is part art part science. In this article you will learn what it takes to
become a successful Procurement Negotiator, since you will know the most important factor
before negotiating, who to negotiate with and the approach to take when negotiating with
suppliers. But before that a quick answer to:

What is Purchasing Negotiation?

You can have a good academic discussion as to what is purchasing & procurement
negotiation, but in a simple language it is the process where corporate buyers & sellers
discuss/negotiate terms of a contract before concluding a deal & starting the contract
management process.

This is both an analytical & psychological process. This analytical & psychological process is
seen in the 3 requirements: The first 2 are analytical and the last one is psychological.

I. The Most Important Factor in Purchasing & Procurement Negotiation – Preparation!

If you have been led to believe that you must be the smartest man on planet Earth to be a
successful negotiator, it is not so. Apart from having good skills as a negotiator, the most
important factor is to Prepare.

When negotiating on behalf of your company, you must first of all know what you are talking
about. Some of the things you will be talking about are, Suppliers Price & Cost, Supplier
Delivery Times & Costs, Supplier Service Response time. And so on. Now ask yourself this
question: If you do not have good information about these items, how are you going to
negotiate? Well, you can’t negotiate until & unless you have answers to these questions. So
again when it comes to purchasing negotiations you will win before you actually start
negotiations. Think about the following scenario. You are meeting the supplier and you have
the following info.

 Supplier’s price is 10% above market price and he’s making 45% margin on your
project (You discovered this by doing a price/cost analysis).
 The 45% margin is split as follows: 20% on goods sold, and 25% on the
maintenance/service contract. (you also know this because you found the Producer
Price Index for the goods delivered and services for that type of contract)
 The normal market margin for goods is 12% and for services is 18% - total of 30% as
compared to 45% that your supplier wants to make.

While this is a simplified example, once you have this information, it is much simpler to
negotiate with your supplier. If you have the best supplier you may be willing to pay a bit
extra but not 50% more than the market (market is making 30% GP, as compared to 45% of
your supplier).
II. Who are the Suppliers you Must Negotiate with?

This is also part of being analytical. If you have been a while in purchasing you know
about ABC Analysis and how that helps classify suppliers/inventory into 3 categories (A, B,
C) based on how much you spend with them. It is an accepted fact that any company will
spend 80% of its money with 20% of suppliers, the next 15% of the money with the next 15%
of suppliers and the final 5% of money with the 65% of the suppliers.

You don’t need an MBA to see that you will achieve the most procurement savingsif you
focus on negotiating with A Category suppliers, since that’s where 80% of your money is
spent. However there are cases where you want to be careful in negotiating such as sole or
single source procurement, where you have only 1 supplier for that item.

Also in case of capital equipment when you are acquiring a large item that costs lots of
money, you need to spend time to prepare and negotiate, since these are cases where you can
save substantially.

III. Approaches to Purchasing Negotiation with Suppliers!

This is where the psychological process comes in that you need to use persuasion,
communication, verbal & non verbal skills.

Basically there are 2 types of objectives and approaches to purchasing negotiation. The first
is the Confrontational or Lose – Lose approach where you don’t care whether the suppliers
makes or loses money. You just bang on the supplier to give you 20% discount no matter
what.

Lose - Lose Approach

We call this lose-lose because while you may get the discount you want in the short term, that
will come at the expense of quality, delivery times etc. So at the end while the supplier looses
in the discount given the buying organization loses more than the discount given.

Apparently that was one of the approaches during their contract negotiation process, taken
by GM with its suppliers and after a while suppliers found themselves out of business (and
GM soon thereafter – while there are other fundamental issues to GM’s bankruptcy this also
contributed). Unfortunately it seems that this is the case with 80% or so of purchasing
negotiation.

Win - Win Approach

The second approach is that of Win-Win Negotiations. For example, when you write a price
negotiation letter to the supplier, you want to be fair to the supplier and ensure that he makes
a reasonable profit but he delivers the products/services with the highest possible quality and
on time.

While Win Win type is most talked about it happens in only about 20% of cases. Plus this is
not easy, depending on who’s supervising the purchasing department and company culture.

To recap first of all you want to spend your time with worthy suppliers ie those who you
spend lots of money with (A Category). Then you want to extensively prepare for your
purchasing negotiation. Finally, when on the negotiation table work towards a Win-Win
strategy that helps the supplier make a reasonable profit, and helps your company get the
product/services at the required quality.
Evaluation of Purchase performance (performance indices)
Measuring Purchasing performance is essential for effective management and continued
improvement of the purchasing function. Purchasing evaluation provides vital feedback to
the purchasing department as well as top managements for assessing the effectiveness of an
organization’s purchasing strategies and decision-making processes. Overall performance of
an organization is strongly affected by how well the purchasing function can contribute to
the firm’s strategies and goals.

Purchasing plays an ever increasingly important role in the supply chain especially in an
economic downturn. Cost reduction of raw material and services can allow companies to
competitively market the price of their finished goods to win in a business. An obvious
performance measure of the success of any purchasing department is the amount of money
saved by the company.

A better understanding of how purchasing professionals and internal customers evaluate

purchasing performance is needed to improve the overall effectiveness and efficiency of the
organization.

Purchasing Departments are tasked in sourcing goods or services at the best possible price
with the Right Quality the Quantity the Right Delivery. The possibilities of procuring cheaper
materials with quality desired from alternative sources as part of their daily activities.

Evaluating Purchasing Performance

An organization would need a systematic approach if they want to efficiently evaluate the
purchasing performance which may lead to the following benefits:

1. Better Decision Making – From identified variances of planned results and actions can be
taken in the future to prevent further occurrences.
2. Better Communication – Such as analyzing certain invoices which would need an extra
check that would lead to better payment arrangement procedures and improve understanding
between purchasing and administration.

3. Better Visual – It makes things more visible with regular reporting against actual vs
Planned this enables a buyer to verify whether their expectations have been realized.

4. Better Motivation – An evaluation system can meet the personal and motivational needs
of each purchaser which can be used as constructive goal setting and developing personal
programs in purchasing.

There are several performance measurements that businesses can use when they measure
purchasing performance:

Purchasing Efficiency – Administrative costs are the basis for measuring purchase
efficiency, this performance measurement does not relate to the amount purchased items that
the department has procured but the measurement relates to how well the purchasing
department is performing in the activities they are expected to perform against the budget that
has been placed. If the purchasing costs are within budget, then the efficiency of the
purchasing department has met its expectations. If the department is using funds over and
above the budget then the purchasing function is not efficient.

Purchasing Effectiveness – Price that is paid for an item will not be necessarily a good
measurement of performance. Prices may fluctuate due to market conditions, availability and
other demand pressures in such situations purchasing departments may not be able to control
the price A popular method of assessing purchasing effectiveness is to review the inventory
turnover ratios. The ratio measures the number of times, on average that the inventory is
used, or turned, during the period.

Purchasing KPI Management Tool

Purchase Management determine which activities are key areas and justify the effort of
evaluation. Key Performance Indicators (or KPIs) are management tools designed to analyze
procurement department performances to achieve goals, strategies and objectives. They are
also crucial to ensure that procurement is sustainable and that purchasers are constantly
looking for ways on how to improve procurement processes.
KPIs help to point in the direction where it improves performance levels. Improvement for
more efficient and sustainable procurement processes. The three major groups of Purchasing
KPI are Cost Savings, Quality, and Delivery of purchased items.

Cost Savings KPI’s

Measuring the percentage of managed spend against total spend on purchases for external
products and services. Managed spend can be calculated as the sum of all spend run by an
organization. Goal of this KPI is to have more spend standard procedures, thereby saving on
costs. And Reducing Consumption to determine if it’s necessary, an organization can exclude
things that they can they can do without or substitute, for example the reduction of travel
expenses by deployment of video conferencing. Consolidation of spend hidden costs can
arise if specifications are harmonized such as Mobile Phones laptops and lease cars which
could lead to savings. From suppliers, Improving competition among suppliers for cost
saving, generating higher competition among suppliers, By using benchmarking and
comparing supplier participation rate results.

Quality KPI’s
Products and services of low quality would affect an organizations product quality which
might add additional costs. KPI quantifies the purchase quality of the procurement branch.
Metrics such as percentage of rejections, goal is to lower these percentages, rejected services
from service providers, lowering the disapproval rate. Seller rejection rate rejected goods
which is important if it directly affects customers. Disruptions due to low quality, if the
company is facing continuity disruptions due to low quality focus on increasing the quality of
strategic materials. Setting a lower end quality standard for each article and the goal is to
follow the quality standards.
Delivery KPI’s
To establish strategies that can improve delivery as well as continuity of supply. Strategic
supply is important for organizations, late deliveries might affect supply chain continuity,
early deliveries can result in higher operational/Inventory costs. The goal is to have lower
number of errors against the requested time frame for deliveries. Deliveries that are on time
helps to Maintain continuity, improve inventory management which leads to cost savings.
The Accuracy of purchase orders is the outcome of suppliers delivering the right quantity of
right goods. Inaccurate purchase orders might result in additional inventory or operational
costs and shortage in quantity can interrupt continuity.

Factors Influencing Purchasing performance

Factors that influences purchasing performance measurement. It’s how an organizations
management looks at the role and importance of function. Management evaluates purchasing
operations on parameters such as

Operational and administrative activity: Management evaluates purchasing operations

primarily on parameters such as order backlog, administrative lead-time, number of orders
issued, numbers of requests for quotations issued, adherence to existing procedures, etc.

Commercial activity: Management is aware of the savings potential which purchasing may
represent. Parameters being used here are the total savings reported by purchasing, number of
quotations issued, variance reports, inflation reports, etc.

Part of integrated Logistics: Management becomes aware that price hunting has its
drawbacks and may lead to sub-optimization. Evaluation is aimed at quality improvement,
lead time reduction and improving supplier delivery reliability.

Strategic business area: Purchasing is actively involved in deciding the company’s core
business and reinforces the company’s competitive position. Management evaluates
purchasing amongst others on the number of changes in its supply base, number of tenders
and e-auctions, and its contribution to the bottom line in terms of savings realized.

Establishing KPI
An organization should figure out what stakeholder’s interest is and along with the
company’s strategies and future objectives. KPI’s are usually customized, looking for metrics
that reveal progress towards achieving goals.

Analysis of the data: management should look for interrelationships between means and ends.
Following the analytical stage, various measures are developed, implemented and
subsequently refined. Prevent measures becoming too complex and too numerous, as
simplicity is key.

KPIs should be relevant to your business or department and simple to use. Key Indicators of
five or six would be enough, and not being overwhelmed by data it should not be about
taking hours gathering data.
Conclusion
There is no one-size-fits-all formula for every company. Goals as well as KPIs are most
usually custom. Several studies have been carried out on purchasing performance and the
results are that there is no one method that will cover every purchasing department. However
common key area measures that is found to be common in evaluating performance. Namely,
cost saving, vendor quality, delivery metrics and price effectiveness. Although these key
measures are common, the weight placed on these measures are by no means uniform and
will vary between industries, businesses and services. In addition, the importance of these
measures to the overall effectiveness of a purchasing department will change over time and
therefore need to be assessed and modified periodically.

Inventory Management

What is an Inventory?
Inventory is an inactive stockpile of material goods that posses financial worth, and are held
in a variety of forms by an organization in its guardianship until stuffing, dispensation,
alteration, use or sale in a prospect point of time.
Any organization which is into manufacturing, trading, sale and repair of a product will
unavoidably hold stock of a range of physical possessions to assist in future utilization and
sale. While inventory is a necessary evil of any such business, the organizations cling to
inventories for various reasons; some of them are speculative purposes, functional purposes,
physical necessities etc.
• All organizations occupied in fabrication or trade of products keep inventory in one form or
the other.
• Inventory can be in whole state or unfinished state.
• Inventory is held to assist in future use, sale or further value accumulation.
• All inventoried resources have profitable value and can be measured as assets of the firm

What is inventory management?

Inventory Management is a business process which is responsible for managing, storing,
moving, sorting, arranging, counting and maintaining the inventory i.e. goods, components,
parts etc. Inventory management ensures that the right inventory is available as per the
demand at low costs. Inventory Management makes sure that the core processes of a business
keep running efficiently by optimizing the availability of inventory.

Inventory management simply refers to the handling and controlling of a company's non-
capitalised assets. For most retailers, this involves the overseeing and controlling of finished
items that are ready to be sold.

The fundamental goal is to keep inventory levels balanced at all times without ever having
too much or too little product in stock. So staying on top of ordering, forecasting and
storage are key parts of good quality inventory management.
 Importance of inventory management
Inventory Management includes managing and controlling raw materials, stocks, finished
goods, warehousing, storage and other aspects which help reach the product from production
to distributor or retailer. Each organization regularly strives on efficient inventory
management to uphold optimum inventory to be able to meet its necessities and avoid over
or under inventory that can impact the monetary statistics of the firm.
Inventory is forever dynamic. A prerequisite of inventory management is steady and vigilant
assessment of exterior and interior factors and control via planning and evaluation. Most of
the businesses have an individual department of inventory planners who incessantly observe,
control and evaluate inventory and interface with manufacturing, procurement and finance
sections of the firm.
In a business or association, all the functions are interlinked and coupled to each other and
are time and again overlapping. Some key features like supply chain management, logistic
handling and inventory management form the spine of the business delivery function.
Therefore these functions are very significant to the managers.

Inventory Management example

Inventory Management is very important for a business to run smoothly. Imagine a cake
manufacturing shop if it keeps running out of flour and sugar. Flour and sugar are like the
main raw materials which keep the business process running. The cake maker needs to plan
the quantities of sugar and flour so that he never runs out of them when he wants to make a
cake. But inventory management is just not about bulking up the supplies. If too much flour
and sugar are stocked and there is not as much demand for cake, the flour and sugar would go
bad which would cause financial losses to business. Inventory Management advocated
optimization of inventory. The inventory management makes sure that the cake maker has
almost the exact amount of sugar and flour which are just enough to make cakes which match
with the demand of cake eaters who order cake from his shop.
Inventory management parameters
Inventory management can be efficiently done on the basis of 4 broad parameters:

 Number of units in the stock

 Cost of managing inventory
 Availability of inventory on time
 Location for storing inventory
Challenges of inventory management
1. Understanding the Inventory –Organizations should take a holistic view into knowing
both basic vs. non-basic matter and at what time they should be ordered. Basic items are
those that you sell ant time of the year and need incessant replenishing of stock. By sorting
these out from non-basic or seasonal items inventory levels can be much more allied with a
recognized schedule and product lifecycle. However, knowing your items are is just the first
step. One must have knowledge about stock capacity, what is going to be ordered, the size of
the order, and what needs to be refilled.
2. Incompetent Processes – Built on or rely on dated software or manual processes are used
for inventory management systems. This creates an extremely demanding work setting for
anybody caught up in the inventory management process. One must begin with a review of
current standard operating procedures and settle on where gaps may lie in the systems.
3. Client Demand – Customers needs are varying daily and they are looking to their
distributors to allow for elasticity in orders. With the mounting demand of struggle it
becomes more taxing to keep up with the exclusive needs of the consumers to reassure they
do not have those needs met by some other firm. All these factors help in understanding
inventory management.

Why is inventory management important?

A retail business is useless without its inventory. Yet holding this inventory ties up a lot of
cash and resources. Being able to manage it effectively and efficiently is therefore vitally
important to cash flow and a great way to save money.

Save on storage costs

Warehousing costs tend to fluctuate based on how much product is being stored and for how
long. The longer an item sits on a shelf without being sold, the more it costs a business.

Good inventory management results in items spending less time sitting in the warehouse
before being sold. And this means reduced costs for storing them.
Avoid spoilt or dead stock
It’s not just storage costs where a retailer is potentially losing money from poor inventory
management. Perishable items will be entirely wasted should too much be ordered at one
time or it isn’t stored sufficiently.

Too much stock that becomes ‘dead’ due to going out of season or style is similarly
wasteful. Better managing of inventory helps avoid wasting money on too much spoilt or
dead stock.

Improve cash flow

Any inventory is likely to have been paid for upfront. But until this stock is sold, it’s just a
hole in the bank balance and a dip in cash flow.

Managing inventory properly means cash isn’t drained on buying too much stock at any
one time.
This leaves more money in the bank to spend on growth instead of inventory.

Calculating inventory value

Knowing what items are actually in stock and being stored as inventory in the warehouse is,
of course, vital. On top of this, it’s also key to know the value of this inventory.

Inventory value is a legal accounting requirement, but is also a piece of data that gives
a crucial insight when making certain business decisions. For example, whether you can
afford to purchase new stock.

Some retailers use retail accounting software such as Zero for inventory management, whilst
others will outsource to 3rd-party accountancy firms.

The figure tends to be a sum total of how much it cost to acquire your inventory, including
any freight or transport costs. There are a few basic methods for calculating this.

FIRST-IN-FIRST-OUT (FIFO)
FIFO works on the model of having the oldest inventory brought into stock being sold
first. Calculating cost of goods would therefore align with the following example:

If you sell 100 iPhone cases and brought in the first 75 at a cost of £5 and the next 75 at a
cost of £7.50, then cost of goods would be:

 First 75 at £5 = £375
 Second 25 at £7.50 = £187.50

LAST-IN-FIRST-OUT (LIFO)
LIFO works by having the newest inventory brought into stock being sold first. See how
cost of goods differs when using the same example:

If you sell 100 iPhone cases and brought in the first 75 at a cost of £5 and the next 75 at a
cost of £7.50, then cost of goods would be:
  First 75 at £7.50 = £562.50
 Second 25 at £5 = £125

AVERAGE COST
This is where an average unit cost over a specific period of time is used to calculate the
cost of inventory.

The Average Cost method is generally used when FIFO or LIFO aren’t able to be used in a
retailer’s accounting system. Or if it’s particularly difficult to assign a specific cost to
individual items.

FIFO tends to be the most commonly used method. But LIFO can be useful in industries
where prices fluctuate a lot or the newest units genuinely are sold first.

It’s worth noting, however, that some regions don’t allow LIFOas a viable method of
calculating cost of goods. FIFO is therefore the more popular and generally recommended
option.

Inventory management techniques

Now that we’ve established a way of calculating inventory value, let’s start taking a look at
what good quality inventory management actually looks like in practice.

There are several key techniques and methods that can be used to manage inventory
effectively.

Just in Time (JIT)

The Just in Time method is where a business would maintain a very low level of
inventory and order goods in as and when they are needed. This represents a move away
from the traditional philosophy of piling stock high to meet any sudden rises in demand.

The severely reduced amount of inventory being held at any one time means a business
can save massively on storage costs and decrease waste.

However, it requires finely tuned and accurate forecastingthat accounts for seasonal
fluctuations in demand. Any mistakes here can result in not being able to fulfil orders and
a nosedive in customer satisfaction.

Regular stock review

A stock review is simply a typical analysis of stock against projected future sales. This is
particularly useful for any retailer still managing all inventory manually, although it is highly
recommended to invest in a specific software.

It’s best to set a predefined period to complete the stock review over. Then compare
current stock levels against future projections to determine how much inventory to
order.
Obviously, this can save money in the short term if no software or specific system has been
purchased. But doing manual stock reviews can be a monumental drain on time and
resources while also opening up huge potential for human error.

ABC Analysis
This enables a retailer to analyse all current on-hand inventory by dividing it into three
categories - A, B and C. Which category a particular item falls into is based on inventory
value and cost significance.

 A Items: Are of high value with low sales frequency.

 B Items: Are of moderate value with moderate sales frequency.
 C Items: Are of low value with high sales frequency.

ABC Analysis allows a retailer to prioritise how they managedifferent inventory items. It
works well alongside the Just in Time technique as it allows to point focus at items that need
more attention.

For example, A items are of high value but stock levels will be kept lower so maintaining
a close eye on these is essential. Whereas C items are relatively high in number and so don’t
need such tight observation.

While this is a popular method, it’s worth noting that its analysis is based purely on
monetary value and doesn’t take any other factors into account.

Dropshipping
Dropshipping effectively removes the task of inventory management from a retail business. A
customer would place an order and then have it fulfilled straight from the manufacturer or
wholesaler.

A premium is usually added on top of bulk buying any stock, but this can be offset by the
complete lack of warehouse or storage costs.

Dropshipping can be a great option for startups or smaller businesses. But order processing
can prove tricky and the lack of control over customer experience means it’s something to
think twice about for high-growth and larger retailers.

Inventory management forecasting

A phenomenal amount of good inventory management comes down to being able to forecast
future demand for specific items. And to put it plainly - this is no easy task.

There are a multitude of variables that can affect demand and it’s impossible to know for
certain exactly what’s round the corner. Thankfully though, there are some ideas to consider
to help predict as closely as possible.

Set forecasting boundaries

It’s essential to set certain boundaries when forecasting in order to give the most reliable and
accurate outcome:
  Forecast period. This is the specific amount of time into the future that a forecast
will be attempting to predict.
 Trend in demand. The increase or decrease in demand over a certain period of time.
Trends over the short, medium and long term past should be considered in order to
make future projections easier.
 Base demand. This is simply the exact current demand for a product at the specific
point a forecast is due to start from.

Know reorder points

Setting a clear reorder point for each item allows retailers to know exactly when to
order new stock. It is a specific point that acts as a trigger as soon as stock has diminished
to that certain level.

It’s important to consider the lead time for new stock to be delivered when setting reorder
points. Enough stock should be leftover to keep up with demand before the new inventory is
available.

Economic Order Quantity (EOQ)

After deciphering the exact point new orders need to be placed, it’s time to consider how
much stock to actually order. This is where the Economic Order Quantity (EOQ) formula
takes prime position.

EOQ is a calculation that helps work out the ideal quantity of inventory to order for a
specific product while minimising carrying costs. The three variables involved are:

 Demand. The number of units sold over a given time period, usually a year.
 Relevant ordering cost. Total ordering cost per purchase order. This includes all
staff, transportation and any other costs associated with making each purchase order.
 Relevant carrying cost. Assume the item is in stock for the entire time period in
question and decipher the carrying cost per unit.

Then put these into the following formula:

For example, a business sells 2,400 office chairs a year (200 a month) with ordering costs of
each purchase order being £100. If the carrying cost per unit is worked out at £5, then the
formula turns into this:

Economic Order Quantity = square root of ((2 x 2,400) x £100) ÷ £5)

 Economic Order Quantity = square root of 96,000

Economic Order Quantity = 310

In this example, we’ve determined that the perfect order quantity for this specific item is 310
units. Try the calculator below to play around with some different figures:

Key inventory management metrics

Some key metrics and equations have already been mentioned in this guide. But there are
several more that are involved and need to be paid close attention to when it comes to high
quality inventory management.

Keeping track of these metrics makes it easier to identify bottlenecks or areas for
improvement in an entire inventory operation.
Inventory turnover
Inventory turnover gives an indication of how quickly stock is sold and shipped once it has
been received into a warehouse. The faster stock is moved, the less it costs to store it and
the more profit can be made on each sale.

Keeping track of this enables greater insight into the popularity of certain items to help gauge
future buying practices.

Use the following formula to calculate inventory turnover:

Safety stock
Safety stock is the backup stock needed to meet unexpected occurrences and sudden
changes in demand.

For example, an unexpected heat wave could see retailers selling barbecue equipment
experience a sudden rush in demand. The stock needs to be there to meet this, but they also
don’t want to keep too much on hand at any one time.

This is where the following formula can be useful to ensure a healthy balance:
Reorder point
As mentioned earlier, reorder points are vital in order to know exactly when to order new
stock for a specific item.

In essence, an item’s reorder point needs to be as soon as its safety stock levels are hit. But
the lead time between ordering and receiving the order needs to be taken into account.

Use the following formula for a simple way to calculate specific reorder points:

Backorder rate
Keeping an eye on backorder rate is an excellent way of analysing forecasting success.

A high backorder rate means a lot of orders are coming in for items that aren’t in stock. Of
course, sudden unexpected rises in demand can account for this. But if backorder rate is
consistently high then it’s likely a result of poor planning and forecasting.

Work out backorder rate with the following formula:

Carrying cost of inventory
The carrying cost of inventory is basically the cost a business pays for holding goods in
stock over a given time period. This can include storage costs, insurance, depreciation, staff
costs, taxes and any other expenses relating to holding inventory.

Businesses use this data to determine the amount of profitthat can be made on current
inventory. It’s also useful to help determine how much inventory to keep on hand.

This is then usually expressed as a percentage of the mean inventory value over the same
time period:

Choosing inventory management software

Paying close attention to the above techniques and metrics is a great start. But a growing
retail business should be aiming to remove potential for human error as much as possible.

This means taking advantage of a specific inventory management system or piece of software
to support manual efforts.

What is inventory management software?

Inventory management software effectively does all the heavy lifting for a business when it
comes to managing their inventory.

A computerised system is put into place that tracks orders and items through that business’
entire supply chain. This allows the business to see the various parts of its operations in one
place and manage everything effectively without relying on manual, paper or spreadsheet
processes.

Features of good quality software

Different sized and types of business will have different needs. But good quality software
will be able to manage a retailer’s operations throughout their entire supply chain.

Here are a few aspects good quality software should cover:

 Receiving orders. Process customer orders from all sales channels and bring them
together to manage in a single place.
  Managing inventory. Take in information across any number of warehouses and
locations and update this across sales channels in real-time.
 Warehouse support. Provide barcode systems as well as item location and picking
support for warehouse operations.
 Shipping integration. Capability to ship online orders directly in the software and
integrate with inventory levels automatically.
 Report key metrics. Easy access to detailed performance analytics that give key
insights on making inventory and overall business decisions going forward.
 Innovation driven. Retail is changing at a rapid pace and so it’s good to get on board
with software that is going to evolve and change with the industry.

Finding the right software

The above features are foundational pillars to consider with any inventory management
system. But each business’ requirements can be slightly different.

It’s worth making a note of any and all specific required features and then narrowing
software options down to only those that provide what’s on the list. For example, something
like integrated barcode scanners may be an optimal feature for businesses with large
warehouses.

4 Ways in Which Inventory Management Affects Financial Statements

1. The Income/Profits:

If there are any errors in calculating inventory, there would be cascading effects on
COGS, profits and income. There are several reasons why your inventory might be
inaccurate. Some instances include breakage during transit, not adding returned
goods to inventory and old goods which might have to be sold at a discount. In all
such cases, you need to adjust your inventory to an accurate value. Understand that
using LIFO will have higher COGS and would be more representative of the
current economic reality. Hence, profitability will be more accurate, making it a
better indicator for forecasting.

Adjusting inventory cannot be an annual affair. This should be done more often so
that there are no major changes to the inventory value during the time of change.
For this, companies often use an inventory reserve account, where obsolete or
unusable inventory is recorded as a percentage of the inventory value. The
inventory reserve account is a balance sheet account and would have a negative
balance. If you pit it against the inventory account, you would get an accurate idea
of your inventory.

2. Cash Flows:

If a business uses FIFO when prices are rising and inventories are also rising,
COGS would be low and net income would be higher. As a result, the company
would have to pay higher taxes. This would result in a lower cash flow for the
firm.
 3. Balance Sheet:

Change in inventories and incorrect inventory balances affect your balance sheet,
the financial statement that is a snapshot of your company’s worth based on its
assets and liabilities. An incorrect inventory balance can result in inaccurate
reported value of assets and owner’s equity on the balance sheet. However, it does
not affect liabilities.

4. Working Capital:

Since working capital is defined as current assets minus current liabilities, when
inventory goes up in the income statement, the working capital would also go up.

In conclusion, it is important to ensure that the inventory shown in your financial statement is
accurate. Understand that keeping your inventory from being too high or too low can help
you to make better financial forecasts.

UNIT III

MANUFACTURING SCHEDULING

Manufacturing scheduling has become a must for manufacturing operations that wish to take
their production facility to the next level. Production scheduling is the allocation of resources,
events, and processes to create goods and services.A business can adjust its production
scheduling based on the availability of resources and client orders. The goal of a production
schedule is to adequately balance customer needs with the resources that are available whilst
operating in a cost-effective manner.

4 Components of Production Scheduling

The four components of production scheduling include the following:

 Planning - The planning component of production scheduling is by far the most important.
The planning component pertains to deciding in advance what should be done in the future -
which is the most crucial step in production scheduling. Without a plan, production
scheduling can not even begin or take place. Preparing a plan through charts, production
budgets, or various others visual representations can provide a sound basis for steps down the
road pertaining to production.
 Routing - Production routing is the process that pertains to determining the route or path that
a product must follow. This route entails the path from raw materials until it transform into a
finished product. The main objective of this component is to locate and perform the most
economical and enhanced sequence of operations in the production process.
 Scheduling - Scheduling coincides with the time and date that the operation must be
completed. Scheduling is an essential and crucial portion of production scheduling and lays
the foundation and groundwork for all of the steps within the production process. There are
three types of scheduling that an operations utilize, such as master scheduling, manufacturing
or operation scheduling, and retail operation scheduling. Overall, scheduling is key for a
manufacturing operation to proceed.
 Dispatching - Dispatching relates to the process of initiating production with a preconceived
production plan. Dispatching is concerned with giving a practical shape to an overall
production plan. This will also include issuing any orders and instructions and other
important information pertaining to production.

Advanced planning and scheduling software (APS) utilizes the four components of
production scheduling and can provide thorough insight within your manufacturing
operation.

Advanced Planning and Scheduling (APS)

Advanced Planning and Scheduling (APS) software has become a must for modern-day
manufacturing operations due to customer demand for increased product mix and fast
delivery combined with downward cost pressures. APS can be quickly integrated with a
ERP/MRP software to fill gaps where these system lack planning and scheduling flexibility
and accuracy. Advanced Planning and Scheduling (APS) helps planners save time while
providing greater agility in updating ever-changing priorities, production schedules, and
inventory plans.

 Create optimized schedules balancing production efficiency and delivery performance

 Maximize output on bottleneck resources to increase revenue
 Synchronize supply with demand to reduce inventories
 Provide company-wide visibility to capacity
 Enable scenario data-driven decision making

Implementation of Advanced Planning and Scheduling (APS) software will take your
manufacturing operations to the next level of production efficiency, taking advantage of the
operational data you already have in your ERP.

7 Manufacturing Scheduling Strategies

1) Forward Incremental
Forward incremental planning (FIP) is a manufacturing scheduling strategy that proceeds
forward along the production line from the initial receipt of the order and chronologizes the
operations needed to fulfill that order.
The main drawback of forward incremental planning is that it disregards actions already in
progress. So, if you have a resource that is already occupied on another order, then this
strategy overlooks that information.

2) Backward Incremental
Think of backward incremental planning (BIP) as the opposite of FIP. A backward
incremental planning strategy works backward from the due date and establishes the steps
necessary to complete production.
Think of a bakery that receives an order on Monday for pickup Friday afternoon. The order
needs to be fresh Friday afternoon, so the baker plans to mix everything up Friday morning.
That’s backward incremental planning in a (very simplified) nutshell.

3) Chase
Chase strategy is all about fulfilling the demands of the market. You set your production to
match orders without any leftovers.
With chase strategy, you minimize your inventory and keep the input costs low until a client
places an order. Chase strategy is common in companies that don’t have a lot of expendable
income, a typical small manufacturer, or those that deal in perishable items.

4) Infinite Capacity Planning

With infinite capacity planning, you attempt to manually match the volume you’re able to
produce with the demand, so your production line contains no downtime or bottlenecks.
This strategy is often employed when using pen-and-paper, or in simplistic planning
software.
The biggest downside is that you must manually make sure that you do have all the resources
available for the planning period, which is a big possibility for human-error, especially with
complex products.

5) Finite Capacity Planning

Opposite to infinite capacity planning, with finite capacity planning, you have a software
system that matches the planned production capacity for each day with the actual volume that
you’re able to produce.
Capacity planning – as its name suggests – revolves around capacity to achieve efficiency
and profitability.

6) Make-To-Stock
A make-to-stock strategy is a strategy that considers the cyclical demands of the market and
the end user and adjusts production accordingly.
Many manufacturers use a make-to-stock strategy when they roll out a new product. They
make enough to fill retailer’s shelves so that end users can access the product quickly and
easily without delay. This type of production helps keep demand stable. That, in turn, makes
it possible to be more consistent with your output.
A commonly used strategy, which is a variation of the make-to-order, is the “level” strategy
which aims to produce the same number of units regardless of fluctuating demand.
Here’s an example of level production for a hypothetical pen factory:
 Maximum production is 20,000 units per month.
 Peak demand is 30,000 units per month.
 During peak periods, the factory wouldn’t be able to produce enough units to meet demand.
Instead, using a level manufacturing scheduling strategy, managers set production at 15,000
units per month throughout the year (instead of reducing and increasing production at various
times) in preparation for peak season.

7) Make-To-Order
The make-to-order manufacturing scheduling strategy is common among smaller, more agile
production facilities. They have the ability to run more customized “bespoke” items to meet
demand.
A restaurant is a prime example of a make-to-order manufacturing strategy. They hold their
ingredients in inventory until a customer places an order. Then they make the item (a small
manufacturing run) according to each customer’s requirements.
These are just a few of the many manufacturing scheduling strategies that you can implement
in your facility.

How Is Manufacturing Scheduling Performed?

Likely, your best manufacturing scheduling strategy is a hybrid of several strategies
presented above. For example, if you combine Backward Incremental Planning with Finite
Capacity Planning you effectively have an accurate solution for scheduling manufacturing
operations for Just-In-Time for delivery.
The best way to plan your production operation is with manufacturing scheduling
software (MRP software for short). Yes, you could use pen and paper, but that’s like getting
rid of the automation in your facility and going back to the assembly line of the early 1900s.
MRP software, for example, provides accurate automatic planning that results in a practical
and efficient production schedule. It also, among many other features, might allow you to
reschedule dynamically by dragging and dropping manufacturing orders and operations in
calendars or Gantt charts. These powerful time-saving tools mean the difference between a
well-organized, cost-effective production line, and a chaotic, unprofitable one.
Manufacturing Scheduling & Production Planning Software
Manufacturing Scheduling and Production Planning Software Modules to Help You
Meet Customer Demands On-Time, Every-Time
The IQMS Manufacturing Scheduling and Production Planning software modules go
beyond just production scheduling. The powerful and flexible system is updated in real time
from events occurring throughout the supply chain as well as within the Manufacturing
software and ERP software system to help you quickly and efficiently adopt to fluctuations in
customer demands and meet delivery requirements.
The IQMS Production Scheduling software incorporates all requirements and and delivery
demands together with transactions entered externally through the Internet and internally
through any of the integrated EnterpriseIQ ERP software modules. This information is
analyzed to determine the optimal schedule that meets your customer demands as well as
your lean business objectives. Bringing your organization:

 Demand driven, on-time delivery

 Accurate and timely production planning
 Optimized use of available resources (material, labor, equipment, etc.)
 Reduced cycle times
 Minimized inventory costs
 Maximized plant floor throughput

Powerful Production Scheduling and Planning Software Modules

Capable to Promise -- A powerful "what if" capability encompasses the entire production
process to determine availability of required raw materials, purchased parts, manufacturing
time and more required to complete the required order.
Forecasting and Production Planning -- Real-time integration with order entry and sales
modules allows for collaborative forecasting based on real-time data from throughout the
enterprise.
Material Requirements and Resource Planning (MRP) -- The EnterpriseIQ MRP engine
accurately and effectively manages all resources necessary to meet manufacturing demand,
while maintaining lean inventory levels. It includes items manufactured internally and
through third party vendors, as well as sub-assemblies.
Master Production Schedule (MPS) -- Defines all resources and costs required to meet the
manufacturing demand (forecast, sales order, and dependent), current work orders (firm,
generated, manual) and projected on hand balances (availability), converting the data to a
production plan.
Advanced Planning and Scheduling System -- The flexible scheduling module executes the
plans and allows real-time adjustments to allow for unplanned events while ensuring optimal
throughput through the enterprise.
With IQMS' Manufacturing Production Scheduling and Planning software modules, you can
now easily maintain customer satisfaction while ensuring conformance to plans and
profitability across the enterprise.

MANUFACTURING FLOW SYSTEM

When a manufacturing company begins production of a new material, it has a choice as to

the manufacturing process it uses. The type of process depends on the facility, the staff, and
the information systems available. Each process has its advantages and some are best at
certain tasks, for example, large batches of finished goods, or small numbers of custom items.
When the decision is being considered about which manufacturing process to use, there are a
number of questions that should be asked; what are the volumes to be produced, what are the
requirements to make the product, and does the company manufacture a similar product?

There are a number of basic manufacturing processes that they can select from; production
line, continuous flow, custom manufacturing, and fixed position manufacturing.

Production Line

A production line is a traditional method which people associate with manufacturing. The
production line is arranged so that the product is moved sequentially along the line and stops
at work centers along the line where an operation is performed. The item may move along
some kind of conveyor, or be moved manually by staff or forklift. For example, operations
along the production line could include assembly, painting, drying, testing, and packaging. If
needed, some parts can be removed from the production line and stored as semi-finished
goods.

The production line manufacturing process is very suited to high volume manufacturing of a
single product or product group. For example, a production line may be used to manufacture
a range of vacuum cleaners, where the only difference between the models is the color of the
plastic assembly and the attachments that are included in the final product.

There are disadvantages to using the production line manufacturing process. The fact that the
production line manufactures a single product or similar products limits its ability to
manufacture anything else. For example, if the company manufacturing vacuums wanted to
make kitchen mops, it would not be able to use the same production line. The second issue
with production lines is that there is a high cost involved in the initial setup of the production
line and it requires a large volume of goods to be produced to justify the capital investment.

Continuous Flow

The continuous flow manufacturing process is similar to the production line, but the products
that are manufactured cannot be removed from the production line and stored, but require to
have been through each process. For example, materials that are suited to continuous flow
include chemicals, pharmaceuticals, and plastics. The continuous flow process is more
inflexible than a production line as it does not allow for other materials to be produced on the
line without significant changes and the cost involved.

Custom Manufacturing

If a company manufactures a wide range of products that can be modified based on the
customers' requirements, then a custom manufacturing process is a good fit. The custom
manufacturing facility has a number of skilled employees and a range of equipment that can
be used to manufacture and modify a wide range of items. The facility should be set up with a
number of dedicated areas such as a welding area, lathe shop, paint spray area, and packaging
area. The custom manufacturing facility is not designed for high volume products but is ideal
for customized products.

Fixed Position Manufacturing

Fixed position manufacturing is different from other manufacturing processes as it involves

the finished product not moving from its fixed position from the beginning to the end of the
process. This is the method used in large-scale manufacturing such as the manufacture of an
aircraft or ship but is also used for products that are being constructed in place for the
customer, such as a conveyor system.

Flow line manufacturing

Flow line manufacturing is used to manufacture high volumes of products with high
production rates and low costs. Separate dedicated flow line is created for each product.
Dedicated machines are used to manufacture the products at high production rates. These
machines are generally expensive. A large volume of the products must be produced in order
to justify the cost of such expensive machines. Flow line manufacturing is most suitable to
manufacture high volumes of products continuously. Flow line manufacturing is used in such
industries where raw materials are fed at one end and finished products are produced
continuously at the other end. Thus flow line manufacturing is utilized in mass production
industries. Flow line manufacturing is shown in figure 1. Flow line layout is also called a
product layout.
 Figure 1: Flow line manufacturing

Advantages of flow line manufacturing are as per the following.

1. Smooth and logical flow of materials

Smooth and logical flow of materials are achieved in flow line manufacturing because
dedicated machines are used to manufacture the products at high production rates and
separate dedicated flow line is created to manufacture each product.

2. Simplified production planning and control

Manufacturing operations are simple in flow line manufacturing which simplify production
planning and control. Scheduling jobs, controlling materials and performing machines
operations become very simple in flow line manufacturing.

3. Reduced material handling cost

Material/parts are moved within small areas during manufacturing process. Machines are
ready to accept a job during various stages of manufacturing, almost no need to store and
protect materials between two machines. Status & location of materials are easy to track and
control. Thus cost of moving, storing, protecting and controlling materials becomes low in
flow line manufacturing which ultimately reduces material handling cost.

4. Shorter production lead time

Waiting time is minimal for each part during manufacturing process in flow lines and flow of
materials is uninterrupted. This causes shorter production lead time and high production rates
in flow line manufacturing.

5. Small amount of work in progress inventory

Amount of work in progress inventory is small in flow line manufacturing because of shorter
production lead time.

Disadvantages of flow line manufacturing are as per the following.

1. Lack of flexibility
Major drawback of flow line manufacturing is lack of flexibility to manufacture products for
which they are not designed. This drawback is inherently present in flow line manufacturing
because dedicated machines are setup to execute limited operations and they are not allowed
to be reconfigured. Flow line manufacturing is not suitable in such cases where variety of
products to be manufactured changes frequently.

2. High investment in machines and equipments

Similar machines are not grouped together in flow line manufacturing. High investment in
machines and equipments is required and capacity of machines is not fully utilized because of
duplication of machinery inherently present in flow line manufacturing.

3. Lack of specialization in supervision

Manufacturing processes are executed in one line and different types of machine are installed
in one line. In job shop manufacturing, a supervisor is supposed to have the specialized
knowledge about his/her departmental activities, machines and processes. But in flow line
manufacturing, a supervisor is supposed to have detailed knowledge of all the machines,
processes and activities causing lack of specialization in supervision.

4. Work stoppage because of breakdown

If one machine in the flow line fails then other machines in that flow line stops functioning
and thus manufacturing process will be stopped.

Work flow automation

Work flow automation is a created series of automated actions for the steps in a business
process. It is used to improve everyday business processes because when your work flows,
you can concentrate on getting more done and focusing on the things that matter. It allows
teams to spend more time on the actual work itself and less time on the processes that support
them.

Businesses that create workflow automation are more efficient, save time and money, and
minimize the likelihood of errors. There are many benefits to implementing workflow
automation, so here are the top five reasons you should begin:

The Top 5 Benefits of Workflow Automation

1. Streamlines communication
One of the biggest benefits of workflow automation is that it improves internal
communication. This reduces the rate of employee turnover because one of the biggest
reasons employees leave an organization is a lack of communication with management.
Because you are automating workflow you also automate communication, because no one
has to remember to tell the next person it’s their turn to do something.
The best way to create an automated process is to get everyone involved in that process
together. Then you can begin creating a process map and visualize where the process begins
and ends and what role each person in that process.

2. Creates accountability
By automating workflow you effectively create one person who is responsible for every part
of the process. For each step in the process, there is one person designated to perform a
specific action. By doing this you are creating a system of accountability, where everyone
knows what specific tasks they are responsible for. This also reveals which tasks take the
most time to complete and where the process seems to get held up the most frequently.

By creating workflow automation, everyone knows what person is responsible for what task
and everyone is clear on what needs to be accomplished at any given point. And workflow
automation enables you to make better future decisions to create more effective processes and
divide out work accordingly.

3. Reduces costs and error

Workflow automation reduces errors because it keeps necessary tasks from going unnoticed.
Because every person involved in the process is held accountable for their specific role, no
one can make the excuse that “no one told me!” Workflow automation also saves companies
from costly expenses associated with employee errors and it can cut costs on administrative
labor as well.

4. Empowers employees to manage their own time

Workflow automation ensures every employee knows their expected role and what they are
responsible for. Now management will know immediately if their tasks are not completed on
time. No longer will supervisors have to manage every employee or spend time checking on
their progress. Workflow automation allows management to look at the overall workflow
process and view everything within the context of the bigger picture.

5. Creates more workplace efficiency

By creating customized workflow automation, you can assign approval responsibilities to
anyone within the company, no matter what current reporting hierarchy is in place. No longer
does management have to intervene in every task.

When Should You Consider Workflow Automation?

Workflow automation is the best way to achieve tasks in an efficient manner. It produces
more consistent and accurate results every time.

Businesses should consider workflow automation when there is a repetitive series of tasks to
implement. Often these tasks are managed with paper files, spreadsheets, or email. By
creating workflow automation, this process will become streamlined and removes the risk of
human error.

Workflow automation gives you a better picture of the different tasks and makes it easier to
identify areas for improvement and increases overall productivity. Now the question
becomes, what are the steps involved in implementing workflow automation?
Steps for Workflow Automation

Before implementing workflow automation, management must identify what areas

need workflow improvement. The ideal way to do this is by making a visual representation of
the current workflow by using flow diagrams. This will give you a better understanding of
your current business workflow and will help you identify repetitive tasks. Now you can
create workflow automation that will improve and simplify the existing workflow.

After you have identified the problem, the next step is to clearly define your business goals.
And then you need to explain how your business goals will be achieved by creating workflow
automation and what process you will use to measure them.

Now it is important to decide on the means to the end. What process do you want to use to
achieve the established business goals? This will be the step where you select what workflow
automation process you will use. An ideal workflow is simple, user-friendly, and easily
adaptable by all users.

The next step is to train employees on how to use the new workflow software. In any
company, new changes are often met with resistance so it is important to involve employees
right from the beginning and explain to them how this software will help them. By giving
employees a clear path of transition from the current process to the new system and providing
necessary training, this transition should be a much smoother process.

Once these steps are completed, you should be up and running on your new workflow
system. Continuous monitoring and assessment of your new process will be necessary to
work out bottlenecks and identify areas for improvement.

Conclusion

By utilizing workflow automation, companies can reduce the number of manual tasks
performed by employees, which frees them up to work on more important work. This allows
more work to get done in a shorter amount of time and will likely boost employees morale
and increase overall productivity.

Workflow automation helps companies achieve more consistent results. By automating an

area, companies reduce the risk of mistakes and this allows them to create higher quality
products with fewer increases in costs and time. Workflow creates processes which have the
potential down the road to bring in more revenue with fewer expenses.

Workflow automation is technology that uses rule-based logic to automate manual work, like
data entry and lead nurturing. By leveraging self-operating processes that run manual tasks,
workflow automation can help your business save time and money, diminish errors, and
boost productivity.

Almost every department in your business can benefit from workflow automation. Whether
it’s marketing, human resources, or finance, here’s how the technology can help you work
smarter, not harder.
Marketing

Some of Marketing’s most repetitive tasks, such as sending emails and posting social media
updates, can be automated with workflow automation. With marketing automation software,
you can set up workflows that nurture certain types of prospects with email offers, and
schedule your entire social media calendar.

Human Resources

Instead of having to manually enter all your new hires’ personal information, like addresses,
social security numbers, and other employee information into payroll, expense, and insurance
systems, HR automation software can do it for you in minutes.

Finance

By allowing you to build forms, design workflows, and track processes, finance process
automation software can streamline all your travel requests, reimbursements, and budget
approvals.

5 of the Best Workflow Automation Software for 2019

1. Nintex

With over 3 million workflow applications operating on their platform right now, Nintex
helps more than 8,000 enterprise customers manage, automate, and optimize their business
processes, with no coding experience required.

By offering a multitude of workflow automation tools -- like process mapping, advanced

workflows, and process intelligence -- your business is able to map out each of your
processes, execute them, and monitor their performance.
2. KiSSFLOW

Trusted by over 10,000 companies, including Domino’s, Michelin, and Pepsi, KiSSFLOW
offers an all-in-one workflow automation software that lets your business create workflows
that automate tasks in your human resources, sales, finance, administration & facilities,
marketing, and purchase departments.

With over 50 pre-installed business process management apps, such as expensing and sales
orders, the ability to customize your workflow with conditions and triggers, and a reporting
dashboard for your workflows, KiSSFLOW can streamline almost all your business
processes.
3. Integrify

Integrify is a workflow automation software that lets you build workflows in a drag-and-drop
builder and run parallel or sequential flows. By being able to collaborate on tasks and
requests, test your processes, and set up reminders, you can easily streamline your business
processes and automate manual tasks.

Integrify also offers workflow examples and a user knowledge base, a rest-based open API
that allows you to integrate with external databases, and the ability to import and export data
from Excel and even PDFs.
4. Zapier

With the ability to connect to and share data with over 1,000 web apps, like Facebook,
QuickBooks, and Google Drive, Zapier can automate almost any type of business process.
All you have to do is build a workflow in their editor, pick the apps you want to include in
your workflow, and design it.

For example, if you want to be able to save all your attachments in Dropbox, you can design
a workflow that automatically copies any attachment from your Gmail inbox to Dropbox and
then sends you a Slack message about the download.
5. Flokzu

Without writing any code, Flokzu allows you to create tasks, deadlines, business rules, and
notifications. Their software also sends pending tasks to each of your project’s assignees’
inboxes, and as each stage of a workflow is complete, it’ll automatically assign each new task
to a user or role.

Additionally, Flozku offers a reporting dashboard that displays your business processes’
performance and metrics, like the amount of currently delayed tasks there are, tasks assigned
to each user and role, tasks completed, and the time each task took, which will give you the
necessary data to refine and optimize your future workflows.

FMS model

The FMS in our model consists of n machine tools (M1, M2, …, Mn); each of these
machine tools will be located in one of the stations (S1, S2, …, Sn) as shown in the figure
Figure 1. FMS model.

The assumptions to define the FMS of this research are summarized in the following
points:

1. The products enter and leave the production system through load/unload station.
2. The times including processing setup, loading, uploading, and so on for all parts are
defined and well known.
3. The machine tool can perform one operation at a time.
4. Tool changing time is included in the processing time.
5. Once the operation is started, it cannot be divided.
6. The machine tool stops after producing specific number of parts to check the quality.

MATERIAL HANDLING

Material Handling is the movement, storage, control and protection of materials, goods
and products throughout the process of manufacturing, distribution, consumption and
disposal. The focus is on the methods, mechanical equipment, systems and related
controls used to achieve these functions. The material handling industry manufactures and
distributes the equipment and services required to implement material handling systems.
Material handling systems range from simple pallet rack and shelving projects, to
complex conveyor belt and Automated Storage and Retrieval Systems (AS/RS). Material
handling can also consist of sorting and picking, as well as automatic guided vehicles.

Material handling is the function of moving the right material to the right place in the
right time, in the right amount, in sequence, and in the right condition to minimize
production cost.

A material-handling system can be simply defined as an integrated system involving such

activities as handling, storing, and controlling of materials.  The word material has very
broad meaning, covering all kinds of raw materials, work in process, subassemblies, and
finished assemblies.

Objectives
Main objective is to reduce the number of handlings as well as the overall cost of material
handling equipment and reducing the distances through which the materials are handled.
1) Reduced Costs 2) Increased Capacity 3) Improved Working Condition 4) Value
Addition to Products In brief, the primary objectives of Material Handling are;
1. To save money
2. To save time
3. To save men

The primary objective of using a material handling system is to ensure that the material
in the right amount is safely delivered to the desired destination at the right time and at
minimum cost.
The material handling system is properly designed not only to ensure the minimum cost
and compatibility with other manufacturing equipment but also to meet safety concerns.
The cost of MH estimates 20-25 of total manufacturing labor cost.
Other Objectives
 Lower unit material handling costs
  Reduction in manufacturing cycle time through faster movement of materials and by
reducing the distance through which the materials are moved. Reduction in manufacturing
cycle time results in reduced work –in – progress inventory costs.
 Improved working conditions and greater safety in movement of materials
 Contribute to better quality by avoiding damage to products by inefficient handling
 Increased storage capacity through better utilisation of storage areas
 Higher productivity at lower manufacturing cost

GOALS OF MATERIAL HANDLING

The primary goal is to reduce unit costs of production Maintain or improve product
quality, reduce damage of materials
Promote safety and improve working conditions
Promote increased use of facilities
Reduce tare weight (dead weight)
Control inventory
Promote productivity

 Material handling equipment includes: Transport Equipment: industrial trucks,

Automated Guided vehicles (AGVs), monorails, conveyors, cranes and hoists. Storage
Systems: bulk storage, rack systems, shelving and bins, drawer storage, automated
storage systems

Importance of M H
 Efficient material handling is important to manufacturing operations. Materials sent by
vendors must be unloaded, moved through inspections and production operations to stores
and finally to the shipping department. These movements do not add value to the product
but they do add value to the cost Material handling is an integral part of any industrial
activity. With growing business, a greater emphasis is laid on productivity, profitability as
well as resource conservation and ecological preservation. Material handling plays a very
crucial role in sustaining efficiency in financial and human resources.
• Material handling analysis is a subset of plant layout. Method study, plant layout and
material handling are all part of the design of a production facility
• Material handling system and plant layout enhance effectiveness of each other.
• Efficient operation of appropriate material handling methods reduces costs and enables
maximum capabilities to be derived from a given production facility

CONSIDERATIONS IN MATERIAL HANDLING SYSTEM DESIGN

1. Material Characteristics Category Physical state Size Weight Shape Condition Safety
risk and risk of damage Measures Solid, liquid, or gas Volume; length, width, height
Weight per piece, weight per unit volume Long and flat, round, square, etc. Hot, cold,
wet, etc. Explosive, flammable, toxic; fragile, etc.

2. Flow rate Quantity of material moved High Conveyors Manual handling Low Hand
trucks Short Conveyors AGV train Powered trucks Unit load AGV Long Move Distance

3. Plant Layout Layout Type Characteristics Typical MH Equipment Fixed – position

Large product size, low production rate Cranes, hoists, industrial trucks Process Variation
in product and processing, low and medium production rates Hand trucks, forklift trucks,
AGVs Product Limited product variety, high production rate Conveyors for product flow,
trucks to deliver components to stations.

THE PLANNING PRINCIPLE

Large-scale material handling projects usually require a team approach.
Material handling planning considers every move, every storage need, and any delay in
order to minimize production costs.
The plan should reflect the strategic objectives of the organization as well as the more
immediate needs.

THE SYSTEMS PRINCIPLE

MH and storage activities should be fully integrated to form a coordinated, operational
system that spans receiving, inspection, storage, production, assembly…, shipping, and
the handling of returns. Information flow and physical material flow should be
integrated and treated as concurrent activities.
Methods should be provided for easily identifying materials and products, for
determining their location and status within facilities and within the supply chain.

SIMPLIFICATION PRINCIPLE
simplify handling by reducing, eliminating, or combining unnecessary movement and/or
equipment.
Four questions to ask to simplify any job:
Can this job be eliminated?
If we can’t eliminate, can we combine movements to reduce cost? (unit load concept)
If we can’t eliminate or combine, can we rearrange the operations to reduce the travel
distance? If we can’t do any of the above, can we simplify?

GRAVITY PRINCIPLE
Utilize gravity to move material whenever practical.

SPACE UTILIZATION PRINCIPLE

The better we use our building cube, the less space we need to buy or rent.
Racks, mezzanines, and overhead conveyors are a few examples that promote this goal.

UNIT LOAD PRINCIPLE

Unit loads should be appropriately sized and configured at each stage of the supply
chain.
The most common unit load is the pallet
cardboard pallets
plastic pallets
wooden pallets
steel skids

AUTOMATION PRINCIPLE
MH operations should be mechanized and/or automated where feasible to improve
operational efficiency, increase responsiveness, improve consistency and predictability,
decrease operating costs.
THE STANDARDIZATION PRINCIPLE
 standardize handling methods as well as types and sizes of handling equipment too
many sizes and brands of equipment results in higher operational cost.
A fewer sizes of carton will simplify the storage.

EQUIPMENT SELECTION PRINCIPLE

Why? What? Where? When? How? Who?
If we answer these questions about each move, the solution will become evident.

THE MAINTENANCE PRINCIPLE

 Plan for preventive maintenance and scheduled repairs of all handling equipment.
 Pallets and storage facilities need repair too.

THE DEAD WEIGHT PRINCIPLE

 Try to reduce the ratio of equipment weight to product weight. Don’t buy equipment that is
bigger than necessary.
 Reduce tare weight and save money.

THE CAPACITY PRINCIPLE

 use handling equipment to help achieve desired production capacity
 i.e. material handling equipment can help to maximize production equipment utilization.

MATERIAL HANDLING EQUIPMENT

 Industrial trucks include hand trucks such as two-wheeled, four-wheeled, hand lift, and
forklift and powered trucks such as forklift, tractor-trailer trains, industrial crane trucks, and
side loaders.
 Conveyors such as belt, chute, roller, wheel, slat, chain, bucket, t rolley, tow, screw,
vibrating, and pneumatic.
 Monorails, hoists, and cranes such as bridge, gantry, tower, and stacker.

Automated guided vehicle systems such as unit load carriers, towing, pallet trucks, fork
trucks, and assembly line.
Automated storage and retrieval systems (AS/RS) such as unit load, mini-load, person-on-
board, deep lane, and storage carousel systems.
 Flat Conveyors
 Roller Conveyors
 Wheel Conveyors
 Trolley Conveyors
 Bridge Crane
 Electricity Hoist
 Jib Crain
 Chain Hoist
 Gantry Crane

Pros and Cons of Using Material Handling Equipment

 Lessen manual labor.
 Require fast data tracking and processing.
 Less shipping errors.
 Minimal damage on goods and materials. Require reliable and fool-proof inventory
management system.
 Require more free floor spaces so that equipment can move properly.
 Buying your own material handling equipment may require you to raise bigger funds or
initial capital.
 Less shipping and production costs. Lessen employees compensation claims therefore
allows you to save more in the long run.
 Require you to set aside funds for maintenance and repair.

Factors Affecting the selection of Material Handling Equipment

 Adaptability
 Flexibility
 Load capacity
 Power
 Speed
 Space requirements
 Supervision required
 Ease of maintenance
 Environment
 Cost

Store-Keeping:
Meaning, Types, Objectives Functions and Working of the Stores!

Meaning:
After the completion of purchase procedure, the next important aspect Of materials
management is storekeeping.

A storehouse is a building provided for preserving materials, stores and finished goods. The
in-charge of store is called storekeeper or stores manager. The organisation of the stores
department depends upon the size and layout of the factory, nature of the materials stored and
frequency of purchases and issue of materials.

According to Alford and Beatty “storekeeping is that aspect of material control concerned
with the physical storage of goods.” In other words, storekeeping relates to art of preserving
raw materials, work-in-progress and finished goods in the stores.

Types:
Stores may be centralised or decentralised. Centralised storage means a single store for the
whole organisation, whereas decentralised storage means independent small stores attached
to various departments. Centralised storekeeping ensures better layout and control of stores,
economical use of storage space, lesser staff, saving in storage costs and appointment of
experts for handling storage problems. It further ensures continuous stock checking.

It suffers from certain drawbacks also. It leads to higher cost of materials handling, delay in
issue of materials to respective departments, exposure of materials to risks of fire and
accident losses are practical difficulties in managing big stores.
On the other hand, decentralised stores involve lesser costs and time in moving bulky
materials to distant departments and are helpful in avoiding overcrowding in central store.
However, it too suffers from certain drawbacks viz., uniformity in storage policy of goods
cannot be achieved under decentralised storekeeping, more staff is needed and experts may
not be appointed.

Objectives of storekeeping:
Following are the main objectives of an efficient system of storekeeping:
1. To ensure uninterrupted supply of materials and stores without delay to various production
and service departments of the organisation.

2. To prevent overstocking and understocking of materials,

3. To protect materials from pilferage, theft fire and other risks.

4. To minimise the storage costs.

5. To ensure proper and continuous control over materials.

6. To ensure most effective utilisation of available storage space and workers engaged in the
process of storekeeping.

Functions of Storekeeping:
In the light of above objects, the functions performed by the stores department are
outlined below:
1. Issuing purchase requisitions to Purchase Department as and when necessity for materials
in stores arises.

2. Receiving purchased materials from the purchase department and to confirm their quality
and quantity with the purchase order.

3. Storing and preserving materials at proper and convenient places so that items could be
easily located.

4. Storing the materials in such a manner so as to minimise the occurrence of risks and to
prevent losses due to defective storage handling.

5. Issuing materials to various departments against material requisition slips duly authorized
by the respective departmental heads.

6. Undertaking a proper system of inventory control, taking up physical inventory of all

stores at periodical intervals and also to maintain proper records of inventory.

7. Providing full information about the availability of materials and goods etc., whenever so
necessary by maintaining proper stores records with the help of bin cards and stores ledger
etc.

Working of the stores:

There are four sections in the process of storekeeping viz.
(a) Receiving section,

(b) Storage section,

(c) Accounting section, and

(d) Issue section.

These are explained as under:

(a) Receiving Section:
There are four kinds of inventories received by stores viz., (i) raw materials, (ii) stores and
supplies, (iii) tools and equipments, (iv) work-in- progress or semi-finished goods.

Following procedure is followed in receiving these inventories:

(i) Receiving these incoming materials in stores.

(ii) Checking and inspection of these incoming materials and stores etc.

(iii) Recording the incoming materials in goods received book.

(iv) Preparing and forwarding goods inwards note to purchasing section.

(v) Informing the purchase department about damaged and defective goods and surplus or
deficit supplies etc. along with rejection forms and notes.

(vi) Returning damaged or defective goods to the suppliers in accordance with the
instructions of the purchase department.

(vii) Forwarding the materials to respective stores and locations where these are to be stored
or preserved.

(b) Storage Section:

The store room should be located at a convenient and appropriate place. It should have ample
facilities to store the materials properly viz. bins, racks and shelves etc. There can be a single
store room in case of a small organisation, but a large scale concern can have different or
multiple stock rooms in addition to general or main store.

The separate stockrooms may be used for different classes of inventories. The material should
be stored in such a manner as to protect it against the risks of damage, destruction and any
kind of loss. Each article should have identifying marks viz., stamping, embossing, colour,
coding and painting etc. These risks are very useful in locating or identifying an article in the
stores.

(c) Accounting Section:

This section is concerned with keeping proper records with regard to receipt and issue of
materials. The primary task of this section is to undertake the process of inventory control.
(d) Issue Section:
The materials should be issued to respective departments on receiving duly authorised
requisition slips. An entry should be made immediately on the bin card attached with the bin
from where the material has been issued.

Bin cards contain valuable information with regard to receipt and issue of materials, which is
greatly helpful in exercising a system of inventory control. These cards are further helpful in
determining various levels of materials viz., maximum, minimum, and re-ordering level.

Definition
A simple definition of a warehouse is:
‘A warehouse is a planned space for the storage and handling of goods and material.’ (Fritz
Institute)
In general, warehouses are focal points for product and information flow between sources of
supply and beneficiaries. However, in humanitarian supply chains, warehouses vary greatly
in terms of their role and their characteristics.

Global Warehouses
The global warehousing concept has gained popularity over the last decade as stock pre-
positioning becomes one of the strategies for ensuring a timely response to emergencies.
They are usually purpose built or purpose designed facilities operated by permanent staff that
has been trained in all the skills necessary to run an efficient facility or utilising third party
logistics (3PL) staff and facilities. For such operations, organisations use, information
systems that are computer based, with sophisticated software to help in the planning and
management of the warehouse. The operating situation is relatively stable and management
attention is focused on the efficient and cost effective running of the warehouse operation.
Numerous organizations have centralized pre-positioning units strategically located globally.
Some of these offer extended services to other humanitarian organizations on a cost plus
operating charges basis. The United Nations Humanitarian Response Depot
(UNHRD) Network.

Field Warehouses
Field Warehouses are usually temporary in nature. They may be housed in a buildings which
was not designed to be used as a warehouse, in a temporary building/structures, and are
often in mobile units (rub halls, Wiikhalls) that are little more than a tent in a field. The initial
staff may be a casual workforce that has never worked in a warehouse before and the
inventory system is more likely to be paper based. Often the situation is initially chaotic,
sometimes dangerous and coupled with a humanitarian need which may be very urgent. The
management style must therefore be practical and action oriented with a focus on making the
humanitarian goods available as quickly and efficiently as possible, while being accountable
at the same time.

Policies and Procedures

Policies
 The policies contain hard and fast rules and regulations that define the general conduct of the
warehouse operation. Examples of the types of policies that organisations will define are as
follows:

 organisational specific warehouse management policy and procedures guideline outline

 health and safety
 human resources management
 security
 pest control
 warehouse maintenance and cleaning
 quality control
 record keeping and reporting
 reverse logistics – Return of goods and exit strategy in the event of downscaling or shutting
down operations
 disposal of obsolete and damaged goods.

Procedures
The procedures' document defines step by step how the activities in the warehouse should be
carried out and clearly defines the processes to be adopted. These can be adopted as ‘best
practice’.
The procedures provide visibility of the operations for managers and donors.
However, in creating such procedures, care must be taken to avoid constraining the use of
local initiative which might be required to deal with local conditions. Procedures should be
considered as streamlining the business processes and providing checks and balances. They
provide guidance to warehouse managers and must have some level of flexibility to cater to
unique situations. This can be achieved by limiting the level of detail that the procedures
document defines, allowing more flexibility and/or by arranging ‘dispensations’ to allow
departure from the procedures in order to optimise local performance, especially in
emergencies.
The procedures will normally provide the step by step guidance on how to manage each
aspect of warehousing and may cover:

 receiving and issuing of supplies;

 quality control or verification;
 storage of goods;
 how to control stock movement (stock control);
 documentation flow;
 how to detect and deal with stock losses;
 how rejected material will be managed; and
 how to deal with unwanted material, obsolete and scrap, disposal.

See also a Warehouse Rental Contract sample.

Types of Warehouse Space

 Commercial: in rented building used for business.

 Government or state: such as at the ports or harbours. This is common in emergency
situations.
 Transit: for temporary storage of goods destined for different locations and need storage for a
very short time.
 Bonded warehouses: for storage of goods whose duty is unpaid and especially where the
goods are destined to another country. Pre-positioned stock is often held in bonded
warehouses so that export is quick and can sometimes be stored for long periods.
 Open storage: not ideal for perishable products but in emergencies, sometimes the only
alternative.
 Space that is owned and managed by the organisation.
 Pre-fabricated warehouses where there are no permanent structures available. This is
common practice in emergencies.

Basic Principles of Warehouse and Inventory Management

 Planning inbound receipt procedures.

 Storage formalities e.g:
 location management
 inventory control
 occupational health and safety
 Outbound delivery procedures.

See Inventory Management Guidelines and refer to the Annexes for different
samples: Perpetual Inventory form, Stock Count Report form, In/Out Stock Report form.

How to Select and Set-Up a Warehouse

Determining Needs
In determining needs, one should look beyond the basic need of a warehouse to store things.
Whilst, this is correct there are also other considerations.

 the volume of goods;

 speed of through-put required;
 as a transit point;
 breaking bulk location;
 an area for sorting and consolidating different goods;
 to enhance the speed of the response;
 to protect and account for inventor; and
 as a buffer in the event of a break-down or delay in the supply pipeline.

Determining Storage Requirements

Selecting a Suitable Location
There are a range of factors to consider when deciding on the location of a new warehouse
facility and these may vary depending on whether you are selecting a location for a
temporary building or selecting from one of a number of existing buildings.
These may include:
 proximity to ports of entry and beneficiaries
 existing buildings
 security
 the context
 site condition
 access
 services
 land size available
 purpose of warehouse
 previous use of the facility
 floor weight
 access to labour

Warehouse Selection
Factors to consider:

 nature and characteristics of goods to be stored;

 nature of handling equipment available;
 duration of storage needed i.e. short term or long term;
 the need for other activities, e.g. repackaging, labelling, kitting, etc;
 access and parking for vehicles;
 number of loading docks required; and
 secure compound.

Warehouse Preparation Planning

Space layout
The areas that should be planned are both the general storage areas and the areas for goods
receipt, consignment picking and goods dispatch. It is also desirable that space should be set
aside for the following activities:

 equipment maintenance and parking;

 charging of equipment batteries such as pallet trucks;
 refuelling of trucks;
 an area for garbage disposal e.g. empty packaging;
 a quarantine area for keeping rejected goods, goods to be sent back or destroyed;
 an employee rest area;
 washroom; and
 an administration office.

Planning
It is worth keeping these requirements in mind during the planning of the main operating
areas. Planning consideration needs to be given to the following:

 allocate space for each type of product and locating number;

 allow sufficient space for easy access to the stacks for inspecting, loading and unloading.
Stacks should be one meter from the walls and another meter between stacks;
 sizing the goods receipt and despatch area;
 allow space for storage of cleaning materials and supplies;
 allocate areas for damaged items by consignment number;
 allow sufficient space to repackage damaged items and place it in separate stacks;
 sufficient free space is needed to operate a warehouse effectively. When planning the size of
a warehouse consider:
 planning on having about 70-80% utilisation of available space, whilst considering:
 throughput rate
 number of stock keeping units (SKU)
 handling characteristics of items, etc.
 See Stacking guide in the Annexes.

How to calculate warehouse storage space.

Special storage needs
Some relief items require special attention in terms of the type and security of the storage
area. For example:

 Medical supplies and drug shipments can contain a large number of small, highly-valued and,
often, restricted items, many with a limited shelf-life. Thus, a secure area is required, as well
as judicious attention to expiry dates.
 Hazardous products such as fuels, compressed gases, insecticides, alcohol, ether and other
flammable, toxic or corrosive substances must be stored separately, preferably in a cool,
secure shed in the compound but outside the main warehouse.
 Antibiotics and vaccines may require temperature-controlled cold storage arrangements, with
sufficient capacity and a reliable, as well as a back-up, power source.
 With combustible items, such as alcohol and ether, specific attention is required when storing
and handling. Inventory management techniquesneed to be implemented to prevent wasteful
surpluses and to ensure proper stock rotation to avoid costly losses due to expired goods.
Procedures for controlling, preserving and releasing medical supplies and drugs should be
established in consultation with the medical experts.

Space utilisation and handling

 Diagram 1: Space utilisation
As shown above, the warehouse operation is composed of four key work activities:

 goods receipt
 storage
 picking
 goods dispatch

To estimate the resource requirement for the whole warehouse, one should start by estimating
the requirements for each of the key work activities in turn and the level of demand. Then,
the resource requirements for all activities should be combined together, taking into account
the way that the activities are phased during the working day, in order to make an estimate of
the total resources required.

Aspects to consider when managing Warehouse Operations

 planning the workload

 allocating resources
 space utilization & handling, (see the diagram above):
 receiving goods;
 storing goods.
 assembling consignments
 despatching consignments
 disposal of goods
 pest control
 security
 inventory management
 handling and stacking techniques
 occupational health and safety

Managing Inventory Levels

It has been established that the role of inventory management is to ensure that stock is
available to meet the needs of the beneficiaries as and when required.
Inventory represents a large cost to the humanitarian supply chain. This is made up of the
cost of the inventory itself, plus the cost of transporting the goods, cost of managing the
goods (labor, fumigation, repackaging, etc) and keeping the goods in warehouses. The
inventory manager's job is to make inventory available at the lowest possible cost.
In order to achieve this, the inventory manager must ensure a balance between supply and
demand by establishing minimum holding stocks to cover lead-times. To achieve this, the
inventory manager must constantly liaise with the programs to keep abreast of changing
needs and priorities. The warehouse must always have sufficient stocks to cover the lead-time
for replacement stocks to avoid stock-outs.
Inventory Control
There are two methods of inventory control that are applicable to emergency situations:

1. reorder level policy

2. reorder cycle policy.

Both are applicable to humanitarian situations and have associated pros and cons. Note that
economic order quantity (EOQ) in practice only works in a fairly stable environment where
demand variability and replenishment lead-time are reasonably stable and predictable. This is
not the case in an emergency. Economic order quantity is applicable in more stable
environments such as refugee camps and perhaps later in a relief/recovery phase.
Inventory management in an emergency is more ‘project based’, matching supply with
demand in a rapidly changing environment. This requires building a supply chain that has a
high level of flexibility and adaptability, with rapid identification of need and rapid fulfilment
of that need through the supply chain.
In managing this sort of system, inventory should be considered in relatively small quantities
(inventory packages of associated relief items) that are attached (pegged) to an identified
need then moved (and tracked) through from source to the identified need (the user).
Optimisation comes from having logistics systems that can configure, procure and
consolidate these packages quickly and a distribution chain that is flexible and can adapt to
changing requirements quickly and at least cost.
Information systems that facilitate transparency of the supply chain inventory levels, location,
and demand provide the necessary visibility to facilitate good planning and effective
decisions that maximise services and reduce costs.
 Stock control and movements
The warehouse/inventory manager is responsible for monitoring the movement of goods as
they are transported from the supplier and for the control of stock movement in the
warehouse facility.
The vital stock control measurements include:

 establish levels of operating stocks based on consumption/rate of usage. The stock levels
shall be reviewed from time to time depending on current needs. (See “Inventory control
above);
 ensure that weekly and monthly stock balances reports of each stock item and the total value
are prepared;
 maintain monthly stock usage report of each item kept in the store and the overall in the
usage trend in last six months;
 review and report on six monthly basis slow moving items indicating the last movement date
the unit value and total value and liaise with user department;
 establish quantity, lead -time and availability of each item supplied on the market;
 keep a record of all non- stock items received from suppliers, returned to suppliers and issued
out to users.

See monthly inventory report and stock report.

Monitoring Goods in Transit

 order lead time

 tracking orders for goods
 controlling stock movements:
 establishing minimum stock levels and monitoring the same;
 goods receipt quality inspections;
 physical stock control in the warehouse;
 controlling Specialised Items; and
 releasing stock from storage and goods despatch.

To facilitate and account for movement of stocks the following documents could be used:

 delivery notes or waybill samples 1 and 2 or packing list samples 1 and 2;

 goods received notes, see several samples 1, 2, 3, and 4;
 stock card;
 bin card; and
 consignment notes.

See in the Annexes the warehouse flow chart.

Stock Records - Documentation

 stock identification
 stack cards, see samples 1 and 2
 bin cards
 stock Checks: see inventory section for different samples or in the Annexes
 stock loss reporting
 reporting of stock levels.
 Resource Requirements
In addition to the work methods, equipment and space requirements it is essential that the
warehouse is adequately resourced. This is done by planning or estimating the requirements
for people and equipment in order to operate the warehouse facility.
There is a trade-off to be made between the people and handling equipment requirements for
any given workload.
In global warehouse operations, which are run like commercial operations, the focus is on
minimising the cost of running the operation. In this situation, it is often better to invest in
handling equipment and reduce the dependence on people resources.
However, in field operations, many humanitarian organisations prefer to hire local labor
which provides employment instead of relying on handling equipment.
The requirement for the total amount of resources required will be determined by the amount
of goods flowing into and out of the warehouse, as shown in the diagram below.
Basic Warehouse Equipment
Various types of equipment are required to ensure the smooth execution of work in a
warehouse. All equipment should be properly stored when not in use and a regular
maintenance schedule posted. Warehouse staff should be trained in standard daily
maintenance practices and the correct use of equipment. Where necessary, they should be
equipped with personal safety equipment such as work gloves, work boots, goggles, etc.
Required equipment may include:

 sufficient quantities of standard forms, calculators and stationery to keep proper storage
records;
 small tools for opening cases, such as hammers, pliers, crowbars, steel cutters;
 tools and materials for store repair and simple maintenance;
 supplies for reconditioning damaged packaging, such as bags, needles, twine, oil containers,
stitching machine, strapping machine, adhesive tape and small containers or cartons;
 a sampling spear for inspecting foodstuffs;
 scales for weighing goods;
 standard wooden pallets in sufficient numbers – ideally international;
 standardization organization’s “Euro” type (120 × 80cm);
 two-wheel hand trolleys for moving supplies within the warehouse;
 a pallet-jack to move pallets;
 a forklift where pallets are to be loaded and offloaded from trucks;
 brooms, dust pans, brushes, shovels, sieves, refuse bins for cleaning and disposing of
collected waste;
 first aid kits, flashlights, fire extinguishers and other fire-fighting equipment both inside and
outside the warehouse;
 weighing scales; and
 ladders.

Care of Warehouse equipment

Warehouse equipment is maintained to prevent accidents and breakdowns from occurring.
Maintenance activities consist of inspections, regular servicing and monitoring performance
for failure trends, as this will enable symptoms to be recognised before failure occurs.
 Equipment maintenance has a strong health and safety bias. Often health and safety
legislation will impose on management an obligation for safe systems of work. Ensuring safe
policies and procedures of work will require an examination of men, machinery, methods,
materials and environmental aspects.
Some areas to pay attention to:

 planned maintenance
 maintain equipment
 maintain building
 completion of maintenance records

Legal Considerations
Leasing Temporary Warehouses/Contracting.
The common practice in emergencies is to lease or rent, not purchase warehouses. In this
situation, there is often a shortage of suitable buildings or locations for warehouse space and
this can often cause the costs to increase significantly. Therefore, it is often necessary to
utilise temporary warehouse space for as short a time a possible.
Care must be taken with the drawing up of the lease agreement (See Warehouse Rental
Contract sample) with the owner. The following items are basic inclusions and in a lease
agreement:

 the cost for the lease;

 the duration of the lease agreement;
 exit clause: the period of notice required for terminating or extending the lease period.
Confirmation of the existence of property insurance, covering third-party, fire, water damage,
window breakage, etc;
 details of any security arrangements;
 a detailed inventory of any equipment, fixtures and fitting included with the building and
detailed description of their condition;
 confirmation of either sole tenancy or details of other tenants;
 information about the ground or floor strength per square metre;
 the weight capacity of any equipment such as forklifts, racks and shelves;
 in situations where neutrality is important, care must be taken to establish the actual owner of
the building, which might be different from the ‘lessor’ of the building e.g. the military,
religious groups or government;
 force majeure;
 indemnity; and
 insurance.

Conclusion
The warehouse is a key component of the supply chain in emergencies. It buffers
uncertainties and breakdowns that may occur in the supply chain. When properly managed
and appropriately stocked a warehouse provides a consistent supply of material when it is
needed.
Green Supply Chain Management: Lean Practices
Green is the new way to go about things, and the myth that profits and environment cannot go
hand in hand is evaporating fast. Commitment to lean practices is a promise to do away with
inefficiencies in the system to reduce wastes and have a minimal impact on the environment.

The emphasis on continuous product flows, standardization within the organization/industries

and a greater integration between producers and consumers — all these have contributed to
efficient supply chains with gradually decreasing waste levels.

Information is often the key differentiator when it comes to successful supply chain practices,
and the organizations that share information with each other based on the premise of trust and
long-term business viability will often have decisive competitive advantage over
organizations that do not share critical information upstream and downstream.

[Supply Chain Management Courses and Jobs

Many top global schools (MIT, Purdue, Rotterdam etc.) have dedicated courses running from
a long stretch of time. Certifications like APICS, ISM and IOSM can also prove beneficial if
one is constrained by time and/or money.

In India, IIM Bangalore offers specialized courses for theoretical and applied research in the
field. Institutes like IIM C, XLRI, NITIE and IIMM (Indian Institute of Materials
Management) also offer relevant courses for folks geared towards SCM.

According to PayScale, the median salary of a Supply Chain Manager in India is around 8.3
LPA. Some of the industries that are in perennial need of SCM professionals are:
manufacturing, automotive, retail, construction and services (IT/Consulting).

SCM as a career choice gives you ample opportunities to tackle challenging problems while
also giving you insights about the business that very few roles can afford to (case in point:
Tim Cook, the CEO of Apple, is a supply chain specialist).

If you aspire to be a global citizen in a world that is becoming increasingly smaller, it can
give your career a big boost.]

UNIT IV

Concept of Logistics Management:

Logistics management may be defined as follows:
Logistics management consists of the process of planning, implementing and controlling the

efficient flow of raw-materials, work-in-progress and finished goods and related information-

from point of origin to point of consumption; with a view to providing satisfaction to the
customer.

According to Phillip Kotler, “Market logistics involve planning, implementing and

controlling physical flow of material and final (finished) goods from the point of origin

to the point of use to meet customer requirements, at a profit.”

Points of Comment:

Certain pertinent observations on the concept of logistics are:

(i) The actual work of logistics is supportive in nature. Logistical support is a must for
manufacturing and marketing operations.

(ii) The concept of logistics is based on a total system view of the multitude of functions in

movement of materials and goods from sources of supply to users. Accordingly, it forces
management to think in terms of managing the total system; rather than just one part of it.

Classification of Logistical Activities:

Logistics (or Logistical Activities) may be Broadly Classified into Two Categories:
I. Inbound logistics; which is concerned with the smooth and cost effective inflow of

materials and other inputs (that are needed in the manufacturing process) from suppliers to

the plant. For proper management of inbound logistics, the management has to maintain a

continuous interface with suppliers (vendors).

II. Outbound logistics (also called physical distribution management or supply chain

management); is concerned with the flow of finished goods and other related information

from the firm to the customer. For proper management of outbound logistics, the

management has to maintain a continuous interface with transport operators and channels of

distribution.
Significance (or Objectives) of Logistics Management:

Logistics management is significant for the following reasons:

(i) Cost Reduction and Profit Maximization:
Logistics management results in cost reduction and profit maximization, primarily due

to:
1. Improved material handling

2. Safe, speedy and economical transportation

3. Optimum number and convenient location of warehouses etc.

(ii) Efficient Flow of Manufacturing Operations:

Inbound logistics helps in the efficient flow of manufacturing operations, due to on-time

delivery of materials, proper utilisation of materials and semi-finished goods in the

production process and so on.

(iii) Competitive Edge:

Logistics provide, maintain and sharpen the competitive edge of an enterprise by:
1. Increasing sales through providing better customer service

2. Arranging for rapid and reliable delivery

3. Avoiding errors in order processing; and so on.

(iv) Effective Communication System:
An efficient information system is a must for sound logistics management. As such, logistics

management helps in developing effective communication system for continuous interface

with suppliers and rapid response to customer enquiries.

(v) Sound Inventory Management:

Sound inventory management is a by-product of logistics management. A major headache of

production management, financial management etc. is how to ensure sound inventory

management; which headache is cured by logistics management.

Key Activities Involved in Logistics Management:

Following is a brief account of key activities involved in logistics management:

(i) Network Design:
Network design is one of the prime responsibilities of logistics management. This network is

required to determine the number and location of manufacturing plants, warehouses, material
handling equipment’s etc. on which logistical efficiency depends.

(ii) Order Processing:

Customers’ orders are very important in logistics management. Order processing includes

activities for receiving, handling, filing, recording of orders. Herein, management has to
ensure that order processing is accurate, reliable and fast.

Further, management has to minimize the time between receipt of orders and date of dispatch

of the consignment to ensure speedy processing of the order. Delays in execution of orders
can become serious grounds for customer dissatisfaction; which must be avoided at all costs.
(iii) Procurement:
It is related to obtaining materials from outside suppliers. It includes supply sourcing,

negotiation, order placement, inbound transportation, receiving and inspection, storage and

handling etc. Its main objective is to support manufacturing, by providing timely supplies of
qualitative materials, at the lowest possible cost.

(iv) Material Handling:

It involves the activities of handling raw-materials, parts, semi-finished and finished goods

into and out of plant, warehouses and transportation terminals. Management has to ensure

that the raw-materials, parts, semi-finished and finished goods are handled properly to

minimize losses due to breakage, spoilage etc. Further, the management has to minimize the
handling costs and the time involved in material handling.

Material handling systems, in logistics management are divided into three categories:
1. Mechanized systems

2. Semi-automated systems

3. Automated systems

(v) Inventory Management:

The basic objective of inventory management is to minimize the amount of working capital

blocked in inventories; and at the same time to provide a continuous flow of materials to

match production requirements; and to provide timely supplies of goods to meet customers’
demands.

Management has to maintain inventories of:

1. Raw-materials and parts

2. Semi-finished goods

3. Finished goods
Management has to balance the benefits of holding inventories against costs associated with

holding inventories like – storage space costs, insurance costs, risk of damage and spoilage in
keeping stocks etc.

(vi) Packaging and Labeling:

Packaging and labeling are an important aspect of logistics management. Packaging implies

enclosing or encasing a product into suitable packets or containers, for easy and convenient
handling of the product by both, the seller and specially the buyer.

Packaging facilities the sale of a product. It acts as a silent salesman. For example, a fancy

and decorative packaging of sweets, biscuits etc. on the eve of Diwali, makes for a good sale
of such items.

Labeling means putting identification marks on the package of the product. A label provides

information about – date of packing and expiry, weight or size of product, ingredients used in

the manufacture of the product, instructions for sale handling of the product, price payable by
the buyer etc.

Labeling is a strong sales promotion tool. The consumer who is persuaded to read the label

may, in fact, try to buy the product; even though he/she had no such premeditation (advance
idea).

(vii) Warehousing:
Storage or warehousing is that logistical activity which creates time utility by storing goods
from the time of production till the time these are needed by ultimate consumers.

Here, the management has to decide about:

1. The number and type of warehouses needed and

2. The location of warehouses.

The above two decisions depend on the desired level of customer service and the distance
between the supply source and final destination i.e. markets.
(viii) Transportation:
Transportation is that logistical activity which creates place utility.

Transportation is needed for:

1. Movement of raw-materials from suppliers to the manufacturing unit.

2. Movement of work-in-progress within the plant.

3. Movement of finished goods from plant to the final consumers.

Major transportation systems include:

1. Railways

2. Roadways

3. Airways

4. Waterways

5. Pipelines.

The choice of a particular mode of transportation is dependent on a balancing of

following considerations:
1. Speed of transportation system

2. Cost involved in transportation

3. Safety in transportation

4. Reliability of transportation time schedules

5. Number of locations served etc.

Role of Logistics in Supply Chain

 (Definition) Logistics is the art and science of obtaining, producing and distributing
material and product in the proper place and in proper quantities.
 This involves management of:
o Order processing
o Warehousing
o Transportation
o Materials handling
o Packaging

All of this should be integrated through a network of facilities.

 Logistics adds value to the supply chain process if inventory is strategically

positioned to achieve sales. But the cost of creating this value is high.
 The largest contributor to logistics cost is transportation: the movement of raw
materials to a processing plant, parts to a manufacturer , and finished goods to
wholesalers, retailers and customers.
 “Supply chain management is logistics taken to a higher level of sophistication.“ –
Douglas Long.
 Inventory and Forecasting must be considered when designing and managing an
effective, efficient system for moving goods quickly from place to place.

Logistics is a process of movement of goods across the supply chain of a company. However,
this process consists of various functions that have to be properly managed to bring
effectiveness and efficiency to the supply chain of the organization.

Order processing

It is an important task in functions of logistics operations. The purchase order placed by a

buyer to a supplier is an important legal document of the transactions between the two
parties.
This document incorporates the description or technical details of the product to supply,
price, delivery period, payment terms, taxes, and other commercial terms as agreed.
The processing of this document is important as it has a direct relationship with the order or
the performance cycle time, which indicates the time when the order is received and when the
materials are received by the customer. The order processing activity consists of the
following steps:
 Order checking for any deviations in agrees upon or negotiated terms
 Prices, payment, and delivery terms.
 Checking the availability of materials in stock.
 Production and material scheduling for shortages.
 Acknowledging the order indicating deviations if any.

Inventory control

Inventory management is to keep enough inventories to meet customer requirements, and

simultaneously its carrying cost should be lowest.

It is basically an exercise of striking a balance between the customer service for not losing the
market opportunity and the cost to meet the same.
The inventory is the greatest culprit in the overall supply chain of a firm because of its huge
carrying cost, which indirectly eats away the profits. It consists of the cost of financing the
inventory, insurance, storage, losses, damages, and pilferage.

The average cost of carrying inventory varies from 10 to 25 percent of the total inventory per
year depending on the products.

Warehousing

Warehousing is the storing of finished goods until they are sold. It plays a vital role in
logistics operations of a firm. The effectiveness of an organization’s marketing depends on
the appropriate decision on warehousing.

In today’s context, warehousing is treated as switching facility rather than a storage of

improper warehousing management. Warehousing is the key decision area in logistics.
The major decisions in warehousing are:
 Location of warehousing facilities
 Number of warehouses
 Size of the warehouse
 Warehouse layout
 Design of the building
 Ownership of the warehouse

Transportation

For movement of goods from the supplier to the buyer, transportation is the most
fundamental and important component of logistics.

When an order is placed, the transaction is not completed till the goods are physically moved
to the customer’s place. The physical movement of goods is through various transportation
modes.
In logistics costs, its share varies from 65 to 70 percent in the case of mass-consumed, very
low unit-priced products.
Firms choose the mode of transportation depending on the infrastructure of transportation in
the country or region. Cost is the most important consideration in the selection of a particular
mode of transport.

However, sometimes urgency of the good at the customer end overrides the cost
consideration, and goods are sent through the fastest mode, which is an expensive alternative.

Material handling and storage system

The speed of the inventory movement across the supply chain depends on the material
handling methods. An improper method of material handling will add to the product damages
and delays in deliveries and incidental overheads.

Mechanization and automation in material handling enhance the logistics system

productivity.

Other considerations for selection of a material handling system are the volumes to be
handled, the speed required for material movement and the level of service to be offered to
the customer.

The storage system is important for maximum space utilization (floor and cubic) in the given
size of a warehouse.

The material handling system should support the storage system for speedy movement
(storage and retrieval) of goods in and out of the warehouse.

Logistical packaging

Logistical or industrial packaging is a critical element in the physical distribution of a

product, which influences the efficiency of the logistical system. It differs from product
packaging, which is based on marketing objectives.

However, logistical packaging plays an important role in damage protection, case in material
handling and storage space economy. The utilization of load has a major bearing on logistical
packaging with regard to the packaging cost.

Information

Logistics is basically an information-based activity of inventory movement across a supply

chain. Hence, an information system plays a vital role in delivering a superior service to the
customers.

Use of IT tools for information identification, access, storage, analysis, retrieval and decision
support which is vital among the functions of logistics is helping business firms to enhance
their competitiveness.
Logistics Goals & Strategies

 At the highest level, logistics shares the goal of supply chain management: “to meet
customer requirements.”
 There are a number of logistics goals that most experts agree upon:
o Respond rapidly to changes in the market or customer orders.
o Minimize variances in logistics service.
o Minimize inventory to reduce costs.
o Consolidate product movement by grouping shipments.
o Maintain high quality and engage in continuous improvement.
o Support the entire product life cycle and the reverse logistics supply chain.
 An effective logistics strategy depends upon the following tactics:
o Coordinating functions (transportation management, warehousing, packaging,
etc.) to create maximum value for the customer.
o Integrating the supply chain.
o Substituting information for inventory.
o Reducing supply chain partners to an effective minimum number.
o Pooling risks.

Integrating the Supply Chain

 Integrating the supply chain requires taking a series of steps when constructing the
logistics network. In a dynamic system, steps may be taken out of order and retaken
continuously in pursuit of quality improvements:
o Locate in the right countries
o Develop an effective export-import strategy
o Select warehouse locations
o Select transportation modes and carriers
o Select the right number of partners
o Develop state of the art information systems

Flow of Goods and Information

  The enterprise must have internal process integration and collaboration between
functions as well as alignment and integration across the supply chain.

The concept of integrated logistics

The main purpose of the integrated logistics concept is through management of the main and
related flows in the integrated business structure: "design - procurement - production -
distribution - sales - service". The concept of integrated logistics involves the integration of
functional areas and their participants within a single logistics system in order to optimize it.
In integrated logistics, the concepts and technologies of TQM, JIT, LP, VMI, SCM, TBL,
VAD, etc., ERP systems, CSRP are used.

TQM (total quality management) - universal quality management is a continuously

developing concept in time, aimed at creating competitive quality in the absence of limits to
its improvement. TQM combines the technical quality side provided by quality standards and
the philosophy of quality management, based on the broad participation of all company
personnel in all aspects of this process, as well as integration with all logistics partners and,
first of all, with consumers.

JIT (just-in-time) - the concept (technology) of building a logistics system or the

organization of a logistics process in a separate functional area, allowing to supply material
resources, work in progress , finished products in the right quantity, in the right place and
precisely by the appointed time.

The concept of JIT was used in the 1920s. at the factories of Henry Ford, but it did not spread
until the 1960s and 1970s, when it was successfully sold to a number of Japanese enterprises.

Just in time technology allows to reduce the production time, reduce the stock of the
consumer and, accordingly, reduce production and storage areas, improve the quality of
products, effectively use the equipment and at the same time reduce the number of non-
production operations.
Comparison of the concept of "just in time and the traditional form of organization of
logistical processes is made by different criteria. In Table. 4.3 in a generalized form, a
comparison of the traditional approach to management and the concept of JIT for the most
significant parameters is presented.

The concept of J IT allows you to synchronize the work of all participants in the supply chain
and aims at early identification of the requirements for the shipment of goods on orders,
subject to the strictest discipline of contractual relations. In order to prevent the accumulation
of excessive stocks, on the one hand, and to optimize the overall logistics costs, on the other
hand, the priority task is to find the place of consolidation of goods and the participant in the
supply chain that will perform this operation. Instead of delivering small lots from different
suppliers within precisely specified dates, orders performed by different suppliers must be
combined within one delivery. To implement the JIT technology, it is necessary to create the
closest possible relationships, exchange information and coordinate plans between the
consumer and the supplier. This technology also increases the quality requirements of the
supplied materials and components.

The JIT concept served as the impetus for developing and implementing such logistic
concepts (technologies) as LP and VMI.

LP (lean production) - slender/flat/lean production & quot ;. The essence of this concept is to
combine the following components: high quality, small production batches, low stock levels,
highly qualified personnel and flexible equipment. Unlike mass slender production requires
less inventory, less time. With a lean approach, there is less loss from marriage and the
advantage of mass production remains - "large volumes - low cost."

The main idea of LP - is the "fight" with various types of losses, and above all with excess
stocks. Transportation, packaging, areas and equipment, time, management are also
considered as losses, if their use does not lead to the creation of maximum high value for
customers and a reasonable increase in the profit of the enterprise. So, losses can be attributed
to overproduction, waiting in queues, transportation, production processes that do not create
added value, surplus stocks, excess traffic, costs associated with quality.

The principles of the lean production are as follows:

• Provide consumers with the value they really want,

• Define the value stream for each type of product;

• eliminate waiting between stages and stocks;

• Providing a value stream is an infinite quest for excellence.

VMI (vendor managed inventory) - is a more advanced version of the supplier's inventory
management system, based on new information technologies. Inventory management by the
supplier can be implemented in the following ways:

• the supplier carries out regular deliveries, assumes the obligation to replenish the
consumer's stocks and maintain them at the required level set by the consumer. In fact, this
option coincides with the concept of continuous replenishment;

• use of consignment, in which the consumer stores inventories in his warehouse space and
buys from the supplier as much as necessary, for example, for the operation of the conveyor
during the day;

• the supplier has access to the warehouse database of the client, independently analyzes and
decides on the nomenclature and the size of batches of orders. This method assumes that
instead of placing orders, a consumer (and not only a trading company, but also a
manufacturing enterprise) exchanges information about demand, sales, promotion of products
with the supplier;

• the representative of the supplier is constantly present on the territory of the customer, this
representative at the right time places orders of the consumer at his enterprise. This method of
inventory management by the supplier is sometimes called JIT II.

Inventory management by the supplier has advantages and disadvantages. The positive side
of this concept (technology) is to improve the level of service, reduce the uncertainty of
demand, reduce delivery times, maintenance costs and replenish stocks, increase inventory
turnover, establish long-term partnerships. These advantages of the concept make it possible
to consider the inventory management of the supplier as beneficial for both parties. However,
the concept has a number of weaknesses.

So, as a shortcoming of this concept (technology) for the supplier can be called increased
costs and reduced capital turnover. The consumer gets the opportunity to reduce costs, but at
the same time feels a strong dependence on the supplier, on the quality of the processes
performed by him. In addition, the consumer substantially risks transferring confidential
information necessary for the formation of a replenishment plan.

SCM (Supply Chain Management) - supply chain management is a term that emerged in the
late 1980s, although discussions are currently underway about whether, what it means, often
SCM is identified with the concept of logistics. Thus, M. Christopher believes that supply
chain management serves to establish links and coordination between suppliers, customers
and the organization itself. SCM - "managing relationships with upstream and downstream
suppliers and customers, aimed at achieving higher consumer value with lower costs for the
entire supply chain as a whole."
D. Stock and D. Lambert note that supply chain management is the "integration of key
business processes starting from the end user and covering all suppliers of goods, services
and information that add value to consumers and other stakeholders."

TBL (time-based logistics) - technology of logistics, allowing to optimize all phases of the
product life cycle from time to time, from research and development to after-sales service.

VAD (value-added logistics) - a concept based on understanding that each logistic operation
adds value to a product or service. In accordance with this concept, the logistics process is
presented in the form of a sequence of actions to create value-added benefits, the most
effective way, from the point of view of a particular consumer, in a way.

ERP (enterprise resource planning) - an integrated resource planning system that integrates
all enterprise activities and includes demand forecasting modules, project management, costs,
personnel, financial activities , investments, etc.

The ERP concept is proposed by Gartner Group. The main task of ERP-system is to
optimize on time and resources such business processes as supply chain management (SCM);
planning and scheduling (ARS); sales automation (SFA); final resource planning (FRP);
electronic commerce (EU), etc.

CSRP (customer synchronized resource planning) - a resource planning system

synchronized with the consumer. This system is based on the functional CSRP -system,
allows you to reorient planning from production to the end user, takes into account not only
the production and material resources of the enterprise, but also the resources consumed in
marketing, commercial , after-sales work with the customer.

TRANSPORTATION.
Transportation involves the physical movement or flow of goods. The transportation system
is the physical link that connects customers, raw material suppliers, plants, warehouses and
channel members. These are the fixed points in a logistics supply chain.
The basic modes of transportation are water, rail, motor carrier, air and pipeline. Water being
the slowest mode with rail, motor carrier, and air following in order of speed of delivery.
Generally, the order is reversed when looking at costs.
Selection of the appropriate carrier has several steps. First the firm selects a transportation
mode. The shipper must compare the service desired with the rate or cost of service. Service
usually means transit time or the time that elapses from the time the consignor makes the
goods available for dispatch until the carrier delivers to the consignee. Pickup and delivery,
terminal handling and movement between origin and destination account for the time
involved in transporting goods.
The firm must balance the "need for speed" with the costs inherent in the mode of transport.
This includes the rate charged for the service, minimum weight requirements, loading and
unloading facilities, packaging, possible damage in transit, and any special services that may
be desired or required. If next day delivery is imperative, the shipper will utilize an
air freight carrier but will pay a premium price for such rapid service. If time is not a
particularly critical element the shipper may elect to use rail or a motor carrier, or may even
utilize a water carrier if time is inconsequential. Water-based modes of transportation are the
least expensive and are used for commodity type products such as grain, coal, and ore. Some
firms even utilize more than one mode of transportation, called intermodal transport, to move
their goods.
Once a mode is selected, the shipper must decide the legal classification or type of carrier
they wish to utilize: common, regulated, contract, exempt or private.
Common carriers serve the general public at reasonable prices and without discrimination.
They cannot refuse to carry a particular commodity or refuse to serve a particular point with
the scope of the carrier's operation. Common carriers are liable for all goods lost, damaged,
or delayed unless caused by an act of God, an act of a public enemy, an act of public
authority, an act of the shipper, or some defect within the good itself.
Regulated carriers are required to provide safe and adequate service and facilities upon
reasonable request and are liable for damage up to limits established by the carrier. Regulated
carriers can be motor carriers or water carriers and are subject to minimal federal controls.
A contract carrier does not serve the general public, but, rather serves one or a limited
number of contracted customers. They have no legal service obligation. They often provide a
specialized service and usually have lower rates than common or regulated carriers.
Exempt carriers are exempt from regulation regarding rates and services. Exempt status
comes from the type commodity hauled or the nature of the carrier's operation. Exempt motor
carriers are usually local and typically transport such items as agricultural goods, newspapers,
livestock, and fish. Exempt water carriers transport bulk commodities such as coal, ore, grain,
and liquid. Exempt rail carriers transport piggy-back shipments and exempt air carriers haul
cargo.
A firm's own transportation is termed a private carrier. Private carriers are not "for-hire" and
not subject to the same federal regulations as other types of transport. However, the carrier's
primary business must be something other than transportation.
Once the mode and type of carrier is determined a final decision can be made based on other
factors. Accessibility is one such factor. Some firms have geographic limits to
their routing network. Others may not possess physical access to needed facilities or have the
ability to provide the equipment and facilities that movement of a particular commodity may
require. Reliability, the consistency of the transit time a carrier provides, is also a key factor.
Finally, convenience and communication are other important considerations when selecting a
carrier.
Measures that a transportation firm would use to judge its performance include: orders
shipped on time, orders shipped complete, order preparation time, product availability, and
transit time. From the customer perspective performance can be gauged from orders received
on time, orders received complete, orders received damage free, orders filled accurately, and
orders billed accurately.

Transportation systems management and operations is defined by the legislation "Moving

Ahead for Progress in the 21st Century" (MAP-21) as the use of "integrated strategies to
optimize the performance of existing infrastructure through the implementation of
multimodal and intermodal, cross-jurisdictional systems, services, and projects designed to
preserve capacity and improve the security, safety, and reliability of the transportation
system."3 M&O strategies encompass many activities, such as:

 Traffic incident management.

 Traffic detection and surveillance.
 Corridor, freeway, and arterial management.
 Active transportation and demand management.
 Work zone management.
 Road weather management.
 Emergency management.
 Traveler information services
 Congestion pricing.
 Parking management.
 Automated enforcement.
 Traffic control.
 Commercial vehicle operations.
 Freight management.
 Coordination of highway, rail, transit, bicycle, and pedestrian operations.

Management and operations also includes the regional coordination required for
implementing operational investments such as communications networks and traffic incident
management in an integrated or interoperable manner.

Successful M&O practices positively impact mobility, accessibility, safety, reliability,

community life, economic vitality, and environmental quality and help transportation
agencies meet their customers' needs. In addition, many agencies have found that the benefits
of M&O strategies can significantly outweigh the costs (versus traditional strategies).
Proactive management of transportation systems in real-time and at all hours of the day not
only represents the future of operations but is essential to responding effectively to variable
traffic conditions caused by events such as incidents, work zones, and weather effects.

Economic uncertainty, fluctuating fuel prices, increased safety and social regulation,
escalating customer expectations, globalization, improved technologies, labor and equipment
shortages, a changing transportation service industry…today’s managers are faced with an
array of challenges and opportunities that contrast dramatically with those of a decade ago.
It is not surprising, then, that many managers have failed to fully adapt to the changing
environment, resulting in performance shortcomings and lost opportunities. Prominent among
the list of lost opportunities is fully leveraging the transportation function as a critical
strategic element within the supply chain.
Transportation plays a central role in seamless supply chain operations, moving inbound
materials from supply sites to manufacturing facilities, repositioning inventory among
different plants and distribution centers, and delivering finished products to customers.
Benefits that should result from world-class operations at the points of supply, production,
and customer locations will never be realized without the accompaniment of excellent
transportation planning and execution. Having inventory positioned and available for delivery
is not enough if it cannot be cost effectively delivered when and where needed.
This article addresses the key decision levels that need to be addressed for transportation to
make its greatest impact in the integrated supply chain. These levels address long-term
decisions, lane operations, choice of mode or carrier, and dock level operations.
Long-Term Decisions
At the highest strategic decision level, transportation managers must fully understand total
supply chain freight flows and have input into network design. At this level, long-term
decisions related to the appropriateness and availability of transportation modes for freight
movement are be made. Managers need to decide, for example, which primary mode of
transportation is appropriate for each general flow (i.e., inbound, interfacility, outbound) by
product and/or location, paying careful attention to consolidation opportunities where
feasible.
Plans should indicate the general nature of product flows, including volume, frequency,
seasonality, physical characteristics, and special handling requirements. Strategic mode and
carrier-sourcing decisions should be considered part of a long-term network design,
identifying core carriers in each relevant mode to enhance service quality commitments and
increase bargaining power. Additionally, managers need to make decisions regarding the
level of outsourcing desired for each major product flow—ranging from providing the
transportation through the company’s own assets (e.g., private fleets) to latch-key turnover of
transportation operations to third-party providers.
Network and lane design decisions at the strategic level should examine tradeoffs with other
operational cost areas such as inventory and distribution center costs. In conducting this
analysis, companies should keep in mind that networks need not be fixed or
constant. Rather, substantial service improvements and cost reductions can be achieved by
critically examining existing networks and associated flows. For instance, it may become
apparent that stock locations can be centralized by using contract transportation providers to
move volume freight to regional cross-dock facilities for sorting, packaging, and brokering
small loads to individual customers.
Lane Operation Decisions
The second level of decision-making regards lane operation decisions. Where network
design decisions are concerned with long-term planning, these decisions focus on daily
operational freight transactions. At this level, transportation managers armed with real-time
information on product needs at various system nodes must coordinate product movements
along inbound, interfacility, and outbound shipping lanes to meet service requirements at
lowest total costs. Decision-makers who are adept at managing information can take
advantage of consolidation opportunities, while ensuring that products arrive where they are
needed in the quantities they are needed just in time to facilitate other value-added activities.
At the same time, they are realizing transportation cost savings.
The primary opportunities associated with lane operation decisions include inbound/outbound
consolidation, temporal consolidation, vehicle consolidation, and carrier consolidation. If
managers have access to inbound and outbound freight movement plans, they can identify
opportunities to combine freight to build volume shipments. An inbound shipment may arrive
from a supplier located in Philadelphia, for example, on the same day that a production order
destined for a customer in Wilmington, Del., becomes available for movement. If this
information is known to transportation planners far enough in advance, arrangements could
be made for the inbound carrier to haul the outbound load back to Wilmington.
In many cases the inbound carrier would be willing to negotiate lower roundtrip rates to
avoid deadhead miles on the backhaul. This is particularly true if the carrier and/or driver are
headquartered in the Philadelphia area. If this happens to be a heavy traffic lane, the firm may
consider strategically sourcing a core carrier in this geographic region to capitalize on this
opportunity.
Similarly, less-than-volume-load (LVL) shipments moving to the same geographic region on
consecutive days may be detained until sufficient volumes exists to justify a full load on one
carrier with multiple stops (temporal consolidation). By avoiding the LVL terminal system,
the detained freight often arrives at the same time or earlier than the original LVL
shipment—and at a lower cost. Multiple, small shipments inbound from suppliers or
outbound to customers in the same geographic region scheduled for delivery on the same day
may also be combined on one vehicle at full-volume rates, paying stop-off charges but saving
on multiple LVL rates (vehicle consolidation).
Another consolidation opportunity springs from the core carrier concept. Assigning greater
shipping volumes to fewer carriers should result in lower per-unit transportation costs and
higher priority assigned to the shipper’s increased freight. In addition to consolidating the
carrier base, the shipper can identify reliable carriers in need of backhaul miles.
For instance, a plastics distributor identifies carriers that operate a high percentage of
deadhead miles in lanes over which the firm regularly moves freight. The firm negotiates
advantageous rates with these carriers in exchange for guaranteed backhaul revenue miles. If
the plastics firm plans to move significant amounts of product from Texas to Florida, the
transportation manager will find a Florida carrier that moves a large volume of product from
Florida to Texas. Given sufficient planning information, the transportation manager can use
guaranteed volumes on the backhaul to negotiate attractive rates.
Choice of Mode and Carrier
A third level of transportation decision-making involves the choice of mode and carrier for a
particular freight transaction. Due to the blurring of service capabilities among traditional
transportation modes, options that in the past would not be considered feasible may now
emerge as the preferred choice. For example, rail container service may offer a cost-effective
alternative to longhaul motor transport while yielding equivalent service. Similarly, package
delivery carriers are competing with traditional LTL operators. Truckload carriers, on the
other hand, are increasingly bidding for low-volume shipments as well as for overnight
freight movements. For the shipper seeking 24-hour delivery, truckload carriers may offer an
alternative to air carriers at significantly lower rates—and, quite possibly, higher reliability.
In an integrated mode/carrier decision-making scenario, each shipment would be evaluated
based upon the service criteria that must be met, (for example, delivery date/time or special
handling requirements) as well as the movement’s cost constraints. All core carriers,
regardless of mode, that could possibly meet the service and cost criteria would be pulled
from the database. Managers would then choose the carrier from this multi-modal set based
on availability and existing rates.
Dock Level Operations
The final set of transportation decisions involves dock level operations, such as load
planning, routing, and scheduling. These activities encompass the operational execution of
the higher-level planning decisions. While the fundamental purpose of shipping docks may
not have changed much over the years, the manner in which work is done certainly has. One
obvious change is the common usage of advanced IT and decision support systems. These
tools help the dock personnel to make better use of the transportation vehicle space; to
 identify the most efficient routes; and to better schedule equipment, facilities and drivers on a
given day.
Transportation departments that avail themselves of better and more timely information can
derive significant benefits from more efficient and effective load planning, routing, and
scheduling. For example, if a vehicle is being loaded with multiple customer orders, dock-
level managers must ensure that the driver is informed of the most efficient route and that
loads are placed in the order of the planned stops. Transportation managers, even at the dock
level, must develop expertise in using the information tools available to aid in these
decisions.
Successful managers today require a broad view of transportation management’s role and
responsibilities in an integrated supply chain. Managers will continue to encounter significant
challenges as their firms proceed down the road toward supply chain integration, particularly
as external environmental characteristics such as fuel costs and the overall economy wax and
wane.
Regardless of external conditions, however, managers must encourage their firms to avoid the
temptation of making transportation decisions with an eye toward short-term gain. Rather,
they need to view the total cost and total value provided by the function not only in relation to
operating expenses but also in terms of the impact on customer service and inventory
reduction. The influence on total economic value added is significant.

MULTI MODALISM

Multi-modalism is the process of operation/providing a door-to-door/warehouse-to-

warehouse service to the shipper embracing two or more forms of transport, and involving
the merchandise being conveyed in a unitized form in the same unit for the throughout
transit. It involves a scheduled/dedicated service. Forms of multi-modalism are given
below:
1. (a)
Containerization — FCL/LCL/road/sea/rail.

2. (b)
Land-bridge — trailer/truck — road/sea/road.

3. (c)
Land-bridge — pallet/IATA container — road/sea/air/road.

4. (d)
Trailer/truck — road/sea/road.

5. (e)
Swap body — road/rail/sea/road.
Intermodalism, Multimodalism and Transmodalism

Intermodalism involves the organization of a sequence of modes between an origin and

destination, including the transfer between the modes. Its main goal is to connect
transportation systems that could not be connected otherwise because they are not servicing
the same markets areas due to their technical characteristics. However, each segment is
subject to a separate ticket (for passengers) or contract (for freight) that must be
negotiated. Mutimodalism is simply an extension of intermodalism where all the transport
and terminal sequences are subject to a single ticket or contract (bill of lading) that can be
assumed by a single integrated carrier.

The differences between intermodalism and multimodalism appear to be subtle, but they are
fundamental. Although multimodalism may at first glance look more efficient since less
transactional costs are involved for the user, it is not necessary the most efficient and
sustainable. A multimodal transport service provider will be inclined to use its routes and
facilities during the transport process, which are not always the most convenient. The main
purpose of a 3PL is to maximize the use of its assets, which could be at odd with the benefits
of their users.

Transmodalism involves connecting different segments of the same mode between an origin
and a destination. It tries to reconcile different modal services on the same network. There is
no specific term if transmodalism takes place as a single or separate ticket or contract.
Transmodalism is common for air transportation since a passenger can easily book a ticket
between two locations, even if it involves transiting through an intermediary airport and using
separate carriers. The strategies of air carriers particularly relied on transmodalism with the
setting of major hubs that maximize the number of city-pairs serviced. For freight
transportation, transmodalism is more challenging since it was conventionally complex to
switch load units within the same mode because of the large amount of handling required.
Paradoxically, it is the development of intermodalism that has favoured the setting of
transmodalism since it incited the development of long distance transportation services and
an increase of container volumes to be handled across the same mode.

For maritime shipping, transmodalism took shape in the setting of intermediate hubs such as
Singapore, Dubai and Panama, connecting deepsea and feeder services. For rail, the North
American rail system and its landbridge is interconnected at major transmodal hubs such as
Chicago. The Eurasian landbridge is emerging on transmodalism as well.

Key benefits of multimodal transport are:

1. Minimizes time loss at trans-shipment points: Multimodal transport operator

maintains its communication links and coordinates that interchange onward carriage
smoothly at transshipment points.
2. Provides faster transit of goods: The faster transportation of goods is made possible
under Multimodal transport reduces the disadvantages of distance from markets and the
typing-up of capital.
3. Reduces the burden of documentation and formalities: The burden of issuing
multiple documentation and other formalities connected with each segment of the
transport chain is reduced to a minimum.
4. Saves cost: The savings in money from costs resulting from these advantages are
usually reflected in the through freight rates charged by the Multimodal transport
operator and also in cargo insurance cost.
5. Establishes only one agency to deal with: The consignor needs to deal with only the
Multimodal transport operator in all matters relating to goods, or delay in delivery of
goods at destination.
6. Reduces cost of exports: Th inherent advantages of Multimodal transport system will
help to reduce the cost of exports and improve their competitive position with pricing in
the international market segment.

What is a 1PL?

A first-party logistic provider is any company that transports cargo, freight, goods or
merchandise, and can refer to both the cargo sender (like a manufacturer delivering to
customers) or the cargo receiver (like the retailer picking up cargo from a supplier).

Simply put, the entire logistics and distribution process is managed internally by the business.
This method of logistics is relatively uncommon, as most businesses today outsource their
logistics operations to external providers.

1PL example

Australian red meat supplier Samex is a 1PL as it exports goods to wholesalers, distributors
and supermarket chains worldwide using its own logistics operations.
 What is a 2PL?

A second-party logistics provider handles the transportation component of the supply chain
and is responsible for getting a company’s goods from A to B. 2PLs lease or charter their
own transportation – such as ships, trucks, or planes – to companies, and they can also be
contracted to transport freight. A logistics provider that only transports goods over a certain
part of the supply chain could also be classified as a 2PL.

2PL example

Any freight forwarding company such as World Cargo Transport Inc. headquartered in
Woodbridge, New Jersey, is a provider of logistics services to and from almost anywhere in
the world

What is a 3PL?

A third-party logistics provider provides outsourced logistics services to companies. These

services can make up part or sometimes all of their supply chain management functions,
including:

 Inventory storage and management

 Picking and packing

 Freight forwarding

 Shipping/distribution

 Customs brokerage

 Contract management

 IT solutions

 Cross-docking

3PL example

UPS are a well-known example of a third-party logistics provider. They offer all the services
listed above and more, and operate on a global scale.
 Fulfillment by Amazon is also a type of third-party logistics provider. However, it comes
with restrictions in terms of allowable products and packaging requirements, and services are
more limited than some other 3PLs.

Pros of 3PL

 Finding the right 3PL can save you time and money, through economies of scale (eg.
Shipping Rates)

 It works well with both local and international distribution, and you can get speedier
delivery by benefiting from their multiple storage locations

 It works well for a fast growing business with large order volumes

 You can still opt to control customer service and returns

Cons of 3PL

 You have less control over your inventory and the customer experience

 Finding the right provider who you can trust and rely on can be time consuming

 3PL can be an expensive cost, especially when you only have small quantities of orders

 Generally, 3PL providers won’t handle perishable, hazardous, or flammable goods

3PLs are suited to small-to-medium-sized businesses that want to take advantage of the
operational power of an external logistics company but still want some control over their
supply chain.

What is a 4PL?

A fourth-party logistics provider essentially takes third-party logistics a step further by

managing resources, technology, infrastructure, and even manage external 3PLs to design,
build and provide supply chain solutions for businesses.

4PL services typically encompass 3PL services as well as:

 Logistics strategy

 Analytics including transportation spend, analysis, capacity utilization, and carrier

performance
 Freight sourcing strategies

 Network analysis and design

 Consultancy

 Business planning

 Change management

 Project management

 Control tower and network management services, coordinating a wide supplier base across
many modes and geographies

 Inventory planning and management

 Inbound, outbound and reverse logistics management

4PL examples

Deloitte provides 4PL services that go above and beyond traditional 3PL by offering strategic
business insights and consultative services in addition to logistics execution.

What is a 3PL?

A 3PL — short for third-party logistics (sometimes called a TPL) — is used in logistics
and supply-chain management to outsource part or all of a business’ distribution and
fulfillment services.

Before the early 1970s, transportation contracts only featured two parties, the shipper —
think big retailers, manufacturers, or wholesalers — and the shipping carrier. As more
“sellers” came to market, who didn’t have logistics as their core competency, intermediaries,
known as third-party logistics providers, rose to prominence.

Legislation passed in 2008 defines them as:

“A person who solely receives, holds, or otherwise transports a consumer product in the
ordinary course of business but who does not take title to the product.”

Although they do not hold ownership of the inventory, they are legally bound and responsible
for performing the requested fulfillment activities of your ecommerce company.

Over the last decade, with the democratization of the internet empowering more retail both on
and offline, the market for third-party logistics providers has exploded.
 An estimated 86% of Fortune 500 companies and 96% of the Fortune 100 use these services.

Solid providers act as your outsourced arm when it comes to receiving new inventory from
your manufacturers and shipping it to the end consumer. Some also handle retail distribution
and returns. Ultimately, they make sure your orders get delivered to your consumer buyer
with the out-of-box experience you desire.

Types of Third-Party Logistics Providers

When we examine potential third-party logistics partners at Sourcify, we make sure they can
cover the following activities:

 Transportation
 Warehousing
 Distribution
 Shipping and receiving
3PLs usually focus on one aspect of the logistics or supply chain process, yet the bigger firms
may handle all of it while integrating seamlessly.

1. Transportation Based

This type specializes in the actual transport between locations — e.g., shipping. For example,
they could handle the inventory shipment between your factory and your warehouse or
between you and your buyer.

Deciding on a parcel transportation provider all depends on:

1. Origin location
2. Destination location
3. Timeframes
4. Shipping methods
5. Service levels
6. Pricing and discounts
For global freight, costs are centered on the transportation fee to import your product. They
may also help handle export taxes and duties.

Traditional parcel transportation includes DHL, FedEx, UPS, and governmental bodies like
the USPS. Same-day delivery is normally handled by local couriers like Postmates and
UberRush. Additionally, new marketplaces for transportation exist like Flexport, Freightos,
and GrandJunction.
2. Warehouse and Distribution Based

As you grow, this is the most common type of 3PL, as they handle storage, shipment, and
returns. Warehouses come in many shapes and sizes, and the market is active with innovation
thanks to Amazon firmly establishing a two day, same day and next day delivery
expectations. Thanks to international warehouses, even global customers feel the same.

Further on we’ll walk through a comprehensive approach to picking the right provider.
However, if you’re considering a warehouse solution, here are the key criteria to evaluate:

Warehouse network:

What delivery timeframe do your consumers want? The faster they expect their orders, the
more warehouse locations you will need in the network. A warehouse has to be
geographically located close to the end consumer in order for it to be delivered faster than
two days. You’ll also need enough inventory to distribute among the warehouses in a
network.

Pricing:

Do you have a pricing model from your warehouse provider that gives you transparency and
predictability? Do you have a pricing model that changes as you grow? Identify all fees
upfront and ask about returns management and any extra services you might require like
“kitting” (putting several products in special packaging) or destruction.

Shipping carrier rates:

Do you want to use your own carrier? If you have negotiated shipping rates that are better
than a warehouse could get, it is important to know if the warehouse partner will accept them.
Sometimes warehouses will be able to negotiate better rates than individual businesses as
they aggregate their volume for better discounts.

Daily cutoff time for fulfilling orders:

What time does your warehouse stop fulfilling that day’s orders? If orders are placed after the
warehouse cut off time, then they won’t go out until the next day thus impacting the delivery
date the consumer expects.

Delivery service levels:

Do you want a refund or credit if shipments don’t get fulfilled on time? Does your warehouse
credit you for every broken or lost item? Ask for the service-level guarantees your warehouse
partner offers so you can understand how much liability you might have for your goods.
Management tools:

When outsourcing logistics, it’s vital to ensure you and your provider can sync with your
existing inventory management system (IMS), order management system (OMS), order
processing software, and/or warehouse management solution (WMS).

When an order comes in, the software(s) should automatically know what product needs to be
shipped, where to ship it, and how to update inventory levels. However, the buck stops with
you … especially in your customer’s eyes.

Providers like Shipwire, Rakutan, and Fulfilment by Amazon (FBA) handle warehousing and
distribution on a major scale. You can also find a regional provider like Quiet Logistics or
local provider like Fulex, a fulfillment company I (Nathan) worked with in San Diego when
running my ecommerce store.

3. Financial and Information Based

Most ecommerce companies won’t work with financial or information based third-party
logistics companies until they hit the eight or nine-figure mark in revenue. With that said,
they are important to mention, as they provide valuable insight towards the overall industry
and current trends.

These types of 3PLs help optimize your entire logistics network, owned and via third parties,
freight auditing, cost accounting and control, and tools for monitoring, booking, tracking,
tracing, and managing inventory.

Leading consultancies include Chicago Consulting and St Onge. Apps like ShipperHQ can
also add valuable insights.

Advantages

The leading advantage is that a 3PL will save you time automating fulfillment. Instead of
having to worry and hire staff to handle the shipment of your products, you’ll have a partner
whose sole focus is ensuring your products end up in your customer’s hands.

1. Work With the Pros

A third-party logistics company’s main focus is to optimize how a company handles

shipments. They are the experts when it comes to fulfillment, warehousing, and shipping.
Though you could set up your own team, it usually isn’t worth it as you will rarely become as
effective.
2. Manage Internationalization

One of the bottlenecks of growing internationally is dealing with global fulfillment. Few
people in the world want to take care of documentation, customs, duties, and other issues that
may occur when dealing with overseas sales.

Outsourcing offsets that responsibility as your logistics partner can not only make selling in
country easier (merchant of record, etc) but also expedite time to delivery and lower your
shipping costs. Again, the closer your inventory is to the end customer, the lower the cost to
ship it to them.

3. Limit Overhead

One of the hardest parts of setting up your own warehouse lies in the overhead needed to
lease space and hire a fulfillment team. Maintaining all this is costly and will eat into your
cash flow. Working with a provider allows you to minimize costs when scaling your
fulfillment process.

Disadvantages

Though there are plenty of advantages, there are also some drawbacks to consider. These
drawbacks center around the fact that your inventory is now controlled by a third party.

1. Hidden responsibility

When a customer’s products are late, who will they turn to? You. Your provider is not
customer facing and won’t be interacting directly with your end customers. If delays occur,
your customers will look to you for a resolution.

2. Steep set-up fees

Almost all third-party logistics companies will have upfront costs. This will usually cover the
integration of their software to your ecommerce store, SKU upload, and account
access. These costs can make setup a large investment in the short term.

3. Out of your hands

There are third-party logistics companies around the world, and you may not end up working
with one locally. This means your products won’t always be immediately accessible. If you
run into quality control issues with your factory, this could be an issue. Your main goal
should be to keep products in a warehouse location that cuts shipping costs and delivery
times.
Levels of Outsourcing in Third Party Logistics Services

Not all third party logistics services are created equal when it comes down to the relationship
in the way you as a shipper will outsource to them. So, after you understand what a 3PL is
and the types of third party logistics services, the following are the different types of levels of
outsourcing you can see:

 Transactional Outsourcing: Based on transactions, with no long term contracts and

no bonding between the 3PL and the outsourcing company.

 Tactical Outsourcing: Outsourcing on a long term basis with negotiated contacts and
integrated IT systems to facilitate free information flow and create supply chain
visibility.

 Strategic Outsourcing: Based on long-term relationships with successful outcomes,

3PL companies become partners in supply chain management and establish
transactional transparency.

Designing and Managing Marketing Channels

Marketing channels are set of mutually dependent organizations involved in the process of
making product or service available for utilization. It is established in academic studies that
Marketing channels are the means by which goods and services are made available for use by
the customers. All goods go through channels of distribution, and marketing will depend on
the way goods are distributed. The direction that the product takes on its way from production
to the consumer is imperative because a marketer must choose which channel is best for his
particular product. It can be said that channel is the link between manufactures and
purchasers. Decisions about the marketing channel system are decisive for management.
The marketing channels chosen by marketers influence all other marketing decisions. The
firm’s sales force and advertising decisions depend on how much training and inspiration
dealers need. Further, channel decisions involve comparatively long-term commitments to
other firms. Holistic marketers guarantee that marketing decisions in all these different areas
are made to jointly maximize value.
Channel of distribution (Marketing channel)
In current competitive climate, big companies are using hybrid channels in any one area. The
firm must choose how much effort is needed to assign to push versus pull marketing. A push
strategy uses the manufacturer’s sales force and trade promotion to encourage intermediaries
to carry, promote, and sell the product to customers. This is suitable where there is low brand
loyalty in a category, brand choice is made in the store, the product is desired item, and
product benefits are well understood. In a pull strategy, the manufacturer uses advertising and
promotion to influence customers to ask intermediaries for the product, thus inducing the
intermediaries to order it. This is suitable when there is high brand loyalty and high
involvement in the category, people perceive differences between brands, and people choose
the brand before they shop. A marketing channel executes the work of moving products from
producers to consumers, beat the time, place, and possession gaps that separate goods and
services from those who need or want them.
Channel level: The producer and the final customer are part of every channel. There are
numerous channels by which goods and services are distributed. It is divided into direct and
indirect channel. In direct channel also known as zero-level channel, manufacturer and
customer deal directly with each other. There is no middleman in this channel. It consists of a
producer selling directly to final customers through door-to-door sales, Internet selling, mail
order, telemarketing, home parties, TV selling, manufacturer-owned stores, and other
methods.
In indirect channel, companies manufacture products in huge scale and sell these products to
middle man for example whole seller and retailers. This channel can be very expensive.
Manufacturer to Customer: Manufacturer produces the goods and sells them to the customer
directly with no mediator, such as a wholesaler, agent or retailer. Goods come from the
manufacturer to the user without an intermediary.
Manufacturer to Retailer to Consumer: Purchases are made by the seller from the
manufacturer and then the retailer sells the products to the consumer. This channel is used by
manufacturers that specialize in producing shopping goods.
Manufacturer to Wholesaler to Customer: Consumers can buy directly from the wholesaler.
The wholesaler breaks down bulk packages for resale to the consumer. The wholesaler
reduces some of the cost to the consumer such as service cost or sales force cost, which
makes the purchase price cheaper for the consumer.
Manufacturer to Agent to Wholesaler to Retailer to Customer: This type of distribution
involves more than one intermediary involves an agent called in to be the middleman and
help with the sale of the goods. An agent receives a commission from the producer. Agents
are useful when products or services need to move rapidly into the market soon after the
order is placed.
Market channels by which goods and services are distributed

Characteristics of Marketing Channels

 Link between Producer and Consumer.
 Flow of Goods
 Remuneration.
 Classification-Direct and Indirect.
 Activities- Financing, Credit Facility
It is important to consider some factors when choosing appropriate marketing channel such as
product, market, company. It is observed that middle man plays vital role in distribution of
product in market channel. The core responsibility of intermediaries is to deliver products to
customers in their desired location. To accomplish this objective, they purchase goods and
store these and then ship to customers.
 marketing channel function performed by middleman.

Designing a Marketing Channel System

Designing a marketing channel system entails factors such as analysing customer needs,
establishing channel objectives, identifying major channel alternatives, and evaluating major
channel alternatives.
Analysing Customers’ Desired Service Output Levels: The marketer must recognize the
service output levels which its target customers want. Channels produce five service outputs:

1. Lot size: The number of units the channel allows a particular customer to buy at one
time.
2. Waiting and delivery time: The average time consumers of that channel wait for
receipt of the goods. Customers generally prefer fast delivery channels.
3. Spatial convenience: The extent to which the marketing channel facilitate for
customers to obtain the product.
4. Product variety: The variety provided by the channel. Usually, consumers prefer a
greater collection, which enhances the chance of finding what they need.
5. Service backup: The add-on services such as credit, delivery, installation, repairs
provided by the channel.

Providing greater service outputs denotes increased channel costs and higher prices for
consumers. The triumph of discount resellers (online and offline) designates that many
consumers will accept lower outputs if they can save money.

Establishing Objectives and Constraints

Another factor in designing a marketing channel system is that marketers must declare their
channel objectives in terms of targeted service output levels. In competitive conditions,
channel institutions should coordinate their functional tasks to reduce total channel costs and
still offer desired levels of service outputs. Generally, planners can recognize several market
segments that want different service levels. Successful planning needs to determine which
market segments to serve and the best channels for each. Channel objectives differ with
product characteristics. Channel design is also affected by numerous environmental factors as
competitors’ channels, monetary conditions, and legal regulations and limitations.

Identify Major Channel Alternatives

Other decisive factor in developing market channel is to recognize alternatives. Companies

may select array of channels to approach customers, each of which has distinctive strengths
as well as limitations. Each channel alternative is explained by (i) the types of available
intermediaries (ii) the number of intermediaries needed; and (iii) the terms and
responsibilities of each channel member. Types of Intermediaries entails a firm needs to
discover the types of intermediaries available to run its channel work. Some intermediary
merchants such as wholesalers and retailers buy, take title to, and resell the products. Agents
such as brokers, manufacturers’ representatives, and sales agents chase customers and may
bargain on the producer’s behalf but do not take title to the merchandise. Facilitators,
including transportation companies, independent warehouses, banks, and advertising
agencies, help in the distribution process but neither take title to goods nor negotiate
purchases or sales.
Companies should recognize pioneering marketing channels. Number of Intermediaries
indicates that to choose intermediaries to use, companies can adopt one of three strategies:
exclusive, selective, or intensive distribution. Exclusive distribution means severely limiting
the number of intermediaries. Selective distribution depends on more than a few but less than
all of the intermediaries willing to carry a particular product. In intensive distribution, the
producer places the goods or services in as many outlets as possible. This strategy is usually
used for items such as snack foods, newspapers, and gum. Terms and Responsibilities of
Channel Members signify that each channel member must be treated courteously and given
the opportunity to be lucrative. The main constituents in the “trade-relations mix” are price
policy, conditions of sale, territorial rights, and specific services to be performed by each
party. Price policy assists the producer to ascertain a price list and schedule of discounts and
allowances that intermediaries see as equitable and sufficient.

Evaluating the Major Alternatives

The Company must assess each alternative against suitable economic, control, and adaptive
criteria. The firm should verify whether its own sales force or a sales agency will create more
sales and it estimates the costs of selling different quantities through each channel.

Managing Marketing Channel

In order to maximize profit, companies must manage their marketing channel effectively.
Management of marketing channel refers to the process of analysing, planning, organizing
and controlling its marketing channel. In marketing channel two different activities occur.
One is the establishment of physical distribution system and other is management of
marketing objectives. Management of marketing channel involves all functions of marketing
mix which include product, price, physical distribution, program and people. The physical
distribution system and channel structure is established through which products flow in the
marketing channel.
Marketing Mix Activities In Marketing Channel Management: (McCalley, 1996)

To Mange marketing channel, firms must adopt motivational strategies such as paying higher
slotting allowances, offering higher trade discount, providing strong promotional and
advertising support, training channel member sales people, giving high level logistic support.
Management professional stated that after a firm has selected a channel system, it must select,
train, motivate, and evaluate individual intermediaries for each channel. It must also modify
channel design and arrangements over time.
Selecting Channel Members:
For successful management, Companies must have to choose talented channel members
cautiously because for customers, the channels are the company. Producers should decide
what features distinguish the better intermediaries and scrutinize the number of years in
business, other lines carried, growth and profit record, financial strength, cooperativeness,
and service reputation of potential channel members. If the intermediaries are sales agents,
producers should assess the number and character of other lines carried and the size and
quality of the sales force. If the intermediaries want exclusive distribution, the manufacturer
should assess locations, future growth potential, and type of customers.
Training and Motivating Channel Members:
It is a major responsibility of a company to examine its intermediaries in the same way it
views its customers. It needs to establish intermediaries’ needs and build a channel
positioning such that its channel offering is tailored to provide superior value to these
intermediaries. To enhance intermediaries’ performance, the company should offer training,
market research, and other capability-building programs. The company must also continually
strengthen that its intermediaries are to jointly gratify the needs of end users. Producers differ
greatly in channel power, the ability to change channel members’ behaviour therefore the
members take corrective actions. Often, gaining intermediaries’ collaboration is a major
challenge. Sometimes, Producers try to forge a long-term affiliation with channel members.
The manufacturer must talk clearly what it expects from its distributors in the way of market
coverage and other channel issues and may ascertain a compensation plan for adhering to
these policies. Motivating channel members takes numerous forms in order to gratify the
requirements at each level in channel. Profitability is major Motivational force for whole
seller for product selection. When profit motivation is satisfied, whole seller will look for
marketing programs offered by producers to sell products to retailers. Whole seller checks the
credit option and terms of payment when assessing the profit option for business when
dealing with particular supplier. Retailers are mainly concerned with maintenance of product
supply and availability. It is observed in market that when customers cannot get product in
one retail shop, they immediately search for it in another retailers. But retailers do not want to
lose customers. Another interest of retailers is profitability of the product.
What is Facility Management?
Facility management (FM) is a profession that encompasses multiple disciplines to ensure
functionality, comfort, safety and efficiency of the built environment by integrating people,
place, process and technology.

The International Organization for Standardization defines FM as the “organizational function which
integrates people, place and process within the built environment with the purpose of improving the
quality of life of people and the productivity of the core business.” ISO

WHAT DO FACILITY MANAGERS DO?

Facility managers (FMs) can have many different titles and arrive in their profession through
a variety of career paths. They’re responsible for making sure systems of the built
environment, or facility, work harmoniously.

FMs contribute to the organization’s bottom line through their responsibility for maintaining
what is often an organization’s largest and most valuable assets, such as property, buildings,
equipment and other environments that house personnel, productivity, inventory and other
important elements of operation.

WHAT SKILLSETS DO FACILITY MANAGERS

HAVE?
Even though FMs don’t always have similar titles, they share common roles within their
respective organizations, including:

 Occupancy and human factors

 Operations and maintenance
 Sustainability
 Facility information and technology management
 Risk management
 Communication
 Performance and quality
 Leadership and strategy
 Real estate
 Project management
 Finance and business

Facilities Management(ports/airports/ICD) channels of

distribution
Transhipment of Cargo

In India, a number of ports, airports, Inland Container Depots(ICD), Container Freight

Stations(CFS) having Customs clearance facilities have been developed to reduce congestion
at the gateway ports/airports and to allow importers and exporters to take Customs clearance
of imported and export goods at their door steps. Sometimes, cargo meant for third country
lands at an Indian port or airport. It has to be carried to its actual destination. The objectives
of bringing the Customs facility to door step of importing community & decongesting the
gateway ports/ airports, can be achieved only if movement of imported cargo or export cargo
is allowed between a port/airport and other ports/airports, ICDs/CFSs in India or a
port/airport abroad .

2. As per the Customs Act, duty becomes payable immediately after imported goods are
landed at a port or airport. To avoid payment of duty at the port of landing in cases
where goods are to be carried to another port/airport or ICD/CFS or to a port/airport
abroad, the Customs Act provides a facility of transhipment of cargo without payment
of duty. The goods can be transhipped from one port/airport to another
port/airport/ICD/CFS either by vessel, air, rail or road or by combination of more than
one such mode of transport..
3. The procedure for transhipment provided in section 54 of the Act is applicable for
imported cargo only. In regard to export cargo cleared from a port/ACC or ICD/CFS
and exported through some gateway port/airport, a similar procedure is being
followed to allow carriage of Customs cleared export cargo from a
port/airport/ICD/CFSs to another port/airport.

A. from gateway port to another port/ICD/CFS in India

4. The imported cargo unloaded at a port is allowed to be transhipped to another

port/ICD/CFS or a port abroad, if the cargo is mentioned in the import manifest for
such transhipment. The transhipment procedure of imported cargo is governed by the
provisions of section 54 of the Customs Act and the Goods Imported (Conditions of
Transhipment) Regulations, 1995. Broadly, the transhipment procedure is as follows:

(i) Transhipment Permit:

5. A 'transhipment permit' is the permission granted by the Customs, at the port/airport

of unloading of imported goods, to shipping agents for carriage of goods to another
port/airport/ICD/CFS in India. The shipping agent submits an application along-with
transhipment forms (5 copies), sub-manifest and a copy of IGM to the Customs. The
Customs scrutinizes the details furnished by the shipping agents in the application for
transhipment. In case, the documents are in order and there is no alert notice against
the shipping agent, permission for transhipment is granted by the Customs.

(ii) Execution of Bond and Bank Guarantee:

6. To ensure that imported cargo, on which duty has not been paid, are not pilfered en-
route to another port/airport/ICD/CFS and reach there safely, a bond with bank
guarantee (@ 15% of bond value) is executed by the carrier engaged for the
transhipment of the goods. The carriers in public sector i.e. CONCOR and CWC are
exempted from the requirement of bank guarantee for transhipment of goods. The
terms of the bond is that if the carrier produces a certificate from Customs of the
destination port/airport/ICD/CFS for safe arrival of goods there, the bond stands
discharged. In case such certificate is not produced within 30 days or within such
extended period as the proper officer of Customs may allow, an amount equal to the
value, or as the case may be, the market price of the imported goods is forfeited.
7. The bond value should be equal to the value of the goods. However, considering the
difficulties of shipping agents in producing documents for determination of value of
 the goods sought to be transhipped, the bond value is determined on the basis of
notional value of the goods, which is an average value of cargo per container
transhipped in the past.
8. To avoid multiplicity of bonds, the carriers are allowed to execute mother bonds
instead of individual bonds. The mother bonds are like running bonds. The value of
mother bond can be arrived on the basis of the average number of containers carried
per trip, the average time taken for submission of proof of safe landing of containers
at the destination ICDs/CFSs, frequency of such transhipment as well as notional
value of cargo per container. As mother bond is a running bond, its amount may be
high. If a running bank guarantee @ 15 % of total bond amount is taken, it may block
huge sum of money. To avoid blockage of money of carriers, an option has been
given to them to furnish either a running bank guarantee or individual bank
guarantees for each transhipment. Individual bank guarantee for each transhipment is
released as soon as the landing certificates from destination Customs are produced.
9. The bond or, as the case may be, mother bond and bank guarantee are debited at the
time of transhipment of import/export containers at the port of origin, and the same is
credited on receipt of proof of safe landing of containers at the port/ICD/CFS of
destination.

(iii) Execution of Bond for Re-export of Containers:

10. As the containers themselves are liable to duty, Customs duty exemption is provided
vide notification No. 104/94-Cus. dated 16/3/94 which, inter-alia, facilitates its being
taken out of the port without duty payment subject to execution of bond. The shipping
agents are required to file this bond with the container cell of the Custom house in
terms of the notification No. 104/94-Cus. dated 16/3/94, binding themselves to re-
export containers within six months of their import into India. The period of six
months may be extended by the Deputy/Assistant Commissioner of Customs.

(iv) Sealing of Containers:

11. After issuance of transhipment permit and execution of bonds as mentioned above,
containers are sealed with 'one time bottle seal' by the Customs. In case, containers
are already sealed with 'one time bottle seal' by the shipping agents, containers are not
required to be sealed again by the Customs. In such cases, shipping agents are
required to inform the serial number of seals to Customs, which is just verified by the
Customs.

(v) Carriage of Containers:

12. After sealing and/or checking of seals by Customs, containers are moved from the
gateway port and carried by the shipping agents to destination port/ICD/CFS by
vessels, rail or road.

a) Carriage by Rail:

13. Presently, rail movement is undertaken only by CONCOR, a Public Sector

Undertaking (PSU) under the Ministry of Railways. The CONCOR, being a PSU, is
exempt from execution of bank guarantee for transhipment. However, a bond is
required to be executed by them. After completing all the above-said formalities,
 containers are allowed to be loaded on wagons under the supervision of Customs. The
fact of such loading of the containers is endorsed by the preventive officer on all
copies of transhipment permit and one copy of the permit is given to the steamer
agent. One copy is retained for record, one copy accompanies the container and the
fourth copy is handed over in a sealed cover to the carrier i.e. CONCOR. The carrier
has to hand over the sealed cover to the Customs authorities at the destination.

(b) Carriage by Vessels:

14. The CBEC Circular 31/99-Cus. dated 27/5/1999 allows carriage of imported container
from gateway port to another port by vessels. For transhipment through a vessel,
procedure as explained above, i.e. issue of transhipment permit, execution of bond,
sealing of containers etc., needs to be followed. The formalities required to be
followed for transhipment through vessels are similar to those followed for
transhipment by rail.
15. To optimize the capacity utilisation of vessels, carriers have been allowed to carry
domestic cargo along-with the transhipment containers. However, to guard against the
possibility of replacement of transhipment goods with domestic containerised cargo,
some safeguards have been prescribed. All the transhipment containers as well as
domestic containers are required to be sealed by 'one time bottle seal' at the port of
loading. The domestic containers are required to be suitably painted with bold letters '
For Coastal Carriage only' for their identification. Further, carriers are required to file
a manifest for domestic containers.

(c) Carriage by Road:

16. The containers are also allowed to be carried from the gateway ports to ICDs/CFSs by
road. Many custodians of ICDs/CFSs, particularly those which are not connected by
rail, carry the container by road. The formalities to be followed are similar to those
followed for transhipment by rail.

(vi) Formalities at the Destination:

17. At the destination, carrier is required to present the sealed cover containing a copy of
transhipment permit to Customs. The Customs checks the particular of containers,
seals etc. with reference to transhipment permit. The carrier is required to obtain a
certificate regarding landing of container from the Customs.
18. In case, the seals are found to be broken at the time of examination of containers by
the Customs, a survey of contents of the containers is conducted in presence of
Customs officer, carrier, importer or his representative and representative of insurance
company. Shortage, if any, noticed is recorded and is signed by all those present. The
carriers are required to pay the duty for pilferage in terms of the condition of bond
executed by them with the Customs at the port of loading. This is apart from other
action which can be taken under section 116 of the Customs Act, 1962.

(vii) Submission of Landing Certificates to Customs at the Originating Port:

19. The carriers have to obtain the landing certificates of containers from the Customs at
the destination port/ICD/CFS and submit the same to the Customs at the originating
 port. The Customs reconciles its record and closes IGMs on the basis of these
certificates.

(viii) Clearance of the Goods:

20. After safe landing of containers at the destination port/ICD/CFS, the importers or
their authorised agents are required to follow all Customs formalities such as filing of
bill of entry, assessment, examination of goods etc., for clearance of the goods.

B. from Gateway Port to a Port Abroad:

21. For transhipment of containers from a port in India to a port abroad, shipping agents
have to file transhipment application along-with relevant documents to Customs. The
Customs scruitinises the application and if these are found to be in order, permission
to tranship the cargo is granted. In such cases, execution of bond or bank guarantee is
not required. After issuance of transhipment permit, goods are allowed to be loaded
on to the ship under the Customs supervision. The preventive officer supervising the
loading is to acknowledge loading of such cargo. The record is reconciled on the basis
of endorsement of the preventive officer and copy of EGM showing details of such
transhipment.

A. from Gateway Port to EPZ and SEZ:

22. The procedure for transhipment of cargo from gateway port to Export Processing
Zones(EPZs) and Special Economic Zones(SEZs) is similar to what has been stated
above for transhipment of cargo from port to another port/ICD/CFS above. For
transhipment to EPZs and SEZs, a bond with bank guarantee is required to be
furnished. The Customs in EPZ/SEZ give suitable landing certificate after checking,
which is to be submitted to Customs at the originating port.

Movement of export cargo from port/ICD/CFS to gateway port

23. The export cargo, after its clearance at a port/ICD/CFS, may be carried in sealed
containers to the gateway port for export. Broadly, the procedure in this regard is as
follows:
a. The exporters are required to bring their goods meant for exports to the
Port/ICD/CFS and file six copies of Shipping Bill with all necessary
documents like GR form, AR-4 Form, Certificate issued by Export Promotion
Councils, documents regarding quotas wherever applicable etc.. In addition to
the usual information given in the shipping bill, the exporter is required to
mention the gateway port of export on the shipping bill along-with the serial
number(s) of the container(s). The Shipping Bills are assessed as usual, the
goods are examined, samples drawn, and if required, inspection carried out by
other agencies to check compliance with provisions of various Allied Acts
before export is permitted. The original GR form is forwarded to the
concerned branch of Reserve Bank of India.

The examination order is given on the duplicate and two transference

copies of the Shipping Bill. The examination report is required to be recorded
on all these copies. After examination of the goods, container is sealed by the
Customs with 'one time bottle seal'. The duplicate copy of Shipping Bill is
 retained at the ICD/CFS/port and the transference copies are forwarded to the
gateway port. The E.P. copy of shipping bill is required to be suitably
endorsed/stamped by the Customs officer to the effect that the goods are to be
transhipped at the gateway port mentioned on the shipping bill for their
destination outside India.

The goods cleared for export at the port/ICD/CFS is allowed to be carried

to the gateway port for export subject to the conditions of execution of bond
similar to that provided for transhipment of import goods under relevant
Regulations, and if export goods are manifested for the final destination
through the gateway port. The FOB value of goods is to be debited from the
continuity bond executed by the custodians. The carriers/custodians
transporting the goods, are to be handed over the transference copies of
Shipping Bills in a sealed cover.

The containers are allowed to be carried from a port/ICD/CFS to the

gateway port by vessel or rail or road or by combination of two or more of
these modes of transport.

The drawback is required to be paid to the exporters as soon as the

shipping bills are passed and goods are shipped at the originating
port/ICD/CFS subject to the condition that the necessary bond has been
executed by the Steamer Agent/carrier to bring back and submit the proof of
export to the Customs within 90 days.

At the gateway port, the containers are normally allowed to be exported

under Customs supervision after checking the seals. In case seals are intact
and documents are in order, no further examination of goods is undertaken.
The preventive officer supervising the export of container, endorses the fact of
shipment in both the transference copies. Steamer agent has to file Export
General manifest(EGM) in duplicate.

One copy of transference shipping bill along-with a copy of EGM is sent

back to the originating port/ICD/CFS.

At the originating port/ICD/CFS, export manifest and transference copy

of shipping bill, received from the gateway port, are co-related with the
duplicate copy of the shipping bill and other relevant documents for closure of
export manifest and cancellation of bond.

Bonded Trucking facility:

24. To give flexibility to trade to choose mode of transport and to facilitate movement of
LCL cargo, a scheme has been introduced to allow movement of export cargo and
imported cargo between a port/ICD/CFS and gateway port in closed trucks. Broadly,
the features of the scheme for movement of export and imported cargo are as follows:

A. Export :

25. A procedure allowing carriage of export goods in truck from manufacturing

factories/ICDs/CFSs to the airport for further shipment by air or to the port for further
 consolidation of such goods into a container and subsequent export has been laid
down. Prior to introduction of the facility, full container load(FCL) cargo was allowed
to be transferred under Customs/Central Excise seal from ICD/CFS or from the
factories (in case of container stuffed inside the factory) to the gateway port. The
truck movement of export cargo allows carriage of smaller packages belonging to
more than one exporter in one truck which is to be sealed after stuffing in the
ICD/CFS. In case the goods are moving in truck from the manufacturing factory,
factory owner or exporter is responsible to account for the goods, whereas in case of
goods moving from ICD/CFS, the custodian of the ICD/CFS is responsible to account
for the goods. The procedure for movement of export cargo by truck has been
prescribed in the CBEC Circular No. 57/98-Cus., dated 4/8/1998. Broadly, the
procedure is as follows:
a. Under the scheme, shipping bills in six copies along-with all necessary
documents like GR form, AR form, certificates issued by Export promotion
Councils, documents regarding quotas wherever applicable, etc. are to be filed
by the exporters. The shipping bills are assessed and examined at the ICD/CFS
as is being done for cargo to be carried in containers to the gateway port. The
examination report is recorded on the duplicate copy as well as on the two
transference copies of shipping bills. The duplicate copy of shipping bill is
retained in the ICD/CFS and transference copies are sent to the gateway
airport or port. FOB value of the goods is debited from the continuity bond
executed by the custodians.
b. After the examination of goods is over, all the packages are handed over by
the Customs authorities to the custodians along-with two transference copies
of the shipping bills, certified copy of invoice, packing list and other
documents in a sealed envelope. All the packages are stuffed in the trucks
under the supervision of Customs and representative of custodians. After the
stuffing, trucks are sealed with temper proof bottle seals. The endorsement
that the trucks are sealed, are made on both the transference copies of shipping
bill. The seal number of seals is endorsed on all the documents.
c. At the gateway port or airport, documents are presented to the Customs, who
verifies the genuineness of documents and checks the marks and numbers of
the seals on the truck. If the seals are found intact and documents in order, the
goods are allowed to be de-stuffed from the trucks under Customs supervision.
The goods are then stuffed in containers by the shipping agents under Customs
supervision. In case of export by air, goods after de-stuffing from the truck,
are palletized and loaded in the aircraft under the Customs supervision. The
preventive officer, supervising de-stuffing of goods from the trucks and
stuffing of such goods in containers or as the case may be, palletisation of
goods, endorses the transference copies of shipping bills with 'shipment
allowed' endorsements. At the time of actual shipment endorsement 'let export'
is made on the transference copies of the shipping bills and AR-4. One copy of
shipping bill is retained at the gateway port/airport and the other is sent back
to originating ICD/CFS.
d. In case seals are found broken or some discrepancy is noticed, goods are
subjected to 100% examination. Action in terms of the bond can be taken
against the carrier in such cases.

B. Imports:
 26. Movement of import cargo from the airports/air-cargo complexes to another
airport/air-cargo complex/ICD/CFS by truck has also been allowed vide CBEC
Circular No. 69/99-Cus. dated 6/10/1999. Broadly, the procedure is as follows:
a. Under the scheme, the airlines or their agents or custodians of gateway
airport/air-cargo complex or the custodians of destination
ICDs/CFSs/airports/ACCs are appointed as custodians of imported cargo to be
transhipped in bonded truck from an airport/ACC to another
airport/ACC/ICD/CFS. The transhipment under the scheme is governed by the
provisions of the Goods Imported (Conditions of Transhipment) Regulations,
1995. The cargo to be transhipped needs to be manifested as for transhipment
by the incoming international carrier.
b. The custodian executes a suitable running bond with a bank guarantee for an
amount approved by the jurisdictional Commissioner of Customs for proper
accountal of goods. The amount is debited from the bond when transhipment
cargo is taken by the custodians and the bond is credited when the proof of
handing over of the cargo to Customs at final destination is produced.
c. The custodians are required to submit the list of trucks together with
registration numbers to be used for movement of each transhipment cargo. The
cargo to be transhipped, after its unloading at the airport, is immediately
shifted to transhipment warehouse of airlines or custodian. In case, the
airlines/custodian does not have a transhipment warehouse, the import cargo
duly passed with transhipment application is received by them from the
Airport Authority of India's (AAI) custody to their make up area specially
earmarked for the purpose of palletisation/containerisation on the same day
under the Customs supervision.
d. The custodian has to submit transhipment application along-with a copy of
airway bill to Customs. After scrutiny of the application, transhipment permit
for transhipment of cargo is issued. On getting the permission for tanshipment,
goods are shifted from the warehouse into truck under the supervision of
Customs. After loading of goods, truck is sealed with one time bottle seal by
the Customs.
e. The Customs at the destination check the Customs seal and description of
packages as per the transhipment permit. The custodian is responsible for the
safety and security of the cargo. After unloading of the goods at the
destination airport/ACC/ICD/CFS, the Customs makes suitable endorsement
on the copies of transhipment permit, a copy of which is retained by the
Customs at the destination airport/ACC/ICD/CFS and other copy is returned to
the originating airport. The custodians are required to submit proof of safe
arrival of goods at the destination, to the Customs at the originating
airport/ACC within 30 days from the despatch of goods, failing which suitable
action in terms of the condition of bond may be taken against the custodians.

Transhipment of cargo by air:

27. The CBEC Circular No.47/96-Cus., dated 16/9/1996 provides a detailed procedure for
transhipment of imported cargo by air (i) from an airport in India to another airport in
India, and (ii) from an airport in India to an airport abroad. The circular also provides
a procedure for movement of export cargo from an inland airport in India to an airport
abroad through a gateway airport in India. The movement of cargo between the
gateway airport and inland airport is allowed in Indian Airlines flights and also in
private sector airlines flights. The procedures in brief are as follows:
i. Transhipment of cargo from a gateway airport to an inland airport:
a. The transhipment of imported cargo from a gateway airport to an
inland airport is governed by the Goods Imported (Conditions of
Transhipment) Regulations, 1995. The airlines bringing the import
cargo, files an application for transhipment permit along-with copies of
airway bills to Customs. The Customs, after scrutiny of details
furnished in the application, issues transhipment permit. After issuance
of transhipment permit, goods are allowed to be stuffed in closed
trucks and taken to transhipment warehouse of the domestic carrier
under the Customs preventive escort.
b. On receipt of the goods at the warehouse of domestic carrier, the
Customs Officer posted in the warehouse has to acknowledge receipt
of the goods and make suitable endorsement on the copies of the
transhipment permit accompanying the goods. A copy of transhipment
permit is returned to the transhipment warehouse of airlines where
from the goods originated. The domestic carrier has to execute a bond
with security in terms of the said regulations. On receipt of goods,
domestic carrier has to prepare EGMs clearly mentioning transhipment
cargo as international cargo and submit the same to the Customs. The
transhipment cargo is loaded in the aircraft in presence of Customs.
Two copies of EGMs are also sent to Customs at the destination
airport.
c. The Customs at the destination airport, has to check the packages with
reference to EGM and make suitable endorsement on the EGMs. One
copy of EGM is returned to the Customs officer at the warehouse of
domestic cargo at the airport where from cargo originated, for
reconciliation of their record. One copy is to be retained there.
ii. Transhipment of cargo received at an airport in India from an airport abroad to
an airport abroad:
The cargo to be transhipped to any foreign destination is to be sorted out
immediately after landing at an Indian airport and is transferred to special
enclosure meant for storage of transhipment cargo under Customs supervision
by the concerned airlines. Before transhipment of any goods, cargo transfer
manifest is required to be presented in triplicate to the Customs. One copy is
retained at the warehouse of the airlines. The remaining two copies with cargo
are handed over to the carrier, who is to carry the goods to foreign destination.
The loading of cargo in the aircraft is undertaken under the Customs
supervision. The officer supervising the loading makes suitable endorsement
on the bill of transhipment and send a copy back to the warehouse of the
airlines.
iii. Movement of export cargo from an inland airport to an airport abroad through
an intermediate airport in India:
a. The shipping bills are filed, assessed and goods examined as usual at
the originating airport. The domestic carrier has to furnish a bond to
Customs to ensure that goods are safely exported out of India. The
domestic carrier is to carry cargo only under E.G.M. duly certified by
the Customs.
 b. At the gateway airport, the cargo received from the inland airport is
removed from the aircraft to the transhipment warehouse of domestic
carrier under Customs supervision. The domestic carrier presents the
EGM copies brought from inland airport, to the officer in-charge of
warehouse.
c. After storage of goods in transhipment warehouse, the domestic carrier
files cargo transfer manifest to the Customs. After obtaining the
permission from the Customs, goods are taken in closed trucks under
Customs supervision to the warehouse of foreign airlines. After
shipment of cargo, the officer in-charge of warehouse will reconcile
his records on the basis of EGM submitted by the foreign airlines. The
Customs officer at the warehouse of the foreign airline has to make
suitable endorsement evidencing receipt of cargo and subsequent
export on the copies of EGM brought by domestic carrier from the
originating airport. A copy of the said EGM is to be sent back to the
originating airport for accountal of goods by the Customs at the
originating airport. In case duly endorsed copy of EGM is not received
by the Customs at the originating airport within 30 days, action may be
taken in terms of the conditions of the bond.

LOGISTICS AND CUSTOMER SERVICE

In today’s global economy, customers set the bar of what is considered quality service or
what is a good brand. In any business, a customer’s experience determines the reputation of
the company, and the logistics industry is not an exception.

The bigger your business is, the more complex your supply chain gets. It can be hard to
maintain perfect customer service because everyone involved in the shipping process is
constantly affecting a company’s reputation through customer experience. In client service,
it’s impossible to be perfect, but it is possible to be better and provide your customers with
the best service possible. Customers want to have a smooth, easy experience when working
with a company. It is up to the company on how good that service can be delivered.

If you are striving to build long-term relationships with your customers and gain their loyalty,
you should consider shifting from product-oriented strategy to customer-focused one. Here
are some useful tips on how to take customer service to the next level:

1. Choose the tools and partners accurately. No matter what strategies and
technologies you use, there is always a human factor present. That’s the reason why
choosing partners properly will enhance your customers’ experience. If you
are outsourcing your logistics to a 3PL provider, make sure they have skilled and
professional brokers and a network of experienced and reviewed carriers. Such
services offer logistics management from A to Z and will take most of the hassle
away. But as you select a key link in your logistics, you should invest time
researching how to pick the best third-party logistics provider.
2. Transparency and personal approach. Try to make the process as easy as possible
for the customer. Supply chain visibility will reduce the time your client’s spending
on shipping, therefore improving the overall experience they get from working with
 you. Transparency involves not only shipment tracking but also the option to compare
available prices, services and understand how they work without any trouble. The
more personalized approach you provide, the higher your chances are to retain
customers. Send tracking updates and reports to customer to keep them in the loop,
ranging from shipment transits to weather reminders. This strengthens your
company’s credibility and simplifies the process for your customers.
3. Establish the last mile delivery. This is a final and crucial element in the
transportation process and obviously demands more concentration. The last stage of
delivery is the most vulnerable to mistakes or damages that may occur due to different
reasons. To reduce the likelihood of such circumstances, assure that everything goes
the way it should.
4. Provide feedback. No matter what issue took place, the response should be swift and
intended to solve the customer’s problem, or at least to figure out what is the issue.
Businesses should invest more in their staff training to reduce the chance of errors
while interacting with customers. Solving problems that occurred on behalf of your
company can make a big difference in a customer’s experience with your company.
Many 3PL companies provide customer service and can help their customers simplify
this complicated process.
5. Technology & analysis. Don’t underestimate the power of data: new technologies let
businesses track every step of the customer, existing or potential. Knowing the deep
insights of your audience leads to better performance, updated strategies, and better
service. Such innovations like transportation management systems, tracking devices
and CRM systems let businesses study customer’s behavior and improve marketing
strategies. So, researching and analyzing big data is the best way to achieve a better
understanding of customers’ demands.

Logistics' Role in Customer Satisfaction

Relationships are central to the success of Third Party Logistics companies and their
customers. 3PLs need to manage relationships with their direct customers as well as with
vendors that have the assets to provide the needed services. Here are the roles that logistics
plays in those relationships that affect customer satisfaction.

Bonus: Download our Guide Sheet — Top 10 Questions When Evaluating Third Party
Logistics Providers

Flexibility

Flexibility is an important element in keeping a logistics company’s clients satisfied, whether

servicing on-demand delivery orders, scheduled deliveries or managing a daily delivery
route.

If your company's workflow or production suddenly changes your need for logistics, you will
benefit from a partner with the resources to confidently deliver to added routes, service
alternate hours, operate different vehicles, and do whatever is necessary to meet your
adjusted demands.
Reliability & Communication

In the logistics industry, reliable delivery is extremely important. Clients will need to know
when a delivery service company will pick up items or goods, how the transfer will be
managed, how much time will be required for movement, and be assured that the item(s) will
be handled with the utmost care. These tasks require impeccable communication as well as
proper training and the ability to maneuver around unpredictable events that can affect
timing.

Strategies for optimizing communication between 3PL and shippers include customer access
to 3PL administrative responses and real-time data and full visibility of the delivery process
using advanced logistics technology.

Trackability

Readily available status updates fall under the umbrella of communication as well. Through
real-time order tracking as well as a responsive customer relations team, clients can keep
track of their deliveries from dock to door. State-of-the-art technology allows clients full
visibility of their inventory in the warehouse. Logistics providers such as QCS offer
warehouse space and fulfillment service for scheduled or on-demand delivery of stocked
items. These services are especially relevant in the fields of medical supply delivery and
manufacturing, in which unpredictable usage patterns can necessitate “off schedule"
restocking and delivery.

Customer Service

The courtesy given by associates when interacting with a customer can have a lasting impact.
Each individual employee from driver to warehouse manager to dispatcher is a representative
of the business, and quality customer service is paramount to remaining competitive within
the third party logistics industry.

UNIT V

IT AND SCM

Companies that opt to participate in supply chain management initiatives accept a specific
role to enact. They have a mutual feeling that they, along with all other supply chain
participants, will be better off because of this collaborative effort. The fundamental issue
here is power. The last two decades have seen the shifting of power from manufacturers to
retailers.
When we talk about information access for the supply chain, retailers have an essential
designation. They emerge to the position of prominence with the help of technologies. The
advancement of inter organizational information system for the supply chain has three
distinct benefits. These are −

 Cost reduction − The advancement of technology has further led to ready

availability of all the products with different offers and discounts. This leads to
reduction of costs of products.

 Productivity − The growth of information technology has improved productivity

because of inventions of new tools and software. That makes productivity much
easier and less time consuming.

 Improvement and product/market strategies − Recent years have seen a huge

growth in not only the technologies but the market itself. New strategies are made to
allure customers and new ideas are being experimented for improving the product.

It would be appropriate to say that information technology is a vital organ of supply chain
management. With the advancement of technologies, new products are being introduced
within fraction of seconds increasing their demand in the market. Let us study the role of
information technology in supply chain management briefly.

The software as well as the hardware part needs to be considered in the advancement and
maintenance of supply chain information systems. The hardware part comprises computer's
input/output devices like the screen, printer, mouse and storage media. The software part
comprises the entire system and application program used for processing transactions
management control, decision-making and strategic planning.

Here we will be discussing the role of some critical hardware and software devices in SCM.
These are briefed below −

Electronic Commerce
Electronic commerce involves the broad range of tools and techniques used to conduct
business in a paperless environment. Hence it comprises electronic data interchange, e-mail,
electronic fund transfers, electronic publishing, image processing, electronic bulletin boards,
shared databases and magnetic/optical data capture.

Electronic commerce helps enterprises to automate the process of transferring records,

documents, data and information electronically between suppliers and customers, thus
making the communication process a lot easier, cheaper and less time consuming.

Electronic Data Interchange

Electronic Data Interchange (EDI) involves the swapping of business documents in a
standard format from computer-to-computer. It presents the capability as well as the practice
of exchanging information between two companies electronically rather than the traditional
form of mail, courier, & fax.

The major advantages of EDI are as follows −

 Instant processing of information

 Improvised customer service
 Limited paper work
 High productivity
 Advanced tracing and expediting
 Cost efficiency
 Competitive benefit
 Advanced billing
The application of EDI supply chain partners can overcome the deformity and falsehood in
supply and demand information by remodeling technologies to support real time sharing of
actual demand and supply information.

Barcode Scanning
We can see the application of barcode scanners in the checkout counters of super market.
This code states the name of product along with its manufacturer. Some other practical
applications of barcode scanners are tracking the moving items like elements in PC
assembly operations and automobiles in assembly plants.

Data Warehouse
Data warehouse can be defined as a store comprising all the databases. It is a centralized
database that is prolonged independently from the production system database of a
company.

Many companies maintain multiple databases. Instead of some particular business processes,
it is established around informational subjects. The data present in data warehouses is time
dependent and easily accessible. Historical data may also be accumulated in data warehouse.

Enterprise Resource Planning(ERP) Tools

The ERP system has now become the base of many IT infrastructures. Some of the ERP
tools are Baan, SAP, PeopleSoft. ERP system has now become the processing tool of many
companies. They grab the data and minimize the manual activities and tasks related to
processing financial, inventory and customer order information.
ERP system holds a high level of integration that is achieved through the proper application
of a single data model, improving mutual understanding of what the shared data represents
and constructing a set of rules for accessing data.

With the advancement of technology, we can say that world is shrinking day by day.
Similarly, customers' expectations are increasing. Also companies are being more prone to
uncertain environment. In this running market, a company can only sustain if it accepts the
fact that their conventional supply chain integration needs to be expanded beyond their
peripheries.

The strategic and technological interventions in supply chain have a huge effect in
predicting the buy and sell features of a company. A company should try to use the potential
of the internet to the maximum level through clear vision, strong planning and technical
insight. This is essential for better supply chain management and also for improved
competitiveness.

We can see how Internet technology, World Wide Web, electronic commerce etc. has
changed the way in which a company does business. These companies must acknowledge
the power of technology to work together with their business partners.

We can in fact say that IT has launched a new breed of SCM application. The Internet and
other networking links learn from the performance in the past and observe the historical
trends in order to identify how much product should be made along with the best and cost
effective methods for warehousing it or shipping it to retailer.

Role of Technology in Supply Chain Management

A new generation of shopping options through eCommerce and mCommerce has made
supply chain management a vital area of concern for many businesses. It is particularly
critical for manufacturing companies, which are heavily dependent on the supply chain
partners to deliver their products.

Manufacturers, suppliers, retailers, shippers and distributors are the major stakeholders in the
supply chain of manufacturing companies, which ends with product delivery to the customer.
With an increasing emphasis on technological advancements, as well as the changes in
customer expectations, the need for an integrated supply management has become
increasingly important.

For manufacturing companies to build substantial customer bases, digitization of business

processes has become more of a necessity than a value-add proposition. This has increased
the requirement for creating a digital environment that seamlessly integrates the operations
carried out by various entities in the supply chain. Technological advancements now enable
businesses to build end-to-end supply chain solutions that speed up processes and avoid
bottlenecks in the supply chain.

Interestingly enough, real time or near real time information is the key factor in supply chain
management. Supply chain management software is designed to manage and enhance the
exchange of information of across various key supply chain partners to attain such outcomes
as just-in-time procurement, reduction of inventory, increase of manufacturing efficiency and
to meet customer needs in a timely fashion. Oftentimes, these technology solutions enable
companies to attain some level of on-demand or mass customization in the production cycle.

Value of Information Technology in Supply Chain Management

Increased Control Over Production
Use of information technology in supply chain management provides improved visibility and
accountability. In order to bring efficiency to the total production process, it is important that
a manufacturing company have clear sight into the current stage of in-production products,
foresee any potential problems or delays they might face and be able to align production
schedules accordingly. Use of technology can bring the necessary transparency into the
whole process. It allows the manufacturing companies to have better control over product
flow and information flow across the supply chain.

Better Inventory Management

Maintaining optimal levels of inventory is a challenge faced by all manufacturers. While
excess inventory leads to risk of waste and for an increased need for working capital funds,
too low of inventory may lead to stoppages in the production cycle and of losing business
through stockouts. With the use of technology, manufacturers can create adaptable business
processes that provide flexibility to handle varied demand situations. The analytics will help
you achieve financial goals with predictable success by managing your inventory and sales
orders effectively.

Increased Collaboration Between Supply Chain Partners

With the IT enabled, real time information sharing, manufacturers can increase the
collaboration with their key partners. Manufacturers can also track activities through the
whole supply chain, with visibility into supplier end and distributor processes. Such
information can help the manufacturers in making more informed decisions and better
forecast future demand. This helps control the manufacturing process and leads to lower costs
through more effective decisions in procurement and contract management.

More Effective Order Tracking and Delivery

Timely delivery of product is an important factor in ensuring customer satisfaction. Higher
customer satisfaction levels lead to higher customer retention and repeat business.
Technology solutions can play a vital role in increasing speed of delivery and in keeping the
customer informed about the product delivery schedule. Processes can be designed to keep
customers informed throughout the process, from order confirmation to order fulfilment. It
can also provide a platform for the customer to track their order, increasing a customer’s
sense of self-sufficiency and control, while at the same time transferring customer service
tasks to the customer, which saves manufacturers time and money. Manufacturers can also
develop mechanisms to interact with their logistic providers and get real time updates on
shipments of both their inventory and product delivery.

Product manufacturing is a complicated process and any hindrances faced in the production
generally result in increased costs and increased product cycle time. By embracing
technology to gain better visibility across all areas of the business and make data driven
decisions based on real time information, technology brings efficiency across the whole
manufacturing process. The net result in using technology in supply chain management
includes lower cost of product, reduced working capital needs, and increased customer
satisfaction. It’s definitely a win for all participants.

GlobalDirective is a strategic, technology-based marketing firm. We’ll help you zero in on

your greatest opportunities for higher revenue or lower costs, and then develop cost effective
solutions to help you harvest these options to your advantage. Contact us today for an
assessment of the digital, information technology based opportunities for your business.
Artificial intelligence (AI) is technology that allows machines, software and systems to
emulate some types of human intelligence and behavior. AI is driven by systems that use
“intelligent agents” and complex algorithms to understand information, perform tasks and
adapt to changing inputs and environments.

Typically, AI uses human reasoning as a model for decision making, with a goal of providing
better insights, products, services or efficiencies. There are several subfields of AI
including machine learning, natural language processing, planning, problem solving and
robotics.

Artificial intelligence has several applications in the supply chain, including extracting
information, data analysis, supply and demand planning, autonomous vehicles and warehouse
management.

How Artificial Intelligence Relates to the Supply Chain

AI plays several important roles in optimizing the modern supply chain. AI use cases are
growing all the time and promise to deliver real value for supply chain management (SCM).

E xtract I mp ortant Data From Cu stomers, Supp li ers and Docu men ts

Natural language processing (NLP) is a technology that parses human language and extracts
insight via AI. NLP can scan through supply chain contracts, purchase orders, chat logs with
customers or suppliers and other documents to identify common themes or issues. This
feedback can be used to optimize SCM as part of continual improvement.

S treamlin e Su ppl y, Demand and In ventory Man agement

Machine learning is another aspect of AI that can analyze complex data to establish current
patterns and future trends, then make decisions based on outcomes. Machine learning helps to
manage the flow of goods throughout the supply chain, ensuring that raw materials and
products are in the right place at the right time.

Forecas t Demand Before Prod u cts Are Need ed

AI can source and process data from many different areas and forecast future demand based
on external factors. This feeds into supply and demand planning and product development.

O pti mi ze Wareh ouse Man agemen t and L ogisti cs

Warehouses are busy, ever-changing environments. AI can analyze warehouse processes and
optimize the sending, receiving, storing, picking and management of individual products. It
can also analyze fleet performance and ensure the right distribution channels to get goods to
retailers and other customers in good time.
Au tomate Veh i cl es i n Di stri b u ti on Cen ters an d O th er L ogi sti cs
O p erati on s

Together with optimizing warehouse operations, AI can also power autonomous vehicles
within distribution centers. Larger facilities often use robotic vehicles and tools to store and
pick items, and they use the most efficient routes thanks to AI. In the longer-term, trucks may
even become fully autonomous, reducing reliance on human drivers..

Why Artificial Intelligence Matters to the Supply Chain

Artificial intelligence delivers several benefits for SCM:

 Data analysis and insight creates actionable business intelligence that drives continual
improvement.
 Speed is enhanced throughout the supply chain due to much more efficient supply and
demand planning, driven by marketplace factors, consumer needs and other environmental
changes.
 Logistics is improved due to optimized warehouse operations and distribution.
 Costs are reduced due to savings in reduced inventory and storage costs, goods being
processed more quickly and faster distribution.
Solutions with intelligent capabilities—powered by artificial intelligence (AI) and machine
learning—are becoming even more critical in the movement of goods across assets and the
supply chain.

These intelligent capabilities include:

 Supply and demand matching

 Predictive analytics and ETAs
 Real-time visibility into inventory at rest and in motion
 Precision around availability and real-time status of orders
 Forecasting maintenance and repair cycles on assets

The Challenges of Using Artificial Intelligence in the Supply Chain

Up-to-date, accurate data is vital to getting good information and actions out of any AI
system. AI systems should be integrated with systems and databases with a rigorous process
for accessing, cleansing, analyzing and acting on data.

AI relies on algorithms and models to drive insight and actions through the supply chain.
SCM should run periodic checks against these models and actions to make sure everything is
working within expected parameters.

AI should never work in isolation, especially for areas like supplier management. Although
AI is a great way to enhance efficiency, understand data and drive actions, it is not a
substitute for good relationship management by the SCM team.

Use Cases for Artificial Intelligence in Retail and Manufacturing Supply Chains
There are plenty of good use cases for optimizing a supply chain through artificial
intelligence:

 Large e-commerce and other retailers can use AI to optimize warehouse picking routes for
human or automated pickers and packers.
 AI can gather information from customers and suppliers through chatbot interfaces to
identify delays, damaged products or other issues caused by the supply chain.
 Demographic, social, economic and other analysis can identify consumer trends that will
change demand for specific products.
 Retailers can optimize the distribution of products, resulting in happier consumers.
 Manufacturers can analyze production processes and use AI to make small changes to
optimize further.
 The eventual replacement of drivers with automated trucks will lower costs in the logistics
industry and enable more rapid distribution of products.

The graphic below shows a breakdown of the applications of AI in 835 different companies in
the past year.

Source: HBR

While the potential for AI application and implementation is quickly visualized in this graph,
it lacks a percentage designated to supply chain management (SCM). That’s because, of the
companies surveyed, application of AI into SCM related activities hasn’t been actualized on a
wide-scale.

“Only 2% are using artificial intelligence to monitor internal legal compliance, and only 3%
to detect procurement fraud (e.g., bribes and kickbacks). […] Only 7% of manufacturing and
service companies are using AI to automate production activities. Similarly, only 8% are
using AI to allocate budgets across the company. Just 6% are using AI in pricing” (hbr.org
2017).

How can AI be applied within SCM activities?

1. Chatbots for Operational Procurement:

Streamlining procurement related tasks through the automation and augmentation of Chabot
capability requires access to robust and intelligent data sets, in which, the ‘procuebot’ would
be able to access as a frame of reference; or it’s ‘brains’

As for daily tasks, Chatbots could be utilized to:

· Speak to suppliers during trivial conversations.

· Set and send actions to suppliers regarding governance and compliance materials.

· Place purchasing requests.

· Research and answer internal questions regarding procurement functionalities or a

supplier/supplier set.

· Receiving/filing/documentation of invoices and payments/order requests (Smith 2016).

2. Machine Learning (ML) for Supply Chain Planning (SCP)

Supply chain planning is a crucial activity within SCM strategy. Having intelligent work tools
for building concrete plans is a must in today’s business world.
ML, applied within SCP could help with forecasting within inventory, demand and supply. If
applied correctly through SCM work tools, ML could revolutionize the agility and
optimization of supply chain decision-making.

By utilizing ML technology, SCM professionals — responsible for SCP — would be giving

best possible scenarios based upon intelligent algorithms and machine-to-machine analysis of
big data sets. This kind of capability could optimize the delivery of goods while balancing
supply and demand, and wouldn’t require human analysis, but rather action setting for
parameters of success.

3. Machine Learning for Warehouse Management

Taking a closer look at the domain of SCP, its success is heavily reliant on proper warehouse
and inventory-based management. Regardless of demand forecasting, supply flaws
(overstocking or under stocking) can be a disaster for just about any consumer-based
company/retailer.

“A forecasting engine with machine learning, just keeps looking to see which combinations of
algorithms and data streams have the most predictive power for the different forecasting
hierarchies” (forbes.com 2017).

ML provides an endless loop of forecasting, which bears a constantly self-improving output.

This kind of capabilities could reshape warehouse management as we know today.

4. Autonomous Vehicles for Logistics and Shipping

Intelligence in logistics and shipping has become a center-stage kind of focus within supply
chain management in the recent years. Faster and more accurate shipping reduces lead times
and transportation expenses, adds elements of environmental friendly operations, reduces
labor costs, and — most important of all — widens the gap between competitors.

If autonomous vehicles were developed to the potential — that certain business analysts and
tech gurus have hypothesized — the impact on logistics optimization would be astronomical.
“Where drivers are restricted by law from driving more than 11 hours per day without taking
an 8-hour break, a driverless truck can drive nearly 24 hours per day. That means the
technology would effectively double the output of the U.S. transportation network at 25
percent of the cost” (techcrunch.com 2016).

5. Natural Language Processing (NLP) for Data Cleansing and Building Data
Robustness

NLP is an element of AI and Machine Learning, which has staggering potential for
deciphering large amounts of foreign language data in a streamlined manner.

NLP, applied through the correct work took, could build data sets regarding suppliers, and
decipher untapped information, due to language barrier. From a CSR or Sustainability &
Governance perspective, NLP technology could streamline auditing and compliance actions
previously unable because of existing language barriers between buyer-supplier bodies
(greenbiz 2017).
What every Procurement Team can learn from Marketing Automation.
Procurement is a function, activity, and role that is increasingly business critical to an
organization's overall value…kodiakrating.com

6. ML and Predictive Analytics for Supplier Selection and Supplier Relationship

Management (SRM)

Supplier selection and sourcing from the right suppliers is an increasing concern for enhancing
supply chain sustainability, CSR and supply chain ethics. Supplier related risks have become
the ball and chain for globally visible brands. One slip-up in the operations of a supplier body,
and bad PR is heading right towards your company.

But, what if you had the best possible scenario for supplier selection and risk management,
during every single supplier interaction?

Data sets, generated from SRM actions, such as supplier assessments, audits, and credit
scoring provide an important basis for further decisions regarding a supplier.

With the help of Machine Learning and intelligible algorithms, this (otherwise) passive data
gathering could be made active.

Supplier selection would be more predictive and intelligible than ever before; creating a
platform for success from the very first collaborations. All of this information would be easily
available for human inspections but generated through machine-to-machine automation;
providing multiple ‘best supplier scenarios’ based on whatever parameters, in which, the user
desires.

Organizational issues to implement SCM.

Companies increasingly are becoming aware that their opportunity to having a competitive
edge in business can come through supply chain. In the case of companies operating on
global scale, supply chain strategies drive operational efficiencies and affect the bottom line.
Unlike technology or other core areas affecting business, Supply chain is always in a
dynamic mode. Project managers who head supply chain projects are often faced with lot of
challenges and issues to over come all through the project. In this topic we air to discuss a
few practical problems and road blocks faced in implementing and operations of Global
supply chain projects.

Project Scale & Span of Control

Often projects are rolled out on global scale involving multiple countries and locations with
all sites scheduled to go live around same timelines. The Project managers and sponsors
would be located in one country and physically it becomes impossible for project managers to
keep running to all locations and be available to concentrate on all sites. Yes project teams
are formed at regional country level. However if the project planning, design and control lies
with one office or a single person or a team, the rest of the project teams would become
enablers and implementers resulting in the dilution of energy and focus. The core project
team resources cannot spread themselves thin to attend to all sites and hence the biggest or
the most important locations get attention while the others suffer due to lack of focus.

Supply chain projects involve technology implementation including infrastructure and

software. They also involve multiple logistical modules involving transportation,
international freight and warehousing etc.

Span of control over project implementation is very important in case of logistics projects
involving multiple channels and external and internal agencies. Project managers at best can
concentrate on rolling out the project in one country depending upon the number of sites and
the logistical components involved.

If the project involves setting up a distribution center or warehouse, all the more reasons that
the roll out should be limited to country level.

Technology

Adoption of right technology and implementation often faces roadblocks in implementing

global supply chain projects. Projects roll out common processes to be followed across all
countries and locations and involve use of technology to drive the processes.

Many issues concerning technology are faced in a project:

 Technology solutions

Most multi national companies find that their supply chain operations across the
world are managed not on one application or a set of applications, but each location
and country would have implemented either legacy systems or stand alone systems to
manage individual local logistics activities. Once implemented, it becomes difficult to
isolate such applications and shift them to one common platform without which
common processes and standardization cannot be driven across locations.

Secondly any software solution would require to be customized to suit local site and
country requirements. One solution does not fit all. While the solution may work in
 one country with bigger volumes and size of supply chain network and warehouses,
the same software may not be suitable to be implemented in a small country with one
location.

Cost of Technology Absorption then becomes an issue. When a project proposes to

introduce a system across all countries in the supply chain network to bring about
seamless integration and common processes, it fails to account for the cost of
technology and capability of all countries and locations to absorb the cost. The costs
of IT implementation are exorbitant. A bigger site and country may be able to pay for
the IT cost but if the same cost is expected to be paid out of another country which
has lesser volumes, it may not be able to absorb the cost, unless the global project
management is able to absorb the costs into the project cost or get corporate
management to absorb the cost and take it off from the user country’s budget.

 Cost of Technology absorption

Implementation of technology calls for the IT teams to travel to all locations,

implement the setup. Train the people and stabilize the sites post Go Live. The cost of
implementation can run high. Again all countries may not be able to bear the cost of
such implementation.

 Availability of technology infrastructure

Technology infrastructure availability is different amongst countries and within the

country. Internet connectivity and bandwidth may not be the same cross all locations
which can hinder implementation of an internet based technology application.
Normally if the project is driven at a global level, the local infrastructure issues of
many countries do not figure while considering the suitability of IT platform for
implementation.

 Internal & External resource capability

Supply chain projects involve multiple locations and cross functional departments and
teams within the organization. Besides they also include multiple external agencies
who manage the logistics.

Driving projects through various country managements requires enormous internal

selling to be done. The projects also call for external selling with the service
providers. Local country managements as well as the service provider country
managements may or may not have the same interest and commitment to the project
as much as the global project leadership would have. These are soft challenges faced
by Project Managers, to be able to sell the idea and get commitment from all stake
holders.

The availability of quality resources both internally and externally in all locations is
critical to the implementation of the project and is often a challenge which can hold
up implementations and training.

According to a third party logistics study by Capgemini, ‘cutting transportation costs’

makes the top of the list as far as concerns for the logistics industry. Some other
obvious pain-points make the list as well, but perhaps the most important and at times
challenging concern is the need for greater innovations and technology advances while
remaining budget-conscious.
Here is a snapshot into 8 of the top challenges facing the industry.

1. Fuel Costs. One of the highest costs contributing to the ‘cutting transportation cost’
concern is fuel prices. Higher fuel prices are likely to increase transportation costs for
US shippers this year by pushing up fuel surcharges. Rising US diesel fuel prices are
escalating surcharges added to freight rates, which is reversing a two-year trend that
cut into the revenue and earnings of truckers as fuel prices plummeted.
2. Business Process Improvement. Not withstanding the need for new technology,
which we discuss in number eight on this list, it has become an increasing challenge
for the logistics industry to stay on top of new advances in business processes. Taking
advantage of these new opportunities sounds enticing but adoption and onboarding
can be overwhelming.
3. Improved Customer Service. Customers want full transparency into where their
delivery is at all times. These days, the location of a package is as interconnected as
your social network. In fact, as customer expectations have increased, their
willingness to pay for fast shipping has decreased with just about 64 percent of
consumers unwilling to pay anything extra for less than two-day shipping.
4. Economy. With high fuel prices comes a greater credit crisis and rising inflationary
demands that take a greater toll on the US economy. This industry is then pressured
by increasing compliance regulations, declining demand, additional capacity with
additional increases in key cost centers.
5. Driver Shortage & Retention. Hiring and retention remain an issue despite the lower
demand mentioned above.
6. Government Regulations. Carriers face significant compliance regulations imposed
by federal, state and local authorities.
7. Environmental Issues. The anti-idling and other emission reduction regulations
brought about by state and local governments has created concern that the compliance
costs could exceed benefits.
8. Technology Strategy & Implementation. While the industry understands and
supports many of the benefits of these technologies, some questions remain as to how
they will pay for it and who will help implement the improvements.

We understand how difficult it can be to manage these concerns. Outsourcing all or a portion
of your freight and business processes can often provide the required expertise, people,
capacity and IT systems needed to help reduce expenses, improve visibility into the supply
chain, effectively manage the supply chain and achieve greater regulatory compliance. DDC
FPO offers the right solutions to help lighten your load.
Digital Solutions:
Whether your business is small or large, you have an online presence, are looking to launch
products/promotions, or you are just in need of updating your site to keep up with the digital
age -- we have a solution for you. We have an experienced team of IT professionals with
solutions such as Application, Web and Program development. Our team of highly skilled
programmers can write programs in a multitude of different programming languages, such as
Ruby on Rails, PHP, iOS & Android.
Freight Billing:
Make in-house entry of your freight bills a thing of the past. We have a full service offshore
team of trained billers, quality control personnel and supervisory staff that are trained
specifically for LTL and Parcel billing.
Our Remote Freight Bill Entry Solution offers you the following benefits.

 Fully and semi-automated programs that eliminate the need for human intervention
 Improved accuracy of bill entry process
 Standardization that allows for quality metrics to be met
 Adaptability to meet the individual needs of your business
 Enhanced client experience
 Immediate and long term cost containment

Freight Rate Auditing:

Accuracy on rates are crucial to maintain strong customer relationships.
We can examine, adjust and verify carrier freight bills for accuracy. Our model leverages
expertise, scalability, flexibility and system compatibility. Combine this with our industry-
trained staff and our extensive list of service capabilities and we’ll equip your back office
with the knowledge and resources necessary to tackle the challenges of tomorrow’s freight
audit.
POD Processing:
Provide the visibility that your customers require, while also freeing up internal resources.
Our uniquely crafted Proof of Delivery (POD) Retrieval solution allows you to check the
delivery status of your jobs direct from any web browser.
By leveraging the insight gained after twelve successful years of custom-building business
process solutions for top North American carriers and transportation and logistics companies
around the globe; we can offer you access to the following:

 POD images online that are downloadable

 Up-to-date status updates on your shipments
 Streamlined administrative operations

5 Challenges Logistics Managers Face Every Day

In present day global economics, logistics plays a key role in facilitating trade and, by
extension, ensuring the success of business operations. Logistics managers have seen
increasing challenges to create and keep efficient and effective logistics and supply chain
methods. Here we discuss five of the biggest logistics challenges faced on a daily basis.

1. Customer Service
Logistics management is all about providing the right product in the right quantity to the right
place at the right time. Customers want full transparency into where their delivery is at all
times. In this day and age, the whereabouts of a customer’s shipment is as interconnected as
your social network. In fact, as customer expectations have increased, their willingness to pay
for fast shipping has decreased, with just about 64 percent of consumers unwilling to pay
anything extra for less than two-day shipping.

2. Transportation Cost Control

One of the highest costs contributing to the ‘cutting transportation cost’ concern is fuel
prices. Higher fuel prices are likely to increase transportation costs for U.S. shippers this year
by pushing up fuel surcharges. Rising U.S. diesel fuel prices are escalating surcharges added
to freight rates, which is reversing a two-year trend that cut into the revenue and earnings of
truckers as fuel prices plummeted.

3. Planning & Risk Management

In order to stay as efficient and effective as possible, periodic assessments and redesigns of
each business sector are necessary. These adjustments are put in place in response to changes
in the market, such as new product launches, global sourcing, credit availability and the
protection of intellectual property. These risks must be identified and quantified in order to
control and moderate.

4. Supplier/Partner Relationships
It is important to create, understand and follow mutually agreed upon standards to better
understand not only current performance, but also opportunities for improvement. Having
two different methods for measuring and communicating performance and results wastes
time and effort.

5. Government and Environmental Regulations

Carriers face significant compliance regulations imposed by federal, state and local
authorities. As well as federal regulations, environmental issues such as the anti-idling and
other emission reduction regulations brought about by state and local governments has
created concern that the compliance costs could exceed their benefits.

With the landscape of business operation continuously changing, there is a shift in the
ensuing challenges as well. Staying up to date with these changes and taking pre emptive
measures to ward off challenges is a sign of successful logistics management.

*******GOOD LUCK*******THANK YOU**************