SYLLABUS-

ANNA UNIVERSITY, CHENNAI

SUPPLY CHAIN MANAGEMENT

UNIT I INTRODUCTION 9
Supply Chain - FW1damentals, Evolution, Role in Economy, Impo11ance, Decision
Phases, Enablers & Drivers of Supply Chain Performance; Supply chain strategy;
Supply Chain Perfom1ance Measures•.

UNIT II SUPPLY CHAIN NETWORK 9

Distribution Network Design - 'Role in supply chain, influencing factors, design
options, online sales and distribution network, Distribution Strategies; Network De
in in supply chain - Role, influencing factors, fran1ework for network design, Impact
ofunce11ainty on Network Design.

UNIT III PLANNING DEMAND, INVENTORY AND SUJ>PLY 9

Managing supply chain cycle inventory and safety' inventory - Uncertainty in the
supply chain, analyzing impact of ·supply chain redesign of the inventory, Risk
Pooling, Managing inventory for short life-cycle products, multiple item -multiple
location inventory management; Pricing _and Revenue Management.

UNIT IV· LOGISTICS 9

Transportation·- Role, Modes and their characteristics, infra structure and
policies, transport documentation, design options, trade-offs in transportation d
sign, intermodal transportation. Logistics outsourcing• - catalysts, benefits, value
proposition. 3 L, 4PL, SPL, 6PL; International Logistics -objectives, importance in
global economy, Characteristics of global supply chains, “incoterm.

UNIT V SUPPLY CHAIN INNOVATIONS 9

Supply Chain Integration, SC process restructuring, IT in Supply. Chain; Agile
Supply Chains, Legible supply chain, Green Supply Chain, Reverse Supply chain;
Supply chain technology trend - AI, ·Advanced analytics, Internet of
Things, Intelligent things•, conversational systems, robotic process automation
in1mersive technologies, Block chain.
 UNIT. I
INTRODUCTION
'
Supply_ Chain - Fundamentals·, Evolution, Role in··Economy, Importance,
Decision Phases, .Enablers & Drivers o-fSupply·Chain P·erformance; Supply chain
strategy; Supply Chain Performance Measures.

1.l. INTRODUCTION TO SUPPLY CHAIN

A supply chain consists of all parties involved, dire"ctly or indirectly, in satisfying

a customer request. The supply chain includes not only the manufacturer and
suppliers, but also transporters, warehouses; retailers, and even customers
themselves. Within each organization, such as a manufacturer, .the supply chain
includes all functions involved· in receiving anq filling a customer request. These
functions include, but are not•limited to, new product development, marketing,
operations, distribution, finance, and cust mer service.

1.2. SUPP-LY CHAIN FUNDAMENTALS

Making sure the distr bution n twork is aligned suitably

Understanding the customer arid product profitability
Adopting good sales and operat10n planning processes
Managing the inventory correctly
Managing the outsourcing contracts c rrectly

1.2.1. THE 4 FUNDAMENTALS OF SUPPLY CHAIN

1. Objectives
2. Philosophy
3. ., Managing the Flows
·4_ Supply Chain Relationships
 Supply Chain Management .

1.2.2. OBJECTIVES
The objective of every supply chain is to ma.·dmize the overall value
generated.
The value a supply chain generates is the difference between \vhat the final
product is worth to the customer ru1d the costs the supply chain acquires in
filling the customer's request.
For most commercial supply chains, value will be strongly associated with
supply cha n profitability (also known as sl1pply chain surplus), the
difference between the -revenue generated from the customer and the
overall cost across the supply chain.
The higher the supply chain profitability, the 'mc;>re successful is the supply
chain. Supply chain succ_ess should be calculated in tem1s of supply chain
profitability and not in tem1s of the profits at an individual stage.
Effective supply chain management involves the management of supply
chain resources and product, infonnation, ru1d fund flows to take full
advantage of total supply chain profitability.

1.2.3. PHILOSOPHY
Secondly, every product or service is delivered to the final consumer (the
only source of "real" money in the chain) through a series of often
complex movements bet\\ een companies which comprise the complete
chain.
Inefficiency anywh re in the chain will result in the chain as a whole
failing to achieve its true competitive potential.
The philosophy of effective integration between• purchasing and
procurement (buy), production planning and control (make), warehouse
management (store), transport management (move) and customer
relationship management (sell). '

1.2.4. MANAGING THE FLOWS

For a supply chain to achieve its n-iaximum level of effectiveness and
efficiency, material flows, money flo·ws and information flows.throughout
 th_e entire chain must be managed in an integrated and complete manner,
driven by the overall service and cost objectives.
This view of a macro ch am • •md"1c••ates 'the way in which material, m
• oney
(funds) and information flow between the· companies which participate in
the chain.

1.2.5. SUPPLY CHAIN RELATiONSHIPS

This approach require a reappr isal of the way i which both internal and
external customer/supplier relationships are ·created and managed.
SCM is not·a "zero-sum" game based on adversarial' relationships. Rather,
it_needs to be a "win-win" game based on partnership approaches.
This is relevant to the interactions between the key "internal"-supply chain
functions of buy, make, store, move and sell, as well as to relationships
between an organization and its·external customers and suppiiers. •
One of the biggest· manifestations of the application of supply chain
philosophy in recent years has involved the move away from adversarial
relationships with key external suppliers towards relationships which are
based on mutual trust and benefits, openness and shared goals and
.,

objectives.

1.3. SUPPLY CHAIN MANAGEMENT

"Supply Chain Management is the integration of the business process from

. ' .
the end user through.original supplier who provides products services and
information that adds value for the customers."
Supply Chain Management (SCM) is the management of the flow of goods
and services, involves t e movement and storage of raw mate ials, work-
in-process inventory, and_of finished goods as well as e!)d to end order
fulfillment from poi t of origin to point of consumption.
• Supply Chain Management is primarily· concerned with thei effici_ent
integration of uppliers, factories, warehouses .and stores·so that products
is produced and-distributed in the right quantities to minimize total system
cost subject to satisfying customer service requ.irerrients.
 I •

Supply Chain Management

[il]
Supply Chain M agement is_the "design, planning, e ecution, control,
and monitoring of upply-chain activities with the objective of creating net
value, building· a competitive infrastructu·re, leveraging worldwide
logisti s, synchronizing supply with demand and measuring perfonnance
globally.
Supply Chain management can also be defin d as a systen:iatic flow of
materials, goods, and related information a°:long suppliers, companies,
retailers, and consumers.
.I

There are three differen.ttypes o.flow in supply chain management as

shqwn in Fig.I. I.
(a) Material :flow
(b) Information/Data flow
(c) Money flow

Material Flow. •

Material flow includes a s_mooth flow of an item from t e producer to·the

consumer. This is possible through various warehouses among
distributors, dealers and retailers.
• The main challenge we face is !Il ensuring that th material flows as
inventory quickly without any stoppage through different points in the
chain. The quicker_ it moves, the better it is for the company, as it
minimizes the cash cycle.
The item ca also flow from the consumer to th . producer for any kind of
repairs, or exchange for an end of life material.

Information Flow
Information/data flow comprises the request for quotation, purchase ord.er,'
monthly schedules, engi_neering change requests, quality complaints and
reports on supplier performance from customer side t the supplier.
From the producer's side to·the consumer's side, the information flow
consists of purchase order, dispatch details, report on inventory, invoices,
' etc.
Introduction [}]]

.=.
(.) i5

3:
0
LL
.Q C:
3: 0
0
. Q)
a.
0

C
-

Fig. 1.1.f!'low i11 Supply Chain

 Supply Chain Management

Money Flow
Money flows from the customer side to the respective producer for the
product which they buy through retailer, distributor and wholesaler.
. 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.

1.4. SCOPE OF SUPPLY CHAIN MANAGEMENT

(i) Minimizes Operating Cost

(ii) Boosts Customer Service
(iii) Manages Distribution .
.(iv) Ensures Coordination
(v) _Better Inventory Management
(vi) Better Supplier Management

(i) Minimizes Operating Cost

Stipply chain management focuses on reducing the overall operating cost
of •the organization. It aims at bringing efficiency and raisfog the
profitability of organizations.
By developing a proper ch in it brings down the purchasing cost,
production cost and delivery cost.

It enables smooth flow of raw materials from the supplier to an

organization which reduces the holding perio·d of materials with the
supplier and avoids any losses due to·delay in production.
I •

Similarly, companies are_ not required to hold on expensive inventories for

-. .
alonger time and di tribute quickly through the supply chain.

(ii) Boosts Customer Service

Supply chain management helps in providing better service to customers.

I Introduction

All production strategies are framed in accordance with requirements of

customers to manufacture right product.
It properly anticipates the·demands of customers before initiating the
production. Right product available to right cost provide better satisfaction
to customers.
' T is will oost their confidence level in company's products.
(iii) Distribution

Distribution of products at the right time and the right location 1s a

complex task for every organization.
1
Suppi°y chain managemen t accelerated the overall distribution system of an
organization.
• It coordinates with various transportation channels and warehouses for
attaining faster movement of goods.
Supply chain ensures that all products get delivered at the right location
within the time limit.
:• By developing a proper network for movement of goods it has to ease the
whole distributi_on system.

(iv) Ensures Coordination

Proper coordination arriong all partners of business increase productivity
and profitability.
It develops a proper channel through which employees, supplier and
, customers can easily interact with business.
Customers can also access their brands·for any information through self-
portals which are developed as a part of the customer support system. This
enables a better exchange of information and brings coordination among
partners.
{v) Better Inventory Management
Maintaining an optimum inventory is a must for uninterrupted operation of
every business
 -

./

Supply Chain Management

It. keeps record of all inventories that is raw materials, spare parts and
.

finish d g?ods,. Supply ch.ain ensures tha the proper _amount of inventory
s always n:t i tained within the organization. ..••
Th y-•· W O --• to v·ar is avo iding situati_p s•· l ik • 1:111der.s o ing.·. -
. . . . .
oyerstocking.
.•. St pply· ch iri.manager · fram _'.prope"ritrategi f /pr?curing, prop cih{
.• .. _and n1·aint_ iriin : 11 i t rie·a p rr quirement's:· • •
. . .
. (vi)_Bet_ter Supplier Management ·•

- • Supply chain management works on •.strengtheni_ng the relationships

b tween business and-suppliers.
. . '

It tracks and_records every transaction with the suppliers.

• . . . ' . . ..
P
. roper s.upply chain. .'en. ables ti.mely p.rocurement of. all required raw
'

materials from suppliers.

It develops a prop_er networ through which suppliers and business can
easily interact Supply chain management solutio yrovid a self-service
portal t ough which suppli rs can co tact the·company in·case of any
iss es or-problems.·.

1 5. EVO.LUTION ·of SUPPLY CHAIN MANAGE.ME. . N T. . .

The evolution of supply chain managen:ien_thas been characterized by

an·increasing· degree of integration of separate tasks, a trend that was
u derlined in the 1960s as a·½ey area for future product vity improvements
since the system.was highly fragmented.
Although the tasks composing logistics have remained relatively.similar,
they initially consolidated into two distinct functions related to materials
ckagement and phy ical di tribution during the 1970s and 1980s.
This process moved further in ihe• I 990s as globalization incited a
' '
functional integration and the emergence of logistics in a true sense· all the
• '
elements· of the supply chain became part of a single management
perspective.
 Introduction
filJ
However, only with the impleme tati n of modem information and
co munication ·. techI?,ologies did a·,mor• complete i tegration ·became
• 1:'ossibl with·the ein· i:-gence o,f supply chain management.
. - , -· - . . .
;·_· • • t ·ano s· · or :the. integ ated.. mar:i gement • md _control of inforTI?,ation, •
• .:••..'fi _ nce:anci.goo4s ,flo s·· nd, ade pos fble a ne rah·g ofpro uctiori an_.
.- di.st .ributio;.s:... yst rris..·.'Suppl/ ch i n- . a. ag .n:i n.t. .h a s ·be o :o pl x
sequence of acti ities aiming at-value capture a· a:coirip titiveness•••
• Thisdi i 1b ti_6.nis.I? rtj ul fr ·notable within dis.ttib tio.ncent s· th t_
. . . .. . . .
have experienced a·rem_arkable push to.wards aut mation such as storage,
m terials·1-iandling, aml packaging.
I
1960 s • 1980 s 1990 s • 2000 ,s • 2010 s

( Fragmentation ) . ( Consolidaton ) l tegr tion· ·Value_Capture (Automation)

( Demand Fore a tin_g )

Sour ing / Pur,chasing..

.. Material •
Requi ement Planning Management.

. (. Production l nning )

Manufa_ct ring Inventory

Wa_rehousing Material Warehousing

Handling Material Handling

Logistics
Supply Chain
Management .D
Packaging _Packaging
I .

Goods Inventory Information Technology

Distribution Planning Marketing / Sales Strategic

Material
( Order Processing ( Management Planning.

Transportation Finance

( Customer Service

Fig. 1.2.
 Supply Chain Management
I
[i.10

1.5.1. CREATION ERA

The term "supply chain management" was first coined byKeith Oliver in
1982.
The concept of a supply chain .in management was of great importance
long before, in the early 20th century, especially with the creation of the
assembly line.
The characteristics of this era of supply chain management include the
need for large-scale changes, re-engineering, downsizing driven by cost
reduction program , and widespread attention to Japanese anagement
practices.

1.5.2. INTEGRATION ERA

This .era of supply chain management studies was highlighted with the
I

development of electronic data interchange (EDI) systems in the 1960s,

and developed through the 1990s by the introduction of enterprise resource
planning (ERP) systems.
This era has continued to develop into the 21st century·with the expansion
of Internet-based collaborative systems.
This era of supply chain evolution-is characterized by both increasing
value added and cost reductions through integration.

1.5.3. GLOBALIZATION ERA

'
The third movement of supply chain management development, the
globalization era,. can be characterized by the attention given to global
systems of supplier relationshi s and th expansion of supply chains
beyond national boundaries and into other continents.
Alt ough many business organizatio have been utilizing global-sources in
• their supply chain for a long time.

It was only in_the late 1980's that many organizations started to integrate
global sources to their core business processes.

The globalization era is represented by the attention paid to incorporate

supply chain of an organi ation globally with a view to reduce cost
increase com etitiveness and enhance value additions.
 Introduction j1.11]

1.5.3.1. Benefits of a Globaiized upply Chain

. can benefit your operation. ,

1. Easy to each new customer i new markets around the world:

Globalization make things easier for communication between business owners,

vendors, and custon:iers and therefore makes it easier to reach new rnarkets and stay
connected with customers no matter where'they are in the globe.

2. Develop sourcing opportunities:

Globalization makes it possible for businesses to increase productivity by securing

a ious selection of workers, raw material, and products from regions of the world
that were previously out of reach. This can result in significant labor costs.

3. Offer a larger selection of goods and services:

• Global sourcing opportunities .. mean an increase in the range of products and·
services that you can provide for your customer.

4. Grow and make bigger the scope of their business:

•
Glqbalization makes communication near effort ess, which make it easier. for
·markets to expand and diversify, thus providing more opportunities for businesses
owners to capitalize.

5. Save money and increase profits:

More options to source from and to capitalize on means ore chances to save on
spending and a greater chance of profit.
1

1.5. '3.2. Deme its of a Globalized Supply Chain

Greater omplexity
Global supply chains have global problems. As companies globalize they
must scale up all aspects of th ir business, especially their supply chain.
[1.12 I S pply Chain Management

Increased supply chain risk

• When your m terials, factories, and customers are spread around. tht;! globe
. ' . ,,, .
• -that ans your .business •is ntirely :ai the compa sioh of global_events,
a·
• like: atural di ·asters; port- border cfos r¢s and• hang s to the ·geo:. .
• ifo1it c 1-.1 dsc'ape·, dr.inorecedtly,!an·-event Ii th coyid 19,par:ideniic:
I • • ., • •

.M o
. re c ompeti tion ·,
. . •.,•

·-. _If -any o ganization. have• ruined i . th_emar et. ·that. there·are s vera{
companies_ha e acces·s•. t • the. exact·,-same· s pplies,' products,
manufacturi g,·and cu tomers. The global economy requires supply chains
. . .
to be as le ri and efficient as possible.·

Larger ata collecti_on chall nges

When 'different·aspects of your suppl_ychain are scattered around the
globe, the process data co_llecti n and·oversigh_t g!OWS in complexity a_nd
becomes more difficult.

Extra legal issues •

Operating across borders means·operati g in countries with different legal
• I ' •

systems, which can get difficult and expensive yery quickly.

1.5.4. SCM 2.0

Due to globalizati n and specialization,· the .term "SCM 2.0" integrates
both changes within supply chains themselves as well as the development
of processes, methods, and tools to manage them in this new time period.
The growing Web 2.0 is a trend in the use of the World Wide Web that is
meant to increase resourcefulness, iriformation sharing, anµ· increased
'-

partnership among users.

At its .ce.ritre, ·the -c.ommon feature of Web 2.0 is·to utilize the vast
-iqfom1ation available on the Web in order_to find what is being bought. It
is the notion of a usable pathway.
• SCM 2.0 is a replica of idea in supp y chain operations.
It is the pathway to SCM r sults, and merger of processes, methodologies,
tools, and delivery options to direct companies to their results quickly, as
Introduction [ 1.13]

the intricacy a d pace of the supply chain mcrease due to global

competition, . price fluctuations, etc.
SCM 2.0 draws pon application designed to -quickly deliver ·r sults with
• the ability to account for ture chan·ges to ensure flexibility and
efficiency.
This is delivered·through ability networks which incl de best elements of
the supply chain as well _knowledge to understand _which resources will·
deliver result.
There is also a need to have knowledge on how to m nage these resources
to achieve the end result.
The solutions are delivered in a variety of options, such as no-touch via
business process outsourcing, mid-touch via managed services and
software as a service (SaaS), or high-touch in the traditional software
operation model.
SCM 2.0 is a trend m the use of the WWW that means to mcrease
creativity, information sharing and collaboration among users (End Users).
SCM 2.0 designed to rapidly deliver results with the quickly manage the
future change for continuous flexibility, value and success. •
SCM 1.0 is limited to the execution; SCM 2.0 also encompasses
the design of supply chains. It not only makes value chains faster and more
customer-friendly, iike SCM 1.0.
SCM 2.0 also makes supply chains heaper, more fnnovative, smarter,
more robust, more agile, more sustainable and more social.
T make these possible, streams of goods, services, information and
knowledge are optimized. To make this happen, all supply chain partners
. .
cooperate.

1.6. ROLE IN ECONOMY

With.a highly developed supply chain infrastructure are able to exchange

many goods between businesses and.consumers quickly and at low cost.
As a result, the economy gro s.
 I
fJ.14 Supply Chain Managemen

There 1s a sensitive relationship between economic development an

supply chain because efficient management of the supply chain can reduc
costs, maximize customer value, and maximize competitive advantage.
• It entails effective coqrdination and control of linked sectors, departments
systems, and organizations.
Supply chains have contributed drastically for the world trade for .man
. years. Further, supply chains. have made possible the globalization·o
trade.
According ·to a study by world economic forum, reducing supply cha½
barriers could increase world GDP better over import tariffs.
Further, the study shows that 50% reduction in supply chain barriers ca
increase world trade by 14.5% and world GDP by 4.7% and these gain
are more evenly distributed across various countries and also it an
generate more employment.
- Global GDP has also expanded in tandem with global trade.
An analysis of global merchandise trade and global GDP at marke
exchange rates \Vith 2008 as base year's shows coupled growth in globa
GDP and globai trade as shown in Figure 1-.3.•
Due to emergence of global value chains, the global trade is shifting fast
This can be seen from Figure 2.
Expansion of global GDP and i s correlation with global trade increase
the importance of worldwide network of production of goods
• Due to increasing network of global supplies, patterns in global trade hav
shifted from 'trade in goods' to 'trade in value added' and 'trade in tasks'.
The Global yalue Chain (GVC) structure has emerged due to.shifting
pattern of global trade:
It focuses on expa_nding and strengt4ening supply chain and valu
generation. therein. Both developing and developed economies ge
benefited by participation into GVC.
Introduction [1.15]
Participation into GVC prov1'd es an exposure to the global .best practices,
. technological know-how, and competence development. This result • in
higher economic growth and development.
130
Global Trade and GDP
0125
0

11 120
CX)

8 115
-N

-
1/)
Q)
110

"'g 105
0
a.. 100
c.,
"'O
C
95
ro
tl) 90
" 'O
.r. o.85
I-

80
2008 2010 2012 2014 2016 2018 2020
Year

Fig. 1.3. Trade and GDP Indices year wise

1.6.1. SUPPLY CHAIN AND GLOBAL VALUE CHAIN (GVC)

GVC framework provides a strategic overview of global supply chain and
· combination of different characteristics of complex supply networks into
.GVC would provide a holistic perspective_of various methodologies-
operational and strategic.
Development of robust supply chain management practices has
strengthened GVCs thereby easing cross-border movemept of goods. It
promotes domestic manufacturing and consll1:llption.
This in-tum results in growth of national GDPs. Therefore, to boost global
economic growth promotion f global trade is essential.
Nourishment of rapid growth in global trade is a function of participation
of various countries into GVC which requires a robust supply chai_n

managemerit.
So the developments m supply-chain practices have contributed
substantiaily to global economic growth.
 I
[i.16 Supply Chain Management

. World class organizations like Walmart, Apple, P & G, Amazon, IBM,

Toyota, General Motors,. Best Buy, Marks & Spencer s, Zara, Spons
goods companies, mobile companies, food chains have gained
significantly by adopting supply chain practices in their. business.
Similarly, healthcare organizations like CVS _Pharma, Cleveland clinic
Narayana Health of India, pharmaceutical companies, medical de.vice an'd
equipment companies and many others have gained significantly.

1.7. IMPORTANCE OF SUPPLY CHAIN MANAGEMENT (SCM)

SCM plays a vital role in organization activities and an essential elemen

to operational efficiency which can be applied to customer satisfaction and
company's success.
It is just like th backbone of an organization-which manages the critica
issues of the business organizatiOJ?- such as rapid growth·of multinational
corporations, global expansion and environmental ·concerns which
indirectly or dramatically affects the corporate strategy.
SCM offers various tools and techniques that help business organization t
diagnose the problems and also provide solutions of these disruptions
around the business environment.
It plays an important role in moving goods more quickly to thei
destination·s.
The most .important thing in today's business is managing competition
amohg partners and in order to win thfs competition SCM elps busines
organization in a very e_fficient manner.
. '

All the benefi s and importance· of SCM makes its future so bright an
because of emerging trends in organizat_ion SCM bec_omes the most cntica
business discipline in the world today.
- Other benefits and importan e of supply chain management are:

• Reduces inyentory costs

' .
• Provides better medium for info ation sharing_between partners
 Introduction ( l.17J

• Improves customer satisfaction as wel_l as service

• Maintains better trust between partners
• Provides efficient manufacturing strategy
• Impr:ove process in egration
• Improves. bottom line (by decreasing the use of fixed assets in the
supply chain)
• Increase cash flow
• Improves quality and gives higher profit margin

1.8. DECISION PHASES IN SUPPLY CHAIN

. .
Decision phases can be defined as the different stages involved in supply
cqain 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 fu_nds.that fall into three decision phases.
Here we wil-lbe discussing_the three main decision ·pJ-iases involved in the
entire process of supply chain. The three p ases are described below: .
A. Supply Chain Strategy
B. Supply Chain Planning
C. Supply C ain Operations

A. Supply_Chain Strategy
In this phase, decision is_ taken by the management mostly.
-The decision to be made c·onsiders the sections like long terin 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 prev_ailing and future conditions of the
market. They comprise the structural layout of supply chain
All the strategic decisions are taketi by the higher authority or the senior
management.
 These decisions include ,deciding manufacturing the materi_al•, factory
location, which should be easy for tran porters to load material and to
dispatch at their mentioned.location, location o_f warehou es for st0rageof
completed product or goods and many more.
B. Supply Chain Planning

It is a short term process.

Supply ch;in pl_anningshould be done a cording to the demand and supply
view.
In order to understand customers' demands, a market research should be
done.
The eco d thing to consider is awareness and upd ted informatfon about .
. '
the competitors and strategies used by them to satisfy their customer .
' .
·demands and requirements.
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.
A supply chain design phase is considered successful if it performs well in
short-term planning.
C. 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 be ind this decisional phase is minimizing uncertainty and
performance optimization. Starting from handling the custo er oroer to
supplyiqg the custom r wit·hthat product, everything is included in this
. .
phase.
For·examp e, imagine.a customer demanding an item manufactured by
your ompany. Initially,· he m rketing depart ent is ·responsible for,
taking the order and forwru:ding it t production department and inventor)'
department.
Introduction

The producti'on depar/tment then responds to t•he 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 depart ents engaged in this process need to work with an aim of
improving the performance and minimizing uncertainty.

1.9. _ENABLERS & DRIVERS OF SUPPLY CHAIN PERFORMANCE

1.9.1. THREE ENABLERS OF SUP.PLY CHAIN PERFORMANCE

·Three enablers of supply chain performance are ':'ery important for
managing the organization's success.
' -
However, managing the supply chain is becoming increasingly difficult.
Having this, actually, firms have managed to reduce their logistics costs.
Because of innovations of technology, it is possible to reduce logistics
costs·.
There are three major enablers, they are:

1. Improvement in·communication and-IT

Communication costs also have come down. As a result, it helps firms in
coordinating global supply chain in a cost-effective manner.•
'
Besides, firms are using enterprise resource planning systems. This
system helps firms in automating several business functions.
·However, this system changed the riature of.information flow within· the
orgaruzation.
It worked along with the internet technology that changed the flow of
information in inter-firm transactions.
In the past, only can large firms can use EDI techno ogy that helpful in
integrating partner firms. But it as .really expe·nsive. Now, Small firms
can communicate their chain partners using World Wide Web technology.
Moreover, firms c replace physical in_ventory by information.
/
 -
Supply Chain Management

• As a result_, co1npanies re no longer. investing in IT sectors. They are

going to·re-eJJgineering their supply chain and other processes. Besides,
they ar keeping their ful! cap bilify t.oeplace phys_ical inventory into
information.
An exampie,_acompany may ryave multipl plants an it_can work within
them. It ay keep a co1!}mon safety stock of raw materials. Besides, it is
not necessary for_keeping safety stock for 11.· Si_milarly, it_can·of(er better
or customize service f r·order processing side.
• Moreover, it should· design a'System that. handles customized ord.ers.
Besides,
.
their distribution systems also:allow these products in the system.
. .
In the absence of an _information system, his w uld not possible at all.
Som companies have used IT that computerizes the existing supply chain.
• Those who are able·to use IT can·make a major changed in their supply
chain, processes, functions; and strategies. ·

2 The emergenc of third-party logistics provider

S6n1e firms _have been managing their logistics activities._intemally.
But lately, they are realized that they need to focus on managing core
. • . \ '
business functions.
• Thus, thef_are searching for third-party l.ogistic•s service provi ers., for
handling their logistics functions.
In developed countries, _almost every firrri has-used outsourced logistic.s.
The third-party logistics ser'vice providers manage them effectively.
. Ih developed arkets,. globa.l firm would like leadi g third-p y
- providers. They would go beyond the traditional role and also play the role
. -
of a fourth party logi tics company.
The fourth• paJ;ty logistics. company can integrat •. the . capabilities,
resources, and tec qlogy to provide effective supply chain solutions to its
customers.

3. Enhanced inter firms coordinat.ion capabilities

No firms . can go· beyond their: capabilities. Successful° coordination is
needed to manage a global network of companies.
 Introduction

International companies like Nike, Apple, and T9yota have successfully

managed complex networks. •
They played the part ·of the strategic center and have e_merged as role
mo els of other companies. Each company 1s focused on core
competencies.
Consequently, _supply chains beco.me more effective and responsive.
However, there are s me failur s because of lack-of a partner's interest
along with firms.
As a result, the network may not •function e fec ively. But a better
understanding and coordination issues would-greatly in diffusing the third
party supply chain revolution across all industries.

1.9.2. DRIVERS OF SC PERFORMANCE ,,.

Facilities
. Inventory
Transportation
Information
-
Sourcing
Pricing

Facilities
Places where inventory is stor d, asseµibled, or fabric ted
-
Production sites and storage sites
Decisions regarding !ocation, .capacity a_nd flexipilities of fa_cility havea
significant impact on SC performance_

Inventory
Raw materials, work in progress (WIP), finished.goods within a supply
chain
Changes in inventory policies can dramatically alter the efficiency and
responsiveness of a supply chain
 Supply Chain Management

-Transpor:tation

Moving inventory from point to point in a supply chain.

Combinations of transportation modes and routes can affect the
performance of supply chain.
Information

Data and analysis regarding inve tory, transportation, facilities throughout

the supply chain
Potentially the biggest driver of supply chain performance
This driver allow the management with the better opportunity to make the
supply chain more responsive and efficient
Sourcing
Distinguis the functions a firm performs and functions !ha are outs urced
Pricing
- Price associated ith goods and services provided by a firm to the supply·
chain

1.10. SUPPLY CHAIN·STRATEGY

Designing a firm's supply chain to meet the competitive priorities of the

firm's operations strategy.
Supply chain strategy to ensure superior vaJue to the end customer in an
efficient manner
Optll!lum decision making between tradeoffs and costs. •• "
Innovation to obtain competitive advantage. .

1.10.1. CUSTOMER ERVICE AND COST TRADE OFFS .

Costs are dir ctly associated with service provision
Higher service in low cost is desirable.
A firm cannot operate beyond a certain limit in·increasing 'its efficiency by
increasing costs for higher services.
 Introduction

The firm's revenue is also affected by its service levels at.certain costs.

·1.10.2. ·4 COMPONENYS OF CUSTOMER SERVICE:

I. . Order Del(very Lead Time
2. Responsiveness
3. Delivery Reliability
4. Product Variety

1. Ord.er Delivery Lead Time

The time takeh by the supply chain from placement of order to delivery is
known as Order Delivery Le ci Tim• • •
The time take from sourcing of material to delivery is ·know_nas Supply
Chain Lead Time.
Different type.s of models are followed to make efficient delivery like
Make to Stock (M'!S), Make to Or er (MTS)) & Configure to Order
{CTO).

2. Responsiveness
. The_firm s ability to handle the uncertainties of market demand:
Based on uncertainties,-products are classified into:
- (a) Functional Products
(b) Innovative Products

3. Delivery Reliability.
The fraction of satisfaction·obtained by the customer within the promised
delivery lead time.•
. .
For achieving· higher reliability, a quick inventory turnover is needed
stockouts needs to be.prevented.
. .

Cost management at this stage is very important

4. Produ_
c tVariety
Variety Explosion has occurred in l rge number of goods.
It will als increase cost.
 i.241
1 Supply Chain Managernen
. t

It increases complexity in supply chain.

1.10.3. OUTSOURCING
A Mak:e.:or-buy •decision is a managerial choi e between whether to
outsource a process or do it-in-house.
Outsourcing: Paying suppliers an distributors t9 perform processes and
-provide needed services and materials.
'I
Example: Bharti Airtel Outsources its Network Operations.
Toyota outsources its electronic parts.

1.10.4. -OTHERSUPPLY CHAIN STRATEGIES

. .
Off shoring·- is moving_ a business process and operating it oµt of a
foreign location for example the' manufacturing process where labour is
cheaper or expertise higher. •
Ve dor Rationalization - is the process of shrinking the supply·base·by
• reducing the number of active suppliers.
Fonvard Integration - involves b ying part of the process that occurs
after the company's manufacturing pro ess.
Backward Integration - involves· buying part ·_of tbe supply chain that
. '

_ occurs prior to the company's manufacturing process

i· Efficient Supply Chains - is directly linked to customer satisfaction. It

I
gets your products into _the hands of the people who· need them quickly and
at the best pric .
Responsive Supply Ch ins -·,it has to be responsive to the needs of_the
customers that is order.:.fill ·ac_curacy in today's highly competitive marke
a guarantee of quick deliver is a real sellin_g.

Increasing variety of products

• Increased variety (mass customization) tend to raise uncertainty, _?Ila

uncertainty frequently·_ results m • increased cost and d creasea
responsiveness.
·i --
Introduction I1.2s1

Decreasing product life cles ,.:A

This makes the job of achieving:strategic fit '.more difficult as.supply chain
ust constantly adapt to manufacture and_deliver ne'Y product in addition
to coping with these·product's demand unc.ert inty •

lncre_ singly demanding customers

, .
oday' s customers are demanding faster fulfillment, better quality and
better performing products for the sarrie price they:·paid years ago means
' that the Sll;pply chain _must provide tpore just to maintain.its business

Fragmentation·of supply chain ownership

Now-a-days most firms have become less_vertic lly integrated
More members in supply chain for providing goods
Many owners with its own policies and interests, the chain (network) more.
complicated to coordinate

Globalization
Supply chains are more global.
Global supply chains create many benefits such as ability to source from a
global base of suppliers wh? may offer better or cheaper goods than were.
available in a company's home nation.
Suppliers are apart making coordination much more diffi ult.
Removal of trade barrier results in increased competition from global
companies.

Difficulty executing new strategies

Creating successful strategy_is not easy.
Skillful· execution of strategy 1s as important as ·creating successful
. strategies.

1.12. SUPPLY CHAIN PERFORMANC MEA_SURES

• Supply chain performance me sure can be defined as an approach to judge

the performance of supply ch_ain system..
r1.261 Supply Chain Management

Supply chain performance measures can generally be classified into two

groups:
• Qualitative measures:• For example, customer satisfaction and
product quality:
• Q antitativ measures: For example, order.:.to-delivery lead tune,
supply chain response time, flexibility, resource utilization, delivery
performance.
The performance of a supply chain can be improvised bt using a multi-
dimensional strategy, which addresses how the company n eds to provide
, '
services to diverse customer demands
Quantitative Measures

- Mostly the . measures taken for measuring• the performance m y be

s mewhat similar to each other, but the objective behind ea h segment is,
very different from the other.
·Quantitative measures . are the assessments used to. measure the
performance, and compare or track the performance or products.
It can be further- divide the quantitative measures of supply chain
performance into two types. They are:
• Non-financial measures· '
• Financial measures
Non-Financial Measures

The metrics of non-financial measures comprise cycle time, customer

s·ervice level, inventory levels, resource utilization . ability to perform,
flexibility, and quality.
Cycle Time

<;ycle tim is often call d the lead time. It can·be simply defined as·the
. r . .
end-to-end delay in a business process.. .
. For supply chains; cycle time an be defined as the business processes ofi
interest, supply chain process and the order-to-delivery process.
 Introduction

In the cycle time, there are 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 o·rdered item n eds to be produced, it would be the summation of
. .

.supplier lead time, manufacturing lead time, aistribution lead t.ime 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-
1

finished/finished products in and out o intermediate storage points.-

Lead t_ime in supply chains is directed by the halts in the boundary because
. .
of the interfaces between suppliers and manufacturing plants, between
plants and warehouses, between distributors and retailers and many more.

Customer Service Level

The customer service level in a supply chain is marked as an operation of
multiple uniqu performance i dices.
There are t_hree measures to gauge performance. They are s foi"iows:

• Order fill rate: The order fill• rate is •the portion of customer
demands that can be easily satisfied from the stock·ayailable. For
this portion of customer demands, the-re· is no need to consider the
I

supplier lead time and the manufacturing lead time. The ·order fill
 11.2sI Supply Chain Manage,ne'1

rate could be with respect to a central warehouse or a fie)d

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.
' .
•• Ba kordcr 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 ma,?(imize the customer se ice level, it is important to
maxim_ize order fill rate, !Ilinimize stockout rate, and minim 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 inventori s can be further divide into four
categories.

• Raw materials
• Work-in-process, i.e., unfi?is ed and semi-fi?ished sections
·• Fini.she.d goods inventory
• Spare parts
Every inventory-_.is h ld for a differe t reason. It's a must to maintain
optimal levels of each type of inventory.
Hence gauging the act al inve tory le_v ls 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 availa?le .for different applications
mentioned below. . -
 Introduction 11.29J

• • Manufacturing resources: Include the machines, material handlers,

tools, etc.
• Storage resources: Comprise warehouses, automated storage and
.retrieval systems.
, • Logistics resources: Engage-trucks, rail transp >rt, air-cargo carriers,.
etc. . ..
• . Human resources: Consist of labor, scientific and technical
personnel
• Financial resources: Include working capital, stocks, etc.
In the resource utilizatio_nparadigm, 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 fot 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 reven e by
maintaining low supply chain costs.
There is a hike· in prices because of the inventories, transportation,
faciiities, 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.
1
• 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
 Supply Chain Manaooe,n
.
• Credits for incorrectly filled or late deliveries from suppliers •
• Cost of goods returned by customers
• Credits for goods returned to suppliers
The financial performance indices can be merged a•s one by using ke,
modules such as activity based costing, inventorycosting, transponatio;
costing, and inter-company financial transactions.

O A K QUESTION AND ANSWERS

1. Wltatisasupp/ycltain?
A supply c a
is 'i1etwork between a company and its suppliers to produce an
distribute a specific product iri fuifilling a customer request This network includes differei
activities, people, entities, information, and resources.
The supply chain includes:
Manufacturers
Suppliers
.. ..
Transporters
Warehouses
Retailers
Customers

2. W/1at/sSupplyC/1ainManagement(SqM)?
Supply chain manage_ment is the management of.the flow of goods and services
• includes all processes that. fonn raw materials into final products. It invol es the
.
streamlining
. of a business's suppli-side activities·to maximize
. •
customer value and
.
competitive advantage in the marketplace.
3. W/1atistl1eobjectiveofsupplyc/1au,?
. · To maximize the overall value generated
To maximize th overall profit
Introduction·

4. W/1atissupplyc/1ains,;,.,,1us?
Supply chain_swplus is the value addition·bysupply chain function of an organization It
is calculated by the following formula:
Supply chain swplus = Rev nue generated from a customer - Total cost incurred to
produce and deliver the product. •
5. Write any tltree importance of SCM.
Improves customer satisfacti n as well as seIVice.
Redu inventory costs.
Increases cash flow.
Provides better medium for infonnation sharing between partn rs.
6,. Factors to be used to measure_ supply cltain management
Responsiveness
Efficiency
7. List d_own tlte Supply Chain Drivers •
A. LogicalDrivers
·Facility•
Inventory
Transportation ;I

B. Cross Functional Drivers

Infonnation
.
.••• Sourcing
Pricing.
8. . Wit at is value?
The valuea supply chain.generatesis the difference between what the final product is
worth to the customer and the costs the supply chain incurs in fillin thecustomer request
9. What are the key elements of supply chain manageme1it?
Supply chain management also covers coordination and collaboration with channel
. ' •

partners, such as customers, suppliers, distributors and seIVice providers.

r

Supply Chain Managemen;

Demand Management
Communication
Integration
Collaboration
10. What is the main goal of supply chain management?
. .
Achieve Efficient Fulfillment On the most basic level, the pUipOse of supply chain
management is to make inventory dily available in·customer facing positions ful.6ll to
demand. Such steps will help the organization reduce waste, drive out costs, and·achieve
efficiencies in the supply chain.
11. What arf tlzefunctions of SCM?·
Integration.
..
Operations.
Purchasing.
Distribution.
. 12.·Bring out t/ze role of supply chain manager. . '
Supply chain manag ent (SCM), the management of the f low of goods and
- .
services,
involves the movement and·storage.of raw materials, of work-in-process inventory, and of
. ..
finished goods from point of origin to point of consumption. Marketing channels play an
important role insupply chain management
13. What is supply chain performance?
Supply chain performance measure can be defined as an_approach to j dge the
perfonnai:ice of supply chain system. Supply chain performance measures ·canbroadly b:
clas.sified into two categories - Qualitative measures - For example, customer satisfaction
and product quality. • •
14. What s the_differenc between supply chain and value chain? • I

. . .-
Supply chain.involvesall parties in fulfilling a customer request and leading to customer
satisfaction, a value chain is a set of interrelated activitjes,a company uses to create a
competitive adva11tage.
 ,Jntroduction

15. What are the three decision phases of upply chain management?
. .
The three decision p that occur within asupply chain are
.Supply chain strategy (or design),
• Supply chain planning and
Supply chain operation
16. What is the Role in Economy of Supply Chain?
'
The growth of global supply chains has changed the bution of incomes across
countries. Participa on in these supply chains, initiated by the successful completion of low
value-added manufacturing tasks, contributed to industrialization and high rates of economic
growth in several Asian developing economies.
11. What are the 4 enablers of supp/y.c/1a_1n management?
The four key enablers of supply chain management implementation are; managerial
understanding of the implications of increased customer power, establishing appropriate
relationship structures, leveraging technology for enhanced visibility and communication,
and the use ofsupply chain facilitators
18. How Supply Chain performance is measured?
Two types of measures Qualitative measures & Quantitative measures
Qualitativeeasures·:customer sati action and product q ty.
Quantitative measllreS: ord r-t0-0eliverylead e, suppl:y-chain response time, flexibility,
resource utilization, delivery perfonnance.

REVIEW QUESTIONS

I. Discuss the goal of supply chain and explain the impact of supply chain decisions on the
successof a finn.
2. How would you descnbe the various drivers insupply chain? ..
3. State the importance of Supply Chain Manage ent
4. Elucidate the Evolution of Supply Chain Management in detail.
5. State the various·decision phases involved in Supply Chain.

...
 Supply C
. hain Manaaoeh,t,,e

6. What doyoum by the concept competitive and supply chain strategies?

7. What are the obstacles in supply chain? .
8. How would you show your undamanding on the objectives of supply chain?
9. How would you describe the goal of asupply chain and explain the impact of supply Cha
_decisionsonthesuccess of afirm?
l 0. How would you measure supply chain performance?

... ..

-. ' .......... ,

-.. . . . ..

r
. '

• I
 UNIT II
' .

SUPPLY-CHAIN•NETWORK
Distribution Network Design - Role in supply·chain, Influencing factors, design
opti?ns, online sales and distribution network, Distribution Strategies; Network
Design i supply chain - Role, influencing factors, _framework for network design,
Impact of uncertainty on Network Design.

·2 1. ROLE OF DISTRIBUTION IN TH.ESUPPLY CHAIN

Distribution refers to the steps taken to move and store a product from the
supplier stage to a customer stage in the upply chain.
Distribution occurs between every pair of stages in.the supply chain.

Raw. ma!erials and co ponents are moved from .suppliers to

manufacturers, whereas finished products are moved from the
manufacturer to the end consumer.
Distribution is a key driver of the overall profitability of a firm .b cause it
affects both the supply.chain·cost and the customer e?(perience directly.

· The appropriate distribution network can be used to achieve a vari ty of

- supply chain objectives ranging from low cost to high responsiveness.

Asa result, companies in the s e industry often select very different

distribution networks..
Dell distributes its PCs directly to en . consumers·, whereas companies
such as HP dis.tribute through res llers.
Dell customers wait several day·sto get·a PC, whereas customers can walk
away with an HP PC from a reseller.
P&G has chos n to distribute directly to large supermarket chains while
obligating s aller players to buy P&G products from dis ributors:
 th larger chains, but move thr

------------

Dimensions:

lo

2.3.1. CUSTOMER SERVICE COMPONENTS:

• Response time:·- Amount of t i m-eit takes :for a customer to receive an
order.
Product variety: - Number of differe_npt roducts/configurations that are
offered by the _distribution network.
·_Produd availabil ty: - Probability·of·having a product in stock when.a
customer order arrives.
Customer experience: - includes the ease ·with which customers can
place and receive orders as well as the extent to which this experience is
customized.
Time to.market: - Time it t es to bring a new product to the market.
• - I •

Order_visibility:- bility of custo1p.efs t_o!rack thejr or4.ers fro placement

to delivery.
Rettirnabilify: - Ease ith W ich·a custome-r an return unsatisfa.cto
mercha dise an4 the ability of the netw_or to handle such r tums.
Supply Chain Network•

It may seem at first that a custome_ralways wal)ts·the highest level of

performance along all the e dimensions.
Firms that target customer·s who can tolerat a long response time r quire
only a few locations that may be far from the customer..
These.companies can focus on increasing the capacity of each location.
In contrast, firms that target customers who value sh9rt-response times
need to·locate facilities close to them.
These-firms niust have many facilities, each with·a low c·apacity.
Thus, a decrease in the respons time ·customer's desire increases the
number of faciJities required in the rietwork as shown in Figure 2.1 .
Required Number
of Facilities ·

Desired
Response
Time .

Fig. 2.1. Relationship between.Desired Response Time and Number of Facilities

2.4. INFLUE.NCINGFACTORS FOR A DISTRIBUTION NET.WORK •

. .
Changing. the distribution network design affects the following supply
. chain costs:

• Inventories
•• Transportation

• Facilities and handling

• Information
. A decrease in the·response time customer's .desi e increases.the number of
facilities required in the network.
 Supply Chain Manage,nen,.

As the nu:mber-of facilities in a supply chain increases,the_inventory and

. . •. . s shown in Figure 2. 2
resu1t m g m ventory costs also mcrease a .

Inventory
Costs

Number of
Facilities ,

Fig. 2.2. Relationship between Number of Facilities a_nd Inventory Costs

Inbo nd transportation costs ·are the costs incurred in bringing material
into a facility.
I \
Outbound tran portation costs are the costs of sending material out of a
facility.
Outbound·transportation costs per unit tend to be higher than inbound
costs because·inbound lot sizes are typically larger. For example, the
Amazon •warehouse receives full truckload shipments of books on the
,I · inbo d side, but ships out small packages with only a few books per
I·
customer on the outbound side.
_lncreasi g the number of warehouse locations decreases the average
outbound distance to the customer and makes outbound transportation
distance a smaller fraction of the total distance traveled by the product.
Thus, as long as inboun transportation economies of scale are maintained,
increasing the numb r of facilities decreases total transportation cost, as
shown in Figure 2.3
If the number of facilities·is increased to a point where inbound.lot sizes
are also very small and_result in a significant loss of economies of scale in
inbound transportation, increasing the numbe of facilities increases total
transportation cost, as shown in Figure 2.4.
Supply Chain Network

Transportation
Costs

Number of .
Facilitie·s •
,
Fig. 2.3. Relationship between Number of Facilities and Transportation Cost
• Facility costs decrease as the number of facilities is reduced as shown in
'
. Figure 2.4, because a consolidation of facilities allows firm to exploit
economies of scale.
Facility
...:- Costs

......_

Number of
Facilities •• •·
. r,
Fig. 2.4. Relationship between Number of Facilities and Facility Cost
T tal logistics costs are the· sum of inv ntory•, transportation, and faci_lity
costs for a supply chain network.
As the number of facilities incr ases, total logistics costs first decrease and
then increase as sho\\'.fi in-Figure:5.
Each firm should h ve at least the number of facilities that minimize total
logistics costs. For exampie, Amazon has more than one warehouse
primarily to reduc·e its logistics costs (and improve response time).
- As a firm wants to reduce the response time to its customers further, it may
have·to increase the number o_f facilities beyond the point that minimizes
logistics costs.
 ,f2,§! 6!.._I ---------------: s_u_rpp_ly_C_h_a_i_n_M._a_n-...:age,n
-= ---......
A firm•should add facilities beyond. thecoSt-minimizing point 0nly
. e in revenues because of b
managers are confident that the mcreas . ett
• crease in costs because of •
responsiveness is greater •than teh 1 0 t
additional facilities.
Thus, •t • •- that the strengths of the distribution netwo
1 ts important to ensu_re r
fit with the strateg c_position of the finn.

Response Time
I

Total Logistics Cost

Number of Facilities

Fig. 2.5. Variation in Logistics cost and Response'Time wit!, N_umber of Facility

2.5. DESIGN OPTIONS FOR A DISTRIBUTION .NETWORK

2. .1. MANUFACTURER STORAGE WITH·DIRECTSHIPPING:

Product is shipped dir ctly·from the manufacturer to the end customer
bypassing the retailer (who takes the order and initiates the delivery
request).
Manufacturers

Retailer
I
I

I
I

Cu stomers

---:----t► Product Flow

·--------- --.. Information Flow
Fig. 2.6.
Supply Chain Network

This option is also refe red to as drop.shipping, with product delivered

directly from the manufacturer to the·customer.
,

• It is best suited for a large ariety of low-demand, high-value·items·for

which customer are illing to wait for deliver-yand accept several partial
shipments.

Performan e Characteristics· f Manufact rer·sto·ra·ge with.

Direct Shipping -Network
.
Inventory Lower costs because of aggregation. Benefits·of aggregation
are highest for low demand, high value·items. Benefits are
very large if product customization can be-postponed by -the
manufacturer.

Transportation .Higher transpo_rtation costs because of increased distance and

..
.
disaggregate.shipping.
-
Facilities and Lower facility costs-because of aggregation. Some aving on·
handling costs if manufacturer can manage small shipments.
han ling
I

Information Significant ·investment • in •information infrastructure . to·

-
int grat manufacturer· nd
a retailer. .
- -
Response Time Long response time of one to two weeks because of increased
distance an two stages for order.processing. Response time
may vary by product, thus complicating receiving

2.5.2. MANUFACTURER STORAG WITH DIRECT. SHIPPING AND IN-

TRANSIT MERGE
Unlike pure drop shipping.u
, nder which each product m the order is
sent directly from its' manufacturer to the end customer, in-transit merge
combines pieces of the_ order coming from different locations o that
. .
the customer gets a single delivery.
For eg, when a custo er orders a PC from Dell along with a Sony monitor,
the package carrier picks up the PC. fro the Dell factory and the monitor
 r.;""ol Supply Chain Manag .
l.! =.8=---------------------=-·- erne11
-
from the Sony factory; it then merges the two together ata hub b fore
making a single delivery to the customer.
It is best suited for low-to q1edium demand, igh vafoe items the retailer i
sourcing from a limited number of manufacturers:
Factories

\
\
\
\
\

I
''
I

---- Product Flo

- ----------------Information Flow

Fig 2._7.

Performance Characteristics of.In-Transit Merge

Inventory Similar to drop shipping. ·d

l

Transportation Somewhat lower transporta_tion costs than drop shipping.

.. ('

Handling costs higher than drop shipping at

Facilities and earner;
receiving costs lower at customer.
handling

Information Investment is som what higher than for drop shipping. .

Response Time . Similar to drop-shipping; m'ay be marginally higher.

2.5.3. DISTRIBUTOR STORAGE WITH CARRIER DELIVERY

Under this option, inventory is n t held by manufacturers at the factories
but is held• by distributors / retaile s in intermediate warehouses, and
package carriers are used to transport products from the intenneaiate
location to the final customer.
It is well suited for medium- to-fast moving items.

71
 Supply Chain Network

It also makes sense when customers want delivery faster than is offered by
manufacturer storage but do not need it immediately.

Factories

house Storage.by Distributor/ iler

• Customers

,_ Product Flow
· ----------------- Information Flow

Fig. 2.8.

Performance Characteristics of Distributor storage with Carrier Delivery

Inventory Higher than manufacturer storage. Difference is not large

for faste_r-moving items.

Transporfation Lower than manufacturer storage. Reduction is highest for

faster- moving items.

Facilities and Somewhat higher than manufacturer storage. The •

' difference can be large (or very slow-moving items.
handling '

Information Simpler infrastructure compared to manufacturer torage.

Response Time Faster than manufacturer storage. -

·2.5.4. DISTRIBUTOR TO RAGE WITH LAST-MILE DELIVERY,,

Last-mile delivery refers to the distributor/retailer delivering the product to
the customer's home instead of using a package carrier.
• In areas with high labor osts, it is very hard to justify distributor storage
with last mile delivery on the basis of efficiency or-improved margin.
Ail effort should be made to couple last- mile delivery with an existing
distribution network to exploit economies of scale and improve.
[l=.l=O l--------= ------------ ==--S_u_P._'P_ly_C_h_a_in_M_a_nage,n
-
Factories

Distributor / Retaile_r
Warehouse

Customers

----------------Product Flow
· ----------------- Information Flow

Fig. 2."9.

Performance Characteristics of Distributor Storage with Last-Mile Delivery

Inventory Higher than distributor storage with packag' carrier

I

·delivery.

Transportation Very high cost given minimal scale _economies. Higher than
any other distribution option.

Facilities·and· Facilities costs higher than manufacturer storage o

distributor.storage with package carrier delivery, but lowe
handling .
than a chain of retail stores. ,

Information Similar to distributor storage with package carrier delivery.

I

Response Time Very quick. Same day to next-day delivery. -

2.5.5. MANUFACTURER OR DISTRIBUTOR·STORAGE WITH CUSTOMER
PICKUP -
•
Inventory is store_d at the manufacturer or distributor warehouse
customers place their orders online or -o.nthe phone and then trav
designated pickup points to collect their merchandise. •
Orders are s_hipped·from the storage site to the pickup points as neede
Such a net ork is likely to be most effe tive if existing_locations su
coffee shops, convenience stores, or grocery stores are used s p
Supply Chain Network [ill
sites,,because·this type f network improves the economies from existing
infrastructure.

----·customer Flow
Product Flow
·-------- • Information Flow

Fig. 2.10.

Performance Characteristics of Distributor Storage with Customer Pickup

Inventory Can match any_ other option, depending on the

location of inventory. ..-

Transportation Lower than the use of package carriers; especial1y if

using an existing deliv ry network. .
' ,

Facilities and Facili y costs r.an be very high if new facilities·have to

be built. Costs are lower if existing facilities are used.
handling
The increase in handling cost at the.pickup site can be
significant. .

Information Significant investment in infrastructure required.

\

Response Time Simil r _to package carrier delivery with manufacturer

or distributor storage. Same day delivery possible for
items stored locally at pick-up sites.
 ,·
·Supf!IY Chain Mq'!agetn
"
2•5•6• RETAILER STORAGE WITH C.USTOMERPiCKUP
.. ,. .."'
Inventory is stored locally at retail stores. CuSlome walk Qlto the re
tore or place an.order online or by phone and pick it up at the reia 810
It is best suited for fast-moving iten:is or items for which customer's v
rapid response.
Performance Characteristics of Ret i,er storage with Custo_mer Pickup

Inventory .Higher than all other options.

Transportation
"
Lower th n al'l other options. ,
-
Facilities and
' -
.Higher th .other qptions. The increase in handling cost at
handling
pickup site can be significant for online and phone orders.

Information Some investment in infrastructure required for onl ne and

.
phone orders.

Response Ti_me • Same-day pickup possible for items stored locally at,
pickup site.

2.5.7. • E-BUSINESS
)
AND THE DISTRIBUTION NETWORK
.

Impact of E-Business on Cust mer Service:

Response time to customers:

In selling physical pro.ducts that cannot be downloaded, an e-busine
without a physical retail outlet takes longer to fulfill a ustomer req
than a retail store because of the shipping time involved
:There is no such delay, however, for products that can be downloaded li
a mutual fund prospectus or music.

. Product Variety:
A e-business finds it easier to offer a large selectio'n of products than
bricks-and.:.mortar store.
Offering the same selection at a retail store would require a huge locatio
with a correspondingly large amount of inventory.

• I.
Supply Chain Network [2.13]
product availability:

An e-business can greatly increase the speed with which information on

customer dem nd is disseminated throughout the upply chain, giving rise
to more accurate forecasts.
• ''-
These improvee· forecasts and the more accurate view of customer demand
·1eads to a better-match between supply and demand.

Customer Experience:

An e-business affects customer expenence m terms of access,

customization and convenience.
-Unlike most etail stores that are open only during business· hours, an e-
business allows access to c·ustomers ho may not be able io place orders_
during regular business hours.
An e-business allows a firm to ccess customers who are geographically
distant. Firms that focus on rriass• customi.zation ' can use the Internet .to
help customers select a product that suits their needs.
On internet, customers have the ease of not needing to leave home or work
to make a purchase.

Faster time to market: ..

-· A firm can _use e-business to introduce new products much more quickly
than a firm that uses physical channels.
An ebusiness in contrast introduces a new product by making it available
.on the website- a distributio-n lag to fill the retail store is not present.

Order Visibility:
The internet m es it possible to provide visibility of order status, which is
very._crucial in online order as it has no physical equivalent to a customer
shopping.

Returnability:
It is harder with online orders., which typically arrive from a centralized
location. The proportion of returns is' also likely to be mucl higher for
 Supply Chain Man

online orders because the custo er are unable-to touch and feel tijc
product ·before their purchase.

Direct Sales to Customers:

An e-business allows manufacturers and other me bers of the suppl
hain that do not·have direct contact wit.hc ustomers in traditional channe:S
to enhance revenues by bypassing intermediaries and s_elling directly to
customers, thereby collecting the int rmediary' incrementa.rl evenue.

.-Flexible Pricing, Product Portfolio and Promotions:

An e-busines ·can easily alt r prices by changing.one entry in the databas
linked to its website. This ability· allows an e-busines• to aximiz
revenues by setting prices based on current inventories and demand.
• '
For.eg, the airlines make last-minute, lo\:\' cost fares available on the We
. .
on routes with unsold seats. Can easily alter the product portfolio t at
offers as well as the promotions it is running.

.Efficient Funds Transfer:

An e-business·can enhance-revenues by speeding up coll ction.

2.6. ONLINE SALES·AND DISTRIBUTION NETWORK

. . .
Supply Chain consists of 11 the parties, vendors, man facturers, supplie
involved directly or indirectly in fulfilling •all the customer needs a
changing demands.
•!• The flow of materials, products, money, informati n not only between
. .
manufacturer and suppliers but also with transport, logistics, warehou
and retailers in the entire value chain.
•!• Walmart can be taken as best example for effective and efficient sup
c ain network in fulfilling the customer needs. The coordination ·.betw
supplier, manufacturer, distributor, wholesaler, retailer and customer is
-key for driving the business. The ultimate objective of the supply chai
tomaximize· he profits and create visibility in the en'tire netwo.rk
reducing the inventory.
Supply Chain Network

2.6.1. ONLINE ERA:

Online d E-commerce sales across the global and especially in India big
players hke Amazon, Ebay,,flipkart, Snapdeal etc.
- Due to on ine and e-commerce transformation •of businesses has taken to
new level.

The customer service as become vital in all the·aspects .of business right
from the order fulfillment process to delivery, returns management.
Customer is the key to all the.businesses. Retaining the customer is crucial
during unpredictable gaps between demand and supply.
• The other factors influencing ales and ability to offer-flexible pricing that
help firms to sell their products online both on inventory and procured
. from arious third party vendors in the market place.

2.6.2. SHORTER LEAD TIMES AND QUICK RESPONSE:.

Selling anything online depends largely on the product available, logistics
and-distribution network.
Customer wants t e product as early·-as possible and also a the effective
pnce.
Few·customers go for :right o_f way delivery servic s based on their
requirement and purchasing power.
The .online sales takes_longer times to fulfill a customer request-to process,
pi?k ship and deliver.
Internet and effective tracking and technology gave access to cµstomer to
locate the product a_t each stage of moment in the t ansportation network
right from shi_pping-to delivery to heir door step.

2.6.3. PRODUC·T VARIANTS:

Today we have wide range of product variants available online right from_
a pencil to Television and it is transformi g·and day have come we are
also able to buy motor cars and what not.
• The profound discou·nts and price wars between the companies to sustain
in the market are becoming·an·advantage to buyers.
 /:2: .: 1: :6!/ _ Supply Cha---i:n--_Manage

2.6.4. SEAMLESS CUSTOMER EXPERIENCE:

The technology and mobile application espec ally giving the cust
seamless experience through reliable·and real t•ime VISI
• ·bl e and transp
on
a· request· art
services. Customer can browse, b y and p-ut _ up- at
1
convenience be it any time.
There are no fixed timings·as the retail store has to provide the services:
People switching from traditional way of -purchasing things have be
changing rapidly day by day.
Internet is offering·to make it possible· to customize, prioritizeti
shopping cart.

2.6.5. IMMEDIATE AVAILABILITY SOON AFTER LAUN H:

- .
Products are available in the store soon after it gets launched in ti
markets mostly with less or no lea times.
, They are flooding thefr products in the markets through effective logistii
and distribution networks.
. Constant efforts are being made to seize _the customer demand and ret
• the·customer _for longer period of time.

2.6.6. VISIBILITY OF THE PRODUCT:

Every incoming product to a warehouse or distribution center is bei
• • ·, f.

• barcoded or details of the product 1s captured_through hand held devic

and properly·stored in SKU's and product movement became faster-
better than before.· ,•
From a _customer vie point it has be.come crucial and utmost priority
given to make the prodµct vi_sible and traceable at eve y entry and_e
points.
. Due to-high B2C businesses the technology and-·things are changing
fast.er pace.and newest processes and·streamlined services
•'
are provided
.
customers.
•!• On the cost side the online sales affecting the inventory, transportatio
logistical network and returns_management has become a cause of co c
to companies today.

_
 ,.
Supply Chain Network

The supply chain strategy has given the top seat to address and adjust to
unstable markets.

2.7. DISTRIBUTION STRATEGIES·

'The ownership structure of the distribution network can have as big an impact as the type of
distribution network:

Distribution networks that have exactly the same physical flow . but
different ownership struct res can have vastly different performance.
For eg, a manufacturer that own its distribution network can control the
network's actions.
'
Ifowever, if the manufacturer does not own the distribution network, a
wide variety of issues need to be taken into account to optimize over the
network.
The choice of a distributio·n network has very long term cJnsequences:
The structure of the distribution network is one of the most difftc 1lt
. decisions to change.
'
The impact often lasts for decades, amplifying· the imp9rtance of the
choice.
For eg, in the early days; PC manufacturers sold throug_hindependent
. .
distributors and retailers. Dell's emergence was a ?lear example of how •
the direct model was often superior to the traditional model.
Other PC manufacturers, such • as HP, made forays into selling PCs
directly.
Consider whether an exclusive distribution strateg_yis advar:itageous: ·
A manufacturer. of con_sumer electronics such as Sony ould choose to
I
have relationships with many distributors such as eZone.
Product price, commoditiza ion·,and criticality affect the ,ype of distribution I

system preferred by customers:

Interactions between a buyer and a·seller take time and·resources. Many
buyers would like to establish a relatjonship with a sing_lenterprise that
can deliver a full line of products.
 manufacturerwitha
However, this is often accomplished mo_r eeffectively bya distfibui
carrying prod cts from many manufacturers.
Integrate the Internet with the existing physical network:
To extract maximum benet from e-businesses, firms. should integrate
with their existing supply chain networks;
Separating the two networks often results•in inefficiencies within t
supply chain.
This coupling of e-business with the·exist ng physical network has bee
referred to as clicks.:and-mortar. For eg. Placing order online a
collecting goods from the physical store.

2.8. NE°fWOR DE IGN IN THE SUPPY CHAIN

Facility role:
What role should each facility play? What processes are.performed at ea
facility?
Facility location:
Where should facilities be locatyd?

Capacity allocation:
• .How much capacity should be allocated to each facility?

Market and supply allocation:

What markets should each facility sei:v ? Which supply sources sho
feed each (acility?

2.8.1. INFLUENCING FACTORS IN NETWORK DESIGN

2.8.1.1. Strategic Factors

1
A firm's c01ppetitive strategy has a s gnificant impact on network .de
decisions within the supply chain.
Supply Chain Network

Firms that focus on cost leadership tend· to find the lowest cost location
for their manufacturing facilities,.even if that means lo.cating very far from
the markets they serve. • • ,..

Firms that focu on responsiveness tend to locate facilities closer to the

market nd may select a high-cost location if this ch9ice allows the firm to
react quickly to chan$ing. market needs

Classification <;>f possible strategic roles fo v rious facilities:

Offshore facility: low-cost facility for export production •

., .

Serves the role of being a low-cost supply source for m·arkets located
. outside t e country where the facility is located.

Source facility: low-cost facility for global production

Often a primary source of product for the entire global network.

Server facility: regional production facility

Objective is· to supply the market where it is located. A server facility is

built because of tax incentives, -tariff barriers or high logis ics cost to
supply the region from elsewhere.
For eg. Suzuki got into ie up with Maruti and est blishes a manufacturing
unit in India to serve Indian market.
.
C9ntribut r facility: regional production facility with development skills

Se es the market where it is. located ?ut also assumes responsibility for
product customization, process improvements, product modifications or
product development:

2.8.1.2. Technological facto s

If production· technology display significant economies of sc le, a few
high-capacity loc tions are most effective.
If facilities have lower fixed costs, many local facilities are. preferred
because this helps lower transportation costs.
 Supply Chain Jvt
anage

If the fo,cd cost of setting up facility is high, few facility locat·

. ' n.
feasible option but if setting up fixed coSt is low, more number off: .1.''
. ac,1iu
should be established.

2.8.1.3. Macroeconomic Factors

Tariffs and Tax Incentives

Tariffs refer to any duties that must be paid when product
. l . . b
intemattona or city
<an
equipmentare moved across
, state, oundaries: If
a country has very high tariffs, companies either do not serve the
market or set up manufacturing plants wi•th.m ht e country to save ond O.
1
• Ult
Tax incentives are a reduction in tariffs or taxes that countries, state
cities often provide _toencourage firms to locate their facilities in speci
areas

Exchange Rate and Demand Risk

Exchange rate is nothing but one countries money m tenns of ot

countries money.
Fluctuations in- exchange rates are common and have a significant imp
l .
on the profits of any supply chain serving globa! markets. A firm that s
- . .
i product in the United States with production in India is exposed to
risk of appreciation of the rupee.
Companies must also take into account.i1uctuations in demand caused
changes in the economies of different countries.

2.8.1.4. Political factors

- Companies prefer to locate facilities in politically stable countries w
the rules of commerce and ownership are well-defined. ••
Countries with independent and clear legal system allow firms to fe
they have recourse in the cou·rts should they need it.

2.8.1.S. Infrastructure Factors

k d
Key infrastructure elements to be considered during networ,
include availability of sites, labo: availability, proximity to transporta
 terminals' rail servic, e prox1•m1• ty_to m· rpo11s and-seaports, h·ighway acc•ess,
congestion and local utilities. •
2.s.1.6_. Competitive Factors

Compani_es must consider competitor's strategy, size and location when

designing their .-supply chain networks.

2.9. FRAME WORK FOR NETWORK DESIGN DECISIONS

Phase I: Design a Supply Chain Strategy

Starts.with a clear d finition of the firm's competitive strategy as the set of

.customer needs that the supply chain aims to satisfy. Managers must
foreca_s_t the likely evolution of . global ompetition and whether
competitors in-each market will be local or global players.
Constrajnt_s on available capital and whether growtl wifl be accomplished
by acquiring existing facilities, building new facilities or _partnering.
Phase II: Define the RegionaLFacility Configuration

Forecast of the demand by country. Include a measure of the size of the

demand as well as a determination·of whether the customer requirements
are homogenous or variable across different countries:
• '
Homogenous requirements favor large consoli_dat d facilities whereas
requirements that vary across countries favor smaller, l<;>calized facilities.
Phase Ill: Select a Set of Desirable Potential Sites
Hard infrastructure requirements include the availability of suppliers,
transportation services, communication, utilities· and wareh<?using
infrastructure.
' .
Soft infrastructure facilities include the availability of skilled workforce,
• workf9rce turnover and the community receptivity to business and
industry.
Phase IV: Location Choices
Maximize total profits taking into account the expected margin and
demand in each market, various logistics and facility costs, and the taxes
and tariffs at each location.
 2 2 2
=[ =. =1
= ======================= S up ip ly=C=h=a=in=M==an ageinei
2.10. IMPACT OF UNCERTAINTY ON NETWORK DESIGN
= = . .:.= ..:...:: :== =_:_:....:. --------
Supply ch in design decisions such_as the number and size of plants
build, the size d scope of distribution.system, and whether to buy
lease one's facilities involve major investment. •
These decisions, once ade, cannot be changed in the short term. Th
. remain in place for several ye s and define the limits within w ich
supply chain must compete. Thus, it is important that these decisions
evaluated as accurately as possible.
.
Over the life of a supply chain network, a company experienc
fluctuations in demand, prices, exchange rates, and the competiti
environment. A decision that looks •very good u der the curr
environment may be·quite poor if the situation changes.
Long-term contracts for warehousing are more attractive if th demari_d
price of warehousing do not change in the future or if the price
warehousing goes up.
In contrast, a short-term contract is more attractive if either demand or
price of warehousing drops in th e future.
. .
The amount of demand and pdce uncertainty has a considerable influe
on the appropriate range of long- and short-term.warehousing space th
firm should carry.
un·certainty of de and and price drives the value of building flex
production capacity·at a plant. If price and demand do diffe·rover time
global network,·flexible production capacity can be reconfigured
maximize, profits in the new environment.
In 1990s,_Toyota made its global assembly plants more flexible so -
each plant might supply, multiple markets.
One of the main benefits of this flexibility is that it allows Toyota·to r
to fluctuations in demand, exchange rates,·and local prices by alte
production to maximize profits.
 A firm may choo_se to build a flexible globai supply chain even in the
presence of little demand o supply uncertainty if uncertainty exists in
exchange rates or prices.

Thus, supply, demand, and financial uncertainty must be considered when

making network design decisions.

2.10.1. DISCOUNTED CASH FLOW.ANALYSIS ,

Supp. ly. chain. design decisions. should be evaluated as a series of cash
flows over the duration of time·that they will be in place.
. . .
The present value of a .stream of cash flows is what that flow is worth in
today's dollars.
Discounted cash flow (DCF) analysis evaluates the present value of any
flow of future cash flow-sand allows management'to compare two streams
of cash flows in terms of their financial value.'
DCF analysis is based on the fundamental idea that "a dollar today is
worth more than· a d:ollar tomorrow" because a dollar today may be
invested and earn a return in addition to the dollar invested.
This principle provide the basic tool for•comparing the relative value of
future cash flows that will an:ive during different time periods.
The p;esent alue of future cash flow is found by using a discount factor.
.If a dollar today can be invested and earn a rate of retum ·k over the next
'
period, an investment of $1 today will result in I. + ¾ dollars in the next
period...
An investor will therefore be indifferent betwe n obtaining 1 in the next
period or $1/(1 + k) in the current period.
. .
• Thus, $1 in the·next period is discounted by the Discount factor = l /1+ k
J tcr obtain its present value.
The rate of return k is also referred to as the_discount rate,. hu dle rate, or
opportuni!)' cost of capital: Given a stream of_cash_flows.Co, Cl, ... , CT
over the next T periods,_and a rate of return k, .the net_present value (NPV)
of this cash flow stream is given by:
-=[2=.2 =
4=-1-- ----------:--- -=----S_up_'JJ_ly_C_h_a,_·n_M_a-.:... age,ne
.

NPV == (1 + i)'

t - time of the cash.flow

, - discount rate
.R, - net cash flow
The NPV of different options should e com ared when making supp
chain decisions.
A_ negativ NPV for" an option indicates that the option will los money
the supply chain.
The decision with the highest NPV provides a supply chain with t
highest financial return.

2.10.2. EVALUATING NETWORK DESIGN DECISIONS USING DECISION TREES

A manager makes several differ nt decisions when designing a sup
chain network.
For instance:
• Should the-firm sign a long-term contract for warehousing space
get space when as rieeded?
• What should the firm's mix . of long-term m the portfolio
tra sportation capacity?
• How much capacity should yarious·facilities have? What portion
·this capacity should be flexible?
If uncerta.ii:ity is ignored, a manager ill always sign long-term·contra
-and avoid all flexible capacity.
Such decisions, however, can harm the firm if future demand or: prices.
not as forecast at the time of the decision.•
For example, until around 1990, all production- capacity m
pharmaceutical industry was committed.
Committed capacity was cheaper than·flexible capacity but could only
used for the drug it was designed for: Pharmaceutical_comp.anies, howe
Supply Chain Network

have found it very difficult to forecast the demand and pric for drugs in
the marketplace.
/ .
Thus,a large fractio_n of the committed capacity can go unused if the
forec demand does not become visible
Today, pharmaceutical companies have a strategy of carrying a range of
dedicated and flexible capacity. •

Mo t products are introduced in a flexible facility_and are moved to a

committed facillty only when a reasonably accurate forecast of future
demand is available. •
. .
. During network design, managers thus need a method that allows them to
estimate the uncertainty in their forecast of demand•and price and then
incorporate this uncertainty in the decision-making process.-
Such a method is most important for network design decisions because
t,!iese decisions are hard to change in the short term.
:• • A decision• tree is explicit device used to evaluate decisions under
uncertainty. Decision tree_swith DCFs can be u ed to evaluate supply
chai,n design· decisions given uncertainty in prices, demand, exchange
rates, and inflation. . I .

The first step in setting up a decision tree is to identify the number of time
periods into the future that will be measured when making the decision.
The decision maker should also identify the duration of a period-which
could be a day, a month, a quarter time period.
. '

The duration of a period should be the minimum period of time ver which
factors affecting supply chain decisions m y change by an . important
amount. "Important" is hard to-define, but in most cases it is suitable to use
the du.ration over which an aggregate plan holds as a period. •
· If planning is done monthly, set the ?uration of a pe i o_da t month. In the
., .
following discussion, Twill represents the number of time periods over
which the supply chain decision is to be estimated.
 Supply Chain

·•••• The next st.ep 1. st o 1'd enti'fy factors that will affect the value of the d .
· and are likely to vary over the next T periods.
These factors inc•lude dem • and, pn•ce, ex·ch.ange- rate' and a t·ion.
i n fl '

".., I

Having identified -the key factors, the next step is to identify Possj
distributions that define the fluctuation of each fa-ctor from one pen.
the next.
If, for xample, demand and price are identified as the two key·factor
affect the decision, the probability of movirig om a 'given Valu
demand and price in o e peri to any other value of demand,andPri
. the next period must be definite.
The next step -is.tor identify a Pt:riodic dis ount rate k to be appli
future cash flows.
It is·not es ential that the same discount rate apply to each perio or
at every knot in a period.
The discount rate should take into account the inherent risk associated
the investment.
In general, a higher discount rate_should apply to investments with h
. .
risk. The decision is now evaluated using a decision tree, which c9
tne present and T future periods.·
Withi each period a no e must be defined for every possible c mbin 1

of factor values (say, demand and price) that can be achieved. .

Arrows are drawn from ongin nodes i Period in to the end no
Period i + _1.
The chances on an arrow are referred to as the transition probabi
are the probabil_ity of transitioning from the origin o e in Period i
end node in Period i + 1..
The decision tree is estimated starting from nodes in Period T and w
\

back to Period·0.
or each _node, the decision is optimized taldng into account curre
future values of various factors.

• '
Supply Chain Network [2.21]
Anticipated future cash flows are discounted back and included in the
decision currently under consideration.
The value of the node in Period 0 gives the value of the investment as well
as the decisions made during each time period.
The decision tree·analysis methodology is summarized as follows:
• Identify the duration of each period (month, quarter, etc.) and the
number of periods T over which the deci;ion is to b evaluated.
• Identify factors such as demand, price, and exchange rate whose
fluctuation will be considered over the next T periods.
•- Identify representations of uncertainty f r each factor; that 1s,
deteiinihe what ailotment to use to model the uncertain·ty.
• Identify the periodic discount rate k for each period.
• Represent the decision tree with defined states in each period as well
as the changeover probabilities between states i_n successive periods.
• Starting at perio4 T, work back to P riod 0 identifying the most
favorable decision and the expected cash·flows at each• step.
Expected cash flows at each state in a given period .should be
discounted back when included in the previous period.

2.10.3. RISK MANAGEMENT AND NETWORK DESIGN

A global supply chain networ _is exposed to a range of risks, including
supply disruption, supply delays, demand fluctuations; pr!ce fluctuations,
and exchange-rate fluctu tions.
If suitable improvement plans are not in pla e, these risks can extensively
hurt supply chain performance.
For example, contaminatipn at one of the two suppliers of flu vaccine to
the United States·led to a severe shortage at _the beginning of the 2004 flu
season.
This shortage led to rationing in most states and severe price gouging in.
some cases.

• ... ,..., 7""

I 2.28 I Supply Chain Manao
- .
. gthening of the euro has ha
Similarly, the cons1derab1e stren . nn fil"tns
. ly sources located m Western Europe •
have most of the ir supp
Table 2.1 cont ins a classification of supply chain risks and theird .
· t ork design. Il
that must be considered dunng new
Risk Drivers
--=-...
Category

Interruption Natural disaster, war, terrorism ----

Setback
Labor disputes and·Supplier economic failure
High capacity consumption at supply source
Inflexibili.ty of supply source '
--
. Poor quality or defer at supply source
-
Systems risk Infonnation infrastructure breakdown
System incorporation or extent of system
being networked
Estimate risk Inaccurate estimates ue to long lead time
seasonality, product variety, short
. life cycle
small customer base \

·.
. . t
Bullwhip effect or information defonnation
Intellectual property Vertical combination of supply chain
risk • Global outsourcing and markets
. -
Procurement risk Exchange-rate risk_•

F.raction purchas d from a single supply•

Industry-wide capacity deployment
Receivables risk Number of customers
Financial potential of customers
-
 Supply Chain Network

Stock risk
Rate of product obsolescence
•
Inventory holding cost

Product value

Demand and supply uncertainty

Capacity_risk Cost of capacity

Capacity flexibility

Table 2.1. Classification of supply chain risks and their drivers

. .

2.10.4. MAKING SUPPLY CHAIN DESIGN DECISIONS UNDER UNCERTAINTY

IN PRACTICE

• anagers should consider the following ideas to help them make better
network design decisions under uncertainty._

(i) Mer e strat_egic planning and financial planning during network design.

In most organizations, monetary planning and strategic ·planning are

performed independently.
Strategic planning tries to prepare for future doubts but often without
m ticulou quantitative analysis, whereas financial planning performs
quantitative analysis but assumes a expected or well-defined future.
Decision makers should design supply chain networks considering a range .
of strategic options--the option to wait, build excess c·apacity, build
flexible capacity, sign l ng-term contracts, purchase from the target

.
market, and so forth.
The various options should be assessed m the situation• of· future
.
uncertainty.
(ill Use numerous metrics to estimate _supply.chain n tworks•.
As one metric can give only part of the picture, it is advantageous -to
observe. network design qecisions using multiple metrics such as firm
·profitss, upply·chain profits, ustomer service evels, and r sponse t mes.

. .
 j I
L2::.:3:::0::: _.;. ..... Supply Chain A1a.naD
-
G ood d ec1. s 1. ons execute well along most relevant metrics.
•••
(ii,1 Use fiscal study as an input to decisio making. •
Fiscal analysis is a great tool in e decisio -m.aking process, as it
produces n answer and a plenty of quantitative data to back U
answer.
However fiscal methodologies alone do not pro_videa complete p'
' . •
the options, and other non quantifiable inputs should also be considere

(iv) Use estimates along with understanding examination.

any of th·einputs into financial analysis are difficult, if not impossibl
obtairi correctly.
This can cause financial analysis to be a long and drawn-out process
' . .
The best ways to·speed the process along and appear at a good decisi
to use estimates of inputs when it appears that finqing a very acc
input would take an exces_sive amount of time. .
By performing sensitivity analysis on the input's range, managers_c _
s ow that no matter where _the accurate input lies within the range
decision remains the same.
. . -
To sum up making supply chain design decisions effecti ely, mana
need to make estimates of inputs and thei:i experiment all suggestions
sensitivity analysis.

1. Define supply chain·strategy.

Supply chain strategy is an iterative process that evaluates the cost- be
• trade- offs of operational components. Business·strategy involves leveraging
core competencies of the organization t-o chieve a defined high-level go
objective.
2. Wltat is the need/or integrated supply chain?
'
End-to-end collaboration of dynamic supply networks.

• I
 . .
Transparency of mate • 1 . . .
as supp1y, flow, an mventones.
• The nimble orchestr tion of production networks.
Real time communication about prod utc •mfio. nnah.on.
3. How is strategic fit achieved?
Consistency between customer pn•on•h•es of • compet·it·ive strategy and
supply chma· capa b·111· t•ies spec1•f•ie_d by t·he supply chain strategy. •

Competitive·and_supply chain strategies have th same goals. Eg: big

bazaar
4. Define Cycle time in·SCM.
Cycle time or lead time.is the e_nd to-end deiay in a business pr cess. _For
supply chains, the business p ocesses of interest e the -supply chain process and
the order-to-delivery process. If the items are in stock, then it would be equal to
the_dis_tribution·lead time and _order management time.
(a) A span of time required to perfonn a pr cess.
(b) Time between recognition of the n ed for an order and the receipt of
goods.
• 5. What is n1eant _by facility Decisions? .
Facility location decisions play a crucial role in the logistics activitie
involved in supply chain mailag ment. In real-life settings, the optimization of
location and allocation·decisions. is often preceded by an .evaluation of the
existing distribution network system.
6. D,ejine distributioit network.
_A distribution network is an inferconne·cted group of storage facilities and
transportation systems that receive inventories of goods arid then deliver them to
customers. It is an intermediate point to get products·from the man_ufacturer to
the end customer either directly or through a retail network.
' . .

·1. How to create·iJte effective supply chain process?

Supply chain management (SCM) is the br ad range of activities required to
plan, control and execute a product's flow, from acquiring raw materials and
production through distribution to the .final customer, .in t e most streamlined
and cost- effective way possible. •
I 2.32j Supply Chain Ma
-8. =!_------- ----------. - • nage
JJ'hat are the l'arious factors to eb c 011sitlered before selecting ·ti, .
e suer.
JO
warehouse?
Cost ofdistribution.from warehouse to market area
Avm.ln• b1. h: ty of transportat•ion n·nd. infrastructure-cost.of transportati,on
Presence of competitors
Availability nnd cost oflabor-Cost ofland•
Local resident's altitude
Local taxation etc.
9. JV/10 are the participants of supply chain ma11ageme11t?
The participants of supply chain management are Suppliers, wholesal
distributors', retailers and-customers.
10. JJl/,at is network pla1111i11g in supply chain?
.
. Supply Chain Network Design (SNDC) also known as 'strategic upply c
planning' is tl e protess for building and modelling the supply chain to underst
the·costs and time t_o bring goods and-servi ys t .market within an organizat
. ,

available resources.
11. What is meant by network optimization models in supply chain?
Supply chain network optimization seeks to find an optimal combinatio
factories and distribution centers in the supply chain.
Based on the optimization results, a manager can compare potential netw
designs and evaluate t e maximum profitability of each of them.
12. Whal do you mean ·by decision making under uncertainty'in upply ch
Decision-making environments for Supply Chain Network Design (SN
under uncertainty. Several ·parameters of .a· Suppl.Y Chain Network De
(SNDC) problem; such as costs, demand, and supply, have inherent uncertai
The objective of Supply Chain Network Design (SNDC) under uncertain_ty
achieve a configuration so that it can perfonn well under any possible realiz.a
of uncertain parameters. •
13. Nm11e tlte value addftio11 types in supply cltai11.
lnbound logistics: Rec ivihg, arehousing, and invent ry control of
materials.
Supply Chain Network .

Operations: Transforming inputs into the final product or.service to create

value.

Outbound logistics: Actions that gef the final product to the customer,
including warehousing and order ful_fillment. • ·
14. List the any benefits of using decision nodes in supply cJ,a'in
Better collaboration.
Improved quality control.
Higher efficiency rate.
Keepin-gup with demand.
Shipping optimization.
Reduced overhead costs.
Improved cash flow.
15. Outline tl,e scope of TMS in supply chain.
. .
. Transportation management solution (TMS) provides visibility into day-to-
day transportation operations, trade compliance information and documentation,
and ensuring the timely delivery of freight and goods.
16. What is the impact of uncertainty in supply chain?
Uncertainty increases t_h er i s k within supply chains, and risk is a consequence
of the external and internal uncertainties that affect a supply chain
17. What is the framework of network design deci!ion?
When desig ng an effective supply chain network, a manager needs
to consider all the internal and external factors that we previously discussed.
When designing a supply. chain network, we want to minimize the organization's
cost, while satisfying the customers' needs m terms of demand and.
responsiveness.
18. . What is the first phase of network design?
The objective of the first phase of network design is to define a firm's broad
supply chain design·. This includes determining the stages in the supply chain
and whether each supply chain function will be performed in-house or
· outsourced.
 I 2.34 I Supp_ly Chain Managelne

============================; =========:;-=_::::i
REVIEW QUESTIONS

Explain vario design option.s available for a Distribution Network.

Elucidate the frame work for network design decisions.
Explain the Role of Distribution in the supply chain.
4. Explain the factors influencing Distribution network design.
5. State the role of network design in Supply Chai .
6: Compose the different methods for selecting the proper channel·in detail w
diagram.
Interpret the objectives & process of Supply Chain Network optimizatio
models.
8. Describe the outcome and benefits of Supply Chain Network optimizatio
models.
9_
. Why is it i portant to consider. uncertainty when evaluat ng supply chain desig
decision? Explain. •

***************************·
 UNIT III
PR;ANNING DEMAND,.
INVENT.ORV AN D SU PPLY • • _,, • w

Managing supply chain cycle inventory and safety inventory - Uncertainty in the
supply chain , Analyzing impact of supply chain redesign on the. inventory, Risk
Poolipg, Mariagirig inventory for short_ life-cycie products, multiple item -multiple
location inventory ma ageme t; Pricing and Revenue Management.

3.1. MANAGING ·SUPPLY CHAIN CYCLE INVENTORY AND SAFETY INVENTORY

• Having enough inventories on hand to meet customer demand is crucial to

maintain and grow your business.
- •
Companies must not only carry enough inventory to meet forecasts, but a
mitigate of additional goods that can help t em cover unexpected emand
or problems like late shipments from suppliers. •
.One important component to inventory management is cycle inventory.
Understanding cycle inventory and the amount you need av ilable over a
predetermine period will help.you meet customer demands while also
keeping costs as low as possible..

What is Cycle lnvent!Jry?

Cycle inventory, or cycle stock inventory, is the portion of inventory that a
seller.cycles through to fulfil regqla_r sales orders. •
It represents a part of a business's·standing nventory. Cycle inventory is
used and replaced by new items, ot turned over·.
It is similar to tracking your sell through rate with a few added steps.
There are a few di_fferences . between cycle stock in B2B vs.
B2C businesses, so make sure you know what works f r yours.
Sometimes referred.to as working inventory, cycle inventory is the amount
of inventory available to meet typical demand during a·given period.
 Supply Chain Man
L.:::::.2::. aget
-
It's the amount of inventory y u woul -expect to go through bclsed
forecasts and historical data.
Cycle -.mventory 1• s one part o·r c ompany's total o. n-hand fnventory
must be replaced as the business sells its goods (i.e., invento tUrnove
• •

3.1.1. CYCLE INVENTORY IN OPERATION MANAGEMENT _

Cycle inventory in operation management cari make or break WarehoU
op rations.
Maintaining proper inventory control is part_ of every operati
maµager's job. fr inventory comes in or goes out"at an unacceptc!_hle.
operatic:,ns can become stalled or overwhelmed. That's why many dep
on ABC inventory analysis.

3.1.2. CYCLE INVENTORY VS. SAFETY INVENTORY

:Cycle inventory are the g ods allocated to meet regular customer delll
over a certain amount of time.
Safety inventory, on the other hand, is more like backup inventory. To
of it as product kept in your facility to cover unforeseen circumstan
such as when. planned production output falls short or when actual s
comfortably exceed forecasts.
For instance, perhaps your company runs a major promotion in the lead
to the holidays, .and sales surpass the previous season's sales and la
forecast by a,. de margin.
In this case, you will run out f cycle inventory, so you knock into
safety inventory. Without those additional reserves that you hold for
this type of occurrence, the ompany will los·e sales and c·ustomers,
may never return after this kind of frustrating experience.
Howev r, if your sales forecast is spot-on or customer demand even
short of it, you can fulfil all orders from cycle inventory.
I'

Detennining the right amount of cycle inventory is a tricky balancing

because companies also don't want to·carry more inventory than theY
to.
 The formula.for calculaf mg eye1e-•mventory 1. s based on safe_ty .mve-ntory as
well: • • •

Cycle Inv. entory = Tota1 i•nventory on hand - Safety .mv ntory

Key Differences

Here a re the key differences between cycle stock and saf;ety s ot c k.·
Cycle Inventory Safety Inventory
Definition Inventory planned to be Buffer inventory to cover any
used in a certain period unplanned issues

Intended Replenishes ·old inventory Used when demand outpaces

use as it's sold predicted sales, production
-
output is less than·planned or
supplier orders are late
Reordering New orders placed regularly Only replaced on as-needed
after existing inventory is basis
sold

Why Is C_ycle inventory Important to Businesses?.

Cycle inventory plays 'an important role in a business's daily operations
because it's used to fulfil most sales orders. Without it, a company would
not have enough inventories available to meet customer demand and the
business would not last long.
This stock is also critical·to businesses generating _cash flow. As items are
sold, the organization collects money and ge erate•s cash flow.
As those goods leave the warehouse, the business then has to place
replenishment orders with various suppliers and uses revenue from sales of
cycle stock to fund those orders.

How to Manage Cycle Inventory

By identifying onsistent sales trends and ha e historical information to
look back on, managing cycle stock inventor becomes easier.
I3 41 .
Supply Cha,.n A1,
012Qg
Done right, businesses can rest assured that th right products •
• tl are av
in the right amounts and refilled effiicien y.
First the amount of cycle inventory needed can be hard to Pred'
. . . ICl It
be useful to consult with similar busmesses or mdustry exp •
ens to
idea of the suitable amount to carry. &tt
Also account for major marketing campaigns, seasonality and
. re!ew
f
trends when outline to the ideal amount o e_ 1
yee inventory.. ··
Once businesses have some data o work from, they can develop
detailed and reliable demand forecasts.
They will have a sense of how sales fluctuate over the course cir
ay
which Stock Keeping Units (SKUs) are the fastest movers orsl
sellers, and other valuable infonnation.
• Inventory management sottware typically plays a key role _here,as man,
solutions include a demand planning engine that looks at historical da'i
trends, seasonality and other fa tors to predict future sales.
This software can calculate the expected amount of cycle inventory n
to cover a certain period of time for every product the company s_ells.
The key is to ave enough cycle inventories to last until the next pure
order arrives at your (acility (whether a manufa turing plant, warehouse«
store).
Companies usually use the time between receiving orders or be
. productions runs (in manufacturing s ttings) as the time period ii
calculating cycle inventory. .
• · • • es
Ideally, the business has sold most of its cycle·inventory by the tun
· next refill order shows up.
• ·1 • · • esses·kdi
C ye e mvent9ry mupply.chain management affects bus .
biff:
chain as it directly impacts the goods they have on-hand and thelaf
to fulfill orders.
. • . f factors:
•!• Suppl cham cycle inventory issues are caused by a number O •
.Planning Demand, Inventory'.and Supply

Demand If demand rises or falls, the amount of inventory moving in the supply
chain is directly impacted. Understanding clemand changes can allow a business to
react appropriately to increase sales and limit costs. Improper order management
process based on incorrect data.can cause a backlog that can quickly lead to·los es.
Order lead time: The ti it••t es between an order being placed 'and the product
arriving can cause issues with cycle, inventory. It is one of the biggest causes of
a backorder in inventory management. Investing in route :optimization software may
help mitigate these issues. •
• torage Costs: The cost of stori g inventory rises and fails bas'ed· on inventory
Jevels and the cycle length.

3.1.3. BENEFITS OF FORECASTING CYCLE INVENTORY

Forecasting plays a central role in determining the appropriate amount of
cycle inventory to carry.
. Here are a few key benefits of forecasting cycle inventory:
Fewer Lost Sales:
.
Forecasts
•
minimize the chances of running out of- .

certain items. If a few sizes of products started flying.off the shelves iast•
spring, the system will recognize that and increase th .order size for
those particular items. Under-ordering may save a little money up front.
Reduced Carrying Cos.ts: Just as forecasts prevent you rom not having .
enough products on hand, th.ey also prevent you from_holding too much
inventory. it costs oney to hav goods sitting in a store _ow
r arehouse,
and by keeping the.most favourable amount, you pr v e n. ut nnecessarily
high·inventory carrying costs.
Protect Safety Stock: Co panies th t don',t.orde enough i ventory will
freq ently bum through their safety inventory, w ich ne ates the whole
reason for having it. Safety inventory should.be saved for major
disruptions, like a supplier that's shut down due to a natural disaster or
unprecedented demand .for a particular item. Forecasts help ensure your
safety· inventory ren:iains safety stock not another name for cycle
inventory.

»5 V 7o7,l;,777r77,..... ,,, r•w►• + v --•-

 .
Supply Chain Ua
I
1-163 - nag
the business 1s quickly l"llnnin
Avoid let off movement : If g 0u
• up to try to get more goods or in
. certain products; -it will start mix . hi h ate
• • s rush shipments, w c cost more
from vendors. That often mean • ilrl
. ·t y even try to find another supplier th.t
. into·profit margins. 0 r 1. ma a
. •1 products in short order, and that's a
provide the same or s1mt ar . . 1o
• •d the confusion.
work. Forecasts can help you avot •
Less.superv1. s1. on:L eading forecastin·g tool·s t.akea .lo,tof infonn,a
.mto account and use algon"thms to come up with estimates. It's har
replicate that by crunching the numbers yourself and using simple ll
• F9;ecasting software may factor i a new trend the company haven'
noti_ced.

3.1.4. ACCOUNTING FOR CYCLE INVENTORY

Cycle inventory is import t to accounting in that it brings in cash,
purchasing more of this inventory to meet demand also affects cash f
Any inventory a company owns also shows up as an asset on its bal
sheet.
When determining the costs of goods sold (COGS) for invent
companies can use a few different methods.
Since prices fluctuate, the inventory costing method chosen can af ec
. ' .
COGS and, consequently, gross profit. The most popular and Gener
Accepted Accounting Principles (GAAP) approved costing met
include:

First In, First Out (FIFO): The cost of inventory is based on the o
items purchased d the price paid for those goods. So if someone or
50 items, the comp y will base the cost on the products it purchased_
months ago for $20 each (COGS = $1;000). •

• Last In F rst Out (LIFO): The cost of_inveqtory is b ed n the

recently purchased items and the price paid for those. If someone o
50 items, the com.. pany will base the cost on• the pureh ase prt•ec two w
ago of $25 each (COGS = $1,250).
l.

p,,an_
n-in" Demand, Inventory and Supply
7g • I 3. _
7 I·
Weighted Average Cost (WAC): This simply·takes. the average cost of
all inventory sold. Using the same example, the weighted average coSt
for thos 50items-would be $22.50 (COGS = $), 125).
How·to Calculate Cycle Stock with EOQ
, Hc
oabw
usn
inesses calculate their order size for cycle inventory? Many
use the econo ic order quantity (EOQ) fo ula. This formul allows a
business to order eno_ugh s ock to meet demand while minimizing the costs
per order.
When calculating EOQ, you'll need to cop.sider your ordering costs,
holding osts anddemand for that product.
, EOQ_Formula
. The EOQ formula is as follows
Q= (2 x D x S / H)
Where:
Q = Ide.al number of units per order
D = Annual demand
S = Fixed co _t per purchase order
H = .Armual hoidihg _costs per unit .
For example a retail shop sellin paper bundle and ma e sale 'of 10,000
units each year. •
The fixed order cost is 50 cents, and it costs you $1 every year t .store a
paper Bundle in your inventory.
Using the formula: Q .=--.(2_x O._l,-=-o-:-:oo=-.x--:.5:-/;-::l ) = 100
Thi ·means that your ideal order size is 100 paperbund_le

3.2. CYCLE INVENTORY IN SUPPLy CHAIN MANAGEMEN

- -----:---- --
is
bparti
of g
the overall supply chain management.
Cycle. inventory
strategy (SCM).
 Supply Chain
• lzqiJ
Keeping the op al amount of•gh •
inventory available
d aki meanss end1n
- to the right suppliers at_ the n Q
t tune, an m ng adjUstrnentsg
how quickly you're selhng µtrough products. .
Finding the most cost-effective way to makeeverything.work
complex and explains why bus•messes h ave d ed"teated mor as P.l
e resol!t
SCM in recent years. . C
For example, perhaps cycle inventory for a particular item juin
. • - d infl - . ps
froll
to 1,500 because a morrung TV show an uenhal bloggerb
· · Oth,f
your product. .
The existing vendor of that item may only be able to supply l ,O0Q .
you need to find another partner that can provide the additional 50
Similarly, if the forec t projects sales will triple for a categoryof
this summer based on consistent growth over the last year and a co
.
surge in demand during the summer that could impact downstream
• Sl
chain partners.
It's essential to .consider the full impact on your supply chain a
companies monitor and adjust cycle stock.
• '

Cycle Inventory Example

Since cycle inventory consists of items you' e using to fulfil regular
orders, you need to count all of the items you have on hand.•
• For instance, in a retail setting, the store should include products i
storeroom and on its shel es at.brick-and-mortar locations.
The-n simply subtract safety inventory from that total inventory numb
find the amount of CY,cle-inventory.
So let's say an auto parts retailer completes a physical count of a
windshie d wiper blades in its store and counts 350.
The inventory management system tells the manag r 75 ofth se blad
allocated for safety stock.
• . s
That means the wiper blades cycle·stock that the retail r plans to
part of nonrial operations is 350 - 75 = 275. The company could
•
more detailed count of cycle stock by breaking down the wipers
brand or both.
'f/anning Dema_nd, Inventory and-Supply

• 3.2_.1. SUPPLY CHAIN SAFETY INVENTO.RY

Uncertainty in dem d makes it ecessary to maintaina certain I.evel of

product availability to avoid stock-outs and providea required service
level to the customers.

A high level of• ..product ·ayailability provides a high level of

responsiveness, but.increases costs because much inventory is• held, but
rarely used.
' - '

On thecol!tr ry,-a low level of product availability lowers the inventory

holding·.c6si-4.ut r sults in a higher fraction of customers wh.o are not
• r,; ,
served on time. .·

So, the main objective of inventory management is to find a balance in the

.optimal product stock volume.

What is Safety inventory .in Supply Chain?

Safety inventory is carried to satisfy demand subject to unpredictable
demand fluctuations and to reduce product shortages.
This type of inventory cushion is. also called safety stock or buffer
inventory. Safety stock can help the supply chain manager improve
product availability in the presence of uncertaint .
. Inventory minus backlog· Ideal inventory
behavior

Actual inventory
behavior

r·,g. 3. J. Actual and ideal i11ve11lory behavior

Theoretically, Economic Ot'der Quantity (EOQ) and Re-Order Point •
(ROP) are calculated by using formulas.
 I
'f"3-=. 1. : 0: = . .., _...: ------------ S.u.p:p:l.y..Cha·
- InAf a n ao
. _ ( ) e\
The green line shown in Figure 3.1 reflects the inventory dynani·
• Q d ROP and can b tcs i
cnse of using optimal EO an e named as ¾n id.\.,
inventory behavior. ""'
The ideal inventory be·ha.vior means, in thjs case, that all assutnpt•io.11.
. met, i.e., demand and lead-time are constant. •
In real iife, this is.not the c se. Both emand and lead-time•
. resulting in actual inventory behavior whi h isa black liri.e on:
above. • e c
. .
As shown.in Figure 3.2, ROP is increased by safety stock• It cons1•de
example where safety stock allows us to cope with demand fluctuati•onrss·
some cases. However, in other cases there exists a backlog the Ord
· -
unfulfilled from stock on-hand. • en

lnvento·ry
- . I
Target level - --.- ---------------

Reorder point

Fig. 3.2. ROP witlz safety stock and backlogs

As shown in Figure 3.3,_';1Il example where ROP 1s increased by a
Excessive Safety Stock (ESS_).·
Inventory

Target level + ESS

------ ------.------------------- --·

Reorder point + ESS

Excessive safety
Stock (ESS)

0------ ----
Fig. 3.3. ROP wit!, exces • •
si ve safety stock a n d 110 backlogs
planning Demand, Inventory and Supply [3.11]

The Ess· is so high that demand fluctuations ould never result in a

backlog which means 100o/c0 d . . .
pro uct availability on stock resulting m a
100% service level. • •
. H owever,' the inventory I 1 h 1 • •
. • eve on t e last chart 1s much higher as compared
to the previous o n e, s whic h resu1ts •m h.igher •i·nventory costs.

3.3. UNCERTAINTY IN THE-SUPPLY CHAIN

Supply chain uncertainty refers to the decision-making·process in the

supply chain in which the decisioJ?. maker do s not know exactly wh.at to
decide due to la k of transparency of the supply chain and the impact of
possible actions.

Supply-chain uncertai ty is. an issue with which every practising manager

fights, deriving from the increasing complex_ity of global supply networks.
Supply chain uncertainty has been·considered as a major factor behind the .
need for supply chain flexibility.
. .
upply chain uncertainty is classified as upstream (supply) .uncertainty,
inten:ial (process) uncertainty, and downstream (demand) uncertainty.
Some of these factors may significantly increase the uncertainty in a
supply chain network; but other _fr qu nt parameters of uncertainty
are product demand, aw material prices, costs' (energy, labor, pr duction
and transportation costs) an lead times:
'
Specific solut_ions ·or innovations respondents m_entioned to reduce
uncertainty across· the supply chain inc_l de expan ed use of Enterpr se
Resource Planning (ERP) data and capabilities as well as updating and
implementing software tools• and techniques such as warehouse
management systems, transportation management systems, supplier
relationship management
3.3.1. FACTORS THAT CONTRiBUTE TO SUPPLY CHA N UN<;ERTAINTY_
•••• A ggr• ess1• ve g1o ba·I competiti.on has crea.ted a h.ighly demanding customer
and need for smooth supply chain.
 Supply Chain AL •

i3.121 , iviana
ge11z
. t und quality agility a d ea s
To serve its needs for low cos , so ' . Y availab·e .
orgam·satt•ons are lookm• b 1
g eyond their own bound.anes to teh rnana ht". 11

of the·ir supply cha·ms and m1• m• m1·ze supply chain r_ i-sk factors•- &erne t

.. Increasingly large multinational firms, in an effort to sirnuitan

, . • . eollsl
provide. local responsiven_ess and global mtegrat10n, are deveJ .Y
. . • •• . Oping
complex, differentiated supp.ly chams,_,,.which increase the hkelihood f
. 0
conflict. •
•!• -The complex an.d dynamic interactions bet.ween SUpply c• hain units lead sto
considerable· risks that can propagate up and down - the supply -h.
• _ C illn
adversely affecting performance.
. .
•!• Such risks can significantly reduce op !ational performance, profitability
-and shareho der value over the long term.
More specifically, risk facto_rs_ that are those factors· associated with
un ertainty and disruption are increasingly.important considerations.

•!• The Factors that contribute to supply chain uncertainty are as follows:
Supply risk:

There are several .supply. chain risks involv.ed with working with othet companies
especially in supply chains where there is high dependency on other _firms. There are
several ways to reduce this ri k including having a comprehensive on-board and
monitoring process, working with certified suppliers and having a go d Key
Performance Index (I<.!1I) system in place.with the supplier.
Demand risk:
...,. ·c
There are a variety of factofs that can affect demand, this includes the ecortomi
state _and other variables, and this is a r sk fo.rthe supply chain.•The mo
. unpredictable demand, the harder it is to kno how uch to produce therefore it15
i•mportant t? h ave a compre h ens1••ve d ernand forecasting system •in place i•n rderdto °
minimise the risk of producing too much or too little.. With more stable deI11
forecasts the Suppl)' chain risk is reduced. A classic example will be.dealing witb
'bullwhip effect'
 p[anning Demand, Inventory and Supply

process ris :
Unforeseen and• /or random interr upt·ions th.at s 1. g m. ficantly affect ope• rati.ons, e.g.
ma chin· e bre owns, labour problem, pr cess reh.ab1.Iity, quality defects a•re most
akd
•' •
comrnon pro•cess & manufacturing ns• k•B etter planm ng and orgamzm g preventi v e
. . .

maintenance methods can minimize thi.·s process ; nsk .

Decision complexity risk:
Uncertainty that arises beeause of multiple dimensions in decision-making
process,.e._g. multiple goals,' constraints, l ng-term pian,' etc. This could-als happen
in due to size and complexity·of big organisation or imposed by customer.
Natural uncertainties:
The natural uncertainties can be caused by earthquake, floods, no -deterministic
confusion, etc. • •
-Cultural & geopolit_ical risk factors:•
Issues of trust, official procedure,·. corruption, ethics, etc. leading to
misunderstandings and different set of expectation.
Access bility of logistics:
Despite there are plenty_of logistics provider availabl_e worldwide. But havil!g an
access to right partner is tough situation is not always easy.
..
Economic risk:
The state of the economy effects ·exchange rates, _labour costs and interest rate_s
which determine inflation, not only effeding the economic state of the home country
. '
but also with countries that the.company or suppliers operate in. Control risk:
· ith many of these proc_esses within the. supply chain not being done by the
company or plant itself there is a risk of lack of control, with high dependency <:>n
other firms or products and parts being shipped in from other countri s there is a lack
of control from the company this is a supply chain risk becau e the outcome of these-
can be unknown, a way to reduce this supply chain .risk is by having go?d
communic tion systems in place in order to itigate some of this risk.

Unresponsive Supply Chain:•

If there isa sudden change in the supply'chain caused by any of the above factors
then the suppiy will need to be responsive, this can be ditlfoult because some of these
 Supply Chain Mi .
[3.14 / anag
- •
h ving a durable dynamic system • .•
factors are unpredictable therefore a . .• 1n Pia
th supply cham active and runnin Cc,
respond to any change is vital to keep e g efflcie
OQ1
'
Resource risk:
.
Lack of people as • resources •m a supply: chain occurring mainly When 1,
personnel are m 1. ss.mg from the process. There are many.reasons why a Process"
. g peop1e •t
be I a c km
Id be from people illness or holidays but this le ta
I cou . aves
supply chain working inefficient and not at optim capacity. '

3 3.2. MANAGING'UNCERTAINTY IN SUPPLY CHAIN - .

Supply chain.uncertainty has had a majo impact on t eir supply chaiJij
they are:
1. Added cost
2. Increased inventory levels
3. Increased lead-times and
4. Reduced speed to market.
Inventory levels and lead-times e increased o . over for the un ertainij
of demand.
Speed to market is impacted by increased inventory and the ability to make
quick decisions about what products to put where in order to optimm
efficiency and cu tomer requirements. ..
Effective ways of dealing with uncertainty in their supply chains areai
·- follows:

• Ha e fo used, small teams of the right people to drive closure aoi

minimize the risk.

• • • Work to become proactive and agile by improving planning systerlll

and reduce cycle times.

• Try to balance network design, customer' dem d instability, anJ

customer satisfaction.
• Increase • focus on planning, operational excellence, technolo
• implementation, and coilaboration.
planning Demand, Inventory and Supply

• Improve 1he recognition of risk profiles and build emergency

plannin·g capabilities.
• Develop and im l
..
. • .
P ement a nsk management strategy and morutor the
condition of the supply chain regularly. .
• Work on back'Up • 1· .. .
supp iers and.freight comparues to reduce supply
uncertainty.
• Specific solutions such as e use·of ERP data d ca abilities as
well as·updating and implementing software tools and techniques
such a , arehouse management systems, transportation management
systems, supplier relationship management, and software as a
service.

3.3.3. LACK OF SUPPLY CHA N COORDINATION - THE BULLWHIP EFFECT

Supply chain coordination improves if all stages of the chain take -actions
that togethe·rincrease total supply chain profits.
Supply chain coordination requires each st a' ge_of the supply chain to take
into account the impact its actions have on other stages.
A lack of coordination occurs either becau e different stages of the supply
chain have objectives that conflict or because information moving between
stages is delayed and distorted. •
Different stages of a supply chain may have conflicting objectives if each
stage has a different owner.
As a result, each.stage tries to maximize its own profits, resulting m
actions· that often diminish to al supply chain.
One outcome of lack of coordination is bullwhip effect.
Fluctuation in orders incr_eases as they move up .the supply chain from
retailers to wholesalers to manufacturers to suppliers.

Deman d•1• nc1-.ormat·n 10 i·s distorted as -it travels within the supply chain, so
that d 1. fferent stages liave different perspectives and estimates of the chain
demand.
 DISTRIBUTOR
CUSTOMER RETAILER

_ Fig. 3.4.• Bullwltip Effect

3.3.4. • EFFECT OF LACK qFO-ORDINATION_IN SUPPLY C U .&

- IN "Ni
OBSTACLES.
A supply chain lacks coordinatio- i each•stage optimizes only its
1
objective, without considering the impact on the complete chain.
Total supply chain profits are thus less than what could be chievo
through coordination Lack of coordination al o results if infonnar
. .
• distortion occurs within the supply chain•.
The impact of th1s increase in variability on vanous measures 0
perfonnance in the supply chain are:

Manufacturing Cost

The bullwhip eff ct incre·ases manufacturing cost in the supp_ly chain.

As a result of th bullwhip effect, manufacturer and its suppliers.mus1
satisfy a stream of orders that is much more variable than custome1
demand.

Inventory Cost

The bullwhip effect increases inventory cost in the supply chain.

To handle the increased vari bility in demand A's a result, inventory costs
in the supply chain increase.
The high levels of inventory also increase the warehou ing pace required
a d thus the warehousing cost incurred.

Replenishment Lead Time

-
The bullwhip effect increases replenishment lead times in the supplY
c•hain. .
planning Demand, Inventory and Supply

The· increa ed • variability

scheduling at manu factureras.an'd
a result of the bullwhip effect makes
. su PP11· er plants much more difficult
. •
compared to a·s1tuation w1·th 1 . . .
. evel demand.
Transportation Cost
• The bullwhip effect incre . . • . .
. • ase transportation cost m t_he supply cham.
The transportation re •• · . :. . •
. . quirements over time at manufacturer and its
. •g filled.:
suppliers are cor.related with the ord ers.b. e-m

s ·result of the bullwhip effect, transportation requirements fluctuate

s1gmficantly over time.
This raises transp.ortation c-ot
s .b ecause surplus transporta.t.ion capacity
needs_to be maintained to cover high-demand periods.
Labor Cost for Shipping ar:,d Receiving

Th bu lwhip effect increases lab r costs associated with shipping and

receiving in the supp y chain.
,r
·- Labor requirements for shipping at manufacturer and its suppliers fluctuate
- .
with orders.
A similar fluctuation occurs for the labor requirements for receiving at
distributors and retailers.

Level of Product Availability·

- The bullwhip effe9t hurts the level of product availability and r sults in
.more stock outs in the supply chain.
.The l ge fluctuations in orders make it harder for manufacturer to supply
all distributor and retailer orde!s on time..
Thisincrease·s the likelihood that retailers will ru? out of stock, resulting in
lost sales for the supply chain.

Relationships across the Supply Chain

• • ·· . ffi t h.asa negative effect on perfonnance at very stage
The bullwh1p e ec . . .
·onships .between different stages of the supply
and thus hurts. the reIatl ••
chain.
 I3.18 J Supply Chain Mi
== = .- anage
e
There is a tende cy to assign p l a m,e 0 other stages.of the sup
because ·each stage feels it is doing the best it can. Ply c •
'
The bullwhip effect thus leads to a loss of trust between differ
. .. . . ent sta
the supply chain and makes any potential coordmation ef" &eso1
J.Orts
difficult. Ill

Impact of the Bullwhip Effect in Supply Chain

-
Performance Measure Impact of Bulhvhip
-I -
\ Manufacturing cost Increases
..
Inventory cost Increases

Replenishment lead time Increases

:
Increases .
Transportation cost
-
-
Shipping and receiving cosf Increases

Level of product availability Decreases

Profitability
-
. Decreases

Table 3.1. Impact of tlte Bui/whip Effect;,, Supply Chain

3.3.5. OBSTACLES TO COORDINATION

- IN
.
A SUPPLY CHAIN \.

(iI)
n formation Processing Obsta ies
(ii) Operational Obstacles
(iii) Pricing Obstacles .
(iv) Incentive Obstacles
(v) Behavioral Obstacles

('1 Information Processing Obstacles .

A supply chain with poorly organized ·or managed information channel!
leads to deterioration in information quality. .
. . .a
. Example: information on customer demand cannot reach members Ill
suppIy c h a m• •m a h• me1 _ymanner, or·information is not ava11• abel to sollle
members who might need it.
 .,.
p/anning Demand, Inventory and Supply

(/i) operational O stacles .

Practices such as plac• d• fi . '
. . mg .an Ilmg orders may have adverse effects on
coordmahon. •
Example:. orders of largre• si•zes,l arger repleni•shment l ea• d ·times, rat·iom· ng
and shortages can all mean o·rders are unable to reflect true customer demand.
(iil1 p icing Obstacles.·

Pricing practices and factors that affect pricing are ·also ways to·detach
orders from actual' demand.
Lot size-based discounts

Price fluctuations (e.g., due to promotions) resulting in "forward buying"

Example: a company may overbuy .if its supplier offers· a discount_on a
larger lot of orders, or if its demand i ·exceptionally large, but members in
the upstream supply chain can't rely. on these sales figures to forecast
·future demand.

(iv) Incentive Obstacles

When incentives offered· to different stages or participants in a supply
. . .

chain lead to actions that increase variability and re_duc tota_l supply chai
profits - misalignment_of total supply chain objectives and individual
objectives
Local optimization within.functio s or stages of a.supply chain.
Sales force incentives.

(v) Behavioral Obstacles

It is highly likely that. members in·the supply chain respond to- local
situations and neglect root causes. ,
They may blame each other for fluctuations in local.demand, resulting in i. I

loss oft rust Or even turnin. g themselves i n. to mutual enemies. I

Analyzing impact of ·supply chain redesign on the inventory .
.•••• The re·d es1• gn pas.sage needs to begin with ,a clear ass.essment so •that the
organization can develop a list of priorities that will bridge the gap
 Supply Chain Man
.
• . e J
between the company's business strategy and the ultimate redesj
.
companies supply cham. . .
•••• ·suppIy ch a·m· redesi·gn involves difficult competencies such• as addj
with suppliers and customers to create valu e as well as the acquj ·' - 1
. . su , on
external info.rmation and its tran_sformatton mto practices ca
PabJe
producing marketable outputs. ••
These.competencies are contextually specific in today's supply ch .
. . ains•i1
easy for a company's inventory to be caught up as work in proce ' 1
. . . ss. Ga
to-cash cycle times from procurement of supphes unttl payment can
•
to several months leaving you to pay for goods that have not be
' •
yet.
Companies must rethink their inventory strategy by keeping a holistic .
VJe
of their full product, and customer portfoli_o.
Inventory optimization allows building a strong digital.supply chai
model, to determine optimal ·inventory & buying._stq1tegies, evaluating
different scenarios., compari g the outcome in finding the companie
optimal direction before implementation.
The current crisis demonstrates that building resilience in the supply chai
. -
and being prepared for any scenario is. essential. Many comp.anies. thatar
.

struggling today typically imple?1ented single sourcing strategies over th

past years, focused on inventory optimisation (JIT. and low inventory
levels to • minimize s tocks), lo er-cost locations for •supplies and
.
-. production, and disttjbution hubs centralisation.
Today's supply chains are also being-anxious by·a multi de of external
force , including: •
• Urbaruzation
• Localization
• Personalization
./

• Rising input costs

p/anning Demand, Inventory and Supply
1·3.2i]
• Fundamental retail •hift •d •
. . . . s s . ue to changing consumer behaviours and
d1g1tal and e-commerce ad v ceme•nts
• .Increasing retailer demands . •
• Consu ers'• increasing; focus on sustainability as a corporate
responsibility
The Digital Essential

Accorhp ied by tho e quickly shifting market dynamics: however, there•

isa bright light: the accelerating impact ·of digital tecluiolo ies, which
have th_e potential to transform virtually eve ry link in the supply chain.
. .
There are f ur key digital the es shaping the future of supply chains:
• End-to-end visibility and collaboration: Companies are investing
in ontrol tower platforms that help organizations optimize their -
supply chain network·by providing seamless, real-time visibility and
promoting informed decision making.
• Intelligent supply chains: Adv ced R&D management, planning
st. rategies .and forecasting capabilities are integrate_d as never before.-
• Smart automation: Characterized by a· tep-function acceleration of
operational processes, increased flexibility and customiz bility.
• Next-gen employees: ·A host of n_ew.tools and technologies will
enable employees to enhance their skills a_
n achieve _notably higher
levels of productivity. Companies believe the risks.-and abso.lute
effort of becoming a digitally en bl d organization won't pay off,
some companies don't see the Return on Investment (ROI), and
·others remain committed to a long-term technolo y roadmap.that has
not allocated budget or resources to develop a digitally enabled
supply chain.
3.4. SUPPLY CHAIN REDESIGN STRATEGY-
-------.:...-=..:...-== =-----------:--------
The supply chain.redesign is a strategy-infused, integr ted proc ss.
 3 =.2=2 1 s_u_rpp_l_y_C_hain Manao
-
1 . .: : I

• corporates are:
The differentiated approacht ah t 1 0 .
. d ution strategy that transfol]lls your su
I. A design an exec .. PPlyc
. t t te into a competitive weapon.
from ts curren s a .
2. A compelling business need, li ki g your supp y chain strateg
business choices and gro·wth asp1rattons• .
3. An unconstrained vi w of v.:hat he companies supply chain.ca
when implemented daring strategies and breakthrough improvernc
are applied.
4. An end-to-e d view th t looks for value across .every link inU
value chain.
.The_redesign work begins with a targeted, fact-based -assessment of
current supply chain, from end to end, to determine_how well it rn
current and future strategic priorities.•
- ext, the compa11y creates an unconstrained view of just what its sup
chain performance·could be, and·devel ps a baseline m del that suppo
"what-if' scenario planning.
The work advances. to the next stage, with the_development of hi
potential scenarios th.at. span different risk and benefit profil
' -
complemented by a set of quantitative and qualitative evalu tion criteria
'

The company makes choices that align with the top one or two scenarios
'

The compa_ny is then ready to .create a detailed supply chain redes

policy and mobilize around a set of isolated and executable projec
complet with timing and resource.estimates.
Benefits of Redesign

• Companies have achieved impressive results across the full·spectrum

' '

supply chain capabilities.

Efficiency:_Companies have seen inventor.yturns improve by l_0%-40o/a
shipping and logistics costs decline by I0%-20% .and the companies have·achieYt
30%-100% increase in overall equipment effect veness (OEE), and also 3oo/o-A
reduction in inventory shrink.
 .I
p/anning Demand, lnV[!IJ!ory and Supply

. Risk pooling
Risk Pooling involves u • • . . • .
. s_mg centrahzed myentory instead of decentralized
inventory to take advat f • . .
n ag o. the fact that if demand is higher than
average at some retailers 1• .• ·.k .
, 1 Is 1I e1Y to be lower than average at others.
Inventory risk pooling is th · • . .. . • .
. .. e concept that the vanaq1hty m demand for raw
•m •
. aterials 1s, reduced by ag gre• gat'mgd, emand across mult iple products.
.

If so, it may be possibl to use this pooling·of fl ctuatfon risk to·reduce

the amount of raw material safety stock that is kept on hand:
Naturally' estimates are much more exact at a·combined.. level. .If the
estimates are inaccurate you either risk having too much or to9 little of a
product.•• Both these situations are not desirable for a business•. These
situations can be prevented by improving the estimate accuracy. Estimates
b natu_re of data are most accur te at.an aggregate level. That is the fewer
e timates that.-a ompany must generate the greater is the likelihood of
. I •

getting the estimates right. This i the fundamental concept of risk pooling.
In order to reduce the number ,of estimates to be generated a'comp·any may
use the following options:
• Have fewer options.of a.product. For example, having fewer colours
sizes, configuration options etc. will increase the prospect of coming
up with accurate estimates for.the product whereas as th number of.
options increases any variations_in·demand or'the individual option
wi'n be more impactfuI• .
• Ha ing fewer locations at whicp.·estimates m st be generated. For
example if a company has a single warehouse to. service all the
ustomers·h will generate esti ates only for that location an any
. ups and downs of demand will get absorbed. Whereas, if the
estimate have fo b_e generated at multiple locations the ups·and
downs of demand will be·more impactful. •
• • Th
e supp1y c a•m context in d_esigning an,d managin. g the supply chain, risk .
h
• ••
• . . t t' tical concept that·suggests that·demand variability is
poo1mg IS a s a IS .

' ..._.
 Supply Chain Mi .
-L!:l3 .2 4] a
.:n
_gd·'1t,
• d and for example, across loc .
r educed if one can aggregate em ' atio ns a·ero
. ,
products or even across time. .
This isreallya· sta.tistical concept that suggests that aggregation red
.
variability and uncertainty. .
F o• r examp1e, 1•r demand is . aggregated across different. locat·
. ions
t
becomes more likely that high demand from o e cuS omer Will ·be ;
. Oql
by low demand from another. . •
T his reduction in variability allows a decrease in safety stock,and there"
.
reduces average inventory.
·•:• Aggregate forecasts are always.more accurate thanindivid al f recasts is
useful guideline to think about the· impact on various. operatio s
a • an,
supply chain decisions.
•!• s·everal examples wher risk pooling sh uld be considered when makin
- I
decisions:
1. Inventory Management: T h_e less variability in deiriand the le&
safety·stock is required to buffer against fluctuations. In. ddition, tht
more consolidated the inventory, the easier it is to mai;1age overal
and the less risk of obsol scence.
2. Warehouse location and product flow: The decisions on whethe1
to ha e y warehouses cl_ose to the customers or more centralized
locations should consider the risk pooling effects. By-centralizinga
product in on location, you can t ke·advantage of the aggregated
)
demand. On the·ot_her. hand' you • need to consider nearness
. t
customers.and other factors that may·push owards maintaining mor
warehouses. The characteristics of each product also om s into pla
here as high demand products·with low·variability are not fmpacte
. as much by the risk pooling effect while low volume high vari bili
. .
produc(s are highly vulne.rable.
 p/onning·Demand, Inventory al)d Supply

3. Transportation: The mo.re consolidated the products and the

warehouses are, the cheaper the transportation costs as shipments
can be sent in larger • batches. Therefore •. considering the
transportation impact on these decisions is important.
4. Pus -pull strategy: In a push-pull strategy the initial stages of the
• supply chain are operated on push while the final stages are operated
on pull. So for instance, parts could be manufactured but assembl d
only after there is a good demand signal. That is the-components are
ready andasse bled· only after the order is received from the
customer.

5. Postponement: Delayed differentiation in product _design by.

creating a more common product and adding·sm:ne·of the details
once demand is revealed. This allows the use of aggregated demand
for the common product which is much rrtore accurate than the
demand for the differentiated products.
6. .
Product design: Decisions on the number.of choices and complexity
in products can benefit 'from risk pooling considerations - the less
colour choices or othe·roptions the simpler.the demand forecast and
many other aspects of the supply chain since the aggregated dema d
is easier to determine.
,.

3.5: RISK POOLING IN PRACTICE

The company's customer yalu and bus ess needs are the main drivers of
the organizations product _offe_ring, procurement and manufacturing
strategy and delivery metho s.
The comp y also need to balance the tr deoffs f yarious ·strategic and
tactical de_cisions using the appropriaJe analytics so ware.
But the concept of risk pooling helps the organization to understand the
impact of adding more products, options, warehouses and any other
complexity into the operations.
jJ:26.I Supply Chain M,
====================::::::::::: ===- anage,n
3.6. MANAGING INVENTORY FOR SHORT LIFE-CYCLE PRODUC

Many high-technology products aJ"e characterized. bya "short':-P-r- o- d--uic

cycle (PLCa) short life on the market, a steep dechne stage and the laltl
a maturity stage. c,
Th.peroduct life cyc. le. model is no.t .onl ly timportant• to marketing leains!I,
pro uct managers, it's also cnt1ca o any mventory pla n •
d
manages demand forecasting and stocking policies • er
Some of the most important stages through which pro·duct Iifie eye1e •
are as follows: • . Pass

·l: Introduction
2. Growth Stage
3. •Maturity Stage
4. Saturation Stage
5. Decline Stage.

Decline

Cl)

ca
(J)

Time

Fig. 3.5.

1. Introd uction. • • • • I

• gm• vi•ew a • • •
.T·he product is developed·kee.pm
and mtroduced in th·emarketb . . . . particular need ofa set of consunte!S
.· y iruhatmg its • •
product 1s new inthe.market •,commerc1a_lproduction. At this sta
' consequently its d • ·
salesefforts.·The promotio emand 1slow.and r'equires dynaPli
. na I costs are, th £ • tb
production costs are also not full . ere ore, high at this stage and
. . y rec.overed due to• low volume of sales.
 planning Demand, Inventor.y and Supply

2. Growth Stage
There isa fast expansion in·sales as the cumulative impa t of the promotional
expenditu.rhe elps in the market acceptance of the product as well as the reputatio_n of.
the product gainsaround• But·this rapid expansiqn can be sustained only by the
maintenance of product.quality.

3, Maturity Stage

Wh_en the product enters the maturity stage the rate of growth of its sales declines,
though the olume of sales keepsm·increasing. This is so because most of the
peoples needin_g the product-had; already adopted it during the gr wth stage and now
when the product enters its maturity stage, it faces-a small and'declining number of
potential huyers. Consequently, the firm has to spend ·relatively:inc_:reasing amount of
sales promotion.

4. Saturation Stage

At this stage, the sales volume of the product comes to an end to grow. The only
. .
additional demand for the product happens to be its replacement demand.
'
5. Decline Stage .

Ultimately the product enters a stage of decline where its sale volume starts
shifting down. The competitors have by then entered the market with substitutes and
imit ti?ns and the product distinctiveness starts diminishing. Consequently, the sale
of the produc·t also starts declining. The product life cycle, changes'occur in price-
elasticity of demand and promotional elasticity. There_are also continuous changes in
the production and distribution costs over the product' life-cycle. This necessitates
continuous adjust ents i·nthe pricing policy over the various phases of the prod ct-
life. cycle so as to get t_he. be_srt eturn in each case. It can be analyzed from the
Product life cycl that as the product moves to the next sta e of its life-cycle, the
sellers control over prices keeps on further re ucing. So, in order to save itself from
the·stage of sa1.urati.on and decli',ne the firm makes a fresh innovat•ion just at a time
When the.XI• S tm
'• g prod UtC ·1s about to enter the saturatio_n stage •
j 3.28 I Supply Chain

3.7. INVENTORY LIFE CYCLE MANAGEMEN •

•!• The product life cycle describes the d_1fferent st ges that a Product
through, from the moment it gets ._introduced toa marketplace, lltit1·g.

fin lly removed from sale.

) '
·•:• Invento y planning is ery closely linked to th product life_cycle beca 1

each stage dictates an item's demand pattern.

•!• Inventory life cycle management_is the process c:>f treating invento ite
. differently, in terms of adjusting _d mail forecasting ethods, stock I·
policies and reordering parameters.
3.7.1. T.HE PRODUCT LIFE CYC.L AND INVENTORY MANAGEMENT
.

•!• Product life cycle man gement is a long-established business managemen1 1

technique that defines the various stages of a product in the m ketplace-

from market introduction to end-of-life.
•!• Almost every product has a limit to the amount of time it can su cessfiilly
be sold to customers.
•!• Some products·wi_ll have a·shorter ·product life·cycle, due o changing
tec ology and consumer preferences example a mobile phone or fashion
product:
•!• Other.products wiU last mu h longer example branded groceries.
. '
•!• Inventory planners therefore rn ed to know·the life cycle stage for every
inventory article they manage. Thi ,is to ensure stock leveis reflect the
. . . ) - • . .. .
assocjated cu_stomer demand on continual basis.. •

3. .7.2. CUSTOMER ,D,,E

,,
MAND AND THE PRODUCT LIFE CYCLE ••
. .

•!• As a product moves through its product life cycle it wiil exp erience majo
changes to_its demand.
;:. • Fr example, demand colltd increase rapid! during the launch stage, b
drop off as it reac es decline. . .
d'f.._ • d • vent
•!• · Th•ese 1 1enng emand patte!ll· make it. more challenging for in
planners to forecast and ensure they're ordering the·right levels of stock,
 ---
pianning Demand, Inventory and Supply
'

In order to ensure hi h
.ffie t . g
f3.29]

accuracy, an inventory manager should use a

d1 er n inventory foreca f
. . . s mg model for·each demand type.
This 1s because in each
. case demand will fluctuate differently and so the
confid ence interval (the
. l"k range of value·s within which the eventual demand
val ue 1s 1 'e Iy to b ) •
e wi ll be greater or smaller.•
For example it makes st atisttcal. .
.sense to use a different algorithm to
'
forecast demand for a p d . , .
. . ro uct with lumpy demand' (with a typically high
deviation from its avera d • . .
. • . ge emand) to a product with 'fast demand' (with
very httle deviation).

3.8. TECHNIQUES TO MANAGE INVENTORY

Here are some of the techn1• ques that many sm

• a•ll •bus·messes• use to manage
• inventory:
• F ne-tune your fore- asting.
'
•
'

Use the FIF apl:'roach (fir_sti n, first out).

• Identify low-tum tock.
• Audit your stock:
• u;e cioud-based i ve_ntory management software.
• Track your stock levels at all times.
• Reduce equipment rep.ai·rtimes.

3.9. MULTIPLE ITEM -MULTIPLE,LOCATJON INVENTORY MANAGEMENT

,
Multi location. inventory management• means you can define all stores,
locations and sub-locations where-a product is stored.
,·
What is Multi-Location·Inventory Management?
Multi-channel and multi-location inventory management are similar tenns
used to describe the process of holding l4}d controlling steady stock levels
across mult1•p le warehouse locations arid when selling • on various
·platform's, such a·s Amazon and eBay.
 Supply Chain Ma
/3.301 nage
h
.
use is in Chi cago,_ but the cornp
If the company has only ware O . . any h¾
. t ers in New York, the shipping ,
huge number of potential cus om . . costs
. the East Coast 1s gomg to add
move inventory 800 nules to • · - Up Ve
quickly.
••• Thus, an ad d1' t•iona1 warehouse m New,y rk ·would cut do\.l,",,' t
companies shipping·costs.
••• E -comm,erce b rand s •cna also utilize_ multiple ware'.houses to consol'1d
certain products near specific customers. ._
In utilizing second warehouse closes thediStance that your product Ill
cover.to reach the customer, the_reby reducing shipping costs to ·aIllo
manageable level and miniinjzing the time it takes to d liv r.
Though, few brands can-afford t°. build, buy, o·r rent a warehouse in eve
state that they have customers.

3.9.1. •GUIDELINES FOR MANAGING INVENTORY ACROSS MULTIPLE

LOCATIPN
_ Some of the Guidelines for Managing Inventory effectively acr
)
Mult ple Locations are:•

Real-Time Visibility and Synchronization

'
The best way to manage i11:ventory (and the associated costs) across multi
locations is to• invest in inventory management software that improv_es real-ti
visibility, synchr?nization, and accurate inventory tracking. "These solutiol)S ena
reta{Iers to·improv sales, improve order.-accuracy, and reduce the.overall time sp
• I

managing inventory.
' •
Carefully Select Warehouse Locations l•
-.

, The-companies should be careful when choosing where to loc te their warehou

The thing is the proximity to company's customer's base and cost. Rule of thwn
the closer you locate your warehouse.to a major city-the higher the cost of pace,
and labour.
Optimize Demand Forecasting -·
. " • • . '.

Faster the companies turn the inventory,.the faster the company will free up
the working capital and valuable warehouse space. Therefor , it's essential tha
 p/anning Demand, Inventory and Supply [J.Ji]
-------------.:...:_..:. _::::::::=.
anies have the right balan f · ·
coillP . ceo inventory and know where to allocate it.
unately when the company • . . .
fort ' .• improves inventory visibility, it's easy to improve
and forecastmg; better track th • · • d
de eu inventory turnover ratio; inform pro uct
pricing adjustments and asse_ssthe health of the busi ess.
set safety Stock and Reorder Points

To manage inventoryacross, multiple warehouse locations, the company muSt

)(noW when to purchase more materials, which can be a challenge when the product
is spread out across the country. Therefore, the organization must pay close attention
to their stock levels to ensure that"the company don't run ot and cause delayed
, deliveries. The goal is to detennine the right amount of safety stock for each of your
products, as well as reorder points.

Utilize On-Demand ·Warehousing

On Demand warehousing connects brands in need of storage and distribution to

the warehouses an fulfilment centres that have excess capacity..

Advantages,of Multi-Warehouse Operati9n

Many e-commerce brands begin their operation with a single warehouse
l9cation, wherein th y fulfil, pick & pack and ship sales order, which
works for a while.
But one warehouse .can seldom scale with the needs of a growing e-
commerce business.
,I.
- When·an e-commerce brand targets a national audi_en e, transporting
products from a single warehouse may cause shipping• delays to the
customers, especi•ally when those customers are located. in a different state.
That's where multiple warehou es come in to P_lay.

Drawbacks of Managing Inventory at Multi_ple Locations

- A few of the most frequent issues that arise when. a business first extends

to multiple locations are:

Inventory levels don't match
Multiple systems (warehouse/ret il)
 Supply Chain Mana .
'

Over- or under-sto.cking

Short-term price promoti ns could be an effective tool to more

meet seasonal demand.
• 1.

supply,chain profits b.y better atching supply and demand, especiaJI

when the e are multiple customer types willing to pay different Pric
_(based on attributes such as response time) for an asset.
Reve ue management is the use of pricing_to increase the supply chain
surplus and profit generated from a limited availability of supply chain
\

assets.
- Supply chain assets exist_intwo forms that' are capacity and inventory.
I

Capacity assets in the supply ch in exist for productio , transportation,and

storage.
: Inventory assets exist throughout the supply chain and are carped to
improve product availability.
• In··the presence of multiple customer types, revenue manage_ment aims to
grow profits by selling the right asset to the right customer at the right
.
pn ce.·
'
Besides varying capacity and inventory · revenue management suggests
. .
• • varying pric<? to.grow profits by better matching supply and demand.

. Pricing is a factor that· gears• up profits 1n supply chain through an

appropriate match of supply"and demand.
Revenue managemen can_be d fined• as the application of p n•c m• g to·
. increase the profit produced from a limited supply of supply chain assets.
Ideas from·reve.nue management r commend that a company.should firSt
use pricing to maintain balan between the·supply and dema _
ndand
 p/anning Demand,1n f ntory and Supply
------ -=- - ---:------
should think of furth ., .. .
lr3 .3 3J
. .
balance IS maintained.
er mvestmg or r . . I
e Immatmg assets on y
c.
a1
1
ter t 1e

Revenue management • d fi
on the bas' f Is e m d,as the application of differential pricing•
Is o customer se .
- b'l'ty . ment, time of use and product or capacity
avai1a I I . to increment su I h . .
PP Y c am surplus.
Revenue management pla . • . . .
. . ysa ffia.Jor role m supply chain and has a share of
credit 1n the profit_ability of supply •
chain .when one or more of the
following circumstances exist: '•

•• The product value differs in different market segments.

• The product is highlY pen•sh abl.e or product te•nds to.be defecti.ve.

• Demand.haseasonal,and other peaks:

• The product is sold both in bulk and the spot market.
The strategy of revenue·management has been successfully ·applied in
many streams that we often tend to use but it is never noticed. For
example, the finest·real l{fe application of.revenue ma agement can be•
seen in the airline, railway, hotel and resort, cnuse ship, healthcare,
printing and publishing.

3.10. .1. REVENUE MANAGEMENT FOR MULTIPLE CUSTOMER SEGMENTS

In the concept of revenue management, there are t o fundamental issu s.

The first one is how to distinguish between two segm_ents and design their
pricing to make one segm nt pay more than the other. S
Secondlr, how to co trol t_h ed e m a n d so that the lower price seg e t does
not use the complete asset that is available.
To gain completely from revenue management, the m nufacturer needs to
minimize the volume of capacity devote_d to lower price segment even if

enough demand is a v. ailable from the lower price segment to utilize 'the
complete volume.
•••• H ere• , ht e genera1 trade-off is·in·between placing an order from. a lower
• • • f:r', a high price to arrive later on.
pn ce or wai tm g 10
These types of s·tt·uati·ons 1·nvite risks like spoilage and fall.
•••
:
 Supply Chain Man
[3 .34gl _:_-- -
-f oods are wasted due to dernan
O
Spoilage appecµ-s when volumes g d
high rate that does not materialize. .
. . · _ · r high r rate segments need to .be reJected "--"
S1 m tlarly, fall appe a rs 1 e
the commitment of volume goods given to the lower pnce segment
To reduce the cost of spoilage and fall, the manufacturer can ap_pJY.
formula given below to segments. _
Let us assume that the anticipated demand for the higher price segrnen!
generally distributed with mean of-DH and standard deviation of oH
CH= f-1(1-PL/PH,DH,crH)= NORMINV(l-PL/PH,DH,Ow

Where,
CH - reserve capacity for higher price segment
PL - the p ice for lower segn:ient •
PH = .the price for higher segment
An important thing· is the application of differential pricing that incremei
the level of asset availability for the high price segment.
A different approach that is applicable for differential pricing is to oo
multiple versions of product that focus on different segments.

3.10.2. REVENUE MANAGEMENT FOR PERISHABLE ASSETS

Any asset that loses its value·in due course of time is considered a

perishable item, for example, all fruits·,vegetables and pharmaceuticals.

-. We can also· include computers, cell phones, fashion apparels,
whatever loses its value after the launch of new model is considered
perishable.

•!• Two approaches for perishable assets in the revenue managemend

are:

• Fluctuate cost over time to maximize expected revenue.

• Overbooksal_es of the assets to cope or deal withcancellatioOS;
• The first approach is highly recommended for goods like fashion ap
that havea precise date across which they losea lot of their·value,
.,
p/anning Demand, Inventory and Supply

example, apparel design d fi . _

. e or particular season doesn't have much value
m the end of the season .
. '

The manufacturer shouldt . . .

ry usmg effective pricing strategy·and predict
the effect of rate on cust d
omer emand to increa e total profit. .
Here .the general trade-0ff· .
• . . .. is to dei:nand high price initially and al_low the
• re,mammg products to be sold laterat· 1 ower pn.ce. ,,
The·alternate method may be ch argm • g ·1ower pn·ce ·im· t·ially, se11·mg mor•e
produc• ts early in the s. eas_on and ht .en leav·mg, fewer_products to be sodl at a
discount.

The second approach is very fruitful here. There are occurrences where the
clients are able to cancel placed orders rid the·value of·asset lowers
significantly after the deadline. • •

3.10.3. REVEN E MANAGEMENT FOR .SEASONALDEMANDS

I I
\ .
One of the major applications of revenue management can be seen in the
• seasonal demand.
Here there is a demand ·shift from the peak to the off-peak ciur tion; hence
a better balance can be mafntained between supply arid demand. It also
generates higher overall profit. •
The commonly used effective and efficient revenue management approach
to cope with seasona_l demand is to demand higher price during peak time
duration and a lower price during off-peak·time quration.. This approach
leads to transferring demand from peak to off-peak period.
Companies offer discounts and other value-added services to motivate and
attract the customers to move their demand to off-peak periqd.
•'

"The best suitedx ample.is Amazon, it has a peak period in December, as it

brings short-term vofonie that is expensive and reduces the profit margin.
It tempts customers through v ious iscounts and fre shipping for orders
that are placed in the month of November.
 Supply Chain Mana
• ' . .
d increasing the pnce accordin
••• This approach of reducing an g toU
. th ak season _generates a hi_gher
demand of customers m e pe ProfitG
various companies just like it does for Amazon.
3.10.4. REVENUE MANAGEMENT FOR BULK AND SPOT DEMANDS
!• When managing the revenue for buik and spot demand, the basi_c'lrade-o:
is somewhat similar to that of revenue management for multiple CUsfo
segments.
• The company has to make a deci ion regarding the quantity-o asset tob
booked for spot market, which is higher price.
• The booked quantity will depend upon the d.ifferences in order between to
spot market and the bulk sale, along with the distribution of demand fron
the spot market. •
.There is a similar situation for the client who ten s to make the huyinj
decision for production, warehousing and-transportation assets.
Here the basic tradeoff is .between signing on long-term bulk agreemen
with a fixed,·lower price that can be wasted if_not used and buying.inthi
spot market with higher price that can never be \Yasted. The basic decisior
to be made here is the size of the bulk contract.
A-formula that can be appli d to achieve·optimal amount 9f the as et toIx
purchased in bulk is given bel_ow.-
If demand is normal withe-an µ and standard deviatio_n er, the op
amount Q• to be purchased in bulk is•:
Q• =. F-1 (P., µ,er)= NORMINV(P., µ, er)
Where,
p• =. probabilityd mand for the asset doesn't exceed Q•
' - '
Q• = the optimal amount of the asset to be purchased in bulk
The amount of bulk purchase· increases if either the spot m_arket prict
increases or the bulk price decreases.
 p /a n n i n g Demand, Inventory and Supply
:,_ --- - - [Im
To conclude that the rev . •
differential pricin enue. management is nothing but application of
g on the basis ofc ·t0 •
P roduct or capacit . •. . . US mer segments, time of use, and
•
Y ava1labihty t0 Increase
. supply chain profit. •
It compnses marketing fi •
' nance, and operation functions to maximize the
net prof1it eamed. • • •

----:--- :::=: :---------'------

TWO MARK QUESTION ND ANSWERS. -

------_; -- --=-- --
1. Wltat is SCM outsourcing?· .
Outsourcing c.an reply entire pureh a·s•mg, •m 1c ormah•on systems,.marketm
• g,
finance and operation department. •
Applicable to firm through the world
Making the right.decision may be diffe ent betwe_en succ ss and failure.
• 2. Define risk 111a11agen1ent in SCM.
Risk management is the· coordinated efforts •of an organization to help
identify, monitor, detect and mitigate threats to supply ch in.continuity and
profitability. Automa_teprocesses involved in s_upplier risk management (SRM)
to collect, analyze and manage suppli r in_formation.
3. What is pull and push view of s pply chain? ·
Push- In anticipation of customer order..
Pull- In response to a customer order._
4. Define Supply Chain Integration.
I

Supply chain integration essentially means that the info ation and
co unication systems of all stakeholders are able to seamlessly exchange •
infonnation' through all planning, .execution and completio of transport and
logistics operations throughout a pr duct's l i_f et i m e . "'
5 ' ?
• Wh at is Agro Supply Chain•
•••• A •. h • are economic systems which distribute benefits and
gro upp1y c ams - . .
ssign risks among participants.
@.38] Supply Chain Manao·
==::::'._--- ------------
Supply Chains enforce internal mechanisms and develop chain.
•••• W'd1 e •inc• ent.ives for assu:ring the timely perform
• ance of produC•h.on
.
delivery. •
6. What is a Make-or-Buy Decisio11? .
• A make-or-buy decision is an act of choosing between manufacturin
product in-house or purchasing it from an external supplier. g
A· lso • referred to as an outsour•cing decisi•on, a. make-or-buy dee1·s1.0
compares the costs and benefits associated with .producing ·a ne.cessar
good or service internally to the costs and ben fits involved in hiring .:
. , , I , \Vj
an utside supplier.. .. •
7. What is worldwide sourcing or Global So rcing?
Worldwide sourcing or lobal sourcing is the practice of sourcing fron
the global market for goods-and services across geopolitical boundanes.
Glo?al sourcing often aims to exploit global efficiencies in the delivery 0.
a product or service.
These efficiencies include low cost skilled labor, low cost raw material am
other economic.factors like tax breaks and low·trade tariff.
8. What are the factors influencing network design decisions?.
Strategic role of each facility: Offshore facility, Source facility, Serve1
facility, Contributor facility, Outpost facility and Lead facility.
Technological factors: Technology xed cost and flexibility
Macroeconomic factors: Taxes, tariffs, free trade zones,' limits on impo
exchange rates and demand risk
9. What are the factors that are rela ed_ to deman forecasting?
While forecasting demand for.its products a firm considers various factors,
such as:
Changes in income
Consumer's tastes and Preferences
T. echnqlogy. and

, Competitive Strategies
 p/anning Demand, Inventory and upply [3.3
·JVJ,at is bull ltip effect?
10. • •
The ·bullwhip effect is a concept for e l" • • •
·nefficient asset allocaf xp ammg mve tory fluctuations or
t ton as a result of demand h
e supply chain As h c anges as you move further up
. th c. t • sue , upstream manuica. cturers often experience a decrease
1n 1orecas accuracy as th· e buffier •mcreases between the customer and the
manufacturer.

11. Ho_w do you minimize.tlte bullwltip effect?

Bullwhip effect can be min.imized bY 1c0llo•w•mg ways:

Improve the inventory planning pro ess

" Improve the raw material planning process

Collaboration and informati_on sharing.between manager_s

Optimize the minimum order quantity and offer stable pricing

12. What are tlte causes of bullwhip effect?

The bullwhip effect is caused by:

Demand forecast updating

Order batching

Price fluctuations
Rationing and gaming
. 13. Wltat is tlte effect of lack of co-ordination in supply chain?-
. •
The lack of coordination ill tr slate to costs increases in·manufacturing,
inventory, distribution, and almost every touch point of the supply chain.Du_e to
the bullwhip effect, warehouses are flooded with excess inventory resulting in

unnecessary holding costs.

14. What ar the obstacles in coordination_in supply chain?
Any factor that leads to either local optimization by different stages of
the supply chain or an increase in information_delay, distorti9n, and variability
within the supply chain is an obstacle to coordination.

.I
 •• t is a management strategy th
The just-in-time (JIT) -inventory' syS em . . af al
' • . directly with production h
raw-material orders from suppliers . sc ed
to increase efficiency andd
Companies employ this inventory strategy • . ec
· th eed them for the production
waste by receiving goods only as . eyn . Pr
= .
W m ch reduces mventory .costs. This method reqwres producers to 1qr
demand accura!ely.
16. What is Uncertainty in the supply cliain?
Supply chain uncertainty refers to the change of the balance and Ptofitab
of the supply·chain caused by potenti l and unpredictable events, which req
a response to re- stablish the balance. An event can be an unexpected order
delivery from a supplier or a breakdown of critical production equipment.
17. What is the impact of uncertainty _insupply chain?
Uncert inty increases the risk within supply ch.ains, and risk
I .

consequence of the external and internal uncertainties that affect a supply ch

18. What is Risk Pooling in supply chain?
Risk Pooling involves using centralized inventory instead_of. Decentral
inventory to take advantage of the fact that_if the demand is higher than ave
at some retailers, it is likely to be lower than average at others, this is redu
in variability.
19. Wlzat is cycle inventory management?
Sqmetime ·r ferred to. as working nventory, cycle stock is the amou
inventory ava lable to meet typical demand during a·given period. It'
amount of inventory you would expect to go_through based on forecast
I

• historical data.
20. -What are the two types of inventory management?·
I

There are two main types of inventory management:

. .
Periodic Method - Invent?ry record,s get updated manually
scheduled basis.
Perpetual· Meth?d. - Inventor_y records get updated in real tim
barcode scanning and other automated means.
 -- --
p [an n ing Deri1and, !nventory and Supply
. •
zt. 1r1tat is multi iten1 inventory?
A multi-item· inventory mod.el 'th
[ . ]

d 'nfi ·t
3 41

WI constant demand an 1. lil1 e

lenishment is developed und th • .
reP _ er e restrictions on storage area, total average
st
shortageco and total average inventory irive_stment cost. These restrictions may
be precise -or imprecise. •

22. 1J'liat is pricing in the supply c/zain?

Pricing is the process _by which a finn decides how mu h to charge customers
for its goods and services. Pricing affects the customer segments that choos to
1
buy the product, aswell·as influencing the customer's expectations.
23, Why is pricing one of the most important factors_ in supply cl,ai
managen1e11t?
Pricing is an important decision making aspect after the product 1s
manufactured. Price determines the future of the product, acceptability of the
product to the customers and return and profitability from the product. It is a tool
of competition.
24. What is revenue management?
Revenue management involves the use of analytics and-performance data to
help those in the hote-lindustry predict - their customers' behavior. The data is
the utilized to make ppropriate d cisions in regards to pricing an_ distributio_n
strategies.

REVIEW quESTIONS

I. What do you mean by Managing supply chain cycle inventory and safety
- ventory?
2• What is Uncertainty in the supply chain? -
3• What•1.s• Bullwh.ip Effect?. And explain the impact of Bullwhip Effect.
4
• Explain the concept risk pooling.
5. tJ0 d .ventory· for short life-cycle products?
n w o you manage m .
 Supply Chain ,lVlQ17
li

6. List the importance of bullwhip ffect.

7. Explain the concept multiple item -multiple location inventory manage
detail. • 1

8. Elucidate the co cept pricing and revenue management.

9· Analyze the impact of supply chain redesign on the' inventory
1O. Explai-nthe concept of pricing and revenue management in detail.
r
 UNIT IV
P"" .
LOGISTICS
.
rransportatlon Role, Mod
. s and th •
r cies, transport documentation d . e1r_ characteristics, infrastructure and
pOl . , es1gn O f . . ·
ign, intennodal transportation L•. . p ions, trade-offs in transportation
des . . • og1s 1cs outs • ,
opositton. 3PL, 4PL, 5PL, 6PL· . ourcmg - catalysts, benefits, value
pr - , 1nternationalL . .
. global economy, Characteristi fO • ogistics -objectives, importance
in cs glo'?al .supply chains, Incotenns.
4l.ROLE OF TRANSPORTATION IN SUP
;,_... PLY_CHAIN
. Transportatio refers to the m ·
. ovement of product from one location to
not h er as 1t makes its way fr h . . -
omt e begmnmg of a supply chain to the
customer. •
Transportation involves the · · ,
_ _ movement of matenals, component parts and
p oducts from one location to .anotqer .right from the source to he final
destination.

• Since the customers (markets), manufacturing plants--and suppliers are

widely scattered geographically and because products are rarely produced·
and consumed in the same location, transportation plays a significant role
in every supply chain.
Transportation is an important supply chain driver because products are
rar ly produced and consumed in the same location.
·Transportation is a significant' component of the_costs incurred by most
.supp1y ch a·ins. In f:act, t_ransportation act.ivity represent d mor_e than 10
't fth GD P o.f the United States in 2002.. .
percen o e .
• • · en more significant m global supply chams.
The role of transportation is ev ·. · , •
. ldwide and sells to customers all ov r the
. Dell currently has supplie_rswor . • .
world fromj st a few. plants. ·• ,
t inove across Dells global network.
Transportation allows productso . . •
 • =-----

Supply Chain Man

1.4:i 1 agett,
erir
11Ows Wal-Mart to sell p
Similarly global transportation a rod
manufac ed lover the1
world in the UniteStates.
• • transportation to centralize in
Supply chai s also use responsive Ventoti
• •i·t· For example, .Amazon.com re1• Ci
and operate with fewer fac1 1 1es. leg
p ckage carriers and the postal s stem to deliv r customer orders ti-
centralized warehouses.
Dell• manufactures ina few. Ioca.tions in the United• _States and l1Ses
responsive transportation provided by packa e c ers. to pr0Vidc
customers with highly customized products at a reasonable pnce.

4.1.1. MODES OF TRANSPORTATION AND THEIR PERFORMANCE

CHARACTERISTICS
The effectiv ness of any mode of transport is affected by equiprnent
investments and operating decision by the carrier as· well as the.available
infrastructure and transportation policies.
The carrier's primary objective is to ensure good utilization of it assets
while providing customers with an acceptab e le el of service. 1 .
Supply chains use a combination of the following modes of transportation:
Air ,,
. r

• Air
• Packag carriers
• Road-Truck
... .
• Rail
• Water ' .'

• Pipeline • '

• Intermodal ,i

."-•!• Air carriers offer a very fas-t and fairly expe'n ive mode of transportation.
•!• Small, high-value items or ti e-sensitive emergency shipm nts th;t have
to travel'a·long di.stance are-bes,t suited for ai·r transport.
 ,.
iogisfiCS
.,,--------:----'------:-- _: -- : - =4· 3]
, Key issu• e· s: th·at ai'r .earn.ers f. ..•· • . • •
• number ·of hubs : :_
.. :. ace·include. identifying the_1.ocation and
. , . ass1gnmg plan . . .. .
schedules: for plan • es tooutes,. setting up maintenance
. . : •· . . es,._ sch dul_ing.
avatlab1hty at different .. crew , and managing prices and
. . pnces·.
Advantages:
Sp e_dand_Freq ency
- ..
Less Packing Req ired
Wide range of goods·_.

Disadvantages:
Air transport can involve·highe cos t s • • •:•..·:
Flights are subject to delay or cai:cellatio
Pay Taxes at each airport you use
Fuel and currency surcharges will _eadded to freight costs
. . ' .

Package Carriers ·.

Package carrier use air,.-t k, and rail to transport time-critical' smaller

packages. · •• • • .. •• • • •

Package carriers are expensive

.
cl cannot compete with Less than Truck·
.

Load (LTL) carriers on price for large shipments.

I . •

The major service-they offer shippers is rapid an reliable delivery. Thus,

shippers use package carriers for small and time-sensitive shipments.
. •
Package - arriers also provide·other: value-added ·servic_es that allow
shippers _
. t os p e e d in entory flow_and track_order-status:
By tracking order-status; ·shipperasn'.:proac _ vely inf rm·customers about
theirpackages::·P k ge caiji_er ·a_l .o_
pic u _:th pac age from he source
and deliJ it to the·destination site· • • • :: •
With an '.i tre se .in }us in tim (JIT) deii riean :focus on inventory
•' reductio '.d ; nc(fo -.P - k a.r. r_ie is'h rpwn. - ,'
i l • . .. • •, • • •

Packag• e \ca·r·r: 1·e·r•s· · ·ar..'e the··preferre·.d.·inode. of .tr..a. .ns p. ort. fo.r .e-. busine, sses such
a Am :. : ·. ...' m
. . ·: - -d ..s alf packages·to'customers. • ' • •
azon.c<:> .
 Supply Chain Mana
·l4 t I -. - geh,.
. the use .of package earners has incre
With the growth in e-busmess,
significantly over the last few years.

Advantages:
Rapid and reliable delivery
Small and time-sensitive shipments

Disadvantages:
Expensive
Flights are subject to delay or cancellation

Road-Truck
The trucking industry consists of two major segments- T.LorL TL.
TL is Truck Load that is a Truck is loaded to its full capacity.
L.TL is .Less than Truck Load that.is a Truck is not loaded to its fuU
capacity.
• Trucking is more expensive than rail but offers the advantage of door-fo-
door shipment and a shorter delivery time. It also has th advarµage of
requiring no transfer between pickup_.and-delivery.
TL operations have relatively low-fixed costs, and owning a few trucks is
often sufficient to enter the business.
Th goal of a TL . carrier is to schedule shipments to meet semce
requirements while minimizing both trucks' idle and empty trav.el time.
. .
TL pricing displays economies of scale with respect to the distance
traveled.
LTL operations ar priced to encourage shipments in small lots, usually
less than half a TL, as TL tends to be cheaper for larger shipments.
LTL shipments take longer than TL shipments because of other loads that
need to be picked up and dropped off.
LTL shipping is suited for shipments that are too large to be mailed as
small packages but that constitute less than half a TL.
 --- ---------.: 8=•::
• The goal is to minimize costs
through consolidation without hurting
delivery time and reliability.

Advantages:
Relatiyely low cost
Extensive road networks
Consignments can be secure and private
Tracking is easy

Disadvantages:

Long distances overland can take more time

Traffic delays and breakdowns·
Risk of goods being damaged
Toll charges are high in some countries
Different road and traffic regulations

Rail
Rail to move commodities over large distances.
The_price structure and the heavy load capability makes rail an ideal mode
for carrying large, heavy, or high-density products over long distances.
f Transportation time by raii, however, can be long. Rail is thus ideal for
very heavy, low-value shipments that are not very time sensitive.
Coal, for example,·is a major part of each railroad's·shipments. Majo
operational issues at railroads include vehicle and staff scheduling, track
I •

and terminal delays, and poor on-tim7performance.

Advantages:

Fuel Efficiency
•:• Land-use efficiency
Speed
Safety
 Supply Chain Mi •
QfzQD
[4.6]
' :
Disadvantages:
Cost & Maintenance
'•
•·• •• Inc;:onvenience
·•:•·- Inflexible .
."::.: Expensive than:road·transport. • .
'.- _·:,· Adding to cosf and affecting eliverysche - les: .
· . • •

\f\(ater .
:•.. ·••' , •.._ : :•: ·Jf your busine.sn; e6ds to transport l ge quantitiesbu.t_!here is no p
·_. ·.--• _: ....:.. to.d. Iiy r:·quiclqy.s;hipping py ea mar,·be sHit b e.•• · ·:,.-'.:
• • • •. a er spo·
•!• iside ily suited for.cariying very large loads at lowco
•!• Water transport is used primarily for the movement of large
commodity ship ents and is the cheapest mode for carrying such loads.
•!• It is; however, th slowest of all _the mode_s, and sign.ificant delays occur
·p s· and fri?.in ls. This·makes··water"transport difficult to operateJ
sh9rt-haul trip ; though it is used effectively:

Advantages:
•!• • Ship c n carry large volumes at low costs
• I • -

!• Dominant in global trade·{autos, gra n, apparel, etc.)

. . . .

Disadvantages: •. .
Limit d t certain·geogr phic-areas
. -· - .
.

• !•. Ro·utes and timet bles are usu.ally inflexible .

- -• •!• •· Tracking your good ' p ogres.s is.diffi6uit
I • • • • • :, • •

To pay port duties and taxes • :

..
,. ..., I •,;
.'.,'
·•.. '
Pipeline
Pipeline transport is the transjl atioJ of oOds through a;pipe,
Pipeline iS used prifuarily f/ the tr i 'of crud{ etrcileUJII•id!
petroleum products, and natur I gas. • ;•.:'.
 ..... ,...

r togisfics ( 4 .1]
: ;:;--- "d d
• Liqu1 s an gases are transport d . - .
r
e m pipelines and any chemically stable
.
substance can be sent thro ugha pi.pe m •
• . 1 e.
d antages:.
A . . .
••• Pipelines can be laid thr6u h. d'ffi • .• •. • . :. ·
• g ! 1cult terrains as well:.a:s under water.
Jt involv s very low nergy con umptio'n.
It needs very·,little :rnainten nce;
·Pipelines- re safe, acddent free and. nvir nm ntal friendly.
\ . .
ois dvantages: ·

·It isdifficult 6 m ke .secur ty_arrangements for p peli n e_

s. .,
Undergroµn_dpip li es armot :be.ea·sil-yrepaire_d d detection_.of te·akage
is also diffictj_lt: • •

•• 4;1.2. FACTORS :AFFEC.TING TRAN.SPORTATIONSDECISJ.ON

:.1

We know tha ··there; may_b_ three_s parate. parties i volved_. All o( em:have
: . ; factors -to consider:,··:_ . · --
) ....

1. Carrier (party h i..mov·es:or tnµ1sports the::prodtict} ( •..

• • •• : • • •- > - . -- - _. :-: : -

' Vehicle-:related costs; Fixed·op·erating:cost ;,·Trip-related cos.ts

Often inctirs.huge·in;e tm. ts\ne ets, etc.)··. _·_ -
2. Shipper·.(paijy th- t"-r¢q ite.s·.th :_.mov t of J_h .prqd_ ct:.between two poi ts
inthesupply chai )··· • •• • • ·-- ••· : ..•,. ·· • •. • •..•. _. •. ·

May eed to balance Transportation costs with Inven_tory and Facility costs
3. Consignee (party that receives the ship ent)
May have certain re p<;msivenes eeds _. ....
4. The owners f I
e i fra.siructu; (P -rt -, hig ways .·i_ailro· d;)·,
••• ,

5,.Government and/or bodie that se worldwid _t ru:isportation policy

I • ., '• • •

Making Transportation o·ecisl . siri.Practi _e, !-::·

,: Align transportationtraf.:g _with competitiye strategy
Does your;•tr a np• s :• o• rtation·· trritegy balance re po.nsiveness vs. efficiency?
i·. . • . ,..
. ,•
,,
 Supply-Chain Man

-L.; =.8= ·- age111

Does it consider sustainability?
d transportation options
•!• Evaluate both in-house and outsourc
••• • Desi•gn a transportat.ion n twork that can handle e-commerce ' if that i•s Pa
of your b siness plan
•!• Use technology to improve transportat10• n• _p erfo.rmance
Design flexibility into the transportation network

4.2. TRANSPORTATION INFRASTRUCTURE

t

Transportation infrastructur ·consists of th )_rights-of-way,-vehicles, a

carrier organizations that offer transp rtation services on a for-hire
. internal basis.
·•!• The nature of the infrastructure a so determines a• variety o.f econom
and·legal characteristics f r·each mode or multimodal system.
' ,
•!• A mode identifies the basic transportation method or form.
Transportation infrastructure c broadly be classified as hardware a.

software.
Hardware consists of physical assets that comprise terminals, stora
facilit es, right of way for movement and v hicles/equipment.
J •

•!• Software, which is essentially the service superstructure, consists primar

of maintenance, operations and value added services.
•!• The nature of the infr structure also determines a variety of economic 8
legal' characteristics for each mode or inter-modal· (tnultimodal) system.
•!• A mode i entifies the basic t ansportation method or form. Mass goods
typically transported in large·shipment sizes.
Therefore, dedicated vehicles and specialized modes of transpQrt
handling are important.
•!• Industrial go ds have high value and are often critical. Therefore, therei
need for speedier t_ransport of goods.
The selection of the mode of transportation is based on these criteria,
iogfstics i:[4:::.9:::U

Tran.sportation. in.frastructure cons1•ts s of ht c r.ights-of-way, vch1' c1 s, c1nd

can1er orgamzahons that of6ert ransportatt.on servi.ces on a 1r.or- hi're or
internal basis.

The nature of the infrastructure also determines a variety of economic

and legal characteristics for each mode or multimodal system.
A mode identifies the basic transportation method or fom1.

4_2.1. TRANSPORT FUNCTIONALITY.& PRINCIPLES

Transportation functionality provides two· ajor functions:
Product Movement: Whether the product is in the form of
materials, components, assemblies, work in process, or finished goods,
transportation, is necessary to move it to the next stage of the
manufacturing process or physically closer to the ultimate customer.
• A primary transportation function is product movement up .and down the
value chain.
Transportation utilizes temporal, financial, and environmental resources, it
is important that products be moved only when it truly enhances product
value.
Product Storage: _
Aless·comm,on ransportation function·is temp rary
storage. Vehicles make rather expensive storage.facilities,.
How ver, if the in-transit product requires storage but vilL be moved again
shortly the cost of unloading and reloading the product in a warehouse
. may exceed.
A second method to achieve temporary product storage is diversion. This
occurs when a original shipment destination is c?anged while the
delivery is in transit.
Traditionally, the telephone was used to direct diversion strµtegies. Today,
satellite communication between enterprise headquarters and vehicles
more efficiently hai:idles the information.

Th • damental principles guiding transportation management

ere are two 1 u n,
. Tl are economy of scale and econ01 y of distance.
and operations. 1ey
 ' )

_ • Supply Chain Managf •

•

J refers to the characteristic th_at ransportationcoS t per \!nit o:f.Wei'

1

decreases when the size of the shipment incr ases. - • ' .•

• •ty transportation vehicles• •
It is·also generally true that larger capaci •• sucli
. .. . . . .. . •- · · it of weight than smaller c • .
. rai.l. r- !er.. re l_ ss.-expensive per un _. • ... ____________ •apacilj
•-·• • vehicles such as m:ot r or air: •
• · • :, - · • ·; 1 · •t· because ·fixec:Lexpenses as · •
• ••• ·.Tr nsporation econor.mes o f , s_ce exi_s ._ · _ ...·,, - . • s Iated
• wi•th_ i;n-o v•m· g a load• · can b e.. spre d. o.ver.. •the lo..- ad-.s_.• w
: eigh. t. As su_ch,' a
-heavi - ad_allows co ts to be "spread oti_ t ,"thereby - decreasmg costs J>et
unit of weight.
, :• -Th .'nxed expenses:-- incl de- inisfrati:'e ·_co_sts of taking the
• ._-tr p rtfition: :order, time to. . position _.the ·vehicle
= for loading or
• ·unloading, in oicing, and equipment cost. These costs are cori ide ed
fi?(e_d
-
b c use they do not vary with shipment volume.·
• ' . •

.·•.
- . Economy of Oistance
' ' .
It .refers .•to the characteristic
.
that transportation
.
cost per unit of distance
decreas.es .as'distance increases-. •· .
• Ti- spoitation economy of distance is also referred to as the tapering
priricip e since rates or charges taper with d sta_nce.
The.rationale for distanc·e econ - ies is simit'ar.to that for economies of
scale.--Sp.ecifically, the relatively·fixecl expense incurred to load and unload·
••the vehicle-m st be spr ad ov r th v·ariable·expense 6r unit of di$tance.
Longer distances allo,w the·fixed expense to be •spread over more iles,
resulting in lower ove all per mile charges.-·
These principles are important considerations when evaluating
alte at i v_e transportationtrate ies_or opera ing practices.
The· objective is to_maximize the size of.the load and the distance·
th t-it is_shipped while stil_l meeting customer servi°ce-·expec ations.

·, 4.3. TRANSPORTATION POLICIES

various_d. ocument are prepar d and submitted fors o-oth movement

of goods from one ountry to a_nothe country,-
 fjJgisfiCS : · !4=
:::.1:(
:=.1]
:;:----_ tr rt·
••• since anspo ation has a • . and
• . •: ma_Jor impact on both domestic
international commerce • . .
. b h ' government has historically taken special
interest 1n ot controlling and .
promotmg transportation.
Contrpl• t*es -. t h-ef·orn1 -- r-.c. -d. . • ·
_ . . • . • . •.. . _. :_. ,0 ;1.e eral «;ind ·state government regulation as
well as a wide-range of ad • • • • · -·• • •
, . .-- -. ._ ,·.m
. -•s.\ration.and judicial administration
rypes of Polic_ies
Government transportation r gulation can be grouped in o two categories:
• • Economic regulati<?P. and
• Safety and sdcial-regulatio .
Regulat9ry initiatives hav - hi_storically• ..fo.cused on economic ·issues;
.,_ lioweve.r, rece·nt r gulatory initiatives· have increasingly been directed
toward safety and social issues..

Economic Regufation
Regulation of business practices is.th·eolde.st form of government control. ••
To provide dependable tra:qsportation service and to foster economic
development, both federal and tate g vernments have a tively_engaged in
• . • economic regulation.
.:.·_!

For over.: •100 .. years- government regula iori sou t .to mak-- -:
transportation· equapy--_ tce sibl _- d_conom a! to al thout any_-, :
.dis·crimih tion.·:-_:. -:··_·- ->_.• ·. -.-:-._--._:· :- .-• .·_ ·• ·._ :·:. • ··.·_-._, ·:_•; .< • •

· Regulatory policy has atten:ipted- o foster competi ion among privately

owned transportation companies.
T.o encourage economical and idespread transportation supply,
government inyeste_ din p ic infr -ur ; u, .a h - wars, ai rts -
•, • •• ate ;s:·and·deep water.'po_rts. • • . _ .-=· _.-.-. _ .- - •
· · ••• H ow•ever ·.'t ·:· .-tu.a:lly·: provi.de transportatfon •.service, the government
o.-ac . •· . =·' •... • •
• • d'·..···d:. ·· • I t d a sy' stem ofprivately..owne9 fqr-hire .carriers.
s u p port.e an regu a e ._ . .. •. ·. . . •. . •- . •
s . . . . .. : ::. ·. . - .- .
• .a etyland Social R gµlatf<;>n ·
I . • : •• d ced t ansportation r,'eg lation, another trend in the
n direct contrast to.re u . .• • . .
• • .• • ·a·nded safety and social·regulation.
19 70s and.1980s as exp · . .• .
[4.1 upply Chain Manage

h federal Department of 8
Since its inception in 1966, t e • Pom,11
. in controllmg the tr
active 1 . d . (DOT)
anspoft has
taken an roe .
. d rules relate to maximumd .
matena1 an river
handling
ofhazardous tiou
and safety.
• ftutionalized by the pass
The form of regulation was74inswhich·fonnall y estab lished·age ot
1
19
Transportation Safety Act of ., , • · safety
.1 . .. .
socia regulation as a govemment.al i·n.itia .t•ive.
Substantial legislation impacting logiStical perfo ance was Pas
during the next three decades.
Th Hazardous·Materials Transportation Uniform Safety Act of 19
which · provided federal government control over equipment desii
hazardous material classification, packaging, and handling, IO(
preced ?ce over state dlocal environmental· regulations.• . ·
Additio-nal e phasis on transportation. safety ha•s
environmental and related liability lawsuits.

Export documentation is • commonly considered to be the mi

complex and difficult part ofoverseas marketing
It is therefore, necessary to emphasize that documentation is as mucti
an important· activity as the conclusion of an export .order and
fulfillment.
If one is• doing domestic business, one knows or can easily kfi1
th_e commercial practices, which connect th.e buyer and the seller.
1

Similar_ly, the possibili of business disputes is reduced since bOID

buyer and.the seller know or can e. asily know 1aw• s g. o v e m m
• g contracts•
However, w hen th e bu yer and the selle . . • countri
. . . • r are operatmg m two
commercial practices and .legal systems are d.ffi Thus, for ensll(
1 erent
that the respective interests of th b e prote1C
. e uyer and the seller ·ar
certam documentary formalities b .
ecome essential.
 iogistics @J
:;:--- -
Similarly, every country has its own laws governing imports and
exports. Consequently, the exporter has tocomply· with laws in· his
country through documentary formalities.

At the same time, th.ed ocuments has to be send to the importer, which will
enable l im totake·possession of the goods after getting permission
from the concerned government department (i.e. The customs
authorities). •

• There is yet another·reason for documentation· in export trade. Such

. .
documentation is linked with the claim of export· incentives given by
almost all countries world over.
Since·most of these inc ntives are to be claimed after shipment, the
exporter has to give documentary proof of the fact of shipment.
Documentation formalities are necessary to·enable the importer to get the
co tracted g ods and the exporter to get sale value as· well as to
secure export incentives.
·In other words, export documents are needed to act in accordance with
comme ci l•, legal and incentive requir ments.

Standardized Document
The standard documents are-the
I. Invoice (Comm rcial Invoice, Proforma Invoice)
2. Packing list
3. Certificate of Origin
4. Bill of Lading .
5. Shipping Order Notes
6. Mate's Receipt
7. Shipping BHI
8. Port Tr st Document
9. Marine Insurance
10. Declaration Form
 . ,. ..
• I • : •, ; '• ( • ' •• •

j-4 . 1 . 4I - •.-.. · ·•· ·..:·.:.·.· · Supply Chain Manag

=: : : = . _:_.- el>ze,i

11. Marine. Insurance Certificate

12. Airway Bill
13. Post Parcel Receipt ·••
l4 Bill of exchange•
15. Bill o'rEnfry·•
Eac,i of thes·e doc- ents can be reproduced from the s e master by1:}sin
th relev.ant c v r. •• . .
.. Reproduced ·signatures on individual doclll?ents may in deep p esent som
. . . .

. ._ probiem. •
• • ·•. • ·Until an agreement : is reached among all conceme· r. as t.o the
• acdeptability::it wo l.d b,e necessary 'to mask the signa!ure· column·als
• oi:i,-the master and to sign the indiv idual documents manu lly...
1

-B ides as al'l the copies of the rep oduced docu ents, particularly wher
-<the·spirJ.t du licato··is_used, will have the s e impres•sion, will b
• ·difficult to distinguish the original fro the copies of the document.
Jt
·.• . ... This is howev r,.not a·serious_problem and_c.an··be. solved by a universa
. ·-
w{ erstanding th t fulles,s·copy' i·smarkedI,{e_docufuerit will be treate
as :briginal. • • • -
:2:_ : •: .:, .·._- : ... It is no.doubt con mient to.give.the dates.on.the dqcu ents in the n meri
::·._
: · : . •. • - • •·:.-_.,_... way: In d6ing ·so ··.however, 'the·exporte/ h,ou.ld nsure "that 'such·date
would be iriterp ted abroad i the same·way as they interpret them.
-.
4.5. DESIGN OPTIONS IN TRANSPORTATION•

•• . .The desig·nor a fransportation network affects"the "perfoririaii:ce o'f a's ppl

chain' l?Y •establishing ·_the infrastructure within::·-which operationa
: _ transportati_o dn ec sions_reg·arding schedulirig and routing are made.' .•
•
·:. A; well-designed transportation network allo s a supply chaino·a hiev
• ••. the d_esired-_degree of responsiveness at a low cost. _•.. -· ;. •
. . .

...Vario_d
s esign option_fo.r transportation network:
 . . • . •.
stliPME T NETWORK . .
A,5• · drrect ship.ment· • network ·.opti•o•n, the buyer ·s·•t.ructures .b1'5
w·iht • .t·
he
.tran:sportation_:netw_ k so thaLall shiprile ts ,come .:directly fr9m-·.·.e
sup li r to ea9h .uyer locati p, s o .i. Fig e 3.1 • •
_Wit_
ha.dire.ct ·shipme :t_ etw k, th¢·.=_rqutf g of ach shipm nt is specified
. - d the supp,y·chain m ager_·only · A e e - dst de _ide on·the quantity to ship
·· and the mo_de·oftransportation
. .
to·use --_- --: --
. . . ,,
•

- ·rhe-.in jo adiv tag of a d}re t- hlp t tran.§portati6ne_twork_-i he

•... . ;eliinination of intemiediate· at ho ses arid its iinJ)Iicity f operation and
..-•· ·.:.,i c_o_otdination.: .:..- ·.. • • • .. .. .·• • ••••- .. ,·,:

•••• ••• •• Slippliers · • •• •• B er Locations

..
! , '' '.
- ..

.....

•, .,
..

Fig. 4.1. Direct ShipmenrNetw,ork

4:s. - DIRECT SHIPPING WITH MILK R.UNS

• ;_; ·-_ J)_1emilk. run name comes bec use s .. pat1icularc_o _ ept of s ppin1r is
·-. ed i Oairy industryhe_r ne.)nilk c,?n iner)ruc-k _?es't -P ?cur_ethe
·. · i'.· -
::··mhk fronf.al:lf nner. and)her.:.di tri_lJl te-s- e milk to e Dairy'1ndu _try ...
·' ::: '.' ( uyer) · •• ' '.: ,.: ' • •• • • • ·: •
\ -- / A.·: 'lk·..,'.'·: . • o• ,u:·te···o·ffTuh:i:ch11 trhc1/ei.the :.-ae1i rs product froin a.single _:
•.• · .,-·.Jn1 run1s a r ... ... J.· .. .- ..- ., _ • . •. . • •
, • s pplier d multipl-e et ilers' or goes from multiple sup?liers.q:-asingle :.•_
• ..:.. .b_uyer lo.cation, as sp -inF.. igur. 4?-..-.
._-:..-.-. •:.1/·.:::···-<-=::·.·.'.::-.. • • ··: •
 Supply Chain Manage
. , 'he
lier delivers directly to Ill .
In direct shipping with milk runs, a supP . . . '1h1 p1,
· buyer locations ona truck or a truck picks up dehvenes deShned for th
sam buyer location from many suppliers.
•••• When usm • g th• is option, a supp1 Y chai•n manager has to decide 0n th
routing of each milk run.
•!• o·irect sh1'pp•mg prov1'des the benefit of eliminating i ntenn d '
· e 1 at1
warehouses, whereas milk runs lower transportationcoSt.by consolidatini
shipments to multiple locations on a single truck.
Suppliers . Buyer Locations Suppliers • Buyer Locations

,,
''

\
\

\
'

\
''
''
' ',·
'' ' '
''
\a--/ ,
,,
,,
,, ,
,,

I
I
II
I
I
I
I
I
I
I

( )

0 .\
\
\
'
I
I
I
)
\

0
\
\ '' I I
\
\
\ \
'
I I
II
I
(
\
\
I ( )
•\
. \\
\
.
\ I II
I
I I
\ I I
( )
0. \
\\

0
\ I
\ I
\ I
\ I
. \\ II
\

Fig. 4.2. Direct Shipping with Milk Runs

( )
4.5.3. ALL SHIPMENTS VIA CENTRAL DC
Under this option, suppliers do not send shipments directly to buyei
. locations.
The buyer divides o ations by geographic region and a DC is built foi
each region.

S_uppliers send their shipments to the DC and the DC then forw

approprjate s ipments to each buyer location, as shown in Fig re 4.3.
The DC is an extra layer between suppliers and buyer locations and cal
play two different .roles.

•!• One is to store inventory and the other is to serve asa transfer location,
 ·sfiCS
. [ill]
In either case, the.presence.of
O ,
when suppliers are located far ti • Cs c help reduce supply chain costs
costs are high. • • rom• th e•buyer locations and transportation
Suppliers
Buyer,Locations

\
\
\
\
\
\
\
\
\
\
\
\

''\

Fig. 4.3. All Shipm. e_nts. via Central DC.

4.5.4. SHIPPING VIA DC USING MILK.RUNS

As shown in Figure 4.4, milk runs can be'us d-from a pc if lot sizes to be
delivered to each buyer location are small.
Suppliers Buyer Locations

''
'''

Fig. 4.4. Shipping via DC Using Milkm s.

•••• M'Ik -d ut·bound transportation costs by consolidating small
• 1 runs re uce o
hipments.
 @J . . . .. S11pj,ly ChainM
· . • 'lk run-srequires-a significant·d
•:. TI1e use of cross-docking with mi . -. "lk• . _ e&ree Of·-r
coordination and suitable ro ting an<l:sche?uhng·? _mi·, run .
- • - .- -- " .•
--- :_.....; -- -:-- .-
4.6.·1NTERMODALTRANSPORTATION .- -·. ..... , ----.::.....
....

.. ne mo.de of fum
•!• Intermodal tr• a··n •s.port a-·ti·:on 1• s-·the use of more than o -l'Vn

mov a ship ent to its destinatiOJ!- .

•!• Interrnodal ight consi.sts of pro ucts an_ d raw materials that ilrt
transported in a contain .r y a:variety of vehicles·,s·uch as container sbi
• semi-trailer trucks, and.trains.
•• • • A - ,ariet-y f- t rin dal·combinations are possible, with the most conunQIJ
being truck/rail/Air.
Key issues in the intermodal industry involve the exchange of informatiQIJ
to facilitate shipment transfers between different modes because these
transfers often invqJy.: .
· considerable del y , . hurting . delivery tim:
performance. •.
Intermodal• traffic: has ..grown consid rably \vith the increased·use of
cpntainers for _ hipp g and the rise of global trade. ·
•!• Containers _are easy to t r. a- nsfer fr- om one ode
.•.
to another, and.• their
.
a-e
facilitates intermOdal transportation.
♦:♦ •. Containerized' Jrei°ght frequently· ·USe_s_ck/Air/water/rail combinations,
particularly for'glob -freight.
•: . For glob?li . ad_e_,:mte dal is often the ortly (?ption because factories
markets.may not b ri;xt to pgrts._
. ·, . . •! _ AS tk <i=tity ;hi e _us cO iairiers h gni_wr{ the truck/ tei/il
f
futermopa(c·o. binatjon:fias also grown: ..•• • :_•
_

:•: By ocil,
• .-
fu, fffi6•ctajaCiivity contribute : ore th; 20pt! ceni of¢
• ·.,· '... •

revenues. ··;
Inttimlodal syStem Offe the benefi·r Or lo v r coSt than Truck J_oad.e
·and .delive_ry tim·e·s-th _
a tare-·better _·than rail, thereby bri gipg j9 e
- ...
. - .
 -----------= ---------------------- =[4=·==19]
different modes of tra
nsport to create a price or service offering that
cannot be matched b y. any sing)emod e.
It also creates convenience fi ·h. . ·
. ors tppers who now deal with only one entity
representmg all carriers th tt h
• a oget er provide the intermodal service.
ntages and Disadvantages lntermodal Tr
ft.dI/a ansport
Intermodal transport has become the backbone of the trade and logistics
industry because it offers so many henefit U i". b f the
1 s. n1ortunate1y, ecause o
l ng distance, some problems and situations are unavoidable. Here are
some pros and cons of using intermodal transport.

Advantages

Rapid service: By using intermodal transport, a comp_any can reduce

delivery times. The bus_iness can use the fastest mode of transport for long
distances. Using co tainers also Hows an-efficient transfer of goods from
one mode of transport to another. Reduced loading and unloading times
also contribute·to faster delivery.
Lower costs: Shippers enjoy lower prices, along with low handling costs.
These prices are also more predictable. Thus, the en.tire intermodal-transfer
is cheaper. Choosing railway.mode is also a good way to reduce costs, as it
consumes less fuel while traveling a considerable distance.
I

Increased capacity: Because most industries use i termodal transfer, .it's

relatively easy to achieve economies of scale and ensure increased
capacity. Companies can also· use reverse logistics to fill up large
containers.
Safety: The containers store the goods throughout the journey. They also
don't need handling during shifting between the modes of ransport. These
containers a;e like a warehouse and limit t e risk of damage to the g9ods.
U ing containers also reduces the chances of theft. Also, the container i
also always under supervision, unlike an over-the-road shipment, thus
providing th highest security for goods.
--

· Supply Chain
eltt
• . h. ment's carbon footprint mini .
••• Eco-friendly service: Reducing a s tp _ . Intzei
. According to Breakthr
the environmental damage 1t causes. ou&ll
dioxide per I 00-ton mile hi
• Fuel, trains emit 5.4 pounds of carbon 'W le
. · ·ght and distance.
trucks emit 19.8 pounds over the same wet .

Disadvantages _ .

Structurai costs: It largely depends on yourproduct'_s structure. -If the

company's container is heavy and requires crane to move it to trucks
from rail, then shippers can manipulate the costs, leading to higher
• infr structure costs. This issue is common in.some developing·countries
where there's a lack of standardization.
Delays: Although many compani s prefer intermodal transport because of
'its low cost, it may be slower in some situations. For example, the railroad
may not offer direct routes to all destination·s,. thus increasing the del_ivery
time. The time to·unload the carrier can also be annoying if that facility is
delayed.
Reliability: Becau e intermodal transport depends on more than one
_transit mode, there's a high chance of the chain breaking at some point.
. Di_fferent businesses may be in charge for ach mode of transport. This
requires· more logistical• coo_rdination and increases risk. Unexpected
delays due to weather change and equipment failure are_possible.
. . . . .

. 4.7. tOGISTICS OUTSOURCING

-. Logistics outsourci g has assumed importance as companies are deriving

• .:benefits through high-quality logistics services provided'by a third-party
or fourth party logistics co pany..(3PL/4PL).

Service qualitr becomes on of the most important criteria to outsourc

logistics services to a service provider.

• (?rganizations adopt sev_eral business improvement metho.dologies t

kip ove the usiness performance and logistics management has ·bee
regaid d.to e crucial to obtain comp_etitive e_dge.
I

1·
gjs/iCS
. @]
It is supply chain made up f i,
o competing m 1 • 1
single company, which . . u hp e organizations, and not •a
is a central t • . .
management. enet m the field of logLSttcs
>

Outsourcing·is an arrangem . •
•• ent whereby a1 • • . ..
performs-services fora fi . ogisttcs service provider (LSP)
th
· . . .· . •rm at could be provided in-house facilities.
Logistics outsourcing is ab .
companies/ firms tht ..- ut subcontracting 'logistics activities to
. a are equipped to provide the services.
Lack of understanding on the
- . . part _o fb o t h user and provider is the major
cause of difficulty and failure in th 1 . . .
. .,,. e og1sttcs outsourcing relationships.
Understanding this aspect sh 11b
. . a e useful for facilitating improved logistics
• outso rc1ng relationship. •

Successful_companies generally focus on core activities and outsource·

other req ired activities. •

Outsourcing is a make or buys decision whi h is crucial i determining

how a business obtains goods and services.•
• Outsourcing decisions can have corporate strategy implications• since
employment levels, asset levels and core competencies are involved in this·-.
. .
activity.
Logistics outsourcing is a business practice in which services or job
. . .
functions are given t . a third· party, which traditionally wer_e
performed in-house by the company's own employees and staff.
I :
Logist cs outsourcit;g is.the strate.gic use ·of outside parties to perform
activities relating to certain aspects. The main issues wi_thoutsou cing are:

• Preoccupatio with core businesse and reduction of cost of capital.

• Access.to external expertise and.quality_improv ments.
• Balancing operational cost savings with the·.cost of monitoring
. .
suppliers.

•
·A 1
Increased flexipility in business operations•
: • t
og1st tcs con ract may be used as a basis for outsourc. ing, and.
·there are• a multitude of activ_ities carried out in outsourcing and the

wmw_,:_ca.c
 I 4.22I ,supply Chain Manage
..:: ===-------------- ---= ----------------------..:·men
tracts are like those arising o
problems arising from logistics con lf
I

outsourcing any other contr cts.

4.7.1. LOGISTICS OUTSOURCING CATALYSTS
••• Th. e van•ous stages of Logi. sti. cs outsou• rcm
• - g catal.ysts are outlined belo•w.

1. Contract launch: Procurement starts by clearly describing illl

documenting the business need before looking fora supplier of tli
goods·or services. It provides the framework to evaluate suppliers.
· 2. Contract conciliation: The negotiation of contracts is a specialized
a ti ity. A detailed revie\\:' of t·he contract with the identified supplie
is· needed. The buyer sends the'· responses to the. relevan
suppliers and negotiations ar·econducted covering several asp ct
to reach . a consensus. Contract ne_gotiation ensures_that th
contract is fair and balanced with responsibilities for laid down
o.utcomes. After agreement on the terms and conditions, tli
successful supplier is awarded t,he contract.
3. . Contract implementation: ·A new contract is approved nd signe
by different people.to reduce the charice of anything unfavorable o
risk of any fraud.
4. ontract Start-up·: This involves a detailed understanding o
key i_nformati n of the contract. It includes the obligations an
rights of the buyer and the supplier, method. of tracking it
complian e, resolutic;m of outstanding matters to be resolved durin
-. .and immediately after execution, etc. •.
5. Contract Operatio : To get·the best out of the contract, ther
need to continuously·monitor th_eactivities. This stage lasts throug
out the _contract term involving several activities as:
(a) Control-Contract. Changes: Changes in: .requirem nts
busines conditions, regulatory environment, economic trend
• .and technology can all necessitate a change in a contrac
Such changes should be achieved on a. timely basis b
----==- ------------- (4 .2 3]
mutual consent,. and thr
• ough a formal change control
process documented • th
. 10 e contract.
(b) · Track contracts f
. party·, uJfillment: A contract specifies each
s separate • and • •
c . . Jomt obligations. Adhering to such
om.mitments is critical to the contract.
(c) Checking Supplier p "
. er.1ormal)cc: A regular .mopitoring of
supplier perform • -·
, ance Is 1ecessary to ensure that delivery of
goods and services I•S as per .agreement. This checkm .
g and
reporting by -staff can be combined with customer satisfaction
• survey· results for any remedial action like ch ges in
processes, co_ntract terms, service le_vels, fees etc.
(d) Performing Periodic Reviews: A contract needs periodical
checking for, any ch.anges in circumstances affecting the
d_elivery of expected benefits which may necessitate updates
to the contract or the processes l id down irt the contract.
. r
• 6. , Contract Renewal: This gives an oppo unity to improve the tenps
of a contract and gain better value from supplier. The contracts
should be renewed in -time if not going in for auto-renew or atito-
can·cel. A contract should be renewed if:
• There,-is an ongoing requirement of the activities.
• Supplier's s _rvice delivery performance has been accep_table.
l

• There have been no insurmountable difficulties in achieving

high levels of compliance with all obligations.

7_ Contract Close-Out: The end of a contra t on its expiry r

• • t
its· acti ve ermI·natI·on ca.lls for proper plannin-g an a smooth
.. fr the contract. In contract closing out, following
transitIOn-out om .
• acti.vi.ti.es sh ouId be carried out: "•
tennination notice before the contract expiry
• Issuance Of a
date.
---
[4.247 Supply Chain Mana
::::::: ..:.. _:_ ------------------------------------------------------ ge e
-
. . . te in any disengagement activitiesn
• Momtor and part1c1pa eed
to move out fr m the contract.
requiredb
• Return or destroy any onfidential infonnation
the owner of such information.

• Tra.nsfier any.assets, and .return any loaned items, as

required
• Finalize ,the details of any payments to be made _ ! oo r by
·supplier.
.• Prepare and finalize contract finalization_ paperwork
submit and clear any final payments:•
• Perfom1 any other specific post termination responsibilities,

4.7.2. LOGISTICS OUTSOURCING VALUE PROPOSITION

Outsourcing succeeds when it is well thought out and done properly.
shall now discuss some key issues· to .be kept in view for all part
involved in outsourcing.

1. Define the reasons for Outsourcing:

What do you want to accomplish and why? W\hat is it that you want t
better? What.would it take to o it' and do it well inside the c?mpany?
For example, in case ,of freight transportation, the purpose of any comp
is , to reduce freight costs.

-. The problem being encountered could be e ther high rates, carriers use
the methods selected; or it can be ·a symptom of a problem from us
·high cost shipping methods, or supplier problems. ·
- If the real cause of freight is ·not identified, then the outsourcing
not be successful, because the reasons for the outsourcing ha e
been properly identi ed. •

Freight also has a servi e facto_r,w hether it be moving inventor)'

suppliers, between company·operations or to custo.mers, which a
be understood to eval_uate the freight cost problem and needs.
iogistics
..
·rnate outsourcang the Compa .
z.fstl . . . n1es Process versus Function:
This 1s the key issue b
ecause Without this the outsourcing selection
·may be defective It defiInes the needs by identifying partners and
•
designing the ways of outso . .
. urcing.
• Knowing what is being outso
. t' reed and why, helps in identifying the type
of 1og1s ics supp1y providers (LSPs).
The reason for outsourci . ·
. ngmay_also mdicate whether to outsource a
function or a process Out ·
• sourcmg management of inbound transportation
is a function for transfer to t 'd · .
an o u s1 p arty; but the inbound supply cha m,
in•cluding supplier p.urchase odr ers, suppli•er performance and
transportation is a proce..ss for transfiers to an :out s1'de pro• v1'der.
A third-party logistic·s provider/ company (3PL) is mainly concerned
with handling just the logistical process,.while a·fourth party logistics
provider/ company (4 PL) manages almost all aspects of the client's
supply chain. At times these may own assets like trucks and warehouses
while third party logistic provid r may not own the facilities/ ssets.
Outsourcing a function versus a process can change the type of service
provider that should
.
be evaluated.
. I

A third-party logistic ompany is often used with functions, such as

inbound transportation and related· activities.
Managing a function requires depth of skills sets from: the service provider.
A fourth party logistics company (4PL) may be the better choice with
Il)anaging a proce s, which requ res breadth of log_istics skill sets.

3,'Recognize sel.ler and buyer roles:

The involved p rties in outsourcing have.different expectat_ions. The
selling company o tsources its services for b_uilding own leveraging
position with the transport carriers or oJther providers and reduce costs of
warehouses or other operations. _
• The seller m• ayb c. used on his/her n eeds and not focused on the buyer's
• •• e 1 0c . . . •
.• .t ested in only gettmg the business.
needs, thus mam1y I? er
 . . : : =::::::::
/ 4_261
Supply Chain Mana
geh,e
- .
t •al buyer as a cl1ent will r
Outsource pn;,viders who see the poten 1 . eco&rl
. •d lOp and manage the relatio n h·
the unique needs and accordm gl y eve s Ip,
. . . t1·ve buyer a s a " customer''
••• Those provi ders who vi ew a prospec . d . rnay n
. . •
pay the attenti on to the b u s m ess after they have game it.

A· customer is one of many cu tomers; he_isno·tunique ••Such a Provider

proacti·ve,, not react·ive. c11· ent management di.ff.erentiates sUccessr
outsource service providers, for both gal•lll•ng and retaining busm
• ess.

4._ Detail the process;

Stipulate in writing what is done, by whom, how it" is done, Whe
and why, highlight,its st engths and weal_messes.
Clearly understand interfaces b_etween departments and how functions an
responsibilities are divided bet_ween them. Understan.9 "hidd n" an
"assumed" work that is done which is beyond· the job descriptions
purpo ·e, and respopsibilities that outsiders may not notice.
- The detailed costs of operation such as labour, space, freight etc., are to b
• worked out.
•!•. Define critical points 1n the functio or process which should I
mapped as organizational boundaries overlap, defining cross-functional
roles and interfaces. It will •also show gaps or redundancies. which may
ghlight key areas for_t e 3 Party Logistics p oviders or 4 party logistics
providers that are critical _for success.
- - -
.5. Set Key Performance Indicators (KPI): ·

The e pectati?ns fr m·outsourcing are with specific reaso and anticipated

results. The planned r_esults sho 1d be defined clearly and be tangible.
.
•!• Goals·which are vague goals such as "reducing costs", "improVID!
• /:'. • " d • d an lead to
su p11er_per1o rmance etc., oes not .ensure accountability an c
disputes during the contract,.
•!•• The results should be measurable and be clearly set in early discussio
part of the expectations to know the realities of accomplishing theIIl•
 is fiCS
- ------- @]
l•The focus should be on th , - • ,
• . e key metri
relate to outsourcing sue cs and •perfonnance indicators that
. . cess. Account b 11• • .
for both parties shouldb •• • a ity and responsibility from and
aving multiple area ru·
e nderstood L • .
• ogishcs management is complex.
multifunction process s o respo "b1T
over Iarge ge nSi tty and accountability with
through to custom h.
H ograp ies. ,t runs from supplier's right
ers. enc • .
responsibilities and . e it is better to identify and efine
metrics early •m ht e process well efore• s1. gn.mg of
contract. j,
I

I
6,se alert of risks:
Out.sourc._ing . involves c hange management, even business process
reengmeer ng, 1 not a guarantee of success with 1predictable benefits but
has potential downsides• So, o• ne. need to. anti.ci.pate the various scenan• os,.
intern.al and external factors that can 1'mpa·ct the ac11•v1•11•es and resuIts.
Hence it is better to do risk assessment, identify real and per eived risks
that shall help·to mitigate risks. Think.through the probable scenari_ s
goals not attained, service· pro lems th t seriously impact the
company as to customer deliveries or with purchase orders from
sup liers, inventory·difficulties. of stock outs or . surges •in levels,
unanticipated cost increases and relate them to available options ..
Outsourcing results in transfer of company's. knowledge, practices, and
resources_. In c se outsourcing does n _
o tw rk, the compan hould be
prepared to remedy it in a suitable m et. If i! cannot b remedied,
agreement can be terminated, and another service provider needs to be
identified. The company must carry out proper transfer from one provider
to another, regroup and bring the outsourced service unc;ler control.
7•Plan for the Change:
o t • d nor work n its own•, but parties should plan for the
u sourcing oes • .
aior and minor tasks to be outsourced and
change. There are m 'J
• . It in people and departments g1vmg up owne ship. of
outSO?fCing resu s ._
the function or process.
 / 4.28] 'Supply Chain Mana.
· ge'He1
' .
All affected partie build teams to detail thin s .t be done, developU
. d custom1zat1on and reeng·1 •
P 1 ans and timeliries understan any . neerj
•· • ' ·· • • and distribution of
reqmred, coordination of.activities Work <
information, and provide training to the people.
8• Control the Outsour e bperations:

Successful outsou cing takes effort to manag the LSPs and operatiolll
Use the. key p·erformance· indicators co tu uously. Meet regular!)
especially duri g the implemen ation, to·review progress, problems, ani
• successes. Also assess what must be done and whomust_do it.
• Bene(its of Logistics outsourcing
Benefits of Logistics 01:1tsourcing are
• Lower costs due to economies. of scale, downsizing or lower.Iaboui
cost.
• Increased efficiency.
• Focus on core competencies.
•. Gaining capabilities that are not internally available.
• Access to skills or resources.
• Flexibility to meet cha ging business and commercial conditions:
• Less·investment in internal infrastructure.
• Access to innovation, intellectual property, and leadership.
Risks of logistics outsou_rcirig
Risks of outsourcing are•:
• Slower turnaround time.
• Lack of b siness or domain knowledg .
• Lack of control and accountability.

4.8. THIRD P RTY LO ISTICS PROVIDERS (3PL)

A third party logistics provider. performs one or more of the logistics

activities .relating to the flow of product, information and funds that cocld
be performed by the finn tself.
togisfiCS------------ :..:
::::-- ••
.
11
Trad1t1ona y, 3 PLs
.
_ --
ocused on specific fu .
•
•
h
ware ou s ing and 1nfonnaf nctions such as transportation
ion.technolo . . '
Most 3PLs started outb . gy Wtthm the supply chain:
. y focusmg on o
chain. For eg. UPS start d . . , ne of the functions•in the supply
. e out as a s II •
A third-party logisf ·; ma package carrier.
ics provider (abbrev· .. . .
firm that providesa on t • iated 3PL, or sometimes TPL) 1s a
. . e sop shop serv· . . . . •
( or "third party") logisf . •. . · i e to its customers of outsourced
ics services for
management functions. . part, or all of their supply chain

.:_ Third party logistics providerst .. . •

h . d ypically specialize in integrated operation
ware ous1ng an transportati _. _ ,
, . on serv-1ces that can be scaled and customized
_ . . .
dto c. ustome.r s needs based on market c on i h o.ns and the· demands and
e 1_ivery service requirements for their products ;rtd m terials.
I

Types of 3PL

(i) Freight forwarders

(ii) Couder coµ1p·anie•s .
. •

Standard 3PL provider: Thi is the most basic form of a 3PL provider.
They would perform activities such a.sp
, ick and pack,·warehousing, d
distribution (business) the most basic functions oflogistics:

Service developer: This·type of 3PL provider will offer their customers

advanced value-added . services uch as: tr_acking and tracing,-
crossdocking, specific packaging, qr providing a unique security system.
. .

A third-party logistics provider (3PL} is an asset based company that

•,

offers logistics and _sµpply chain manage ent servic'es to it customers.

It commonly owns and manag·es distribution centers and transp rt modes.

A· fourth-party logistics. provider (4 L) integrates the .resource of

·1 rs and third-party logistics providers in view to build a
p_rod ucers, retat e
. 'd . ement in supply chain management.
system-wt e 1mprov . •
Th • t based meaning that they mainly provide organizational
ey are non asse • .
expertise·.
 Supply Chain Mana
gerne
14.301 - •

Risks of using a Third Party

• The process is broken • • fl r r oi ut"so•urce·s supply chain fun .
'The biggest problems arise whena tr as it will-mak . ct1%
th
simply bec use it has lost control of e process ••. . e ll Wollt
and harder to control,.
Underestimation of the cost of coordination
.• d t O coordinate activities across rnu·t•
Underestimate the effort require • hplc
· • t k This is.especially true if
entities performing supply chatn as s. • . . a firm
. l h ·n functions to different third p •
. plans to outsource specific supp Yc at . . •. art1es,
Reduced Customer/supplier contact
A firm may,lose customer/supplier contact by introducing anintermediary
The los,sof ustorrier ont ct is partic·ularly significant for firms that sell
directly t consumers but decide to use a third party to either colleci
incoming orders or deliver outgoing product.
Loss of internal capability and growth in third party pow.er
A firmmay·choose to keep a supply chain function in-house if outsourcini
wil-lsignificantly inc ease the third party's power.
I

Comp i s such a.s HP and Motorola have moved most of thei

manufacturing to contract maimfacturers but are unwilling to move eithe
. .
procurement or design even though contract manufacturers hav
developed both capabilities.
Leakage of sensitive data and informatio·n -
• Using a thi d party requir s a fi,rm to· share demand information andi
·some cases intellectual property. If the third 'party also serves.competitor
there i_s always the danger of leakage.

4.9. FOURTH PARTY LOGISTICS P R O_ V. : IDER;;.S :(_4PL:) ,

With the Increased globalizati -n of Supply Chain, customers are1°0
for J?layers who can manage virtually all aspects f their supply cbal
T is hasled to tne concept of fo rtl1 party logistics-provider.
,.
 ·cs
\

3PL- targets a function, 4PL .

• entire Process
A Fourth-party logistics .
provider, or 4th PartyL . p ov1der (abbreviated 4PL), lead logistics
og1stics provid • . . . d
in logistics tran . er, is a consultmg firm speciahze
, sportahon and su l h .
arty logistics •d ' PP Yc am.management. Typical fourth
p prov1 ers are Capgem1·ru· & A
- , ccenture.
.w
.. do Third Parties Increase The Supply Ch .
nO . am Surplus
Third parties can increase th .
- e supp1 Y cham surplus effectively if they are
able to aggregate supply·ch • · •
am assets or flows to a higher level than a·firm
itself.
\Ve discuss• various mechani•sms th
at thi.rd part.ies can• use to grow the
surplus:

1. Capacity aggregation

A third party can increase_the supply chain surplus by aggregating demand across
multiple firms and gaining production economies ·of scaie that no single firm can on
its own.

2. Inventory aggregation
A third party can increase the supply chain surplus by aggregating in_ventories
across alarge number of customers. The.third party performing inventory aggregation
- J -

adds most to the supply chain surplus when demand from customers is fragmented
I

and uncertain.

3. Transportation aggregation by transportati_onint_ermediaries

. / . •

.Athird party may increase the surplus by aggregating the transportation function
to a higher level than any shipper can Ofl: its own·.UPS, FedEx, and a host of LTL
Carriers are examples of transportation intei:mediaries that increase·the supply_chain
SUrplus by aggregating transportation across a variety of shippers.

4. Transportation aggregati_on bv.storage in ermediaries

A third par•ty th at stores ·mventory can also- increase the.supply chain surplus by
aggregating inbound and outbou d.transportation. • •
 . .
A third party may increase the supply chain surplus by aggregatingw
.. . . arehci .
. or,llslllf
needs over several customers. The growth m surplus 1s achieved in te rms
0
real estate costs as well as lower processing costs within the warehouse..-. Wer

6. Procurement aggregation

A third party increases the supply chain surplus if it aggregates procurernent

many small pl yers and facilitates economies f scale in production and inbo f0r
transportation, Procurement aggregation is niost effective across many small buy:
7. Information aggregation
A third party may increase t e surplus by aggregati_ng information to a higher
level than can be achieved by a fir m per forming the function in-house. All retajJ
• • en
aggregate information on pr ducts from many manufacturer in a si gle location,
Thisinformation aggregation reduces search costs for customers.

8. Receivables aggregation
I
A third party may increase the supply chain surplus if it can ggregate t&
receivables risk to a h1gher level than the firm or it has a lower collection cost than
the firm

. .

An intermediary can increase the supply chain surplus by decreasing the

10. Lower costs and higher quality

A third party can increase the supply chain s rplus if it provides lower
hi·gher quality relative to the firm. If these benefits come from specialization
learning, they are likely to be sustainable over the lo_nger t rm.

•!• A 5PL will pl , organize _and implement a ·client's logistics solutio

taking all. elements of supply chain management out of their band -
 JjJgis/iCS r 4.33]
0
heir focu_s s pply networks means they will oversee every single_
supply cham w1thm an organization. •
st
Fifth PartyLogi ic Model (5PL). This applies when the switch is made
frop-t supply chains to supply networks. .

A fifth party logistic service provider guarantees the management of

networks of supply chains.• .

The industrial' perfonner hires third parties for the supply of strategic,
i ovative logistical·solutions and·concepts.

A fifth party logistic service provider develops and implements, preferably

in close consultation with the cli nt, the best possible supply chains or
networks.

Fifth party logistic is·often linked to E-business.

A 5PL partner handles all the logistics need.s of a c mpany. The line
between who is a partner and who is just a service provide_r is unclear.
Whereas a service provider handles specific pre-defined tasks, partners
have a lot more responsibility.
A 5PL acts as a close str_ategic partner to its _clients and works closely with
. the client's in-house teams.
Thus, the SPL firm is responsible for many critical components of the
client's supply chain and manages them on behalf of the client.

Key Responsibilities of a SPL

A SPL partner has three key eas o responsibility: _
••• U• nderstan•d the I og1•s t1· cs requirements: A 5PL partner consta.n.tly gathers
the log1• st•ics reqm•remen t; across the whole . supply cham. These
reqm. rements may come d"ir ectly. from the· firm and i·t'"s. future targets.
However, a 5PL p a. rtn•er aIso analyz·es the curren. t o. peration.s and refines
these requireme,nts. The ai•m is t.o continuously opt1m1ze and_impro,ve the
logistics process. . .
U • g these requirements and targets, a 5PL
Plan the logistics process: sm - It collaborates closely withthe·
Part er plans the entire log.istics opera_t10ns.
 L[4=·=34=..] ...:...._ ---------·s_u_p_,p_ly_C_h_a_in M_anage e
- . . I
. • ents into a detailed road
firm to break down the logistic requirem , . . lllap,
. . ertise and experience m ma ,
SPL firm will usually have more exp . . b . th' na&ina
• . r1ents Thus, 1t. rmgs 1s addir1
complicated upply chains than its . • on
, b t l0 gistics plan.
value to the table to ensur e a ro us
• • . · f s solutions: A 5PL partn
Execute and manage the entire logis ic · er the
. 11 It will source and manage
goes further and executes this plan _ a we • • Othe
1 og1 st ics service providers sue as 3PLs' warehouses, truckers' carr·ter
· · h
' • • diary betwe en the cl·
airlines, etc. A SPL partner acts as t4e mte nne . . tent an
• the providers that the client w o r k-s ith. If there are any. tsSues, the 5P
partner is re ponsible for quickly p tting out; he fire. It will even set t
terms of the contract with these logistics providers and look for the be
deals.

4.11. SIXTH PARTY LOGISTIC.MODEL {6PL)

Going beyon,d the i dispensable models of logistics service provide

arrives the _21st Century practices.
This new series of party-logistics providers dives into the tapest
of Artificial Intelligence.
Acknowled_ging AI is far_from being standa dized, there i n't enou
insi ht into the,fun_cti<;mality of these Al-backed party-logistics models.
6PL is a fully integrated ·and partly. automated supply chain solut
. . . . ...
monitored by artificial intelligence (AI), often• referred to, as 'artific
intelligence driven supply chain management
It is evident that th application of AI across the supply ch in would
. .
huge technological advancements.·

For example: an inco orated AI could monitor the whole supply c

_using trends, or ering pa.ttems and forecasting models· a d proactiv
send. instructions upstream. •

This could automati ally tri_gger goods production, send instructio

J
deliver stock or highlight irregularities. (

,.
♦
t·gisll
·cs
I . . . .
••• 6PL ogishcs 1s said to be ce • •
• t· . ntered on the use of Artificial Intelligence for
the aggrega ion and analysis 0f d •
• . • . h. ata present in heavy volumes for a robust
progression mt e supply cha·10
• . management.

TERNATIONAL
LOGISTICS

Logistics refers to the serv· • • .. ·•

. . ices or activities required for the management of
• physical movement of ·go0 d fr · •
.• . . om the source of origin to the source of
destmahon.
It involve.s transaction channel, d1' ts n'buti•on channel and communi•c•ati•on
c•hannel for faster and efficie.nt provi·si·on of 1og1;s11. cs se•rvi. ces.
♦;♦ Internation_
alLogistics, therefore, refers to the integrati and management
of_ activities inclu?ing inventory databases and shipping schedules,
material handling, production, packaging, inventory, transportati n,
distribution, storage, and security ·for the resources of organization !
0

supply chains beyond the politica•l boundaries f the nations inv lved in
. the global trade.
With the advent of liberalization ·and globalization of world trade,
international logistics is becoming more· and more important to maintain
the efficient, effectiveness and value addition in th_e intemati_onal trading
activities.
In this highly competitive world trade market, the business entities need to
take deeµ ·-insights into global trade scenario and also required to think
globally ,vith an aim to manage its supply chain network.
All this is possible with the· adoption and application of international
logistics at wider level by these com_panies.
In addition internation·a1 logistics are extrem ly important ·to achieve the
' •

marketing and overall broader object ves of.a rm.

, Furth. er, the concept of.l gi t i c, s and in our case, international logistics, is
• . · . wi'th the·passage' of time on account of following
ga m mg i mportance
reasons:
 •
Supply Chain Manag
• ertiebi

'
- ·rt tion cost.
• .-h level.
• Increasing transpoa_ · y at big er ··
• Achieving product effic1enc . • ag.ement.
. f inventory man
• Changing perspectives O I
, .

• Growing product lin s. unic tion Technolog

, ation and comm
r. y,
• Increasing uses of Iniorrn • d d
. . . • stomer needs and• emans.
• Increasing vanations m cu
• Relaxing rules and regulations. .
o Strengthening d stributional etworks
. . s
4.12.1. OBJECTIVES OF INTERNATIONAL LOGISTIC
• . . . h' h company tries to achieve through using the
The basic obJective w 1c_ a · • . . .
logistics at global level or even at national level is o aintam t e ensured
fl w of go ds& services from seller·to the buyer with the following:

• Right product
• Ri.ght quantities and collections
• Right places
• Right time
• Right price
• . Right condition
Moteover, iogistics management starts with as considering the customer
needs till its fulfillment tiu:ough product suppl1es n line with all the
aspects of performance induding ·arrangement of the inputs, manufacture
of_the goods and the physical distribution of the products.
. ' .• . .

However, .there are so e defini_te objectives t be achieved througha

proper logistics_system which are as follows:

1. Enhancing Improved Customer Service

• The effecfrye managemen:t of international logistics system canelpin

1• mprovm• g ht e1 evel of custom·er serv·ice by developing an effe·ctt•ve syst.ettl
f h . . WI
0 ware ousmg, quick and economic transportation, along
 £OgisliCS . ,;,,,;. ·f4·.37] .
maintenance of optimum l vel f . . ·
0 1
directly affects the cost of h . ve tory because the level .of service
. . P ysical distribution.
ter customer Response
iB� . . .
Now a-days, the infonnation & • .. . .
: •
1 to postpone lo • · communication technology has mcreased
the cap 1b tty . . gistical operations to·the latest possible. time
. . · .
and then achieve the fast d ..
. . . : . er e 11very of required inventory, thereby,
resultmg 1n the ehmmation 0f · .
. . . . excessive mventories traditionally stocked-
m antlc1pation of customer r quirements.
3, Decline in Distribution Costs

• Thedistr bution cost i·s co prised of variou elements, like; transportation,

warehousing·and inventory maintenance, and.any reduction 1n th cost of
one the elements are likely to increase the cost of the other. elemeD,ts.
Thus-, the objective of the fimi should be the reduction of the total cost of
distribution and not just the cost incurred on any one (?f the el ments.
To serve this purp.ose, the total cost of alternative distribution systems
, should be analyzed and the one. with the minimum total distribution cost-
should be selected.

4. lntreasing S les

The physical distribution/logist cs system in a firm also aims to gen·erate:

more sales. A firm can attract more customers by·offering·better services
at lo er prices..,
- For instance, by introducing decentralization in its warehousing operations
_or by usm • g_economic·• and effi.ci.ent , modes of transportation, a firm can
achieve larger market share. - • •
·•••• purht er,b y av01'd' mg. the out-of--stock situation, the loss of loyal customers
can be reduced.
5
•Generating Time and Place Utilities·

The log1. st.ical system also focu.ses on· cr.eating time and place utilities to.
the products·& services.
 Supply ChainMana·:
gehi
I
. '• I'
-
th
Till the products ·are physically m·oved from tbe placeof: eir origin tot
place of destination, they do not serve ahy purpose·to the users. In he
' • . c
same manner, the products & services have to be ma eayailable•at
. • • . . the
hD?-e When they are needed for consumption.
Moreover, a rapid•mode of transportation hould be selected to·mo e
• produc,t sf rom one place to another in the shorte t-possible time. -tbe
T ete.fore, time and place utilities cah be created in• the products
seryices bydopting.an efficient system of° physic,adl istribution. &

6• S abilizing Product Prices

. .
The international logistics system als aims·at stabilizing-the prices of the
products. It can be achieved by controlling_& mainta_ining the flow of the
products to the rria_rk t thr ugh a j dicious use of available ·transport
facilities and comp.atible warehouse operations.
.Maintaining the_stock 9f the·raw material d ing the periods o(1excess
supply and n1aking it available during th_e periods of short. supply, the
prices ·can be stabilized.. I

.7. ctuality _!Vlanagement

The international logistics systeI? 1s a significant part & parcel of
developing· and maintaining continuous improvement in· total· quality
management.
The long-term objective of the international logistics srstem is to seek
·continuous quality improvem·et;it.
•. •!• Overall commitment··to total quality manageme'nt is one of the major
1 . .
forces responsible-for the logistical renaissance because the logistical costs
cannot be reversed, if they are increased onc·e. ·1

•!• In fact, when the quality fails to match the set standards, the logistic
performance typically eeds to be reversed and then repeated:·Moreover,
logistics itself must perfonn to demanding quality standards.
(

• 8. Supporting Product_Life-Cycle .
•!• A good Iog stical system helps to support the life cycle. Product recall is 3
ital competency resulting from increas.ingly rigid quality standards,
 . . .,.
gisfics ••• • • ·.
--- l4.39J
product expiration ating and . . . . . • .
. 11 i , • hab1hty fo f: • • • • .
we_ . . • • :. ·... r. navorable consequences as
The return log'istics ;e·qu•· •• • .
irements ar .
numb r of· regulatory st d.. e a 1soa product' of the increasing
. an ards and I . . ..
encouraging recycling of b . aws prohibiting disposal and,
. everage •
materials. • • · · contamers as well as packaging·
Further, the operational req-u'. . . ·,. ••
irements of reverseI• o•g•1. st.ics have stretche.d
I •

.· ·· ··.· .··-fr· . .
···
the1r scope om I owest total.cost :to - . . .,. •·.. . . . . ,
· c. ' say, returning-bottles for recycling to
maximum per1ormance solut· e: • '
ions ior critical recalls. •. . . . . .
The critical point is that ·the'·. .._·•: .......· • • .
. •. . . und log1stical strategy can't be formed
without careful review o. f're ·ver·s-e1·•o• g•i•s't1··caI r.eq.m.rements.

g,consolid i- g Transpo_,:tat! .n Cost/• :, •

- :. '• - t_> ... •• • .. • -•
• - ,• •
•

· Transportation cost' . directly'.!hike.d t.o is th-. e·typ. e_ of-• _• •d•. . .

p r o u ct, s ize of
·. :•: •• . shiprrient, arid-··di·stan. ce• which the. c.oncerned sh•ipmen••1 •1• s supposed to.-
travel.- • •• -·

- ..·Many Logistical--systems ·which·are-equipped with-the premiu_mservices

depend on high-spe_ed, s all shipment transportation becaus_e the larger•
the overall ship ent and the longer the distance it is to be transported, th·e·
lower the transportation cost per.unit'.·
This needs _innovative initiatives aimed .at clustering the small shipments
for consolidated movement which are required to be facilitated by the
.. -.• ..' . working arrangements that rariscend the ent e supply chain.

4,12.2. IN.TERNATIONAL LOGISTICS - IMPORTA_NCEIN G.LOBA.EL CONOMY

With the continuously expanding scope of int mational logisticsa, number
of a tivities andservices· e now includ_
edi·n the periphery of the concept.
H c.. 11 · areas• e maiorly considered as a part & parcel of
owever, .10 owing . •
i_ntemational logistics:
•• •
1
Forecasting CustomerDemands
• Strengthe ing .Communication Ch nnels
t • M ·intai i g Di tribution Channels
 Supply Chain Mana
---
. ..

• Controllin•g-Inventory Re uitements
• Handling iyl_aterial Requiremen_ts ••
• • Processing Orders
••
, .
Selectm g L•o-cati.o..n 1s:.or Plant & Warehous_e
• • _Procuring Raw Material ...
• • M•agm.g.p. ac ki ng&. _Pack ging Requiremen.ts•
• Regulating Traffic & Transportation ·
• Creating Ti e & Pl ce Utilities
• Movement Consolidation
• Handli:ng Rev rse Logistics..
: · • . Maintenance of.Customer Service & Support

4·.-12.3..-.-·.ELE. MEN.TS OF INTERNATIONAL LOGISTICS

1. Handling Customer Orders -
- . -

.. The first element of the international·logistics system is the processing

orders of the customers.·
.- . • .
' With ari aim to provide faster ·customer service, the orders
. .. . ·- . .
received
.
fr .

customers need to be processed within the least possible time. •

•!• Tlµs element comprises of the activities like, receiving the order, record
th _ order; fiiling the order, and :assembling . all such. orders
=· transportation, etc.·

•!• .The ompany and the customers will _be benefited when.these steps
carried out quickly and accurately.

2. Stotage and ar ho sing

This is e. second element which involves assorting products in- rd

create time utility.
The major o·bject_i:y.e of the st rage &·warehousing activiti_
e sis to
'' • • . • .. ' .
prop r arrange ent or he placement f go ds, p_ vid.ing.storag f c
to store !he o_- , !1datmg them with other similar products? s_phtttl
them into smaller quantities and buiiding up assortment of products.

--
I .
c¥<"<mac::c=-c<c<<i.. :..::::...irr..
 ·sfiCS
@]
••• Generally, more the numb·erowf• . 'b.
the time taken in servingc t • are ouses a finn has, the lesser would be
omers at different locations
l • However, this would result •m increased
. st • . .
•
Therefore the finn h • orage& warehousmg cost.
.,
h d as to maintain· a balance between the cost of
ware ousmg an the level of -
. customer service.
inventory Management
3,
The next element involves dee. . . . .
. . . ISion-making process regardmg managmg
and controllmg mventories whi h ..
. . . . c Is Important for the success of physical
d1stnbut1on.

-This elemen becomes more important in case the cost of inventories is

higher. Moreover, the new concept of Just-in- Time (JIT) Inventory
decision is increasingly becoming popular with a nwnber of companies,
now-a- days. .
. . . .

The decision regarding leyel .of inventory involves estimated demand for
the product. A correct estimate of the demand help t maintain requisite
inventory level and control the inyentory costs as well.
It helps the firm in tenns of the cost of inventory and supply to customers
in time and also to maintain production at a con istent level. The major
forces determining the inventory levels include the comp y's policy
regarding the customer service level, degree of accuracy of the sales
forecasts, responsiveness of the distribution system, so on so far.
. .• .

4. Managing Transportation
The element of transportation·consists of moving _goods from points of
production and sale to points of consumption in th quantities required at
times needed and at a reas_onabl _.coSt
The transportat1·0n systern increases tim•e a.n. d place utilities to the goods
handled and therefore, increases their economic value.
•••• W.ith an ru. m • hi e these goals, transporta ion facilities must be
to ac ev ,. .. .-
• d d ble and equi_table in tei:-ms of c_osts d benefits
adequate, reguJar, epen_a. . · • l'-
1

• ... d rvice provided.

o f the fac1ht1es an se
I I
 Supply Chain . 1 .v1ana
" 1

I,

s. Effective Information Monitoring,

The informatfon monitoring element of international logistic• .
s sy
requires the logistics' handling personnel continuously_u Slec
. . d h.
information about mventory, transp rtat ion an ware ousmg. -. d·a-t
For instance' with respect to inventory the information about th.e· •
· . • . . . . Pre·sen
stock position. at each location, fu_ture c mm1 me_n and• replenisiune
capabilities are require·d on an ongomg.basis. In·the same manner b n
choosing a carrier the information: about the availability of relevant' efor,
' .
of transp·ortation, their costs, services and suitability for a Part..e.
• •
-
product is needed.
.
. . . ..·....
. -: ..

: • 6. Enhancingupport.Facilities
The support facilities element of• international logistics system. I•,,
comprised of a number of planning activities which are, usually, d rected
. toward en_sur ng that·all required permanent or.transitory op r t g and
• support facilities, inclu_ding training, field and .depot maintenanc_es,torage,
operationa-l,and testing are available concurrently with system·fielding..
Planning must be compre ensive and include the need for expansion,
diversification and modification of the existing facilities as well as
creating new facilities.
It also takes research and developmental activities·under its scope with an
aim to define and establish impacts on life cycle cost.
. : .. - '

4.13. 'C_HARACTERI_STICSOF GLOBAL SUPPLY CHAINS

. . .

The ·seyen·characteristics_that mus ·-be a·pa:rt .of the next generation of

supply chains.are:.

1. More Flexibility ' •

10
Quickness has ·always been i portant. in uppl.yc hains. This trait bas
.. . . .. . . ole to
tnckle down to next generatio-nsupply chains, as they should bea
react to-.s dden chan ing ci·;cum.stances in th operating environment,
 of .unpredictable ·and d evastatmg
- . ,• •d •
1
disaster, med1 al epidemic •. . mc1 ent, such as .a natirra
. .. · " ' pol tical
potential to overthrow supply h. . oreco_nomic instability,·has the
, cams.-
- ijowever, wheri they are flexibl • .
. - . e, have a stro •k
intelligent decision· su . ng ns • assessment program,
. . , pport systems and
supply chams can thri 10 . .
are
.
d •.
emand dnven, next gen
. .t _.. . ve even the most challenging and competitive
· environmen s. •· • - . •· •

,increased Speed of Del!ve_ry

2
.. Sp ed is of the essence .of th . . . .
. : ·_. . . e next generation of supply chams. It will be
mor. e and more c•ritical -for·· s. u. PP1X h •
C. ams to_be_able to respqnd to demands
· as qmckly as they can' in ordert o .ensure qm.clc deh.very for retailers a n d•
other key members of the supply chain. • •
- Companies .will want to ha• t k f.• ·_ • •• ,. • • •
. ve a s oc · o ·products as •soon as they are -
needed and they will also want to- move more stock.in a.sliorte period of.
ti.me. •
..
3. Enhanced Global Reach

It is possible for global supp_ly chains to.react .at a local level. Next
generation s pply chains must know how to create global hubs that are not
only effective, but·can also supply products l cally without needing to
transport them across the world for just"a few orders.••

.4, Optimized Inventory ·,·· •

•- .:.T e.trick :with efficie inveYit9ry,m ag n.ie t ist4at_you.s 91J. d a just

.......
the.right amount of stock in the warehouse._ _. . .
,• ·-_: .--Haying ·too much will result :in expired_and_u. nsold._stoc , hil oo little
• . ill al ost always_assure_that you don't have.en_ough stock when i is
.urgently needed.
'· This calls for·optimizing inventory so -that-your supply can aJways meet
the. demand. The .quantity o_fs to ck mu_st _be dictated by t 4_ e current
consumer be avior, uying trends, and l cal.d_emandfo_r the product.
 . ,• .

Supply Chai A1anq

11eh,
s. Go Green and Sustainable •
. Practices like utilizing raw miiterials ill a_stistilinable manner, rilakin
frieiidly packaging and using alternative energy sources to g
manufacturing plant and supply chain will go a long way in ensu c
. . • . nng,
next·generation supply chams are sustamable. .. thal

6. Proactive Strategy
Supply chains should b·e proac- tive in case of disrqption, s dden changes
potentl. a1 d1' sasters. • • ••or
\
By.being proactive,_y_ oucan nsm:e tha! the logistics offer reat services a1
all times, and the organization ·doesn't get scrambled with excuses tliij
hinder logistics ability to deliver when needed.

7. Innovativeness
Every supply chain. should embrace innovation and te_c _ol?gy. y

try to incorporate innovative approaches across various functions and in

the supply chain processes.

1. What is Logistics?
c si· s u ed mo_re broadly to re·f r to th process of coordi ating an
L o g i s t i_
inovi_ng_ esources - people, m teri ls, inventory,·andquipment.- from one
location to storage atthe desir d destination. The term logistics originated in we
military,"_re qing_to he moveni nt of equipme t and supp.lies to tr ops in the
field. •
• 2. Wh,it ar,e the Logistics Components?
The management of logistics can involve some or all of the follo i
. business functions,including:
Inbound transportation

ss::s.::<.:a..
 ·sfiCS •

..•. Outbound.transportation
fleet _management

..... warehousing
I

..•. Materials handling

Order fulfillment
Inveritory mal)agement
Demand·planning
Elucidate logistics Ma agement.•
3,
Delivering to the customer_the desired level of service and quality at the
lowest affordable cost.
• Having the right item in the right place, right quantity at the right price.
.

4. What are the objectives.of logistics management?

Rapid response
Minimum Variance·
Minimum Inventory
Movement c nsolidation
/. .,
·. Quality etc
\

5. Explain tlteJ1i11ctions of logistics

Warehousing •
Order·processing
Transportation
Inventory management
I •

• ••• Material Handling

.. ' '\ . • '.
·. : .
...· .
._.Pacl(agi g
. . '

Information Management etc. . . · . ,,

. •• • .• . J,ain management (lnd log,sttcs_ management.

' \' '. !I

6• Dj tin_guislt bt!tween supplyc • . • ' '.

l '\!' ,. I

' \
 • •!
, I
- • I •

Supply Chain Mana

,
LOGISTICS
·Broad concept
h • • - ---.
. Functions e t e organi zati o n
Conducted mainly within the.orgn·. .

. .

flows-product n'
profitability

7. Whi!tare·maieria/s liandling?.
Material handling means providing .the right amount 0( mat rial, in the righ
c'ondition, at the right place, ruid at·the right time: It involves moveme
protection, and.storage andcontrol o material_s'._.
8. Wltat is lite main objective of ate;iai; /,4n4liitg?_•
. - ,· ; •
Planning
\.

Standardization
.. '. •. •.
\York Ergonomics
Unit load
- Space utilization
•!• Systems Automation l
•!• Environmental etc
. ..·. -·.
9 · What is.logistical Network Analysis? ..•• . ,. .
. . . ..
• Logistical network includes -various··facilities like· manufacturing-' plan
warehouses, distribution centers. Prop r·network desi n will help to redu
overall cost. ,.

10. State the importance of Logistical Network Analysis.

•!• Quick response_to market changes
'
Changing customers
•!• New market segment,
Changes in corporate policy
 1,0gfsfiCS

...
o m er. service
Cost control.
,n at is logistics outsourci11g?
1 Jr,t
1' . . t .
ogistics ou sourcmg means tr c. • • •
L ans.ierrmg the repetitive and non-cntica 1
• 'ties tooutside parties and focus•
actlVl mg on core competent functions.
.Jl, rr:.-n/ai;, its. a. dva. nt.a. ges and disadvantages·oiflo·g,•ts•1··cs out•sourci.ng?
.ADVANTAGES • •

Con entrating on core process s

Red1:1ced operational and recruitment costs
Risk sharing
Save on infrastructure
Increas!ng in house efficiency
DISADVANTAGES
Hidden costs
Threat to security and confidentiality
Quality problems
13. Witat is Integrated Logistics?
Logistics helps to interlink an enterprise with its customers and suppliers,
there is inventory and information flow in this.
14. Wltat is Reverse Logistics?
Process of moving a product from the point of consumption to the point of
origin like replacemen_t of defective goods, repairing used products, replacing
expired products etc. ,.
IS, What i•s l og,•sh•cs outsourci•ng '

Outsourcing logistics is when a company uses an external provider (aka a

third-party) to handle various supply chain functions. These can include a mix of
shipping, storing, packing and/or delivering a company's physical goods, from
raw materials all the way to the finish d product. I .
 • • • 0-11tsourcilig?
16. Wl,at are t!,e he11ejits of /og1SIICS ..

The benefits of logistics outsourcing are:

Reduce overall logistics costs. .
. .• • nvestments.
Avoid distribution infrastructure 1 _
A void systems investments.
A void fleet investments and maintenance.·
Leverage freight buying power.
Share freight costs.
Reduce liabiljty in freight operation .
17. WJ,at are tile Logistics Compo11e11ts?
The management of logistics can involve some or aU- of the folio
business functions,including:
Inbound transportation
· Outbound transportation
•!• Fleet management
Warehousing
Materials handling
Order fulfillment
Inventory management
Demand planning
18. Elucidate logistics Management.
• Delivering to the·customer the desired level of service and quality at th(
\
lowe st affordable cost
Having the right item in_the right place, right quantity at the right price.
. .

19. Wltat are tJ,e objec(ives.oflogistics ma11agement?

•!• Rapid response
- Minimum Variance
•!• ·Minimum Inventory
 • ..
rvt_ov ment co_nsohdation
Quality etc
crnlai11 tlteft111ctio11s of /ogist,·
lO· r,,. r • cs.
Warehousing
Order processing
Transportatfon
Inventory management
Material Handling
Packaging
Information Management etc.

21. Distill 11islt between su I chain mana en,e1t1 andi o ,•st,•cs mana emenl.
LOGISTICS SCM
Narrow conce t Broad conce t
Conducted mainl within the or n. Functions outside the or anization

Ori inated from Business lo istics

2 flows- roduct and infonnation 3 flows- roduct, information and finance
Ob·ective is to minimize cost . Ob·ective is to maximize rofitabili
. .
22. What are materials handling?
Material handling means providing_the right amount of material, in the right
condition, at the r ght place; and at the right time. It involves movement,
protection, and storage andcontrol c;>f materials. >
23. What is tlte main objective of materials ltandling?
'
Planning_
Standardization
••• Work Ergonomics
Unit load
Space util_ization
Systems Automation
Environmental etc
 Supply Chain Mana

.
24. What 'is .logistical Network Analysis? . .
_J . • • facilities like manufactunn
Logistical network includes various . g 'Plari
' network design will help t0
warehouses, distribution centers. Proper . • red
overall cost.
25. Stat.et he importance of Logistical Network Analysis.
Quick response to market changes
, Changing customers
New market segment
Changes in corporate policy
Customer service
Cost control.
26. What'is logistics outsourcing?
Logistics o·utsourcing means• transferring the repetitive • and non critic
activities tooutside parties and focusing on c·ore competent functions. . • •
• ' I

27. Explain its advantages and disadvantages of logistics outsourcing?

ADVANTAGES··
Concentrating on cor proces es
Reduced operational and recruitment costs
Risk sharing •
Save on infrastructure
Increasing in house efficiency
DISADVANTAGES
Hidden co·sts
Threat to security and c_onfidentiality
•
Quality problems
28. Wltat is Integrated Logistics?
Logistics helps to interlink an enterprise with its custo ers and suppli
there is inventory and·information flow in this. •

I"
 ,(!;stiCS •

,rf,al ;s Reverse Logistics?

z9, process of moving·a product from th . .
. •n like replacement of defect· e point of co sumption to the point of
orig1 • • . ive goods .. . .
• . ed products etc. • ' repainng used products, replacing
e,cptr
JV/latis3PL?
30,
3PL is Third Party Logistics.•
A 3PL company arranges freight c • .
. . . arners and warehousing by dealing directly
with the service providers. - •

31, JVJ,at is 4PL? _ \

4PL is Fourth P rty Logistics.·

A PL company, on the other h d, arranges the same services and more for a
c!ient but does so by employing companie-s such as 3PL companies, who. use
their vas_t network of carrfors and warehousing providers.
32, ·w1,at is SPL?
5PL is Fifth-Party Logistics·
A 5PL will plan, organize and implement a·client's l gistics s lutions, taking-
• all eleme.nts of supply chain management oUl of their hands. Their focus on
supply networks means they'll oversee every single
'
supply chain within
. an
organiz_ation.
33. What is 6PL?
6PL is the 6th Party Logistics.
a
Still mostly theoretical, 6PL is fully integrated and partly automated supply
chain solution monitored.and driven by artiijcial intelligence.(AI), often defined
. '·.- . . ' • .
as: 'artificial intelligence driven suppl-y hat managem nt • _. •
34• What is Internationµl Logistics? .,_
International logi tics is _the·process of pla ing an? m aging the flow of .
goods and roducts in your. Company's upply chain from
_ ac9uisition to
. cust mer purchase, where part o'r e process involves crossing at least one
international horde .
 .
Logistics?

• Improvi.ng Customer service.

Inc"reased Customer Response.
Reduction in Distribution Costs.
Increasing Sales.

Cre-at.ing r·1m e & Place UtiJities.

StabiJizing Product Prices.
_ Quality Management.
Supporti g Product Life-Cycle.

36. 1J'kat is tlte importa11c of logisti<;s in global economy?

Logistics play a crucial role in today's .economy. Improved trade
.' ' ·1 .
infrastructure such as roads & highways, ports, rm ways, airports inclu
ports, warehousing infrast cture and labs & testing facilities are nece
sustainable and balanced economic development of all parts of the countr
37. Wit at are tile C!taracteristics of global supply citains?
Th -·characteristic_s f a gl bal supply chain· are v sibility, optimi
havi g the lowest c·ost possible, timeli ess, and consiste cy.
. . . .

REVIEW QUESTIONS
• , '

,
1. . What is the Design option available for transportation network? •
.
2. . Enumerate the Role of transportation in supply chain
3. What are the factors affecti g transportations decision?
4. How would.you summarize in detail about the logistics and supply chain
5. ' Elucidate the Recent trends in logistics network with s itable exampfes.
. '

6. Define Transportation and expiain its modes·in d tail.

7. Elucidate • • of Jogi
-logi tics management. What are _ the objectives
management? Also explain the functions of logistics.
,.
:1.fJt/rl,(,/S
 UNITV
sUPPLYCHAIN'°INNoVATioNs
. I .
supply Cham ntegrat on, SC proc • .
• Legible supply
Chains . h • . ess restructuring
• • S upply Cham;
' IT .m . Agile
..
supp Yl ', c am, Green Su I Ch · • .
SuPPIY Chain technology t d PP Y am, Reverse SuP,ply cham;
. . . r_en • . · Internet of Things,
. s - . AI' Advanced analytics,
. Jntelhgent thmgs, conversational systems r bf . . .
;. ·Bl k. h . ' 0 0 tc process utomatton, 1mmers1ve
techn log1e , oc c am.

: S;.-U P PLVY C HAiAl;.N-;;IN T EG R A:;.Tl::-0:-:-N : -:--=-. ........ _: _

• Sup.ply. chain integration isa I • . . • .

arge- sca1e bus iness st rategy that bn ngs as
many lmks of the c ain s possible into a closer·working relationship with
eaclf other. . •
• • The goa·l1s to improve·response time production time, and reduce costs
and waste. Every link in the chain benefits..
Supply chain integration_is a process where all t e parties involved with
.• the fulfil_lme t of Pa roduct are integr ted into a single system. This
requires . significant coordination and alignment in order to• ensure
• ' • • #

everyone is effectively wor ing towar the same goal at all times.
, .. . .
Having the parts reqt1ired for a product show up wher they e needed,
when they are needed, helps to not only·· prevent delays in the
manufacturing process, bu•t also eliminates a fot of wasted time, storage
· space, and m r..When done properly,·suppiy chain integration will b g
parties that are often at odds together with a single focus.
All of the materials a n d-components·from along the supply chain are •
needed, and by integrating everyt ing into .a single s_ystem, it is much
easier for effective p'roduct c eation.
5,1.1. INF.ORMATION SHARING IN SUPPLY CHAIN INTEGRATION
. The concept 0{ supply chain integration go s back many decades, and .it
• d b •y companies around·the w orld to improve the ir systems
has bee n use . • •
 . Supply Chain Alia..
=--- ---_: ------- ag
-
. 11 w·h'l•ther are many•different ways that t t tlh.:is_.
dramattca y. . 1 • tem• one ·f h . ,pteVh,o 1

can be.implem nted mto a sys ' . o t e. most i rnportant ..

regar ess o . ow 't. used is going to be mfonnatlon sharing •
dl f h 1 ts. . . .\
Whenlooking.at the informiltion sharing ofsupply chairi inte&ratio
compani.es go throu'gh a-s ·en· e·s of stages once th·ey beoinw·o·rk1'ntg
1

b.l
' ,
full supply chain integration.
• These stages re as fol!ows: • .
Baseline:.This is the first stage, and it is when every departme t or Ys
•
within a company is·managingtheir own supply c ain, and related•1
• · SU1
. Companies also refer to this as a stored pproach, and while hcairij
some benefits, it is quite inefficient.
Functional Integra.tion: In this·next'stage, all the differen_tdepartme
within·a companywill.work together to help to.im_ roveefficj ncy&
• reduce cost. This could be done by combining orde s, scheduling Joi
together, or other important steps.
Internal Supply Chain •Integration: All the departments wi!hin
compan·yare connected using the same systems. This.,wili almost al\W)
involv using some type of IT infrastructure olution that allows
departments to work efficiently.'to·gether,'share their needs,'and idenill
collabora.tion opportunities!
. xternal Supply Chain_Integration: The final stage involvesexletru
vend9rs as well as all of the internal departments. Providing a vendorml
system access, an4 e couragi •g them to function almost ano
department helps to generate'the best.possibleresults.
• Integrating·Supply Chain_s

When it comes to integ;ating supply chains within a coffipanY, dJerel

quite a few things that need·to come together.
· h 0 11 ' • • • • • ·11 ne 1
T e . . ow mg are some of the key s teps that m ost compani es W1
take during this process:
1·
 [y Chain Innovations
!;!!------------ _!( 5.3 )
Choosing Vendors - Choosin .
'd h • • g veo dors is more than just finding one that
can prov1 e t e necessary Part -
. s. n1 addition to that, the .vendor must be
able to supply their material h
. att e needed time and place based on the
overall supply chain.
Internal Teams - Working 'th h .
• • WI t e internal teams of a company to work
based on the needs of the II : •
. overa system rather than just their depanment.
Having set procedures based •h b' . . .
. on t e 1g picture can help to· elurunate
waste, and improve efficiency.

Waste Elimination- ile often overlooked, waste elimination should be

-
an important part of effective S\lpply ·chain integration. This can happen
when eithera vendor or an internal team will physically relocate in order
to more efficiently complete the work that needs.to be done.
I 1

- There are many other· things· involved with effective supply chain
integration: Once the initial integration is completed, the system should
run very smoothly for years to come. •
In most cases, the initial integration of the·supply chain will require that all
. .

parties get together to discuss their abilities, as well as their needs.

Going over ap the logistics in an open enviroru:nent will help provide
everyone the opportunity to make suggestions, express concerns, and
overcome obstacles, before it is ever implemented into a production
environment.

Supplier ln egration
There are many constraints in tµe production process where the suppliers
and the producers meet. This would be where.the suppliers bring specific
parts, reso ces,.or other items to the producer for use.
Ideally t e supplier will deliver their supplies direct! to where·they are
going to be u ed, or at least as close as possible.

Th1.s reqm•res ht at those who p.roduce product.s.provide their .suppliers with

• . • and other resources than many companies are used
more access, tram µ ig, .
to.

I
 .Supply Chain Manage;.,.,.en,

In essence, this can move the relationship fron_i a supplier-custolller

relationship to a true partner hip.
This often requires some additional investment on the··part of the company,
and may even mean higher overall prices for the prod cts because Illore
expected from the suppliers.
On the surface, this may not seem to make sense, but the added
efficiencies can really.make this relationship pay off.
In addition, when there·is.-.a complen:ientary partnership betw en two
companies like this, it is much more likely that the supplier will go above
and beyond to me t the .producer's needs when things aren't going
according to plan.-

5.2. SUPPLY CHAIN PROCESS RESTRUCTURING

Companies expand and minimize, which reqmre streamlined

manufacturing and supply chain footprints, resulting in massive
. restructuring programs. Restructuring programs
\ .
deal with . major "lift &
shift" activities involving manufacturing, transportation and ware_housin
as·sets.
upply chains are becoming more global by the day. It is yery important to
•. ' . \ . ' '
mai_ntai_n a quick supply chain that differentiates brands from being "order
qualifiers" to "order WiJ?.Ilers".
Programs of such scale nee tremendous amounts of planning, starting
-.
from contingency sourcing, facility • readiness, finding· new suppliers
buffer planning, manufacturing process and production readiness.
Reasons to Initiate Restructuring Programs

• Cost Savings
• Outsource non-core products and services
• Improve s pply chain network_e_ffici cy
·• Facilitate growth strategies

• Mergers and acquisitions

 Chain Innovations
s,JfJPIY
• Operations consoiidation
• Getting closer to customers
••• A lot of times, companies spend so much ti·me •mves1m
. g and
Ioo ki.· ng• ·nto
th 1
systems to power e supply chain. The·se are systems such as warehouse
manageme t systems, Enterprise ·Resource Planning (ERP) platforms,
transportation management systems, etc.
However, systems that enable sharing of data and process· automation
allow supply chain processes across different departments to be optimized.
Jnis increases.•op rational efficiencies and provides the best customer
experience. -
Data integration an be the differentiator that enables companies·to disrupt
processes to increase efficiency·.. •
For example, imagine an Enterprise Resource Planning (ERP) system
receiving sale.s orde s electronically from the customer relationship
management (CRM) system, processing orders and scheduling deliveries
automatically, and sending updated stock and delivery infi?rmation back to
:the CRMsystem.
\Vith• automation and integration between the different systems, there can
be faster order fulfillment, reduced costs and• increased customer
satisfaction.
There are seven techniques for upply chain process restructuring, they
are:
(11 Real-time rep rting
With integr ted data, supply chain professionals can make decisions based
on the accurate picture·of supply chain ac_tivities across the organization.
These activities include sales, manufacturing, warehousing, transportation,
procurement, finance, marketing and product lifecycle management.
A distribution centre for example, can seek to have a hig fill rate but if
the fulfilling orders cost is too high; profit m ¥in goals will be 9isrupted.
A comprehensive v i e_ wo f all activities makes certni_n orders are met in the
most effective way.
 [s. .Supply Chain Man
;_
(ill Customized supply chains
Companies may over-servke some.cust0merswhile, providing ess th
sati.sfactory service to high volume cust•o.mers. Integrating data 1•.0.suchan
. . . . a
situation will allow you to have.supply cham syS tems m place acco d'
. . . r ing to
a customer's service level agreement. This will mean max1murnv 1
. • . • a ue at
the lowe·st possible cost.
(iil1 Financial commitments con'trol
Having con.trol and v•isibility over the whole life-cycle of a transact'
beginning from purchase approval_ to.final invoice payment, gives you full
/ irisight into cash-flow and financial·commitments. Integrating procure to
pay functio ality enab_l E
s _nt rprise Resource·Planning (ERP) s tems to
extend to the·final do uments to confirm that goods were received and
signed for,_before invoices a e paid.

(iv) Accurate demand forecasting

. Having up-to-date sales data .into E.nterpr se Resource Planning (ERP) will
mean having accurate orders for raw materials, causing efficient deliveries,
improved cust9mer satisfaction and improved margins as _-transportation
and inventory costs are reduc_ed.

(v) Choosing right carrier

Integrating Enterprise Resource Planning (ERP) with warehouse
management and yard management software will enable a company short
dwell times and Io g tender lead times. It • ill also mean attaining
"preferred shipper" status and having - an easier time finding capacity because
businesses will always choose to work with a company tbal
improves thei e(ficiency. I
I
(v,J Production management improvement.
• g-for
Enterprise Resourc_e Planning_(ERP) manages the resource planntn
. . ·11 • are fu1lt
. ,
pro duct10n; 1t w1 m·ake sense to make sure that systems re
. • t whe
integrated. When the design has developed and reached a P010 ..,0
• • - • shOl)J
resources need to be managed to produce a product, an ERP s stem.
 ' Chain Innovations
1
511
.,,,--- PP!----
t.., :, = ---
be_able to import the most up tod
_gr5@
.7 I
• • ate.product d t •
necessary departments "to·ens a a and share WI th the
. -- . ure accurate ,financial planning. .
•:\ close the speed vs accuracy gap
1v11-,
• In order for operational goalst
. o meet corporate l db •
all supply chain costs needt 0b• . va ues an rand images,
· e analyzed together.
For example··a company can select . .
' 'bl · to move mventory at the lowest
poss1 e cost, move goods the fast •. •
. th h• h . .eS t way possible regardless of costs. or
h ave e 1g est possible quality 0 f d . '
. . o r er fulfillment w ith zero errors.
. Havmg cost data and variables together in on system will allow for this
and an easy trade-off analysis.
Businesses that integrate .data and processes across various business
s stems can optimize their.supply chains and pr vi9e customers with the
.best possible service from order to delivery.

5.2.1. CHALLENGES SUPPLY CHAIN PROCESS ESTRUCTURING

(:h nges in economic policies also affect restructuring. programs. Close
moni!oring of new policies. and m 7roeconomic factors drive sourcing and
other supply chain decisions.
Integration of new products, production operations, logistics· and•
distribution are critical to restructuring. programs. It also includes
integration of IT and accounting systems, people coordination, and .
ensuring a cultural fit.
. For all restructuring programs, it is important to plan and execut
the phase in& phase-out · f facilities. Often, they resul·tin delayed closure,
due to ramp-up issues and the ability to maintain a stable workf<;>rce at the
closing facilities, during the transition phase.
Reducing wast , during transformation, is a clrnll nge in front of
stakeholders.
. It is important to have a burn off plan for all inve tories in
th . · . I•I fior supply chains with long lead times.
e pipe1me, especia Y . •
s • . •. d wn to scrapping certain inventory to complete the
omehmes, 1t comes o •
.. transition dates could be pushed out, while all
trans1t1on. In many cases,
• . .
Inventories m the supp1Yc hain is consumed.
 I -8 J Supply Chain Manaoe,..
=== .:....·o ·••e111
Capital investment and budget allocation for invent_0I)_e' nsures a srn00th
transition of products, from one facility_to another. _
Transfonnation inventory· require bu _get allocation capital
for
cost. Efficient inventory planning ensµres uni!'}terrupted supply, during the
transition phase..
' It is important t design a strategy, whi h is responsive to changes
. required transformation inventory. Transfo!ffiation inventory is based on
product development at the new fa ility, exit date for the current ·facility
and demand, during the transition time:••
All of these factors can change in the middle of execution, requiring a
flexible-and responsive inventory planning process.

5 3. THE ROLE IT IN SUPPLY CHAIN.

Information is a key su p_ly chain driver because·it serves as the glue that
allows the other supply chain drivers to work together with the goal of
creating an integrated, coqrdinated supply chain.
Information is crucial to supply chain performance because it provides the
foundation on which s pply chain pr?cesses ex cute transactions and
managers make decisions:.without information, a manage cannot ow
·what custom rs want, how i:nuch inventory is in st.ock, and when more
products sho1,1ld be pro_duced or shipped.
In short, without information, a manager.'can only make decisions lindly.
. -
a
Theref re, i ormation makes the supply chain visible to manager. With
this visibility, manager can make decisions to·improve the supply chain's
perform ce. Given the r le of,information·in a supply chain's success,
managers must understand ow information is gathered and,-an lyzed.
is where IT comes into play.
. .

IT consists of tools used for the purpose of:

I. • Gathering of !?formation
2. Analysis of Information

I'
 ,,,1y chain Innovations [s.9]
...
3. Execute upon mformation to increase the per",-ormance of SC
IT consists-of the hardware s0 ftw
., are, and people throughout a supply
chain that gather, analyze, and execute upon information. •
IT se!Ves as e eyes and ears (and·sometimes a portion of the brain). of
managementm a supply·chain, capturing and analyzi.ng the information
necessary to make a good decision.
When we talk about information access for the upply chain, retailers have
an essential designation.
They emerge to the p s_ition of prominence with the help of technologies.
• •;• . The advancement of inter organizational information system for the·s pply
chain has three distinct benefits.•These are:· •
• Cost.reduction: Thedvan_cement of technology has further led to
ready availabi_lity of all the products with different offers and
discount . This leads toreduction of costs of products.
• Productivity: The growth of information technology has improved
productivity because
.
of inventions
.
of new tools a d software. That
makes productivity mu heasier 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 o ?Ilure 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
. .
Information·is the key to the success of a supply chain becaus·e it enables
management to make decisions over a broad scope that crosses both
functions and companies.
I .

To obtain .aglobal scope of. the supply ·chain, a manager needs accurate
and timely information on all company functions and organizations in the
supply chain.

-
 Supply Chain Man
age"
••
For example in trying to determine prod uction schedules, it is noet
, . .
for the workstation manufacturer mentioned earher to know how
nou8h
. . much
mventory is on hand within the company.
The manager also needs to ow the downstream demand and eve
n the
upstream supplier lead times and variability.
With this bro der scope, the company is able to set production schedules
and nventory levet's that maximize'profitability•.
Infonnation must have the following characteristics- to be useful When
making supply chain decisions:
' .
1. Information must be accurate·: Withsmt.information that giveas
true picture of the state of the supply··chain, it is very_ difficult to
make good decisions. That is not tosay that all information must be
I00 percent correct, but rather that the·data available paint a IJi ture
t4at is at least directionally orrect.
2. Info.rmation must be accessible in a timely manner: O_ften,
accurate information exists, but by the tim_e it is available, it is e_ither
out of date or, jf it.is current, it is not in an accessible form. To make
go_od decisi ns, a manager needs to have up-to-_date information that
is easily accessible.
3. Information must be of the right kind: Decision makers need
information that they.can use. Often companies have large amounts.
'
of data that is not helpful in making a decision.
inform tion is used when making a wide V?fiety of decisions about·eacliof
the supply chain drivers, as discussed here:
1. Facility: Determining·the ·1ocation, capacity, and schedules of a
facility requires information on the·trade-offs among effi iency and
flexibility, demand, exchange rates, taxes, and so on
2. Inventory: Setting opti al inventory' policies requires information
that includes de and patterns, cqst of carrying inven ory, costs of
stocking ou , and costs of.ordering
 Chain Innovations [s.tt]
_::::=::
3. Transportation: Deciding t . .
On ransportat1on networks routings,
modes, shipments and v d . ' .
' en ors requires information including costs,
customer locations and sh· . . .
' ipment sizes to make good dec1s10ns
4. Sourc. ing: Information o.n_p.rodutc marg·ms, pn•ces, qual·ity,d e11·very
lead times, andso on' are all important •m mak·mg sourc·mgd ec1·s1• 0ns.
5. Pricingand revenue management: To set pricing p_olicies, one
needs information on demand, both its volume and various customer
segment's willi ness to pay, as "Yell as many supply issues such as
the product tpargin, le d time, and availability. Using this
informatiori, firms can make intdligent pricing decisions to improve
their supply chain profitability.

5.3.1. THE SUPPLY CHAIN IT FRAME WORK

Given the wi?e realm o inform tion we have discussed, it is important to
develop a framework that helps a manager understand how this
information is utilized by the various segments o_f IT within the supply
chain.
It is 'important to note that the use of information in the supply chain has
increasingly been enabled by enterprise software.
Enterprise software collects transaction_data, analyzes these data to make
decisions•, and execute on these decisions both.within an enterprise and
across a supply chain.·
Certainly other parts of IT beyond enterprise software, such as hardware,
implementation services, and support, are all crucial to. making IT
effective.
In many ways, software shapes t _J- ientire industry of enterprise IT as the
other components follow the s ftware leaq. It is for this reason that w use
enterprise software and its evolution as the primary guide in analyzing IT .
and its impact on the supply chain,.
• The evolution of ·enterprise software provides insights not only into the
future of IT, but also into what the key supply chain pro esses are.
I'
I
 [s.12] Supply Chain Man
. agett,
.· ·--

The enterprise software landscape. became increasingly overpoPUl

during the late.1990s.
The growth of the number of so_ftware companies,_. tbe e er!ence of n
categories, and the expansion of software product Imes combined to crea
an enterprise software landscape hat was notonly·much more crow
than in the past, but al o much more dynamic. •
It was an environment grown"for significant evolutionary change.
.. The·three of th_emai n drive_
rsof the evolution taking place in enterpris
software are the three II1ajor groups _of s pply hain processes, which
call supply chain macro processes.
The successful catego ies of software will be those that focus on the ma
• pr9cesses.

5.3.2. THE SUPPLY CHAIN MACRO PROCESSES

The emergence of supply chain management has broadened. the.sco
. ,.. .
across whi h companies make decisions.
-- From an enterprise's perspective,- ali_processes :within its supply chain c
be categorized into three main areas: processes focused downstrea
processes focused internally, and processes focused upstream.
• We use this classification to define the three macro supply·chain process
as follows:
· • Customer relationship management (CRM).
• Processes that focus on downstream· interactions• between
• enterprise- and_its customers.
•· Internal supply chain-management (ISCM}.
Processes that focus on internal operations within the enterprise.
• Supplier relationship management (SRM).
Proces es that focus on upstream.interactions between the enterpri
and its suppliers.

5.3.3. ·CUSTOMERRELATIONSHIP_MANAGEMENT(CRM)
The CRM macro process consists of pro esses that take place between
enterprise and its customers downstream· in the supply chain.
 I chain Innovations
•. .@]
The goal ·or the CRM mac ,
. ro process is t0
facilitate.transmission andt k' generate customer demand and
. rac mg of o·rd W . . . •
results 1n demand being • ers. .eakness m this process
1 ost and a poor c .
orders are not·processed · d u tomer expenence because
. . an executed effectively.
The key processes und,er CRM are as 10 IIows:

arketing
Marketing processes invo.lve decisions regarding wh1'ch c-ustomers to targ•et, how
to target customers, w. hat p·roducts·to offer, howt o pn.ce products, and . how to·
rnanage the actual campaigns targeting customers• Successf.ul softwar•e vend ors •m ht e
marketing area within CRM provide analytics that improve the• makr et·mg•d ec1• s1• ons
onpricing, prod_uct profitability, and customer p.rofitability: among othe_r functions.

Sell
·The sell process focuses.on making an actual sale to a customer. Th·esell·proce s
includes providing the sales·force the information it needs to make a sale and then
. execut the actual sale. Successful software providers have targeted sales force.·
auto ation, configu ation, a_npd erson_alization to improve the sell pr cess.

Order management
The process o·f managing customer _orders as they flow through an enterprise is
important for the--c_ust mer·to track his order and for .the terprise to plan and
execute order fulfillment. This process ties ogether d mand from the cu_stomer with
·'supply from the enterprise Order management software has traditionally be n a
of an ERJ> system. R cently, new order management systems have emerged with
!dditional functionality that enables visibility of orders across the often numerous
0rderm agement systems that exist within a company•.

II/service c nter
A call/service center is often the primary point of contact betweena co pany_and
customers.A all/service center helps customers .place orders, suggests products:'
Qlves problems, and provides informatio on order status. Successful software
'(0viders have helped improve call/service center operations by. facilitating and
 Supply Chain Manage
• lneht

reducing work done by customer service representatives, often by allowing

cuStomers to do the·work themselves.

5.3.4. INTERNAL SUPPLY CHAIN MANAGEMENT- SUPPLI_ER RE ATIONSHIP

MANAGEMENT (ISCM)
ISCM is focused on op rations int rnal to the enterprise.
ISCM includ.es all processes involved .in planning for and fulfillinga
customer order.
The various processes included in ISCM are as follows:
• Strategic planning

Th.is process focuses on the network design of the supply chain.

Demand planning

Demand planning consists of forecasting demand and an.alyzing the impact on

demandof demand management tools such as pricing and promotions.
..,
Supply planning

The supply planning process takes as an input the demand forecasts produced by
demand planning and the resources made available by strategic planning, and then
produces. an optimal plan to meet this demand Factory planning and i ventory
planning capabiliti_
e sare typically provided by supply planning software.
Fulfillment

Once a pl is in place to supply the demand, it must be executed. The fulfillment

process links.each order to a specific supply source and means of transportation. The
' ' •
s ftware applications that typically fall into the fulfillment segment are
- transportati n and warehousing applications.-
Field service

Finally, after the product has _been delivered to the customer, it eventually must be
serviced. Service processes focus on setting inventory levels for spare p rts as wel
as scheduling_service calls.

5.3.5. RELATIONSHIP MANAGEMENT (SRM)

SRM includes those processes focused on the interaction between tb
enterprise and suppliers that are upstream in the supply chain.
1·
 I Chain Innovations j s.ts/
:y;------ ------:-:--------
••• There 1s a very natural fit between
• processes,_as integrating su r SRM processes and· the ISCM
internal plans. PP Ier co straints is• crucial when creating

These processes are the des· • II b • · .- · ·

• • • . ign coa oration, sourcmg, negotiation, buy,
and supply collaboration processes.··

Significant improvemen.tin su_pply chain perfonnance can be achieved if

SRM processes are well integrated with appropriate CRM and ISCM
processes.

For instance, w en designing a product, incorporating input from

customers is a natural-way to improve the design.
This·requires iJ?puts from processes within CRM. Sourcing, negotiating,
buying, and collaborating tie primarily into ISCM; as the supplier inputs
are needed to produce and execute an optimal pl n.
·However, even these segments neeq to interface with CRM·processes such
as order management.
Again, the theme of integn ting the tJu:ee macro.processes is crucial for
improved supply chain perform ce. .
The future SRM landscape is likely to be dominated by these Enterprise
Resource Planning (ERP) company.
Supplier Internal Customer
Relationship Supply Chain Relationship
Management Management . Management
(SRM) .(ISCM) (CRM) .

Tr•ansact1·on M. anagement Fou.ndation.(TFM)

.
r-·rg. 5.1 . Macro Processes in Supply Cham

5.4. AGILE SUPPLY CHAIN_

b1T1ty of an orgam••zations supply chain to rea.ct to

Agility reflects thea and volatility and the shortenmg
consumer demand, ma rket changes •
lifespan of a product rang_e. •
 Supply Chain Manage
hletit

.Agile suppiy chain· management (.SCM) is a suppl.y chain Wide

reorgal)ization arou d_a. new set of principles t at emp asiz the need for
new structures, value cha•n con'fiigur·at1'ons' · co_·m ·: munications at\d
il)formation systems d a'·whole new min ds etw · hen:;it comes to howa
. ..
sup ly .chain should.operate. : .
This new supply chain rnana_geme t m del allows an.o. ganization's supply
chain to operate without fixed design and static structureis.
•!• However, in day to day operatioru;, an agile supply c h a_inha s the flexibility
to be centered·on the rapidly changing customer dem d.
·The abilit)' to react to sudden fluctuations•in custo?1er demand allows
companies to reach the market first be innovative, and to act.as a market
leader while their competitors struggle to realign more rigid supply_ chains.
. '

Agility·reflects the ability of·an organizations supply cha_

into react to
consumer de arid, market changes and volatility and •the shortening
lifespan of a product range. . · • •.
An ex mple of this.coul.d be a ompany t at has a·stock holding of a base
• product that is a· "work·in pro.gress'; thaf.c m be cu_stor_nized quickl.yto
' . . .
• • ineet a·specific consumer requirement, anot er example is a production
. . . .

process ·that' isn't con.strained. by ·making·mass :produced items but can

.diffe entiate p;oducts d quickly react to m et dein nd and chang·.eis n the
market.
,.- . '

Agi ity allows:companies to redu e costs·and rationalize invent ry by

anticipatin·g demand as effectively as possible·.

Need for.Agile Supply Chain.

Compani s iik Ama on:have grown expon !}ti lly.based on their a ility
to provide °i.mpa alleled. usto er ch9ice a d rapi'resp nse delivery.
. ·•. . ' . -. - .. • .

_In tum, customers have come to expect companies-to·fulfill the_ir demands,

_rather than·si_ pl making d·owith what has' _.already been brought to
market.·
- ·: . An agile supply ·cqai_n allows companies to be both . internally and
externally flexible.
 ..
'.

ly Chain Innovations
: . , [[ill
Jnt ally, businesses are able to tr .
. ansfonn their supply chain when the
need ari ses. •
Externally, they are able to rapid} d .
. • , Y e1i er on customer demand and take
full advantage of short profit co t . . . _·
. .. . ns ramt an9 giving them a significant
competitive advantage.

S.4,1. AGILE SUPPLY CH IN STRATEGIES

The m odern agile supply ch • • b ·
. . a m ts se d around (our major component
strategies, virtual integration, process• alignment, shared chain
responsibility, and market ensitivity.

process.Alignment

• Process AHgnment means building functional tec_hnical partnerships with

. all stakeholders within_the agile supply chain. Rather than a race to the
bottom for_th lowest price, which gene"rally put vendors in a combative
relationship with their suppliers, an agile supply chain looks·to add value
that isn't·simply cost-_based by aligning all stakehold_ers m a singular
direction.
It should be of managed inveritory or ve_ndor-managed inventory, in which
both vendor and supplier are responsible_for ii:t"'.entory man gement.
• There should be a collaborative product design and development, in whlch
design departments collaborate with suppliers at all levels of product
development t_o ensure t at the end product i as easy to maimfac e as
possible.
The exact nature of the· process alig ent depends on·the organization.
- . .
However; the dominant principle is that supply chains are far more
efficient, agile, and.resilient when all _stakeholders are pulling in the same
direction.
Effe.ct1• ve Integration

As with all gile processes, the free flow of informati<?n and open and clear
communication is vital.
 ---- :l.'mli:l"l9io.'lc:li,S;:mai ---

Supply Chain Manage•.1.1.e111

• Virtual integration allowinfonnation·to move quicklyamongSt relevant

• 1d • t nee·between them.
departments, regardless of the phys1ca is .
As the demand from the market or end consumers incre ses, that demand
information is collected, analyzed, and transmitted through collaborative
planning that includes all departments within the.or·g nization who have
the capacity to fulfill that demand.
Effec.tive integr tion across a supp°iy chain aiso allows for faSter exchanges
of info"rmation between all key stakeholders._
- This rapid flow of info ation cr ates end to-end visibility throughout the
supply chain, helping to identify capacity issues or potentia bottlenecks.
In effect, effective integration allows an organization's supply chain to
react rapidly to changing demands while quickly identifying and removing
problems.
Shared Chain Responsibility
Shared chain responsibility feeds into the same idea as p_rocess alignment,
but at a conceptual, rather than technical level.
- In an agile supply ch in,·the greater visibility and coordination afforded by
process alignment a,llows _all stakeholders in the supply·chain to share th
overall responsibility for the _successful operation of.that supply chain.
Operational efficiency is not judged by internal Ke):' Performance Indicato
(KPis), but l?Y metrics that measure each link in the•supply chain'
contribution to t e entirety of the process.
Where process·alignment reates the technical -infrastructure required fo
all parts 9f the supply chain to pull in the same direct, shared chai
responsipility creates a culture of shared effort and group achievement an
accouptability.

Market Sensitivity
As we've already me tioned, one of the primary benefits of agile scM
the ability to quickly react to changes in market conditions and custome
demand.
1·
 Chain Innovations
1
---_------- 1·s.191
•♦• In traditional supply cha· _::::::{
• ms, the ma· •
. previous sales data, making th . onty of forecasting is based·on
. em inherently ba le\ .
In order to take full ad • • c 1/ard-looking.
vantage of theb -
organizations also need to fi . enefits of an agile supply chain,
ocus on data c011 •
allows them the insight top d" ection an analysis, which
• . • _re1 ct future demand and market trends,
Data gathered· from real-time·po•mt of sale . • t • •
adopt demand-driven de ·• . : sys emsallows.companies t o•
c1s1on-makmg.
A combination of market se .f • . -
companies to undert d h ns1 ivity and an agile supply chain allows
s an • • •
d t th· l h . · ow • cus,tomer dema•nd i s chan ging and quickly
a ap e1r supp y c am to take a_dvantage of that. •
Benefits-of an Agil-eSupply Chain
• The benefits of Agile supply cl)ain are:·
. Rationalize inventory
Reduce costs
. .
Build a predictable supply chain
• Agile supply chains can adapt to meet unpredictable custome demand in a
rapidly chang{ng and volatjle trading environment.
Agile supply chains have the capacity to produce ·a broad product range
with a fast turnaround time.
Rationalizing inventory levels arid reducing costs supports the incre.ase in
profit margins.
Increased flexibility ancddeinand_-driven planning allow companies with an
agile supply chain to react to changing customer demand. This gives
businesses the ability to take advantage of short profit windows and bring
products to market faster than their competitors.
Th_iss a m e increased flexibility allows agile supply chains to be more
responsive and resilient to sudden changes. Where the loss ofa major
manufacturingpartner_or a significant logistical bottleneck would cause
significant delays ina static supply chain, anagile·supply chain is able to
quick_lya dapt to and overcome these issues.
.......

The virtual integration needed to. operate an ag.il supply chain give
greater visibility ·over the entire supply chain, allowmg organi1.ations
anti•ci.pate and remove pa.m por•ntsb euore they•can bec•ome an issue•
The greater visibility and shared chain responsibility allow all shareholderi
in the supply chain to make. continuous efficiency improvements ilJld
where req ired, outsource parts of the supply chain tocost effective 3Pt
suppliers, resuJting in reduced costs

5.5. LEAGILE SUPPLY CHAIN •.

• Leagile is the combination of the lean and.agile standards within a total

supply chain strategy by positioning the decoupling point so as to best suit
the need• for responding to a unpredictable demand downstream yet
. .
pr?viding level scheduling upstream from the marketplace.
The debate continues over the decision to develop a lean supply chai an
agile supply chain, or a hybrid model: leagile.
• Lean supply chain thinking was developed by Toyota to devel p their
production capabilities through constant innovation in • .resource
reduction and utilization. The ul_timate g al of lean thinking is to eliminate
waste.
To this end it is necessary to identify and eradicate the 3 M's: Muda, Mura
· and Muri. Muda is work that absorbs resources but adds no value. Mura
the waste of unevenness or inconsisten y leading to erratic flow. Muri
is to caus·eoverburden, stretching resources b yon·dth_eir limits.
. Taiichi Ohno identified 7 wastes that absorb resources but adds no value.
• Transport: The ecessary movement or materials and products
• Inventory: Excess stock held without reason
• Motion: The unnecessary movement of resources to. conduct an
activity
• Waiting: Interrupting the constant flow of material or infonnation
• Overproduction: Making more than·is requfred
 I)' c,,,,..ain Innovations

Over-proces_sing: Conducting .
operations beyond the needs of the
customer
• Defects: Poor quality leadingt 0 •
reJ ects and rework
STRATEGY OF LEAGILE SUPPLY CHAIN
5_5,1.
froma procurement perspe9tive the application of lean, agile or leagile
createsa number of strategic and tactical decisions to ensure that the
approach is viable. These range from the overall strategic·objective of the
procurement and supply function, through types of reiationship actions, to
the supporting philosophy behind th approach.
In an environment of low variety and low volume the proct1rement and
supply functio mus - sure that the flow of. product and information is
provided by a robust supply chain. That is to say that d1e supply chain
must be sturdy and strong: Able to support. the vigorous movement of
goods to the customer put' still being able _toad apt to small changes in
variety and volume. This would require either Early Buy r Involvement
(EBI) or Early Supplier Involvement (ESI) depending on the changes The
philosophy would be based around holding stock Just In-Case (JIC) b sed
on lower volumes and lower costs,
In an environn1ent that consists of high variety and low volume the
emphasis for the procurement and sup.ply function is to ensure it can
satisfy demand in an agile maqner. Mqnitoring and measuring·changes in
demand .and proactively responding to requirements. This would require
Early Supplier Involvement (ESI) providing.the supplier th visibility of
demand to allow fon,rard·planning. The philosophy behind this approach
is that inventory would held Just in Infonnation (JII) rather than physically-
until it is required enabling suppfo rs to respo d to actual demand.
In an environinent • where there· is high volume it will be necessary to·
educe waste aJld reduce osts to develop a lean supply chain. Re iewing
the activities within the supply chain and working .,vith the customer to
· establish actual need. To -achieve the procur ment function would
. implement Early Buyer Invofvement (EBI) to ensure their expertise is used
j ::s:=.2=2=]._---_.,;. _: Supply Chain Manag

· . nization on the best way to

on a consultancy basis to advise the orga • . redue
t In Time (Jil).
waste. The philosophy would be to provide inventoryJuS
With high variety and high volume there will bea need fora collaborativ
approach to managing the supply chain and developin_g an optirna
solution. Buyer and.supplier involvement will be combined with other e
stakeholders.in the supply chain ·to create a leagile supply chain b
adopting Early Supply Chain Involvement (ESCI) bringing together th
expertise of buyers, supplier·s and other stakeholders to achieve. a lean an
agile envir nme.nt. The philosophy behind this would be to have inventor
Just in Progress (JIP) using postponemen opportunities to cut down o
waste and still be able to respond t,o changes in demand.
High Agile Leaglle '
. Optimal
Flexible
ESI ESCI
JII JIP

Variety
Robust Lean
Adaptable Minimal
EBI / ESI EBI
JIC JIT
Low

Low High
Volume

Fig. 5. . Comparison between Agil , Lean and Leagile supply chain.

5.6. GRE N SUPPLY CHAIN

A green supply chain or sustain bl·-netw rk could _be defined as t

operational managemen method and optimization approach to reduce t
environmental impact along the life cycle of _the green product, from t
raw material to the end product.
Leading examples of green supply chain practices: such as active
working to switch to biofuels, incorporate recycled aterials into t
manufacturing process, and.reduce energy use, are also sustainable.
 Chain Innovations
s,,pplY . -
een supply cha management (GS
benefits for the environment. CM) practices offer substantial
The Striving supply chain sustainab· . . •
arbon·dioxide (CO2) . . ihty by usmg less energy reduces .
c emissions and othe . •
f1vities ranoing fr
0
•d r air pollutants. Produced by
ac . omm UStrlal work to operating vehicles CO2 is one
of the roam greenhouse gases responsible for global \"arm· , .
. th mg.
••• Accordmg to e US Envir al · y

• . . . • onm(!nt Protection Agency (EPA), CO2

em1ss1ons have mcreased by nearly 90 •
. p rcent smce I970.
••• By making the switch to more Suts am • able pract·ices, bu·smesses can- do a
lot to slow or stop global warming and ensure ab n·gh t future 1.&'o. r our
planet. •
In addition, green supply chain practices reduce waste and conserve non
renewable resources. For instance, when businesses choose recycled paper
products instead of pl_astic, they keep trash_out of landfills and fragile.
• ecosystems while also reducing their reliance on petroleum-based
products.
When they load trucks more efficiently and institute stricter·policies for
driving speed and idling, they-use less fuel.
And when they abide by the principles of sustainable agriculture and
sustainable forestryh
, ey.conserve resources for future generations.
In short, implementing GSCM practices is not just important for the health
of our environment. It's critical for sustaining industries and communities
into the future.

S.6.1. IMPLEMENTATION OF A GREEN SUPPLY CHAIN

A fundamental principle of green supply chains is reducing waste and
overall ene gy use. Needless to say, tbfs can·lead to big cos savings.
The _ technique in using GSCM prac!ices to improve environmental
perfonnance and reduce costs include:
Rethinkingyour m terials:
u s·mg recycled maten·a1s during the manufacturin. g proce.ss .can save
money. For .mstance, 1·t's now possible to convert waste p,lastic mto 3D
 Supply Chain Ma ag
e,nen,

printing filament which manufacturers can use to create new product

' . -. sat
lower costs than new plastic. Wpile testing n _matenals to ensure they
• meet safety and performance standards take time, the payoff could be
worthwhile.· • ,•

ijeusing waste or by products:

• Think creatively about :what the company is throwi g away whether that's
at the manuf cturing stage or during distrib_ution. It's possible to reuse
aste that could·have_been discarded or even unloc new n:;venue s_treams
from re yclable materials.
For instance, sorrie.food manufacturers supply local farmers with organic
waste t use as fertilizer. And with dosed-loop_recy ling, manufacturers
can tum re ycled products made of materials like glass or metal into the
same products without sacrificing quality. So it may be possible to.salvage
excess materials or roken products from the manufacturing process and
use them to make new goods.

Cutting back on packaging: -

_ Switching to streamlined packaging us s ewer material_s and an lead to
low_er·costs. In addition, a more efficient package design_ ou d make it
. possible t ship more un!t i the sam c rgo space, lowering tran port
costs and reducing gre.enhouse gas. emissions.

Reduci_ng risk to your business:

•!• Unsustainable practices inevitably have·an end ·date. When businesses
I

dqn't_plan for the future,, hey can.find the selves without a·cost-effective
supplier if nvi onmental or socioeconomic issues cause disruptions to the
I . ,

supply chain. Proactively planning to ado.pt supply chain practices that-are

both smarter and greener can help you prepare for a future.·in which your
- .

f onner practices are no longer feasible. A great e?(ample of this is hoW

sust inable forestry helps preserve wo dlands for ongoing use,_as op·posed
to clear-cutting trees.
 chain Innovations f 5.25/
Silf'P}!_-- ----- ..
.. ,,g- •transport:
OP
tifT11%1 . . · .
• stream 1ming your transportation1 • .
••• - _ • ogist1cs offers many ways to ·save money
and sbnnk your carbon footpri t F • . • • ·
_ n • or instance, the company could use
}oad-plannmg software to not 0 nI . . . .
. . Y make logistics planning easier but
utthz• e carg_o space more efficiently and re d uce • •
the number of tn ps the
company must make to transport their products.

5.6.2. FACTORS AFFECTING GREEN SUPPLY CHAIN PRACTICES

Green supply chain practices are critical t the health of our planet and t e
. continued sustainability of industry: •
In.addition, they lead to competitiveness and economic performance in
several ways:
• By increasing cost efficiency,
• Reducing waste, and
• Meeting consun:ier d mand for re n produ_ct .
. The factors that the companies adopt to deveiop and promote GSCM
practices are as follows:

leade ship commitment:

When managers and xecutives .are all fully on l?oard, it's much easier to
_develop a unified approach to creating a green supply chain strategy.
- . -
On the other hand, when decision makers disagree about what practices to
adopt, challenges c arise tfu-oughout the supJ:>lY chain.
Potential challenges include issues with supply c_hain pe ormance, quality
. control , and . overall effectiveness- of green initiatives.
T - - .
echnofogy:

A variety ·r
0 sofuyare applications and-advanced technology support green
suppl chain -man gement at various steps of the process.
These· could range . from warehouse managemei:it systems-(WMS) that
boost warehouse efficiency to new manuf'!cturing .technologies .that use
less energy to make products r reduce. the quantities of hazard us
materials involved in the manufacturin_g process.
I5=
.26:] ::: S!Jpply Chain Manage'1Jeh
-=
When· employees learn and readily adopt technology that enables o.-·
• C)leen

supp_ly chains, organizations tend to see good results.

Brand image and company culture:

When g ing green has positive suggestions for your brand and Your
culture supports these changes, introducing new green P a.ctices
throughout your supply chain tends to go smoothly.
In addition, involving your human resources teamm recruiting green
supply chain experts drives positive results•.

Cost:
. .

Depending on your business and industry, developing a green supply.chain

may initially seem cost unaffordable.
The expense of invest in servicing your infrastructure and eq ipment may
be overwhelming, these investments can lead to long-term savings.
For ex ple, the additfon of ·photovoltaic solar p els to your green
warehouse roof can help you generate alternative energy that reduces your
dependence on fossil fuels and lowers the overall costs of powering your
facility.
Though the initial investment is abrupt, you'll recover·your outlay.

Knowledge:
Participants' expertise stands to have a big impact on ·supply chain
performance at every stage. Involving green architects, consultants, and
other green supply chain experts can elp con:ipani s. make the best use of
green resources, mplement su tainable solutions, and optimize results.
For instance, involving Agility in planning a green logistics solution .can
tak; the estimation out of sustainable distribution.
On the other hand, not involving the experts-can reduce the overall
effectiv.eness of your strategy.
 =
1
,Chain Innovations
= ---
5,6,3· !RENDS IN GREEN SUPPLy CHAIN PRACTICES
Green supply chain practices
_Jl S- 27 ./.

. . are working themselves into the greater

reahzation. •
Each year, measurable humand • -
emand and • • •
capacity of the pl t' _ activity exceed the regenerative
ane s natural ecosystem.
•• Now that most individuals and · . •
. orgaruzations recognize the detriment of
overshootmg nature's capacity t
o support its occupants, finding
sustainable sol_utions has gained momentu. n
. ,This drive has led to a ariety of.green •mnovations m recent years,
particularly when it comes to supply hains.
The latest green supply chain practices

The followi_ng supply chain trends and practices are helping organizations
achieve greener operations and promote a more sustainabl future.
Minimizing air freight:

Shippi:11g by air is extraordinarily efficient in terms of transporti.pg goods

quickly. Unfortunately, it's far from en rgy efficient.
l\1ore organizations are seeing the value of using air freight to meet only•
immediate demand, whil.e relying on oce freight and rail transport to
meet planned ongoing needs.
Developing the right freight and transportation mix helps ensure the
organizations are equipped to meet customer dem d while minimizing
their environmental impac(
Investing in transportation infrastru ure:
Im prov_emen t s. to. ports railways and roads,' especially fo em erging
, . ' .
m. ark'e ts are ·enabl"mgmore·e.ffici-ent transportation. That, iri tum, has -l•ed.to
fewer carbon emissions.
Th 'nfr d to develop at a faster pace throughout the world to·
e i astructure nee s .
keep up with demand for green trucks.
 Supply Chain ..l1
H'lana

3D printing: --
Every day 3D printing gains new applications across a range •
f .
' • . . o .ind :
- from aerospace to,medicc;il device.manufacturing: llsttie
3D printing is more energy efficient and cost- efficient h
. . ( an Ot}i
equipment and proces;es used in the manufacturing industry. · er
. .
3D printers are precise and lead t(? almost no material waste. •
3D printers enable manufacturer·s_to create products on de and
. . , reduc
the chance of overproduction.· g
By minimizing energy use and waste, 3D printers help lower
. . . . . . carbon
emissi.ons. It's even pos ibl. to tum recycled mater als into new.produc
using a 3D printer. •

Circular supply chains:

Circular s pply cha ns focu_s on recovering and recycling waste materials
to tum them into saleable·products.
. .
) .
Needless to say, adopting .the circular economy model r duces waste and
helps keep valuable materials out o landfills. And it can also be quite
profitable for compc;inies.

Carbon emissions trading: ·

•: . Carbon trading is th process of exchanging carbon cred_its among nations
. .
to minimize CO2 emissions.•
The idea·behind this system·is that using fossil fuels comes withmany
hidden co.sts- from e'nvironmental degradation to health care needs
resulting from pqor air quality. Putting a price··tag n the right toe t
carbon gives nations and corporations financial incentive to reduce!helf
em1ss10ns.
5.6.4. T CHNOLOGY"DEVELOPMENTS THAT ARE IMPACTING GREEN
suPPlY
CHAIN PRACTICES
• . . . easier to
.:The advent 9f supply chain technology innovations m_akes it ,
. • . f roduc1 5
achieve green results by optimizing efficiency at every leg O ij P
Journey:
St1PPIY ChainJn·novations js .l I
9
:;;- - -- .
ternet of Things (loT):
fhe Ir, .
••• IoT enables organizations to · .
•, . . morutor equipment, inventory, and·energy use
m real time. For examples •
. ,. , . ensors can track the temperature and lighting
ms1de a warehouse makin 1·t 'b
• ' g possi le to control these aspects from a far.
Organizations gain greater aw •
. . areness of energy waste, overstocking, and
other trussteps. That leads t 0 1
., a c earer p·icture of what needs to change
throughout the supply chain.

Digitization-of the supply chain:

Improved digital tools, such as smarter Warehouse Management Software _

(WMS), make it possible to increase supply chain-efficiency and automate
processes from stock reordering to optimizing warehouse picking paths.·
This helps supply chain 'leaders increase accuracy, avoid rush orders that
require expedited shipping solutions like air freight, and prevent over
ordering. In turn, these improvements help reduce waste and energy use.

Artificial Intelligence (Al):

AI helps automate.processes, boost efficiency, and prevent human error.
Tl ese capabilities are useful throughout the supply chain-from
strean1lining manufacturing processes to using data to forecast product
demand to analyzing delivery routes and planning the quickest journey.
By helping people work faster and more accurately, •AI leads to less
wasted effort and resources.
For exan1ple, say route optimization tools enabled by AI 'help cu_ t off a.n
• . t ff each truck haul. Over the course of a year,
average of a few mmu es O • • . -
· • •ficant reduction in fuel expenditure and
that could add up to a sigm •
CO2 enussioris.

Robotics:
. D streamlining operations throughout the
Robots hold great potentia 1 or • - .• · •
. 1 . hen it comes to logistics.
supply chain particular Yw · · make small deliveries much more
, - uld one daY .
•• • For e xample, drones co · •
efficient than large veh_icles.
 Supply Chain Mana.
· ge,ne 111
r aa··· f ·• ••
Ia ffi d • •
n a 1t1on, se - nvmg ,tru cks could auto. mate tra 1c ec1s1ons, optin"-:..'l:!Z.ing
everything from delivery·route to fuel efficiency. •

Materials Engineering:
:• In recent years, advances in materials engineering have led to greener ¾d
more efficient manufacturing and product packa_ging.
For example, new processes·make it easier to turn recycled materials into
durable products or develop new materials that are lightweight bµt trong.
In addition, life cycle planning tools help organizations optimize products
.for a future beyond their initial use.

5.7. REVERSE SUPPLY CHAIN

Reverse supply chains require collecting used products from consumers

and reprocessing them to either re over their left over market values or
dispose of them.
Reverse Supply chain deals with reverse logistics.

Here 9ie· product which has reached the customer will go back to the
manufacturer, maybe due to default etc.

But in the era of green logistics, most of the firms are trying to utilize thi
reverse logistics to save the environment.

Right from Dell to the aircraft industries are planning to make the supply
·chain transparent and sustainable.

The reverse supply chain is a process that is almost opposite of

traditional supply·chain, meaning the-product moves from a customer bac
to a vendor/supplier/retailer.

Reverse supply chain management includes pickups, disposing o

. cleaning, sorting, repackaging, restoring, and finally reshipping.

By focus ng on reverse log stics processes, a business is_more robust to th

complete customer lifecycle.
 .
Chain Innovations _ /
1 15 31
s,ipP ---: -=- -------------------- -
,,,.-····fits of Reverse Supply Chain System
9erte . . .
. If the business needs to introduc •
. ., . e or 1mproye an existing reverse supply
challl, 1t s worth looking into softw h .
are t at will make the whole process
smoother and smarter.
• -The right addition,
•.♦
like ad vanced route optimization and scheduling
_

• nflex1• b-le· r·everse supply cha·m

Software' can tum otherwise sat t 1· c and 1

processes intoon_e that is r bust and can be adapted·to all' of you·r unique
business needs. Less resource waste

The companies implementing reverse supply chain can be used in the s e

operations as their regular s_upply chain, meaning to do multiple tasks with
the same resources.
Having both pickups and deliveries on th ·same route will reduce mileage,
·and mean that you are fitting in more work into the regular work day. And,
incorporating returns _of reusable packaging is great for the business in a
number of ways.
The company spends less money on packaging, less time and manpower is
spent on ordering packaging, _and • the e vironmentally friendly
approa.ch will help to build customer l yalty. _

Better Customer Service

The company should, adopt for good return policy, then there's a good
chance that their customer will request a refund or exchan e. The faster
that the organizatioi:s can mal_rn this h·appen, the.more likely a customer
will ha e a positive experience..
ew 0p • .
Portunities of revenue
B Yh av1• ng the capab"l"ty an efficient supply chain at the same time as a
1 1 run
. wap between the two based on the season the
reverse supply cham - or s . . .• .
. . • ·g their business to be mcred1bly flexible, and
orgamzations are empowenn . . ,
Ultimately profitable all ye3!' long.
 I 5.32I Supply Chain A1.
anage,n
e
5.8. SUPPLY CHAIN TECHNOLOGY TRENDS

Org.;,,izations operating in supply chains can gather·,

• . . . enefits
advanced technologies by focusing on the se.rv1ce delivery model o
s. -
The first organizations to nvest in these gr atly impactfuI techno.
will .have a clear, competi•ti•ve edge .1•n ht e comi•ng years. lo&le

We are currently witnessing a technological revolution withe .

• . . . . rnergJng
intelligent Supply Chain technologies such as Blockchain Art.'fi
• • ' I IC1
Intelligence. \AI); Machine Leaming_ (ML)_, Internet of Things (loT), and
more, sigJ?.ificantly improving ope_rational efficiency by optimizing glob
supply chains.

The competitiveness of companies in the logistics market is aided by

efficient supply networks.
Supply chain management, according to one·research, provides businesses
an' advantage over rivals and allows theni to grow their company. Aas
result of advances in data analytics and automation, the supply chain has
never been more efficient.
Comp nies, employees, and cons1:1ffiers all benefit from ne technolo es
that encourage innovation in supply chains across various sectors:
' • .
Technologies with a high potential for transfomiation are now trending,
and they seek t o• ncrease operatio s'. resi)ience and· resistance since th
organizations are driv n to a digitally linked world.
Even while the future is always unpredictable, it is probably more so today
than ever before.

The best Supply chain technology trends and Innovations are:

5.8.1. INTERNET OF THINGS (IOT) . P
• • . .h 01on1to
Physicaldevices-are Itnked to the Internet of Things (IoT), whic . tics
.• • • . JogtS
and transfers data without human involvement. The use of IoT 10 rosS
• • • • •· . · •bilitY nc
increas es i nventory management efficiency b y increasing VJSl
• the supply chain.
 b
· 1e
. ,·Chain Innovations
Internet of Things (l T) J1
as transfonncd supply chain management
I
=
5.33l

( CM). .
••l There are significant improvem . ents in thc a b1'J1' ty to compreh end wh ere
Products. are located, how they arc kep· t , and wh en they may ·be an 11• c1• pat ed
at a particular place.

Sensors can anticipate equipment wear and tear, enabling replacement

parts to b ordered in_advance. The Internet of Things (IoT) improves
supply c 1ain visibility.
It seems as if the Internet of Things (IoT) is reaching maturity. Accord g
to data, the number of companies using Internet of Things devices has
increased from ll percent in 2 0 _
1 3t o 28 percent in 2020.
The IntemationalData Corporation (IDC) predicts yearly growth of 13.6
percen_t until 202 . Organizations can monitor inventory, automate stock
reordering, and keep track of deliveries all in real time.
It's easy to see why IoT is so attractive, given· how it can be used across
the whole supply chain. •
Its outcomes enable businesses to improve productivity, reduce downtime,
anticipate consumer ne ds, and boost total return on investment (ROI).

5.8.2. ART!FICIAL INTELLIGENCE

Since the preceding decade, automation has been a trend iry almost every
industry. The fact that they've been so successful over the last year shows
that this is a trend that will continue.
articularly·noteworthy is the rise of artificial intelligence (Al) as a major
force behind supply-chain automation. _
•!• Artificial intelligence algorithms coupled wit machine learning enable
businesses to be proactive in responding to dem d changes.
• For instance, anagers. may use AI-based forecasting tools to plan s·upply
chain operations and identify cost-cutting opp rtunities.
Real-time reporting_, i.nteractive data visualization,.nnd enhanced
inteiligenceare·all provided by these technologi s, which are all found in
business applications. •
 Supply Chain M.
anage
. • . .
As more companies have access to Big Data, AI andr machine leartun&a:
.
becoming more·popular as a means of stream 1rung operatio
t
• ns
automating procedures.
According to Gartner, the number of companies using artifi .
. . ctal
intelligence has increased by 270 percent m the four years leading up to
2019.
Algorithms based on predictive analytics and machine learning are being
u;ed to enhance planning and decision support systems, detect buying
trends and automate time-consuming war·ehousing operations. •
' . '

Organizations are :Widely adopting AI and ML in all their verticals today,

including the supply chain.
These two revqlutionary technologies offer direct, tangible oenefits, such
as reduced manual labor in companies.
Thus, tasks such as gathering data, making reports, and data processing
have become software-based ac;tivities.
Data analytics provides actionable insfghts to save time, effort and cost
The combination of AI and ML are resulting m more infonned and
accurate decision-making.

5.8.3. ROBOTICS
By incorporating r9bots into logistics, supply chain operations will b
faster and more accurate·,and-human error will be reduced.
Robots . go one better than human employees in terms of uptime and
productivity-. Unlike humans, robots do not replace them; instead, they
work .in tandem with people to improve productivity.
utomation of robotic processes helps supply chain managers find an
improve inefficiencies across the_network.
Using artificial intelligence, Robotic Process_Auto ation (RPA) makes
possible for managers to operate a seaml_ess operation round,the-clock.
SCM a tomatron encompasses-not just activities but also manual tasks.
 , Chain Innovations
•

North Am_erica alone, robotic automati·on

received $850 million in
investments m the first two quart f
ers o 2018.
Drones are increasingly being utiliz d
. e for the delivery of lightweight items
in tran5POrtafution. Altbough self-driving cars aren't here now they may be
in the near e. '
- Some of the \Vorld's largest suppl" h • .
Y c am comparues are also putting
money into self-driving cars t0
save on labour expenses eliminate the
possibility of human harm on•the roa,;1 and r• mprove fue1 eco' no-my.
Every on of tbese factors contributes to a higher Return on Investment
(ROI).

s.s.4. SUPPLY CHAIN ANALYTICS

In 2022, oreaoizations will_incorporate supply chain analytics in two
forms, heuristics and exact.·Heuristics analytics is based on mathematical
algorithms to find the answer to complex supply chain issues. Accurate
analytics solutions are based on data-related processes for faster and easier
decision-making.
For the supply chain executive of_a company, the chief benefit from such
analytics lies in the comprehension of their supply chain network.
This makes their decision-making accurate for possible issues. With the
,,. help of supply chain analytics, companies can analyze the data in real-time
and send out alerts to suppliers and drivers for the potential problems early
on.
Analytics will become a powerful tool of damage control and risk
prevention for supply-chain decision-makers.
For example, a supply ch in strategy can determine the importance of how•
the product gets transported from your warehouse to the.customer. Down
the line, it could also let them know the possible effect (?f the problems on
the customers.
TyP1· ca II y, suppI y ch ·n analytics strategy relates to delivery frequency,
ru
r er si.ze, fleet si.ze, and how fast )'OU serve distant customers.
0 d
.
 Supply Chain Mana
ge,nfh
• d
· Edge computing and analytics is about. processmg an analyzing data cl
• ·d
toitscollection point, d com c i es with the IoT (Interneto f ln.i..)c
devices.
This.technology is required durin _the demand for 4elay processing, aJ\j
automated and real-time decision-making. C ently, edge comp ting is
ge ng integrated into the manufac g pr?cesses

5.8.5. CONTINUOUS INTELLIGENCE

Continuous intelligence·is one of tlie biggest opportunities for supply chain
leaders to a celerate their organizations' digital transformat on.
It leverages a compute( s ability to process data at a much faster pace than
people can. Supply chain leaders or other systems can look at the
processed data, understand what is happening and take action
immediately.
Industry 4.0-is the approach representing the fourth industrial revolution,
_ where data ana communication techno_logies build the foundation for the
innovative industrial technologies of tomorrow.
This technology will improve efficiency, flexibility, and the automation of
distribution networks.
Industry 4.0, when implemented_ widely, will eliminate needless
production costs, improve the logistics of products/services, reduce cycle
- •

times, increase throughput; and improve quality.

5.8.6. BLOCKCHAIN ·
We continue to see companies pttching tlieir blockchain solutions in the
supply chain area.·
- Blockchain is said to be a strong solution for traceability or to provid
-payment to linked supply chain partners aft r their part of a chain f linked
activities has been completed.
- Blockchain _technology has arisen as a game-changer in the supply chai
industry. Th(?re are lists of benefits ·of blockchain that lend it perfectlyt
optimize supply_chain. •
 lyChain Innovations
'!,p;,:---" . /5.37/
Aside ·from Increased trust • - h
• In t e data itself • .
another- great benefit of blo k h . . m a decentralized network
c c am i • '
truth". This allows great vi .bT s accessmg data as "a version of the
. . - - si I Ity, traceabir1ty d . .
that data Within an organiz f - an automat10n based on
.. . . a ion, but even
outside orgaruzations across _ .more powerfully, connecting
· · many networks.

3
.7_. 0NVERSATIONAL
Conversational artificiai intelligence (AI) . h .
inte_ract with technology. • • isc angmg the way people
• . It ·takes natura1 language processm • g and allows
enterpnses to create advanced d I. a1ogu• e syste s that utilize mem. ory,
personal. preferences ·an_ d contextua_l und erstandm . g • to deli_ver .a realistic
. and engagmg_conversati_on with data sets.

.The l,ogi.st.ics world uses m. assive amounts of cus·tomer data• ht at ch anges

aily, reqmnng a great amount_of inter:team coordination a d organized
workflows.
The end-to-end process • of_inputting, tracking• and completing orders
is time consuming; laborious and vulnerable to human error.
As distributors• continue to incorporate smart systems . that
leverage artificial intelligence and machine learning, they are depending·
more o automated assistants to get thejob done.
As conversational AI an-d other emerging techno_logies are integrated into
supply chain and distribution operations,·all aspects of the supply chain
will evolve to users interacting·with technol_ogy like they- would with
human.
The result is an added ability to find answers from multiple complex data
sets in real-time, allowing valuable res_ources to be spent inh_i?herrevenue·
gen_erating functions of the enterprise. .
-Th fi
' · al Al is transforming supply chain operation:
e 1ve ways conversa 110n - . . •
• AUT0MATES REC-URR•ING TASKS _
Conver ." lex user interface to enable users to engage
• .· · sational AI removes the comp
ltli techn . . t tual conversation. As a result, the user gets
01ogy In a human-!1ke con ex •
 Supply Chain Manqge
I

. • . a ered into this streamlined interaction .

personalized responses to their quenes.L y. . ·ghts within seconds A
aluable ms1 • Ulorh .
data is the added ability to uncoverv h out of recu • --
· . fi It 5 teps and researc. rnng ren.-...
reports and checklist take the dtf 1cu . . ·run
on a daily basis.
generatio saving minutes and hours for user5

Advances Workflows between Users

• •
Conversational AI makes commuru cati on between teams and custom..-, . a
. ks stion and receives insights based
seamless experience. The user sIIDply as a que . . . on
context and keywords. This automated interaction shaves sigruficant time off .of
order process from start to firu.sh. By m a }, U.: j-jg· data easily accessible to various rol .es
within the supply chain hierarchy, data can easily be manipulated and analyzed at
any given time.

Acts as a Data Regulator

AI does the back-end work for supply chain that rustorically requires severai
teams· and a sharp eye on inve"ntory tracking. The predictive element of
conversational Al deiivers alerts on errors or anomalies found in inventory. In ca.
of delay in delivery and incidents, teams receiv alerts and act instantly, saving
valuable time and resources before an error grow and begin to impact other areas of
the supply chain.

Increases Vi ibility into Inventory

In logistics, visibility into all stages of an order is of utmost importance. Al is

creating more visibility than ever into inventory on hand, turnover and
velocity. Predictive monitoring on cycle time and age of inventory is also saving
several steps and takes the guessing out of ordering. With the added co versational
abilities actions are completed through natural language or voice commands making
real-time updates on products readily available.

Increase Customer Satisfaction

With increased visibility comes the ability to prevent small errors or

quality issues from turning into large problems that impac-t customer
satisfactiqn. Prod ct managers can leverage AI for.end-to-end inventor)
management and demand schedules can be proactively predicted to 111ake
• ·n Innovations 05.·39Q

5·Jty1 -
a'P'------------------------------------------------------
chP ==
1/ _ , , re that resources are alloca t d e ff 1i c•1ently. Teams can mana·ge sales
su r e
ders from start to.finish whil . • ..
or . . e seemg accurate and correct quantities to
meet quahty and compliance expectations.
tMMERSIVE TECHNOLOGIES
5 s.9. .
• .••• 1mm ersive te chnologies create di'sti'nct experi•ences by merging the
. .
physical world with a digital_or simulated reality.
• Augm nted reality (AR) and virtual reality (VR) are two prin ipal types of
immersive·technologies.

These technologies share many of the same qualities.

_It is widely known that there:are a number of technologies that will ch,ange
the way we work in the supply chain.
.
According to a report prepared in 2020 by Gartner,-immersive experiences
are a technological trend that withholds potential to radically change the
sector, with new models and processes ble to amplify.human capabilities.
\
1

An imrnersive experience can be defined as a situation in which a person

has the perce.ption of being in a virtual location, that is, in an environment
different from what one is actually experiencing. For it to be realistic, it
· must involve the senses of sight, touch and hearing.
The main types of immersive experiences as follows:
Virtua·lReality (VR): .
The virtual environme t completely replaces the physical, with no•interaction with
I'

the"real wo ld. Example: a co puter game that uses special glasses and headphones.
These equip ent make the plarer,Jrepresented by a character, it?merse in the virtual I

• I
World o( this experience. What makes all this realistic is the control the participant I

hasover his avatar. • • •

. Another example is the simulator use·d in driving classes for motor vehicles and
_Pilotingaircraft and helicopters. When using this-machine, the student has the feeling
of driving a vehicle or on board an airplane, allowing him to te_.s the commands
learned.

((( ((.Ct,\<(\(« < <<<« C

[SA O I Supply ChainManage
==
Augmented Reality (AR):
- - - -- -
Its te.chnology corresponds t_o It1e. supen·mposition .o.f virtual. .content _w•ihta_·live
broadcast image of the real world. It is useful for provtdmg additional tnforrnat."
ton
while completing tasks 1n the real world.
An example·is fo receive guidance or even test a. specific product during
. . . . Your
purchase, sue? as trying on clothes in a virtual mirror•.Th_1s techn logy can also be
used in the projection of instructions·to repair•the car m front of the hood, for
example, making it easier to follow them.

Mixed-Reality (RM):

As the name implies, it is the combi.nation of \TR and AR.·n can·be_considered, in

a way, an ad·,anced form of AR, since the technolog-yallows users to fully int ract
with virtual _items superimposed on the real world. In the example of repairing a car
. • l

mentioned above, instead of changing and contro ling the images and information
projected on the computer, it would be possible to interact _with the projection itself:

TWO MARK QUESTION AND ANSWERS

1. Explain t/ze role of IT in logistics and supply c/zain management.

•:• Better communication
♦:♦ Competitive advantage
•!• Ease of operations /•

♦:♦ Quick decision making

Accurate data
2. Writ in detail on type of logistical information system
_.
Types of Logistical Information System
External ..
Internal
3. Explain tile global issues_and cl,al/e11ges of supply chain management.
. Jncr asing fluctuation in customer demand
 I chain Jnn(!vations I 5.41]
5,JfJP1!-------.-------: ---------- -_:_ .=::::
1/ .. -c.,reased complexity in supply h • ..
o1 . . • . c_am-political and legal difference
cultural differences
currency unit differences
Language difference '
Big c st of transportatio
• , ,r1tat is Electronic Dal": Int r,change.(EDI)?
4
E. lectronic Data Interchange (EDI) 1• s- c1-a.stest, easi•est and most producti•ve way
toconduct businesswith the tra sportC:1tion, warehousing and logistics industry._
EDI is the exchange of information within or outside using electronic measure.
S, Bring out the c_hal/e11ges of supply clui_in.
Globalization.
Market Growth-.
Customer Preference.
Access to latest technology.
Supplier base consolidation_.
Safety and quality products.
6. What is Enterprise Resource Pla11i1ing (ERP)?
• Enterprise resource plannf ng (ERP) is a process used by companies· to
• • '
manage and integrate the· irp.portant p a r t-sof· their- businesses. Many ERP
software applications are. important to co_mpanies because they help them
implement resource planning by integrating all of the l? otesses needed to run
theircon1panies with a single system. An RP software system can also integrate
planning, purchasing inventory, sales, marketing, fi ance, human resources, and
. .
more.
1
• What Is Material Requirements Pla1i11ing (MRP)?
Material requirements planning .(MRP) is a computer-based inventory
management system• • designed to• improv productivity •.for businesses.
Companies use material requirements-planning systems to estimate qu.antitie of
raw materials and scheduie their deliveries.

I C::::: ..._«XXt.LS..L::I
 I5.42 j . Supply Ch9in Manage
-=::=:'... --------
8. JJ'ltat is tlte difference between ERP a11d MRP?
The biggest difference between MRP and ERP Iies in the •fact that MRp.
18
more of solo software while ERP is integrated. This means that ERP
. ' . can
easily connect to other software systems and.modules.
On the other hand, MRP systems are •standalon and function by
themselves with only manufacturing related tools'·
9. What is the role of ERP in supply chain?
An ERP system meant for supply chain managemen can automaticall
. . y
create demand when orders are received.
ERP streamlines supply chain management by· creating effective job
sched ling·.
ERP ensures that production policies are·consistent with demand,
replenishment'is done at the right time, and inventory is lean.
10. What is decision tree analysis? •·
Decision tree analysis involves making a tree-shaped diagram to chart out a
course of action or a statistical probability analysis. It is.us to break down
complex problems or branches. Each branch of the decision tree could be a
. . -
possible outcome. •
I • .
11. 1¥hat is risk pooling in supply chain?
Risk Pooling-involves using centrali ed inventory instead of decentralized
inventory to,take adva-ntage of .the fact that if demand
.
is_higher
. ,...
than averageat
some reta_ilers, it is likely to b_e lower than ayerage at others, ... •. • .
•• 1. • . • . , I . t. _

- 12. What is an agile supply cl,ailJ? . , ,

. An agi e supply chain is·a system of prod_uct distributic;m concerned with
doing things quickly, saving costs;.·being- responsive. to·market demands,
maintaining flexib. ility, and keeping p odu tivity high..
13. State any two application of IT in supply chain network..
The technology has not only reduced supp°Iy chain timelines, but increased
its reliance on system and application capabilities to manage - critical
processes.

... 'Wl\.'CCC< q cca << I CG(

 Chain Innovations [ S.43]
- ------------ =:::::::=
• Warehouse Management s t d
••• ys em, Warranty Management System an
many more core business e t • . . ·
• n erpnse systems dnve busmess processes m
Supply Chain_network.

t4, How does e-b11si11ess affect c11sto1 1er experience ina supply c/,ain? r
Data sharing can decrease volatility for all nodes in the su ply chain.
Data fromyour:e_- ·o·mmerce store can further inform custo er service at
the point-of-sale online.

In turn, ,vith supply chain management software, you're able to see where
manufactu ng, warehousing, and shipping are in the fulfillment process.
15. Deji11e B2B practices.

, .
Business-to-business (B2B), also called B-to-B is a form o f transaction
between businesses, such as one involving a manufacturer and wholesaler, or a
wholesaler and a retailer. Business-to business refers to business that is
conducted between companies, rather than between a company and individual
consumer.
16. Wltat are tlte characteristics of e-SCM?
The characteristics of E-SCM are as follows:
Supply Chain Replenishment.
E-Procurement.
Supply Chain Monitoring and Contro .Using RFID.
Inventory Management Using Wireless Devices.
E-Logistics.
• . ?
17. How do you n1eas11re the value of i11fo_rmatw11•
Validity: The percent of records with correct values.
·•' ••• s arc1·ty: A.n es t1' mate of the percent of other organizations that don't have
this data. .
•••• c overage: Th e number of records in the dataset as a percentage of thetotal
universe of potential records.
18, LI•Si o t var,.011s supply c,, tam
• ill /Tpractices.

Transaction Cost Analysis:

 1s.44 I Supply Chain- Mana

Chnnncl Coofdinntion.
Network Perspective.
1ntcrinls Logistics Mnnngement.
Ct1stomcr Relntionship ivfnnagem nt.
19. Lisi dow11 tlte impact of IT 011 supply chai11 perfor111a11ce.
Supply chnin management involves several activities such as material
sourcing, production scheduling and physical distribution system, all of
which are t day continuously supported by i_nformation systems
-
Companies today have to adapt their supply chain and business model to
the -changing envir mment and increase cooperation and infonn tion
sharing
. 20. JV/za is Supply Clzai11 /11tegratio11?
Supply chain integration is a continuous' process that can be optimized only
when manufacturers, customers, and suppliers work together to improve their
relationships and when all participants are aware.of key activities at all levels in
• '
the chain.
21. 1Vhat Is the Agile Supply Chain? .. ,
'
The agile supply chain basically refers to the • use ·of responsiveness,
competency, flexibility, and quickness to manage.how well a supply chain entity
operates on a daily basis.
22. What ls tlze Leagile Supply C/zai11?
Leagile is the combination-of the lean and gile paradigms ':"ithin a total
supply chain.strategy by positi ning the decoupling point so as to best suit the
need for responding to·a vo atile. demand do stream
_yet providing .level
scheduling upstream from the marketplace.
23. Wltat_i the n1ea11 11g of green supply cl,aiu?
. .
A green supply chain or sustainable network .,.could· be • defined as the
operational management method. and optimization approach to r duce the
environmental impact along the life cycle of the green product, from the raw
material to the end product:
 chain Inno vations - I 5.45I

•
-- - --
ff'Jiat is meant by, reverse supply ch_ain.?
==
24, . f ...
O
It's the senes • activities required to retrieve a used product froma customer
·ther dispose of it or reuse it a d fi • • ·
and ei . •n or a growmg number of manufacturers, m
• industries ranging from carpet.s to compµters, reverse supply • chains are
beco_ming an essential part of busi ess.

,s. ff'/,at is Internet of T hings (loT) in supply chain?

.
I temet of Things (IoT) in supply chain management refers to connecting.
various data points( devices used as part of the supply chain) to achieve a final•
outcome such as higher operational efficiency or better forecast_ing of product _
demand. It is a growing practice· even for small businesses.
l6, Wltat are conversational systems in supply chain?
Conversational systems for supply chain management focus on using the
automation process to facilitate smooth management and reduce errors.·Pairing
the logistics system with the inventory management can help track the demand
and the requirements related to the supply.
27. What is the use of Blockc/zain in supply chain?
Block hain provides all parties within a re_spective supply chain with access
. to the same information, potentially reducing communication or transfer data
errors. Less time can be spent validating data and more can ·be spent on
delivering goods and services either improving qual ty, reducing cost, ?r both.

• Explain the concept of Supply Chain IT frame ':ork in detail.

• What is Supply Chain _Macro Processes?
Explain the role of IT in S pply Chain.
W•hat do you mean.gyS uppI Y Chai Integration? Explain in detc1:il.
What d ~ -S
o yo mean b y upp1Y Chain process restructuring? Explain in detail.
E . ---,. . .
'Xplain in detail about Agile Supply Cham
 ·I5.46I Supply Chain Manage
-===: ---------------------......:
7. What do you mean by leagile Supply Chain?
8. What is Green Supply Chain?
9. What is Reverse Supply chain?
I0. Explain any one of the Supply chain technology trends in detail.

•••••••••••••••••••••••••••

.,

I
I.

I I
t
 MODEL QUESTION PAPER-1
Third Semester - MBA
- B A 4:0:2;l -S:uP P=-L-:--Y:-C H..:.:A.::.:l:_N M AN A----...:. ... .: _
_ _ GEMENT
!I•le· three hours Maximum: 100 marks
-Answer ALL·Questions
I.
'
Part A - (10 x 2 =.20 Marks)
JJ'halisSuppfy_C/uzinMamwe1nent (SCM)_!
• . .
Supply chain management is the management of theflow o( goods and services and
Iooes all processes that transf<;mn raw Jlli!1erials to final products. It involves the active
ofa business's supply.:.side activities to maximize customer value and gaina
competitive advantage in the marketplace.
Write any three importance of c;M. ._. ...
• Improves customer satisfaction as well as service. .
• Reduces inventory costs.
. Increases cash flow.
• .
-Provides medium for irifonnation sharing between ers.
Define supply chain strategy.
Supply chain strategy is a-n i• terati• ve pro ess that e.valuate_s the cost.- benehfit
• onents Business strategy nvolves levera_gmg t e
trade-offsof_operatlonalcomp_ -• . .d fi d high-level goal or
- • • , •
core com petenc ies of th e orgcll! t_a - to ac_hieve a - e_ tne
tion . _
. .
- ............................................................ ?
un. • • • ·nty in supply cham. _
,,n t is the impact of uncer1a, -_ • -h . n_"d risk isa consequence
•. .- . •k within supply c ams, a . , .
Uncertainty increasesthe,ns • . . tht ffecta supply cham.
of the external and internal uncertamties
n11 • • agenient? - •
''naf IS cycle inventory man . ·t y cycle stock is the amount of
• working mven or ' .................................... ,
Sometimes referred to as •d during a given penod. lt s the
• t pical deman
lllventory available to meet Y
 Supply Chain'Manag •
IMQ.2! e,nen,

amount ,of inventory yo would expect to ·go thr<?ugh based on forec sts and
historical data.
6. Why is pricing one .of tJ,e most important factors in supply cha/11
managen,ent?
Pricing is an important • decision making a. spect. afte_r the produc,t IS
manufactured. Price determines the future of the product, acceptability .of the
. product to the customers and return and profitability from the product. It is a too)
of competition.•
1. What is Logistics?
Logistics is used more broadly to refer to the process of coordinating and
moving resources - people, materials, invento , and equipment - from one
location to storage at the desired destination. The erm logistics originated in the
military, referring to the movement of equipment and supplies to troc:>ps in the
field. •
8. What are the benefits of logistics outsourcing?
The benefits o' f logistics outsourcing are:
_ Reduce overall logistics costs.
Avoid distnbution infrastructureinvestments.
Avoid systems investments.
Avoid fleet investments andmain .
Leverage freight buying power\
Share freight costs.
• Reduce liability infreight openitiom.
9. What is risk pooling in supply chain?
Risk P oling inv lves using centralized inventory instead of dec:entralized
inventory to take advantage of the fact that if demand is higher than average at
some retailers, it is likely to be lower than average at others.
IO. What are the characteristics of e-SCM?°
The characteristics of E-SCM are as follows:
Supply ChainReplenishment
 11uestion Papers [MQ_.3]
I
µ ode
1/ &procurement
supply ChaiI:iMonitoring and Control Using RFID.
1nventol)' Management Using Wireless Devices.
£-LpgistiCS.

Par:-t·B - (5_X 13 =.65"Marks)

11, (a) Wltat do you mean by supply chain performanc ,,:,eas r e ?-
Ans. Refer Section 1.12, .Pag No; 1.25
{OR]

.(b) How would you describe the various drivers in supply chain?
Ans. Refer Section 1.9.2, Page No. 1.21
12, (a) Explain the Role of Distribution in the supply chain•.
.. . :

Ans·.Refer Section 2;1, • Page No. 2.1

[OR]

• (b) 'Explain the factors influencing Distribution network design.

' Ans. Refer Section 2.4, P ge!No. 2.3 •
13. (a) What do you mean by Managing supply .chai-n.cyc(e inventory and safety
. inventory?
, . Ans. Refer Section 3.1, :Page No. 3J
[OR]
'
(b) Explain tlte concept of pricing and revenue.management in detail.
Ans. Refer Section 3.1O; Page No. 3.32
. .
l4, (a) 1¥1,at is the Design option available/or transportation network?
Ans. Refer Section 4.5, Page No. 4.14
[OR]

(b) What are the Cl,aracteristi s ofglohal supplj chains?.

Ans. Refer Section-4:1-3, -Page'No. 4.42
IS,·(a) r r • '?
r r 'hat is Agile Supply Chain·
Ans. Refer Section 5.4, Page No. S·.15

I'
 M=Q::::.-4=.j_• --- -----------Su_rp_'fl_ly_C_h_a_in_Mi_an_a.:_ge,nenr
.=I •

[OR}
(b) Explain Supply Chain process Restructuring.
Ans. Refer Section 5.2, Page No. 5.4
I

Part C- (1 x 1s·=--lS Marks)

16. (a) Wl,at do you mean by Green Supply.C ain? Explain in detail.
Ans. Refer Section 5.6, Page No. 5.22
[OR}
(b) What are the Objectives of International Logistics?
Ans. Refer Section 4.12.1, Page No. 4.36

MODEL QUESTION PAPER - 2

Third Semester - MBA
BA4021 - SUPPLY CHAIN MANAGEMENT
Time: Three hours . Maximum: 100 mark5
Answer ALL Questions
Part A- (10 x 2 = 20 Marks)
1. What arethe key elemenJs ofsupply'chain management?
Supply chain management also covers coordination and collaboration with
channel partners, such as customers, suppliers, distributors and • service
:-

providers.
• DemaM Management
• •• ••.
c.ommunication , I

••
•• Integration
Collaboration
2. Bring out the role of supply chain manager.
Supply chain management {SCM), the management of the flow of goods and
services, involves the movement and storage of raw materials, of work-in·
process inventory, and of finished goods from point of origin to point of
 at1estion_P_a:-_rp_e _'S IM Q ;s I
:.------
_ .... k"etmg channels play
,rnpu·on. Mar .
I1)) ..-.
gement. • an important role in supply chain

, ,neant by facility Decisions

•
15
- '
fact'lity location de•.cisions play a cruc1• a1 ro1e m the logi stics ac bv 1 t1es
• .• · ··
1v0tved i? supply ham agement. In real-li_fe settings, the optimization of

on and allo atton decisions is often preceded by an evaluation of the

istlng.distribut1on network system. . - .
r,,at is network planning in supply chain?
supply Chain Network Design (SNDC) also lmown as 'strategic supply chain
,iaoning' is the process for building and modelling the supply chai to understand
ilie costs and time to bring goods and services to market thin an organizations ·
av lable resources: •
Jf'/i(!tJs J t-in-Time (llT)?
The just-in-time (JIT) inventory system is a management .strategy that aligns
raw-material orders • from suppliers. directly with production schedules.
Companies employ this inventory strategy to increase efficiency and decrease
waste by receiving goods only as they need them·for t h e• production process,
which redu_ces inventory costs. This method requires producers to forecast
demand acc tely.
What is the impact of uncertainty in supply chain?
Uncertainty increases the risk·within supply chains and risk is a consequence
ofthe xternal and internal uncertainties that affect a supply chafn.
What are the objectives of logis'tics manageme_nt?
Rapid.response
Minimum Variance
Minimum·Jnventocy
Movement consolidation·
Quality etc
1
Stat_et•he i•mportance '!f Logi•st',ca/ HI1\'etwork Analysis.
Quick response to marlret changes
customers
='M=Q .6=l su_ _ _ry_C_h_a_in_M_a_n-:agetne

Newmarket-segment
Changes in anporate policy
Customer service ·
CostcontroL
9. What is the meaning of reen s pply chain?
A green upply chain or sustainable network could .be defined as the
operational management method and optimization approach to reduce the
erivironmental i pact along t e .life cycle of the green _product, from the raw
material to the end product:
10. Define B2B practices.
Business-to-business (B2B), also. called B-to-B, is a form of transaction
between businesses, such as one involving a manufacturer and wholesaler, or a
wholesaler and a retailer. Business-to-business• refers -to business that is
conducted between .companies, rather than between a company and individual
consumer.
Part B - (5 x 1 3· = 65 Marks)
11. (a) State the importance of Supply (:hain Managemenl
Ans. Refer Section 1.7, -PageNo.1.16
/OR]
. .
(b) Elucidate the Evolution of Supply Chain M_anagement in detail
Ans. Refer Section 1.5, P ge No. 1.8
• J
. . -.. ,

12. (a) Explain various design.options available for a Dist,:ibution.Netw.ork.

Ans. Refer:Section 2. , Page No. 2.6
[OR]

(b) Explain in detail about online sales and distribution ne ork.

Ans. Refer-Section 2.6, Page No. 2.14
13. ·(a) Explain about the concept (J_n_cer:tainty in th_e Supply Chain.
Ans._R.efer Section 3.3, Page No. 3.11
[OR]
 1g11es--;....· --------------------------------------------------------------
•
=-='M
-Q-.
) ,r11at do you mean byInventory_Life Cycle Management?
(b J\,is. Refer Section 3.7, Page No. 3.28
£xplain tlte Role of transportation in supply chain -
I (a) . .
• j\ns. Refer Section 4.1, Page No. 4.1
[OR]
(b) ff'/tal do you mean by 3PL and 4PL? Explain in detail.
,i\ns. Refer Section 4.8 & 4.9 P,age No. 4.28& 4.30
;, (a) ExplaitJ tlte rot of IT in Supply Chain.
,i\ns. Refer Section 5.3, Page No. 5.8 .
[OR]
l .

(b) Elucidate tlte Supply chain technology trends?

Ans. Refer Section 5.8, Page No. 5.32

Part C - (1 x 15 = 15 Marks)

6. (a) Explain the concept Leagile supply chain. -

Ans:Refer Section 5.5, Page No. 5.20
{OR].

(h) Wltat do yoµ mean by Bui/whip Effect? Explain in detail.

. Ans. Refer Section 3.3.3, • Page No. 3.15
i '

***************************