Dr.

Parikshit Charan

Supply Chain
Why SCM is Important now?
Management: Some
Contemporary •1970, Quality

Perspectives •1980, lean manufacturing

•1990 and beyond, SCM
–The Increased complexity of supply chain
•Emergence of global supply chain
•More demanding customers
Dr. PARIKSHIT CHARAN
•Shorter production lifecycles
•Outsourcing, decentralized control and more…
–Feasibilities
•radical improvement in information technology and
communication capabilities

Impetus For Supply Chain

Management Background
Supply Chain
Four key factors have provided the impetus for companies to take a
broader view... Material management(inbound logistics)
• New Customer Service Definition
• Beyond perfect order-shifting The acquisition and storage of raw materials, parts, and supplies
responsibilities/Vendor Managed Inventory ...
• Escalating Logistics Cost ... The complete cycle of material flow from the purchase and internal control of
• Cycle Time Compression--E-Commerce production materials to the planning and control of WIP
• Globalization--Worldwide rise in exports far exceed
• Worldwide purchasing, manufacturing, and
selling. Physical distribution(outbound logistics)
• Long and complex global pipelines.
• Product proliferation. All outbound logistics activities related to providing customer service.
• Cultural adaptation
Order receipt and processing, inventory deployment, storage and handling,
of their enterprise and its environment... outbound transportation, consolidation, pricing, promotional support, returned
product handling, and life cycle support…

Development of Supply Chain Management

Logistics
‰Physical distribution (1960-1970)
• Focus : Management of inventories for the efficient delivery of finished
goods to customers.
† Logistics is that part of supply chain
‰Integrated logistics management (1970-1980) process that plans, implements, and
• Focus : INBOUND FLOW (materials management) & controls the efficient, effective flow and
OUTBOUND FLOW (physical distribution)
storage of goods, services, and related
• Challenges: deregulation of transportation, global competition,
foreign sources of supply, and economic factors
information from the point-of-origin to the
point-of-consumption in order to meet
‰Supply chain management (from 1990s) customers’ requirements.
• Focus : Three types of “flows” or basic processes -
Product, Information, and Money
• Managing supplier-to-customer material flow that add value to the
final product

Supply Chain Management 1

Dr. Parikshit Charan

Logistics: Past Logistics...

In 1984 CLM formulated a new definition which refocused
The study of logistics has its roots in the military… the concept of logistics...
The traditional view emphasized local optimization within CLM Definition
functional silos and within individual corporations
“The process of planning, implementing, and controlling the
efficient, cost-effective flow and storage of raw materials,
in-process inventory, finished goods, and related information
from point of origin to point of consumption for the purpose of
conforming to customer requirements.” This definition
But functional optimization leads to conflicts ... includes inbound, outbound, internal, and external movements.
CLM - Council of Logistics management -Adopted 1984

...a new flow and process orientation not a set of discrete

7 activities and handoffs 8

Logistics - Evolution
Complexity in Logistics
Most modern companies have recognized that
to
† Multi-location
improve cost and performance to the corporation
they must... † Multi-product
Accounting / Manu- Sales and

† Integrate internal logistics

Finance facturing Marketing
† Added Cost at various stages and
Production Planning

activities
Material
Planning
Inventory Control
Distribution
Planning locations
Customers
† Integrate logistics with Suppliers

Procurement
Warehouse Operations Customer
Service
† Multi-modal transportation
Transportation
other corporate functions
Financial Other Log.
† Different perspectives held by various
Institutions Carriers
Providers
stakeholders in the logistics !
but other pressures indicate that companies must
look outside their own four walls...
9 10

The Functional Approach

Supply Chain Management C
U
S
T
¾ Supply chain management deals with the O
M
management of materials, information and E
financial flows in a network consisting of R
S
suppliers, manufacturers, distributors, and Sales
S
customers (Stanford Supply Chain Forum, U

1999)
P Distribution
P
L
I Manufacturing
E
R
S
¾Supply chain management is a set of approaches utilized efficiently Purchasing
to integrate suppliers, manufacturers, warehouses, and stores so that
merchandise is distributed at the right quantities, to the right † Traditional Approach: Functional, silo
locations, and at the right time, in order to minimize system-wide costs
while satisfying service level requirements based !
(Simchi-Levi et al., 2008) † No attempt to look holistically!
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Supply Chain Management 2

Dr. Parikshit Charan

GENERAL SUPPLY CHAIN NETWORK

Supplier 1 Supplier 2 ... Supplier n Issues in Management of
Supply Chain
SOURCES † Lead time
† Total cost
Production † Management of Inventory
Facilities
† Material Handling
† Performance Monitoring & Control
Enterprise
† Sensitization about the Logistics cost to all the
Logistic
Facilities stakeholders !
† Information Sharing…………..

SINKS

14

Customer 1 Customer 2 ...Customer m

ENTERPRISE Supply Chain NETWORK Integrated Supply Chain Approach C

U
S
Supplier 1 Supplier 2 ... Supplier n T
O
M
E
R
S
SOURCES
Sales
S
Production U
Facilities P Distribution
P
L
I Manufacturing
Enterprise E
R
Logistic S Purchasing
Facilities

† Looks at the entire chain

SINKS † Global rather than local focus
† Integrated rather than fragmented approach
16

Customer 1 Customer 2 ...Customer m

INTEGRATED SUPPLY CHAIN NETWORK Supply Chain Stages

Supplier 1 Supplier 2 ... Supplier n
Supply Chain encompasses all activities associated with the flow
and transformation of materials and information
from the raw material stage through to the end user.
user.
SOURCES

Production
Facilities Supplier Manufacturer Distributor Retailer Customer
Integrator
Logistic
Facilities
INTERMEDIARIES
SINKS

Customer 1 Customer 2 ...Customer m

CONSUMERS 18

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Dr. Parikshit Charan

Broadened Scope of
Information and Coordination

Plan
Supplier

Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source

Supplier Suppliers’ Supplier Customer Customer’s

Supplier Your Company Customer
(internal or (internal or
external) external)

Manufacturing Regional Field Retail Customers

Plants Warehouses Warehouses Outlets 19 John Birchak, Intel Corp., National 20
Science Foundation, University of
Florida, October 1998

Supply Chain Management ... The Dynamics of the Supply Chain

The clear implication is the need for further integration

of all the parties involved…
Accounting / Manu- Sales and Accounting / Manu- Sales and
Order Size

Finance facturing Marketing Finance facturing Marketing

Production Planning Production Planning

Material Distribution
Planning
Material Distribution
Planning
Customer
Customer
Planning Planning
Inventory Control Inventory Control Demand
Customers Demand
Suppliers Warehouse Operations Customer
Service
Customers
... Suppliers Warehouse Operations Customer
Service
Procurement Procurement
Transportation Transportation Retailer
RetailerOrders
Orders
Distributor
Distributor Orders
Orders
Financial Other Log. Financial Other
Institutions Carriers Institutions Carriers
Providers Log.
Providers
Production
ProductionPlan
Plan
Integration Migration
to prosper in this dynamic environment... Time
21 Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

What Management Wants…

What Management Gets...
Order Size

Volumes

Customer
Customer Production
ProductionPlan
Plan
Demand Customer
Customer
Demand
Demand
Demand

Production
ProductionPlan
Plan

Time Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998 Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

Supply Chain Management 4

Dr. Parikshit Charan

Planning Objectives
There is no simple key to success - Longer perspective brings in more
My customer
You have to wants it next SERVICE
ASSETS
reduce day
inventories and
TOTAL QUALITY
other costs by 1 day more and COSTS
20% this year we save 10% in
transport costs
TIME
I want to see it Profit
in stock before I ENVIRONMENT
believe
Long production
runs reduce CASH
INFORMATION
costs FLEXIBILITY
Others go to JIT 25 26

Supply Chain Network- Sample Structure

The Core Issues
in Supply Chain Management Tier 3 to Tier 2 Tier 1 Tier 1 Tier 2 Tier 3 to
Initial Suppliers Suppliers Suppliers Customers Customers Consumers/
End-Customers
1 1
Cycle Time Alliances
Tier 3 to n suppliers

n 1
2

Consumers/End-Customers
1 n
1
n 2
Initial Suppliers

1
Technology 1 2
Cost Management Initiatives n
Integration 3

Tier 3 to n customers
2
1
3 n
2
n n
Inbound, Operations
Environmental n
& Outbound 1
Pressures
n
Focal Company
27 28
Members of the Focal Company’s Supply Chain
634

Tier 2 Non-core
Critical Four Flows within Supply Chain
Areas

Tier 2
Core
Competency Tier 2 Supply chain management requires parallel control of
. Areas • Physical Goods
Tier 1 Tier 1
.
Tier 2 • Logistics Information
. Tier 1 Tier 1
Focal • Payments
Tier 2 .
Company
. Tier 2 • Ownership Rights
Tier 1 Closest Integration .
Tier 2 Tier 1 * Design team member Tier 1 Tier 1
. - R& D collaboration
. * Prod/logistics info sharing 8 8 8 Physical Distribution
888
8
.

Tier 2
* Rare partnership
8 8
Ownership Rights
Close collaboration (less expensive than innermost core) 8 8 8 Ownership Rights
888
Tier 2 * Exchange design/development information
* Prod/logistics info sharing Customer ProductionProcure Manu- Inventory Warehousing& Transpor Order
Forecast Network Customer
* Increasing partnership Collaboration principally Needs -ing Planning -ment facturing Mgt. Materials Mgt. -tation Mgt. Planning Satisfaction
Non-strategic, via tier 1 suppliers
* Occasional direct
Non-critical Areas
contact with focal company w w w Payments w w w
w w
Degree of integration Degree of integration 29 w w w Logistics Information w w w 30
decreases decreases

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Dr. Parikshit Charan

Goals of SCM Typical supply chain

•Maximize the overall value generated in upstream
the chain
•Generate cost savings and better
customer service over the entire supply
chain
•Ideal:
–Have the right product
–At the right place
–At the right time
–At the least cost
–In the right amount
downstream

Toshiba PC supply chain How is SCM different?

Intel, Seagate,
upstream
Microsoft,
ƒBuilds on traditional fields such as production
AMD IBM Red Hat
management, operations management or logistics
management.
ƒThe key differentiator is the systems approach of
Toshiba America the supply chain management
Irvine, California ƒSCM considers every stage and facility in the
supply chain and the interactions between them,
whether they belong to different companies or
North America DC Europe DC different organizations within a company
ƒSCM considers the total costs in the supply chain
ƒSince SCM deals with all stages of the supply
chain and their integration, it encompasses the
firm’s activities at many levels: strategic, tactical
Toshiba Turkey downstream and operational

Enablers of Supply Chain

Management...
There are two principal factors which make CASE 1: SCM
supply chain management a reality...
• Increased Organizational Integration
„ Internal
COMPLEXITY
„ External
• Advances in Communications and Information Technology
„ Capabilities
‡ EDI/XML/Internet
‡ RF/GPS/POS data capture
‡ Broadband Communications
‡ Integrated database management tools
‡ Cheaper and faster processing …
„ Perspective

35 36

Supply Chain Management 6

Dr. Parikshit Charan

Scope / Activities Product Portfolio Oral Care

Horlicks NHC Toothbrush
† Supply Chain Management Aquafresh Jordan
JHlx CHlx MHlx EHlx Hlx P Flex, FnD, FlexiKid
„ Materials Management & Transportation Flexi friend
„ Manufacturing Boost
Aquafresh mouthpaste
„ Packaging Viva Maltova x-fresh, F‘n M
„ Total Quality Management
„ Distribution Systems
Biscuits
Eno
Hlx Boost Regular, Lemon,
Std Ch.Hlx EB Jaljeera
Elaichi
Crocin
Med
37 38

Manufacturing Facilities - NHC Packaging Facilities - Nutritional

Powders
NN
HA
H 7 Packing Sites N
3 Factories F
NSD1 Faridabad (F)
Nabha - Punjab
Calcutta (C)
Rajahmundry - A.P. CG
Hamira - Punjab Hyderabad (H) C

SD1 Project Chennai (CH)

R Nabha (N) H
Sonepat - Haryana
Hamira (HA)
Chittagong - Bangladesh (CG) CH

39 40

Manufacturing Facilities - NHC Mfring & Packing Facilities-

Solids Aquafresh

2 Biscuit sites 2 sites

Burdwan Goa (Tooth Brush)
B
Hyderabad Nashik (Toothpaste)
N
H
G

41 42

Supply Chain Management 7

Dr. Parikshit Charan

Sales depots
Mfring & Packing Facilities -
OTC

1 Site (ENO)
Hyderabad

Sales depots 32 nos

43 44

Supply Complexities Supply Complexities

Finished Goods Movement Export Supplies

•250 vendors, Nepal

350 materials,
15 sites
Middle East Bangladesh
•P/S movement
of avg.. 1200 kms
Myanmar
•Over 1000
consignments/ •12 supply sites
month shipped catering to 37 markets
across 130 Mauritus
site-depot •Primary freight cost
linkages of Rs. 30 crore p.a.45 46
Sri Lanka

Effective Supply Chain-

Major Problems
Challenges
† Forecast inaccuracy
† Un-organised transport sector †Effective Supply chain is not
† Longer lead time for some raw limited to manufacturing &
materials distributing products only but
† Frequent change in statuary also……..
requirements
† Sales promotions disturbs the
planning cycles some times leads to
major write offs
47 48

Supply Chain Management 8

Dr. Parikshit Charan

Effective Supply Chain- Effective Supply Chain -

Challenges Challenges
†Design product to its supply chain †Distribution:- shippers should add
†Supplier relationship value rather than mere
†Manufacturing:- should it be in-
transportation
house or to be out-sourced ? †Work on the “Customer’s Pull”
†Least Product inventories
rather than “Push”
†Is consumer response is making its
†Third Parties:- Partners can add
significant value way into the chain ?

49 50

Effective Supply Chain-Challenges Contemporary Strategies

Successful businesses match market

†Then.. demand and core capabilities ...
† Carriers had transport assets and systems
„ What’s the way out?
) trucks, cars, terminals, tracking and tracing
systems, fleet management systems ...
† Shippers had critical need for more efficient logistics
systems, but no expertise
† Shippers needed resources in their core areas

Result: Alliances in logistics--Third Party Logistics ...

51

Contemporary Logistics Strategies Trends in Global Supply Chain Management

† Collaborative Product Development
The competitive marketplace has given rise to
† Risk Pooling
logistics alliances ...
† Postponement
Complementary † Demand signal closest to supplier and
Capabilities accurate
„ POS data capture and transmission and now RFID in each
Sharing of risks Competitive piece of product eliminating the need for line of sight
and resources Strategic Advantage scanning—Unilever
Alliances

Focus on core
business

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Dr. Parikshit Charan

THERE IS ALREADY SIGNIFICANT ACTIVITY IN AUTO SECTOR

Supply Chain Management Existing Planned/Announced

and the Internet Vendor market

places
Consortium of Bajaj Auto, M&M,
Telco, HM, Maruti, Hero Honda,
TVS Suzuki

There are two conflicting views ... Escorts, Kalyani

† Relationships with suppliers will endure-- Vendor Integration TELCO Bajaj Auto, Ford, Fiat, Hyundai,
Hero Honda, TVS Suzuki, Toyota,
Web-based connectivity will enable the M&M
transaction network to become more efficient Internal
Connectivity Almost All
-- sharing of savings will take place
† New technology will impact business supply Daewoo, Hyundai, Hero Honda, TV
Dealer Integration Maruti, Fiat,
chains beyond recognition--Globalization will Ford, ALL S Suzuki, Bajaj Auto, LML, Kinetic,
HM Lancer, M&M
overpower existing relationships as
companies access different suppliers in Basic Website
Almost All Piaggio, Greaves, Hero Honda
various countries and drive down prices
Sophisticated website Daewoo, Honda Fiat, Hyundai
with customisation,
cataloging
* Footnote
Source:Sources

Auto Sector

† Supply Chain Integration

„ Buy Side
‡ Supplier Integration

„ Sell Side
‡ Re intermediation

† Relationship building with Customers

Maruti Suzuki
† Extranet for Dealers - 150 Dealers, 9 Models, 1000
Sub-assemblies, Avg.. 15 components per sub-
assembly, changes avg.. 10 per week
„ Wrong Orders / Re-conciliation problems
„ Wrong shipment
„ Multiple Printed Catalog / Addendum and Errata
One ECatalog, Multiple Views, Ordering Modules,
Dealer Service, back-ending into Enterprise
systems...

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Dr. Parikshit Charan

Barriers to Success in Emerging

SCM
† Resistance to change
† Poor data availability
† Supply chain design complexity
† Organization structure
† Poor cross-functional collaboration
† Lack of trust (suppliers, customers)
† Lack of E-commerce skills
† Unsure top management commitment

Prof. J.P. MacDuffie, IMVP & The Wharton School

Source: Adapted from A.D. Lttle Survey, 1999

Supply Chain Integration -

Future of Supply Chain
Dealing with Conflicting Goals
† Lot Size vs. Inventory † More Integration: Comfortable Core
† Inventory vs. Transportation
competence
† New Market evolution
† Lead Time vs. Transportation
† Increased variety-Low volume products
† Product Variety vs. Inventory
† Industry Maturity
† Cost vs. Customer Service
† Power/Dominance
† Integration & Information sharing

† Outsourcing- It means handing over certain logistics

Emerging Issues in Supply related to manufacturing to another company.
Outsourcing ensures strategic growth, adding
Chain Management technological strength and improving market access.
† Risk pooling – It mainly involves the concept of
† Vendor managed Inventory (VMI) - In centralized warehousing. Centralized warehousing
this case supplier decides on the appropriate inventory reduces safety stocks and average inventory in the
levels of each product and the inventory policies to system. This is clear from the argument that in case of
maintain these levels e.g. Campbell Soup, Maruti unequal demand reallocation of inventory is easier from a
central warehouse. The higher the coefficient of variation,
† Third party logistics(3PL) and Fourth the greater the advantage in keeping a central
party logistics(4PL) – This trancends from warehouse.
Prahlad’s concept of core competence .It is simply the † Reverse Logistics
use of an outside company to execute part or complete † Cross Docking-may be defined as effective removal of
materials management and product distribution function
Warehouse facilities of company. Product is directly
of the firm e.g. Fed Ex, UPS
transferred to customer. Warehouse is reduced from invty
storage to an invty. Coordinating function
* Web enabled SCM / ERP etc.

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Dr. Parikshit Charan

Summary...
Goals of IT in SCM
† Collect and store information on each product from It is clear that the concept of Supply Chain Management provides
production to delivery/purchase point companies and countries a framework within which they can
„ Provide complete visibility assess how the challenges of the competitive market
„ Tracking
„ Alerting † New customer service paradigms
† Access any data in the system from a single point of † Decreasing cycle times/E-commerce
† Cost pressures
contact. This is complicated by the fact that one may
† Globalization & complexity
need information which resides
„ in various locations within one company can be met through application of the offsetting enablers
„ in different companies
† Integration
† Analyze and plan activities based on total supply
chain information. † Technology
„ Decision Support Systems
making Logistics/SCM another element of competitive advantage.
„ Advanced Planning Systems

THANK YOU

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Supply Chain Management 12