III SEMESTER

SUPPLY CHAIN MANAGEMENT

REGULATION 2009
SYLLABUS

BA9185 SUPPLY CHAIN MANAGEMENT

UNIT – I INTRODUCTION 9
Supply Chain – Fundamentals –Evolution- Role in Economy - Importance -
Decision Phases - Supplier- Manufacturer-Customer chain. Supply chain strategy
- Enablers/ Drivers of Supply Chain Performance. Overview of Supply Chain
Models and Modeling Systems.

UNIT – II STRATEGIC SOURCING 9

Outsourcing – Make Vs buy - Identifying core processes - Market Vs Hierarchy -
Make Vs buy continuum -Sourcing strategy - Supplier Evaluation and
Measurement - Supplier Selection and Contract Negotiation. Creating a world
class supply base. World Wide Sourcing.

UNIOT – III SUPPLY CHAIN NETWORK 9

Distribution Network Design – Role - Factors Influencing Options, Value Addition.
Models for Facility Location and Capacity allocation. Impact of uncertainty on
Network Design. Network Design decisions using Decision trees. Distribution
Center Location Models. Supply Chain Network optimization models.

UNIT – IV PLANNING DEMAND, INVENTORY AND SUPPLY 9

Value of Information: Bullwhip Effect - Effective forecasting - Coordinating the
supply chain. Managing supply chain cycle inventory. Uncertainty in the supply
chain – Safety Inventory. Coordination in the Supply Chain. Analysing impact of
supply chain redesign on the inventory. Managing inventory for short life - cycle
products -multiple item -multiple location inv mgmt.

UNIT – V CURRENT TRENDS 9

Supply Chain Integration - Building partnership and trust in SC. SC Restructuring
- SC Mapping -SC process restructuring, Postpone the point of differentiation.. E-
Business – Framework and Role of Supply Chain in e- business and b2b
practices. Supply Chain IT Framework. Fundamentals of transaction
management. Information Systems development - eSCM - Agile Supply Chains -
Reverse Supply chain. Agricultural Supply Chains.

Total: 45

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TEXT BOOKS
1. Janat Shah, Supply Chain Management – Text and Cases, Pearson
Education, 2009.
2. Sunil Chopra and Peter Meindl, Supply Chain Management-Strategy Planning
and Operation, PHI Learning / Pearson Education, 2007.
3. David Simchi-Levi, Philip Kaminsky, Edith Simchi-Levi, Designing and
Managing the Supply Chain: Concepts, Strategies, and Cases, Tata McGraw-
Hill, 2005.

REFERENCES
1. Altekar Rahul V, Supply Chain Management-Concept and Cases, PHI, 2005.
2. Shapiro Jeremy F, Modeling the Supply Chain, Thomson Learning, Second
Reprint , 2002.
3. Ballou Ronald H, Business Logistics and Supply Chain Management, Pearson
Education, Second Indian Reprint, 2004.
4. Joel D. Wisner, G. Keong Leong, Keah-Choon Tan, Principles of Supply Chain
Management- A Balanced Approach, South-Western, Cengage Learning 2008.

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 UNIT – I
INTRODUCTION

What is a supply chain?

o A supply chain is a network of all parties involved, either directly or indirectly,

in fulfilling a customer request. Within each organization, such as manufacturer,
the supply chain includes all functions involved in receiving and filling a
customer request like new product development, marketing, operations,
distribution, finance, and customer service.

Supplier Manufacturer Distributor Retailer Customer

Definition: A supply chain is a network of facilities and distribution options that

performs the functions of procurement of materials, transformation of these
materials into intermediate and finished products, and the distribution of these
finished products to customers.
Supply chains exist in both service and manufacturing organizations, although
the complexity of the chain may vary greatly from industry to industry and firm to
firm.
A supply chain is dynamic and involves the constant flow of information,
product, and funds between different stages. Eg. Unilever provides the availability
and pricing of the products to the customers through its advertisements (Information
flow). The customer pays for the product (Product flow). Big bazaar obtains its
products from Unilever(Product flow)

Eg.
Unilever Big Bazaar Customer wants
detergent and goes
to a retailer

Plastic Packaging Chemical

Producer company manufacturer

Chemical Paper Timber

manufacturer Manufacturer Industry
(e.g. Oil
Company)

Supply Chain Stages:

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A supply chain is dynamic and involves the constant flow of information, products and
funds between different stages.

A typical supply chain may involve a variety of stages. These supply chain stages include

o Customers
o Retailers
o Wholesalers/Distributors
o Manufacturers
o Suppliers (Component or Raw Material)

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Upstream Downstream
Objective of Supply Chain:

o To maximize the overall value generated or to maximize overall profit

Value:

The value a supply chain generates is the difference between what the final product is
worth to the customer and the costs the supply chain incurs in filling the customer’s
request.
Supply chain profitability or Surplus:

It is the difference between the revenue generated from the customer and the overall cost
across the supply chain.The higher the supply chain profitability, the more successful is
the supply chain.
Effectiveness of Supply Chain:
A supply chain is effective when the flow of products, information and funds is managed
effectively and efficiently.

Supply Chain Management:

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 o Supply chain management (SCM) is the term used to describe the
management of the flow of materials, information, and funds across the entire
supply chain, from suppliers to component producers to final assemblers to
distribution (warehouses and retailers), and ultimately to the consumer.

o In fact, it often includes after-sales service and returns or recycling.

o Traditionally, marketing, distribution, planning, manufacturing, and the

purchasing organizations along the supply chain operated independently.

o These organizations have their own objectives and these are often conflicting.
o Therefore, there is a need for a mechanism through which these different
functions can be integrated together.

o Supply chain management is a strategy through which such integration can be

achieved.
o Supply chain management is typically viewed to lie between fully vertically
integrated firms, where the entire material flow is owned by a single firm, and
those where each channel member operates independently.

o Therefore coordination between the various players in the chain is key in its
effective management.

Objective of Supply Chain Management:

Objective is to be able to have the right products in the right quantities (at the right place)
at the right moment at minimal cost.

Importance of Supply Chain:

o Reduced inventories along the chain

o Better information sharing among the partners
o Planning being done in consultation rather than in isolation
o Supply chain design, planning and operation decisions play a significant role
in the success or failure of a firm.

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Benefits of Supply Chain:
o Lower costs
o Improved quality
o Higher profit margins
o Creation of better facilities for manufacturing, product design research.
o Better customer service
o Efficient manufacturing
o Better trust among the partners leading to win-win

Ex: Wal-Mart, Dell, Dabbawallas of Mumbai

Decision Phases in a Supply Chain:

1. Supply Chain Strategy or Design – A company decides how to structure the

supply chain over the next several years.
Strategic Decisions:
o Outsourcing decision
o Location and Capacities of Production
o Warehousing Facilities
o Modes of transportation
o Type of information system

Design Decisions:
o Chain Configuration
o Resources Allocation
o Process Design for each stage

2. Supply Chain Planning – Time frame is a quarter to one year. Planning

establishes parameters within which a supply chain will function over a
specified period of time. Companies define a set of operating policies that
govern short-term operations. Planning includes

o Forecast of demand
o Which Market will be supplied from which location
o Subcontracting of manufacturing
o Inventory policies
o Timing and size of marketing
o Price promotions

3. Supply Chain Operation – The time horizon here is weekly or daily, and
during this phase companies make decisions regarding individual customer
orders. Goal is to handle incoming customer orders in the best possible
manner.

o Allocation of inventory or production to individual orders

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 Customer
Customer
Order Cycle Pull

Retailer
Replenishment
Cycle

Distributor

Manufacturing
Cycle
Manufacturer Push

Procurement
Cycle
Supplier
o Setting a date that an order is to be filled
o Generating pick lists at a warehouse
o Allocation of order to a particular shipping mode and shipment
o Setting delivery schedules of trucks
o Placement of replenishment orders

Given the constraints established by the configuration and the planning policies,
the goal during the operation phase is to exploit the reduction of uncertainty and
optimize performance.
Process Views of a Supply Chain:

A supply chain is a sequence of processes and flows that take place within and between
different stages and combine to fill a customer need for a product. There are two different
ways to view the processes performed in a supply chain.

Cycle View of Supply Chain Processes:

The processes in a supply chain are divided into a series of cycles, each performed at the
interface between two successive stages of a supply chain.
A cycle view of the supply chain clearly defines the processes involved and the owners of
each process.
This view is very useful when considering operational decisions because it specifies the
roles and responsibilities of each member of the supply chain and the desired outcome for
each process.
Supply Chain processes can be broken down into the following four process cycles.
o Customer order cycle
o Replenishment cycle
o Manufacturing cycle
o Procurement cycle

Each cycle occurs at the interface between two successive stages of the supply chain.

o Within each cycle, the goal of the buyer is to ensure product availability and to
achieve economies of scale in ordering.

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 o The supplier attempts to forecast customer orders and reduce the cost of receiving
the order.
o The supplier then works to fill the order on time and improve efficiency and
accuracy of the order fulfillment process.
o The buyer then works to reduce the cost of the receiving process.
o Reverse flows are managed to reduce cost and meet environmental objectives.

Important differences between cycles:

o Demand
o Scale of an order

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Each cycle consists of six sub-processes.

Supplier Stage markets product

Buyer Stage places order

Supplier Stage receives order

Buyer returns reverse flows to supplier or third party

Buyer Stage receives supply

Supplier Stage supplies order

Push/Pull View: The processes are divided into two categories depending on whether
they are executed in response to a customer order or in anticipation of customer orders.

Pull View of Supply Chain Processes:

o Execution is initiated in response to customer order.
o May also be referred to as reactive processes because they react to customer
demand.
o Pull processes operate in an environment in which customer demand is known.

Push View of Supply Chain Processes:

o Execution is initiated in anticipation of customer orders.
o May also be referred to as speculative processes because they respond to
speculated demand rather than actual demand.
o Push processes operate in an uncertain environment in which customer demand is
not yet known.

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 PUSH/PULL BOUNDARY

PUSH PROCESSES PULL PROCESSES

Process Process Process Process Process Process

1 2 K K+1 N-1 N

CUSTOMER ORDER ARRIVES

Situation 1:
Make – To – Stock:
o All processes in the customer order cycle are executed after the customer order
arrives.
o Therefore, all processes that are part of customer order cycle are pull processes.
o Order is fulfilled from product in inventory that is built up in anticipation of
customer orders.
o The next process is replenishment of the shelves.
o The goal of replenishment cycle is to ensure product availability when a customer
order arrives.
o Therefore, all processes in the replenishment cycle, manufacturing cycle and
procurement cycle are pull processes.
Situation 2:
Build – To – Order:
o Here, the arrival of a customer order triggers production of the product.
o The manufacturing cycle thus becomes the part of the customer order fulfillment
process in the customer order cycle.
o Therefore, all processes in the customer order cycle and manufacturing cycle are
push processes.
o However, the procurement of raw material can’t happen after the customer places
an order.
o Therefore, all processes in the procurement cycle are pull processes as they are in
response to a forecast.

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Thus, a push/pull view of the supply chain is very useful when considering strategic
decisions relating to a supply chain design.
The goal is to identify an appropriate push/pull boundary such that the supply chain can
match supply and demand effectively.
Supply chain macro processes in a firm:
Within a firm, all supply chain activities belong to one of the three macro processes given
below. The three macro processes manage the flow of information, product and funds
required to generate, receive and fulfill a customer request.
1. Customer Relationship Management
2. Internal Supply Chain Management
3. Supplier Relationship Management
Integration among the three macro processes is crucial for successful supply chain
management.

Customer Relationship Management:

o All processes that focus on the interface between the firm and its customers.
o The CRM macro process aims to generate customer demand and facilitate the
placement and tracking of orders.

Internal Supply Chain Management:

o All processes those are internal to the firm.
o The ISCM macro process aims to fulfill demand generated by the CRM process in
a timely manner and at the lowest possible cost.

Supplier Relationship Management

o All processes that focus on the interface between the firm and its suppliers.
o The SRM macro process aims to arrange for and manage supply sources for
various goods and services.

Supplier Firm Customer

SRM ISCM CRM

1. Source 1. Strategic Planning 1. Market

2. Negotiate 2. Demand Planning 2. Price
3. Buy 3. Supply Planning 3. Sell
4. Design Collaboration 4. Order Fulfillment 4. Call Center
5. Supply Collaboration 5. Field Service 5.Order Management

Achieving Strategic Fit:

Competitive Strategy: A company’s competitive strategy is the set of customer needs

that it seeks to satisfy through its products and services, relative to its competitors.

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Wal-Mart’s Competitive Strategy – High availability of a variety of products of
reasonable quality at low prices.

The given below are few of the functional strategies that form part of the competitive
strategy of a company:

o Product Development Strategy

o Marketing and Sales Strategy
o Supply Chain Strategy

Value Chain of a Company:

Finance, Accounting, Information Technology, Human Resources

T
New Product Marketing Operations Distribution Service
Development and Sales

 The value chain emphasizes the close relationship between the functional
strategies within a company.
 Each function is crucial if a company is to satisfy customer needs profitably.
 The various functional strategies cannot be formulated in isolation.
 They are closely intertwined and must fit and support each other if a company is
to succeed.

Strategic Fit: It means that both the competitive and supply chain strategies have aligned
goals.

It refers to consistency between the customer priorities that the competitive strategy
hopes to satisfy and the supply chain capabilities that the supply chain strategy aims to
build.

Achieving Strategic Fit:

Step 1: Understanding the Customer and Supply Chain Uncertainty

Understanding Customers

o The quantity of the Product needed in each lot

o The response time that customers are willing to tolerate
o The variety of products needed
o The service level required
o The price of the product

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 o The desired rate of innovation in the product

Supply Chain Uncertainty

o Demand Uncertainty – is the uncertainty of customer demand for a product
o Implied demand uncertainty – is demand uncertainty due to the portion of demand
that the supply chain is targeting, not the entire demand.

Uncertainty from the customer and the supply chain can be combined and mapped on the
implied uncertainty spectrum.

The Implied Uncertainty Spectrum:

Predictable Predictable supply Highly Uncertain

supply and and uncertain demand supply and
demand (or) uncertain supply demand
And predictable demand
(or) somewhat uncertain
demand and supply

Salt at a Supermarket An existing automobile A new Communication

Model Device

Step 2: Understanding the Supply Chain Capabilities

 Like customer needs, supply chains have many different characteristics that
influence their responsiveness and efficiency

Supply Chain Responsiveness: It includes the supply chain’s ability to do the following:
 Respond to wide range of quantities demanded
 Meet short term lead times
 Handle a large variety of products
 Build highly innovative products
 Meet a high service level
 Handle supply uncertainty

The more of these abilities a supply chain has, the more responsive it is.

Supply Chain Efficiency: It is the inverse of the cost of making and delivering a product
to the customer. Increase in cost lowers efficiency.

Cost – Responsiveness Efficient Frontier:

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 Responsiveness

High

Low
High Low
Cost
For a given level of high responsiveness, the cost can not go beyond the lowest point as
shown in the above graph.

The Responsive Spectrum:

Highly Somewhat Somewhat Highly

Efficient Efficient Responsive Responsive

Any integrated A traditional Most Automotive Reliance Fresh

Plant make – to stock production
Manufacturing

Step 3: Achieving Strategic Fit: This step aims to match supply chain responsiveness
with the implied uncertainty from demand and supply. The supply chain design and all
functional strategies within the firm must also support the supply chain’s level of
responsiveness.

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Finding the zone of strategic fit:

Responsive
Supply Chain

Zone
Responsiveness of
Spectrum Strategic
Fit

Efficient Supply
Chain

Certain Implied Uncertain

Demand Uncertainty Demand
Demand

Fit between Competitive and Functional strategies:

Competitive Strategy

Product Supply Chain Strategy Marketing and Sales

Development Manufacturing Strategy
Strategy Inventory
Lead Time
Purchasing
Transportation

Information Technology Strategy

Finance Strategy

Human Resources strategy

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 UNIT II
LOGISTICS MANAGEMENT
Logistics:
The process of moving and positioning inventory to meet customer requirements at the
lowest possible cost.
Logistics Management:
The managerial responsibility to design and administer a system to control the flow and
positioning of material, work-in-process, and finished inventory to support business
strategy

Logistics Structure:

Components of logistics management:

Warehousing:
WAREHOUSING
A warehouse is a commercial building for storage of goods. Warehouses are used by
manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc.
They are usually large plain buildings in industrial areas of cities and towns. They usually
have loading docks to load and unload goods from trucks. Sometimes warehouses load
and unload goods directly from railways, airports, or seaports. They often have cranes
and forklifts for moving goods, which are usually placed on ISO standard pallets loaded
into pallet racks.

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 Types of Warehouses

The warehouse is the most common type of storage though other forms do exist (e.g.,
storage tanks, computer server farms). Some warehouses are massive structures that
simultaneously support the unloading of numerous in-bound trucks and railroad cars
containing suppliers’ products while at the same time loading multiple trucks for
shipment to customers.

Below we discuss five types of warehouses:

 Private Warehouse - This type of warehouse is owned and operated by channel

suppliers and resellers and used in their own distribution activity. For instance, a
major retail chain may have several regional warehouses supplying their stores or
a wholesaler will operate a warehouse at which it receives and distributes
products.
 Public Warehouse - The public warehouse is essentially space that can be leased
to solve short-term distribution needs. Retailers that operate their own private
warehouses may occasionally seek additional storage space if their facilities have
reached capacity or if they are making a special, large purchase of products. For
example, retailers may order extra merchandise to prepare for in-store sales or
order a large volume of a product that is offered at a low promotional price by a
supplier.
 Automated Warehouse - With advances in computer and robotics technology
many warehouses now have automated capabilities. The level of automation
ranges from a small conveyor belt transporting products in a small area all the
way up to a fully automated facility where only a few people are needed to handle
storage activity for thousands of pounds/kilograms of product. In fact, many
warehouses use machines to handle nearly all physical distribution activities such
as moving product-filled pallets (i.e., platforms that hold large amounts of
product) around buildings that may be several stories tall and the length of two or
more football fields.
 Climate-Controlled Warehouse - Warehouses handle storage of many types of
products including those that need special handling conditions such as freezers for
storing frozen products, humidity-controlled environments for delicate products,
such as produce or flowers, and dirt-free facilities for handling highly sensitive
computer products.
 Distribution Center - There are some warehouses where product storage is
considered a very temporary activity. These warehouses serve as points in the
distribution system at which products are received from many suppliers and
quickly shipped out to many customers. In some cases, such as with distribution
centers handling perishable food (e.g., produce), most of the product enters in the
early morning and is distributed by the end of the day.

Processes and IT

Major warehousing processes include:

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  Receiving
 Put away
 Order preparation / picking
 Shipping
 Inventory management (cycle counting, addressing...)

Warehouses frequently provide services, such as:

 Co-packing
 Kitting
 Repair

A piece pick, also known as broken case pick, split-case pick, each pick, over-pack or
pick/pack, is a type of order selection process where product is picked and handled in
individual units and placed in an outer carton, tote or other container before shipping.
Catalog companies and internet retailers are examples of predominantly piece-pick
operations. Their customers rarely order in pallet or case quantities; instead, they
typically order just one or two pieces of one or two items.

Material direction and tracking in a warehouse can be coordinated by a Warehouse

Management System (WMS), a database driven computer program. Logistics personnel
use the WMS to improve warehouse efficiency by directing putaways and to maintain
accurate inventory by recording warehouse transactions.

Warehouse management system

A warehouse management system, or WMS, is a key part of the supply chain and
primarily aims to control the movement and storage of materials within a warehouse and
process the associated transactions, including shipping, receiving, putaway and picking.
The systems also direct and optimize stock putaway based on real-time information about
the status of bin utilization.

Warehouse management systems often utilize Auto ID Data Capture (AIDC) technology,
such as barcode scanners, mobile computers, wireless LANs and potentially Radio-
frequency identification (RFID) to efficiently monitor the flow of products. Once data
has been collected, there is either a batch synchronization with, or a real-time wireless
transmission to a central database. The database can then provide useful reports about the
status of goods in the warehouse.

The objective of a warehouse management system is to provide a set of computerized

procedures to handle the receipt of stock and returns into a warehouse facility, model and
manage the logical representation of the physical storage facilities (e.g. racking etc),
manage the stock within the facility and enable a seamless link to order processing and
logistics management in order to pick, pack and ship product out of the facility.

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Warehouse management systems can be stand alone systems, or modules of an ERP
system or supply chain execution suite.

The primary purpose of a WMS is to control the movement and storage of materials
within a warehouse – you might even describe it as the legs at the end-of-the line which
automates the store, traffic and shipping management.

In its simplest form, the WMS can data track products during the production process and
act as an interpreter and message buffer between existing ERP and WMS systems.
Warehouse Management is not just managing within the boundaries of a warehouse
today, it is much wider and goes beyond the physical boundaries. Inventory
management,inventory planning, cost management, IT applications & communication
technology to be used are all related to warehouse management. The container storage,
loading and unloading are also covered by warehouse management today.Warehouse
management today is part of SCM and demand management. Even production
management is to a great extent dependent on warehouse management. Efficient
warehouse management gives a cutting edge to a retail chain distribution company.
Warehouse management does not just start with receipt of material but it actually starts
with actual initial planning when container design is made for a product. Warehouse
design and process design within the warehouse (e.g. Wave Picking) is also part of
warehouse management. Warehouse management is part of Logistics and SCM.

Warehouse Management monitors the progress of products through the warehouse. It

involves the physical warehouse infrastructure, tracking systems, and communication
between product stations.

Warehouse management deals with receipt, storage and movement of goods, normally
finished goods, to intermediate storage locations or to final customer. In the multi-
echelon model for distribution, there are levels of warehouses, starting with the Central
Warehouse(s), regional warehouses services by the central warehouses and retail
warehouses at the third level services by the regional warehouses and so on. The
objective of warehousing management is to help in optimal cost of timely order
fulfillment by managing the resources economically. Warehouse management =
"Management of storage of products and services rendered on the products within the
four walls of a warehouse"

Transportation
Transport involves
– equipment (trucks, planes, trains, boats, pipeline),
– people (drivers, loaders & un-loaders), and
– decisions (routing, timing, quantities, equipment size, transport mode).
When deciding the transport mode for a given product there are several things to
consider:
• Mode price
• Transit time and variability (reliability)

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 • Potential for loss or damage.
Transport Cost:
– Fixed costs:
• Terminal facilities
• Transport equipment
• Carrier administration
• Roadway acquisition and maintenance [Infrastructure (road, rail,
pipeline, navigation, etc.)]
– Variable costs:
• Fuel
• Labor
• Equipment maintenance
• Handling, pickup & delivery, taxes
Transportation Objectives:
1. To move product from an origin location to a prescribed destination
2. Minimize costs (Temporal, Financial and Environmental) and expenses (Loss or
damage )
3. Meet the customer demands regarding delivery performance and shipment
information availability
Transportation functionality:
Provides two major functions
– Product Movement :
• Primary function of moving products up and down the value chain
• Involves movement of materials, components, work-in-progress or finished
goods between phases of production and to the ultimate consumer
– Product storage
• Transportation vehicles offers expensive, temporary storage of the product
• It is justified
– From the total cost or performance perspective when loading and unloading
costs are high,
– In case of capacity constraints
– By its the ability to extend lead times

Fundamental principles underlying transportation management and operations:

– Economy of Scale:
• Transportation cost ά 1
per unit of weight size of shipment increases
• Large capacity vehicles cost (water and rail) < Small capacity
vehicles (Motor or air)
• Fixed expenses (admin costs of taking an order, time to position
vehicle for loading and unloading, invoicing, equipment cost) are
spread out
– Economy of Distance (Tapering Principle):
• Transportation cost per unit ά Distance
• Fixed expenses are spread out thereby decreasing the cost

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Participants in Transportation Decisions

Information Flow Goods Flow

• Carrier (party that moves or transports the product)

– Vehicle-related cost
– Fixed operating cost
– Trip-related cost
• Shipper (party that requires the movement of the product between two
points in the supply chain)
– Transportation cost
– Inventory cost
– Facility cost
• Government (party that is interested in the impact of transportation on the
economy)
– Regulation: restrictions on the markets served by the carriers, price
setting
– Promotion: Support in R&D, providing rights of way as roadways, air
traffic control systems
– Ownership: Govt owned carriers that control the markets, services
and rates
Transport Infrastructure:

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 • It consists of the rights-of-way, vehicles and carrier organizations that offer
transportation services for hire or internal basis
• The nature of infrastructure determines the economic and legal
characteristics of the modes of transport

Modes of Transport:

• Rail
– Low cost, high-volume [Products: Heavy industry, minerals, chemicals,
agricultural products, autos, etc.]
– Improving flexibility
– intermodal service
• Water
– One of oldest means of transport
– Low-cost, high-volume, slow
– Bulky, heavy and/or large items (Products: Nonperishable bulk cargo -
Liquids, minerals, grain, petroleum, lumber, etc )]
– Standardized shipping containers improve service
– Combined with trucking & rail for complete systems
– International trade
• Motor

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 – Most used mode
– Flexible, small loads [Products: Medium and light manufacturing, food,
clothing, all retail goods]
– Trucks can go door-to-door as opposed to planes and trains.
• Air
–Rapidly growing segment of transportation industry
–Lightweight, small items [Products: Perishable and time sensitive goods:
Flowers, produce, electronics, mail, emergency shipments, documents,
etc.]
– Quick, reliable, expensive
– Often combined with trucking operations
• Pipeline
– Primarily for oil & refined oil products
– Slurry lines carry coal or kaolin
– High capital investment
– Low operating costs
– Can cross difficult terrain
– Highly reliable; Low product losses

Suppliers of Transportation Services:

Suppliers

Single Mode Specialized Carriers Non operating

Operators Intermediaries

Basic Package Freight Forwarders

Services

Premium Package Shippers

Carriers Associations/
Cooperatives and
Agents
Piggyback/TOFC/ Brokers
COFC/Roadrailer

Containerships

Coordinated air
and truck

UNIT III
NETWORK DESIGN

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Distribution:
Distribution refers to the steps taken to move and store a product from the supplier stage
to a customer stage in the supply chain. Distribution directly affects the supply chain cost
and the customer experience and hence is an important factor influencing the supply
chain profitability.
An appropriate distribution design can be used to build a wide range of supply chain
networks from an efficient to a responsive one, resulting in customers needs being
satisfied at the lowest cost.

Factors influencing Distribution Network Design:

Performance of a distribution network should be evaluated along two dimensions
 Customer needs that are met
 Cost of meeting customer needs
Some components of customer service that are influenced by the structure of the
distribution network include
 Response Time – amount of time it takes for a customer to receive an order
 Product Variety – no. of different products/configurations that are offered by the
distribution network
 Product availability – The probability of having a product in stock when a
customer order arrives
 Customer experience – ease with which customers can place and receive order as
well as the extent to which this experience is customized.
 Time to market – Time it takes to bring a new product to the market
 Order visibility – ability of the customers to track their orders from placement to
delivery
 Returnability – ease with which a customer can return unsatisfactory merchandise
and the ability of the network to handle such returns.

Objective of a supply chain: More no. of facilities - Inventory Transportation

Responsiveness More number of small facilities Increased inventory
Decreases total transportation costs (Inbound transportation – economies of scale
leads to lesser cost, Outbound transportation – Distance is less and hence lesser cost
Efficiency Few facilities of huge capacity Less InventoryIncreases (Inbound is
less but outbound cost is very high)

Changing the distribution network design affects the following supply chain costs

 Inventory Costs
 Transportation Costs
 Facility and Handling Costs
 Information Costs

Total logistics cost = Facility cost+ Inventory cost + Transportation costs

Design Options for a Distribution Network

1. Manufacturer Storage with direct shipping

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 2. Manufacturer Storage with direct shipping and in-transit merge
3. Distributor Storage with package carrier delivery
4. Distributor Storage with last-mile delivery
5. Manufacture/Distributor Storage with customer pickup
6. Retail Storage with Customer pickup

1. Manufacturer Storage with direct shipping

Manufacture
r

Retailer

Customers

Product Flow
Information Flow
Customer places an order with a retailer, who passes over the order information to the
manufacturer
Manufacturer ships the product directly to the customer
Advantage:
+ Inventory is centralized at the manufacturer. Manufacturer aggregates demand
across all retailers and hence enables the supply chain to provide high levels of product
availability with lower levels of inventory.
+ Drop shipping facilitates customization as the product is manufactured after the
customer order is received. So, build to order companies hold only common component
inventories and lower the level of inventory. Also the supply chain offers a variety of
products.
+ This model eliminates the need for a warehouse in the supply chain except at the
manufacturer. This reduces the number of facilities and the fixed cost involved.

Refer book Pg. 99 Table 4-1

2. Manufacturer Storage with direct shipping and In-Transit Merge

 Customer places an order with a retailer, who passes over the order information to
the manufacturer.
 In-Transit merge combines pieces of the order coming from different
manufacturers
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 Factories

Retailer In-Transit Merge by

Carrier

Product Flow
Information Flow

Refer book Pg. 101 Table 4-2

3. Distributor Storage with package carrier delivery

 Customer places an order with the retailer / distributor.
 Manufacturer ships the product to the intermediate warehouses
 Products are transported through package carriers to the customers

Factories

Warehouse Storage by
Distributor/Retailer

Customers

Product Flow
Information Flow

Refer book Pg. 103 Table 4-3

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 4. Distributor Storage with last-mile delivery:
 Customer places an order with the retailer / distributor.
 Manufacturer ships the product to the intermediate warehouses
 The distributor warehouse is located much closer to the customers

Factories

Distributor/Retailer
Warehouse

Customers

Product Flow
Information Flow
Refer book Pg. 105 Table 4-4

5. Manufacture/Distributor Storage with customer pickup

 Customers places orders online or through phone
 Inventory is stored at the manufacturer or distributor warehouse
 Orders are shipped from the storage site to the pickup points
 Customers travel to the pickup points to collect their orders.

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Retailer Cross Dock DC

Pickup Sites

Customers

Customer Flow
Product Flow

Refer book Pg. 108 Table 4-5

6. Retail Storage with Customer pickup

 Customers places orders online or through phone
 Inventory is stored at the retailer warehouse
 Orders are shipped from the storage site to the pickup points
 Customers travel to the pickup points to collect their orders.

Refer book Pg. 109 Table 4-6

Supply Chain Network Design Decisions and Role:

Facility Role – What processes are performed at each facility?

Facility Location – Where should facilities be located?
Capacity Allocation – How much capacity should be allocated to each facility?
Market and Supply Allocation – What market should each facility serve? Which supply
sources should feed each facility?

Factors influencing Network Design Decisions:

1. Strategic Factors

 Offshore facility: low-cost facility for export production

 Source facility: low-cost facility for global production
 Server facility: regional production facility
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  Contributor facility: regional production facility with development skills
 Outpost facility: regional production facility built to gain local skills
 Lead facility: facility that leads in development and process technologies

2. Technological Factors
3. Macroeconomic factors
 Tariffs and Tax Incentives
 Exchange Rate and Demand Risk
4. Political factors
5. Infrastructure factors
6. Competitive factors
 Positive externalities between firms
 Locating to split the market
7. Customer Response Time and Local Presence
8. Logistics and Facility Costs

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Framework for Network Design Decisions:

COMPETITIVE PHASE I
STRATEGY
Supply Chain GLOBAL
Strategy COMPETION
INTERNAL
CONSTRAINTS

PRODUCTION Phase II TARIFFS AND TAX

TECHNOLOGIES INCENTIVE
Regional
COMPETITIVE Facility REGIONAL DEMAND
ENVIRONMENT Configuration
POLITICAL,
AGGREGATE EXCHANGE RATE
FACTOR AND AND DEMAND RISK
LOGISTICS COSTS

PHASE III
PRODUCTION AVAILABLE
METHODS INFRASTRUCTURE
Desirable sites

PHASE IV

Location
FACTOR COSTS LOGISTICS COSTS
Choices

PHASE I: Define a Supply Chain Strategy/ Design

Phase II: Define the Regional Facility Configuration

PHASE III: Select a set of Desirable Potential Sites

PHASE IV: Location Choices Models for Facility Location and capacity Location

Network Optimization
• Market and supply allocation

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 – Demand allocation
• Facility location (and capacity allocation)
– Capacitated plant location model
• Facility location 1-source (and capacity allocation)
– Capacitated plant location model with single sourcing
Demand Allocation:

• Which market is served by which plant?

– Given m demand points, j=1..m with demands Dj
– Given n supply points, i=1..n with capacity Ki
– Each unit of shipment from supply point i to demand point j costs cij
• Serve markets from supply points to demand points
– xij = quantity shipped from plant site i to customer j

n m
Mi n c ij x ij
i 1 j 1

s.t .
n

x
i 1
ij
 D j

xj 1
ij
 K i

x ij
 0

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Capacitated Plant Location:

Which market is served by which plant?

– None of the plants are open, a cost fi is paid to open plant i
– yi = 1 if plant is located at site i, 0 otherwise
– xij = quantity shipped from plant site i to customer j

n n m
Min f y   cij xij
i i
i 1 i 1 j 1

s.t.
n

x  D
i 1
ij j

x  K y
j 1
ij i i

y  {0,1}
i

The Impact of Uncertainty on Network Design

Supply chain design decisions include investments in number and size of plants, number
of trucks, number of warehouses. These decisions cannot be easily changed in the short-
term.There will be a good deal of uncertainty in demand, prices, exchange rates, and the
competitive market over the lifetime of a supply chain network. Therefore, building
flexibility into supply chain operations allows the supply chain to deal with uncertainty in
a manner that will maximize profits.

UNIT III

Purchasing/Procurement:

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It is the process by which companies acquire raw materials, components, products,
services or other resources from suppliers to execute their operations.
Sourcing:
It is the entire set of business processes required to purchase goods and services.
Outsourcing:
The process assigning a supply chain function to a third party is called outsourcing.
A firm hires an outside firm to perform an operation rather than executing the operation
within the firm.

Steps in Procurement:
1. In-house vs outsourcing decision
2. Sourcing process
a. Supplier scoring and Assessment: The process of rating the suppliers
based on their impact on the supply chain cost and surplus. A good
assessment process must track performance along all dimensions such as
price, lead time, reliability, quality and design capability
b. Supplier selection and Contract Negotiation: The appropriate supplier is
identified through the scoring and assessment process and a contract is
negotiated.
c. Design Collaboration: The supplier and the manufacturer work together
while designing components for the final product so that design changes
are communicated effectively.
d. Procurement process: The process in which the supplier sends the product
in response to a buyers order. The goal is to place orders and deliver goods
on schedule at the least possible cost.
e. Sourcing Planning and Analysis: Spending across various suppliers and
components is analyzed in order to identify opportunities to reduce costs.

Benefits of effective sourcing/ Role of third parties in increasing supply chain

surplus:
 Better economies of scale as a result of order aggregation
 Low value items having high demand can be purchased in bulk thereby
reducing the overall cost of purchasing
 Supplier’s products form a major part of the cost and add more value to
the end product. Through design collaboration value can be increased and
the cost can be decreased simultaneously.
 Good procurement processes facilitates co-ordination with the supplier
and thereby improves the forecasting and planning leading to lower
inventory in the supply chain
 Risk is shared and results in higher profits for both the suppliers and the
buyers.
 Purchase price is reduced because auctions increases competition among
suppliers

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Risks of sourcing/Risks of using a third party:
Loss of control:
Introducing a third party into a supply chain beaks the process and increases the
number of entities involved and loss of control over the process.
Underestimation of the cost of co-ordination:
Co-ordination of the supply chain becomes difficult and requires a lot of effort
and cost when specific functions of the supply chain are outsourced to third parties
Reduced customer/supplier contact:
Use of third parties leads to loss of direct contact with the customers as well as
suppliers. This results in loss of knowledge about customers needs, loss of feedback from
customers, increases cost of the supply chain, inappropriate product design, excessive
inventory etc.
Growth in the third party power:
By Outsourcing a function to a third party, a firm loses the chance to develop the
capability in house. Loss of internal capability makes the firm more dependant on the
third party which in turn increases their power.
Leakage of sensitive data:
Using a third party requires the firm to share crucial information and intellectual
rights. Third parties serve several other companies including the competitors nad
therefore poses a threat.
Ineffective contracts:
Contracts with specific performance metrics distort the third party’s incentives
and reduce gains from outsourcing.

Outsourcing process:

Supplier Order
scoring Da t a & Stock POS & Warehousing
and Integrity Query M g mt Display &
assessment M g mt Delivery

Supplier Scoring and Assessment:

• Supplier performance should be compared on the basis of the supplier’s impact on
total cost
• There are several other factors besides purchase price that influence total cost
• Replenishment Lead Time
• On-Time Performance
• Supply Flexibility
• Delivery Frequency / Minimum Lot Size
• Supply Quality
• Inbound Transportation Cost
• Pricing Terms
• Information Coordination Capability
• Design Collaboration Capability
• Exchange Rates, Taxes, Duties

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 • Supplier Viability

Supplier selection
Supplier selection can be performed through competitive bids, reverse auctions, and
direct negotiations
Supplier evaluation is based on total cost of using a supplier
Auctions:
Sealed-bid first-price auctions
– English auctions
– Dutch auctions
– Second-price (Vickery) auctions

Contracts and Supply chain performance:

Contracts to increase product availability and supply chain surplus
• Many shortcomings in supply chain performance occur because the buyer and
supplier are separate organizations and each tries to optimize its own profit
• Total supply chain profits might therefore be lower than if the supply chain
coordinated actions to have a common objective of maximizing total supply chain
profits
• Double marginalization results in suboptimal order quantity
• An approach to deal with this problem is to design a contract that encourages a
buyer to purchase more and increase the level of product availability
• The supplier must share in some of the buyer’s demand uncertainty, however

Buyback or returns contract

• It allows a retailer to return unsold inventory up to a specified amount at an
agreed upon price
• Increases the optimal order quantity for the retailer, resulting in higher product
availability and higher profits for both the retailer and the supplier
• Most effective for products with low variable cost, such as music, software,
books, magazines, and newspapers
• Downside is that buyback contract results in surplus inventory that must be
disposed of, which increases supply chain costs
• Can also increase information distortion through the supply chain because the
supply chain reacts to retail orders, not actual customer demand

Revenue sharing contract:

• The buyer pays a minimal amount for each unit purchased from the supplier but
shares a fraction of the revenue for each unit sold
• Decreases the cost per unit charged to the retailer, which effectively decreases the
cost of overstocking
• Can result in supply chain information distortion, however, just as in the case of
buyback contracts

Quantity flexibility contract:

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 • Allows the buyer to modify the order (within limits) as demand visibility
increases closer to the point of sale
• Better matching of supply and demand
• Increased overall supply chain profits if the supplier has flexible capacity
• Lower levels of information distortion than either buyback contracts or revenue
sharing contracts

Contracts to coordinate supply chain costs

• Differences in costs at the buyer and supplier can lead to decisions that increase
total supply chain costs
• Example: Replenishment order size placed by the buyer. The buyer’s EOQ does
not take into account the supplier’s costs.
• A quantity discount contract may encourage the buyer to purchase a larger
quantity (which would be lower costs for the supplier), which would result in
lower total supply chain costs
• Quantity discounts lead to information distortion because of order batching

Contracts to increase agent effort

• There are many instances in a supply chain where an agent acts on the behalf of a
principal and the agent’s actions affect the reward for the principal
• Example: A car dealer who sells the cars of a manufacturer, as well as those of
other manufacturers
• Examples of contracts to increase agent effort include two-part tariffs and
threshold contracts
• Threshold contracts increase information distortion, however

Contracts to induce performance improvement

• A buyer may want performance improvement from a supplier who otherwise
would have little incentive to do so
• A shared savings contract provides the supplier with a fraction of the savings that
result from the performance improvement
• Particularly effective where the benefit from improvement accrues primarily to
the buyer, but where the effort for the improvement comes primarily from the
supplier

Design Collaboration
 50-70 percent of spending at a manufacturer is through procurement
 80 percent of the cost of a purchased part is fixed in the design phase
 Design collaboration with suppliers can result in reduced cost, improved
quality, and decreased time to market
 Important to employ design for logistics, design for manufacturability
 Manufacturers must become effective design coordinators throughout the
supply chain
 Design for logistics
• Attempts to reduce transportation, handling, and inventory cost

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 • Coors redesigned glass bottle reduced transportation cost
 Design for manufacturability
• Attempts to design products for ease of manufacture (part
commonality, designing symmetrical parts, designing parts to
provide access for catalog parts)

Procurement Process:
 The process in which the supplier sends product in response to orders placed by
the buyer
 Goal is to enable orders to be placed and delivered on schedule at the lowest
possible overall cost
 Two main categories of purchased goods:
 Direct materials: components used to make finished goods
 Indirect materials: goods used to support the operations of a firm
 Differences between direct and indirect materials listed in Table 13.2
 Focus for direct materials should be on improving coordination and visibility with
supplier
 Focus for indirect materials should be on decreasing the transaction cost for each
order
 Procurement for both should consolidate orders where possible to take advantage
of economies of scale and quantity discounts

High Critical items Strategic items

(i.e. components with (i.e. subsystems, electronics
long lead times) for an auto manufacturer)
Critica
lity
Ensure availability Ensure long term
relationship

General items Bulk purchase items

(mostly indirect materials) (small parts, packaging)

Ensure low cost Ensure low cost

Low
Low Value/Cost High

Sourcing Planning and Analysis

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  A firm should periodically analyze its procurement spending and supplier
performance and use this analysis as an input for future sourcing decisions
 Procurement spending should be analyzed by part and supplier to ensure
appropriate economies of scale
 Supplier performance analysis should be used to build a portfolio of suppliers
with complementary strengths
o Cheaper but lower performing suppliers should be used to supply base
demand
o Higher performing but more expensive suppliers should be used to buffer
against variation in demand and supply from the other source

The Bullwhip Effect

An unmanaged supply chain is not inherently stable. Demand variability increases as one
moves up the supply chain away from the retail customer, and small changes in consumer
demand can result in large variations in orders placed upstream. Eventually, the network
can oscillate in very large swings as each organization in the supply chain seeks to solve
the problem from its own perspective. This phenomenon is known as the bullwhip effect
and has been observed across most industries, resulting in increased cost and poorer
service.

Causes of the Bullwhip Effect

Sources of variability can be demand variability, quality problems, strikes, plant fires,
etc. Variability coupled with time delays in the transmission of information up the supply
chain and time delays in manufacturing and shipping goods down the supply chain create
the bullwhip effect. The following all can contribute to the bullwhip effect:

 Overreaction to backlogs
 Neglecting to order in an attempt to reduce inventory
 No communication up and down the supply chain
 No coordination up and down the supply chain
 Delay times for information and material flow
 Order batching - larger orders result in more variance. Order batching occurs in an
effort to reduce ordering costs, to take advantage of transportation economics
such as full truck load economies, and to benefit from sales incentives.
Promotions often result in forward buying to benefit more from the lower prices.
 Shortage gaming: customers order more than they need during a period of short
supply, hoping that the partial shipments they receive will be sufficient.
 Demand forecast inaccuracies: everybody in the chain adds a certain percentage
to the demand estimates. The result is no visibility of true customer demand.
 Free return policies

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 Countermeasures to the Bullwhip Effect

While the bullwhip effect is a common problem, many leading companies have been able
to apply countermeasures to overcome it. Here are some of these solutions:

 Countermeasures to order batching - High order cost is countered with

Electronic Data Interchange (EDI) and computer aided ordering (CAO). Full
truck load economics are countered with third-party logistics and assorted
truckloads. Random or correlated ordering is countered with regular delivery
appointments. More frequent ordering results in smaller orders and smaller
variance. However, when an entity orders more often, it will not see a reduction in
its own demand variance - the reduction is seen by the upstream entities. Also,
when an entity orders more frequently, its required safety stock may increase or
decrease; see the standard loss function in the Inventory Management section.
 Countermeasures to shortage gaming - Proportional rationing schemes are
countered by allocating units based on past sales. Ignorance of supply chain
conditions can be addressed by sharing capacity and supply information.
Unrestricted ordering capability can be addressed by reducing the order size
flexibility and implementing capacity reservations. For example, one can reserve
a fixed quantity for a given year and specify the quantity of each order shortly
before it is needed, as long as the sum of the order quantities equals to the
reserved quantity.
 Countermeasures to fluctuating prices - High-low pricing can be replaced with
every day low prices (EDLP). Special purchase contracts can be implemented in
order to specify ordering at regular intervals to better synchronize delivery and
purchase.
 Countermeasures to demand forecast inaccuracies - Lack of demand visibility
can be addressed by providing access to point of sale (POS) data. Single control
of replenishment or Vendor Managed Inventory (VMI) can overcome exaggerated
demand forecasts. Long lead times should be reduced where economically
advantageous.
 Free return policies are not addressed easily. Often, such policies simply must be
prohibited or limited.

Unit V

CURRENT TRENDS

E-Business:

Electronic Business or "e-Business", may be defined as the utilization of information and

communication technologies (ICT) in support of all the activities of business.

Electronic business methods enable companies to link their internal and external data
processing systems more efficiently and flexibly, to work more closely with suppliers and
partners, and to better satisfy the needs and expectations of their customers.

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In practice, e-business is more than just e-commerce. While e-business refers to more
strategic focus with an emphasis on the functions that occur using electronic capabilities,
e-commerce is a subset of an overall e-business strategy. E-commerce seeks to add
revenue streams using the World Wide Web or the Internet to build and enhance
relationships with clients and partners and to improve efficiency using the Empty Vessel
strategy. Often, e-commerce involves the application of knowledge management systems.

E-business involves business processes spanning the entire value chain: electronic
purchasing and supply chain management, processing orders electronically, handling
customer service, and cooperating with business partners. Special technical standards for
e-business facilitate the exchange of data between companies. E-business software
solutions allow the integration of intra and inter firm business processes. E-business can
be conducted using the Web, the Internet, intranets, extranets, or some combination of
these.

E-Business Model

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 • Business architecture: Business architecture describes the
value creation of the product and/or service offered by
describing the logistics, finance and information flows.
• Rule & Process: Rule & Process describe the logic the
business is based on. Rules include the business logic as well
as the underlying assumptions and beliefs in impact
diagrams.
• IS architecture: IS architecture is a supportive but
constituting element to enable the business architecture and
business rules (process) for e-services. It contains two
elements to facilitate standardization
• Business Bus: The business bus defines the set standards for
data – XML, for protocols – SSL, process and interface
requirements.
• Potential benefit: Potential benefit is described by listing
quantitative (time and cost) and qualitative (flexibility,
quality, knowledge) elements. It addresses partnership
behavior and win-win analysis
E-service and E-process
• The e-service offered of an e-business emerges from the
customer interaction elements of the e-processes
implemented by the company. E-process is any business
process sustaining the operational aspects of an Internet-
centered business model.
E-network
•E-network is any set of e-service cooperating in accordance with
the specifications coming from a set of cooperation processes.
•The composition logic for the parties involved in the e-network
derives from the e-processes of the company that define the e-
network.
E- Cooperation
•(E- collaboration) - E- Cooperation is based on three levels of
abstraction:
–cooperative framework,
–cooperative process,
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–cooperative step
–E-commerce - E-Commerce consists of the buying and selling of
products or e-Process over electronic systems such as the Internet
and other computer networks.
–E-procurement - E-procurement is the business-to-business or
business-to-consumer purchase and sale of supplies and services
through the Internet as well as other information and networking
systems, such as Electronic Data Interchange and Enterprise
Resource Planning.

Business-to-business
Business-to-business (B2B) describes commerce transactions between businesses, such
as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.

The volume of B2B transactions is much higher than the volume of B2C transactions.
The primary reason for this is that in a typical supply chain there will be many B2B
transactions involving subcomponent or raw materials, and only one B2C transaction,
specifically sale of the finished product to the end customer. For example, an automobile
manufacturer makes several B2B transactions such as buying tires, glass for windshields,
and rubber hoses for its vehicles. The final transaction, a finished vehicle sold to the
consumer, is a single (B2C) transaction.

The term "business-to-business" was originally coined to describe the electronic

communications between businesses or enterprises in order to distinguish it from the
communications between businesses and consumers (B2C). It eventually came to be used
in marketing as well, initially describing only industrial or capital goods marketing.
Today it is widely used to describe all products and services used by enterprises. Many
professional institutions and the trade publications focus much more on B2C than B2B.
This is a strange development as most sales and marketing people work in B2B.

Supply Chain IT Framework

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Supplier Relationship Management (SRM)
Overview: SRM is a discipline of working collaboratively with those suppliers that are
vital to the success of your organisation, to maximise the potential value of those
relationships.

There are a number of published concepts regarding effective SRM however it is

generally accepted there are a number of key modules or building blocks. These are:

» Supplier Segmentation
» Accountability
» Process and Governance
» Technology
» Value
» Resourcing

1) Supplier Segmentation: In order to develop or improve SRM, an organisation needs

to implement a supplier segmentation approach that considers the internal needs of the
business, spend, and also accounts for all risk and business criticality factors.
Segmentation traditionally uses 4 categories:

- Commodity - Where little or no SRM activity is undertaken as the suppliers provide

infrequent one off goods or services

- Performance Management - Where focus is placed upon cost and service levels as the
supplier is providing off the shelf goods or short to mid term services that are not
strategically important and are provided from a competitive market environment

- Development - Where focus is placed upon continuous improvement to service levels

and cost as the arrangements are more mid to long term, with some strategic value

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- Partner - Where strategic long term goods and / or service suppliers are managed to
secure supply and drive collaborative engagement with shared benefits

An additional part of Segmentation relates to assessing the 'Power Dependency' of a

relationship where approach, strategy, engagement and messaging tactics can be
identified for certain types of supplier.

2) Accountability: Executive involvement is critical to the success of aligning the

respective organisations strategic objectives and forms the basis of building a partnership
and ultimately unlocking value for both organisations. The key challenge is who owns the
supplier relationship, with 9 ownership types having been identified.

Procurement functions should take the central role in coordinating supplier relationships,
whilst owning and co-ordinating the process, governance and technology.

3) Process and Governance: Organisations have ‘pockets of excellence’ of clearly

articulated processes and roles often led by the IT function. Organisations have often
approach process and governance in a ‘one size fits all’ approach and are yet to tailor
processes and roles and responsibilities to the different supplier segments.

4) Technology: Current SRM technology is limited although State of Flux has developed
a Supplier Management System (SMS) which is used by a number of the worlds leading
organisations.

Traditionally there has been confusion about SRM solutions available with organisations
implementing contract management systems or supplier performance management
solutions as an alternative (which are still important but not SRM).

Leading SRM organisations are using SRM technology as the ‘change agent’ to get
stakeholders and wider business buy in.

5) Value: SRM needs to deliver both ‘hard and soft benefits’. That is cost savings as a
‘hard benefit’ and ‘soft benefits’ such as access to innovation and increased new product
speed to market.

6) Resourcing: The three key skills required for procurement to implement successful
SRM are: market & category knowledge, cross-functional working and commercial &
contractual expertise. The current SRM role is viewed as a task to be performed in
addition to the ‘day job’ and a lot of organisations have yet to implement a Supplier
Account Management structure with dedicated resource and set roles and responsibilities.

CRM:
A management philosophy according to which a company’s goals can be best achieved
through identification and satisfaction of the customers' stated and unstated needs and
wants.

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A computerized system for identifying, targeting, acquiring, and retaining the best mix of
customers.
Customer relationship management helps in profiling prospects, understanding their
needs, and in building relationships with them by providing the most suitable products
and enhanced customer service. It integrates back and front office systems to create a
database of customer contacts, purchases, and technical support, among other things. This
database helps the company in presenting a unified face to its customers, and improve the
quality of the relationship, while enabling customers to manage some information on
their own.

Why CRM?
 Relationship between merchant and customers is distant
 Less expensive to keep customers than to acquire new ones
 Repeat customers have higher lifetime value than one-time buyers
How to retain customers?
Employ tracking devices
 Personalize each visitor’s experience
 Find trends in customer use
 Measure effectiveness of a Web site over time
1. ID cards
An ID card enables information to be sent to a Web site such as your IP address,
your browser, or your operating system
2. Click-through banner advertisements
 Click-through ads enable visitors to view a service or product by clicking
the ad
 Advertisers can learn what sites generate sales
3. Web Bugs
 A type of image file embedded in an image on the screen
 Site owners allow companies, especially advertising companies, to hide
these information-collecting programs on various parts of their sites
 Every time a user requests a page with a Web bug on it, the Web bug
sends a request to the Web bug’s company’s server, which then tracks
where the user goes on the Web
4. Log-File Analysis
When visiting a site, the user submits a request and this is recorded in a log file
 Log files consist of data generated by site visits, including each visitor’s
location, IP address, time of visit, frequency of visits, etc.
 Log-file analysis organizes and summarizes the information contained in
the log files
 Can be used to determine the number of unique visitors
 Can show the Web-site traffic effects of changing a Web site or
advertising campaign
5. Data Mining
Data mining (building on a data warehouse)
 Uses algorithms and statistical tools to find patterns in data gathered from
customer visits

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  Costly and time consuming to go through large amounts of data manually
 Use data-mining to analyze trends within their companies or in the
marketplace
 Uncovered patterns can improve CRM and marketing campaigns
 Discover a need for new or improved services or products by studying the
patterns of customers’ purchases
6. Customer Registration
 Requiring visitors to fill out a form with personal information that is then used to
create a profile
 Only works when it will provide a benefit to the customer
 When customers log on using usernames and passwords, their actions can be
tracked and stored in a database
 Require only minimum information
 Need to give customers an incentive to register
7. Cookie
 A text file stored by a Web site on an individual’s personal computer that
allows a site to track the actions of a customer
 Information collected is intended to be an anonymous account of log-on
times, the length of stay at the site, purchases made on the site, the site
previously visited, the site visited next
 Does not interact with other information stored on the system
 Can only be read by the host that sets them on a person’s computer

8. Personalization
 Uses information from tracking, mining and data analysis to customize a person’s
interactions with a company’s products, services, Web site and employees
 Establish relationships that improve each time visitors return to site
 Customers may enjoy individual attention and become more loyal
9. Contact Centers
 Traditional call centers house customer-service representatives
 e-contact center
 Purpose is the same—to provide a personal customer service experience
 Allow customers with Internet access to contact customer service
representatives through e-mail, online text chatting or real-time voice
communications
 Integration of all customer service functions
 Can change the culture of customer service representatives:
 More technically knowledgeable to handle all forms of contact
 Provide a highly personalized experience that satisfies customers
 New forms of contact can decrease costs
 Outsource contact center services
 May be appropriate if a company cannot afford to implement a contact
center due to the costs of equipment, office space, service representatives
and technical support.
10. Frequently Asked Questions (FAQs)
 A Frequently Asked Questions (FAQ) section on the site

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  Will help customers find answers to some of their questions
 Frees up time to handle questions that can not be answered without human
interaction
 Typically accompanied by phone numbers, e-mail addresses, and a search engine
E-Marketing Management
E-mail Marketing: Alerts, E-Newsletter Management
E-Surveying: Progressive Profiling Management
Viral Marketing: Tell-a-Friend Management
Web Design: Registration, Subscription, VIP Management
Online Community / E-Suggestion Box / Blog Management
E-Commerce: Memberships, Event Registration Management
Affiliate Management: Sponsorship Management (Boston Symphony)
Reporting / Analysis: Profiles, Behaviors

TRADITIONAL FORM OF CRM

The existing CRM solution are not capable enough to satisfy and retaining customers and
also there is no integrated tool which connect the Central sales management, regional
sales office, customers care, sales, sales distribution, regional sales team in effective
manner.
A 360 view requires the automation to bring together all the data concerning a customer.
This implies that organizations have to change the form :
TRADITIONAL CRM EMERGING SOLUTION

Mass production Product focus

Product focus Customer focus

1way communication Interactive communication

Response time Real time responses

IMAPCT OF E-COMMERCE ON CRM

In a fast changing internet world there are very clear trends that are emerging :
 Speed: people expect service at fast speed
 Increase of global market place: more more people , communities across the globe
are able to build relationships.
 Round the clock availability

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  Expansion of partners: internet offers the ability for the organizations and people
alike to partner with suppliers and customers alike across the globe.

In global market place the channels of marketing causes an impact on the buying
behavior of individuals as well as organizations such as :
1. Vertical Market place: Industry specific market place where organized buyers and
sellers can meet, list, negotiate, make orders and track delivery.
2. Buy site and Sell site: where consumers and organization are alike can buy or sell
online through online shopping mart concept.
3. Horizontal Market Place: service that runs across the different vertical e-market
places or business to customers (B2C) buy and sell sites. Such sites should be
delivery sites, insurance etc.
4. Use of internet to optimize supply chain management(SCM) : earlier
organizations use to use EDI rather than the expensive preposition for limited
numbers of partners but now organizations are implementing new ERP systems to
optimize its SCM

e-CRM
 With the abundance of product and services offerings, consumer`s loyalty can
only be commanded by providing better portfolio of services.
 Speed of response and understanding each individual one of the major key issues
CRM has become the central focus area around which the entire gamut of
organizational activity has to revolve round.

What is e-CRM ?
In simplest terms e-crm provides company to conduct interactive, personalized and
relevant communications across the globe with their customers by utilizing the traditional
and electronic channels both.
It adheres to permission based practices, respecting individual's preferences regarding
how and whether they wish to communicate with you and it focuses on the understanding
how the economics of the customers relationships affects the business.
e- CRM is the electronic based version of CRM. The user of the a e- CRM solution uses
the sources of the internet to increase the relationship with the customer.
Web based CRM can easily handle the relationships between Central sales
management, regional sales office, customers care, sales, sales distribution, regional sales
team.

Why employ e-CRM ?

 To optimize the value of the interactive relationships
 Enable the business to extends its personalized reach in the hand of customers
 Co-ordinating marketing initiatives across the all customers channels
 Leverage the customer`s information for more effective e-marketing and e-
business
 Focus the business on improving the customers relationship and earning a greater
share of each customer`s business through consistent measurement, assessment
and actionable customer strategy.

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The six “E`s” of e-CRM
The ‘e’ not only stands for “electronic” but also perceived to have many other
connotations. Through the core of CRM remains to be cross channel integration and
optimization. The six “E” of e-CRM are briefly explained below:
1. Electronic channels: new electronic channels such as web and personalized e-
messaging have become a medium for fast and interactive , economic
communication , challenging company to keep pace with the increased velocity. E
– crm thrives on these electronic channels.
2. Enterprise : through e- CRM the company gains the mean to touch and shape a
customers experience through sales, services and corners offices whose occupants
need to understand and assess the customers behavior.
3. Empowerment: it must be structured to accommodate consumers who now have
the power to decide when and how to communicate with the company. Through
,which channel , at what frequency. An e- CRM must be structured to deliver
timely pertinent, valuable information that consumers accepts in exchange of
his/her attention.
4. Economics : an e-CRM strategy ideally should concentrate on the consumer
economics, which drives smart asset allocation decisions, directing efforts at
individuals likely to provide the greatest return on customer- communication
initiatives
5. Evaluation: understanding the customers relies on a company`s ability to
attribute customers behavior to market programs, evaluate customer interactions
along various customers touch points channels and compare anticipate ROI
against actual returns through analytic reporting
6. External Information : the e-CRM solution should be able to gain and leverage
information from such sources as third party information networks and webpage
profiler application.
Acquisition (increasing the no. of customers)
Expansion (increasing the profitability by encouraging customers to purchase
more products and services)
Retention (increase the amount of time in which the customers stays with
company, making a long-term relationship)

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KEY FEATURES OF e-CRM
 Regardless of an company objectives e-CRM solution must posses certain key
characteristics. It must be:
 driven by a DATA WAREHOUSE
 Focused on the consistent metrics to asses customers actions across the channels
 Structured to identify a customer profitability or profit potential
 To determine the effective allocation decisions accordingly, so that most
profitable customers could be indentified and retained and the resource could be
invested in the relationships, which are more profitable.

EVOLVING TO e-CRM
In nutshell company a company evolving to e-CRM should be:
 Define its business objective. This would be specific and different for different
businesses
 Assess its current position with respect to the environment and determine its
current level of “sophistication” along the e-CRM continuum ( e-CRM
assessment)
 Define new business processes and align its existing business strategy and
existing processes in line with the new realities (e-CRM Strategy alignment)
 Define a technical architecture and the criteria`s associated with this architecture
and the important criteria associated with this architecture. (e-CRM)

E-CRM architecture
The primary input to this module are mainly from the e-CRM assessment and strategy
alignment modules. during this stage the company will try and develop a connected

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enterprise architecture(CEA) within the context of the companies' own customers
relationship management strategy. The following is set of technical e-CRM capabilities
and applications that collectively and ideally comprise a full e-CRM solutions :
 Customers analytic soft wares
 Data mining soft wares
 Campaign management soft wares
 Business simulation
 A real time decision engines
Customer analytic software : predicts ,measures and interprets the customers behavior
allowing companies to understands the effectiveness of e-CRM efforts across both
inbound and outbound channels. Most importantly, customers analysis should integrate
with customers communication software to enable the company to transform customer
findings into ROI- producing initiatives.
Data mining software :it builds the predictive models to identify customers most likely
to perform a particular behaviors such as purchase an upgrade or churn from the
company. Modeling must be tightly integrated with the campaign management software
to keep the pace with the multiple campaign running daily or- weekly.
Campaign management soft wares : leverages the data wares house to plan and execute
multiple, highly targeted campaigns overtimes, using triggers that respond timed events
and customers behavior. Campaign management software test various offers against
controls groups, capture promotion history for each customers and prospect and produces
output virtually any online or offline customers touch point channel.
Business simulation : it is used with conjunction with campaign management software
optimize offer, messaging and channel delivery prior to the execution of campaigns and
compare planned cost and ROI projection with actual cost.
Real time Decision Engine: A real time decision engine coordinates and synchronizes
communications across disparate customer touch point systems. It contains business
intelligence to determine and communicate the most appropriate message offer, and
channel delivery in real time and support a two way dialogue with the customer. Its
decision powers assess customers activities at the touch points in conjunction with the
profile of that customer stored in the data warehouse. With this information, it responds
to an inbound message, selecting any web personalization product of the best offer to
present to a web visitor. In real time, there are business rules that determine the
responses.

Applications of e-CRM:
1. Sales Applications:
Sales Force Automation (SFA) solutions are aimed to streamline sales process
phases, minimizing manual data entry and administration time for the Sales
Representatives – leading to more number of potential customers attended in
shorter time spans. It includes a robust and yet easy to use Sales Contact
Management and Tracking System (SCMTS) for tracking and managing every
stage in the sales process for each potential customer, from first call to final
disposition. Additional management functionalities like opportunity management,

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 Sales Area management, Pipeline Management, quote generator, and
product/service knowledgebase management.
2. Marketing Applications:
Marketing Automation Solutions are aimed to help the organization’s
marketing policy makers to identify and target the right section of customers and
generate prospective leads for the sales force. The functional modules are built to
provide easy-to-use interfaces for managing and measuring multi-channel
marketing campaigns, including email, search, social media, and direct mail. The
impact measuring metrics monitored include clicks, responses, leads, deals, and
revenue. The system also includes tools for creating internal marketing resources
and knowledgebase sharing, managing customer lists and trend prediction too.
3. Customer Service and Support Applications:
These systems are aimed towards improving customer’s experience as a customer
of an organization as well as maintain a logical and collaborative environment to
provide 24X7 customer service and technical support at a low cost. The functional
modules of these solutions encompass ticket based support systems, live chats,
knowledgebase management ,email response management and media-rich help
workshops

4. Integrated Solutions:
These systems combine the power of all the above mentioned systems and
provide an integrated CRM solution. An elaborate user and roles management
system facilitates inter-department and intra-department collaboration in this
integrated environment. This along with document and resource sharing ,
workflow automation and performance analysis tools helps all the personnel
involved in customer centric activities work in an integrated collaborative
environment and reduce time overheads at lower costs.

REVERSE LOGISTIC:
Logistics is defined by the council of Logistic management as,
“The process of planning ,implementing and controlling the efficient ,cost effective
flow of materials ,in process inventory ,finished goods& related informations from the
point of origin to point of consumption for the purpose of conforming to customer
requirements”.
Reverse logistic encompasses all these activities as they operate in reverse .therefore
it can be defined as
“The process of planning ,implementing and controlling the efficient, cost
effective flow of materials ,in process inventory, finished goods& related information
from the point of consumption to point of origin for the purpose of conforming to
customer requirements”
More precisely, reverse logistic is the process of moving goods from typical final
destination for the purpose of capturing value or proper disposal .It includes
remanufacturing and refurbishing activities.
Reverse logistic , the resources goes at least one step backwards in the supply
chain. for eg, goods move from customer to distributor or to manufacturer.

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Reverse logistic activities:
Reverse logistic activities would be the process of a company used to collect used
,damaged, unwanted or outdated products ,as well as packaging &shipping materials
from the end users or the reseller
Once a product has been returned to a company , the firm has many
disposal options as’
1.Return to supplier.
2.Resell
3.Sell via outlet
4.Recondition
5.Refurbish
6.Remanufacture
7.Reclaim materials.
8.Recycle
9.Landfill
If the product can be returned to the supplier for a full refund ,the firm may
choose this option first.
If the product has not been used, it may be resold to a customer ,or it may be sold
through an outlet store.
If it is not of sufficient quality to be sold through either or options, it may be sold
to a salvage company that will export product to a foreign market.
If the product cannot be sold ”as is” .or if the firm can significantly increase the
product, the firm may prefer these activities in-house ,a firm third party may be
contracted ,or the product can be sold outright to a
reconditioning/remanufacturing/refurbishing firm.
After performing these activities, the product may be sold as a reconditioned or
remanufactured product, but not as new.
If the product cannot be reconditioned in anyway because of its poor condition ,legal
implication, or environmental restrictions, the firm will try to dispose of the product for
the least cost. Any valuable materials that can be reclaimed will be reclaimed and any
other recyclable materials will be removed before the reminder is finally sent to a land
fill.
Generally, packaging materials returned to a firm will be reused. Clearly reusable
totes &pallets will be used many times before disposal. Damaged materials will be
refurbished & returned to use. this work can be done in-house, or using companies whose
sole mission is to fix broken pallets and refurbish packaging. once repair can no longer be
made, the reusable transport packaging must be disposed of. However before it is sent to
a land fill, all salvageable materials will be reclaimed.
In short ,reverse logistic activities related to packaging materials ar
1.Reuse
2.Refurbish
3.Reclaim materials.
4.Recycle.
5.Salvage.

Classification:

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 Reverse logistic can include a wide variety of activities .those are further
classified as
Whether the goods in the reverse flow are coming from the end user or from
another member of the supply chain parties.
Whether the materials in the reverse flow are the product or package products.
Based on these factors, framework for the reverse logistic are characterized as

SUPLLY CHAIN PARTIES END USERS

P 1.Stock balancing returns. 1.Defective/unwanted products
R 2.Marketing returns. 2.Warrenty returns.
O 3.End of life/season 3.Recalls
D 4.Transit damage. 4.Environmental disposal issues
U
C
T
P 1.Rleusable returns. 1.Reuse
A 2.Multi trip packaging 2.Recycling
C 3.Disposal Requirements 3.Disposal restriction.
K
A
G
I
N
G

If the product enters the reverse logistics flow from a customer , it may be a
defective product, or the consumer may have claims it was defective in order to be able to
return it. The consumer may believe it to be defective even though it is really in perfect
order. This category of returns is called “non defective defectives”.
If the product has not yet reached the end of its useful life the consumer may have
returned the product for service or due to a manufacturer recall. If the product has
reached the end of its useful life ,the customer may ,in some cases, return the product
properly, or reclaim materials.
If the supply chain partners returns a product due to an over-ordered marketing.
Promotions, or because the product failed to sell as well as desired. Also the product may
have come to the end of its life, or to the end of its regular selling season. Finally the
product may have been damaged.
In early days majority of reverse logistic activities were mainly for products only.
but now a days there is increase in number cages. Thus concentration of reverse logistic
activities were increased in packaging. This is also included various activities based on
the sources of return like end users or supply chain partners.

Strategic uses of reverse logistic:

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1.Reverse logistic as strategic weapon:
The strategic use of reverse logistic capabilities increase the switching cost of
changing supplier. A goal of almost all business is to lock the customer in so that they
will not move to another supplier. There are many ways to develop linkages that make it
difficult &unprofitable for the customer to switch to another supplier.
If the retailer do not have a strategic vision of reverse logistic today, it is likely
that will be in trouble tomorrow. for eg:For an electronic distributer,during a period of
volatile memory chip prices, created a program to reseller better control their inventory
and balance stocks. By allowing reseller to return anything with in the reasonable time
frame, customer were encouraged to keep inventory low and make purchase just in time.

Strategic variable for competition:

Most retailer & manufacturer have liberalized their return polices to meet with
competition pressures.

Return policies changes:

One of the reason for generous return policy is that it leads to improved risk
sharing between seller and buyer.

Good corporate citizenship:

Another use of Reverse logistic is it distinguish a firm by doing well for the other people.
Eg: Hanna Anderson ,textile retailer developed a program called Hanna downs. Here the
customer are asked to mail back the used cloths .so that they can get 20% of
in New cloths &the old cloths can be given to schools homeless shelters &other
charities.
Clean Channel:
Reverse logistic clean out the Customers Inventories, so that same Customers can
Purchase more new goods.
Protect Margin:
Firm clause their inventories and the inventories of their customers and their Customer’s
Customers so that fresher inventories can demand better prices, which return, Protect
margin.
Legal Disposal issuses:
Reverse logistic Overcome the issuses like landfill Increase and option for disposal of
hayardous material decrease. Thus made Non Salvageable Materials to be disposed
legally.

Reverse Logistic Challenges:

Retailer –Manufacturer Conflict:
One of the Difficulties in managing returns is the difference in the objectives of
Manufactures & Retailer .They may have disagree on anyone of the following

1.Condition of the Item

2.Value of the Item
3.Timeliness of Response

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Often from the Retailer perspective, every product was sent back in pristine Condition
and damages must have occurred in transit or must be manufacturing defects.
The manufacturer may support the Retailer of abusing return Privilegs because of poor
planning or of returning Product damaged by the retailers.
Once the Condition is accepted ,the value is considered .The Retailer may claim full
Credit &Manufacturer may display reasons why it does not deserve full Credit. Finally
difference of opinion may arise in Response time of both the parties.
Problem Return Symptoms:
Dr.Richard Dawe of the Fitz Institute of International logistic identified Six Symptoms of
problem Returns .They are
1.Returns arriving faster than processing or disposal
2.Large amount of returns inventory held in the Warhouse
3.Unideutified or unauthorized returns
4.Lenthy processing cycle times
5.Unknowntotal cost of the Return process
6.Customer have lost confidence in the Repair activity.
Ineffective Information Management:
Reverse logistic believes that those who does not manage well the data surrounding their
logistic process, do not generally manage their inventories effectively.

Barriers to Good Reverse logistics:

Some of the barriers in maintaining Good Reverse logistics are

1.Importance of reverse logistics relative to other issues

2.Company policies
3.Lack of systems
4.Competitive issues
5.Managment inattention
6.Financial Resources
7.Personal Resources
8.Legal Issues.

Reverse Logistic Elements:

Some of the Management elements that maintain Reverse logistic activities are as
follows.
a)Gate keeping:
Gate keeping is the screening of defective and un warranted returned merchandise at the
entry point into the reverse logistic process .Good gate keeping is the first the reverse
flow Manageable and profitable.
b)Compact Disposition Cycle time:
A firm must have reduced cycle times related to returns products decisions, movement
and processing in spite of the nature of the returned item whether it is defective ,can be
reused, or refurbished ,or need tope sent to a land fill.

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c)Information System:
A good automated information system must be there in order to allocate resources for the
reverse logistic application .To work well ,a reverse logistic information System has to be
flexible.
Return Transaction processing:
In a truly integrated Supply chain, everyone is the Supply chain can track product as it
moves forward through the channel.
Supply chain parties:
A Reverse logistic activities contains minimum of at least 2 supply chain parties. It may
EDI standards:
Electronic data interchange standards to facilitate the boundary spanning have been
developed to handle returns . This helped to manage the flow of information surrounding
the return process.
Return reason & Disposition codes:
Part of good returns transaction processing is understanding why the items were returned
and how the disposition.

Return reason codes:

1.Repair /service codes:
1.Factory repairs –returns to vendor for repair.
2.Service/Maintenance
3.Agent order error –sales agent ordering error
4. Customer order error-ordered wrong material
5.Entry error-system processing error
6.Shipping error-shipped wrong material
7.Incomplete shipment-ordered items missing
8.Wrong quantity
9.Duplicate shipment
10.Duplicate customer order
11.Not ordered
12.Missing part
2.Damaged /Defective:
1.Damaged
2.Dead or arrival-Did not work
3.Defective- Not working correctly.
3.Contractual agreement:
1.Stock excess-too much stock on hand
2.Stock Adjustment –rotation of stock
3.obsolete-outdated.
4.Other
1.Frieght claim
2.Miscellaneous

Disposition codes:
1. Disposal
1.scarp/destroy

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2.secure disposal
3.donate to charity
4.third party disposal
5.salvage
6.third party sale
2.Repair /modify
1.rework
2.remanufacture/refurbish
3.modify
4.repair
5.return to vendor
3.Others
2.resale
3.exchange
4.miscellaneonus
4.Centralised return centers:
Centralized return centers an processing facilities devoted to handling returns quickly &
flexibly & efficiently.
Here all products of reverse logistic pipeline an brought to a center facility , where they
are sorted , processed and then shipped to next destination .It includes advantages like
they are consistent decision in disposal
1.Space utilization for retailers due to lack of space for returnable items.
2.labour savings
3.improved customer service
4.compacting dispostioning time
5.reduces negative profit impact due to reverse logistic
6.visibility of quality problems
7.improved management information
5.Zero returns:
In zero return program , the manufacturer or distributor does not permit products to come
back through the return channel. Instead , they give the retailer or other downstream
entity a return allowance and develop rules & guidelines for acceptable disposition of the
products. A typical return allowance is 3 1/2 to 4% of sales to the retailer zero return is
simply a discount of the invoiced amount and on getting this the retailer dispose or
destroy the goods.
6.Remanufacture & Refurbishment:
Thierry ,etaal(1995) defined fire categories of remanufacture and refurbishment .they are
repair, refurbishing, remanufacturing, cannibalization and recycling. First 3 categories
involve product recondition and upgrade. cannibalization is simply the recovery of
restricted set of reusable parts from used products. recycling is the reuse of materials
that were part of another product or subassembly.
7.Asset recovery:
Asset recovery is the classification and disposition of returned goods, surplus obsolete
,scarp, waste &excess material product &other asset in a way that maximizes returns to
the owners ,while minimizing the cost & liabilities associated with the dispositions.

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8.Negotiation:
Deal making is a key part of reverse logistic process. Sometime its handled by specialist
third parties.
a)Financial management:
Financial management are the primary determinants in the structure of a reverse logistic
system and the manner of disposition.
b)Outstanding reverse logistic:
Companies started outsourcing the reverse logistic activities to outsource party those
perform the logistic actions.

DISPOSITION AND THE SECONDARY MARKET:

Retail products in a reverse logistic flow can be separated into following categories
1. Close outlets: First quality product that the retailer has decided to no longer
carry.
2. Buy out or lifts: Where one manufacturer buys out retailer’s supply of
competitor’s product
3. Job out: First quality seasonal, holiday merchandise.
4. Surplus: First quality overstock, over run. Marketing return, slow moving
merchandise.
5. Defective: product discovered to be defective.
6. Non defective defectives: product thought to to be defective incorrectly.
7. Salvage: damaged items
8. Returns: product returned by customers.
Product disposition:
They are done in one of the seven channels.
1. Return to vendor
2. Sell as new
3. Sell via outlet or discount
4. Sell to secondary market
5. Donate to charity
6. Remanufacture/ refurbish
7. Material reclamation/recycle/ land fill
Steps to be taken once the product is returned:
It includes
1.gate keeping
2.collection
3.sortation.
4.disposition.

Secondary market:
The secondary market is a term for collection of liquidators, wholesalers, exporters,
brokers and retailers who sell product that has not sold through primary market.
The secondary market firm then sell the product through their own store or to the other
mark down retailers, such as Dollar stores.

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Flow of return and secondary market goods:

manufacturer retailers customers

 Returns
 Job outs
 Close outs
 Surplus
 Seconds  salvge
 Close outlets
 Surplus Secondary
 salvage market

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