SCM &Dstrbtn Mnagmntclass Notes
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SUPPLY CHAIN
MANAGEMENT
&
DISTRIBUTION MANAGEMENT
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DISTRIBUTION MANAGEMENT
Distribution management that arm orwing
ofmanagement whichserves as a link
between procurement, purchase,manufacturing, marketing,sales, &
finance, properfunctioning ofwhich
synergizesthe effectsofall these activities
andthe absence ofwhichcannotonlyreduce efficienciesbutcan leadtochaos
inthe organization
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LOGISTICS MANAGEMENT
International Council ofLogistics
Managementdefined Logisticsin 1991
the processofplanning implementingandcontrolling the efficient effective flow
andstorage ofgoodsservices andrelated
informationfrom the pointoforigintothe
pointofconsumptionforthe purpose ofconforming tocustomerrequirements
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A typical supplychain
Raw material supplier
packing material supplier
componentsupplierFactory
warehouse
distributor
retailer
customer
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supplychain
RM
PM
fcty
fcty
3p
CWH
C&fa
C&fa
C&fa
Db St
Db
R R
R
R
c c c c
c c c
cc
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criticalityofdistribution &
logisticsfunctionProfit = revenue lesscosts (cos + s&d,m)revenue is a functionofvolume & netrealization (whatisnetrealization)
volume dependenton promotional inputscostsdependentoninputsbothdifficulttoreduceoften economiesofscale are not possiblewhen procurementisconcernedso gap canbe improvedbyoptimizingoperational efficiencies / processes
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criticalityofdistribution &
logisticsfunction Processoptimization bettercapacityutilization
in manufacturing orbetterdealsin procurement
Optimizationintransportation more bulk
movementsbettercapacityutilization
Proper locationofdistributioncenterstoreduce
overall inventory / transportationcosts
Reducing overall inventoryrequirements Improving customerservice levels
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conceptofvalue chain
S
U
P
P
O
R
T
SYSTEMS & TECHNOLOGIES
COMPANYS INFRASTRUCTURE
PROCUREMENT
ORGANIZATION PEOPLE & METHODS
MKTG
&
SALES
OUT
BOUND
LOGI-STICS
OPER-
ATIONS
SER-
VICE
G
R
OS
S
M
A
R
GI
N
PRIMARY ACTIVITIES
IN
BOUND
LOGI-STICS
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competitive advantage
competitive advantage derivesfrom the value acompanycreatesforitscustomers which maybeselling an equivalent product atbelow
competitors price orproviding additional unique benefitstocustomerstooffset premium price beingcharged
inthe value chaindiagram 2 outof5 primaryactivities are inthe area of logisticsandherein liesthe criticalityofdistributionfunctioninthe value chain
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logistics as aninterface
s
a
le
functional interest logistics interface
p
r
d
c
n
h
i
h
i
business impact
lo
customer
service
production
constraints
increased revenue thru
mktg.of more variants
rapid intrdctn of new
prdcts/modelsmore credits in market
f
i
n
costeffective prdctn thru
longer runs ofsame batch
manufacturing suiting
production schedules
purchasing agnst cash
l
o
hil
o
strong controls on
costs & investments
strict credit norms
costs
investments
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logisticsinterface
PRDCTN/
OPERTNS
SAMPLEACTIVITIES:
QLTY CNTR
PRDCTN
SCHDLNG
EQPMNT
MAINTNCE
INTERFACE
ACTIVITIESPRDCT
SCHDLNG
PLANT
LOCATION
PURCHASING
LOGISTICS
SAMPLE
ACTIVITIES
TRANSPORTATION
INVENTORY
ORDER
PROCESSING
WAREHOUSE
INTERFACE
ACTIVITIES
CUSTOMER
SERVICE
PRICING
PACKAGING
MARKETING
SAMPLE
ACTIVITIES
PROMOTION
MARKET
RESEARCH
PRODUCT MIXSALES FORCE
MANAGEMENT
PRODUCTION/LOGISTICS
INTERFACE
MARKETING/LOGISTICS
INTERFACE
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logistics as aninterface
Timely & accurate forecastscanreduce areasofconflict allowing operationstobetterplanproductions
Reducing performance cycle timereducing transportationtimereducing response time acrossthe supplychainthroughstrategic placementsofmother/ feeder
depotsfasterorderprocessing caninturnimprovecustomerservice & reduce customeroutstandings
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distribution planning
how do we
know we
have
arrived
where
are we
now
where do
we want
to be
how do
we get
there
audit distribution
performance
define distribution
mission
develop distribution
strategy
design distribution
controls
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distribution mission
While marketing missionscanbe like:we wanttobe the largest providerofpleasuretravel we wishtobe world leadersin
information processing technology oursis acompanythat will provide total dental care
Distribution missionscanbe a little different:ourproducts will be available at all retail pointsinthe country none ofourproductson anyshop shelfwill be more than 2 monthsoldall customerorders will be serviced within 24hrsofreceipt
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distributionstrategy
The mission will have take stockofground
realities
thusifcurrent presence in marketis @ 30%
level a missionstatement ourproducts will beavailable at all retail pointsinthe country may
sound a bithollow
Thusthe missionstatement will have totake into
accountthe presentsituation whichis whysome
rethinking at eachstage maybecome necessary
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distributionstrategy
Since strategies (meansto achieve goals) willnormallyflow from the missions (objectivesorgoalstobe achieved)
evaluate customerservice requirements
estimate the costsforproviding those services
matchthe same withthe corporate distributiongoals
Cost effectivenessbeing importantdistribution
strategy will have tofactorin:achieve targetedcustomerservice at leastcostorwithindistributionbudget maximise service
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deciding distributionstrategy
DISTRIBUTION STRATEGY WILL DEPEND UPON
Product viz. type / nature /stage of PLC
Channel viz. direct / indirect / mixture
Outlets viz. large / medium / very small
Customerservice strategy
warehouse transport inventory communication
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distribution planning process
Starting froma strategic planbasedon markets, products,distributionchannels,
one getsintooperational planning concernedwith manufacturing / distribution / customerservice goals / & budgets,followedby actual managementofthe functionsofinventorycontrol,traffictransportation,
manpowerdeployments, & finallyonto performance measurements whichcanleadto midcourse corrections
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distribution planning cycle
strategic planning
products/ markets
& channels
performance measurement
actual vs plan
mid course corrections
operational planning
manufacturing/ customer
services/ budgets
distribution management
inventory control
transport
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intermediaries
Stockists
Distributors
Wholesalers
Superstockists / substockistsSemi wholesalers
Dealers
Retailers
Howeverupto C&FAs which are warehousingoperationsoutsourcedownership in productsremain withthe organization
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intermediaries
situationof3 suppliers & 3 procurers
DIRECTTHROUGH INTERMEDIARY
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intermediaries
DIRECT BY COMPANY
THROUGH
INTERMEDIARIES
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use ofintermediaries
Advantagesincreasedoutletcoverage at lowercostofcoverage peroutlet
stockholdingssharedbyintermediaries (netofcredit extended)bettermarketcoverage
improved marketinformationcredittoretailers
Disadvantageslossofdirectcntrldilutionoffocusoncompanys
product linesmarketinf.canbelimited / selective/ biasedcustmrservice
canbe atriskvulnrbltytointrmdrs pressuretactics
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costbenefit analysis
Organizationhastodo a trade offbetweenabilityto meetcustomerservice requirement atreasonable cost / reductionin amountofcapital
employed / flexibilityofcapacity / increasedgeographical coverage
vis a vislossofdirectcontrol / problemsofestablishingaccountability / inabilitytorespond quicklytodemandchanges / highercostsdue todamages& stock losses / communication problems withendconsumers
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source & sinks
Sourcesare facilitiesfrom whichfreightoriginate
such ascompany plantsraw material sources
vendors ware houses
Sinksare facilitiesthatreceive freightsuch ascustomer locationsfactories warehouses
One canobserve thatthe same facilitycanserve
both as a source as well as a sinkdepending on
itsrelative locationinthe chain
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sources & sinks
sink
source
sink
source
sink
source
sink source
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supplychain management
Anticipatorybusiness model
inthis model each partneris adversarial
forecast buy/manufacture deliver
make tostock
Response basedbusiness model
each partneriscooperative
sell buy/manufacture delivermake toorder
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supplychain management
Choice board
interactive online system that allowsindividual
customerstodesigntheirown productsby
choosing from a menuofattributes,components, prices, & deliveryoptions eg.
Dellson line configurator
Postponement
postpone manfctr. form postponementpostpone timing of logistic
fulfilment possession postponement
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supplychain management
Dell pioneeredthe direct model ( a SCM
model thatis elegant) Dell takesorders
from customers & builds PCs as per
demandthusbypassing traditional dealer
channel Factoryscheduling algorithm runs
every 2 hrs & Dell poststhe results along
withforecasts & inventory levelsonthesuppliers extranet Suppliers maintain 5
daysstandardinventory
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supplychain management
Wal Mart pioneered CPFR (collaborative
planning forecasting & replenishment)
model through which Walmart provides
informationonsales & inventoryto all
10000 supplierson 2700 storesvia its
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movement acrossthe chain
Move as much & asfaras possible inbulk
Bulkbreak as much as possible nearthe endof
the chain
This will ensure transportationinbulk
Movementinbulk means lowerperunit
transportation
Create central motherdepotsto which materialscanbe movedinbulk & from where materials
canbe transportedinsmalls
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depots
Byspreading outthe depots,besidesoverall reductionsintransportationcostsresponse time & vulnerabilitytoindividual
depotfailures getreduced Howeveroverall inventory & warehousingcosts may move up due to multiplicityofstorage locations
A balance betweenthe 2 costshastobedone
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acceleration(whip lash) effect
Factory C&FA Retailer Customer
8 weeks 12 weeks 2 weeks |
| | | Increase in
demand 10 %| | Increase in period demand
of 10 % + 10 % of 2/52 = 10.4 %| |
| Increase in period demand
| of 10.4 % + 10.4 % of 12/52 = 12.9 %
Increase in period demand
of 12.9 % + 12.9 % of 8/52= 14.84 %
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distributionbudget
Budgeting isbasically a tool forPlanning andControl.
Like anyotherBudget, a Distributionbudget will
have toconsider#the activities requiredtobe performed
Objectives/ Targets
#the costs/ expenses requiredto perform those
activities#the period of time to whichthe activities will
pertain
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distributionbudget
startfrom the sales plan at SKU level & at
all selling points
aggregate to a pointfrom where all thesales pointstobe serviced canbe a
central warehouse ormotherdepot
furtheraggregate backwardtofactoryfrom
where materials are tobe supplied
LeadstoDistribution Requirement PlanDRP
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distributionbudget
The DRP will setthe quantityofFinishedgoodsthatneedtobe producedperiodicallyforseveral storage locations
Thisinturn will translate into movementrequirementsviz.numberoftrucksrequiredfordifferentsource sinkcombinations
The DRP will also meanrequirementofmaterials at plant level
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distributionbudget
Once the finished goodsrequirements are blownup intothe bill ofmaterialsthe same will give theMRP whichisthe material requirement plan
whichinturn will generate the masterproductionschedule
Transportation / warehouse / inventory plans willfollow
Foreachofthe activitycosts andinvestment ( oflong term & shortterm working capital nature)details will be workedout
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distributionbudget
Ideally atthe planning stage all transportationhastobe reckonedonfull truck load (FTL) basis
Hence ifmovementis made in LTLs (lessthan
truck load) the consequentunderutilizationoftruckcapacity will reflectinhighercosts
Similarlyholding more than plannedinventorywill resultinhigherwarehouse costs / higher
inventorycarrying cost Cross movements will pushup transportation
costs
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distributioncost analysis
Distributioncostscanbe measured as a % ge of
sales / gross margin / productioncots (key
ratio) whicheverratiochosenthe same mustbe
followed periodto periodonsame basis keyratios maybe brokendownto
intermediate ratiosviz.transportation,
warehouse,inventory
intermediate ratioscanbe brokendownto
grassrootsratios
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distributionfunction audit
use ofstandards
reviewing existing performance / cost
accounting techniques / zerobased / using
owninternal best performance as
benchmarks
competitorsstandards / industry
benchmarks using ROI concepts
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distributionfunction audit
Organizationsusing 3rd party logisticscan
reduce assetssubstantially howeverin
anxietytoreduce assetholdingsone
shouldnotsacrifice service efficiency
Logistics auditshouldreview boththe
external andinternal dimensionsofthe
organizationsoperating environment
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distributionfunction audit
External environmental factors wouldbe:
Source market wherefrom inputstothemanufacturing process are procured
User market where products will be sold Competition inthe source as well asuser
market,competitionis a veryimportant & crucial
Channel animportantconstituentofthe
external environment,itimpactsstrategy,costs,and efficiency.
Statutory & Governmental factors are alsoimportant elements.
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distributionfunction audit
The Internal environmental factors would
be:
Product related: Seasonality, Special promotions
New products, modifications
Special Handlings,special packaging Special requirements
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distributionfunction audit(internal)
Distribution Pattern related:
Organizationstructure
Productcharacteristics
Shipmentcharacteristics Purchasing characteristics
Ware house utilization
Transportutilization
Stocking requirementsbothforraw materials aswell asfinished goods
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distributionfunction audit(internal)
Systems related:
Purchasing system
Production Scheduling Data processing facility
Ware house facility
Transportfacility Material handling facility
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distributionfunction audit
distribution auditshouldcover:
Customerservice perception audit
Competitoraudit Channels audit
Materialssupply audit
Finished goodsdistribution audit
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distributionfunction audit
Evaluationofdistributionfunctionnecessary
when :
organization makessignificantchange inits
marketing strategy eg:
going directvis a visselling through
intermediaries
size ofthe organizationchangessignificantly new products/businesses addedtothe system
signsofmaldistribution manifest
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distributionfunction audit
Typical signsofmaldistribution:
inventoriesturnveryslowly poorcustomerservice
numerousinterware house shipments
premium freightcharges
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distributionfunction audit
Auditobservations mustbe
discussed withresponsible managers
agreementsobtainedforcommitmentstocorrective actions
time periodforimplementationsspecified
compliance follow up meetingsdecided
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systemsindistribution
Systemscanbe at 2 levelsviz.supporting theoperations & supporting the decision process
Main aimsofanysystem supportcanbe:
. costreductionthroughincrease in productivity
. improvedcustomerservice throughreductionsintime lags
. improveddecisionsthrough more accurate inputdata
Anotherimportant aim ofanysystem couldbe tointegrate variousfunctionsthrough a commondata base.
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systemsindistribution
one stage applicationsoftwares
crossfunctional integratedsoftwares
softwaresconnecting several functions
& operationsERP systems
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ERP implementation
Toimplement anystandard ERP package,organization prepares a briefincorporating:
#the existing processes and procedures,
#the information and material flow patterns,
#the workloads atvarious points,
#the organizationstructure,
#the availability and preparednessoftheorganizations manpowerintermsof
#technical capabilities,the existing systemsinplace,ifthere are any,
#the IT language platform inuse,
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ERP implementation
#the size andcapacitiesofhard ware in place,particularlyserverstheirfunctions,theirworkstations, as well astheir locations,
# pointsofthe supplychainthe ERP system
should map andconnect, eg. will itbe from thefactorytothe C&FAs,orfrom the factorytotheDistributors,orextendbackwardstorawmaterial suppliers,because it will haveimplicationintermsofcosts as well ascomplexity andimplementationtime,
#the numberofpersons who will be using thepackage withindependent log inidentifications,
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ERP implementation
An ERP systems would enable the organizationtohave all its activities withinthe ERP network,
#happening ON LINE, whichinotherwords
mean, anytasktaking place any where will be inthe system, and
#the company will have REAL TIME DATA,because each & everytransactionstaking placeonthe system isbeing recorded asdata.
Thusimplementationofan ERP system willmean accessto REAL TIME ON LINE DATA.
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ERP
limitations
ERP system isincapable tohelp decide whichofseveral alternatives wouldbe the best,undercertain pre setconditions.
Thisbringsustothe nextstage ofsystems,viz.optimizers, whichcanhelp inselecting the bestalternative through a package.
forexample Ifproductionhastobe plannedbasedonsales estimates,keeping inviewproduction & transport limitations manyindependent alternatives may presentthemselves,
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optimizers
Ifthe managerhastochoose the onesthat givethe mostoptimum result,notonlyfrom theaspectofcosts,but alsooperational efficiencywhich will have a directbearing oncustomer
service level andsatisfaction, we come tothearea ofOptimizationsystem packages.
Standardsystem packages are available inthemarket. These packages are costly,Organization mustbe ready & capable to absorb
andinternalize the system,significantdatastorage isreqd. which means additionalinvestmentsinhardware & software.
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system linkages
Organizations, are adding ontotheirERPsystems,initiatives toincorporate SupplierRelationship Management, and / orCustomerRelationship Managementtools, along with
intermediate softwares which enable them toextendthe boundaryofthe interconnectionbeyondthe confinesofthe internal area ofoperations.
These in effect, mean:
# extending the ambitofreal time,on linetransaction processing,backwardstosupplrs
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system linkages
sothatrequirementscanbe available onthe
system ofthe supplierassoon as productiondraws a batchofraw material forproduction /
processing,or#hooking up the sales / delivery / stocksystem ofthe Distributor,orretailer,
sothat assoon as a customerordersupplyis
executedfrom theirpoint,the organizationssystem recordsthe same andtriggers a processofrequirementnoting.
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ware house
Formanufacturing locationnormallysite selectionbasedon :
# existing facilityofthe organization
# availabilityofresourcesviz.skilled labour,power,infrastructure
# governmentincentives,viz.tax concessions
#scope forfurtherexpansions, as and whenrequired
#doesthe locationofferadvantagesintermsofcompetition / offerscope forimprovedcoordination withsuppliers
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ware house
#overall costofsetup inthe location
#industrial climate inthe area
# experience ofexisting industriesinthat location
#how lonelyorcrowdedisthe area
For location ware houseshoweverthe determiningfactors wouldbe:
# primarilyhow close itistothe area tobeserviced
#this allows largermovementsinbulkup tothewarehouse
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ware house
# a depotnearertothe point ofconsumptionhelpstoreduce the response time substantially
#selling interstate attractscentral salestax,hence
organizations locate depotsin eachstate,saleeffectedinthe state attractsonlythe local statesalestax
locationschosenoutside town limits,sothat entrytax oroctroiisonly paidon what issoldinthetown.
# availabilityofresources andinfrastructures
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ware house
Term ware house combinationofwords ware andhouse,thatitis a place tohouse orstore /keep wares.
A functional ware house should ensure thatthe
waresstoredtherein are:inthe bestofcondition, easily available /locatable, properly accountedfor,rotatedsothatthe olderones are movedoutfirst,secured /protectedfrom losses anddamages,separatelyand properlysegregatedbetween good andbad.
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ware house
Ware houses perform the following functions:
Receiptsofitems,
Storing the same properly,
Dispatching products as perrequirements,
Preparing relateddocuments,
Maintaining recordsoftransactions,
Any associatedtasksthatthe warehouse activitymayinvolve, like depositing customerscheques,
posting tothem invoice copies etc.
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ware house
Organizationscanhave own warehouse
Organizationscanoutsource warehousingfunctionsto C&FAs
3P Logistics where a 3rd
partytakesoverall thelogisticsfunctionsincluding transportation aswell as warehousing
4P Logistics a term coinedby Accenture they
are typicallynot assetbasedbutsystemsoftware driven whouse 3P logistics providertoservice
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ware house
Important aspectsin a warehouse
Stockrotation FIFO OPFO
Storage capacityutilization stackingheights
Safetyrequirements riskcoverage
Perpetual inventory Packedstock
reconciliation Pareto analysisfor locating stocks as pervelocityofmovement
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no.ofdistributioncenters
NUMBER OF DISTRIBUTION CENTERS
TOTAL
COST
WARE HOUSE
COST
2ND LEG
TRANSPORT
PRIMARY
TRANSPORT
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logisticsnetworkdesign
SAILS ( strategic analysisforintegrated logisticssystems) is a logisticsnetworkdesign modelwhichuses :
NetworkrationalizationissuesCustomerservice levelstobe maintainedAssignmentofcustomerstodistributioncenters(DCs)Number& locationsofDCs
MissionofeachDC inventories & serviceterritories
AssignmentofDCsto plantsby product
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logisticsnetworkdesign
Number& locationofplantsMissionofeach plant productionto product,inventories & service territory
WhatifquestionsEnvironmental issues- marketshifts- strikesnatural disasters energyshortage- global economicconditions
Logisticssystem decisions- impactofchangesin mode choice &/orcarrierselection
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logisticsnetworkdesign
- use ofcompanyoperatedversuscontractversusthird party logisticsoperation- incorporationofplant-directtocustomershipmentsBusinessdecisions & policyissues- plantcapacity & expansion- new productintroduction- shipment planning policy analysis
- DC capacity expansionorelimination- multidivisiondistributionsystem merger- merger/ consolidation withotherbusiness
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logisticsnetworkdesign
Cost & service sensitivityissues
- total production / logisticssystemscost
- logisticscostvscustomerservice
- logisticscost asfunctionofnumberofDCs
- demandforecast
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supplychain models
Simulation models
processofdesigning a model ofa real
system & thenconducting experiments
withthe model forthe purpose ofunderstanding the behaviorofthe system
orofevaluating effectsofseveral
strategies withinthe limitsimposedby acriterionorsetofcriteriaforthe operation
ofthe system
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supplychain models
Heuristic models toreduce the numberof
alternatesthe decision makermayincorporate
characteristics as limiting attributes eg. a
locationidentifying team mayonlyconsiderwarehouses meeting the following requirements:
(1) shouldbe within 20 km ofa market area
(2) at leastspaced 250 km from anyother
company warehouse(3) within 3 km ofa high way
(4) within 40 km ofanyrailwaystation
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supplychain models
While modeling one must avoidthe followingpitfalls:shortterm horizon (ensure a long termperspective)
too little ortoo muchdetails (data shouldbeadequate)using publishedcosts ( suchcosts mayoftenrepresentonly list prices whichcanvaryfromnegotiated prices)
inaccurate orincomplete costs (analysisbasedoninaccurate costs mayvitiate results)use oferroneous analytical techniques
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ware house efficiency
Customerservicing isofcritical importance
inrespectoftimelinessoforderexecution,orderfill rate,ie. what %ge ofordereditems are sent,
qualityofitemssent,ie. properstockrotation,informationbackup,ie,sending theminformation aboutorderprocessing,
secondarytransportation efficiency,
adherence to proceduressuch aschequedeposits,
maintaining the approvedcredit period
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75/100
inventory
Costsof Inventorycostofcapital costofcarrying costofobsolescence costofstockouts
Discrepanciesin exchange due to spatialie.due to geographical distance betweenbuyer& seller temporalie.due to gapbetween production & consumption
Geographical specializationininventoryopening depots atseveral places
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76/100
inventory
Decoupling inventorystocking wip atcertainstagesofproduction eg.Tomato paste
Balancing supply & demandmanufacturing in quantitiestobuildup foraseason eg mosquitorepellant mats
Buffering foruncertainties
Selective control onbasisofABC classificationVED SAP scarce available plenty FSN fastslow normal
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77/100
inventory
Safetystock
Reordering systems
EOQ
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78/100
channelsofdistribution
Channel membership
Intensive distribution - Where the majorityofresellersstockthe `product' (withconvenienceproducts,forexample, and particularlythe brand
leadersinconsumergoods markets) pricecompetition maybe evident.
Selective distribution - Thisisthe normal pattern(inbothconsumerandindustrial markets) where`suitable'resellersstockthe product.
Exclusive distribution - Onlyspeciallyselectedresellers (typicallyonlyone pergeographicalarea) are allowedtosell the `product'
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79/100
channelsofdistribution
Marketing channels are setsofindependent
organizationsinvolvedinthe processofmaking
a productorservice available foruse or
consumption Thustheynotonlysatisfydemandsbysupplying
goods / services atthe right place, quantity,
quality, price butthey alsostimulate demand
They generate form, possession,time and placeutility
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8/8/2019 SCM &Dstrbtn Mnagmntclass Notes
80/100
channelsofdistribution
Intermediaries are typicallydistributionorientedinstitutionsserving asthe linkbetweenproduction andconsumption
They perform: sorting breaking down
heterogeneoussupplyintoseparate stocksthatare relativelyhomogenous eg. gradingagricultural produce according tosizeaccumulation bringing similarstocksfrom anumberofsourcestogetherinto a larger
homogenoussupply eg. wholesalersaccumulating varietyofitemsforretailers &retailers accumulating forcustomers
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81/100
channelsofdistribution
allocation breaking down a homogenoussupplyintosmaller lots eg. wholesalerdoingbulkbreaking it may alsoinvolve geographicaldispersal assorting building up assortments
ofproductsforresale in association with eachother
ROUTINIZATION a processinchannelmanagement whichseeksto eliminate theprocessofindividual transactions,involving
separate ordering of,valuationof, & paymentforgoods & services at every pointoftransaction,whichinturn means a differentsetofbargaining
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channelsofdistribution
with a concomitant lossofefficiencyby
making the processroutine eg. automatic
ordering like Apna Bazaarautomatically
getting itssuppliesreplenishedfrommanufacturers
Marketing channelsfacilitate the process
ofsearch asbuyers andsellers are oftenengagedsimultaneouslyinsearch
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83/100
channelsofdistribution
General retailing formats
Departmentstores sell wide varietyofmerchandise including apparel furnishingsappliances
Specialtystoresbroadselectionofrestrictedclassofgoods / limited linesofsoft (clothingslinen) orhard (kitchenutensils appliances)
Chainstoressystemscentral ownership or
control,similarityofstores,twoormore units Supermarkets low marginhighturnoverretailorganizationstypically large departmentalized
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84/100
channelsofdistribution
retail establishmentoffering broad & complete
stockofdry groceries, perishable products along
with a hostofconvenience nonfood
merchandise operatedon a selfserve basis Plannedshopping centers MALLS integrated
developmentsundersingle ownership with
coordinated andcomplete shopping facilities &
adequate parking space. Storesfacilitiesinthecenterare leasedtovariousretailers
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8/8/2019 SCM &Dstrbtn Mnagmntclass Notes
85/100
channelsofdistribution
Discounthouses retail establishmentsthatgenerallyfeature a broad merchandiseassortmentincluding bothsoft andhard goodsprice asthe mainsales appeal relatively low
operating costsrelativelyinexpensive buildinggetup emphasisonselfservice very limited addoncustomerservices emphasisonrapidturnoverofmerchandise large stores parkingareascarnival like atmosphere
Combinationstores large supermarketofferingextensive selectionofnonfooditemsincludingcategoriestypicallyfoundinsuperstores
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86/100
channelsofdistribution
Superstoressimilartocombinationstores
Convenience storestypicallykirana stores
Hypermarkets enormousstores withnumerouscheckout lanesselling food & nonfooditemson
selfservice & discountbasis Franchising refersto a wayofdoing business &
ensuring a revenue stream once outlets areestablished.Franchisee will payroyalty,fees,
initial charges. Sometimes a manufacturermaysimplyfranchise (authorise) a dealertobe partofhissystem ofselective orexclusivedistributionon a fee eg Bata McDonads
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87/100
channelsofdistribution
Quantitative measuresofchannel performance
1.total distributioncost perunit
2.transportationcost perunit
3. warehousing cost perunit
4. productioncost perunit
5.costs associated with avoiding stockouts
6. percentofstockoutunits
7. percentofobsolete inventories8. percentofbaddebts
9.customerservice level by product,mktsegmnt
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88/100
channelsofdistribution
10. accuracyofsalesforecast
11.no.oferrorsinorderfilling/custmercomplnts
12.numberofnew markets entered
13. % salesvolume innew markets entered
14. % ofmarkdownvolumes
15.no & % ofdiscontnd.channel intermediaries
16.number& % ofnew distributors
17. percentofdamaged merchandise18. percentofastrayshipments
19.size oforders
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89/100
channelsofdistribution
Qualitative measuresofchannel performance
1.degree ofchannel coordination
2.degree ofcooperation
3.degree ofconflict
4.degree ofdomainconcensus (role prescription& variation)
5.recognitionofsuperordinate goals
6.degree ofdevelopmentofchannel leadership
7.degree offunctional duplication
8.degree ofcommitmenttochannel
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90/100
channelsofdistribution
9.degree offlexibilityinfunctions
10. availabilityofinformation about:
a) physical inventory
b) productcharacteristicsc) pricing structures
d) promotional data (personal selling assistance,
advertising, pop displays,special promotions)
e) marketconditionsf) services availability
g) organizational changes
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91/100
channelsofdistribution
11. assimilationofnew technology
12.innovationindistribution generated
withinthe channel
13. extentofintrabrandcompetition
14. extentofuse ofoptimal inventory
standards
15.relations withtrade associations as well
asconsumergroups
channels of distribution
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92/100
channelsofdistribution
ininternational context
4 basicroutes
1. exportation throughforeigndistributorsoragents oroverseas
marketing subsidiaries advantages are minimalinvestments andriskoffailuresdonotimpactthe organizationvery muchbutthedisadvantage isthe organizationhasverylittle control
channels of distribution
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93/100
channelsofdistribution
ininternational context
2. licensing companyforges a contractual
agreement withforeignorganizationto
manufacture &/orsell its productsinthe foreign
country Again while thisform may afford low investment
butintermsreal control the same maybe low
3. jointventure itis a more involvedroute
wherebythe participating organizationssharethe investment & risks
channels of distribution
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channelsofdistribution
ininternational context
4. directinvestment establishmentof
whollyownedsubsidiaryinthe foreign
country while controls are assuredrisks
ofexpropriation & nationalizationis alwayspresent
channels of distribution
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95/100
channelsofdistribution
ininternational context
While designing international distributionchannelsthe marketerneedstofocuson:
Adequate marketcoverage
Control overgoodsinthe channel Reasonable distributioncosts
Continuityofchannel relationships &
continuous presence inthe market Desiredvolume marketshare marginrequirements & ROI
channels of distribution
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96/100
channelsofdistribution
ininternational context
Foreignbased middlemen provide place & time
utilitybyholding goods at locationsconvenient
toconsumers, provide creditservice,bringsthe
manufacturercloserto market. Howeverdisadvantage the wholesalermayselectown
selling price mayhave less manufacturer loyalty
favoring high profithighturnoveritems. Hence
the issue boilsdowntoone ofcontrol the extent& quantum ofcontrol the manufactureris able to
exert
channels of distribution
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97/100
channelsofdistribution
ininternational context
Status & role ofwholesalersdiffercountrytocountry. One world wide trendin wholesaling isthe move toward more vertical integrationie.from wholesaler / retailertothe manufacturer.
Thus an exportermayfindhis productsblockedbythe wholesalersowncustom manufacturedproducts. Wholesalersoftenhave voluntarychainsofretailers who give purchase
commitmentsin exchange forcertainserviceslike creditsstocktake backsdealercooperativeadvertisements etc.
channels of distribution
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98/100
channelsofdistribution
ininternational context
Retailing formatscountrytocountrycanbe verydiverse intermsofsize scale locations Retailingbeing a localized activitycanbe deeplyinfluencedby prevailing social & cultural norms
as well as govt.controls Withindustrial progressretailing normally assumes largerunits eg.Supermarkets are more commonindevelopedcountries ascompared withsmallergrocersin
underdevelopedcountries with whom aninternational marketerwill findit more difficulttodeal & hence require wholesaler
channels of distribution
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99/100
channelsofdistribution
ininternational context
International physical distributionhasthefollowing complexities:
Transportationinvolving multiple modescanincrease risksofdamages, pilferage,delay
Distance & durationoftransportincreasescostoftransport as well ascostofinventoryintransit
Exposure tovariedclimaticconditionsoftennecessitate different packaging & storagearrangements
More documentations maybe necessary
Tariffs & customsduties are anotherfactor
channels of distribution
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8/8/2019 SCM &Dstrbtn Mnagmntclass Notes
100/100
channelsofdistribution
forservices
Since by and large services arepredominantlyintangible andcannotbestored andtransportedtheyhave tobe
soldthrough multiple outlets where acombinationofsimultaneous promotionand productionhastooccur
Service toservice the format maychange
Eg.banking hotel tours andtravelhospital chain franchisee