Program & Batch:

PGDM 2014-16

Term:

IV

Course Name:

SUPPLY CHAIN MANAGEMENT

Name of the faculty:

DR. PARIJAT UPADHYAY

Topic/ Title :

SUPPLY CHAIN NETWORK DECISIONS

Original

ORIGINAL

or Revised Write-up:
Group Number:
Contact No. and email of
Group Coordinator:
Group Members:

GROUP 3

Sl
.
1
2
3
4
5
6
7

Debasish Chatterjee
9654608011
Roll No.
Name
1401-01013
1401-01074
1401-02060
1401-03044
1401-03052
1401-03064
1401-02071

Akshat K
Kajal V
Kaushik T
Ayyappan A
Debasish C
Sashidhar G
Manik G

Contents
Supply Chain Network........................................................................................... 4
Framework for Supply Chain Network Design Decisions........................................5
Factors influencing Network Design Decisions.......................................................5
Strategic Factors:................................................................................................ 6
Macroeconomic Factors:..................................................................................... 6
Political Factors:.................................................................................................. 6
Infrastructure Factors......................................................................................... 6
Technology Factors............................................................................................. 6
Issues Pertinent to Facilities................................................................................... 6
Life Span of the facilities:................................................................................... 6
Example.......................................................................................................... 7
Focus on Tax and Tariffs...................................................................................... 7
Example.......................................................................................................... 7
Network Design issues in uncertain environment..................................................8
Essar Oil Retail Outlets....................................................................................... 8
DISTRIBUTION NETWORK DECISIONS....................................................................9
Definition of Distribution Network:.....................................................................9
Factors Influencing Distribution Network Design................................................9
Design Options for a Distribution Network.......................................................10
Manufacturer storage with direct shipping....................................................10
Manufacturer Storage with Direct Shipping and In-Transit Merge..................11
Distributor Storage with Carrier Delivery......................................................12
Distributor Storage with Last Mile Delivery...................................................13
Manufacturer or Distributor Storage with Consumer Pickup..........................13
Retail Storage with Customer Pickup.............................................................14
Selecting a Distribution Network Design..........................................................15
CASE 1: Chennai as an Automobile hub...............................................................16
CASE 2: P&G........................................................................................................ 17
Present Supply Chain Network..........................................................................17
Heading Towards Automated Supply Chain Network........................................17
References........................................................................................................... 18

Supply Chain Network

The network amongst different companies that are involved in producing,
handling and/or distributing a particular product is known as the Supply Chain
Network. All the players in the network work in integration to provide the right
product, at the right price, at the right place and at the right time. The following
diagram, will explain the difference between Supply Chain and Supply Chain
Network:

Supply Chain Network in basic terms Involves determining following process

design:
Procurement
Location of your suppliers
How to procure raw materials and components
Manufacturing
Where to locate the manufacturing plants/assembly lines
Manufacturing process
Finished Good
Where to hold inventories, number of warehouses, their location etc.
How to distribute to markets - transportation and distribution logistics etc.
Customer Fulfilment is the key driver that drives all above decisions.

Framework for Supply Chain Network Design Decisions

COMPETITIVE
STRATEGY
INTERNAL
CONSTRAINTS
Capital, growth
strategy, existing
PRODUCTION
TECHNOLOGIES
Cost, scale/scope
impact, support
required, flexibility
COMPETITIVE
ENVIRONMENT

PHASE 1
Supply
Chain
Strategy

PHASE 2
Regional
Facility
Configurati
on

AGGREGATE
FACTORS AND
LOGISTICS COSTS
PRODUCTION
METHODS
Skill needs, Response

FACTOR COSTS
Labour, Materials,
Site Specific

PHASE 3
Desirable
Sites

PHASE 4
Location
Choices

GLOBAL

TARIFFS AND TAX

INCENTIVES
REGIONAL DEMAND
Size, growth,
homogeneity, local
specifications
POLITICAL,
EXCHANGE RATE,
AND DEMAND

AVAILABLE
INFRASTRUCTURE

LOGISTICS COSTS
Transport,
Inventory,

In other words, Supply Chain Network Design examines:

For every network element, it derives cost estimates
How to reduce costs and optimize costs
Examines cost impact on all available product lines and all probable
permutations and combinations to predict profitability

Factors influencing Network Design Decisions

Network Design decisions are primarily taken considering the multiple factors
that could influence the supply chain costs. Some of the factors that could be
listed are

Strategic Factors
Macroeconomic Factors
Technological Factors
Political Factors
Infrastructure Factors
Socioeconomic factors

Strategic Factors:
Firms will have to take network decision based on its competitive advantage. It
has to take a call on responsiveness or efficient supply network to leverage their
capabilities. This is the single most important factor that impacts majority of the
decisions.
Example: Low cost electronic manufacturers like Flextronics and Foxconn gives
a higher priority to decisions that are in favour of low costs. Whereas apparel
manufacturer like Zara that bets on fast fashion, look to improve the
responsiveness. Again firms will have to base their decision primarily on their
strategy.

Macroeconomic Factors:
Firm that would like to have international presence should primarily
consider macro-economic factors of the economies in which they operate. Global
firms primary challenge is to tweak their business model in accordance to the
macroeconomic factors. This will have a significant impact on the decision
regarding the supply chain network.
Example: Host of automobile companies set their facilities in China due to the
government policies. The policy stated that the cars sold in China should have at
least 70% of the raw materials procured to be sourced from a local vendor.

Political Factors:
Firms also face severe bureaucratic control even when operating in a free
economy. Political stability plays a crucial role in protecting the resources of the
firm and the subsequent supply chain processes. There are few indices like GPRI
which could help firms to assess a countrys political influence on the firm.
Example Reliance Fresh retails aggressive expansion was stalled due to the
intervention of multiple state government. The state government claimed that
the Reliances model was disruptive to the small vendors and Kirana stores.
Therefore the company had to shut shops in few places in the country.

Infrastructure Factors
Infrastructure plays a vital role in placing a facility. Choice of an area
where the infrastructure is not up to the mark could lead to additional spending
by the firm. So the availability of transport, utilities and skilled labour is a prime
parameter for taking network design decision.

Technology Factors
Firms that operate with the technology that requires lesser fixed cost are
most likely to experience higher economies of scale. It also enables the firm to
establish more plants closer to market to serve the customers better.
Example: Beverage companies like Coca Cola, Pepsi operates with facilities that
can be built at lower cost. So to reduce cost on transportation, they build
multiple facilities closer to their local markets.

Issues Pertinent to Facilities

Life Span of the facilities:
Managers have to be mindful of the location of the facilities and clearly define
the purpose of it. Once it is done, it is imperative to choose the technology that
is to be deployed. As the plant gets older, the technology deployed may get
obsolete with the rapid change in the business environment. There are
companies that have taken full advantage of elongated operations of facilities.
This has reaped them a good amount of profits. But many of the other
companies were falling short in the same parameter and hence had lost lot of
money.

Example
Nokia Chennai Factory
The state of the art facility of Nokia in Chennai was once the largest assembler of
electronics in the world. The factory once assembled 15 million phones a month.
But several tax disputes caught up with the company which ran into serious
trouble. Although the factory at its peak was the most efficient, it was not sold to
Microsoft even when the entire company was bought. This was primarily due to
the technology installation which could predominantly produce feature phones.
With the world moving towards smartphones, there was a little headroom for
growth to Nokia in the feature phone space.
Microsoft found the facility unattractive owing to its feature phone production
capability. This was not in line with Microsofts vision as it kept the Chennai Plant
out of its acquisition ambit.

Focus on Tax and Tariffs

This is an important consideration for global companies to cash in on tax sops
and offers available to them. Many firms are building their facilities at a country
where the cost of taxes are very low and thereby gaining a huge cost advantage.
China used to do this mechanism during 1990s, but due to its unprecedented
growth and higher cost in labour had made China no longer attractive to such
incentives.

Example
Mexican Automobile Story
Mexico in recent times has become a brutal force in Automobile industry. This
was primarily due to governments investment policies which encourages many
automobile giants to set shop and roll out production. The geographical
advantage also lets Mexico to get connected to both Pacific and Atlantic Ocean.
With the second largest automobile market US, right on top of Mexico, many
automobile firms has capitalized this near shoring capabilities and started to
reap profits.

Network Design issues in uncertain environment

Essar Oil Retail Outlets
Buoyed by the huge energy demand and a strong back end integration gave
Essar Oil an opportunity to be in Petrol retailing space which has very limited
competition from private companies. But an aggressive pricing by state oil

enterprises has left no place for margins to Essar and as a result has to shut their
outlets. The subsidy offered by the government and the regulation of prices has
bought Essar down to its knees. The entire supply chain network of Essar
including the resources in transportation and skilled labours were all left jobless
due to the external environment and government intervention in pricing.
This case was similar to Reliance retail fuel outlets which had to shut down most
of its bunks due to unsustainable operations. Reliance recently had opened it fuel
network due to deregulation in fuel pricing and that the resources are left long
without any operations leading to depreciation in its investments. The opening of
the outlets is a good news but the retail oil segment is an extremely price
sensitive segment and often bought under the lens of the government leading to
little control for such firms to persist.

DISTRIBUTION NETWORK DECISIONS

Definition of Distribution Network:
An interrelated course of action of individuals, storerooms and transportation
frameworks that moves merchandise and administrations from makers to
purchasers. A conveyance system is the framework a company uses to get items
from the producer to the retailer. A quick and dependable dissemination system
is crucial to a fruitful business on the grounds that clients must have the capacity
to get items and services when they need them.

Factors Influencing Distribution Network Design

At the highest level, execution of distribution network ought to be assessed along
two measurements:
Meeting customer needs
Cost related to meeting customer needs
Meeting the customer needs will influence the firms revenues, which along with
cost, will decide the profitability factor of the delivery network.
Now, the customer service consists of a lot of components, however the
following measures are influenced by the distribution network:
Response time: The time between the point when a customer requests
for a product and the point when the customer receives delivery.
Product variety: The count of various products that a customer looks for
from the distribution network.
Product availability: The likelihood of having an item in stock when a
client requests.
Customer experience: The simplicity with which the client can submit
and get their request
Order visibility: The capacity of the client to track their request from
position to conveyance.
Ability to Return: The simplicity with which a client can return unsuitable
stock and the capacity of the system to handle such returns.
Changing the design of distribution network affects the following costs related to
supply chain:
Inventories

 Transportation
Facilities and handling
Information
Downright logistics expenses are the total of stock, transportation, and facility
costs for a supply network system. As the quantity of facilities is expanded,
complete logistics costs first abatement and afterward increment as indicated in
Figure. Every firm ought to have in any event the quantity of offices that
minimize downright logistics costs. As a firm needs to further lessen the reaction
time to its clients, it may need to build the quantity of offices past the point that
minimizes logistics costs. A firm ought to include offices past the expense
minimizing point just if supervisors are certain that the increment in incomes on
account of preferable responsiveness is more prominent over the increment in
expenses due to the extra offices.

Design Options for a Distribution Network

There are two key decisions when designing a distribution network:
How will the product be delivered to the customer?
Will product distribution involve any intermediary or intermediate location?
In view of the decisions for the two choices, there are six unique distribution
network plans:
Manufacturer storage with direct shipping
Manufacturer storage with direct shipping and in-transit merge
Distributor storage with package carrier delivery
Distributor storage with last mile delivery
Manufacturer / distributor storage with costumer pickup
Retail storage with customer pickup
We now portray every option and talk about its qualities and shortcomings.

Manufacturer storage with direct shipping

In this alternative, item is dispatched straightforwardly from the maker to the
end client, bypassing the retailer (who takes the request and starts the delivery).
This choice is also known as drop transportation. All inventories are put away at
the maker. Data streams from the client, through the retailer, to the maker, while
item is transported specifically from the producer to clients.

Cost Factor
Inventory

Transportatio
n
Facilities and
handling
Information
Service
Factor
Response
time
Product
variety
Product
availability
Customer
experience
Order
visibility
Ability to
Return

Performance
Lower expenses in total. Profits of total are most astounding for
low volume, high esteem things. Profits are extensive if item
customization can be delayed at the producer
Higher transportation costs in view of expanded separation and
dis-aggregate shipping
Lower office costs because of aggregation. Some saving money
on taking care of expenses if producer can oversee little
shipments or ship from production line.
Huge investment in IT infrastructure to coordinate maker and
retailer
Performance
High reaction time of between 1-2 weeks on account of
expanded separation and two stages for request preparing.
Reaction time may fluctuate by item, hence complicating the
system
Simple to give a very high level of mixed bag
Simple to give a high level of item accessibility in light of
aggregation by manufacturer
Great regarding home conveyance however can experience the
ill effects if order from several makers is sent in partial
shipments
More troublesome but more essential from a client
administration point of view
Extravagant and hard to actualize

Manufacturer Storage with Direct Shipping and In-Transit Merge

Dissimilar to pure drop shipping where every item in the request is sent
straightforwardly from every producer to the end client, in-transit merge
consolidates bits of the request originating from distinctive areas so that the
client gets a single delivery.

Example: At the point when a client requests a PC from Dell alongside a Sony
screen, the bundle transporter grabs the PC at the Dell manufacturing plant, the
screen at the Sony industrial facility and consolidations the two together at a
centre before making a single delivery to the client.

Cost Factor
Inventory
Transportation
Facilities and
handling
Information
Service Factor
Response time
Product variety
Product
availability
Customer
experience
Order visibility
Ability to
Return

Performance
Same as drop shipping
To some degree lower transportation costs than dropshipping
Handling expenses higher than drop transportation at
transporter level, receiving expenses lower at client level
Investment is to some degree higher than for drop-shipping
Performance
Like drop transportation, may be barely higher
Same as drop shipping
Same as drop shipping
Better than drop shipping in light of the fact that single
delivery has to be received
Same as drop shipping
Same as drop shipping

Distributor Storage with Carrier Delivery

Under this choice, stock is not held by producers at the manufacturing plants yet
is held by wholesalers/retailers in intermediate warehouse centres and package
carriers are utilized to transport items from the warehouses to the final client.
Example: Amazon.com as well as industrial distributors like W.W. Grainger use
this method along with a combination of drop shipping from a producer.

Cost Factor
Inventory
Transportation
Facilities and
handling
Information
Service Factor
Response time
Product variety
Product
availability
Customer
experience
Order visibility
Ability to Return

Performance
Higher than manufacturer storage. Difference is not vast for
quicker moving things
Lower than manufacturer storage. Decrease is most
astounding for quicker moving things
To a degree higher than manufacturer storage. The
distinction can be vast for slow moving things
Less complex compared to manufacturer storage
Performance
Faster than manufacturer storage
Lower than manufacturer storage
Higher expense to give the same level of accessibility as
storage by manufacturers
More efficient than manufacturer storage with drop shipping
Simpler than manufacturer storage
Simpler than manufacturer storage

Distributor Storage with Last Mile Delivery

Last mile delivery refers to the wholesaler/ retailer conveying the item to the
client's home as opposed to utilizing a package carrier.
Example: Webvan, Peapod, and Alberston's are a few firms that have used last
mile delivery for the grocery industry.

Cost Factor
Inventory
Transportation
Facilities and
handling
Information
Service Factor
Response time
Product variety
Product
availability
Customer
experience
Order visibility
Ability to Return

Performance
Higher than wholesaler storage along with package carrier
delivery
High cost given minimal scale economies. Higher than
whatever other dispersion choice
Facility costs higher than manufacturer storage or
wholesaler storage with package carrier delivery, however
lower than a chain of retail locations
Like distributor storage with package carrier delivery
Performance
Brisk. Same day to 24 hour delivery
To some degree not as much as merchant storage with
package carrier delivery yet bigger than retail locations
More extravagant to give accessibility than some other
choice with the exception of retail locations
Great, especially for bulky orders
Less of an issue and simpler to actualize than manufacturer
storage or merchant storage with package carrier delivery
Less demanding to actualize than different choices. Harder
and more extravagant than a retail arrangement

Manufacturer or Distributor Storage with Consumer Pickup

Stock is put away at the manufacturer or merchant distribution centre however
clients submit their requests online or on the telephone and afterward come to
assigned pickup points to gather their requests.
Example: 7dream.com worked by 7 Eleven Japan, which permits clients to get
online requests at an assigned store. A B2B illustration is W. W. Grainger where
clients can get their request at one of the Grainger retail outlets. On account of
7dream.com, the request is conveyed from a maker or merchant stockroom to
the pickup area. On account of Grainger, a few things are put away at the pickup
area while others may come from a central location.

Cost Factor

Performance

Inventory
Transportation
Facilities and
handling

Information
Service Factor
Response time
Product variety
Product
availability
Customer
experience
Order visibility
Ability to Return

Can give similar results as any other options depending on

the inventory location
Lower than the utilization of package carriers, particularly if
utilizing a current delivery system
Office expenses can be high if new offices must be
assembled. Expenses are lower if existing offices are
utilized. The handling cost in the pickup site might be on
the higher side
Critical investment in infrastructure needed
Performance
Like package carrier delivery with manufacturer or
merchant storage. Same day delivery feasible for things
stored locally at pickup site
Like other manufacturer or merchant storage alternatives
Like other manufacturer or merchant storage alternatives
Lower than different choices on account of the absence of
home delivery. In zones with high thickness of populace loss
of accommodation may be little
Troublesome however important
To some degree easier given that pickup area can deal with
returns

Retail Storage with Customer Pickup

Stock is stored locally at retail locations. Clients either stroll into the retail
location or put in a request online or on the telephone, and pick it up at the retail
location
Example: Reliance Mart
Cost Factor
Inventory
Transportation
Facilities and
handling
Information
Service Factor
Response time
Product variety
Product
availability
Customer
experience
Order visibility
Ability to Return

Performance
Higher than all different alternatives
Lower than all different alternatives
Higher than different alternatives. The increment in
handling expense at the pickup site can be noteworthy for
online and telephone requests
Some investment in infrastructure needed for online and
telephone requests
Performance
Same day (prompt) pickup possible for things put away
locally at pickup site
Lower than all different alternatives
More costly to give than all different choices
Identified with whether shopping is seen as a positive or
negative experience by client
Minor for in store requests. Troublesome, however essential,
for online and telephone requests
Less demanding than different choices given that pickup
area can deal with returns

Selecting a Distribution Network Design

A system designer needs to consider item qualities and system necessities when
settling on the fitting delivery network. Just specialty companies will wind up
utilizing a solitary delivery network. Most companies will be best served if they
go for a combination of conveyance systems. The combination utilized will rely
on item qualities and additionally the key position that the firm is focusing on.

A positioning of 1 demonstrates the best execution along a given measurement

and the relative execution declines, as the positioning gets higher.

CASE 1: Chennai as an Automobile hub

Chennai is a preferred destination for automobile industry looking to establish in
India. The city favours and houses many global automobile firms. Its proximity to
port and encouraging investment policies has enabled Chennai to elevate itself
in the global automobile map. Some of the companies that has facilities in
Chennai

These are the factors that encourage Chennai to be among the top automobile
hub in the world. They are

Solid Vertical Integration

Geographical Advantage
Abundance of low cost labour and Land
Encouraging investment policies
Export Hub
House of R&D
Rise in Indian Home market

CASE 2: P&G

Present Supply Chain Network

Presently P&G Supply Chain Network is based upon Consumer-driven supply
system and Continuous replenishment methodology, which at a high level imply
P&G trigger retail shipments in view of real information about what clients are
purchasing in stores and what item is leaving the retailer's distribution centres,
instead of the suppositions and unpredictable requesting examples of retail
purchasers that was practiced before. They have an EDI system that integrate
warehouse, retailer and manufacturer.

Heading Towards Automated Supply Chain Network

P&G, the customer products giant, which possesses the Fairy, Bold, Olay and
Pantene brands, has streamline and automate processing to satisfy retailers'
requests.
The computerized framework moves the item through the store network with
'zero touch' where conceivable. The new administration focus would have the
capacity to convey the full item range to its retail clients "on one truck".
Clients put in a request through a P&G centralized computer application called
Cosmos. Record and stock data is handled utilizing SAP R/2 running on a
centralized computer at the P&G's European server farm in Brussels.
The request is then stacked into the warehouse management system, which
processes the client request by flagging shuttle autos and conveyor belts over a
radio system to recover pallets of items from the distribution centre. The pallets
are moved from the mechanized distribution centre to one of 11 organizing lines.
P&G, put resources into a 18-month undertaking to connection existing IT
frameworks to this new Automated Processing.

References
1. http://www.scdigest.com/assets/FirstThoughts/11-08-05.php?cid=4822
2. http://www.computerweekly.com/news/2240050722/PG-implements-zerotouch-supply-chain-integration
3. http://www.transportation.northwestern.edu/docs/research/Chopra_Distribution
SupplyChain.pdf
4. http://sydney.edu.au/business/__data/assets/pdf_file/0009/136746/gauravppresentation.pdf
5. http://www.caldwellpartners.com/reshoring-and-near-shoring-becomingincreasingly-viable-manufacturing-options/
6. http://www.ibtimes.com/mexico-auto-industry-why-are-kia-motors-bmw-nissanmercedes-headed-south-border-1671486
7. http://qz.com/81739/adios-motor-city-how-mexico-is-becoming-the-worldsbest-place-to-make-cars/
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