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CHAPTER 4
4.1. INTRODUCTION
supply chain. A supply chain (SC) is a network of facilities and distribution options that
intermediate and finished products, and the distribution of these finished products to
customers. A supply chain means a flow of goods and services through different sites.
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 and
information plays an important role in these flows. Supply chain management (SCM)
encompasses logistics that studies material and information flows, purchasing, and selling
strategic questions such as competition. Thus, supply chain management deals with
material and information flows from raw-material production to final product retailing.
logistics more directly with the user’s total communications network and with the firm’s
engineering staff (Yung-Yu TSENG et al, 2005). Under logistics, decisions such as
transport mode selection, selection of ports and optimal transportation strategy are to be
made.
Supply Chain Management (SCM) has been a. melting pot of various aspects,
with influences from logistics and transportation, operations management and materials
technology (IT). In the current competitive scenario supply chain management assumes a
significant importance and calls for serious research attention, as companies are
cost. To do so, businesses must search out which parts of their supply-chain process are
not competitive, understand which customer needs are not being met, establish
manufacturers were the drivers of the supply chain - managing the pace at which products
were manufactured and distributed. Today, customers are calling the shots, and
specific demands for product delivery has emerged as a critical opportunity for
supply chain will become the new success stories in the global market place
Supply chain management is the combination of art and science that goes into
improving the way your company finds the raw components it needs to make a product or
the purchasing organizations along the supply chain operated independently. These
organizations have their own objectives and these are often conflicting. Marketing's
objective of high customer service and maximum sales dollars conflict with
maximize throughput and lower costs with little consideration for the impact on inventory
levels and distribution capabilities. Purchasing contracts are often negotiated with very
little information beyond historical buying patterns. The result of these factors is that
there is not a single, integrated plan for the organization---there were as many plans as
businesses. Clearly, there is a need for a mechanism through which these different
integrated firms, where the entire material flow is owned by a single firm, and those
where each channel member operates independently. Therefore coordination between the
various players in the chain is key in its effective management. Cooper and Ellram (1993)
Such a team is more competitive when each player knows how to be positioned for the
hand-off. The relationships are the strongest between players who directly pass the baton,
but the entire team needs to make a coordinated effort to win the race. Fig 4.1 shows an
example of a very simple supply chain for a single product, where raw material is
procured from vendors, transformed into finished goods in a single step, and then
have multiple end products with shared components, facilities and capacities. The flow of
may be considered, and the bill of materials for the end items may be both deep and
large.
trucking, rail freighting, air freighting, inland waterways, marine shipping and pipelines
The following are five basic components for supply chain management.
needed for managing all the resources that go toward meeting customer demand
for the product or service. A big piece of planning is developing a set of metrics
to monitor the supply chain so that it is efficient, costs less and delivers high
2. Source - Choose the suppliers who will deliver the goods and services that needed
are to create the product or service. Develop a set of pricing, delivery and
payment processes with suppliers and create metrics for monitoring and
improving the relationships. And put together processes for managing the
inventory of goods and services that received are from suppliers, including
3. Make - This is the manufacturing step. Schedule the activities necessary for
production, testing, packaging and preparation for delivery. As the most metric-
intensive portion of the supply chain, measure quality levels, production output
4. Deliver - This is the part that many insiders refer to as "logistics." Coordinate the
5. Return - The problem part of the supply chain. Create a network for receiving
defective and excess products back from customers and supporting customers
and distributed at the right quantities, to the right locations, and at the right time in order
the components of a Supply Chain. Efficient Supply chains demand rapid flow of
BUSINESS BOUNDARY
RETURN
The use case reference model of the International Supply Chain as proposed by
United Nation Centre for Trade Facilitation and Electronic Business (UN/CEFACT) is as
shown in Fig.4.3 and the actors & the use can structures in the supply chain are shown in
Fig.4.4.
Proper implementation of an SCM system, along with accurate and timely data,
can streamline operations and lead to business opportunities. The supply chain
management are of closed-loop type aiming to possess the characteristics such as realistic
chain with co-dependency, self correcting based on continuous improvement. The best
practices in closed loop SCM include plan driven management, remove silos, design for
speed, treat root cause-not the symptoms and measure for accountability and continuous
learning. Supply chain management requires parallel control of physical goods, logistics
Supply chain decisions have been classified based on their temporal (strategic,
decision making is a complex process and some of the important reasons mentioned in
the literature for the complexity of the decision making process are: large scale nature of
inputs and operations and dynamic nature of interactions among supply chain elements.
Decide
Location
Decide
Procument
Make
Strategic
Decisions
Decide
Inventory
MAKE
DECIDE Make
SUPPLY CHAIN
SUPPLY Tactical
DECISIONS
CHAIN Decisions
Decide
Manufacturing
Make
Operational
Decisions
Decide
Distribution
Decide
Logistics
Strategic decisions are made typically over a longer time horizon. These are
closely linked to the corporate strategy, and guide supply chain policies from a design
perspective. On the other hand, operational decisions are short term, and focus on
activities over a day-to-day basis. The effort in these type of decisions is to effectively
and efficiently manage the product flow in the "strategically" planned supply chain.
There are four major decision areas in supply chain management: c location,
strategic and operational elements in each of these decision areas. The decisions that are
The mode choice aspect of these decisions is the more strategic ones. These are
closely linked to the inventory decisions, since the best choice of mode is often found by
trading-off the cost of using the particular mode of transport with the indirect cost of
inventory associated with that mode. While air shipments may be fast, reliable, and
warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may
be much cheaper, but they necessitate holding relatively large amounts of inventory to
buffer against the inherent uncertainty associated with them. Therefore customer service
levels and geographic location play vital roles in such decisions. Since transportation is
more than 30 percent of the logistics costs, operating efficiently makes good economic
sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and
scheduling of equipment are key in effective management of the firm's transport strategy
1995).
The planning (design) and management of the supply chain calls for mathematical
networks, etc.), statistical models, game theory, simulation, machine learning and
auctions and mechanism design. The analysis techniques such as sensitivity analysis,
Monte Carlo analysis, risk analysis, break even analysis and Bayesian analysis,
correlation and regression play an important role. Decision process models built based on
these techniques specify various production and operations management decisions that
• Material selection: Which material is the best to choose for various products?
demand?
• Production scheduling: Which suppliers should produce and associated due dates?
Supply chain performance measures can be classified broadly into two categories:
qualitative measures (such as customer satisfaction and product quality) and quantitative
measures (such as order-to-delivery lead time, supply chain response time, flexibility,
requires a multi-dimensional strategy that addresses how the organization will service
diverse customer needs. While the performance measurements may be similar, the
specific performance goals of each segment may be quite different. Quantitative metrics
of supply chain performance can be classified into two broad categories: Non-financial
There are several fixed and operational costs associated with a supply chain.
Ultimately, the aim is to maximize the revenue by keeping the supply chain costs low.
and labor. The financial performance of a supply chain can be evaluated by looking into
the following items: cost of raw material, revenue from goods sold, activity-based costs
transportation costs
storage and retrieval systems); logistics resources (trucks, rail transport, air-cargo
carriers, etc.); human resources (labor, scientific and technical personnel); and financial
(working capital, stocks, etc.). The objective is to utilize these assets or resources
efficiently so as to maximize customer service levels, minimize lead times, and optimize
inventory levels. Under logistics, the decision that are to be made are:
• Logistics mode selection: What transport modes and lanes should be used to
• Selection of ports: Which ports should be used to bring product into and out of a
country? (strategic)
• Optimal transportation strategy: What are the cost and service tradeoffs of
An apparel export company based in Tirupur has been considered for case study. In
market and export market. The turnover of Tirupur exports amounts to Rs. 12000 Crores
per annum and this is equivalent to 2.5 billion US$. The transportation cost amounts to
approximately 10% of the cost. The apparel export company concentrates only on
transport of garments and the cotton garments are exported from Tirupur to European
TRANSPORT OF APPARELS
The supplier decides the logistics for domestic markets and the customer decides
The goods are sent from Coimbatore to Bangalore through Erode, Salem
and Hosur. For exports, the major transportation route occurs is Tirupur Æ
are road, sea air and railways. If the goods are to be sent from the route Coimbatore
Æ Chennai and the destination is Delhi or Bombay then the optimum mode of
Since the Chennai airport is specifically used only for automobile transportation
and also there are no frequent flights from Colombo to other European countries, the
VEHICLES OR SHIPS
There are 2 types of vessels or ships called feeder vessel and mother vessel. The
feeder vessel is the one that carries the goods from land to a big ship called mother
vessel. In this case study, the feeder vessel is used to transport garments from Tuticorin
to Columbo.
CONTAINERS
The containers are vessels that carry goods and there are three types of containers:
20 feet container that can hold - 30,000 pieces of T-Shirt, 40 feet container that can hold
- 60,000 pieces of T-Shirt, 40 High Q container that can hold - 70,000 pieces of T-Shirt
(Fig.4.8)
There are three types of agents at Tuticorin port to clear the goods from truck to
the ship. They are, Customer House Agents (CHA), Shipping Agents called
Forwarders, and Called liners Ship Operators called liners. Leading Liners include:
Evergreen, and APL limited. At tuticorin port, the customer house agents are
responsible for the clearance of customs and similarly there will be customs broker at
Colombo port for similar work. The forwarder will look after the filling of containers
and when the goods are transferred to the container there will be a customs clearance at
Effective Filling
The containers in which the goods are stored and carried need to be effectively
filled in order to optimize the overall cost of the transportation. There are two methods
of booking containers: Full Container Load (FCL) and Less Container Load (LCL). The
FCL and LCL are differentiated, in practice, on whether the 'whole container' or 'not the
whole container' is intended for the consignee. The FCL means the load reaches its
allowable maximum (or full) weight or measurement. In practice, however, the FCL in
the ocean freight does not always mean packing a container to its full payload or full
capacity. For example, an exporter books a 20' container that is intended for a consignee
at FCL flat rate of US$1,500. If the consignment occupies 500 cu. ft. and weighs 5,000
kgs. only, the case is still FCL and the exporter has to pay US$1,500. If an exporter
intends to pack a container to the full capacity or full payload with the consignments of
two or more consignees for the same destination, the case is LCL and the carrier will
charge the LCL freight rate on each consignment. In the LCL arrangement, the shipper is
required to deliver the cargo to the carrier's container freight station for containerization,
thus there is no guarantee that the two or more consignments from the same exporter will
share the same container. In some cases, the exporter is allowed to pack the container at
their premises in the LCL arrangement, and then the carrier uses that same container to
pack in more cargo from other shipper(s) to make a full container load at the container
freight station.
Normal containers do not return with vessel usually, when they are discharged.
But because of high rental of special containers, more cycle operations are accomplished
which include discharging laden containers, trucks transports to clients and unloading
cargoes, empty containers return and being loaded on the previous vessel, higher turnover
rate will be, furthermore, less rental. It is an optimization problem with many time
windows to maximize cycle operations in the required time and meet the unloading time
requirements of clients in terms of minimize the operation costs (Tang Limin et al.,
2009).
DOCUMENTS INVOLVED
During clearance, three copies of single document is used, out of the 3 copies one
is kept by the customer as invoice, a copy is left with customs for further reference and a
similar copy will be sent to the destination port where the end customer will receive the
goods. The documents involved include: invoice, packing list and shipping bill. For
customs clearance, Invoice and Packing list are needed. There will be two copies of
shipping bill: the Exchange Control Copy(ECC) which is for exporter’s bank and the
other copy termed as export promotion copy is for the exporters. The other documents
used are: shipping instructions (Fig.4.9), Invoice, Packing list (Fig.4.10), Cargo,
and this certificate is for “goods made in India” certification. Generalised system of
preference gets its input from Free Trade Agreements (FTA) and Foreign Trade
It takes nearly 8 to 12 hours for the truck to travel from Tirupur to Tuticorin and
the travel from Tuticorin to Colombo through feeder vessel on sea is approximately
1 day. It takes two days transshipment at Colombo. To travel from Colombo to Europe
via Red sea and Mediterranean sea, it takes a minimum of 14 to a maximum of 21 days
(Table 4.2).
Thus, it takes nearly 23 to 30 days for transport of goods from Tirupur exporter to
Since the volume of the vessel is large for accommodating the containers,
transportation cost is less compared to other modes of transport and hence, exporters /
customer prefer sea mode of transportation. The transportation cost depends upon two
factors namely weight and volume of the goods. Among the weight and volume,
whichever is higher is used for calculating the transportation cost. The formula used is
Length * Breadth * Height (in cms) / 5000 * Number of carton packages. The various
costs involved are: customs charges, handling charges, uploading and downloading
charges.
4.5. DISCUSSIONS
to apply these methodologies, softwares for specific countries, especially for developing
include few of the features of the multimodal transportation problem as a part of the
enterprise resource planning packages. But they do not provide the answers for all the
logistics decision queries such as logistics mode selection, selection of ports, direct
delivery and optimal transportation strategy. Even the existing ERP packages that
include the module for logistics planning are very expensive and a middle level small,
In Indian environment, the details on the roads, rail paths, air routes and sea
routes are not completely digitized. Hence the software that may be available for the
tool that supports decision making in logistics planning. Transport infrastructure are
continuously upgraded and the real time information on blockages of transport and new
modeling technique that is available which can be readily used to represent the features of
represent the MMTP, then between two nodes, there exist four different modes of
representing the cities. In case of more than one flight or one train connecting two cities,
this four edges may increase. Thus it becomes very complex to represent the MMTP in a
simple network structure. When a representation omits significant effects, then important
links or modes of transport – air, sea and land into one complete process that ensures an
supply chain. Supply chain management involves material and information flows from
raw material to final product retailing. Supply chain management involves strategic and
Transportation is more than 30% of the logistics cost and hence it becomes necessary to
operate efficiently and effectively. Thus, there is a need for transporting goods in an
efficient and effective way. Towards this mathematical modeling and optimization