A B Raju, CEO

www.biztrans.in
 We shall look at

● What is Supply-Chain Management

● Measuring Supply-Chain Performance

● Bullwhip Effect

● Outsourcing

● Value Density

● Mass Customization
 What is a Supply Chain?


● Supply-chain is a term that describes how organizations

(suppliers, manufacturers, distributors, and customers) are
linked together
What is Supply Chain Management?


● Supply-chain management is a total system

approach to managing the entire flow of information,
materials, and services from raw-material suppliers
through factories and warehouses to the end
customer
SCM
● Suppliers are referred to as “Upstream” supply chain
members and

● Distributors, Agents, Dealers, warehousers are

“downstream” supply chain members.
Supply Chain Management
● Main aspects that build a good SC are

● Alignment of organisations in the chain

● Improved co-ordination between them for flow of

materials, services, information and finance.
SC Uncertainity
Factors contributing to uncertainity
- Variation in demand forecasts
- Variation in lead times
- Variation in batch ordering
- Variation in price fluctuations and
- Inflated orders

One of the chronic problems in any typical SCM is

lateness.

To avoid delays, companies are forced to keep

inventories.
SC Uncertainity
Cause – Distorted or lack of info. across the chain resulting
in
- Excessive inventory
- Poor customer service
- Loss of revenue
- Missed production schedules
- Wrong capacity plans
- Ineffective transportation and
- Higher costs

This phenomenon is known as Bullwhip effect.

 Bullwhip Effect

The magnification of variability in orders in the supply-

chain

Retailer’s Orders Wholesaler’s Orders Manufacturer’s Orders

Quantity

Quantity

Quantity
Order

Order

Order
Time Time Time

A lot of retailers …can lead to greater …can lead to even

each with little variability for a greater variability
variability in fewer number of for a single
their orders…. wholesalers, and… manufacturer.
 Formulas for Measuring Supply-Chain Performance

● One of the most commonly used measures in all of operations

management is “Inventory Turnover”

Cost of goods sold

Inventory turnover =
Average aggregate inventory value

● In situations where distribution inventory is dominant, “Weeks of

Supply” is preferred and measures how many weeks’ worth of
inventory is in the system at a particular time

⎛ Average aggregate inventory value ⎞

Weeks of supply = ⎜⎜ ⎟⎟ 52 weeks
⎝ Cost of goods sold ⎠
 Example of Measuring Supply-Chain Performance

Suppose a company’s new annual report claims their

costs of goods sold for the year is $160 million and their
total average inventory (production materials + work-
in-process) is worth $35 million. This company
normally has an inventory turn ratio of 10. What is this
year’s Inventory Turnover ratio? What does it mean?
 Example of Measuring Supply-Chain Performance (Continued)

Cost of goods sold

Inventory turnover =
Average aggregate inventory value
= $160/$35
= 4.57

Since the company’s normal inventory turnover ration is 10, a

drop to 4.57 means that the inventory is not turning over as
quickly as it had in the past. Without knowing the industry
average of turns for this company it is not possible to comment
on how they are competitively doing in the industry, but they
now have more inventory relative to their cost of goods sold
than before.
 Hau Lee’s Concepts of Supply Chain Management

● Hau Lee’s approach to supply chain (SC) is one of aligning SC’s with the
uncertainties revolving around the supply process side of the SC

● A stable supply process has mature technologies and an evolving supply

process has rapidly changing technologies

● Types of SC’s
● Efficient SC’s
● Risk-Hedging SC’s
● Responsive SC’s
● Agile SC’s
 Hau Lee’s SC Uncertainty Framework

Demand Uncertainty

Low (Functional High (Innovative

products) products)

Low Efficient SC Responsive SC

Supply (Stable
Ex.: Grocery Ex.: Computers
Process)
Risk-Hedging SC Agile SC
Uncertainty High
(Evolving Ex.: Hydro-electric Ex.: Telecom
Process) power
E-business
Some of the e-business features related to SCM

- Cost savings and hence price reduction

- Reduction or elimination of role of intermediaries (even retailers, service

providers)

- Shortening supply chain transaction times for ordering and delivery

- Gaining wider presence & increased visibility for companies

- Greater choices and more info. for customers

- Improved service as a result of instant access to services

- Collection and analysis of vast amount of customer data and preferences.

- Creation of virtual companies like Amazon.com

- Level playing field for smaller companies which lack resources to invest
in infrastructure and marketing

- Gaining global access to markets, suppliers and distribution channels

Reverse Logistics
● A major challenge for businesses

● In e-tailing, it is really posing a lot of challenges

 What is Outsourcing?


Outsourcing is defined as the act of moving a firm’s

internal activities and decision responsibility to outside
providers
Outsourcing
Why is outsourcing becoming so popular?

● Organisations want to concentrate only on “what

they do best” – core competencies.
Eg. Levi’s India
So they let the suppliers do what the company is not
good at and the supplier is most competent to do.
Reasons to Outsource

● Organizationally-driven

● Improvement-driven

● Financially-driven

● Revenue-driven

● Cost-driven

● Employee-driven
 Value Density


● Value density is defined as the value of an item per

pound of weight

● It is used as an important measure when deciding

where items should be stocked geographically and
how they should be shipped
Sourcing/Purchasing-System Design Matrix
Vendor Managed Inventory
● Here instead of distributor or customer generating
the order, manufacturers receive data electronically
about sales, stock levels. Based on past sales data,
vendor creates forecast and an inventory plan.

● It’s a typical form of role-reversal.

● This is the first step towards SC collaboration.

● Collaborative Distribution: Collaborative planning,

forecasting and replenishment (CPFR)
 Mass Customization


● Mass customization is a term used to describe

the ability of a company to deliver highly
customized products and services to different
customers

● The key to mass customization is effectively

postponing the tasks of differentiating a
product for a specific customer until the latest
possible point in the supply-chain network