Supply chain Drivers

Supply chain drivers are broadly grouped into two categories: Logistics and cross- functional which
can further be divided into following sub-categories:

Supply chain Drivers

Logistics Cross functional

FACLITIES INVENTORY TRANSPORTATION PRICING INFORMATION SOURCING

In this study we have selected 3 companies which use one or two of the above mentioned six supply
chain drivers efficiently. Following are the selected companies and the respective supply chain drivers
studied for these companies:

1. AMUL - Supply chain driver studied – INFORMATION

2. ZARA – Supply chain driver studied – FACILITIES and TRANSPORTATION
3. IKEA - Supply chain driver studied – INVENTORY

CASE STUDY 1: AMUL (Study of INFORMATION Supply chain Driver)

INFORMATION

Information serves as the connection between various supply chain drivers, allowing them to
coordinate and maximize total supply chain profitability. Information is used for following purpose in
a supply chain:

1. Coordinating daily activities related to the functioning of other chain drivers: Facility, Inventory
and transportation
2. Forecasting and planning to anticipate and meet future demands. Available information is used
to forecast demand and accordingly monthly and quarterly production schedules and time-
table are set.
3. Enabling technologies: many technologies exist to share and analyze information in the supply
chain. Managers must decide which technologies to use and how to integrate these
technologies into their companies like ERP, RFID.

E-supply chain is one of the ways by which Information driver of supply chain can be used. It can be
defined as a complex network of relationship between organizations and trading partners which is
utilized to source, manufacture and deliver the products using IT and internet technologies. Many
companies such as AMUL, ICICI bank, TELCO, Hindustan Lever, CRISIL, Dell and Asian Paints are
managing supply chain using E-SCM. We have selected AMUL for the purpose of our study here.
 Supports exchange of real time information

ADVANCED
SCHEDULING Platform independent

ORDER Web visibility and performing capability 24x7

COMMITMENT DEMAND
FORECASTING`

CUSTOMER
Return on investment
ORDER

Rapid deployment and scalability combining

unlimited users in real time environment

DISTRIBUTION TRANSPORTAT
PLANNING ION LOGISTICS
Incorporates broadcast and active messaging

Components of E-supply chain Benefits of E-supply chain

E-supply chain at AMUL

Amul, formed in 1948 is managed by a cooperative body Gujarat Cooperative Milk Marketing
Federation Ltd (GCMMF) which is India’s largest food product marketing organization. AMUL has
currently more than 1000 dairy cooperatives with 0.7 million members and on average procures 0.8
million litres of milk every day.

The successful utilization of IT and computer application has played a critical role in managing the
logistics behind the co-ordination of approximate 6 million litres of milk per day from about 10,675
separate village societies throughout Gujarat and storing, processing, and producing of milk products
at the 12 district dairy societies. AMUL uses E-supply chain Management for planning and controlling
the flow of materials from suppliers to the end users.

Uses
automated
milk collection
system units
for collection
Uses
Has made IT of milk
automated
education
milk collection
compulsory
system units
for all its
for collection
employees
of milk
E-SCM at
AMUL Uses data
One of the
analysis
first five
software for
Indian
forecasting milk
organisations
production and
to have a Web
increasing
presence Has connected
productivity
all zonal,
regional and
member dairies
through VSAT
AUTOMATIC MIL COLLECTION SYSTEM UNITS (AMCUS)

AMCUS provides complete Computer-enabled solutions that automate the milk collection process at
local milk cooperatives. It incorporates an electronic weighing system, a milk analyser to test milk
quality, a personal computer, and accounting and management software. Amul currently maintains
over 3000 AMCUS at village societies. These AMCUS capture member information, milk fat content,
volume collected and amount payable to each member. To collect these data, each farmer is given a
plastic card for identification. Computer calculates the amount due to farmer on basis of fat content.
Value of the milk is then printed out and handed over to the farmer who collects the payment from
adjacent window.

Advantages of AMCUS include 1)fast processing of milk, 2)reduction in spoilage, 3) farmers can see for
themselves the weight and quality of their milk via a display and printed receipt, increasing their trust
in the cooperative process; 4) farmers are paid immediately, rather than sometimes days later as under
manual procedures; 5) local cooperatives need fewer employees and have better records and reports
for planning purposes.

ENTERPRISE WIDE INTEGRATED APPLICATION SYSTEM (EIAS)

AMUL has implemented EIAS system developed by TCS which handles several operations such as
distribution network planning, market planning, stock control, advertising and promotion, sales and
accounting, budgetary control, quality control management and co-operative service management. All
the zonal offices, regional offices and members dairies of AMUL are connected through VSATs for
seamless exchange of information. Each of Amul’s offices is connected by e-mail and all of them send
a daily report on sales and inventory to the main system at Anand. Moreover, sales offices, C&F points
and wholesale distributors of GCMMF have also been connected through the Internet for timely
exchange of information. The customized ERP EIAS can be plugged into various points of the supply
chain and external system. Additional plus point of this software is that it can work on any operating
system. Important details like milk production, procurement, wholesale distributor orders , stocks
ready for despatch, , secondary sales, direct consumers and demographic census data can be accessed
easily on click of a button. This has proved to be extremely effective in streamlining the supply versus
demand data activity on a continuous basis.

GEOGRAPHIC INFORMATION SYSTEMS (GIS)

In addition to the EIAS, Amul has also been using Geographic Information Systems (GIS) in an
innovative way in its head office and key marketing offices. AMUL uses GIS to plot boundary of a
zone/depot as well as a pointer for zone, depot and distributor locations on India map, which are
superimposed by product-wise sales data. This sales data is then used to plan sales and distribution in
different zones. The unique thing about Amul’s GIS is that it is used for business planning activity at
the collection level as it captures the farmer-member census information, which includes animal
census data. This data is utilized to interpret information regarding milk production and productivity
of animals, region wise in Gujarat. This region wise data helps in forecasting region wise milk
production and also suggest remedies if production of a region is low. Another application of this GIS
system can be to monitor veterinary health and control the outbreak of diseases.
DAIRY INFORMATION SYSTEM KIOSK (DISK)

Dairy Information System Kiosk (DISK) developed by IIMA e-governance centre would be used for data
analysis and decision support to help in improving milk collection. The KIOSK would contain data about
cattle of farmers such as medical history of the cattle, reproductive cycle and history of diseases in its
database. Additionally, farmers will be able to access important information related to milk
production, for example best practices in breeding and rearing cattle. Within the same system, the
farmers can also gain access to multimedia database on innovations captured by Srishti, an NGO
working with IIMA. Using the enormous historical data of milk production available on the database,
the system can be used to forecast milk collection and monitor the produce from individual sellers.

CASE STUDY 2: ZARA (Study of FACILITIES & TRANSPORTATION Supply chain Driver)

PRODUCTION AND LOGISTICS

Production is a major cost driver in inventory management. It is the act of creating an output, a good
or service which has value and contributes to the utility of individuals. It is an important part of the
supply chain to help achieve the shortest inventory holding period with a minimum delivery time of
customer orders, at minimum cost.

To achieve desired goal production facilities can be made responsive by building factories, which have
excess production capacity and have flexible manufacturing capability. A method to manage
production is by doing production in many smaller plants that are close to major groups of customers;
this would ensure better delivery time to the customer but lessen the benefits of economies of scale.
Efficiency in production could be attained by centralizing production facilities; this would help the
organization in reaping benefits of economies of scale; at the same time, it would lengthen the delivery
time. Hence an optimum production planning is desired to achieve maximum customer satisfaction at
minimum production and logistics cost.

Logistics cost is another prime driver of Supply chain management. Logistics of physical items can be
warehousing, packaging, inventory, security, production, transportation, and material handling.
Logistics costs are all the costs incurred for the set of mentioned activated, it includes the cost of
procurement of raw material for production, of moving work in progress inventory between processes
and plants, of carrying finished well from the production facility to the customer, and finally of product
return from customer back to the company. Logistics cost minimization is a prominent part of every
company dealing with physical goods.

Logistics management is the part of supply chain management that plans, implements and controls
the efficient, effective forward, and reverse flow and storage of goods, services, and
related information between the point of origin and the point of consumption.
 Zara Clothing Company Production and Supply chain

For production, most of the apparel manufacturing companies place outsourced manufacturing orders
in advance period of about six months for about 80% of its seasonal demand store collection. These
pre-orders help them in gaining preplanned production space at outsourcing partners and thus in
ensuring customer demand fulfillment during seasonal periods. On the other hand, Zara places
outsourcing orders of only 15-20 percent of its seasonal production demand. And it only locks 50 to 60
percent of partner’s production line at the start of the season, meaning that up to 50 percent of Zara’s
collection is designed and manufactured at the exact middle of the sales season.

Zara has this capability because it does production of most of its collection in-house and it makes sure
that its factories reserve 85 percent of their capacity for in-season production and demand flexibility
adjustments. Zara’s factories can increase and decrease production quickly with demand variations.
Thus there is less inventory in the supply chain. Zara does only 50 – 60 percent of its manufacturing in
advance, so it does not have to take bigger risks about yearly fashion trends. On the other hand, it
takes many smaller steps to match and fulfill the annual fashion demand of the market. For its
production purpose, Zara buys large quantities of only a few types of fabric, and does the garment
design and related cutting and dyeing in-house. Because of fewer choices and bulk order quantities,
the fabric suppliers to Zara can make quick deliveries of fabric directly to Zara. Zara has 11 production
factories which are connected via high-speed underground tunnels to ensure quick delivery of goods
among the different production units. This is also a step towards achieving quicker product
introduction to the market by reducing the time of work in progress goods in the company. Zara
competes on flexibility and agility instead of low cost and labor cost.

Logistics and distribution facility of Zara is located at Zaragoza, which is its global hub. Finished
garments are transported to the logistics hub in Zaragoza, and from there they are delivered to stores
around the world. Zara can deliver garments to stores in China within 48 hours similarly to Europe in
24 hours, to Japan in 72 hours and to the United States in 48 hours. Clustering many logistics services
in one area make transportation and logistics more efficient.

Zara delivers by trucks to stores in Europe and by airlines to other global markets. It can afford high
shipping cost because it enjoys higher customer willingness to pay based on the consistent, unique,
and latest fashion provided on sale. Stores get deliveries twice per week, and they can get the ordered
product within two days after placing an order. Items are shipped on hangers and with tags and prices
on them, so items come off delivery trucks to directly on the sales floor.

Zara's systems automation manager claimed, "The job we have here at the distribution center is to
serve the stores with the products they need, on-demand and on time." To keep equipment utilization
high, the automated warehouse splits each of the two weekly pickings and packing into four half-day
batches. Every day finished, and the packaged product is sorted as per store orders ends by 5 p.m. to
meet the loading deadline for earliest delivery via trucks and airfreight shipments. It employs 800
people at the distribution center to meet these deadlines.

Hence Zara uses a perfect mix of Production and Logistics operations with best of Digitization to
achieve the shortest delivery time to its customers. This complex web of interconnected Production
facilities and Logistics operations gives us an overview of what it takes to be a market leader and to
deliver about 11,000 distinct items per year to thousands of stores worldwide.

CASE STUDY 3: IKEA (Study of INVENTORY Supply chain Driver)

INVENTORY

Inventory includes all the raw materials, work in process material, and finished goods within a supply
chain. Improvement in Inventory policies can dramatically augment the supply chain’s efficiency &
responsiveness. Inventory management helps to optimize logistical parameters like inventory
forecasting, replenishment lead time, inventory carrying costs, inventory valuation, available physical
space, replenishment, returns of defective goods and demand forecasting. Balancing these competing
requirements culminates in an optimal inventory levels. This is an ongoing process as the business
needs shift and react to the wider environment.

There are three basic areas where decisions regarding the creation and holding of inventory can be
made:
1. Cycle Inventory: Amount of inventory needed to satisfy demand for the product in the period
between purchases of the product.
2. Safety Inventory: Amount of inventory that is held as a buffer against uncertainty. Had it been
possible to forecast demand perfectly, then the only inventory that would be needed would be cycle
inventory.
3. Seasonal Inventory: Amount of inventory that is built up in anticipation of predictable increases in
demand that occur at certain specific times of the year.

Inventory management is important for a retailer requiring to acquire and maintain a proper
merchandise assortment while ordering, handling, shipping, and other related costs are kept in check.
It involves systems and processes to measure various logistical parameters like inventory
requirements, optimized replenishment techniques, set targets, projected and actual and inventory
status and functions related to the handling and quantitative management of materials. This would
include the monitoring of material movements into and out of stockroom locations and the
reconciliation of the inventory balances. It also includes ABC analysis, cycle counting support, lot
tracking etc. Inventory management balances the need for product availability against the need for
minimizing stock holding and handling costs in addition to fulfilling the primary objective of
determining/controlling stock levels within the physical distribution system.

INVENTORY MANAGEMENT AT IKEA

Ikea is the world’s largest retailer of home furnishings, with 355 stores in 29 countries. This
organisation impresses not just its consumers with affordable, high quality furniture, but also
competitors and companies around the world – especially with its unique supply chain and inventory
management techniques. It makes use of very innovative Inventory management to keep its supply
chain lean, organized and cost effective.

To start off, IKEA has a clear vision – to provide well designed, functional home furnishings at prices so
low that as many people as possible will be able to afford them. Its various functions (supply chain
operations and inventory management included) work together to support its distinctive value
proposition. Being a very high volume retailer, IKEA buys products from more than 1,800 suppliers in
50 countries and manages supplier relationships uses 42 trading service offices around the world. They
negotiate prices with suppliers, check the quality of materials, and keep an eye on social and working
conditions.

Each IKEA store is so huge that it holds more than 9,500 products! Most IKEA furniture is designed as
Knocked down (KD) and sold in pieces for the customer to assemble. The KD parts are placed into
efficient and convenient flat packages for low-cost transport to take up less room in trucks, thus
maximizing the number of products that can be shipped and minimizing order fulfillment costs. This
unique packaging also occupies less space in warehouse bins and reserve racks, thus allowing more
room to stock additional items for order fulfillment. The company savings in fuel and holding costs is
passed on to customers as reduced prices/discounts.
There is a warehouse in the premises of every IKEA store. The main showroom floor is meant for
customers to browse for items. They then access the products themselves from the floor pallet location
with racking with a reachable height. The furniture can then be purchased and taken home. Additional
products are stored above these locations, in reserve racks. Having customers select the furniture and
retrieve the packages themselves is an inventory management tactic called ‘cost-per-touch’ – lesser
the number of touches a piece of inventory is subjected, lesser is the cost of warehousing.

IKEA stock is let down to the lower slots at night (forklifts and pallet jacks are not used during store
hours for safety reasons). One-third of the lower level comprises of a warehouse, which is off limits to
customers. This space contains items which are too bulky for customers to load without help from the
staff. IKEA wants as much self-service as possible, so the number of items in this bulk storage area is
minimum. An inventory replenishment management process developed by IKEA called
‘minimum/maximum settings’ is used by in-store logistics managers to respond to store-
level inventory reorder points and reorder products.

Minimum settings: Minimum quantity of products available before reordering.

Maximum settings: Maximum quantity of a particular product to order at a time.

Since all IKEA inventory is only stocked at night after opening hours, the logic of its min/max settings
is based on the number of products that will be sold from the reserve stack of the bin in a single day
or two-day period. This customer demands are met while minimizing ordering too few or too many
products. Since all IKEA inventory is only stocked at night after opening hours, the logic of its min/max
settings is based on the number of products that will be sold from the reserve stack of the bin in a
single day or two-day period. The process meets customer demand while minimizes ordering of too
few or too many products. This strategy also ensures that IKEA has inventory ready to meet customers’
demands, lowering the cost of lost sales.
Using IKEA’s proprietary inventory system, logistics managers are able to track inventory sold through
point-of-sale (POS) data. Ordered inventory comes into the store through direct shipping, and from
distribution centers through warehouse management system data. Using this data, they can forecast
sales for the next couple of days and order in the suitable amount of products to meet that demand.

If the system sales data doesn’t match the actual sales data, the logistics manager goes directly to the
pallet and bin to do a manual stock-take. IKEA believes its process and system allows for the right
goods to be in the store with greater certainty, and at a lower cost, than the traditional retail
forecasting and replenishment process.

IKEA has high-flow warehouses (focused on the 20% of SKUs that account for 80% of the volume) and
low-flow warehouses (more manual) across its store operations. IKEA drives down its costs-per-touch
to employ automatic storage and retrieval systems in its high-flow warehouses. Products not in high
demand are stocked in a low-flow facility, and operations are mainly manual processes since workers
do not shift and move inventory around too much.

These strategies have contributed to making IKEA the world’s most successful furniture retailer with
low operating costs and high product demand. The company is also able to stay competitive in the
industry as it continually seeks more advanced methods to streamline supply chain management .