Logistics & Supply Chain Management

K.S.Srinivasa murty 12th February 2005

Agenda
Review the role and relevance of Supply Chain Management and its historical evolution. Importance of strategic fit between the product market scope / product type and Supply Chain Management and steps to achieve it. Role of Logistics Service Providers Brief over view of an Indian Case
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Success in business today is all about Delighting the customer and growing profitably

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So, The Thrust Is On...

Enhancing Customer Satisfaction. Reducing Working Capital Ensuring cost-effectiveness Improving competitiveness, being ahead of competition
To be ahead of competition we need to be *Fast *Economical
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*Dependable
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What is Supply Chain?

A supply chain is a network of facilities and

distribution

options

that

perform

the

functions of procurement of materials, transformation of these into intermediate and finished products and the distribution of finished products to the customers.
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The Traditional Vision of Supply Chain Constrained Itself to the Boundaries of an Organization

Production Transportation Purchase

Inventory / Warehousing

SOURCE

MAKE

MOVE

STORE

SELL
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IM5M/KSSM This approach was however inward looking

An Evolved Definition of the Supply Chain Web Emerged in the Last Decade

Collaboration and Quick Response (( QR) Collaboration and Quick Response QR)

Key Challenges
Shortened product life cycles Time to market (SPEED) Product variety proliferation

New Responses
Collaboration with partners Rapid Response
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Information visibility

A Supply Chain means more than physical flow of goods

Supply chain has 2 critical functions Physical function Market Mediation Function
Ensure that the variety/ supplies match what customer wants to buy.

Physical Flow Physical Flow Fiscal Flow Fiscal Flow

Information Flow Information Flow

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Supply Chain Excellence Supports the Realization of the Strategic Objectives of a Business, Through..
Reduced Costs Shorter Lead Time Best Quality Flexibility Enhanced Service Better Product availability & reliability
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(C) (T) (Q) (F) (S) (R)

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Strategic Fit Is Critical

A company must ensure that its supply chain capabilities support its ability to to satisfy the targeted customer segments. Depending on the market segments targeted, the company will focus on either
Functional Products, or Innovative products.

The supply chain design would vary depending on the nature of the product / market segment.
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Comparison Of Efficient And Responsive Supply Chains

Efficient supply chain R esponsive supply chain Supply dem and at R espond quickly to low est cost dem and Create m odularity to allow postponem ent of product differentiation

P rim ary goal

P roduct design M ax im ize strategy perform ance at m inim um product cost P ricing strategy

Low er m argin / price Higher m argins / price is prim e custom er not prim e custom er driver driver M aintain capacity flex ibility to m eet unex pected dem and
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M anufacturing Low er costs through strategy high utilization

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Comparison Of Efficient And Responsive Supply Chains

R esponsive supply chain I nventory M aintain buffer strategy inventory to m eet unex pected dem and Lead tim e R educe, but not at Aggressively reduce strategy the ex pense of cost even if the costs are significant Supplier Select based on Select based on strategy cost and quality speed, flex ibility and quality Transportation Greater reliance on Greater reliance on strategy low cost m odes responsive m odes
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Efficient supply chain M inim ize to low er cost

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Strategic Fit
Mature

Functional products

Innovative products

Effective supply Chain

Match

Mismatch

Responsive supply chain

Mismatch

Match

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Strategic Fit : Establish the differentiators for each class of products.

Mature
C o s t F o c u s
Efficient Supply Chain

Star Performers

Invest / Divest

Future Products
Responsive Supply Chain

Service/ Responsiveness Focus

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Some Illustrative Conversion(manufacturing) Policies Could Be...

Service/ Responsiveness Focus

C o s t F o c u s

Mature Products
Dedicated lines Large Batch Sizes Large inventories

Stars
High speed dedicated lines Focus on non-service cost drivers Inventory as decoupler

Invest / Divest
Opportunistic capacity

Future Products
Small batch sizes Large capacities that are product substitutable
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An Illustration of Strategic Fit : The Dell Experience

In 1994, a struggling second-tier PC maker; manufactured to inventory. Implemented a new business model Converted operations to a build-to-order process Eliminated inventories through a just-in-time system Sold its products directly to consumers Results were spectacular Went far beyond the simple pursuit of efficiency and asset productivity IM5M/KSSM

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An Illustration of Strategic Fit : The Dell Experience

Other strategies like product development strategy
Dells new product development strategy emphasized designing products that are easily customizable, which may include designing common platforms across several products and using common components.

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Supply Chain Excellence

2. DELL relays the order to its network of suppliers, specifying number and types of hard-drives, motherboards, modems, , that are needed and when 2 3

DELL FACTOR Y (Ireland )

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4. Dell assembles all parts within a few hours 1

Web site

Supplier network
3. Suppliers ship all required goods back to Dells assembly line. At all times, suppliers have real-time access to information about Dells orders, which enables them to ensure their production line is moving smoothly.

1 1
Call center

1. The customer orders via Dells web site or by calling Dells call center

Customer network

5. Dell ships the custom-built PC to the customer. At all times customers can track the progress of their order via Dells web site

Sells $15m worth of computers from its website each day

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Supply Chain Excellence

Its not just that we sell direct, its also our ability to forecast demand - Its both the design of the product and the way the information from the customer flows all the way through manufacturing to our suppliers. - Michael Dell (Source: HBR, March/April 1998)

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Avoiding the vicious spiral of Supply Chain inefficiency will require

Buy Buy Make Make Move Move Sell Sell

Suppliers

Factories

Depots/CFAs

Distributors

Retailers/ customers

Partner Collaboration is crucial to supply chain success Partner Collaboration is crucial to supply chain success

Partner Collaboration ( information sharing w.r.t demand patterns, pipe line inventory) Tracking demand variability through more effective forecasting and demand communication Synchronisation at all points of commit in a supply chain
Use of Technology can catalyse and transform the supply chains IM5M/KSSM
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Logistics Service Providers

A 3PL ( logistics provider) is a company which has expertise in logistics management ( transportation, warehousing, inventory management, distribution, customer support and service). They are in the business of supplying / coordinating the logistics function across multiple links in the supply chain. They would have invested in technology that would allow them to manage information on consignment movement, billing, auditing and payment efficiently.
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Logistics Service Providers

The use of such service providers can help a company to focus on its core business activities / core competencies and simultaneously benefit from the best practices of service providers to increase efficiency and flexibility of its supply chain. Success in 3PL arrangements would need a strategic alliance and a long-term commitment as it involves multiple functions / processes in the supply chain like the design and operation of in-bound and outbound logistics, inventory management, customer service - on time delivery etc.
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Logistics Service Providers

Asset owning 3PL :
Advantages : Economies of scope and scale due to the infrastructure and systems in place and large customer base and human resources Disadvantages : They may tend to favor their own divisions in awarding work, be somewhat bureaucratic and longer decision making cycles.

Non asset owning 3PL:

Advantages : More flexible and able to tailor services and the freedom to size and match providers. They may also have low overhead cost and specialized industry expertise. Disadvantages : Limited resources and lower bargaining power.
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Outsourcing in SC: 3 PL and 4 PL

Warehousing Transportation Inventory Delivery control Special Handling Requirement Cost Control

Customer Service

Supply Chain Optimization

Value added Service

Change Management

Activities carried out by a traditional distributor

Activities carried out by 3 PL

+
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Activities carried out by 4 PL

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SERVICES
Supply Chain Planning, Forecasting Managing Upstream & Downstream Players Workflow Management Warehouse Management Inventory Management Transaction Management Reverse Logistics Management Information Technology Management

Products :
1. Transportation Management 2. Distribution Management 3. Warehousing and Inventory Management 4. Round-the-Clock Parts Bank Management 5. Financial Services 6. Other Value Added Services like MAN Materials as Needed or JIT
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1.

Transportation Management

Customized transportation solutions Best in Class transportation services In-bound and Outbound transportation Full/Part Truck loads Assured space in Indian Airlines flights Refrigerated trucks Containers Ships Multi-model connectivity

2.

Distribution Management
D D D D D D D D D D D D D G G D G G D G D G G D D D D G G G D D D D

Provides you instant distribution network Hub & Spoke Model Can reach the remotest corners of the country. Present in 575 out of 585 districts

340 locations Services includes : Order Booking, Order Fulfillment, Inventory management

Provides most transparent and seamless information flow on inventories.

3. Warehousing and Inventory Management

Ready to use, state-of-the-art warehouses Visibility of stock at multiple locations Reduces stockholding cost Stock Count Reservations and Back Order prioritization Customized Invoicing Inventory Control MIS Report generation

Logistics /Distribution Services-contd.

Retail Supplier Partnership Distribution Integration 3PL/ 4PL Customer Supplier Partnership Vendor Managed Inventory

4. Round the clock Parts Bank Management

Unique solution for managing your critical parts movement Offers 24 x 365 day accessibility Shared infrastructure facilities in terms of both space and cost Handle Return Management Reverse Logistics Expedited critical parts delivery Improve technical team efficiency

5. Financial Services :

Collection of payment against delivery, on behalf of customers

Banking assistance Invoicing & Billing Assistance Receivable Management I.e. collection of outstanding bill payments on behalf of customers

6. Other value added services

Freight forwarding Customs clearance Documentation Assistance Packaging

Other Value Added Services:

Kitting Assembly Pick-Packing Scrap Handling Customer Material Rejected Return Repair Return

You achieve :

Proximity to markets Reduced C2C time Shared cost - reduced costs Real time inventory visibility Flexible solutions Reduced product obsolescence and damage

3PL Successes KPI Gains*

A Selection of Indicators Reduced Inventory Holding Improved Lead Time Inventory Accuracy Product Availability Picking Accuracy Pick/Pack Throughput per Emp Overall Throughput per Emp Space Utilization Reduced Damaged Products In-sourced Baselines 10-20d 48-24h 80-90% 90-95% Outsourced Results 7-12d 24-6h 95-99% 95-99%

98% 99.5% 150-157 225-250 OM/MA, h 75-100 125-150 OM/MA, h 100% 1-2% 70-80% 0.1-0.5%

Actual results from a 3PL outsourced program for an international beverage brand IM5M/KSSM leader, August 2001, Malaysia

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SCM : Key Performance Drivers

Quality Cost Time / responsiveness ( speed) Innovation

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SCM : Key Performance Drivers

Vendor Transformation:
Vendor selection / development and the unique

way relations are managed on an ongoing basis

pre-selection audits to establish capabilities and

potential synergies
post selection operational reviews, certification

( at different levels , reflecting the strength, depth and maturity IM5M/KSSM of relationships)
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SCM : Key Performance Drivers

Knowledge sharing with strategic vendors participation in new component and product development etc.

Identify and set targets for cost savings to be achieved by key suppliers through cross corporate teams (supplier & buyer
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IM5M/KSSM companies) / through knowledge sharing.

SCM : Key Performance Drivers

Leverage

technology to automate

transaction

oriented , non strategic purchase activity and release time for strategic sourcing. This will improve purchasing efficiency as well as effectiveness.

You can add greater value to company profitability and still handle much larger value of purchase with out excessive pressure and the job can also be more exciting when pure chasing becomes strategic sourcing!
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SCM : Key Performance Drivers

Leverage

technology ( connectivity with

suppliers and key customers) to manage supplier and customer partnerships.

Capable 3P service providers can greatly help

timely deliveries without excessive inventories.

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SCM : Key Performance Drivers

It is absolutely necessary for the purchase,

planning,

stores,

transport

and

quality

functions to act as one team with shared purpose and objectives, if you want to win in the new emerging global competition.
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Supply Chain Efficiencies in India

P erform ance I ndicators Cash to Cash Cycle Time Inventory Turnover All I ndia Average (2000) 116.49 Days 22.70 For Finished Goods 10.09 For Raw Material

Total Supply Chain Management 26.4% of Gross Sales Costs

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Some Best in Class and Median Performances in Supply Chain Management

Cash - to - cash cycle time ( the number of days between paying for raw materials and getting paid for product) Best in class .. 30 days or less Median ..100 days Delivery performance to request ( the % of orders fulfilled on or before customers request date) Best in class ..94% Median 69 toIM5M/KSSM 81%

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Standards for Excellence Best-in-class - Inventory Management

Attribute Material Down Time & Commodity Inventory Ingredient Inventory Packaging Inventory Supplier Inventory Inventory : FG Inventory : RM Inventory Turns Amount of Inventory for Top 90% SKUs by Sales IM5M/KSSM Volume Benchmark 0 < 1 day < 10 days < 5 days < 5 days 15 days 5 days 46 Less than 5 days plus shipping time
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Summary - Recap
In a business environment that requires more responsiveness and focus on the bottom line, supply chain performance management is vital to competitive advantage and sustainable business Improvement. Set in place SCM performance measurement matrices consistent with your strategic business goals Identify performance exceptions, understand issues and alternatives, act on high impact problems and opportunities and continuously validate actions relative to objectives and results. IM5M/KSSM
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Summary - Recap
By adopting such systems, companies have increased

responsiveness

and

customer

service,

reduced

inventory and procurement costs and improved the utilization of production and distribution assets. The benefits are compelling & the path to success has been validated.
The time to act on supply chain performance

management is now.
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Integrated Supply Chain Management An Indian Case

Supply Chain Strategy

Better customer service Daily Replenishment between Depots & factories Buffer Depots for B category SKUs Reduced Response time / Fill rate Manufacturing Flexibility Buffer Depots for B category SKUs Significant Reduction in Total Supply Chain Cost Improved working capital management Improved Fixed asset productivity Driving down costs of materials - win - win for strategic partners.

Leverage IT capabilities for on line data transfer / access IM5M/KSSM 50 and effective MIS

Improved Servicing of B Category SKUs

Pre-Buffer
Fact. 1 Fact.2 Centralised Production & Despatch Planning Buffer Depot Fact. 1

Post-Buffer
Fact.2 Centralised Production Planning

Fortnightly service

Decentralised Despatch Planning Daily Replenishment.

DC 1

DC 2

DC 3

DC 1

DC 2

DC 3

Distribution centers

3 wk. stock at JITs

IM5M/KSSM 5 days

stock at JITs

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Supply Chain Strategy

Manufacturing Focus on : Flexibility: A shift in focus from Production orientation to plan compliance
Reduced change over times dramatically to enhance response time. Increased regionalized servicing of demand

Quantum improvement in productivity through

Rationalization, restructuring, debottlenecking and TPM
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Quest For Further Improvements

Business drivers
NPS Growth Profitability

Focus on supply chain to directly impact the above

IT enablers
Availability of next generation IT Tools Improved Communication Infrastructure Advent of eCommerce IM5M/KSSM
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An End to End Supply Chain Solution

Project Leap
An integrated Supply Chain System for Continuous Replenishment of RSs stocks

Receipt of Goods from Depot/ Factory

(Replenishment)

RSs stock (Agreed norm)

Despatch to Trade

(Secondary Sale)

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Continuous replenishment Across the Extended Supply Chain

Factory Buffer JIT Depot

Supplier

Factory

Buffer

JIT Depot

RS

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RS ( Redistribution Stockist) Connectivity

RS Connectivity : Objectives
Main Objectives Facilitate replenishment based primary

sales
Information and analysis of secondary

sales
Secondary Objective Interactive communication with the RS

Continuous Replenishment System For RS

C & FA Confirmed RS Orders Sales, Stock Sales, Stock Confirmed order HLL RS Net HLL RS Net RS Suggested order Stock Norms, Promotions

Stocks

Automated Primary Sales

Sales system
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Replenishment Planning
Dispatches
Buffer Depot Dispatches Stock,Receipt,S ale Direct Despatch Info. Central DSS Orders Order Servicing Order Servicing Factory Despatch Plan

Despatch Info

JIT Depot

D A I L Y

RSs

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Back-end Supply Chain : Process Areas

Operations Planner Source Network Optimizer Supply Chain Planner

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BACK - END PLANNING SYSTEM

Activities Annual Plan Costs Capacities

W E E K L Y

Central DSS

Operations Plan Optimised Network Weekly Production Plan Exception Handling MRP
Central Purchase Supplier Factory

D A I L Y
Buffer

Replenishment

Replenishment

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JIT Depot

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Logistics Management is a key part of Supply Chain Management. The design and operation of the Logistics impacts both costs and responsiveness. Logistics Management achieves efficiency and effectiveness through a focus on - optimizing the network design, improving demand forecasting , reducing the cash to cash cycle time and leveraging IT for information transparency all across the supply chain.
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