Logistics & Supply Chain Management K.S.Srinivasa murty 12th

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Logistics Supply Chain Management

• K.S.Srinivasa murty
• 12th February 2005

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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
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
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An Evolved Definition of the Supply Chain Web
Emerged in the Last Decade
Collaboration and Quick Response ( QR)
New Responses
Key Challenges

• Collaboration with partners
• Rapid Response
• Information visibility

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

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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
Fiscal Flow
Information Flow
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Supply Chain Excellence Supports the Realization
of the Strategic Objectives of a Business,
Through..

• Reduced Costs (C)
• Shorter Lead Time (T)
• Best Quality (Q)
• Flexibility (F)
• Enhanced Service (S)
• Better Product availability reliability
  (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
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Comparison Of Efficient And Responsive Supply
Chains
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Strategic Fit
Mature
Functionalproducts
Innovative products
Effective supply Chain
Mismatch
Match
Mismatch
Match
Responsive supply chain
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Strategic Fit Establish the differentiators for
each class of products.
Mature
Star Performers
Efficient Supply Chain
C o s t F o c u s
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

• Invest / Divest
• Opportunistic capacity

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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

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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
4. Dell assembles all parts within a few
hours
DELL FACTORY (Ireland)
1. The customer orders via Dells web
site or by calling Dells call center
Web site
Supplier network
Customer 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.
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
Make
Move
Sell
Suppliers
Factories
Depots/CFAs
Distributors
Retailers/ customers
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
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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 control
Special Handling
Requirement
Cost Control
Delivery
Customer Service
Supply Chain
Optimization
Value added Service
Change Management

Activities carried out by a traditional
distributor



Activities carried out by 3 PL




Activities carried out by 4 PL

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SERVICES
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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

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2. Distribution Management
D
D
D
D
D
D
G
D
G
D
G
D
D
G
G
D
D
G
D
D
G
D
D
G
G
D
D
G
D
D
D
D
D
D
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• 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.

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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

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Logistics /Distribution Services-contd.

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

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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

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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

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6. Other value added services

• Freight forwarding
• Customs clearance
• Documentation Assistance
• Packaging

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Other Value Added Services

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

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You achieve

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

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3PL Successes KPI Gains
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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 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 companies) / through
  knowledge sharing.

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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
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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 to 81

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Standards for ExcellenceBest-in-class -
Inventory Management
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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.

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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
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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 and effective MIS
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Improved Servicing of B Category SKUs
Pre-Buffer
Post-Buffer
Centralised Production Planning
Fact. 1
Fact.2
Fact. 1
Fact.2
Centralised Production Despatch Planning
Decentralised Despatch Planning
Buffer Depot
Fortnightly service
Daily Replenishment.
Distribution centers
DC 2
DC 3
DC 1
DC 2
DC 1
DC 3
5 days stock at JITs
3 wk. 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

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• An End to End Supply Chain Solution

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Project Leap

• An integrated Supply Chain System for Continuous
  Replenishment of RSs stocks

Receipt of Goods from Depot/ Factory (Replenishmen
t)
RSs stock(Agreed norm)
Despatch to Trade (Secondary Sale)
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Continuous replenishment Across the Extended
Supply Chain
Buffer
JIT Depot
Factory
Buffer
JIT Depot
Factory
Supplier
RS
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RS ( Redistribution Stockist) Connectivity
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RS Connectivity Objectives

• Main Objectives
• Facilitate replenishment based primary sales
• Information and analysis of secondary sales
• Secondary Objective
• Interactive communication with the RS

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Continuous Replenishment System For RS
C FA
Sales, Stock
HLL RS Net
RS
Sales system
Automated Primary Sales
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• Replenishment Planning

Dispatches
D A I L Y
Buffer Depot
JIT Depot
Dispatches
Stock,Receipt,Sale
Factory
Order Servicing
Central DSS
Orders
Order Servicing
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

W E E K L Y
Central DSS
Supplier
Central Purchase
D A I L Y
Factory
JIT Depot
Buffer
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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.