Section A: Supply chain management concepts

 Entities / Structure and Flows

 SC Processes
 SCOR model
 Vertical and horizontal integration
 SCM – Objectives and benefits
 SC evolution

Strategic Focus

Old SC: Internal quality and cost reduction

Latest SC: Implementing SC solutions that requires collaborations among business partners up stream as
well as down stream

Power full forces that will impact virtually every SC:

You must be prepared and ready to handle these power full forces

 Global expansion
 Increased project complexity and scope (project size and complexity increasing.. team size..
national and international.. communication and other issues)
 Greater market volatility (demand is more volatile and unpredictable due to increasing power
and speed of information’s available to consumer and competitors )

Basic Supply Chain:

Supply Chain: SC is a global network used to deliver products and services from raw materials to end
consumers through an engineered flow of information, physical distribution and cash.

Supply Chain

 Entities (supplier, producer and customer)

 Processes

Mostly manufacturing company in middle but not necessary…

Supplier vs Vendor: A supplier, a provider of goods or services or a seller with whom buyer does the
business as opposed to vendor which is generic term referring to all suppliers in market place

Structure:

Companies require SC to guarantee steady flow while at same time reducing SC cost

SC cost can be as high as 50% of revenue of company

SC inefficiencies can be 25% of total operating cost of company

Implementing the appropriate cost centered structure and strategy is important

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 5 stages / structures of SC

SC structures vary based on demand history, business focus and needs for connectivity, technology and
equipment.

1. Stable
a. Predictable Supply & demand
b. Cost are low due to predictable demand and minor changes
c. Production runs are long with fewer changes
2. Reactive
a. Fulfil demand but without much concern to cost
b. Is perceived as cost center
c. Need minimal competitive or connectivity technologies & capital assets to respond to
demand
3. Reactive efficient
a. Support competitive positioning by serving as an efficient, low cost and integrated unit
b. Focuses efficiency and cost management on the total delivery cost of the finished goods
c. Place greater importance on connectivity technology and new equipment to automate
functions to reduce labor cost and improve capacity and through put
4. Proactive efficient
a. Recommend new raw materials and product design to reduce complexity and cost
b. Instigate changes to product design for greater efficiencies
c. Invest in integrate information system to facilitates sharing of information across
functions
5. Strategic driven
a. Demand generation and fulfilment are fully integrated
b. SC contributes to development of the organizations overall strategy
c. Forecasting, planning and replenishment are fully integrated
d. Technological improvements, knowledge and real time information’s are shared with SC
partners
Flows in SC

 Flow of information
 Primary product flow
 Primary flow of cash
 Reverse flow of products (repairs, recycling, remanufacturing or disposal)

Supply chains can double back themselves. May be you sale one product to someone and then after
passing through different entities you may purchase that back. Like Coal Company and mining
equipment

SC can be viewed in terms of processes such as gathering and processing of marketing data, distribution
and payment of invoices, fulfilment of orders and shipping of materials

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 SCORE MODEL

1st tier suppliers / Customers can be internal or external but 2nd tier suppliers / customers always
external

Main Focus of model is on SC process

SC Processes:

 Plan
 Source
 Make
 Deliver
 Return
 Enable
Entities at each end of SC (raw material supplier and a retailer outlet only perform two processes,
suppliers supplier handle only delivery and retunes and suppliers supplier manage only sourcing and
returns) – See Score model page 14 - Important

SCORE Apply to which activities and doesn’t not apply to which processes –Page 15

SCORE model assumes that product is already designed and tested for production

Supply Chain Ownership strategy

Horizontal (lateral) vs Vertical integration (for control)
KEIRETSU
Why lateral (horizontal SC)
 To achieve economies of scale and scope
 To improve business focus and expertise
 To leverage communication and production competencies

Gain in Scale, Scope and focus vs lose in ability to see and understand the large SC process or to care
about them

Stages of SC evolutions:
 Stage 1: Multiple dysfunction
 Stage 2: Semi functional enterprise (within department / silo)
 Stage 3: integrated enterprise (inter departments)
 Stage 4: extended enterprise (well integrated)

Supply chain Management: to create net value not to reduce cost

Value chain – function

Value stream – Process hh

Value stream mapping – Flow and collaboration of processes to reduce waste and time

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 Objectives of Supply Chain Management

1. Add value for customers and stakeholders

2. Improve customer services
3. Effectively use system wise resources
4. Efficiently use system wise resources
5. Leverage partner strength

1- Add value for customers and stakeholders

Value
 Utility
 Price
 Availability
 Attractiveness

Stakeholder value:

Financial benefits: Profit and profit margin (Triple bottom line – Social, environment and economic)

Measuring value for each stake holder and impact of each decision on all stake holders (primary stake
holder – business itself & External stake holders like customers, SC partners, investors, communities,
government etc)

Table 1-14 on page 32 is very important – please review

Sustainability and go green concept in Supply chain

Cut cost to yield net gains at bottom line (see broader impact of cost cut decisions)

It takes money to make money

Gains should be equally distributed

Customer value:

 Quality of product or service

 Availability
 Affordability
 Service
 Sustainability

Social Value

 Creating positive good by delivering social desirable and useful product or service
 Avoiding or reducing environmental side effects (reverse SC)
 Integrating sustainability into the SC (plan, source, make, deliver, return & enable)

Table 1-16 , Building a sustainable SC page 1-42

X list, Grey list and p list items

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 LEED : Leader in energy and environment design

2- Improved Customer services:

 Availability (case fill etc)

 Operational performance (order placed time till order completion time / ready for use)
 Customer satisfaction (customer perception, expectation and opinion based on customer
experience & knowledge)- Price, quality and delivery

3- Effectively use system wise resources: (what to do)

Right product, right amount, and right time to right customer – outward focus, customer needs and
wants while still meeting cost objectives

4- Efficiently use system wise resources: (how to do)

Efficiency is measurement of actual output vs standard output

Inward focus, how SC processes can be done less expensively, in less time and fewer resources

5- Leverage partner

Benefits of Supply chain Management:

1. Improved market knowledge

2. Three V’s (increase visibility & velocity and decrease variability)
a. Visibility : information flow, availability and view
b. Velocity: speed of all transactions, fast order to delivery time, high inventory turnovers
by using methods like rapid mode of transportation, JIT, lean manufacturing, eliminate
activities don’t add value, speed up flow of demand and cash
c. Variability: fluctuations below or above average value (bullwhip affect)
d. Two additional V;s – variety and volume
3. Streamlined operations (identify partners & bottlenecks, assign roles & responsibilities)
4. Improved management of risk (risk response plan / business continuity plan)
5. Increased sustainability

Accounting & Finance statements Basics:

 Flow of funds
 Spend Management
 Standard costing (target cost of operation)
o Cost of goods sold
o Current price
o Usage variance
o Cost variance
 Financial statement (balance sheet, income statement and statement if cash flow)
 Tax saving & Supply chain

Funds flow is not linear …..

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 Cash to cash cycle time “ an indicator of how effectively company manages its assets to improve cash
flow”

Net working capital is current assets of a firm minus its current liabilities

Period cost: all cost that can not be linked to unit produced / sold

Statement of cash flow (direct & indirect method)

Section B: Supply Chain alignment with Business strategy

Strategy, originally a military term, is how generals marshal all available resources in pursuit of victory

1. Business Strategy (how to compete- Competitive advantage)

a. Cost (best cost, low cost)
b. Differentiation (broad differentiation, focused differentiation)
c. Focus (focused low cost)
2. Organizational strategy (how to function – how to satisfy customers, how to grow business)
a. Customer focus and alignment (balance of price, quality & availability)
i. What matter for customer (end user – consumer of product)
ii. Customer is always right
iii. Right product at right place at right price in right condition / quality
b. Forecast driven enterprise
i. Retailer – Distributor- manufacturer – component supplier – raw material
supplier
ii. Forecast accuracy is big problem due to change in buying patterns, extra safety
stock by retailer etc, demand variability and wider swing due to long chain of
forecast – bullwhip effect
iii. Risk of extra inventory, Stock obsolete, Write off etc
c. Demand driven enterprise (make to order)
i. Push vs Pull system
ii. Risk of capacity shortage, expensive production due to over time, some time
extra transportation cost
iii. Kitting: purchase components in advance and group them into a kit and
assemble them on receiving firm order
d. Product type driven enterprise
i. Company can have more than one SC depending on types of product
ii. Functional vs innovative products
3. Supply chain strategy

Strategic plan: How to marshal and determine actions to support mission, goals and objectives of an
organization

Competitive advantage:

 Low cost advantage strategies

o Price competition also exists within differentiation and focus strategy
o Low cost should not be confused with target cost

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 oTarget cost: Process of designing product to meet specific cost objective. (Dollar Stores)
oProviding a product or service at lowest price is generally not compatible with
differentiation or focus strategies. This approach is more consistent with mass
marketing
 Product / service differentiation advantage strategies
o Competitive analysis: Analysis of a competitor that includes
o Strategies
o Capabilities
o Prices
o Cost
 Product differentiation:
 Not on price
 Based on
 Availability
 Affordability
 Durability
 Quality
 Reliability
 SC strategies for differentiation
o Modular design
o Minimum inventory
o Collaboration with supplier
 Focus advantage strategies
o Niche marketing (worth of customer, age group, geographical,). This can have some
differentiation
o Responsiveness (fast food, perishable products)
 SC Strategies can be more warehouse, fast mode of shipments, 3 P logistic etc

Safety stock: extra stock planned in inventory to protect against fluctuations in demand or supply

Shifting from Forecast driven to Demand driven:

 Provide access to real demand data along the SC for greater visibility of end customer
 Establish trust and promote collaboration among supply chain partners
 Increase agility of trade partners (ability to respond to variability in the flow of orders based on
sales)

Functional vs innovative products

Functional product:

 Little change
 Long life cycle (more than 2 years)
 Relatively low CM
 Little variety

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  Margin error 10%
 Low production cost due to
o High average utilization rate in manufacturing
o Minimal inventory with high inventory turnover
o Short lead time
o Supplier chosen for cost and quality
o Product design for maximum performance with minimum cost

Innovative product:

 High unpredictable demand – high variability

 Short life cycle (3 months for season clothing)
 High CM (20 to 60%)
 Error 10 to 25%
 Off season markdown 10 to 40%
 Supply chain strategy for innovative products
o Excess buffer capacity and safety stock of FG / RM / Spares
o Aggressive reduction of lead times
o Supplier chosen for speed, flexibility and quality rather than cost
o Modular design

Note: Same type of product can be innovative and functional so company might have more than one SC.
No one size fits all strategy now a days

Types of products:

 Staples (functional products)

 Seasonal products (outdoor patio furniture, holidays decor etc)
 Fashion products (innovative items,

Factors other than product type:

 Store type
 Time in season
 Product cycle( infrequent demand in start, stable demand at maturity and falling demand at
end of cycle)

Collaboration Among partners:

Requirement for success:

Seven Factors to be carefully researched and considered when forming SC strategy

1. Add value
2. Improve market access
3. Strength operations

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 4. Add technological strength
5. Enhance strategic growth
6. Share insights and learning
7. Increase financial strength

Building collaborative relationships:

1. Initiate management task

a. Sequential interdependence vs reciprocal interdependence
b. Specific contribution (profit sharing etc)
c. Steps
i. Define criteria
ii. Define role
iii. Responsibilities
iv. Policy for conflict management
v. Stay involved
vi. CPFR
2. Overcome barriers to collaboration
a. Sub optimization (solution to problem that is best from narrow point of view but not
from higher point of view)
b. Individual incentives that conflict with organizational goals
c. Working with competitors
d. Bottleneck caused by week or slow partner
e. Technology barriers
f. Power based relationships
g. Underestimate benefits
h. Cultural conflicts
3. Build level of communication
a. Transaction with information sharing
b. Shared processes and partnership
c. Linked competitive vision and strategic alliance
d. Mergers and acquisition
4. Determine level of collaborative intensity
a. Strategic importance
b. Complexity
c. No of suppliers
d. Uncertainty
e. Intensity depends on
i. Cost
ii. Quality
iii. Delivery
iv. Reliability
v. Precision (degree of variance from specifications)
vi. Flexibility
5. Examine strategic importance versus difficulty to determine product categories

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 a. Note: Table 1-25 & 1-26 important on page 1-99 (product type based on difficulty and
strategic importance)

Organizational Capabilities

1. Organizational design
a. Creations of Org structure to support strategic business plan and goals of an enterprise
b. Communications
c. Automation
d. Responsibilities
e. Financial management
f. Job hierarchy
g. Job description
2. Processes
3. System and technology
4. Human resource (horizontally organized SC typically have no unified ownership or management
structure like vertically integrated org
5. Metrics (measurement techniques)
a. Past performance
b. Future desired performance
c. A competitors performance
d. Industry average performance
e. World class or best in class

Stages of SC evolutions:

 1st Stage – Adhoc basis (formal communications limited to technical jobs, meetings scattered
and poorly organized, training may not exist
 2nd Stage (communications flows upwards and through the chain of command – no or little
communication between silos, focus on departmental goals, soft skills training)
 3rd Stage (cross functional team, continuous improvement initiatives, formal communications)
 4th Stage (integrated operations, outsourcing to focus on core competencies)

Aligning Organizational and SC strategies: Table 1-27 Page 1-110

Resolving misalignment or Gaps (changing strategy when and why)

 Change in market conditions

 Change in business directions
 Anticipate change in market

Section C: Supply Chain Design and Improvement consideration

Understanding the market place

Knowing your market, customer, competitors and produce can heavily influence how you design your
supply chain to meet long term objectives

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 Business plan

 Finance
 Engineering
 Operations
 Marketing
o Market Plan
o Current market position – Market research
o Opportunity and issue analysis SWOT (external: market forces, demographic changes,
emerging technologies, new taxes, laws, changing customer needs, competitor prices
and offering, social, economic and political conditions)
o Objectives, strategies and action plans
o Programs and projects
o Pro forma P&L statements
o Management controls

Types of market Research

1. Market analysis (size, location, nature and characteristics of markets “product potential”
2. Sales Analysis (sales comparison, market share)
3. Consumer research (consumer attitudes, reactions and preferences)

Tools of market research:

 Customer surveys
 Interviews
 Focus groups
 Direct mail questionnaire
 Web sites providing opportunities for user feedback
 Market reports sold by research companies

Supply chain Design considerations:

 Balance efficiency with responsiveness (make to stock, make to order and assemble to order)
 Network configuration
o No, location and capacity of warehouses
o Location of plant and production level of each product
o Transportation between all facilities
 Inventory level and locations
 Product design (as per customer needs, cheaper to build, easier to transport and store, & easier
on environment)
 Information technology
 Support systems (decision support system)

Continuous improvement, Continuous process improvement and TQM:

Components of quality

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  Quality of conformance (defect free)
 Quality of design

Continuous improvement model:

 Process Analysis (where waste / no value added activity can occur)

 Process assessment (KPI’s)
 Project planning
o Assign responsibilities
o Identify required resources
o Budget requirement
o Top management commitment
 Implementation and change management

Reasons for adopting continuous improvement

 SC management is process oriented

 Supply chains are dynamics
 Supply chains evolve
 CI of SC design can reduce the cost of poor quality
o Internal failure cost
o External failure cost
o Appraisal cost
o Prevention cost

Common Continuous improvement initiatives:

 Customer responsiveness
 Perfect customer orders
 Performance improvement
 Increased productivity
 Strategic and financial alignment
 Asset management
 System infrastructure
 Demand planning
 Logistic
 Professional development of employees

Strategic attributes of SC:

Velocity, variability, visibility, trust, customer focus, collaboration, Flexibility and Security “risk” and
compliance with all regulations

Key performance indicators:

1. For product introductions:

a. Internal failure rate
b. External failure rate
c. Scrap

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 d. Warranties
e. Returns
f. Introduction lead time
2. For merchandising products:
a. Market share
b. Volume growth
c. Total SC inventory returns
3. For replenishment :
a. Order fill rate
b. On time delivery
c. Forecast accuracy
d. Order fulfilment lead time

Dimensions of balanced scorecard:

 Customer perspective
 Business process perspective
 Financial perspective
 Innovation and learning perspective

Note: Score model Table 1-33 performance attributes and matrix on page 1-138 is very important
*****

Supply Chain reliability, Responsiveness, Agility, cost and asset management

Continuous improvement tools:

1. Process mapping
2. Pattern identification
3. Control chart analysis
4. Defect measurement
5. Pareto analysis
6. Cause and effect diagram
7. Root cause analysis
8. Benchmarking
a. Competitive Benchmarking
b. Best in class
c. Process benchmarking

Inventory Management
Inventory: Items / Stock to support

 Production (RM / PM/ WIP)

 Support services (Maintenance, repair, operating suppliers)
 Customer service (finished goods and spare parts)

Inventory can be seen as asset or strategic asset and helps to cope up with variability and also helps to
increase flexibility

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 Optimum level not minimum level of inventory – 20 to 60% of assets in Balance sheet

Inventory Management roles:

 Purchasing and materials management (adequate new materials at low cost)

 Manufacturing and finance: efficient and low cost production balanced against low inventory
cost
 Sales and marketing: sufficient inventory to meet delivery request and service levels

Performance indicator of inventory:

 Reducing inventory Cost (holding, ordering and transportation

 Achievement of customer service targets related to the quality, availability and on time delivery
of products

Factors to be considered while setting inventory policy:

 Customer demand (forecast error or variability)

 Planning horizon
 Replenishment lead time
 Product variety
 Inventory cost
 Customer service requirement

Aggregate and item inventory management:

Aggregate inventory Management: (long term decision to centralize / decentralize inventory mgt)

Objectives of aggregate inventory management:

o Support organization strategy and operations

o Support financial objectives
o Balance
o Customer services
o Operations efficiency
o Inventory investment cost objectives

Inventory can be aggregated by:

a. Demand patterns
b. Production processes (men or women running shoes)
c. Stage of production flow (RM / PM / WIP)
d. Relative value to organization (ABC)
e. Product or SKU family or Type (models, colors, styles)
f. Distribution pattern (to be delivered to same location/ geographic)

Item Inventory management: (short term operational decision)

 When to order inventory

 How to determined ordering size per order

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  Relative importance if each inventory item
 Inventory control procedures for individual items

Types of inventory:

 Raw materials inventory (to be used in final product)

 Work in progress inventory (from RM released for initial processing up to completely processed
material awaiting for final inspection and acceptance as FG)
 Finished goods inventory
 MRO (maintenance, repair, operating supplies)- used to maintain product but not part / in final
product – this inventory is treated as expense while all other types of inventories are assets
 In Transit

Functions of inventory: Why we have inventory:

1. Anticipation inventory (to cover projected trends of additional sales, planned sales promotions,
seasonal fluctuations, plant shutdown and vacations
2. Safety stock – Fluctuation inventory (variability, forecast error, fluctuations in demand)
3. Lot size inventory or cycle stock (MOQ / Full truck load / batch sizes)
4. Hedge inventory (manage risk by building, buying, contractually guaranteeing additional
quantity at a set price – for weather , labor strikes, civil strife, economy, political event – against
speculations)
5. Buffer inventory (maintained behind work center)
6. Decoupling (creating independence between supply and use of materials)

Inventory cost:

 Acquisition cost (product cost / purchase cost / order quantity unit cost)
 Landed cost (product cost + transportation + WH+ handling+ customs+ insurance). Internal
landed cost – Direct labor + direct material + FOH)
 Carrying cist / holding cost (sometimes 40% of total value of inventory and not less than 15%–
increase with increase in inventory Level)
o Storage cost (charge to individual material based on volume, density and weight)
o Capital cost
o Risk cost (perishability, obsolesce, likelihood of theft)
 Ordering cost (all costs that don’t very due to quantities but due to frequency of orders)
 Backorder (unfilled customer order / commitment), lost sales and lost customer costs
 Capacity variation costs (smoothening vs inventory cost – Plant shutdown vs over time)
 Set up cost: All expenses incurred when preparing machines and processes to manufacture an
order include labor for machine cleaning, and making any necessary adjustments or
modification

Statement of cash flow

IN Direct method: accrual accounting method – measure performance taking in account economic
events regardless of when a cash transaction occurs

Direct method: cash accounting method. When cash exchanged

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 Section E: Logistic Fundamentals

Getting

 Right Product
 Right quantity
 Right condition
 Right place
 Right customer
 Right time
 Right price

Logistic is business discipline that involves management of

 Order processing
 Warehousing
 Transportation
 Material handling
 Packaging

* Largest contribution to logistic cost is transportation - ~ 62%

*SCM is logistic taken to higher level of sophistication… *SCM is obtain, produce and distribute in other
terms

* Inventory and forecasting must be considered while designing and managing effective and efficient
system for moving goods from one place to other

Logistic functions:

 Transportation
o Delivery cost
o Speed of delivery
o Reducing damages
 Warehousing
 Third party and 4th Part logistic
 Reverse logistic

Logistic value proposition:

*Balance logistic cost with appropriate service level

1. Service (any service level can be achieved if company is willing to pay – so technology is not the
limiting factor here, it is economies)
2. Cost minimization (integrated cost. Not cost of one head like lower transportation cost or
storage cost)

Tactics for effective logistic strategy:

1. Coordinating functions

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 a. Improve one part on system keeping in mind impacts on other part of system
b. Overall goal is not better shipping or more efficient location of warehouses but more
value in SC network
c. Cross functional approach
2. Integrating the supply chain
a. Locate in the right countries
b. Develop an effective export strategy
c. Select warehouse locations
d. Select transport mode and carriers
e. Select the right no of partners
f. Develop state of the art information systems
3. Substituting information for inventory (physical inventory can be replaced by better
information)
a. Improve communications
b. Collaborate with suppliers
c. Track inventory precisely
d. Keep inventory in transit
e. Use postponement centers
f. Mix shipments to match customer need
g. Don’t wait in line at customs
4. Reducing supply chain partners to effective number (reducing no of partners can reduce
following )
a. Operating cost
b. Cycle time
c. Inventory holding cost

Advantages of 3PL / 4PL:

 Improve business focus

 More current logistic technology
 Greater technological flexibility
 More efficient warehouse for rapid replenishment
 Improved service to customers
 More workforce and resources flexibility

Risks of 3PL / 4PL:

 Loss of control
 Potential for inefficiency

Outsourcing caveats:

1. What are our current costs?

2. What customer skills does the contractor possess?
3. What are contractor’s special strength? (may be one party is good ion logistic but in WH
4. Will the contractor hire the most qualified partners?

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 Reverse logistics:

Motivating factors:

Savings in the after market

Competitive edge

Consumer and shareholder pressure

Growing market for environmentally safe products

Environmental awareness and regulations

Hierarchy of reverse logistic (4R)

Reduce

Re use

Recycle (used in other products)

Recover

Disposal (incineration is preferable than landfill)

*Reverse logistic in product life cycle not in last phase … start from design phase to product
introduction, maturity and decline & returns

Section F: Market Segmentation

* Primary reason to identify and understand market segmentation is to increase the organizational
profit over the long term

Customer driven marketing:

1. Customer requirement must drive product and service design

2. All products and services have more than one market segment
3. Logistic and marketing strategy must focus on customer segment
4. Profitability Is more important than sales volumes

*Cross selling (when customer buys additional products after initial purchase )

*life time customer / customer for life

Ways to segment markets:

 Gender
 Geography
 Age

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  Occupation
 Wealth
 Attitude
 Psychological
 People

5W;s:

When

Where

What

Why

How

Historically segmentation was based on preconceptions about the behaviors or desires of certain group
or in the best case research into small representative of group.

3 ways of customer driven segments:

 Segmentation by customer value

 Segmentation by customer needs (what, why and how much)
 Segmentation y preferred channels

Sources of customer information:

 Transaction records
 Sales representative
 Service representative
 Distribution points
 Purchase data

Section G: Demand Planning

Demand, Demand planning, Forecasting, Demand forecasting Def…

*Uncertainty is potential contributor to bullwhip effect

Traditional forecasting: Assuming increase over period and even inaccurate record keeping as they
ignore return and failure at baseline

Independent vs dependent demand

Principals of Forecast:

1. Forecast are always wrong

2. Forecast should include an estimate of error
3. Forecast are more accurate for groups than for single items
4. Forecast of short term is more accurate than long term

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 a. Long term (reviewed once a year or quarter)
b. Medium term (monthly review)
c. Short term (weekly)

Components of demand:

1. Trend
2. Seasonality
3. Random variation
4. Cycle

Qualitative forecasting:

It is used when data are scarce, not available or no longer relevant. When product is nnew

 Personal insight (based on insight of most experienced, most knowledgeable and most senior
person available)
 Sales force estimate (sales force should check forecast either it is consistent with their
knowledge of market place or not)
 Management consensus (panel of management experts)
o Pyramid Forecasting (prepare forecast at aggregate level and then balance it to item
level) Like annual budget.
o Historical analogy (study past pattern of similar product/ product family)
 Market research
o Market analysis (size, location, nature of market)
o Sales analysis
o Consumer analysis (consumer attitude, preferences and reactions through focus group,
questionnaire, motivational research)
o Test marketing
 Dolphi method (panel of experts in field not in company) good for long term forecast as this is
time consuming, human judgement
o Maintenance of anonymity
o Reduce defensiveness
o Reduce group think

Quantitative forecasting:

Extrinsic (used for aggregations like company sales instead of item sales – cause & effect relationship –
more effect if relate to very recent events and trends and less effective the more time has passed to
events) vs intrinsic forecasting (based on internal patterns like past sales – short term forecast)

Data gathering and formatting:

1. Record data in terns needed for forecast:

a. Subtract returns and cancellation from demand data
b. Track demand not shipment
c. Keep record of same time period
d. Forecast demand for the item manufactured as well as total demand of product

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 2. Record events that may influence demand
3. Keep separate demand records for each customer group

Quantitative forecasting based on intrinsic data: (time series model)

1. Naïve approach (rules out all kind of variation – one alternate approach that counts seasonality
like taking last year same month number for current month)
2. Moving Average
a. When demand is fairly stable from period to period
b. Mitigate the effects of random variation
c. Don’t over react to one month’s random variation but smooth out for short term
d. Cannot handle seasonality
e. Cannot handle upward / down ward trend
3. Weighted moving average
4. Exponential smoothing
5. Seasonal index

Measurement of forecast error:

1. Forecast error
a. Abs (actual – forecast) / Actual
2. Forecast accuracy
a. 1 minus forecast error
3. Bias and random variation
a. Bias (cumulative Actual demand – cumulative forecast demand) – for change in trend or
seasonality.
4. Mean absolute deviation
a. Sum of Abs Actual – forecast / total no of periods
b. Can be used as basis for safety stock
c. It tells magnitude of deviation
d. Service Level / Factor X MAD = Safety stock
5. Tracking signal
a. Sum of forecast errors (not absolute) / MAD
b. Used to signal when validity of forecasting might be in doubt
6. Standard deviation
a. MAD X 1.25
7. Means absolute square deviation
a. Sum of Square of all forecast errors / N
b. More sensitive and used when numbers are very close and reduction of error is
important
8. Mean absolute % error
a. Sum (Actual – forecast / Actual)% / N

Demand management over the product’s life cycle:

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  Long term: for product & capacity development
 Medium term: for S&OP
 Short term: Item level master scheduling

Elements of demand management process: (demand management balance the customer demand and
company capabilities)

1. Planning demand ( both units and value)

a. Demand plan estimate what purchase, price and time frame and based on this SC
decides what to product and when to produce
b. Used: each audience can view information in most meaningful way like production in
units and sales in units and value, Also validation and control of plans of individual
departments
c. When to revise plan: changes in external factors such as economy or competitor actions
as well as internal factors like branding and product life cycle decision, variation in
demand vs forecast, sales promotion
d. Demand plan inputs
i. Forecasting
ii. Product / brand management
iii. Marketing
iv. Sales
v. Business plan / strategy
2. Communicating demand
a. Communicate soon to minimize surprises
b. Structure communication so that they occur (use demand manager as focal point
i. Demand manager
1. Sales person
2. Marketing staff
3. Supply planner
4. Key customers
5. Product and brand management
c. Focus communications to audience
3. Influencing demand (activities of brand, marketing and sales to convince customers to purchase
product
a. Plan (budget, schedule, list of activities with responsibilities, targets – measureable)
b. Do
c. Check (periodically instead of waiting for process to complete)
d. Act
4. Managing and prioritizing demand
a. Don’t delegate
b. Power to demand side rather supply side
c. Don’t make decision until decision point is reached (time fences)

Collaborating planning, forecasting and replenishment:

Challenges: increased cost, resistance to data sharing, bridging internal functions

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 1. Strategy and Planning
a. Collaborative arrangement
b. Joint business plan
2. Demand and supply management
a. Sales Forecasting
b. Order planning / forecasting
3. Execution
a. Order generation
b. Order fulfilment
4. Analysis
a. Exception management
b. Performance assessment

Note: Table 1-69 on page 1-269 is very important

Section H: Customer relationship management

Put customer 1st

CRM includes:

 Accounting management
 Catalog
 Order processing payment processing
 Credits and adjustments

* Retaining customer is more profitable than finding new one – life time customers

*CRM is both broad (cover every interaction with customer) and deep (long term relationship)

*CRM is philosophy not a technique because it focus on long term relationship building

*CRM is competitive survival strategy

Need for CRM:

 Respond to market changes quickly

 Purpose to satisfy customer needs not to push boxes out of factory

Scope / Elements of CRM: (keeping 4 P’s in middle)

1. Sales operation
a. Optimize customer experience
b. Collecting and storing data of each transaction
2. Analysis
3. Customer information dissemination
4. Relationship building (life time customer)
a. Life time customer lower marketing cost
b. It is easy to satisfy life time customer
c. Life time customer increase revenue and profit (cross selling)

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 5. Collaboration

Implementing CRM:

1. Align business to customer focus

a. Product focus to customer focus
b. CCO (chief customer office)
c. Align vision, mission and goal to customer focus
2. Identify customer needs (may be a person who doesn’t frequently travel for him credit card
option of VIP lounge is not a need)
3. Create customer segment MAP
4. Implement CRM strategy
a. Acquire business
b. Fulfil business
c. Provide continuous customer care
d. Set CRM goal for target customers
5. Monitor, measure and report

Section I: Supply relationship management

Total cost of ownership: Cost of all activities in SC not only acquisition which is often a very small portion
of total cost of ownership

TCO is strategic total rather than tactical tool..

TCO = Landed cost + transportation cost + storage / WH cost + maintenance cost+ handling cost+
durability etc

TCO can be used: to select supply chain strategy, performance measurement and high level control

Costs which remain same in all option should not be considered.

TCO includes both tangible and intangible cost

Landed Cost:

1. Purchase price / production cost

2. Transportation cost including special packaging cost
3. Customs and related cost (duties, taxes, fees)
4. Inventory cost (carrying, ordering, back order
5. Outsourcing cost
6. Monitoring and control cost (generally high In outsourcing

Cost not to include in landed cost:

1. Financial and opportunity costs

2. Sales and marketing cost
3. Administrative cost

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 4. Reverse supply chain
5. Insurance and risk management
6. Taxes and foreign exchange

Process change cost:

Includes the cost for evaluating choices and implementing the change to SC

 Requirements identification and research

 Product development
 Contract sourcing (search, selection, qualification, and legal review)
 Process change and training
 Plant opening and closing, hiring & layoffs
 Supplier education and integration (including software integration)

Ongoing cost:

 Life cycle cost (durability, quality maintainability vs price)

 MRO (maintenance, repair and operations
 Cost of quality (defects, repair, rework, warranties)
 Sustainability cost (recycling, recovery of materials)
 Reputation cost (customer loyality vs lost customers)

Outsourcing, Insourcing, Subcontracting, Offshoring:

Benefits of outsourcing:

 Economies of scale
 Risk reduction
 Increased capital available for investment
 Clearer focus
 Access to new technologies
 Faster development cycle time

Reasons for offshoring:

 Market growth
 Additional sourcing options
 Streamlining and efficiency

Offshoring complexities:

 Language differences
 Culture
 Country specific process
 Tax, legal / regulatory issues

Risk management in offshoring:

1. Risk:

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 a. Risk of failure
b. Delivery on time
c. Failure of technology systems
d. Theft of intellectual property
2. Management:
a. Build extra inventory
b. Pilot program
c. Close monitoring for compliance
d. Maintaining back up suppliers
e. Redundant capacity

Make vs buy analysis: (strategic decision)

Factors to be considered:

 Cost
 Capacity availability
 Specialized knowledge
 Quality consideration
 Skill requirement
 Volume and training

Choosing activities to outsource:

1. Is the activity a core competency?

a. Integral “unique” vs modular “interchangeable” component
b. Kuglin process helps to consider the core competency in make vs buy decision as follow
i. Whether or not organization already has core competency (required process)
ii. Determine whether this service is required a score competency in market or
not
iii. Determined the relationship between the enterprise capability to deliver the
service and need for service in market place
iv. If a need of service exist in market and that service is not core competency of
the enterprise so decide either to develop this or outsource
2. What are the consequence of losing related skills or knowledge?
a. Outsource partial activity
b. Either outsource both design and manufacturing, outsource only manufacturing and
keep design with you or produce both in house
3. What is landed cost and total ownership cost?

Range of buyer / supplier relationship: (proximity, visibility, communication & culture)

Table 1-79 on page 1-315 important XXX****

1. Transactional relationship
a. Buy on the market
b. Ongoing relationship
2. Strategic relationship

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 a. Partnership
b. Collaboration / strategic alliance
3. Ownership
a. Merger
b. acquisition

Developing supply plans:

Plan Finalization:

 Flexibility
 Ability to accommodate growth
 Service level vs system cost trade off
 Alignment with mission and culture

Strategic sourcing vs traditional purchasing:

Focus from landed cost to TCO

Transactional to collaborative

Cross boundaries in two enterprises

Visibility of entire SC

Case studies…. Pending

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