9/22/2010

SUPPLY CHAIN MANAGEMENT

DR. V.K. GUPTA

SUPPLY CHAIN MANAGEMENT

Supply Chain is a sequence of suppliers, warehouses, operations and

retail outlets.Material and information flow both up and down the
supply
l chain.
h i
Supply Chain Management is the integration of all activities associated
with the flow and transfer of goods from raw materials stage through
to the end user, as well as the associated information flow by improved
supply chain relationship, to achieve a sustainable competitive
advantage.

Supplier
Supplier Storage Mfg. Storage Distributor Retailer Customer

Supplier

Dr.V.K.Gupta

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 9/22/2010

Raw Materials

Order flow channel

Seamless
Supply chain

Material flow channel

End Customer

Seamless supply chain

TRADITIONAL LOGISTICS SUPPLY

Raw
Materials

Primary
Manufacturing
Information
Secondary
Manufacturing
Material Flow Order Flow

Warehouse
Material/
Retail Outlet product

Customer

Dr.V.K.Gupta

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INTEGRATED SUPPLY CHAIN MODEL

Customer Product and

material flow
Retailers

Distribution Centres Information flow

Assembly / Mfg. SBU

1st Tier Supplier 1st Tier Supplier

2nd Tier Supplier 2nd Tier Supplier 2nd Tier Supplier

THREE TIER PHILOSOPHY

APPLIED TO LOGISTICS

Corporate
p
CONCEPTUAL Logistics STRATEGY
Strategy

Material and Product Flow

FUNCTIONAL SUPPLY CHAIN

Information / Cash Flow

SUBJECT OPERATIONAL ELEMENT

TRANSAC OPERATIONAL
-TIONAL INVENTORY TRANSPOR STORAGE, LOGISTIC SECONDARY LOGISTICS
-TATION HANDLING, SUPPORT LOGISTICS
PACKING SERVICE

NITYA KARMAKAR

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Raw Materials

Primary Marketing and

Manufacturing Sales

Assembly CUSTOMER

Distribution Retail
Outlet

Logistics
Material Flow Information
Flow
Logistics Supply Chain Model
NITYA KARMAKAR

STRATEGIC LOGISTICS MANAGEMENT

 Ve
Vendor
do Managed
a aged Inventory
ve to y - Ass a ve
vendor
do gets complete
co p ete
visibility of stock position with the manufacturer and
works on synchronized schedules, inventory holding with
manufacturer is greatly reduced. This is successfully
practiced in retail industry.
 Distribution Network Optimization - Determining the
best location for facility, setting proper system
configuration and working closely with transporter can
reduce inventory carrying and transportation costs. Using
these methods, IBM saved 15-20% in transport cost and
15% reduction in inventory.

Dr.V.K.Gupta

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 Shipment consolidation and cross docking - Hub and

spoke structure is used to effectively utilize all resources -
Courier Service - use of real time information system
improved fleet efficiency.
 Floor ready merchandise - In case of retail industry such
as adding product labels, hanging clothes on hanger etc
carried out at distribution centers.
 Category Management - Handling a different customer
segments through teams responsible for strategy, operation
and performance.
 Channel partnership - Popular in apparel industry. Co.
have formed channel partner with discount stores /
distributors. This allow manufacturer to manage inventory
levels based on data from POS and replenishing.

Dr.V.K.Gupta

THE GENERIC VALUE CHAIN

MARGIN
Infrastructure
Support Human Resource Management
activities Corporate communication
Product / technology development
Procurement

Inbound Production Outbound Marketing Service

logistics Operations logistics & sales

Primary Activities MARGIN

Production interrelationship Market interrelationship

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Stage 1
Financial Integration
Automation of routine functions
Applications such as payroll Focus Result
Cost reduction Competition
Stage 2 Increased human based on price
Cross Functional Integration
productivity,
F
Functional
ti l coordination
di ti
MRP II - coordination of efficiency
material management

Stage 3
Firm wide integration
Real time information flow Future
Business transformation and process Focus Prime focus-
redesign Increased
ERP customer
profitability, service,
Stage 4 market
Decision making tool Innovation
Supplier customer integration share
Agility
EDI, Intranet
IT Evolution - Focus and Results
Dr.V.K.Gupta

REDISCOVERY OF LOGISTICS - POST 1980

 Product life cycle becoming shorter

 Proliferation of product lines
 Balance of Power in the channel shifted from
manufacturing to trade
 Value added by manufacturer declined as cost of materials
and distribution increased
 Many companies relocated their facilities on a global basis
 Low cost, high volume information processing and
transmission revolutionized logistics control systems

Dr.V.K.Gupta

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DEVELOPMENT OF MARKETING CONCEPT

ˆ Price ( World War )

 1950/60’s
ˆ Product ( Technology Impact )
 1960 / 70’s
ˆ Promotion ( Promotional parity )
 1970 / 80’s
80’
ˆ Place ( Availability )
 1980 / 90’s

Dr.V.K.Gupta

TOTAL UTILITY CONCEPT

Primary
a y Process
ocess

Production Functional Utility

Marketing Possession utility
Logistics Place / Time utility

Personnel Facilities,
Personnel, Facilities Materials,
Materials Equipment
Equipment, Information
Resources
Training, Budgeting, Maintenance
Secondary Process

Dr.V.K.Gupta

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LOGISTICS AND BUSINESS STRATEGY

PRODUCT

PRICE PROMOTION
PLACE
(Customer
Service)

INVENTORY
TRANSPORTATION
STORAGE / HANDLING / PACKAGING
LOISTICS SUPPORT SERVICES

SECONDARY LOGISTICS ISSUES

Dr.V.K.Gupta

COMPONENTS OF LOGISTICS SYSTEM

 Facility structure - Large geographical area.

area Facility
location decision normally taken on adhoc basis.
 Transportation - Rail, Road, Air and Sea
 Inventory - Long lead times, both external and internal
 Communication - IT and Internet has now made it
possible to improve this area.
 Warehousing and packaging - There is tremendous
room for improvement in this area.

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ELEMENTS OF LOGISTICS
1. Inventory 4. Logistics
2. Transportation Clearing
Air Forwarding
Rail Shi ’ agentt
Ship’s
Road
Surveyors
Sea
Pipe Insurance
3. Storage, Handling, Packaging Consultants
Bulk liquid terminal Infrastructure
Bulk dry terminal 5. Secondary logistics
Silo
Warehouse
Travel service
Open store Service transport
Port Courier service
Depot
Distribution center
Drumming
Bagging

Dr.V.K.Gupta

ISSUES IN SUPPLY CHAIN MANAGEMENT

1. INFORMATION SYSTEMS AND SUPPLY CHAIN

MANAGEMENT

Centralized coordination of information flows.

Total logistics management
Order change notices that trigger a cascading series modifications to
production schedules, logistics plans, warehouse operations
Global visibility into transportation resources across business units and
national boundaries
Global inventory management - ability to locate and track movement of
every item
Gl b l sourcing
Global i - consolidation
lid ti off purchasing
h i function
f ti across
organizational lines, facilitating purchasing leverages across SBU’s/
Inter-company information access - clarity of production and demand
information residing in organizations both upstream and downstream
throughout the chain.

Dr.V.K.Gupta

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Data interchange
g - between affiliates and nonaffiliated throughg standard
telecom chinless.
Data capture - ability to acquire data about an order at the point of origin,
and to track products during movement as their characteristics change.
Transformation of business from within - managers who can see the big
picture and accept new forms of business processes and systems
Improvement in supplier-customer relationships - to justify investment in
technology linkages.

Dr.V.K.Gupta

2. INVENTORY MANAGEMENT ACROSS THE SUPPLY CHAIN

Time based competition is here to stay.
Quick response and flexibility has been imbibed in day to day culture.
A number of companies have experienced major improvement in
corporate results by focusing on cycle time - Toyota, Wall Mart,
X
Xerox, M
Motorola
t l .
Many company follow Dock to Dock system for component supply like
FORD where supplier delivered parts are delivered directly on the
lines.
3. SUPPLY CHAIN RELATIONSHIPS
Close relationship is the key to Supply Chain Management.
Commitment of company to use single or dual source of supply for a
longer period. Few select supplier is better to work with.
A degree of trust is essential for smooth flow of materials and
information.
A key element in improving performance is the presence of objective
performance measures, both parties are operating acoding to
exceptions and meting stated objectives.

Dr.V.K.Gupta

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CORPORATE PROFITABILITY LINK TO SUPPLY CHAIN

 Reduction in costs - Concept of supply chain crosses over the
boundaries of an organization. Collaborative efforts with the upstream
vendors and suppliers, and with downstream distribution channel
partners and customers offer opportunities to avoid non value adding
activities,
ti iti reduce
d transaction
t ti costs,t bring
b i economies i tot operations.
ti
 Total sourcing - Manufacturers have focused on minimizing price by
having many vendors each fighting for his share. Holistic view of
supply chain reveal that supplier’s cost are in effect the cost of the
manufacturer. If a supplier is forced to hold more inventory, its cost
will find its way in supplier's price.
 Gain sharing - Companies striving to become lean manufacturers
have started recognizing the need to develop co-operative relationship
with
i h vendors
d to reduce
d costs andd improve
i efficiency.
ffi i Chrysler’s
Ch l ’
Supplier cost reduction program, where they agreed to share gains
with suppliers. 185 suppliers submitted proposals to save $ 1.23
billion, out of which Chrysler retained $320 million. Rest was shared
by others.

Dr.V.K.Gupta

 Information sharing
g - Vendors are ggiven access to pproduction
schedules while buyers monitor stock levels with vendors. Based on
agreed schedule vendor manage raw material, manufacture and deliver
them just in time.
 Collaborative partnership - Radical steps of jointly creating business
plans. M&M reduced its first tier suppliers and rationalized suppliers
in three tiers. Companies work closely with first and second tier
suppliers to redesign even the manufacturing process.
 Working capital - Reduced working capital across chain
 Reduced Assets - Less assets across the supply chain due to better
utilization of assets.

Dr.V.K.Gupta

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Competitive Manufacturing
Proactively contributing to making total supply chain more
efficient and flexible
 Agile Manufacturing - Short production runs with quick changeovers
- mass customization.
 Place agility - Firm that is manufacturing same product at a number of
locations, benefits by investing a little more in excess capacity. This
extra capacity enables manufacturer to shift base quickly based on
currency fluctuations or other changes.
 Postponement - Individual customer’s need can be fulfilled by
postponement, in place of stocking many SKU with similar items.
Example - A bracket was packed in four combinations which in turn
was packed in four packing for 4 different customers making 16 SKU.
Solution was to manufacture bracket but pack at distribution centre.
Similar strategy is now used by paint companies to handle numerous
shades and colors without adding to the inventory.

Dr.V.K.Gupta

 Merge
g in transit - This can be defined as co-ordination of complete
p
shipment to a customer, done through a pre-consolidation of
components at an established point, free of any inventory and
strategically located in the supply chain. Benefit is in inventory
reduction, cycle time reduction and reduction in transportation cost.
 Production in consumption - Sell one - build one. Product is not
assembled till order is processed. This concepts is used for high value
consumer durable so that production closely follows consumer
preferences and avoids high finished good. It needs fast order
processing, optimum inventory levels, sophisticated forecasting,
modular design and flexible manufacturing.

Dr.V.K.Gupta

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Role of Information Technology in Supply Chain

Management

 Supplier Management
 Inventory Management
 Distribution Management
 Channel Management
 Payment
P t Management
M t
 Financial Management
 Sales Force Management

Dr.V.K.Gupta

Information Technology
 Degree of integration of IT with Supply Chain
 EDI (Electronic Data Interchange) - The electronic transaction sets
EDI - invoice, quotes, purchase orders, standard business
communication, enable the computer in one company to
communication
communicate with computer in another organization, eliminating
human involvement and effort. Systems in both companies can be
different.
 ERP - Comprehensive planning and control framework. Has built in
RDBMS, JIT practices, CIM concepts, client server architecture, and
proven good management practices and internet.
 APS -Advanced Planning Systems work on theory of constraint., can
look at all the resources simultaneously and give optimized solutions.
solutions
Solutions are available for Advanced forecasting, Demand
Management, Manufacturing and scheduling, warehouse management,
transportation management.
 Internet - Intranet, Extranet, WWW

Dr.V.K.Gupta

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• Bar coding and scanning - Information collection is

critical, especially for tracking availability of inventory in
warehouse / retail level. Auto identification allows channel
members to quickly track and communicate movement
details with low error.
• Communication - IT significantly enhances the supply
chain performance thorough faster and widespread
communication. RF, satellite communication - V sat.
Availability of shared information has led to increased
efficiency of supply chain.
• AI / Expert System - AI system captures and stores
logistics knowledge and rules, policies, checklist, logic etc.
Application
li i off these
h systems has
h been
b done
d for
f carrier
i
selection, international marketing, logistics, inventory and
information system design etc.
• Electronic Fund Transfer ( EFT )

Dr.V.K.Gupta

E-Com and Supply Chain Management

• An ability to source raw materials or finished goods from anywhere in the
world
• A centralized Global business and management strategy with flawless local
execution
• On line, real time distributed information processing to the desktop, providing
total supply chain information visibility
• The ability to manage information not only within a company but across
enterprises and industries
• The seamless integration of all supply chain processes and measurements,
including third party suppliers, information systems, cost accounting
standards, and measurement systems
• The development
de elopment and implementation of of accounting
acco nting models such
s ch as activity
acti it
based costing that links cost to performance are used as tools for cost reduction
• A reconfiguration of supply chain organization into high performance teams
going from shop floor to the senior management.

Dr.V.K.Gupta

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Why E-SCM?
Globalization - SC is no longer bounded by geographical boundary.
‰ Industry and Product Convergence - Mega mergers and the use by
companies to move into new sectors ( like retailers into banking ) is
changing
h i the h way business
b i view
i competition
i i andd cooperation.
i
‰ Increasing sophistication in the supply chain - Shareholders value can be
enhanced through integration of the supply chain.
‰ Greater information integration - Now more companies are adopting
standard software like ERP and specific supply chain software. It should
be easy to plug in new elements of supply chain with speed and ease.
‰ Rise in B2B e-Commerce - Companies prepared for an e-synconized SC
will be best positioned in future.
‰ Rise in value chain network - More and more companies are entering
into partnerships to maximize their returns. E-SC makes company more
attractive partner.
‰ New types of employee’s incentives - Leading companies encourage
employees to satisfy customers needs through collaboration.

Dr.V.K.Gupta

E-SC
Benefits
‰ Reducing operating costs
‰ Improving management and control
‰ Decreasing cycle time
‰ Delivering bottom line befits.
In future following will drive E-SC
Intense global competition
Highly sophisticated customers with high expectations
Waning days of reengineering
Simplicity in technology

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TRADITIONAL ORGANIZATION STRUCTURE

CEO

Marketingg Manufacturingg Finance Information

Systems

Customer Service Logistics

Transport Warehouse

Dr.V.K.Gupta

LOGISTICS IN THE MIDDLE ORGANIZATION

Information system Corporate strategy Customer

Information flow/ Sales / marketing

control development

Human Facilitating Supply Chain

Resources interaction Manager

Procurement Materials
Logistics & inventory
operations
Supplier Manufacturing
Service provider
Dr.V.K.Gupta

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THIRD PARTY RELATIONSHIP

‰ Strategic alliance (Conceptual relationship)

– A planned ongoing relationship where both parties have needs that
other party can fulfill and both parties share values, goals and
corporate strategies for mutual benefits.
‰ Outsourcing (Functional relationship)
– A specific defined relationship that is contractual and dependent on
supplier meeting the shipper’s defined performance criteria.
‰ Operational ( Transactional relationship )
– An operational relationship based on a single event or a series of
separate single events.

Dr.V.K.Gupta

INTERDEPENDENT KEY DIMENSIONS

‰ Business integration
‰ Process integration
‰ In-depth knowledge of each other’s
business
‰ Cooperative operating style
‰ Open information exchange
‰ Compatible value

Dr.V.K.Gupta

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OPPORTUNITIES FOR STIMULATING

FOCUS ON LOGISTICS
‰ Service
– Customer service
– Added value
– Customization
‰ Costs
– Warehousing
– Inventories
– Administration
– Transportation
‰ Environment and Safety
– Storage and transportation
– Responsive care
– Packaging

Dr.V.K.Gupta

COMPETITIVE SUPPLY CHAIN

‰ Mutual needs create commitments

Competitive position
Organizational complexity
Total cost or long term profitability
End customer satisfaction
‰ Supply chain alignment
Improved customer service
Shorter lead times
Lower costs

Dr.V.K.Gupta

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Sourcing Strategy
1. Make or buy 2. Manufacturing M.
3. Capacity Management

Distribution Strategy Inventory Strategy

1. Channel Selection, 1. Demand forecasting
2. Supply chain configuration 2. Facility planning
3. Distribution planning 3. Inventory planning

Strategic Supply chain

Management

Customer Service Integration Strategy

Strategy 1. Information integration
1. Service needs 2. Decision integration
2. Service cost 3. Financial integration
3. Revenue management

ELECTRONIC VALUE CHAIN MANAGEMENT

Inbound supply chain management -
• TELCO used its VCM, a web based solution for its
inbound logistics. 1000 suppliers.
• System features -
– Online PO
– Online delivery schedules
– Real-time goods status information
– Payment information
– Instant delivery schedule change notifications
– Downloads reports in various formats for integrating with suppliers.
• Benefits
– Effective inventory control
– Fewer stock outs
– Saving in administrative costs - telephone, fax, visits
– Increased operating efficiency

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KINETIC MOTORS - Online Solution

Online solution based on Value Chain Management , a web based
solution, covering Vehicle Sales, Warranty and Spare parts.
System features
Online
O li ordering
d i
Vehicle order processing and tracking
Real-time statement of account
Payment information
Workflow automation, chat, board, email
Online warranty registration
Online warranty claim
p
Download of reports
Benefits
Faster ordering and delivery
Lower transaction cost
Saving in administrative cost
Increase in operational efficiency

ELECTRONICS CO. REDUCES INVENTORY & COST

• ABC took warehouse usage as a measure to reduce inventories. It was

running at 16 days in 98-99. Problem identified was lack of reliable
forecast which was being compensated by excess production. The
distribution efficiency was 68% measured by model mix and JIT
delivery. Even though the company was linked to sales points and
depots, it looked for solution. One of this was to optimize warehouse
space. 5S system was adopted to improve the warehouse floor space
and visual management. Floor space index linked storage was
introduced. It was 2.2 ft. per unit in the beginning. Every year Co.
allocated limited space for each product line in the warehouse based on
sales plan.
plan Inventory could not rise beyond space allocated
allocated. Space was
adjusted based on actual sales of relevant line. This slashed the
inventory to 7 days from 16 Days.

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Inbound logistics
Indigenous- 5 days Raw Material Manufacturing
Supplier Stores 10days process -5 days 7 days
Imported - 30 days

W h i
Warehousing
Operations 10 days

1 day 3 days 8 days

District centers Zonal Centers
Dealers 10 days 15 days

Outbound logistics

Supply chain of a tyre company

Dr.V.K.Gupta

TYRE CO. REDUCES INVENTORY & COST

A tyre Co. had finished inventory of 50 days in 96. The co. system was
plagued by transit time delays as it had multiple manufacturing
locations, 125 selling points, 300 SKU’s. There was a mismatch
between tyre and tube production and the production was not in sync
with planning. Due to lack of coordination's even local dispatches took
3 days.
Co. set up 6 divisional dispatch centers in metros across the country.
This was done after plotting location of all 125 sales points and
drawing circles with radii of 48 hours travelling time to cover all the
points.
i t So
S only
l 48 hours
h notice
ti was needed d d to
t replenish
l i h the
th stock.
t k IT
network was set up to enable distribution centers to communicate
demand to the plants on JIT basis. They have been able to reduce
inventory to 25 days and now aim at 10 days.

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SC Solutions in Automobile Industry

‰ Caterpillar's Performance Engine Products Division
implemented I2 solutions for demand management,
assembly sequencing
sequencing, factory planning and production
scheduling. They have reduced product inventory by $ 32
million, cut assembly cycle time by 38% and eliminated
80% of their assembly line changes.
‰ DaimlerChrysler links multidisciplinary platform teams
together using I 2 collaborative solutions. DaimlerChrysler
and its supplier network can rapidly execute changes in
both new and existing products reducing time to market
and saving a projected more than $ 1 billion in
development and new vehicle launch costs.

Dr.V.K.Gupta

‰ Ford’s Woodhaven Stamping facility implemented I 2

solutions to reduce work in process inventories by $ 3
million, plus another $ 2 million in increased throughput
and reduced overheads.
‰ General Motors CAMAS p project
j proactively
p y manages
g
suppliers capacities to resolve excesses and shortages in
the supply chain and create visibility into the capacity
constraint. The system handles GM’s 20 plants in Europe
and 40,000 parts manufactured by 2000 Tier 1 suppliers.
‰ Toyota Motor Sales USA accessories and replacement
parts business uses I 2 software to provide total inventory
support to 1500 North American Toyota and Lexus
dealers. Accurate delivery date quoting, improved
forecasting, optimized inventory replenishment are
expected to save $ 30 million.

Dr.V.K.Gupta

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‰ Renault
e au t used I 2 demand
de a d planning
pa g and
a d collaborative
co abo at ve
solutions for its new distribution project targeted at
delivering cars within 15 days of taking customer order,
cutting car inventory by half and reducing delivery costs.
‰ Engine manufacturer Cummins employed assembly line
sequencing and factory panning solutions to dramatically
increase throughput. While reducing overheads. It reduced
finished good inventory by 30% and eliminate d71% parts
shortages.
‰ Volkswagen in using I 2 to build global digital
marketplace to its suppliers. Goal is to achieve a saving of
& 200 per vehicle.

Dr.V.K.Gupta

Shell Chemicals
- Lotus notes as its Extranet
Shell Inventory Managed Order Network
B f
Before
ƒ Customer ordered based on reorder level,
usually late, resulting in rush order.
ƒ It takes about 2 weeks of order to be delivered
to customer through rail car, which is weighed
at both
b h ends.
d
ƒ Billing for each rail car was difficult and late.

Dr.V.K.Gupta

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 Now with SIMON - System( NOTES based )

automatically extracts information about
ƒ The amount of product consumed in last 24
hours
ƒ The amount of new product the arrived and was
unloaded
ƒ Current and anticipated production schedules
ƒ Known changes in the schedules

ƒ It is automatically reconciled with SAP MRP

system.
ƒ Shell Account service rep ( ASR ) is presented
with the supply plan. If plan indicates inventory
levels at customer low, ACR fills a electronic PO
and informs new shipment to customer.
ƒ SIMON was introduced to 23 main customers. In
12 months, $ 20 million additional sales reported.
ƒ Now it will be extended to 50 customers.

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ƒ SIMON, a Lotus NOTES based system, enables

the transfer of responsibly for inventory
managementt from
f customer
t to
t supplier.
li
ƒ Through SIMON, we are able to proactively keep
vital inventory on their shelves.
ƒ Customers pay for only what they consume.
ƒ Shell is the sole supplier.
ƒ Thi business
This b i model
d l is
i built
b ilt on trust
t t andd mutual
t l
relationship and a belief that both would benefit
significantly by this initiative.

Benefits to customers -
ƒ Eliminates expensive excess inventory
ƒ Facilitates timely, low cost re-synching of
supply chain
ƒ Ensures the product is on site whenever needed
ƒ Ensures quick response for changing conditions
ƒ Eliminates erratic pattern
ƒ Reduces order processing overheads
ƒ Streamline financial statement and
reconciliation processes.

Dr.V.K.Gupta

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DISTRIBUTOR - MANUFACTURER
INTEGRATION
ƒ Thomas & Betts, manufacturer of electrical
components decided to start DMI initiative.
initiative
ƒ What Thomas & Betts committed to do under the
program was amazing. But the distributor had to
commit also.
ƒ The distributor gains through inventory levels, service
performance, receiving efficiency and accounts
payable
bl productivity.
d i i
ƒ Total operating cost could drop by 8-10% of the dollar
sales. The distributor had to agree to 75% of his stock
with T & B products.

Dr.V.K.Gupta

How it works
ƒ T & B and distributor identified the slow moving
products.
ƒ These are returned to T & B.
ƒ If a competing line is replaced, T & B allows
distributor to replace gradually the old products.
ƒ T & B takes over the job of deciding when and how
much to ship to the distributor.
ƒ Five full time planners evaluate distributors sales
g , forecast needs,, set replenishment
figures, p controls in
T & B computer, automatically send replenishment
stock when time comes.
ƒ Distributor must transmit end of day stock on each
item via EDI or personnel computer.

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ƒ There are no requirements in terms of

how large a shipment must be. Weekly of
twice / week.
ƒ T & B pays all freight.
ƒ Approximately 1000 items are designed
as super stock. These are shipped in 48
hours.
ƒ Order Performance in pilot was 98%.
ƒ Shipment accuracy was 99.7%.

Dr.V.K.Gupta

ƒ T & B packages each item separately and prints on

each carton distributors warehouse locations.
ƒ Distributor does not receive each item separately.
H record
He d total
t t l shipment
hi t has
h arrived.
i d Packing
P ki slipli is
i
99.7% accurate. Items are received directly in stock.
ƒ Each carton is taken directly to warehouse location
for opening, unpacking and put away. It saves 90%
in labour.
ƒ If a shortage is discovered, T & B accepts
j
distributors word and adjust the invoice
immediately. Five days are allowed to report error.
ƒ Involving is delayed till system shows all items are
received OK.
ƒ This avoids issuing of credit notes etc. Each invoice
is correct.

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ƒ Invoice reconciliation is automatic, hence it is

posted in distributors account payable without
any item
it byb ititem check.
h k IInvoicing
i i iis ddone once
a month.
ƒ Distributors reported 80% saving in account
payable activity.
ƒ Material can be returned 4 times a year with no
prior approval of T & B. Distributor does not
have to worry about when purchased, at what
cost, OK ot not etc.
ƒ Distributor does not have to pay freight.

Dr.V.K.Gupta

Benefits
ƒ Distributors - In addition to Receiving, warehousing and
accounting savings, average inventory dropped by 45%.
ƒ T & B - As a result of savings, distributors started lowering
price. One distributor increased sales of T & B products by
80% in one year.
Commitments made by distributor
ƒ 75% of T & B items in their stock.
ƒ Stock balances reported every day.
day
ƒ Will inform additional market / trend information to T & B
planner not appearing in analysis of past sales.

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B-2-C VALUE CHAIN

Component BE DIRECT
Supplier DELL CUSTOMER

Money Money

Prof. Ushio Sumita

Globalizing Traditional
Japanese Procurement System
Case of Toyota
• Keys for Global Procurement
– Fair and impartial activity based on open door
policy
– Win-win relationship with suppliers based on
mutual trust and long term prosperity
– To be ggood corporate
p citizen in local
community - social and economic contribution
to local community
– Achieve global optimal through above

Prof. Ushio Sumita

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Core of Toyota’s Global Procurement

System
‰ Global Price Comparison System
System, which enables a
supplier to compare its price with prices of other
suppliers for all parts
‰ New Supplier / New Technology for finding new
competitive suppliers and new technologies
‰ “Kaizen
Kaizen-Support
Support System for Current Suppliers
Suppliers” to
make current suppliers more competitive

Prof. Ushio Sumita

New Suppliers / Global Price Kaizen-Support

New Technology Comparison System System for
Development Program Current Suppliers

New Suppliers Current

Suppliers

Development Global Price

Program Comparison Database Support
Program

Toyota
T t expectation
t ti
System

Procurement Supplier Selection

Strategy and Order

Prof. Ushio Sumita

30
 9/22/2010

SUPPLY CHAIN IN THE FUTURE

ˆ Recycled supply chain - Using sully chain as a closed loop to collect
products at end of its life and recycle parts and materials -
Refurbishing and recycling used parts can be source of revenue.
ˆ Supply chain designed for flexibility and responsiveness - Normally
supply chains are static. It is better to design supply chain for
flexibility since conditions keep on changing quite fast.
ˆ Virtual supply chain - The future supply chain will create a virtual
organization based on intellectual capital. These organizations may not
have any assets of their own. Each of these may be outsourced.
ˆ Naturally aligning components - Today components of supply chain
are designed
d i d to produced a best
b overall ll performance.
f In future
f it
i may be
b
modular where components may adjust to changes in other
components and external environment of supply chain.

Dr.V.K.Gupta

Efficient and Responsive Supply Chain

External Perspective Internal Perspective

Improved Improved Value added Reduced costs Increased Improved quality

delivery responsiveness services flexibility

Reduced order cycle Reduced product Reducing Material Offer various Improved
time development time customer Labour product types reliability
On-time and Flexible product inventory Overheads Expand Doing things
complete delivery design Providing spl. Corporate offering more right first time
Customised delivery Better after sales packaging overheads frequently
service Improving
customer’s
business system

Increased Accelerated Greater

profits growth share

Customer
delight

31
 9/22/2010

ISSUES FOR AUTOMOTIVE INDUSTRY

‰ Order taking and Production planning
– Dealers send orders to regional offices, which in turn are sent to
HO periodically ( weekly ) - Fax,
Fax email
email, courier
courier. ( Possibility of
Bull Whip Effect ).
– Based on sales plans, 6 month production plans and monthly
schedules ( Firm + Tentative ) are made and sent to vendors
through fax or conventional means.
‰ Local replenishment
– For direct resources, push system of replenishment based i.e
purchase orders in advance based on pproduction pplans and
p
forecast. No EDI or IT. At best email.
– Very few items on JIT ( 20%) . Delivery 3-4 times a day.
– For indirect resources, procurement tender based. Ordering
periodically using paper.
– For JIT items, inventory 4 hours, for other 2-4 days.

Dr.V.K.Gupta

‰ Overseas replenishment
– 10-15% components imported from parent company /
collaborator. Kit ordering for 6 month ( rolling) using email.
‰ Payments
– A
As per tterms ( 30 ddays mostly
tl ).
) Payment
P t procedure
d manual.
l
Internal process automated.
‰ Logistics
– The transportation is vendor arranged.
– Mix of spoke and wheel and milk round for planed orders.
– No EDI for information on impending delivery.
‰ Vendor structure
– Few tired vendors. Mostly direct vendors.
– Cost of quality onus lies on vendors.
– None of the vendors have EDI or any other links with
manufacturer.

Dr.V.K.Gupta

32
 9/22/2010

How the net is changing the supply chain?

 Pre determined pricing is giving way to auction based

pricing
 Sourcing is becoming global as suppliers all over the world
sell on the net
 Long term partnership with vendors are making room for
deal to deal relationships
 Buyers are being forced to compete with one another to
secure the
th best
b t andd cheapest
h t suppliers
li

Dr.V.K.Gupta

How strategy is changing the chain?

 If customization is differentiator
differentiator, suppliers must be chosen
for their activity
 When customer tastes are fast changing, the supply chain
has to be fast and flexible
 Firms in mature markets are building long supply chains
and are only branding the goods
 Companies that compete on cost in the marketplace are
picking suppliers on the basis of price

Dr.V.K.Gupta

33
 9/22/2010

How the Quality is changing the chain?

 Customers are defining quality standards that entire

supply chain must meet
 Suppliers are conforming to their buyers JIT and lean
manufacturing systems
 Manufactures are partnering their vendors in determining
designs and product specification upfront
 Companies are passing on the cost of poor quality to their
 vendors instead of taking them on themselves

Dr.V.K.Gupta

How cost management is changing the chain?

 Demand forecast tools are being used to micro tailor orders

ffor suppliers
li
 Inventories are being decimated as companies are soucing
on need based system
 Manufactures are setting target costs to their suppliers
instead of asking for the price
 Companies
p are helping
p g their vendors lower their
production costs so as to pay lower prices

Dr.V.K.Gupta

34