Birla Institute of Management Technology

A. K. Dey

Dr. A. K. Dey

Two levels of decisions

Design decisions Operations decisions

Design decisions
Which activities should be carried by nodal firm and which should be outsourced? How to select entities/partners to perform outsourced activities and what should be the nature of relationship? Decisions pertaining the capacity and locations of various facilities.

Dr. A. K. Dey

 Operations

decisions

Demand forecasting Procurement planning & control Production planning & control Distribution planning & control Inventory management Transportation management Customer order processing Relationship management

Dr. A. K. Dey

 Demanding

customers Intensive competition Higher level of product proliferation Shorter PLCs Higher disposable income Declining brand loyalty Cross category competition Crossover behaviour of consumers: splurgers and Bargain hunters

Dr. A. K. Dey

Five major trends have made SCM a critical success factor in most industries: Proliferation in product lines: More variety & More SKUs Shorter PLCs High level of outsourcing Shift in power structure in the chain Globalization of manufacturing

Dr. A. K. Dey

 More

varieties and more SKUs Large number of substitute products Forecasting becomes challenge Supply chain starts with better forecasting!

Dr. A. K. Dey

 Products

getting outdated fast Competition driving down the useful life of a product Window of opportunity to recoup investments is shortening Efficient firms like Dell with just seven days of inventory as compared to industry average of 35 days need to worry about product obsolescence Competitors of Dell with higher level; of inventory will end up writing off huge amount of inventory as obsolete
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 Firms

increasingly focus on core activities and outsource the rest This trend is irreversible Higher level of outsourcing make Supply Chain vulnerable Forcing firms to develop different types of capabilities within the organization

Dr. A. K. Dey

 Same

retail space is being chased by

Increasing number of products Increasing number of competitors

Shelf

space in retail has not increased at the same pace as product variety Retailers are asking manufacturers to be more responsive to their demands Discount retailers like Wal*Mart have been asking manufacturers to replenish the stock on daily basis depending on the actual sales data from their point of sales system
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 Supply

chains have become very long Goods & services have to travel through different
Lands Using different modes of transport Complying with various rules and regulations
Managing

complex

supply chains have become very

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Common issues
Taxation structure drives location decisions Poor state of logistics infrastructure

For other issues: Context of FMCG sector

Managing product availability Working with smaller packs Entry of national players in traditional fresh products sector Complex tax structure Counterfeit goods Opportunistic games played by distribution channel Emergence of 3PL and 4PL Emergence of modern retail Reservations for Small Scale Sector
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Customer service issues should drive this decision Pharma firms located at Baddi, HP: reason tax benefits Air conditioning and diesel power generating firms at Silvassa Special Economic Zones attract many firms To avoid multiple tax, firms keep stocks in each state Various taxes: delivery by road gets unusually delayed VAT & GST may bring relief

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 Both

transportation & warehousing dominated by unorganized sector Over 90% trucks in the country belong to owners who have less than 5 trucks each Unorganized trucking industry results in unreliable lead time and high transit damages

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 Innovative

solutions are required to overcome

Complex distribution structure Large number of customers at the bottom of pyramid Poor infrastructure Complex tax structure
Innovative

SCM implemented by

AMUL Mother Diary ITC Shakti Project of HUL Dabbawalah (Tiffin Carriers) of MUMBAI
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 Managing

product availability in complex distribution set up

Order fill rate; Line fill rate & Cycle Service Level

Small

pack sizes

Large Rural population & Economically weaker section Problem: Increased per unit transportation & packing cost Companies have to find innovative ways to balance market penetration & logistics costs

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 Entry

of national players in traditional fresh product sector

Fresh products were marketed by local players National players work with centralized plants
Can manage quality Enjoy Economies of scale ITC Flour & Nestle Yoghurt

Have to establish decentralized network of manufacturing plants fixed cost may rise
Dealing

with complex tax structure

Multiple stocking points Delays, tax avoidance tricks

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 Dealing

with counterfeit goods

More popular brand; more counterfeits Rules are not strictly implemented Detection is costly Legal expenses
Opportunistic

channel

games played by distribution

Try to grab significant portion of promotion budget Divert goods from one market to another violating the norms set by company- poaching

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Emergence of 3PL and 4PL

Good for the industry Customer will benefit Expertise will increase

Emergence of modern retail

Extract higher discount because more demand In India share of retail sale is very low Still they demand high margin Manufacturer wishes to bypass distributors likelihood of channel conflict Impact of higher discounts on overall distribution system Threat of private labels

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 Reservation

for the small scale sector

Many items are reserved for the small scale sector Big FMCG firms have to source material/products from small scale sector Risk of Quality & uncertain delivery Making the sourcing process complex.

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Thanks

Dr. A. K. Dey Professor Supply Chain & Operations Management Birla Institute of Management Technology India

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