Dr.S.

Yogananthan

Part A

 IT

in the Supply chain IT Framework Customer Relationship Management Internal Supply Chain Management Supplier Relationship Management Transaction Management Future of IT

IT consists of tools used for the purpose of :

1. Gathering of Information 2. Analysis of Information 3. Execute upon information to increase the performance of SC

IT consists of Hard ware, Soft ware and people throughout a SC, that gather, analyze and execute upon Information. Eyes, ears, sometimes- brain for decision making

Information must have the following characteristics, while making decisions in SC 1) Must be accurate Without information that gives a true picture of the state of the supply chain, it is very difficult to make good decisions. 2) Accessible in a timely manner To make good decisions, a manager needs to have up-to-date information that is easily accessible. 3) Must be of right kind Companies must think about what information should be recorded so that valuable resources are not wasted collecting meaningless data while important data goes unrecorded. Decisions are about each of the supply chain drivers::

1) Facility 3)Transportation

2) Inventory 4) Sourcing

5) Pricing

1 2 3

Customer Relationship management -CRM Internal supply Chain Management ISCM Supplier Relationship Management SRM

The Macro Processes in a Supply Chain

1 2 3

Supplier Relationship Management ( SRM)

Internal Supply Chain Management(ISCM)

Customer Relationship Management(CRM)

Transaction Management Foundation

TMF
Software Industry commonly calls this as Supply Chain with out Internal SCM Our definition : SC includes SRM+ ISCM + CRM 4th Important Building Block is TMF, on which The Macro Process rests. ERP Systems = Integration and Infra structure - Finance+ HR Required for all the 3 Processes To function and to Communicate

 Customer

relationship management Processes that focus on downstream interactions between the enterprise and its customers. Internal supply chain management- Processes that focus on internal operations within the enterprise. Supplier relationship management Processes that focus on upstream interactions between the enterprise and its suppliers.

Why Focus on the Macro Processes?

Goal is to increase the Total Profitability of SC by working together

Good SC Mgt is not a Zero sum Game, In which One stage of the supply chain increases profits

At the expense of others..

Firms must expand their scope beyond their scope

By thinking in terms of

all

three Macro

Processes

Customer Relationship Management CRM Macro Process

Marketing: Decision regarding Which customer to Target? How to target? What product? How to Price?
Sell- Providing Sales force, actual sale, Order ManagementTracking the Order, Planning & Executing the order Call/ Service Centre Primary Point of Contact. Helps customer to place order, offer products, Order status, Solve problems

Goal of the CRM macro process is to generate customer demand and facilitate transmission and tracking of orders. Key processes under CRM are as follows : Marketing Involve decisions regarding which customers to target, how to target customers, what products to offer, how to price products and how to manage the actual campaigns targeting customers. Sell The sell process includes providing the sales force the information it needs to make a sale and then execute the actual sale. Order management Important for the customer to track his order and for the enterprise to plan and execute order fulfillment. Call/service center Helps customers place orders, suggests products, solves problems, and provides information on order status. Eeg. Of CRM software Siebel, Salesforce.com, SAP and Oracle.

Internal Supply Chain Management

Strategic Planning- Net work design of SC Demand Planning Forecasting , Analyzing the Impact on Demand

Field Service- based on spares Inv, Scheduling Ser calls

Fulfillment- Links Each Order to a specific supply source and means of Transportation

Supply PlanningFactory Planning & Inventory Planning By Supply Pl Software

Successful ISCM Software providers have helped to improve Decision Making. But Integration between CRM and ISCM , CRM and SRM will have future Opportunities.

Various processes included in ISCM are as follows : Strategic Planning focuses on the network design of the supply chain. Demand planning consists of forecasting demand and analyzing the impact on demand of demand management tools such as pricing and promotions. Supply planning Factory planning and inventory planning capabilities are typically provided by supply planning software. Fulfillment Links each order to a specific supply source and means of transportation. Field service Service processes focus on setting inventory levels for spare parts as well as scheduling service calls. Exg. Of ISCM software i2 Technologies, Manugistics, SAP and Oracle.

Supplier Relationship Management

Supplier
SRM System

Enterprise
ISCM System

Customer
CRM System

 Design Source

Collaboration

Negotiate
Buy Supply

collaboration Eg of SRM Software Agile, MatrixOne, Ariba, SAP, Oracle.

The Macro Processes and their Processes

SRM
Design Collaboration

ISCM
Strategic Planning Demand Planning Supply Planning Fulfillment Field Service TMF

CRM
Market

Source
Negotiate Buy Supply Collaboration

Sell Sell
Call Center Order Management

 During

early 1990s, ERP systems were popular. SAP continued as the market leader, but other powerful ERP players included Oracle, Peoplesoft, JD Edwards and Baan. Little focus was on 3 Macro processes, and soft ware application on improved decision making Automation and Building Transaction Management were given importance. Automation of simple transaction and Integration of store and view of data process excelled in division and enterprise level.

 During

1990s, ERP companies became largest enterprises due to huge demand they included SAP, ORACLE, PEOPLE SOFT, JD EDWARS and BAAN. Real value of Transaction Management Foundation(TMF) was realized when decision making with in Supply Chain was improved. Firms focused on decision making on these 3 Macro Processes- Realignment of ERP into CRM, ISCM and CRM. This is the trend NOW and in FUTURE.

Two potential paths, for companies to enter the market: 1. Through Superior Functionality specific for a particular Industry- with ease of use. 2. Through Integrated Product linking 3 Macro Processes Difficult for start-up companies, Large companies with tremendous resources can take this path, obviously Microsoft.

Radio-frequency identification (RFID) is the use of a wireless non-contact system that uses radio-frequency electromagnetic fields to transfer data from a tag attached to an object, for the purposes of automatic identification and tracking. The tag contains electronically stored information which can be read from up to several meters (yards) away. Unlike a bar code, the tag does not need to be within line of sight of the reader and may be embedded in the tracked object. RFID tags are used in many industries. An RFID tag attached to an automobile during production can be used to track its progress through the assembly line. Pharmaceuticals can be tracked through warehouses. Livestock and pets may have tags injected, allowing positive identification of the animal. RFID identity cards can give employees access to locked areas of a building, and RF transponders mounted in automobiles can be used to bill motorists for access to toll roads or parking.

Part B

 Demand

management and Customer Service Outbound to customer logistics systems Demand Management Traditional forecasting CPFRP, Customer Service Expected cost of stockouts Channels of distribution

Outbound-to-customer Logistics systems, also referred to as physical distribution, refers to the set of processes, systems and capabilities that enhance a firms ability to serve its customers. In an effort to serve their customers, many firms have placed significant emphasis on outbound-to-customer logistics systems. Inbound-to-operations Logistics systems refers to the activities and processes that precede and facilitate value-adding activities such as manufacturing, assembly and so on. It as also referred to as materials management and physical supply.

 Demand

management may be thought of as focused efforts to estimate and manage customers demand with the intention of using this information to shape operating decisions. The essence of demand management is to further improve the ability of firms throughout the supply chain-particularly manufacturing through the customer-to collaborate on activities related to the flow of product, services, information and capital. The desired end result should be to create greater value for the end user or consumer , for whom all supply chain activities should be undertaken.

The following list suggests a number of ways in which effective demand management will help to unify channel members with the common goal of satisfying customers and solving customer problems: Gathering and analyzing knowledge about customers, their problems and their unmet needs. Identifying partners to perform the functions needed in the demand chain. Moving the functions that need to be done to the channel member that can perform them most effectively and efficiently. Sharing with other supply chain members knowledge about consumers and customers, available technology, and logistics challenges and opportunities. Developing products and services that solve customers problems. Developing and executing the best logistics, transportation and distribution methods to deliver products and services to consumers in the desired format.

Refer to the graph given in class on Supply-demand misalignment (Page No 186- A logistics Approach to Supply Chain Management by Coyle, Bardi & Langley)

Supply-Demand Misalignment In the first phase of a new product launch, when end-user demand is at its peak and opportunities for profit margins are greatest, PC assemblers are not able to supply product in quantities sufficient to meet demand-thus creating true product shortages. Also during this time-frame, distributors and resellers tend to over-order, often creating substantial phantom demand. In the next phase, as production begins to ramp up, assemblers ship product against this inflated order situation and book sales at the premium high-level launch price. As channel inventories begin to fill, price competition begins to set in, and orders are cancelled or returned.

In the final phase, as end user demand begins to decline, the situation clearly has shifted to one of over supply. This is largely due to the industrys planning processes and systems, which are primarily designed to use previous period demand as a gauge. The net result of these behaviors in aligning supply and demand is that a large majority of product is sold during the declining period of profit opportunity, thereby diminishing substantial value creation opportunities for industry participants.

major component of demand management is forecasting the amount of product that will be purchased by consumers or end users. Although forecasts are made throughout the supply chain, the single most important forecast is that of primary demand. In a truly integrated supply chain scenario, all other demand will emanate directly from-or at least be influenced by primary demand.

Integrating forecasting and production I Step Develop a twelve-month forecast of demand by month by applying traditional demand forecasting approaches (e.g. moving average, exponential smoothing, Regression analysis etc.) to a three year history file of data on factors such as demand, price, seasonality, availability, deals and promotions. II Step Brand and product managers review this forecast and recommend relevant changes. III Step Developing aggregate production schedules for the next twelve-month period and allocating specific production requirements to various manufacturing facilities.

History file ( 3 Years demand, price, seasonality, deals, promotions etc. Forecasting model (moving averages, regression analysis etc.)

Brand and product managers review and recommend changes

Aggregate production schedules (12 months)

Revised forecast

Allocation of aggregate requirements to plants Short-term production scheduling

12-month forecast (by month)

Gross market requirements (1 to 3 year periods)

 Long-term

forecasts usually cover more than three years and are used for long-range planning and strategic issues. Midrange forecasts in the one-to three year rangeaddress budgeting issues and sales plans. Short-term forecasts are most important for the operational logistics planning process. They project demand into the several months ahead and are focusing increasingly on shorter time intervals.

 Initiatives

that have attempted to create efficiency and effectiveness through integration of supply chain activities and processes have been identified as quick response, electronic data interchange (EDI), short cycle manufacturing, vendor managed inventory (VMI), continuous replenishment planning (CRP) and efficient consumer response (ECR). CPFR has become recognized as a breakthrough business model for planning, forecasting and replenishment. Using this approach, retailers, transport providers, distributors and manufacturers can utilize available internet-based technologies to collaborate from operational planning through execution. CPFR simplifies and streamlines overall demand planning.

 Development

of CPFR came from an effort by Wal Mart and one of its suppliers, Warner-Lambert Company, particularly with regard to its Listerine brand product. In addition to rationalizing inventories of specific line items and addressing out-of-stock occurrences, these two companies collaborated to increase their forecasting accuracy, so as to have just the right amount of inventory where it was needed, when it was needed. CPFR emphasizes a sharing of consumer purchasing data among and between trading partners for the purpose of helping to govern supply chain activities. In this manner, CPFR creates a significant, direct link between the consumer and the supply chain.

 The

CPFR initiative begins with the sharing of marketing plans between trading partners. Once an agreement is reached on the timing and planned sales of specific products, and a commitment is made to follow that plan closely, the plan is then used to create a forecast, by stock-keeping unit, by week, and by quantity. The planning can be for thirteen, twenty-six, or fifty two weeks.

 Three

critical elements of collaborative planning are collaborative demand planning, joint capacity planning, and synchronized order fulfillment. This type of planning improves quality of the demand signal for the entire supply chain through a constant exchange of information from one end to the other that goes well beyond traditional practices. The Order-Management system represents the principal means by which buyers and sellers communicate information relating to individual orders of product. Effective order management is a key to operational efficiency and customer satisfaction.

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Collaborative demand planning

Synchronized Order fulfillment Joint Capacity planning

Receive order Enter order manual/electronic Verify and check order for accuracy Check credit Check inventory availability Process back order Acknowledge order Modify order Suspend order Check pricing and promotion Identify shipping point Generate picking documents Originate shipment Inquire order status Deliver order Measure service level Measure quality of service

 When

referring to outbound-to-customer shipments, we typically use the term order cycle. The term replenishment cycle is used more frequently when referring to the acquisition of additional inventory, as in materials management. Basically one firms order cycle is anothers replenishment cycle. Major components of Order Cycle

Order placement

Order processing

Order preparation

Order shipment

Order Placement Order-placement time can vary significantly, from taking days or weeks to being instantaneous. Company experiences indicate that improvements in order-placement systems and processes offer some of the greatest opportunities for significantly reducing the length and variability of the overall order. Significant increases were projected for Internet facilitated resources such as E-marketplace, Extranets and E-mail. Order Processing The order-processing function usually involves checking customer credit, transferring information to sales records, sending the order to the inventory and shipping areas, and preparing shipping documents. Order Preparation Depending on the commodity being handled and other factors, the order-preparation process sometimes may be very simple and performed manually or, perhaps, may be relatively complex and highly automated. Order Shipment Shipment time extends from the moment an order is placed upon the transport vehicle for movement, until the moment it is received and unloaded at the buyers location.

 Having

the right product, at the right time, in the right quantity, without damage or loss, to the right customer is an underlying principle of logistics systems that recognizes the importance of customer service. Another aspect of customer service that deserves mention is the growing consumer awareness of the price/quality ratio and the special needs of todays consumers, who are time conscious and who demand flexibility.

Product Price Promotion Place/Customer service levels

Inventory carrying costs

Transportatio n costs

Lot quantity costs Order processing and information costs

Warehousing costs

Customer service is a process for providing competitive advantage and adding benefits to the supply chain in order to maximize the total value to the ultimate customer. According to marketers, there are three levels of product: 1. The core benefit or service, which constitutes what the buyer is really buying. 2. The tangible product, or the physical product or service itself; 3. The augmented product, which includes benefits that are secondary to, but an integral enhancement to, the tangible product the customer is purchasing. Logistical customer service, installation warranties and after-sale service are examples of augmented product features.

Examples of the various forms that customer service may take include the following: 1. Revamping a billing procedure to accommodate a customers request. 2. Providing financial and credit terms. 3. Guaranteeing delivery within specified time periods. 4. Providing prompt and congenial sales representatives. 5. Extending the option to sell on consignment. 6. Providing material to aid in a customers sales presentation. 7. Installing the product. 8. Maintaining satisfactory repair parts inventories.

Customer service as an activity This level treats customer service as a particular task that a firm must accomplish to satisfy the customers needs. Order processing, billing and invoicing, product returns and claims handling are all typical examples of this level of customer service. Customer service as performance measures This level emphasizes customer service in terms of specific performance measures, such as the percentage of orders delivered on time and complete and the number of orders processed within acceptable time limits. Customer service as a philosophy This level elevates customer service to a firm-wide commitment to providing customer satisfaction through superior customer service by laying emphasis on quality and quality management.

Customer service has multifunctional interest for a company; but, from the point of view of the logistics function, we can view customer service as having four traditional dimensions: Time The time factor is usually order cycle time, particularly from the perspective of the seller looking at customer service. On the other hand, the buyer usually refers to the time dimension as the lead time, or replenishment time. Dependability Dependability can be more important than lead time. The customer can minimize its inventory level if lead time is fixed.

1.

2.

3.

Cycle time A seller who can assure the customer of a given level of lead time, plus some tolerance, distinctly differentiates its product from that of its competitor. The seller that provides a dependable lead time permits the buyer to minimize the total cost of inventory, stockouts, order processing and production scheduling. Safe delivery If goods arrive damaged or are lost, the customer cannot use the goods as intended. A shipment containing damaged goods aggravates several customer cost centers inventory, production and marketing. Correct orders An improperly filled order forces the customer to reorder, if the customer is not angry enough to buy from another supplier. If a customer who is an intermediary in the marketing channel experiences a stockout, the stockout cost also directly affects the seller.

 Communications

The two logistics activities vital to order-filling are the communication of customer order information to the order-filling area and the actual process of picking out of inventory the items ordered. In the order information stage, the use of EDI or Internet-enabled communications can reduce errors in transferring order information from the order to the warehouse receipt. Convenience Convenience is another way of saying that the logistics service level must be flexible. Basically, logistics requirements differ with regard to packaging, the mode and carrier the customer requires, routing and delivery times.

Element Product availability

Brief Description Usually defined as percent in stock (target performance level) in some base unit (i.e. order, product, dollars)

Typical Measurement Unit % availability in base units

Order time

cycle

Distribution system flexibility

Elapsed time from order placement to order receipt. Usually measured in time units and variation from standard or target order cycle Ability of system to respond to special and/or unexpected needs of customer.

Speed and consistency

Response time to special requests

Distribution system information

Ability of firms information system to respond in timely and accurate manner to customers requests for information Efficiency of procedures and time required to recover from distribution system malfunction (i.e. errors in billing, shipping, damage , claims).

Speed, accuracy and message detail of response

Distribution system malfunction

Response and recovery time requirements

Postsale product support

Efficiency in providing product support after delivery, including technical, information, spare parts, or equipment modification, as appropriate.

Response time, quality of response

 Sunil

Chopra and Peter Meindl, Supply Chain Management Strategy, Planning and Operation, Pearson/PHI, 3rd Edition, 2007. Coyle, Bardi, Longley, The management of Business Logistics A supply Chain Perspective, Thomson Press, 2006. Courtesy to R.A. Krishnan, Web based study material.