Supply Chain Models & Logistics Network

DECISION IN SUPPLY CHAIN
Successful supply chain management involve several

decision with varying time frames.

These can be classified in to two broad categories:
1. Supply chain Design Decision
2. Supply Chain Operation Decision
Prof. Rajeev Sharma, BIMTECH, Greater Noida
Design Decision-Involves

What should be the design of Supply chain, type of
supply chain to be used ( model to be followed)
What activities to be carried out by Focal Firm & what
to be outsourced
How to select entities/Partner to perform outsourced
activities and what should be the nature of the
relationship with those entities.
Decision pertain to capacity & location of various
facilities.( Manufacturing, Warehousing, etc..)
It is a long term decision and are very expensive to alter in short
notice.( Couple of years)
Operation Decision- Involves

They are the short term decision regarding the
management of supply chain operations.
Their time horizon of tactics ranges from Week to half or
full year some time. Even a Day decision is some time
unavoidable.
They involve following decisions.
Demand forecasting
Procurement planning & control
Production planning & control
Distribution planning & control

Inventory management
Information processing management
Transportation & transit management
Warehousing & storage management
Customer order processing
Vendor relation management
Customer relation management
Channel partners management
Lets understand

Turning out profit regularly is a tedious task for any
organization

Companies resort to
many a practices ranging from sales revenue
maximization to introduction of new product line
even.

It may help in short term but does
not guarantee long term viability and growth.

The only way to have
sustained profitability is by resorting
to operational excellence model

In horizontal
organizations or industry e.g. hi tech industry or
retail etc Operational performance or
excellence is tightly connected to supply chain
performance.
We have witnessed the companies resorting to the
following current methods now a days to attain the
operational excellence by implementing
sophisticated advance planning systems, operation
management software's, and many a time real time
Inventory management systems.
These practices have reduced inventory size, and
have resulted into better inventory management
practices also reduced cost structure.
SCOR Model

Myth
But the focus of
these process & systems is operational and does not
quite influence the design , manufacturing and
supply chain decisions that sets basic targets for
supply chain performance of a product line.
That means other than
operational excellence there is some thing which
results into better supply chain design &
performance .

That can be product
development phase of the product line
Product
development phase offers a large opportunity to
design superior supply chain performance and also it
offers wide latitudes in term of product design,
component settlement, manufacturing flow type and
supply chain strategy type that can be used to
achieve superior SC performance.
How?
Lets explore
There are three metrics
which supports the profitability of the Supply chains
they are recognized as the performance measures of
the design of supply chains from product line
perspective.

Availability
Lead time
Total cost
They stand good from the operational performance point
of view also
Product Design
New product development is a crucial part of business.

New product serve to provide growth opportunities and a competitive
advantage for the firm.

Increasingly there is challenge to introduce new product more quickly
without sacrificing quality.

New product design greatly affects operations by specifying the products
that will be made, it is a prerequisite for production to occur.

Some time existing product can constrain the technology available
For the new products.

Product design should be closely coordinated with operations
Product Design
Process
Affects four
decision areas
of operations
Quality Capacity
Inventory

There are three fundamentally different ways to introduce new
products

Market Perspective: Market is the primary basis for determining
the product a firm should make, with little regards for existing
technology. Customer needs are determined and then the firm
organizes the resources and processes needed that are made.
Technology Push: Here technology is the primary determinant of
the product that the firm should make, with little regard for the
market. The firm should pursue a technology based advantage by
developing superior technologies and products.
Inter-functional view: This view holds both that product should
not only fit the market needs but also have technical advantage as
well. To accomplish this all functions ( marketing engg.,
operations, sales, purchase, accounts, HR) should cooperate to
design the new products needed by the firm.
This is the product development process
New product Development process
3 Phases

Concept development
Product Design
Pilot Production/Testing
Modified Form
NPD-Process
Concept Development
Product Design
Pilot Production
Preliminary Process Design
Final process Design
Philosophies behind product design
Remember NPD process is one of the frequent
misalignment.
No matter how excellent the advanced planning or
Technology, misalignment between the product
design and operation is a common occurrence.
Technology misalignment occurs when the product
designed by engineering cannot be made by
operations.

Misalignment occurs due to following factors

When technologies are new or unproven or not well
understood.
Operation can also have an infrastructure that is
misaligned with new product in terms of labor skills,
control system, quality assurance and organization.
Reward systems might reinforce the use of current
technology rather than the new processes needed.


There are two philosophies behind designing
Product
Sequential process
Concurrent engineering
Sequential process

The traditional approach proceeds in stages and steps. It is assumed
that technology will be transfer in stages as a handoff between
marketing, engineering and operations, with each function
completing its work before the next one starts.

Dept. 01

Dept. 02

Dept. 03

Effort
Time
Concurrent Engineering

Here, all function are involved from beginning, by forming
a new product development team, as soon as concept
development is started.
In first stage Marketing has the major effort, but other
function also have a role.
During the product design phase, marketing reduces its
effort, but not to zero, while engineering has the major
role.
Finally operations picks up the lead as new product is
tested and launched into the market.
Concurrent Engineering
Time
Effort
Marketing
Engineering
Operations
Further.
There is not only the need for meeting customer
requirement but also ensure that the product is
manufacturable.
Thus we design Design for manufacturability (DFM) is
an approach that consist of two things
1. Simplification of product
2. Manufacture of multiple products using common parts,
processes and modules.
There are three ways to simplify this product designing
process

It will covered in later stage.
Process Design
This is among the most important decision made by
the operation managers.
This decision involves design and improvement of
the process of producing & selling goods & Services.
Process selection decision
PSD determines the type of process used o make the
product or service.
PSD are strategic in nature.
PSD requires great deal of cross functional coordination
PSD tend to be capital intensive and cannot be easily
changed.
PSD reasons in the type of flow of the production and
distribution process pertaining to product or service.
Process classification decision

Two main type of process classification are provided
1. Classification based on product flow
Continuous Process
Batch Process

2. Classification based on customer order
Made to stock
Made to order
Assemble to order
Engineer to order
Classification based on product
flow

Continuous Process Flow

Characteristic
1. Standard product Specification
2. Product layout
3. Use of SPM
4. Preventive maintenance
5. High Initial capital layout
6. Low WIP
7. Expose to Capacity bottlenecks

Batch Process

Characteristic
1. Non-Standard product Specification
2. Process layout
3. Use of GPM
4. Break down maintenance
5. Low Initial capital layout
6. High WIP
7. Expose to Volume based bottlenecks

Batch Process Contd

One way to measure the efficiency of Batch
production process is to calculate throughput ratio
(TR) Total processing time for the job
Total time in operation

TR=
X 100
Classification based on customer
order

Made to stock (MTS) Process
Here in MTS job in process are not identified for any
particular customer.
The MTS has specified product line specified by the
producer and not by the customer.
The products are carried in inventory to immediately
fulfill customer demand.
Every thing in operation is keyed to producing
inventory in advance of actual demand in order to have
proper product in stock when customer calls.
The critical management task are forecasting ,
inventory management & capacity planning.
Contd..

Here in MTS customer order cannot be identified during production.
The production cycle is being operated to replenish stocks. Customer
cycle follows a complete separate cycle of stock withdrawal.
What is being produced at any point of time may bear little
resemblance to what is being ordered. Production is geared to future
order and replenishment of inventory.
Performance measure of MTS process include percentage of orders
filled from inventory. This is called as service level.
Other performance measures are
1. length of time it takes to replenish inventory
2. Inventory turnover ratio
3. Capacity utilization etc

MTS Process
Customer
Forecast
Order
Produc
tion
FGI
Customer order
Product
Product
Made to Order (MTO) Process

MTO Process
Product-
ion
Customer
Customer Order
Product
Contd.

In MTO process individual orders can be identified
during production. i.e. job in process can be
identified with a customer.
Here cycle of Production, procurement & order
replenishment cycle begins once the customer
order cycle ends or received.
The key performance measure of an MTO process
is the length of time it takes to design and make the
product. Another measure is Number of orders
completed on time.

MTS Vs. MTO
In first the Pre-Production Speculation time is higher or
large with respect to post production time, whereas in
second Production and post order time is higher or large
with respect to the pre-production.
In first process is keyed to replenishment of inventory with
order fulfillment from inventory. whereas in second process
is keyed to customer order.
MTO can provide high variety and flexibility but expensive,
w.r.t MTS
Efficiency in MTS is measured by Service level. In MTO by
response time to its customer.

Engineer to Order (ETO) Process
It is on the same line of MTO with little change in its
primary stage, here even the designing of the product
is also considered as the part of the process, i.e. it is
engineered from its very basic, till finished product
engineered to the design of the customer is delivered.
E.g. A.C Plant, cooling Tower, ETP plant etc..
Assemble to order ( ATO) Process
It is the Hybrid of both the processes MTO & MTS
It works on the theory of Modulation & postponement.
( To be discussed later)
It Like MTS carries inventory but in modular form & It like
MTO assembles the Modules into finish product when
order is received. Thus fulfilling the requirement of both
the processes.

ATO
Customer
Forecast
order
Production
Of
Sub assemblies
Inventory
Of Subassemblies
Assembly
Of
Orders
Subassemblies
Product
Customer order
Production works/Process Flow
Flow of work through a production process has direct impact on how
the supply chain is designed, built & operated.
Practically every process can be categorized as belonging to one of the
three types of work flow
V flow type
A Flow type
T flow Type
These three flow - us by identifying the mis-allocation points in the
SC designing process.
There are two flow in supply chain Upward & Downward, upward is
from Product to RM, and downward is from RM moving towards
main product.
The V flow Type
Characteristics of the V flow type
It occurs when a few basic raw material are processed into variety of
end items.
In V type SC the upstream elements are fairly uniform and simplified.
As a product moves down stream it is split into different specifications,
product codes or SKUs.
So in its down stream end of supply chain presents great opportunity
for mis allocation in a V Type SC.
Material Mis allocation are exacerbated by the desire to enhance,
efficiency, resulting material being released earlier than needed. These
actions results in excess inventory of some products and shortage of
other highlighted earlier.
The A Type flow
Characteristics of the V flow type
It occurs when a many basic raw material are processed into one or few end
items.
In A type SC the upstream elements are highly complex, as it may be
characterisded by hundreds or may be thousands of individual parts and
components that moves through a variety of supply chain elements to a point of
final assembly.
In A type SC the downstream elements are fairly uniform and simplified.
So in its up-stream end of supply chain presents great opportunity for mis
allocation in a A Type SC.
Such mis allocation can occur when upstream parts are being produced for
forecasted product that is eventually not sold ( MTS state of model). The
finished goods inventory in this case represents the mis allocated capacity and
materials for every sub component and components in that finished item. This
mis allocation of course have domino impact on other component that were not
made ( But should have been).
T Type Flow
Characteristics of the T flow type
It occurs in a situation where number of components are assembled
into wide variety of end products.
They are commonly found in ATO model. where customer lead time are
relatively short.
The T Type & V Type flows share the common characteristics of
divergence , how so ever it is more concentrated in the flow stage for
the T type SC.
Mis allocation can be avoided here by delaying commitment of
resources and material until receipt of firm order.
Marriage concept.
While the nature of the product will dictate the VAT
Work flow configuration, customer requirements will
influence the demand fulfillment strategy.
In the ideal world there is a marriage
SC with T type of product flow is readily amenable to a
ATO mode of Process flow depicting high Batch
Production process.
Similarly it is tempting to conjecture that a supply chain
with V type flow is amenable to a MTO operations.
While A Type flow is more amenable to a MTS mode of
operation because of the relatively fewer products being
processed.
Do you believe it sohmmmmmm !!!!!
Then ?

Change models to flow

E.g. A to ATO/ MTO or V to MTS/ ATO or T to
MTS/MTO how do you find these changes !!!
Process Selection Criteria

While selecting a process following factors to be focused;
Market conditions
Capital Requirement
Labour
Technology

* This we have already covered

So Lets understand Product Process Matrix
Product Structure
Product Life Cycle Stage

Low volume
Low standard
One of kind
Multiple Products
Low volume
Few major Product
Higher Volume
Higher volume, High
Standard
Commodity Product
Jumbled Flow
Batch Flow
Hybrid Flow
Continuous Flow
P
R
O
C
E
S
S

F
L
O
W
Commercial Printer
Heavy Equp.
Auto mobile
Sugar Refinery
Focused Operations Vs. Mass Customization

Often a company will have products with different volumes and
different levels of standardization. When Company mixes all
these products in the same factory, it can lead to disaster. So
an idea of focused product operation comes into evolution.
Lack of focus in manufacturing and service operations is
generally attributed to a concept called as EOS. Even product
proliferation in the market served by the company has led to
incompatible product being mixed together in the same
facility. In the name of efficiency due to economies od scale,
different mission are being served by the same operation.
The solution is to arrange each product as Plant with in plant (
PWP) i.e. to have focus operations. Which may sacrifice some
EOS while doing better job of meeting marketing requirements
and improving profitability.
Several types of focused dimension need to be considered
1. Product Focus
2. Process Focus
3. Technology Focus
4. MTS, MTO, ATO, ETO
5. New Product and mature product
6. Several of these dimensions may be combined when
focusing operations.

With the advent of flexible manufacturing operations mass
customization is now possible.
Traditional mass production is based on EOS( Scale) high
Standardization (low Variety) , has now converted into EOS( Scope)
i.e. variety with its focus on
common process rather than common product
Its basic focus is making different products for same customer
rather same product for different customer.
But it must be at the same cost as mass production.
This theory advent the evolution of modern supply chain of mass
customization.
There are four forms of mass customization.
They are .
Four forms

Mass customization of services
Modular Production/ ATO
Fast Changeover
Postponement
1
st
Model - RAP model
RAP (raw as possible)
Also called as Postponement Theory
Postponement is a value addition process for a set of
end product that maximize the common processing
requirement shared by those products
Here the customization of product is delayed as late as
possible in the value addition process, i.e. taking the
material raw to the maximum extent possible. This
approach allows to exploit scale advantage without
compromising the ultimate product variety.
This model also exploits the benefits of modularization
during downstream movement, consolidation, reducing the
complexity in manufacturing and helps making demand
patterns more predictable.
Modularization is for inbound logistics, where
postponement is for out bound logistics.
ASIAN PAINTS- A CASE
Asian Paints ( AP) Indias largest company & Asias 3
rd
largest
company with annual turnover of $940 million ( Rs. 36.7 billion)
Focus on providing fast moving paints product through
integrated supply chain.
AP owns three layers of supply chain-
The paint factory
Regional distribution centers
Sales depot
AP is using postpone-ment Distribution strategy which allows to
meet varying customer demand with minimal inventory in supply
chain.

Where postponement strategy means all sub parts & Process material
& Component are carried in knockdown form till last stage and
assembled or blended according to the demand of the customer or
on order basis.
HOW IT WORKS
Consider 500 SKUs 10 base & 50 shades in each base.
01.If retailer has to keep each SKU, think of inventory size and cost.
02. If retailers keeps only those which are in high demand as per
trend , chances of loosing potential customer persists.

Classical View

Customer
Choose
Retailers
Check
Available
Unavailable
Delay in delivery
customer
Product delivered
On time

Adopt postponement
NOW RETAILER NEEDS
Retailers need to stock 10 base and 10 chemicals i.e only 20 SKUs
Color optical reader machine
Blending equipment
On receiving the order retailer needs to go through the color
optical reader to develop appropriate blend of color And then to
blend it thru blender to give the customer needs.
Since paint is not impulse buy customer can wait for few time to
get its demand fulfilled.

Postponement Strategy
Customer
Specifies color
Optical reader
Suggests mix
Retailer blends
Chemical +Base
Paint to obtain
color
15-20 minutes wait
Choice of Color delivered
Customer satisfied.
2
nd
Model SCOR Model
Global Supply Chain Council introduced this model
Known as Supply chain operation reference model.

Supply Chain Networks
Also recognized as logistical flow patterns.
Considering the three main component of supply
chains
Making: It means manufacturing
Assembling: Putting up different component together
to make final product.
Packing: Actual packing and labeling of final product
for satisfying customer demand.

Based on two dimensions inbound and outbound
logistics, the framework contains four categories of
supply chain network structures.

Rigid
Flexible
Modularized
Postponement
RIGID
It represents classical vertical integrated supply chain
Its basic objective is to exploit Economies of scale
It maintains large inventory size.

P
r
o
c
u
r
e
m
e
n
t

&
M
g
f
.

Make
C
o
m
p
o
n
e
n
t

&

S
u
b

a
s
s
e
m
b
l
i
e
s

Assemble
L
a
b
e
l
i
n
g

&

p
r
i
c
i
n
g

Packaging
Flexible Network
It uses many subcontractors to make almost every
component.
Known demand triggers the assembly of final
product.
Its responsive and follows Economies of scale.

A
M P
P
P M
M
Modular Network
Multiple sources for component
Final product assembled after knowing the ultimate
demand.

M
M
M
A P
Postponement Network
It again exploits the Scale economies but as scope
and also customize the product as flexible Network.
P
P
P
M
A
Network Framework
Postponement Flexible
Rigid Modular
Outbound
Postponement
Inbound Outsourcing
LOW
LOW
High
High
Enablers of Supply chain Performance
Improvement in IT & Communication
Entry of Third party logistics Providers
Enhanced inter firm Coordination Capabilities

Improvement in Communication & IT
Companies have now started thinking or have realized that they Can
replace inventory for/by information. This has become advent on
the cheap, efficient and freely availability of communication & IT
(computing power). Invention & inclusion of EDI & ERP like
systems helped re- engineering the efficient systems into effective
value enhancing factors. This revolution in IT & Communication has
made integration of firms with its partners and to take advantage of
Globalization bubble to the extent not even bigger players but even
smaller are able to take benefit of it. Remember it is not just
automation of the factors of supply chain but to reengineer the
supply chain altogether.
ENTRY OF IIIrd PARTY LOGISTICS PROVIDERS

Traditionally many firms are managing their logistics
internally. But now days company have realized that
they need to focus on their core business activities
and to outsource non core activities to the 3
rd
party
Logistics providers. Who shift the benefit of EOS and
professionalism in the given area.
Enhance Inter-firm Coordination Capabilities.
Successful coordination across the global network of
companies has been a comparatively new phenomena
in corporate world. It has been realized that for a
network to function meaning fully one needs a firm to
play the role of the strategic center. Many companies
like Nike, Benetton, Sun & Toyota have successfully
managed complex networks played the part of strategic
center and hence emerged as a role model to other
companies. Playing as strategic center means leading
or orchestrating system. Howsoever industry is still on
the learning curve of this model.
Supply chain of VF Corp.
VF corporation major brand LEE & WRANGLER
Global sales of $6.5billion
It has 850000 SKUs of style color & size.
60% of the SKUs changes twice every year.
Its global average lead time is 6 months which is 1 week
with in US
We have to shorten the 6 months lead time, were our
product is for 40 days on water, were as from other time
it is having 1.5 months for procurement of raw material
and the left over time is for operations of sewing, cutting,
and laundering.
Source: Victoria cooper(2006) planning of global scale, Supply chain leader,4-
8 October./
Challenges of Managing Supply chain in India.

Taxation structure drives location decision
Poor state of Logistics infrastructure
Supply chain Challenge for the Indian FMCG
Sector
Managing Availability in the complex Distribution
Set up: The Indian FMCG Sector has to work in a very complex
distribution system, comprising multiple layers of numerous small
retailers between the company & end Customer. Also the number of
SKUs has also increased exponentially over the last few years so
ensuring the availability of the material till the last stage of the
chain has become the nightmare for the organizations. E.g. Marico
industries managing 1.6 million retailers spread over India.

Marico Industries
It has 1.6 million retailers spread geographically over Pan India.
More than 95% retailers are grocery stores, each occupying less
than 300sq. Meters.
To reach all areas of nations 18 million consumers monthly it
distributes its 35 million consumer pack per month by 1000
distributors.
These distributors stock & sell these outputs to 1.6 million retailer
directly or through roughly 2500 stockists.
Currently the company's distributional network covers every
Indian community with a population of 20000 or more and the
plan is to penetrate more of the rural areas where 70 percents of
Indias people live.
Currently its rural sales and distribution network ranks among
the top three in the industry and contributes 24% to the
companys sales.
Supply Chain at Marico Industries
Plants
Depots
Distributors
Retailers
Urban Consumer
Super
Distributor
Stockist
Retailers
Rural Consumer
Working with smaller Pack Size: To increase market
penetration Indian companies have realized that they need to
reach out the consumer present at the lower end of the economic
pyramid. To reach customer at that level they are needed to offer
smaller pack size . This means higher packaging &
transportation cost to the companies. So they are likely to balance
market penetration & logistic cost.
Entry of national players in the traditional fresh product
sector. The product of the local players are to be handled by
National Players in this modern era. E.g. Atta to be manufactured
by ITC and yogurt by nestle. So they have to move from
centralized production system to more decentralized one. So
balancing freshness, cost & quality is the major issue before them
Dealing with a Complex Taxation structure:
Smuggled goods accounts 15% percent of the total
goods flow in India.
Dealing with counterfeit goods: According to the
recent surveys by ASSOCHAM counterfeits accounted
to loss of sales worth Rs.300 billion for FMCG sector
every year. Vicks vaporub of P&G accounts to 54% loss
due to its counterfeits
Opportunistic Games played by the
distribution channel: It is common notion in FMCG
distribution that 50% of the promotion actually reaches
the final customer. Rather than playing the role of
facilitator they try to grab a significant part of the
promotion budget themselves. Printing of illegal
coupons & Shifting of goods from one local market to
another without accounting etc. are the wrong
workings of the partners.


Infrastructure
Emergence of third party logistic providers
Emergence of the modern Retail chains
Manufacturer allowance to be provided to a retailer.
Reservation for the Small Scale Sector.

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DECISION IN SUPPLY CHAIN

Successful supply chain management involve several

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Supply Chain Models &amp; Logistics Network

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Successful supply chain management involve several

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Supply Chain Models & Logistics Network

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