Abhishek Pratap Singh

Rojer Choudhary
Saurabh Barwani
Dushyant Singh
Ajay Singh
Sanjay Choudhary
 Evolution of the Integrated Logistics Concept

What is the Right Supply Chain for Your Product?

Making Supply Meet Demand in an Uncertain

World

Mass Customization at HP: The power of postponement

The Power of Virtual Integration: An interview with Dell

Computers Michael Dell

 Materials Management Physical Distribution Management

Raw material
Raw material Goods in Finished
Subassemblies Field
Subassemblies Process Goods Field Customer
Manufactured part Inventory Customer
Manufactured part Inventory Inventory Inventory
Racking materials
Racking materials

Business Logistics
 Physical distribution
Post-World War 2 business management
The movement and handling of goods from the point of production
to the point on production to the point of consumption or user

Business logistics
Emerged during 1980s~1990s as strategy
From raw material through finished goods inventory

Materials Management
All materials employed in the production of the finished product
Inventory control, purchasing, traffic, materials handling, receiving
 Pressure on cost reduction
o During the late 1950s~1960s
o Increasing marketing costs, well advanced production technology
o Relatively untouched areas distribution(10%~30%)
Data processing technology
o Computer technology became increasingly powerful, less costly
o Automated inventory control
Customer focus
o Right time in the right quantity
o Particular importance for those companies selling relatively
homogeneous products
Profit Leverage
o 5% cost reduction more than 5% revenue increase
Vendor Procurement Operations Physical Customer
(30%) (30%) Distribution
(40%)

Stage 1
Stage 2(Internal Linkage)

Stage 3(External Linkages)

 Physical Distribution
o 1950s~1960s
o Focus: to meet customer expectation at lowest possible cost
o Why the integration process started with finished goods
The Largest single segment on inventory(40%)
Directly impacts customer service
Without venturing into production processes
Low risk, high gain
o Limitation
Internal Linkages
o Around 1985
o 60%~100% of the firm's total inventory could be better managed
o Elimination of buffer inventories between loops
External Linkages
o Efficiencies in relationships with vendors, customers, third parties
o EDI, JIT, DRP
 Cycles-time-to-market
o Removal of time
o Reducing the design-build-ship cycle
o Process setup elimination

Supply Chain Management

o Last half of the 1990s~2000s
o Both internal and external units are forged together
o Low-cost and high-value performance to the consumer
o More responsive inventory systems
 Retailer

Automatically track the flow of goods

Automatically track the flow of goods
Electronically transmit replenishment orders
Electronically transmit replenishment orders
Fewer stockouts
Fewer stockouts
Bar code scanners
Bar code scanners
Electronic inventory Supplier
Electronic inventory
Synchronize production schedules to real-
Synchronize production schedules to real-
time
timedemand
demanddata
data
Fewer inventory
Fewer inventory
 Data error
o 35 leading retailer - 2/3 of SKU(Stock Keeping Unit)
o Reduced the companys overall profits by 10%
o Phantom stockouts
Employees routinely put products in the wrong places
16% stockouts but the items available
Why?
o Human nature
o Retailers distribution centers
Wrong quantities for 29% of the SKUs, deviation from actual
supplies of 25%
Items shipped in error that cost less than a certain amount
Most stores perform audits solely for financial reasons, to
measure the shrink of goods that have been lost or pilfered.
Measure inventory by dollar value, not by item
 Global competition
Global competition
Faster product development
Faster product development
Variety of products
Variety of products
New Technology New Concept
Quick response
Point-of-sale scanners Quick response
Point-of-sale scanners Efficient consumer response
Electronic data interchange Efficient consumer response
Electronic data interchange Accurate response
Flexible manufacturing Accurate response
Flexible manufacturing Mass customization
Automated warehousing Mass customization
Automated warehousing Lean manufacturing
Rapid logistic Lean manufacturing
Rapid logistic Agile manufacturing
Agile manufacturing

But
Excess and shortage of products
Excess and shortage of products
Markdowns and stockouts
Markdowns and stockouts
ex) U.S. food industry, poor coordination is wasting $30billion
ex) U.S. food industry, poor coordination is wasting $30billion

Why? Lack of framework for deciding

 Physical function
o Function
Converting raw materials into parts, component, finished goods
Transporting all of them from one point in the supply chain to
next
o Cost
Production, transportation, inventory storage

Market mediation function

o Function
matched what consumers want to buy
o Cost
markdown, stock outs & dissatisfied customer
 Supply Chain focus
Type Physically Efficient Process Market-Responsive Process
Primary purpose at lowest possible cost minimize stockouts & markdowns
Manufacturing focus maintain high average utilization deploy excess buffer capacity

Inventory strategy high turns, minimum inventory deploy significant buffer stocks

shorten lead time as long as it invest aggressively in ways to

Lead-time
doesnt increase cost reduce lead time

Choosing suppliers cost and quality speed, flexibility, quality

maximize performance, modular design in order to
Product-design
minimize cost postpone product differentiation
 Problems
o Most companies still treat the world as if it were predictable
o Poor job of incorporating demand uncertainty into their
production planning processes
o Design their planning processes as if that initial forecast truly
represented reality. why?
its complicated to factor multiple demand scenarios into planning
most companies simply dont know how to do it

o Frequent introductions of new products have two side effects

reduce the average lifetime of products
demand is divided over a growing number of SKUs
ex) GM Cadillac(Seville and Eldorado) vs. Buicks and Olds mobiles
 Accurate response
o Improve forecast
o Redesign planning processes to minimize the impact of inaccurate
forecasts

costs
costs per
per unit
unit of
of stockouts
stockouts and
and markdowns,
markdowns, missed
missed opportunity
opportunity cost
cost

predictable
predictable well
well make
make in
in advance
advance

unpredictable
unpredictable postpone
postpone decisions,
decisions, early
early in
in the
the selling
selling season
season
 Obermeyer
o leading suppliers in the US fashion sky apparel market
o newly designed each year
o difficult to predict weather, fashion, trends, economy
Until the mid-1980s
design and show samples to retailers in March Sales
design and show samples to retailers in March Sales volume
volume grew
grew
place production orders with suppliers in March
place production orders with suppliers in March~~April
April Pressure
Pressure to
to reduce
reduce
receive goods an D/C in September~October
receive goods an D/C in September~October
ship to retail outlets
ship to retail outlets

More
More complex
complex supply
supply chain(global)
chain(global)
Increased
Increased lead
lead times,
times, markdown,
markdown, stockout
stockout
 First step: Shorten lead time - Quick response
o Computerized systems order process time, time to
compute material requirements
o Anticipate what materials it would require
pre-position in a warehouse
o Air freight to expedite delivery
Second step: Improving forecast
o Buying committee
Group of company managers from a range of functional area

Sales exceed by 200%, less than 15% of the

forecast
 Risk-based production sequencing

non reactive capacity Demand forecast are most accurate

reactive capacity market signals

 Redesign
o reduced the variety of zippers used (color, length)
o use the same kinds of raw materials
 orders
ordersbe
befulfilled
fulfilledever
evermore
morequickly
quickly
highly
highlycustomized
customizedproducts
productsand
andservices
services

Postponing
Postponingthe
thetask
taskof
ofdifferentiating
differentiatingaaproduct
product

Organizational-design
Organizational-design principles
principles
Product
Product
Process
Process
Supply
Supplynetwork
network
 Modular Design
o Flexibility, quickly, inexpensively
o Common components, differential components

Benefits
o Maximize the number of standard components
assemble those common components earlier stage
postpone the differential components
o The modules of the product separately, possible at the same
time
shortens the total time required for production
o Easily diagnose production problems, isolate potential quality
problems

Considerations
o Cost of materials < benefits of standardization( lead time,
inventory, stockout)
 Modular process
o breaking down into independent sub processes
o flexibility

Process postponement
o ex) paint store: a broad range of different paints color pigments
o ex) retail apparel industry: body-measurement process+cut-and-sew
process
o specific garment instead of stock in all sizes and colors, eliminating
discounts
o relatively low-cost raw fabrics
Process resequencing
o ex) Benetton: dyeing, knitting knitting, dyeing
o ex) HP disk driver: inserting printed circuit board, testing disk driver
standard tests + customized tests
Process standardization
 Redesign network
o Optimum number and location of factories and D/C
Multi-function warehouse
o perform light manufacturing
The dominant model in the PC industry
A Value chain with arms-length transactions from one layer to the next
suppliers manufacturer D/C customer

Dells direct model

Eliminated the time and cost of third-party distribution

suppliers manufacturer customer

Virtual integration
Blurring the traditional boundaries and roles in the value chain
suppliers manufacturer
suppliers customer
 Fast-cycle segmentation
o The finer the segmentation, the better forecast what
customer needs and when