TERM REPORT SPRING 2012

SCM PRACTICES AT PREMIER GROUP

SUPPLY CHAIN MANAGEMENT

Submitted To: RAFAY ALI LHAN Submitted By: Prince Kumar Ghulam mustafa

LETTER OF TRANSMITTAL

Date: 15th April 2012 Mr. Rafay Ali Khan Institute of Business Management Karachi

Dear Mr. Rafay

Following is the Term Report that you had given us as our final project. The project is made on SUPPLY CAHIN MANAGEMENT PRACTES AT PREMIER GROUP.

All the data used is authentic and real as on. All issues that were relevant to the topic have been covered in this report in great detail. For further details and queries about the compilation of this report you may feel free to contact me. Yours Sincerely,

Prince kumaR Ghulam mustafa

LETTER OF ACKNOWLEDGEMENT

Date: 15th APRIL 2012

This report is a comprehensive report covering all the topics given in the report outline. This report has been prepared as a part of the course requirement for SUPPLY CHAIN MANAGEMET. The material compiled and presented in this report is a result of exhaustive work.

This report has proved to be a great experience. I would like to thank my course instructor MR. RAFAY ALI KHAN who shared his knowledge in the light of his vast experience.

Sincerely, Prince kumar Ghulam mustafa

ABSTRACT
This report signify the key supply chain management practices at the premier group all the information has been collected through the questionnaire and discussed in a great details among the group members. This report cover that how distributor companies manage their order processing and what are the key issues involved in the various processes of supply chain partners. Distribution companies mainly focus on the logistic activities because their key expertise many companies outsource their services to these companies

INTRODUCTION
Premier Group of Companies are set in the following manner: Premier Distributors deals mainly in Branded Food products and Premier Agencies deals in pharmaceutical products, toiletries etc. In order to be an effective customer service oriented company, it takes far more than good intentions or promotional tricks, it involves organization and leadership. Premier understands this need and continuously strives towards being a customer-creating and customer-satisfying organization. Premier sees itself as an innovative and professional organization suited to the needs of the 21st century Premier is one of those few Groups possessing clarity of vision and resolve to act boldly and decisively. Until 1970/71 the supply chain of consumer goods, including drugs and medicine, was comprised of manufactured / imported wholesaler / stockiest and the retailer. With increase in the population and emergence of suburbs and satellite town this supply chain became inadequate. In so far as the consumer was concerned his needs were not fulfilled and as to the manufacturer / importer he had to deal with literally hundreds of wholesale customer which was messy and costly. Premier realized that addition of a Distributor to the supply chain would relieve pressure from the manufacturer / importer and ensure market penetration. Indeed Premier realized and implemented marketing support to their principals which earlier had been the sale responsibility of the manufacturer / importer as the stockiest / wholesaler was neither interested nor competent to assist. After the establishment of the first of the Group Companies PREMIER AGENCIES in 1971. PREMIER has come a long way. They have refined and fine tuned their operation and have enlarged their net work to 25 sales / distribution centers nation-wide because fully motorized with the deployment of 3 hundred plus delivery and service vehicles. Using latest computer networking systems to ensure better inventory control accelerated order execution system and more unspiritual providing regular sales statistics to their respective principals

LITERATURE REVIEW
The movement of a product or a service from supplier to customer takes place with the help of organizations, people, technology and resources. According to Terry Harrison a supply chain is a network of facilities and distribution options that perform the functions of procurement of materials, transformation of materials into intermediate and finished products and the distribution of the finished products to customers. Supply chain finds its place in both services as well and manufacturing industry. Supply chain can also be explained as the association of the retailers, distributors, transporters and suppliers who come together and share the process of sale, delivery and production of a particular product or service. Supply chain management is an efficient way of managing the above mentioned activities. According to Jessie Chinami Supply chain management can be defined as an oversight of materials, information and finances as they move in a process from supplier to manufacturer to wholesaler to retailer and finally to the consumer. The basic aim of supply chain management is coordinating and integrating the flow which takes place within and among companies. The basic three types of supply chain management flows are: The product flow The information flow The finances flow The product flow deals with the goods and services that are subjected to movement from a supplier to a customer and vice-versa. The information flow manages the upgrading as well as management relating to the status of the delivery process while the financial flow manages all the finances related to the delivery process. A schematic diagram of the Supply chain management process is as shown. The various processes

in Supply chain management are: Supply chain strategy Logistics Product lifecycle management Procurement Asset management Enterprise applications Supply chain planning

The decisions associated with supply chain management cover both the long-term and short-term. Strategic decisions deal with corporate policies, and look at overall design and supply chain structure. Operational decisions are those dealing with every day activities and problems of an organization. These decisions must take into account the strategic decisions already in place. Therefore, an organization must structure the supply chain through long-term analysis and at the same time focus on the day-to-day activities. Furthermore, market demands, customer service, transport considerations, and pricing constraints all must be understood in order to structure the supply chain effectively. These are all factors, which change constantly and sometimes unexpectedly, and an organization must realize this fact and be prepared to structure the supply chain accordingly. Structuring the supply chain requires an understanding of the demand patterns, service level requirements, distance considerations, cost elements and other related factors. It is easy to see that these factors are highly variable in nature and this variability needs to be considered during the supply chain analysis process. Moreover, the interplay of these complex considerations could have a significant bearing on the outcome of the supply chain analysis process. Major Reasons to Establish a Supply Chain Management Philosophy Reduce Inventory Investment in the Chain In the past, holding large amounts of inventory was a typical business practice. This was due to the uncertainty involved in dealing with many suppliers. The current business trend is to reduce or eliminate inventory wherever possible, but it is important to understand the balance between customer service and inventory. Ballou (1992) states that increased customer service is a reason to hold inventory. Inventories provide a level of product or service availability, which, when located in the proximity of the customer, can meet a high customer service requirement (Ballou, 1992). Inventory close to the customer can also reduce cost of lost sales and result in repeat customers.Holding any amount of inventory results in some form of expense, particularly carrying costs. On the other hand, the reasons for holding inventory can indirectly reduce operating costs realized in other company activities (Ballou, 1992). These cost reductions can be price-quantity discounts, lower transportation rates, or holding safety stock to insure against stockouts (Coyle, Bardi, and Langley, 1996). Safety stock is held to buffer uncertainty or variability involving external

factors, including supplier relations, economic conditions, and raw material supply. Many firms hold safety stock due to the time variance during product delivery and unknown demand requirements. Uncertainty has traditionally been buffered with inventory (Ellram and Cooper, 1990). SCM strives to minimize the uncertainty involved in business transactions among firms in the supply chain which leads to building safety stock inventory (Coyle, Bardi, and Langley, 1996). Reducing uncertainty can lower inventory levels held within the chain by reducing the number of suppliers a firm deals with and enhancing the relationships with the remaining firms. Sharing information about anticipated demand, orders, and production schedules reduces uncertainty and can lead to lower safety stock inventory (Coyle, Bardi, and Langley, 1996). Inventory is not necessarily eliminated completely from the channel, but rather only the redundant inventory levels (Cooper and Ellram, 1993). For example, Xerox took over $700 million of inventory out of its operation within two years by applying SCM techniques (Stenger, 1994). Information sharing helps to reduce uncertainty and leads to lower inventory levels. It is not necessary that all channel members have access to the same information, but only the information which is needed for them to better manage their supply chain linkages (Cooper and Ellram, 1993). During the 1980s, the idea of reducing uncertainty by exchanging information for inventory, received widespread recognition as a means of reducing costs and increasing effectiveness among trading partners (Ellram and Cooper, 1990). Information sharing is an essential characteristic of the SCM philosophy. A broken supply chain could occur if firms do not communicate. A broken supply chain has substantial stock at one point to enable another node in the supply chain to skate by with minimal stock (Davis, 1993). This is an inefficient supply chain because there is more inventory being held than is required. The SCM concept focuses on holding inventory where it is optimal for the entire chain (Ellram and Cooper, 1990). Each player in the supply chain optimizes its own position by holding all of the inventory it needs or requiring other supply chain members to hold additional inventory (Ellram and Cooper, 1990). There will always be some level of inventory within the supply chain, but the real difficulty is knowing how much to hold and where to hold it (Davis, 1993). Coordination is the reason that SCM exists and has become increasingly popular within firms. Increase Customer Service Companies have recognized that customer service can increase revenue and customer satisfaction. The driving force behind the emergence of SCM is pressure from the customer for improved service (Giunipero and Brand, 1996). Coyle, Bardi, and Langley (1996) define customer service as a process for providing competitive advantage and adding benefits to the supply chain to maximize the total value to the ultimate customer. Customer satisfaction is referred to as the cumulative level of satisfaction based on the total purchase and consumption experience with a good or service over time (Sharma, Grewal, and Levy, 1995). SCM is instrumental in delivering high customer satisfaction with reduced lead times and costs. Customer service affects company performance in two ways: 1) customer satisfaction and 2) cost expenditures (Dresner and Xu, 1995). An increase in customer service levels will increase costs, but also will increase customer satisfaction that in turn increases revenues. In other words, a satisfied customer will return and be willing to pay a premium for high customer service levels, resulting in higher profits. When implementing a customer service program, each level of service is associated with some

transportation and inventory costs. For example, inventory levels (and carrying costs) can be lowered if air transportation is used, but transportation costs will be higher (Coyle, Bardi, and Langley, 1996). These costs can be justified if higher customer service levels result in a higher profit. A company needs to find a customer service level that balances total benefits and total costs. Langley and Holcomb (1992) identified several trends in customer service including: 1) the ability to effectively manage information, 2) longer-term relationships, and 3) sustainable competitive advantage Understanding and implementing these trends are important because customer service becomes the link between logistics and marketing activities (Langley and Holcomb, 1992). A company with a logistics and marketing advantage will be an industry leader. Companies that can effectively manage and share information within the supply chain have a significant customer service tool. Information is key to a companys ability to provide excellent service. An open communication channel between buyers and suppliers is necessary to receive feedback on customer service. Information must be accessible and usable by the entire supply chain to ensure proper customer service levels. In the traditional system, companies control all inbound and outbound information flows so they feel much more comfortable. The information exchanged is limited to the needs of the current transaction (Cooper and Ellram, 1993). According to Luis Fsolis, vice president of business development, GE Capital Logistics, information has to capture the needs of customers better and most companies have been capturing and managing information that only pertains to themselves (Meachum, 1996). A shift from transactual to contractual relationships has resulted in longer-term relationships (or partnerships) with buyers and suppliers. Partnerships evolve from a relationship between suppliers and satisfied customers who have become repeat purchasers and loyal to a particular firm (Sharma, Grewal, and Levy, 1995). Close buyersupplier relationships have come to the forefront of todays business world as a result of companies working to improve their levels of customer satisfaction. Customers experience service improvements through reduced inventory levels, shorter cycle times, and more timely and accurate information (Lambert, Emmelhainz, and Gardner, 1996). Enhanced customer service levels give companies a competitive advantage over competitors by ensuring customers that service is a priority Build Competitive Advantage As the market environment becomes more competitive, firms must develop a strategic long-term (versus a traditional adversarial approach) competitive advantage to remain in business. Strategic capabilities needed for a firms success and competitive advantage include being responsive to target markets, having low total distribution cost, and speedy, reliable delivery (Morash, Droge, and Vickery, 1996). Companies use strategic alliances to achieve these capabilities. An alliance is defined as a contractual relationship between two independent entities in the logistics channel to achieve specific objectives and benefits (LaLonde and Cooper, 1989). Partnerships are the most informal and most common type of strategic alliance (Rogers and Daugherty, 1995).

SUPPLY CHAIN MANAGEMENT PRACTICES AT PREMIER GROUP

ORDER PROCESSING OUTWARD
Premier distributor is engaged in providing best service to its principal; it provides distribution services to all retailers and wholesalers and makes sure that all the products are timely available on the shelves of the shops. Our order processing includes the process of booking different orders from different shops by all DSFs (Daily sales force). All the routes and plan is defined in the SAF (Sales area format)/PJP (permanent journey plan). Supervisors and managers make sure that all the shops are visited. These orders are then processed by IT department and data entry is made in the software. Summary sheet is generated by the system and given to the store manager. Orders Booked Store manager is responsible for the Order Processing Payment received timely loading of vans by IT personel so that all the shops are covered. Sales force makes sure that all goods are delivered Store and no returns are Order delivered summary/Demand made. Orders are generated delivered to the right customer at the right place at the right time payment is made.
Vans loaded Invoices generated

Order picking

INWARD
Monthly audits are done on regular basis in the warehouses and stock taking reports are made to identify the exact needs of the warehouse. Our accounts manager places consolidated and purchase is issued to the principal and they process orders accordingly. Deliver Challan is issued and invoice sent to the distributor. Containers reach at the respective branches specified by Distributor head office. GRN is provided and entry is made in the ledger.

Warehouse demand raised

Ledger Entry

Demand requirement consolidated

Goods Receipt Note

PO issued to Principal

Delivery Challan/Invoice

Risk coverage 1. 2. 3. 4. 5. 6. Cash in transit Cash in safe Cash & Goods in transit Fidelity Insurance Fire insurance Terrorism Principals Organo diagram

NSM RSM ZM SE DSF

Information Flow:
All the communication is done electronically with all the principals. We are using our software based on visual basic. We have more than 1200 reporting formats. Multiple types of reports can be generated from the software depending on the customer/Principal needs. Key Processes in Supply Chain

Order Booking

Procurement

Storage

Supply Services

Information flow MVR Competitive analysis (principal) Surprise visits by TSO, BBM, AM, GM, director sales Target meetings Target review meetings

Logistics activities An are operated from braches to different areas Geographical, departmentalization in house workshops and outsourced On rent when required.

Warehousing activities Proper check and balance Fifo Weekly orders Primary/sec targets Safety stocks Loaders stock position Reshuffling Fire arrangements Temperature Monthly audit Stock taking reports Product plus section based

Issues
1. 2. 3. 4. 5. 6. 7. Pending Orders To secure Left over sales Cost of transport Managing Supply Managing Expiry of products Vans management Salesmen retention

Challenges Oil prices Absenteeism Law & order Technology Workforce turnover

CONCULSION

Our key finding has included the following points regarding the supply chain process at PREMIER Group: Highly sophisticated information software generating various reports catering to the information needs of the management. These include: Daily, Weekly & Monthly sales reports Customer, Territory & Area wise reports Product & Category wise reports Target Achievement reports Salesman & customer productivity reports

Extensive distribution network all over Pakistan. Brilliance in planning and excellence in execution are our top priorities in what we do and how we do it Adequate Infrastructure & Resources Optimum level of infrastructure & resources enable us to perform the required task with greater efficiency

REFERENCES

LECTURES OF SIR RAFAY ALI KHAN INTERVIEWS WITH THE PREMIER GROUP EXECUTIVES QUESTIONNAIER http://premiergroup.com.pk/ http://www.emeraldinsight.com/journals.htm?issn=1359-8546&volume=11&issue=6 http://eil.utoronto.ca/profiles/rune/node5.html http://bmb.cu.edu.tr/evlac/_private/Documents/Literature%20review%20links/UK.pdf http://www.avyg86.dsl.pipex.com/ecom/1770100405.pdf http://www.scmconsult.net/scmc/uploads/attaches/img45cabe4b9bff6.pdf