LSCM Jun 2014

introducing
Supply Chain Management

Managing Chain
Prof. Manoj K Srivastava
Operations Management Area
Management Development Institute-Gurgaon
mks
mks@mdi.ac.in
http://mks507.vistapanel.net
01. Titanic: What Went Wrong?
02. INTEL: Using Innovation to Create Competitive Advantage
03. McDonalds Food Supply Chain
04. Wal-Marts Supply Chain Practices
05. Procter & Gamble: Using Agent Based Modeling & RFID
06. IDEO: The Power of Design
07. FedEx: Delivering the Goods
08. Mumbai Dabbawallah
09. Procurement at Microsoft
10. NOKIA INDIA: Battery Recall Logistics
11. Dells Supply Chain Strategies
12. Postponement Strategies
13. Historical Examples of Military Logistics
14. Reliance Fresh Stores in Food Retailing
Global : Logistics Industry Scenario
The logistics industry is valued at US$ 3.5 trillion.
The U.S., which contributes to over 25% of the global industry value, spends close to 9% of its GDP
on logistic services.
The sector currently employs over 40 million people in the world

Countries Logistics Cost/GDP
India/China 13-15%
U.S 9.90%
Europe 10%
Japan 11.40%
Technology
19%
Retail
17%
Industrial
19%
Health Care
4%
Consumer
23%
Chemical
4%
Automotive
10%
Others
4%
Global Industry Verticals - Logistics Activity Countries Logistics Cost / GDP
Total GDP US$ 3 Trillion.
India spends 13% of its GDP on logistics compared to an average of 10% in other developing
countries.
India logistics market to double by 2012.
The industry would need 4,20,000 skilled people in the Senior Resource Category in warehouse
management it self, by 2015.
Currently, India logistics industry has only 14,000 Warehouse Managers but required are approx.
35,000 .
Technological change in the logistics industry demands a trained workforce in all areas of the
sector.
Indian logistics industry is at an inflection point and has reached a market size of over $125 billion
in year 2010.
The organized logistics, which is about 6% of the total logistics market, is growing @ 15-20% a
year.
India : Logistics Industry Scenario
Distribution of Logistics Cost
% of logistics cost
Inbound Logistics
Transportation
Storage
Inventory
12.0
8.0
8.0
Process Logistics
Transportation
Storage
2.0
5.0
Outbound Logistics
Transportation
Storage
Inventory
Order Processing
33.0
15.5
6.5
10.0
Supply Chain
Intelligence
mks
mks@mdi.ac.in
http://www.mks507.iwebs.ws
1. Apple
2. Procter & Gamble
3. Cisco Systems
4. Wal-Mart Stores
5. Dell
6. PepsiCo
7. Samsung Electronics
8. IBM
9. Research In Motion
10. Amazon.com
11. McDonalds
12. Microsoft
13. The Coca-Cola Company
14. Johnson & Johnson
15. Hewlett-Packard
16. Nike
17. Colgate-Palmolive
18. Intel
19. Nokia
20. Tesco

Top 20
Supply Chains
2009
1. Apple
2. McDonald's
3. Amazon.com
4. Unilever
5. Intel
6. Procter & Gamble
7. Cisco Systems
8. Samsung Electronics
9. The Coca-Cola Company
10. Colgate-Palmolive
11. Dell
12. Inditex
13. Wal-Mart Stores
14. Nike
15. Starbucks
16. PepsiCo
17. H&M
18. Caterpillar
19. 3M
20. Lenovo Group
Source:
AMR research, 2013
http://www.amrresearch.com
2013
Why Implementing Supply Chain?
The right
Product
Higher
Profits
The right
Time
The right
Customer
The right
Quantity
The right
Store
The right
Price
=
+ + +
+
+
Flexibility
Delivery
Reliability
Delivery Time
Lead time
Inventory
Level
Product
Volume
Mix
Place
Time
Customer Satisfaction Strategies
Actual Performance
Providing satisfiers
(performance needs) can keep
you in a market
Providing delighters (unknown exciting
characteristics) can get you market leadership.
C
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S
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Very Satisfied
Very Unsatisfied
P
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V
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P
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You are OK if
you dont
provide them.
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V
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W
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redial button on telephone receiver; spare change holders/
soft drink holders in automobiles; one-touch recording
button on some VCRs;
C
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s

Todays market demands
Quality Being RIGHT
Speed
Being FAST
Dependability Being ON TIME
Cost Being PRODUCTIVE
Being ABLE TO CHANGE
Flexibility
Use Value
Esteem Value
Place Value
Time Value
Need vs Requirement
Remove the effect of cause
Quality
Robustness
Decision Dilemmas.?
Chinese Room Argument (Searle)
Prisoner's Dilemma
Laws of Robotics
Searle, J.R. (1980), 'Minds, brains and programs', Behavioral and Brain Sciences, 3 (3): 417-457
Tucker, Albert W., (1980), On J argon: The Prisoner's Dilemma, UMAP J ournal 1, 101
Poundstone, W., (1992), Prisoners Dilemma, New York
Asimov, Issac (1957), The Naked Sun, Fawcett, New York
Lesson Learnt:

Have we defined it properly?
.coz a well stated problem is half solved.
The classical prisoner's dilemma
Prisoner
B
Stays Silent Betrays
Stays Silent
A: Years
B: Years
A: 10 Years
B: 0 Years
Betrays
A: 0 Years
B: 10 Years
A: 2 Years
B: 2 Years
P
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A

The classical prisoner's dilemma
Chicken Game
Racer
He
Turn Do Not Turn
Turn
You: 0
He: 0
You: 0
He: 1
Do Not Turn
You: 1
He: 0
You: 0
He: 0

R
a
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r

Y
o
u

See the market,

Do not assume it..
Keiretsu (co-opetition)

win-win situation
a chain is only as good as its weakest link
That really
depends on
WHERE you
want to go?
Which PATH I
should take
from here?
Aimless aims???
I wanna cut cost at any cost !!!!!
Dont cut cost at any cost
Competing for the Future
(with Gary Hamel)
Sony
miniaturization

3M
knowledge of substrates, coatings,
adhesives

Honda
engines and power trains

Cannon
optics, imaging, electronic controls
Products include copiers, laser printers,
cameras, and image scanners.

Boeing
integrating large scale systems
commercial jetliners, space stations,
missiles

Core Competency
Importance-
performance
matrix
INPUT
OUTPUT
PERFORMANCE
OUTCOME
IMPACT
EFFICIENCY
EFFICACY
EFFECTIVENESS
Utilization =
Input Used
Input Available
Productivity =
Actual Outputs
Inputs Used
Performance =
Actual Outputs
Planned Outputs
Customer Satisfaction =
Actual Inputs
Expected Inputs
Supplier Performance =
Actual Inputs
Expected Inputs
Value Added
Process
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Source: Mentzer, J . T., Supply Chain Management, Response Books, New Delhi, 2001
Productivity
impact assessment analysis
Trade-off between
cost (efforts) and outcome (customer satisfaction)
Supply Chain Intelligence
making false impressionpromotion tactics?
A supply chain consists of the flow of products and services from:
Raw materials manufacturers
Intermediate products manufacturers
End product manufacturers
Wholesalers and distributors and
Retailers

Connected by transportation and storage activities, and

Integrated through information, planning, and integration activities
entitiesactivitiesproblem spotslinkages?
Different organizations in the supply chain may have different, conflicting
objectives
Manufacturers: long run production, high quality, high
productivity, low production cost
Distributors: low inventory, reduced transportation
costs, quick replenishment capability
Customers: shorter order lead time, high in-
stock inventory, large variety of products,
low prices
Supply Chain: Manufacturing Example
Cereal
Manufacturer
Flour
Processor
Polyethylene
Bag
Manufacturer
Chemical
Processor
Farmer
Oil
Company
Forest
Lumber
Provider
Corrugated
Manufacturer
Grocery
Distributor
Retail
Grocer
Consumer
1
st
Tier
Supplier
2
nd
Tier
Supplier
2
nd
Tier
Customer
1
st
Tier
Customer
3
rd
Tier
Supplier
3
rd
Tier
Customer
(Material) Products and Services
Finance
Information
Demand
Supply
Upstream
Internal
Downstream
Focal
Company
customer / consumer / client
manage relationship with whom.in which order? CRM???
understand context and hence the relative preference accordingly.
CRM???
understand context and hence the relative preference accordingly.
Organizations can find their most valuable customers through RFM
How recently a customer purchased items
How frequently a customer purchased items
The monetary value of each customer purchase
Supply Chains Components
The supply chain involves segments:
, where sourcing or procurement from external suppliers occur
, where packaging, assembly, or manufacturing take place
, where distribution or dispersal take place, frequently by
external distributors.

movement of information and money and the procedures supporting the
movement of a product or a service.

Organizations and individuals are also part of the chain
in which industry, which segment to be focused more?
Supply Chain Flows
Supply Chain Flows
Materials flows are all physical products, new materials, and supplies that
flow along the chain.

Information flows relates to all data associated with demand, shipments,
orders, returns and schedules.

Financial flows include all transfers of money, payments, credit card
information, payment schedules, e-payments and credit-related data.
Supply chain refers to the flow of materials, information, payments, and services
from raw material suppliers,
through factories and warehouses (Value Chain),
to the final consumer (Demand Chain).

It includes tasks such as purchasing, payment flow, materials handling, production planning & control, logistics &
warehousing, inventory control, and distribution. When it is managed electronically it is referred to as an e-supply chain.
flow speed?... quantum?... precedence?
Imm. Suppliers Imm. Customer
The
Firm
1
st
Tier
Suppliers
The
Firm
2
nd
Tier
Suppliers
2
nd
Tier
Customer
1
st
Tier
Customer
1
st
Tier
Suppliers
The
Firm
2
nd
Tier
Suppliers
2
nd
Tier
Customer
1
st
Tier
Customer
n
th
Tier
Suppliers
n
th
Tier
Customer
...... ......
Supply Chain
Extended Supply Chain
Ultimate Supply Chain
can we manage ultimate supply chain?
The
Firm
Key Suppliers
The
Firm
Key Customer
Key Suppliers Key Customer
Key Suppliers Key Customer
The
Firm
Suppliers
Customer
The
Firm
The Firm
Purchasing Production Marketing
R & D Logistics
Most companies are working to create
seamless processes within their own
four walls. (47%)
Some companies house
SCM in
marketing & focus on
integration
with key customers. (11%)
Many companies house
SCM in purchasing &
focus on integration with
first-tier suppliers (34%)
Few companies systematically
integrate up & downstream
(8%)
Collaboration from suppliers' supplier to customers' customer is a vision not yet fully realized!!!
Common
Rare
Supply Chain
Integration
a delicate balance among sensitive relations?
THE FOCAL COMPANY'S ALTERNATIVES FOR INVOLVEMENT WITH LINK 2
Alternative 1)
Integrate with and actively manage Link 2.

Alternative 2)
Monitor the procedures of Company A and
Company B for integrating and managing Link 2.

Alternative 3)
Not involved, leave the integration and
management up to Company A and Company B.
Focal
Company
Company
A
Company
B
Company
B
Company
B
Link 2
Link 2
Link 1 Link 2
When to monitor when to let them own.. When to dictate?
Supply Chain
UPSTREAM DOWNSTREAM INTERAL
Demand Chain Value Chain
why it should not be termed as demand chain management?
1. Location
2. Transportation and Logistics
3. Inventory and Forecasting
4. Marketing and Channel Restructuring
5. Sourcing and Supplier Management
6. Information and Electronic Mediated Environments
7. Product Design and New Product Introduction
8. Service and After Sales Support
9. Reverse Logistics and Green Issues
10. Outsourcing and Strategic Alliances
11. Metrics and Incentives
12. Global Issues.
Source: Pyke, D.F., A Framework for Teaching Supply Chain Management, 2000
Major Issues in SCM
learn what constitutes in total known as supply chain
management ?
is it not blurring boundaries of concepts in present?
buyers mkt vs sellers mktshrinking profit margins?
Views of Supply Chain
Cycle view: processes in a supply chain are divided into a series
of cycles, each performed at the interfaces between two
successive supply chain stages

Push/pull view: processes in a supply chain are divided into two
categories depending on whether they are executed
in response to a customer order (pull)
in anticipation of a customer order (push)
basis of viewswhyhow
Cycle View of Supply Chains
Manufacturer
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Supplier
Each cycle occurs at the
interface between two
successive stages
Customer order cycle
(customer-retailer)
Replenishment cycle
(retailer-distributor)
Manufacturing cycle
(distributor-manufacturer)
Procurement cycle
(manufacturer-supplier)
Cycle view clearly defines processes involved and the owners of each process.
Specifies the roles and responsibilities of each member and the desired outcome of each process.
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can they be synchronized them.
quanitywisetimewise.anticipationwise?
Push/Pull View of Supply Chains
Where to pin decoupling point ?
will you push the rope or pull it? depends

Supply Chain Macro Processes in a Firm
Supply chain processes discussed in the two views can be
classified into
Supplier Relationship Management (SRM)
Internal Supply Chain Management (ISCM)
Customer Relationship Management (CRM)

Integration among the above three macro processes is critical
for effective and successful supply chain management

Typology of Supply Chain
On the basis of decoupling point (ETO, MTO, ATO, MTS) supply chain
Push vs. Pull supply chain
Lean vs. Agile supply chain
Efficient vs. Responsive supply chain

Trade-off between
cost (efforts) and outcome (customer satisfaction)
Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier
Low
High
R
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p
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Cost (Efficiency) Low
High
DELL
WAL-MART
Supply chain dynamics

Supply chains with different end objectives need to be
managed in different ways

Match product characteristics with supply chain characteristics

Matching the supply chain with market requirements
Lean
supply chain
management
Mismatch
Mismatch
Agile
supply chain
management
Nature of demand
Functional products Innovative products
Predictable
Few changes
Low variety
Price stable
Long lead-times
Low margin
Unpredictable
Many changes
High variety
Price markdowns
Short lead-times
High margin
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Campbell's Soup Fashion Apparel
Life cycle
Contribution margin
Variety
Forecast error
Stock-out rate
Forced markdowns
Make-to-order LT

Product Characteristics
Product Life-Cycle: Soup
1969
1999
1989 1979
2009
Product Life-Cycle: Fashion
Fall Winter
Spring
Forecasting Error?
Stockout Rate?
Markdowns?
Margins?
Variety? New Design?
Functional Products
(Soup)
Innovative Products
(Fashion clothing)
Demand Uncertainty Low (forecast error) High (forecast error)
Life Cycle Long Short
Risk of Obsolescence Low High
Profit Margin Low High
Variety Low High
Demand volume High Low
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Customer
Dell
Suppliers
Dell Supply Chain
PUSH
PULL
Typical PC Supply Chain
(Compaq, HP, IBM, etc.)
Customer
Distribution
Channels
Manufacturer
Suppliers
PUSH
PULL
PC SUPPLY CHAINS
SCM versus Logistics: Four Perspective
SCM= purchasing+ logistics+ operations+ marketing+..
SCM as Logistics outside the firm
Logistics Defined
Logistics Management is that part of Supply Chain Management
that plans, implements, and controls the efficient, effective
forward and reverse flow and storage of goods, services and
related information between the point of origin and the point of
consumption in order to meet customers' requirements.
Four Subdivisions of Logistics
Business logistics
Military logistics
Event logistics
Service logistics
Value-Added Roles of Logistics
The five principal types of economic
utility which add value to a product or
service :
Form
Time
Place
Quantity
Possession
While form and possession utility are not specifically related to logistics, neither would be possible
without getting the right items needed for consumption or production to the right place at the right time
and in the right condition at the right cost. These "five rights of logistics," credited to E. Grosvenor
Plowman, are the essence of the two utilities provided by logistics: time and place utility.
what?
How much?
why?
where?
when?
Inventory/order cycle length
Inventory / lost sales effect
Inventory level
Transportation/lost sales effect
Product dollar value / logistics costs
Weight density / logistics costs
Susceptibility to loss & damage/logistics costs
Supply Chain Strategy
Part
1.4
Fit SC to the customer
Understanding the Customer
Range of demand, pizza hut stable
Production lot size, seasonal products
Response time, organ transplantation
Service level, product availability
Product variety
Innovation
Accommodating poor quality
Implied trouble
for SC

Achieving Strategic Fit:
Consistent SCM and Competitive strategies

Implied (Demand)
Uncertainty for SC
Issues Affecting Strategic Fit
Multiple products and customer segments

Product life cycle

Competitive changes over time
Early: uncertain demand, high margins (time is important),
product availability is most important, cost is secondary

Late: predictable demand, lower margins, price is important
Shift from responsiveness to efficiency
increased emphasis on variety
Internet
Achieving Strategic Fit
Uncertainty/Responsiveness Map
Implied uncertainty
spectrum
Responsive
supply chain
Efficient supply
chain
Certain demand Uncertain demand
Responsiveness
spectrum
Low Cost
High Cost
Companies try to move
Zone of Strategic fit
INTRODUCTION
MATURING
COMMODITY
The Strategic Fit Framework
for achieving strategic fit in Supply Chain Strategy
A Framework for Structuring Drivers
Competitive Strategy
Supply Chain Strategy
Efficiency
Responsiveness
Facilities Inventory Transportation Information Sourcing Pricing
Cross functional drivers
Facilities
Role in the supply chain
the where of the supply chain
manufacturing or storage (warehouses)

Role in the competitive strategy
economies of scale (efficiency priority)
larger number of smaller facilities
(responsiveness priority)

Components of facilities decisions
Location
centralization (efficiency) vs.
decentralization (responsiveness)
other factors to consider (e.g., proximity to
customers)
Capacity (flexibility versus efficiency)
Manufacturing methodology (product
focused versus process focused)
Warehousing methodology (SKU storage,
job lot storage, cross-docking)
Inventory
Unexpected changes in customer demand (always
hard to predict, and uncertainty is growing)
Short product life cycles
Product proliferation
Uncertain supply
Quantity
Quality
Costs
Delivery time
Inventory exists because of a mismatch between supply and demand
Source of cost and influence on responsiveness
If you move your inventory faster, you dont need as much inventory (inventory velocity)
If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers
If cost is more important, inventory can be reduced to make the firm more efficient
Trade-off: More inventory increases responsiveness, less inventory increases efficiency (reduces cost).
Types of Inventory
Cycle inventory
Average amount of inventory used to satisfy demand between
shipments
Depends on lot size
Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing
sales
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible
production
Opportunistic Inventory:
Takes advantage of bargains.
Moves the product between
stages in the supply chain
Impact on responsiveness and
efficiency
Faster transportation allows
greater responsiveness but
lower efficiency
Also affects inventory and
facilities
If responsiveness is a strategic competitive
priority, then faster transportation modes can
provide greater responsiveness to customers
who are willing to pay for it
Can also use slower transportation modes for
customers whose priority is price (cost)
Transportation
Mode(s) of Transportation
Air: fastest but most expensive
Truck: Relatively quick, inexpensive and very flexible mode
Rail: Inexpensive mode to be used for large quantities
Ship: Slowest but often the most economical
Pipeline: Used (primarily) for oil and gas
Electronic transportation: for goods as music and movies

Route and Network Selection
route: path along which a product is shipped
network: collection of locations and routes

Insource or Outsource to some 3PL provider
Transportation
Networks
The connection between the
various stages in the supply
chain allows coordination
between stages

Crucial to daily operation of each
stage in a supply chain: e.g.,
production scheduling, inventory
levels

Allows supply chain to become
more efficient and more
responsive at the same time
(reduces the need for a trade-off)

Information
Push (MRP) versus pull (demand
information transmitted quickly throughout
the supply chain)

Coordination and information sharing

Forecasting and aggregate planning

Extent and modes of information sharing
and coordination

Pricing and revenue management policies

Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
Information exchange is necessary for the most extensive modes of
coordination sought in contemporary supply chains. It allows the supply chain
to improve simultaneously its efficiency and responsiveness.

Information-related decisions
Push vs. pull
Extent and modes of information sharing and coordination
Forecasting and Aggregate Planning schemes
Pricing and revenue management policies
Enabling Technologies:
Electronic Data Interchange (EDI): Enables paperless transactions, primarily for backend
operations of the SC.
The Internet and the WWW.
Enterprise Resource Planning (ERP): enables transactional tracking and global visibility of
information in the SC.
Supply Chain Management (SCM) software: decision support tools.
The role of Information
Set of business processes required
to purchase goods and services in
a supply chain

Supplier selection, single vs.
multiple suppliers, contract
negotiation

In-house vs. outsource

Supplier evaluation and selection

Procurement process

Sourcing
Pricing strategies can be used to
match demand and supply

Firms can utilize optimal pricing
strategies to improve efficiency
and responsiveness

Low price and low product
availability; vary prices by
response times
Pricing and economies of scale
Everyday low pricing versus high-
low pricing
Fixed price versus menu pricing

Pricing
Strategic Scope
Expanding Strategic Scope
Scope of strategic fit
The functions and stages within a supply chain that devise an
integrated strategy with a shared objective
One extreme: each function at each stage develops its own strategy
Other extreme: all functions in all stages devise a strategy jointly

Five categories:
Intracompany intraoperation scope
Intracompany intrafunctional scope
Intracompany interfunctional scope
Intercompany interfunctional scope
Flexible interfunctional scope
Strategic Scope:
Intracompany Intraoperation Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Strategic Scope:
Intracompany Intrafunctional Scope
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Strategic Scope:
Intracompany Interfunctional Scope
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Strategic Scope:
Intercompany Interfunctional Scope
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Different Scopes of Strategic Fit Across a Supply Chain
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Intracompany
intraoperation
Intracompany
intrafunctional
Intracompany
interfunctional
Intercompany
interfunctional
emerging
Trends and Future
Reengineering Chain
Chapter-02
mks
mks@mdi.ac.in
Global Retail Development Index
Ten
Emerging trends
Current Trends in Supply Chain Management
Expanding the Supply Chain
firms are expanding partnerships and building facilities in foreign markets. The expansion involves:
breadth- foreign manufacturing, office & retail sites, foreign suppliers & customers
depth- second and third tier suppliers & customers
Increasing Supply Chain Responsiveness
Firms will increasingly need to be more flexible and responsive to customer needs
Supply chains will need to benchmark industry performance and meet and improve on a continuous basis
Responsiveness improvement will come from more effective and faster product & service delivery systems
The Greening of Supply Chains
Producing, packaging, moving, storing, delivering and other supply chain activities can be harmful to the
environment
Supply chains will work harder to reduce environmental degradation
Large majority (75%) of U.S. consumers influenced by a firms environmental friendliness reputation
Recycling and conservation are a growing alternative in response to high cost of natural resources
Reducing Supply Chain Costs
Cost reduction achieved through: Reduced purchasing costs, Reducing waste, Reducing excess inventory,
Reducing non-value added activities
Continuous Improvement through: Benchmarking- improve over competitors performance, Trial & error,
Increased knowledge of supply chain processes
Current Trends in Supply Chain Management
from Cross-functional Integration to Cross-enterprise, too
How do we coordinate activities across companies, as well as across internal functions, to supply product to the market?

from Physical Efficiency to Market Mediation
How do we minimize the costs of matching supply and demand while continuing to reduce the costs of production &
distribution?

from Supply Focus to Demand Focus
How can we get earlier demand information or affect the demand pattern to match supply & demand?

from Single Company Product Design to Collaborative, Concurrent Product, Process and Supply Chain Design
How should collaborators design the product, process and supply chain to minimize costs?

from Cost Reduction to Breakthrough Business Models
What new supply chain and marketing approach would lead to a breakthrough in customer value?

from Mass Market Supply to Tailored Offerings
How should we organize the supply chain to serve each new customer or segment uniquely and provide a tailored customer
experience?
Source: Kopczak & Johnson, The Supply Chain Management Effect, Sloan Management Review, 2003
Few Head linesto move towards
Risk-adjusted Supply Chain Management
"Typhoon Deals New Blow to Taiwan Manufacturers
( New York Times , Sept. 20, 2001)
"South Korea Incurred $270M Export Losses from U.S. Ports' Woes
( Dow Jones International News , Oct. 10, 2002)
"Uncertain Economy Hinders Highly Precise Supply System
( New York Times , March 15, 2003)
"SARS Could Impact IT Supply Chain
(wallstreetandtech.com , April 2, 2003)
A sudden shock to the rope with little or no slack can result in a break.
Process Demand Supply Control
Uncertainty
Source: Logistics Systems Dynamic Group (LSDG) at Cardiff Business School
LSDG
Uncertainty Index
Supply Chain Characteristics Displayed by
Value Streams in LSDG Audit
risk adjustment
make a Seamless Supply Chain
can't think of my supply chain as me and my suppliers," says Mulani of
Accenture. "So much has been outsourced to suppliers that they truly are an
extension of your business.

To succeed, you need to merge their metrics with your metrics."
convergence
Source: http://www.keepmedia.com/pubs/SupplyChainManagementReview/2002/07/01/191485
committee, made up of retailers,
manufacturers, and solution
providers

developed a set of business
processes
for
collaboration on a number of
buyer/seller functions

towards overall efficiency in the
supply chain.
CPFR:
Collaborative Planning, Forecasting
and Replenishment
collaboration
Voluntary Inter-industry Commerce Standards Association (VICS)
Source: www.cpfr.org
Graham Stevens Supply Chain Reference Framework
integration
Source: Steve Geary, Paul Childerhouse, And Denis Towil, Uncertainty and the Seamless Supply Chain,
Supply Chain Management Review, J uly/August 2002
SCOR Model
BPR
Bench-
marking
Process
measurement
Top Level
(Process
Types)
Configuration level
(Process categories)
Process element level
(Decompose processes)
Implementation level
(Decompose process elements)
configurability
Source: Supply-chain.org

A company can
improve the
way it travels
the road by
moving from
foot to horse
and then horse
to car
BPR looks at
taking a
different path,
such as an
airplane which
ignore the road
completely
Who is responsible
Who is accountable
Who needs to be consulted
Who needs to be informed

RACI analysis of business processes:
SCORWizard
RACI
(process ownership)
e-SCOR Model
Source: www.scorwizard.com
AMR Research's three-tiered Hierarchy of Supply Chain Metrics
Source: Debra Hofman, AMR Research Achieving Supply Chain Excellence Ascet Volume 6, 2004
granularity
Using the Hierarchy of
Supply Chain Metrics,
with assessment at the
top tier followed by
targeted root cause
analysis at middle and
ground levels,
companies can quickly
and efficiently assess
and diagnose the health
of their supply chain
granularity
Productivity
problems
Productivity
problems
Inventory Hides Problems Less Inventory Exposes Problems
Compatible partner
having same granularity
Supplier
Manufacturer Warehouses
Retailers
Ventana Research Performance Cycle
performance from a business and IT perspective
Source: Mark Smith, Ventana Research, Improving Supply Chain Performance, Ascet Volume 6, 2004
chain intelligence
Comprehend the status of
people, organization, and
business processes
Communicate,
guidance, training,
incentives
Plan for future actions and
decisions that drive
performance measurement
Customer-Driven Supply Chains
Lucent Technologies recently installed
TradeStream to gain better visibility into
its major telecommunications orders from
customers like AT&T, which typically are
very large orders of 200 or more line items
The fact that Lucent can provide an
integrated, real-time view of orders and
an information exchange between its
field-service employees and suppliers,
allows Lucent to do things it never
could before, because everyone lacked
confidence in the data that was
available, says Henry Bruce, vice
president of marketing strategy at
Optum. Now they have confidence in
the data, which is based on real-time
visibility.
real-time visibility

Source: J ean V. Murphy, Customer-Driven Supply Chains Begin With Real-Time Visibility Global Logistics & Supply Chain Strategies, March, 2001
CRM to CMR
C R M t o C M R
Source: Russell W. Goodman, Leaning the Supply Chain: Like a Diet, It Never Ends Global Logistics & Supply Chain Strategies J uly, 2004
Lean supply chains
leanness
1. Seiri () : Sorting: Get rid of what you dont need
2. Seiton () : Simplify, Straighten, Set in order : Place for everything, everything at its place
3. Seis () : Shine: Polish your operation, make everything more visible
4. Seiketsu (): Standardize: To avoid redundant processes, standardize similar
5. Shitsuke () : Sustaining: There must be sustained monitoring of the entire lean process
1. Sort: Needed from the unneeded
2. Shine: Clean, scrub, and fix
3. Set in order: A place for everything
4. Standardize: A plan to sustain
5. Sustain: Following through
Ten
Emerging trends in
SCM
Convergence
Risk adjustment
Integration
Collaboration
RACI (Process ownership)
Configurability
Chain intelligence
Granularity
Real-time visibility
Leanness
1
2
3
4
5
6
7
8
9
10
Agility
Objectives:
Respond to short-term
changes in demand or
supply quickly; handle
external disruptions
smoothly
Methods:
Promote information flow
Develop collaborative
relationships
Design for Postponement
Inventory buffers of
inexpensive, key items
Dependable logistics systems
or partner
Contingency plans / crisis mgt.
teams
Triple-A Supply Chain
Adaptability
Objectives:
Adjust SCs design to meet
structural shifts in markets;
modify supply network to
strategies, products and
technologies.
Methods:
Monitor global economies;
suppliers/mkts
Use intermediaries for fresh
suppliers & logistics
infrastructure
Evaluate needs of ultimate
consumersnot just immediate
customers
Create flexible product designs
Evaluate products technology /
product LCs
Alignment
Objectives:
Create incentives for better
performance

Methods:
Exchange information &
knowledge freely with
suppliers and customers
Lay down roles, tasks, &
responsibilities clearly for
suppliers and customers
Evaluate needs of ultimate
consumersnot just
immediate customers
Equitably share risks, costs,
and gains of improvement
initiatives
Source: Lee, The Triple-A Supply Chain Management, Harvard Business Review, Oct. 2004
Supply Chain
Technology and Collaboration
Information Visibility
Chapter-03
mks@mdi.ac.in
Supply Chain Technology
Information Visibility: RFID
Part
3.1
Information Visibility: RFID
Technology

Technology

Technology

Technology

Technology

Customer

Customer

Server

Server

Server

Server

Server

Customer

Customer

Customer

D. Technology-Mediated
Service Encounter
E. Technology-Generated
Service Encounter
A. Technology-Free
Service Encounter
B. Technology-Assisted
Service Encounter
C. Technology-Facilitated
Service Encounter
Role of Technology in Services
Source: Craig M. Froehle and Aleda V. Roth, New Measurement Scales for Evaluating Perceptions of the Technology-mediated Customer
Service Experience, J ournal of Operations Management, 22/1 (February 2004), pg. 3
Radio Frequency Identification
Identification system that
consists of chip-based tags
and readers
Data is stored and
retrieved remotely using
radio waves
Onboard sensors
Product information
Major Player: IBM, Texas Instruments
The RFID device serves the same purpose as
a bar code or a magnetic strip on the back of a
credit card or ATM card; it provides a unique
identifier for that object.
RFID: UPC vs. EPC
UPC
Requires line-of-sight readers
Only one product can be scanned at a
time
A class of product
Static
EPC
Tags can be read from many ranges
Many products can be scanned simultaneously
Tags can store large amounts of data
Uniquely identifies products
specific instance of a product

length, type, structure, version and generation of EPC
Header
(8 bits)
specific format of EPC
length, type, structure,
version and gen
256
ePC Manager
(28 bits)
Who owns this set of
numbers
268,435,456
Object Class
(24 bits)
Type of object,
class of item like
SKU
16,777,215
Serial Number
(36 bits)
unique instance of the
object
68,719,476,735
268 million companies can each categorize
16 million different products
and each product category may contain over
68.7 billion individual items.
The Physics of RFID
How It works.
Low
Freq.
HighFreq
.
MediumF
req.
134 kHz 13.56 MHz 915 MHz 2.45 GHz
T1-RFID T1-RFID UHF T1-RFID1 Hyper X
Ultra High
Freq.
Microwave
Freq.
ITEM PACKAGING TRANSPORT UNIT UNIT LOAD CONTAINER MOVEMENT VEHICLE
LF MF HF VHF UHF MICROWAVE
Active RFID
ISO 18000-7
GPRS
Passive RFID
125 kHz & 13.56 MHz ISO 15693 & ISO 14443-3
868 MHz EPCglobal Gen 2 ISO 18000-6
Bar Code
100 kHz 1 MHz 10 MHz 100 MHz 1 GHz 10 GHz
2003
Source: http://www.symbol.com/products/rfid/rfid_next_generation.html
2014
RFID Regulation ITU Regions
International Telecommunication Union
RFID Capabilities
RFID Capabilities
Applications of RFID
Applications
Keyless entry
EPC
Proximity cards
Libraries
Security device
Bookstores
Animal and human implantation
Avid
Pet-ID
VeriChip
RFID-privacy legislation
REAL ID Act
.
Size comparison
(RFID chip, Dime, Rice)
How is an RFID chip implanted?
Human
Tracking
RFID
Implant
A
n
i
m
a
l
s

T
r
a
c
k
i
n
g

Shops
Security
Doors and
Garages
Security
www.Rj12.net
Product Monitoring
and Control
Shopping
Electronic
Passport
Contactless
payment
Automated
Toll Collection
Product Tracking
WMS
Wireless / Batch
Inventory Management
Material Handling
By Destination
Material Handling
Inspecting / Maintaining
Material Handling
Aggregate / De-aggregate
Where is it?
What is it?
What is inside
the box?

Where is it going? Where has it been?
Should it be here?
What have I assembled or disassembled?
How many do I have? Do I have enough?
Has this been repaired?
Is this under warrantee?
Has this been inspected?
Is this complete?
What is the assets status or state?
Tracking Inventory
Library Inventory Process

RFID also has had a significant impact on inventory
processes in libraries. With a full hand-held wand which is
passed alongside the books on the shelves; by tagged
collection, inventory can be taken with a portable, he reader
picks up the individual signals from each item's tag, without
needing to remove or even tip the books outward from the
shelves.
With RFID not only does the cost of doing an inventory in the library go down, the odds of actually completing regular
inventories goes up. Inventory with RFID has also proven to be extremely useful and cost-effective in terms of locating lost
or miss helved items. Even Searching for books by just typing its name on the Reader .
Internet of Things
Civil liberties groups (among others) have become increasingly concerned about the
use of RFIDs to track the movements of individuals. For example, passports will
soon be required to contain some sort of RFID device to speed border crossings.
Scanners placed throughout an airport, for example, could track the location of
every passport over time, from the moment you left the parking lot to the moment
you got on your plane.
There are also concerns about the fact that, even after you leave the store, any RFID
devices in the things you buy are still active. This means that a thief could walk past
you in the mall and know exactly what you have in your bags, marking you as a
potential victim. A thief could even circle your house with an RFID scanner and pull
up data on what you have in your house before he robs it. Military hardware and
even clothing make use of RFID tags to help track each item through the supply
chain. Some analysts are concerned that, if there are particular items associated
with high-level officers, roadside bombs could be set to go off when triggered by an
RFID scan of cars going by.
There was a recent report revealing clandestine tests at a Wal-Mart store where
RFID tags were inserted in packages of lipstick, with scanners hidden on nearby
shelves. When a customer picked up a lipstick and put it in her cart, the movement
of the tag was registered by the scanners, which triggered surveillance cameras.
This allowed researchers 750 miles away to watch those consumers as they walked
through the store, looking for related items.
"Imagine an Internet of things, where
everyday objects, rooms, and machines are
connected to one another and to the larger
digital world.
- Business 2.0
Comprehensiveness
Supply Chain Coordination
(Bullwhip effect)
Part
3.2
F
i
l
l

T
h
e

G
a
p
s

No clear identification of owner and customers of measures
(joint determination is very essential)
Not evaluating consequences and outcomes
(Efficacy is prerequisite to customer satisfaction)
Imbalance between efficiency and effectiveness
(key processes has to be identified and owned)
Lack of Process Orientation of measurement
(Physical Orientation alone is not a suitable indicator)
Lack of Measures of relationships
(economic, physical, psychological measures are equally important)
Lack of real-time visibility
(every affected party must be informed)
Lack of Multi-firm optimization
(have to look beyond sub-optimization)
* Source: various authors
Adding value along the chain is essential for competitiveness, however problems exist especially in
complex or long chains and in cases where many business partners are involved.
due to
uncertainties
need to coordinate several activities, internal units, and business partners.
Demand forecasts are a major source of uncertainties
Competition
Prices
Weather conditions
Technological development
Customer confidence
Uncertainties exist in delivery times
Machine failures
Road conditions
Shipments
Quality problems may also create production delays
Supply Chain Problems
Coordination
in supply chains
Obstacles
Incentive Obstacles
Information Processing Obstacles
Operational Obstacles
Pricing Obstacles
Behavioral Obstacles
Managerial Levers
Aligning Goals and Incentives
Improving Information Accuracy
Improving Operational Performance
Designing Pricing Strategies to Stabilize Orders
Building Strategic Partnerships and Trust
Coordination
in a Supply Chain
Achieving Coordination in Practice
Quantify the bullwhip effect
Get top management commitment for coordination
Devote resources to coordination
Focus on communication with other stages
Try to achieve coordination in the entire supply chain network
Use technology to improve connectivity in the supply chain
Share the benefits of coordination equitably
Bullwhip effect
What is Bullwhip Effect?
The bullwhip effect is a phenomenon observed in supply chains where the
demand variability increases as one moves up the supply chain from
customers towards to distributors to manufacturers.
Bullwhip effect refers to the phenomenon where orders to the supplier tend
to have larger variance than sales to the buyer (i.e., information distortion)
and the distortion propagates upstream in an amplified form (i.e., variance
amplification).
At P&G, diaper orders issued by
distributors have a degree of
variability that cannot be explained by
consumer fluctuations alone
At Hewlett-Packard, the orders placed
to the printer division by resellers
have much bigger swings and
variations that customer demands
0
Time
Sales from
store
Consumers
0
Time
Stores orders to
wholesaler
Time
Wholesalers
orders to
manufacturer
0
Manufacturers
orders to its
suppliers
0
Time
Retail
Store
Whole-
saler
Manu-
facturer
Supplier
Time
Inaccurate information can cause minor fluctuations in demand for a product to be amplified
as one moves further back in the supply chain. Minor fluctuations in retail sales for a product
can create excess inventory for distributors, manufacturers, and suppliers.
Babies daily
demand for diapers
Retailers daily
orders to
distribution center
DCs weekly orders
to Manufacturer
Manufacturers
weekly production
quantity
9,000
7,000
5,000
3,000
0
O
r
d
e
r

q
u
a
n
t
i
t
y

Day 1 Day 30 Day 1 Day 30 Day 1 Day 30 Day 1 Day 30
Causes
erratic shifts in orders up and down the supply chain
order batching
rationing within the
chain
price fluctuation
poor demand
forecasting
Bullwhip Effect
Illustrations
When product demand exceeds supply, a manufacturer often rations its
product to customers. Example:
Cause 2: Rationing and Shortage Gaming
Knowing the manufacturer policy, customers exaggerate their real
needs when they order (game the system). Example:
As a result, customers orders give the supplier little information on a products real demand, a particularly vexing
problem for new products
Car Manufacturer
Available = 200
Dealer 1
Dealer 2
Order = 100
Order = 200
Received = 67
Received = 133
Only 2/3 of the order can be fulfilled
Car Manufacturer
Dealer 1
Dealer 2
Need = 120
Need = 180
Order = 180
Order = 270
Order more than needed so that if only 2/3 of the
order is filled you still get what you actually need
Available = 500
Received = 180
Received = 270
Coordinating S.C. Inventory
Consider a simple demand driven supply chain: a buyer and a supplier

The buyer produces D = 10,000 units/year of a product at a constant rate. Each
time the buyer places an order for a certain component, the ordering cost is S
b
=
$100. The buyers inventory holding cost is H = $10/yr and optimal ordering
quantity:

The supplier produces an order whenever one is received from the buyer.
Each time the seller sets up to produce a batch of components, the production
setup cost is S
s
= $300.
The suppliers total (setup) cost = S
s
(D/EOQ
b
) = 300(10,000/447) = 6711

Optimal ordering quantity for the centralized supply chain:

Buyer Supplier Customers
2 2(10, 000)(100)
447
10
b
b
DS
EOQ
H

2 ( ) 2(10, 000)(100 300)
894
10
b s
SC
D S S
EOQ
H

Suppliers cost (at Q=447)
= S
s
(D/EOQ
b
) = 300(10,000/447)
= $6,711
Buyers cost (at Q=447)
= (2 x D x H x S
b
)
= (2 x 10000 x 10 x 100)
= $ 4,472
Suppliers cost (at Q=894)
= S
s
(D/EOQ
b
) = 300(10,000/894)
= $3,356
SC overall cost (at Q=894)
= (2 x D x H x (S
b
+ S
s
))
= (2 x 10000 x 10 x 400)
= $ 8,944
$ 8,944
$ 5,589
$ 3,356
$ 4,472
$ 6,711
$ 11,184
TC = 894 x 10/2 + (10000/894) x 100
= $ 5,589
If buyer orders Q=894, supply chains total cost is reduced
But, buyer incurs a higher cost, and will not order Q=894
The SC is NOT coordinated without a compensation for buyer
Buyer's optimal
quantity
Centralized supply chain's
optimal quantity Cost saving
Q=447 Q=894
Supplier cost $6,711 $3,356 $3,356
Buyer cost $4,472 $5,589 -$1,116
Supply chain cost $11,184 $8,944 $2,239
For any order quantity Q, the buyer always bears a fraction of of the total cost of the supply
chain
Supplier promises to pay buyer = (1) (buys total holding and setup cost)
The buyer promises to pay the supplier = () (suppliers total setup cost)

Buys optimal quantity = SCs optimal quantity = centralized SCs optimal quantity = 894

There exist a such that buyer and suppliers are both better off than ordering Q = 447
Order synchronization
Multiple retailers who tend to order around the same time period
Manufacturers responding to an MRP system that place raw material orders at the beginning of the month
Order batching
In order to save on shipping or ordering costs, firms order a full pallet or full truck load
Trade promotions and forward buying
Supplier offers a discount on product ordered in a specific time period
Supplier offers a quantity discount
A retailer orders a large quantity intending to take advantage of a discount and sells excess product to a
second retailer (this strategy is called diversion)
Reactive and over-reactive ordering
A retailer who is not sure that demand is stable over time may act aggressively when faced with periods of
lower or higher than expected demand
Shortage gaming
A retailer who wants to insure product from an under-capacitated supplier may over order expecting to only
receive a portion of the ordered quantity
Demand forecast updating / Inflated Orders
IBM Aptiva orders increased by 2-3 times when retailers thought that IBM would be out of stock over Christmas
Long cycle times
Long lead times magnify this effect
Bullwhip effect: Causes
Effects
A common way to solve the bullwhip problem is by sharing information along the supply
chain through EDI, extranets, and groupware technologies. For example employing a
vendor-managed inventory (VMI) strategy, the vendor monitors inventory levels and when it
falls below the threshold for each product this automatically triggers an immediate
shipment.
Distorted information can lead to
tremendous inefficiencies

excessive inventories
poor customer service
lost revenues
ineffective shipments
missed production schedules.
Even slight demand
uncertainties and variability
become magnified if each
distinct entity on the chain,
makes ordering and
inventory decisions with
respect to its own interest
above those of the chain
Remedies
Centralizing demand information occurs when customer demand information is available to
all members of the supply chain.
Reducing uncertainty. This can be accomplished by centralizing demand information.
Reducing variability. This can be accomplished by using a technique made popular by
WalMart and then Home Depot called everyday low pricing (EDLP). EDLP eliminates
promotions as well as the shifts in demand that accompany them.
Reducing lead time. Order times can be reduced by using EDI (electronic data interchange).
Strategic partnerships. The use of strategic partnerships can change how information is
shared and how inventory is managed within the supply chain. These will be discussed later.
Bullwhip effect: Remedies
Cross-docking. This involves unloading goods arriving from a supplier and immediately loading these
goods onto outbound trucks bound for various retailer locations. This eliminates storage at the retailers
inbound warehouse, cuts the lead time, and has been used very successfully by WalMart and Xerox among
others.
Delayed differentiation. This involves adding differentiating features to standard products late in the
process. For example, Bennetton decided to make all of their wool sweaters in undyed yarn and then dye
the sweaters when they had more accurate demand data. Another term for delayed differentiation is
postponement.
Direct shipping. This allows a firm to ship directly to customers rather than through retailers. This
approach eliminates steps in the supply chain and reduces lead time. Reducing one or more steps in the
supply chain is known as disintermediation. Companies such as Dell use this approach.
Sharing Information: Retailers may give the supplier frequent access to actual consumer demand data
so that the supplier can make its production plans accordingly.
Vendor Managed inventory: The retailer no longer decides when and how much inventory to order.
Instead, the supplier decides the timing and quantity of shipments to the retailer (e.g. P&G and Wal-Mart)
Smoothing the flow of products: Supplier and the retailers coordinate the timing of orders so that
retailers do not place orders at the same time.
Solutions for Battling Bullwhip Effect
Vendor Managed Inventory (VMI)
Vendors take control of inventory management at the
retailers

Quick Response (QR)
Vendors receive POS data from retailers, and use this
information to synchronize their production and inventory
activities.
supply chain
Performance Measurement
Measure that matters
Chapter-04
mks
mks@mdi.ac.in
Different standards of comparison
give different messages
40
X X
X
X
X
X
Time
Last years average performance = 60%
Actual performance = 83%
50
60
70
80
90
100
Improvement goal = 95%
Competitor performance = 75%
Absolute performance =100%
Performance by historical standards is GOOD
Performance against improvement goal is POOR
Performance against competitors is GOOD
Absolute performance is POOR
Measuring Supply Chain Performance
Assets committed to inventory
Inventory turnover (Absolute, Weeks)
Average aggregate value of inventory
1. Assets committed to inventory
2. Inventory turnover
Inventory
turnover
=
Cost of goods sold
Inventory investment
Inventory turnover
Measuring Supply Chain
Performance
Lower, the better
Higher, the better
3. Average aggregate value of inventory
PART-I
Performance Measurement Systems

Why to measure
The current interest in performance measurements has led to a
variety of supporting adages or cliches in the industry, such as:
Anything measured improves.
What you measure is what you get.
Anything measured gets done.
You cant manage what you do not measure.
Yesterdays Measurement Crisis
We measured the wrong things.

We measured everything that was easy to measure.

The measures we had bore no relationship to our strategies.

The only measures that mattered were the financial ones.
In the 1980s measurement was a necessary chore
Todays Measurement Crisis
We measure too much.

We spend too much time and effort trying to quantify the
unquantifiable.

Our measurement systems are so complex that nobody
understands what our priorities are.

We measure, but we fail to fully analyse and take action on the data
we gather.
Paralysis without analysis is
the reality of today
The Reality of Organisations
We use 2% of what we measure, the rest is to .. .
We measure the wrong things, to four decimal places of
accuracy.
If you want to know what my inventory levels are today, come back in
six weeks.
We are masters of the micro. We measure paper clip
acquisition times.
We measure everything that walks
and moves, but nothing that matters
Todays
Market
Reality
Demand Forecasts: only 65% accurate
Orders: 20% filled imperfectly
Inventory: $1.2 trillion stockpiled in the supply chain
Markdowns: on 30% of merchandise sold
New Products: 75% fail to meet expectations
* Source: Achieving Supply Chain Excellence, AMR Research, ASCET, Volume 6, 2004

Just one of the 3,000 key performance indicators
proposed for the London Underground (www.tfl.gov.uk/tube/, 29 J an 2006)
What leaders are doing
Deliver 20% More Perfect Orders
68%
90%
Laggards
Leaders
While holding 1/3
rd
less inventory
Laggards
Leaders
72 Days
54 Days
and spend 5% of revenue less on SCM costs!!
26%
21%
Laggards
Leaders
* Source: Value Chain Survey, IBM-Industry Week, 2005
1
st
Generation performance measurement
Frameworks
tried to supplement the traditional financial measures with non-financial and often intangible) measures. In doing so they
ended up developing more rounded and comprehensive measurement frameworks, such as
Balanced Scorecard (Kaplan/Norton,1992)
The Performance Prism (Neely et al., 2002)
Skandias Navigator Edvinsson / Marlone, 1997)

Balanced Scorecard Approach:
A brief Introduction
recommends the use of executive information systems (EIS)
limited number of balanced metrics, closely aligned to strategic objectives
expected to be used by 40% of Fortune 1000 companies

When applied to supply chain context a small number of balanced supply chain measures be tracked
based on four perspectives:

1. Financial perspective (e.g., cost of manufacturing and cost of warehousing )
2. Customer perspective (e.g., on-time delivery and order fill rate)
3. Internal business perspective (e.g., manufacturing adherence-to-plan and forecast errors)
4. Innovative and learning perspective (e.g., APICS-certified employees and new product development cycle time)
Kaplan R S and Norton D P (1992) "The balanced scorecard: measures that drive performance", Harvard Business Review, Jan Feb, pp71-80
aligning activities with strategy
The Vision & Strategy
To achieve and maintain a competitive position,
how must the organization learn and improve?
Innovation, Learning & Growth
The Strategic Balanced Scorecard Framework
Cause
Results
Actions
Effect
To satisfy our customers, in which internal
business processes must we excel?
Internal Business Process
To achieve our financial goals, what
customer needs must we satisfy?
Customer
To satisfy our shareholders, what financial
objectives must we accomplish?
Financial
What Questions Does a Scorecard System Answer?
Vision
Mission
Strategy
To succeed financially, how
should we appear to our owners?
To satisfy our customers, at what
business processes must we excel?
To achieve our vision, how will we
sustain our ability to learn and improve?
To achieve our vision,
how should we appear to
our customers?

Objective Measure Target Initiative
Financial

Measure Target Initiative
Internal Business Process
Objective

Measure Target Initiative Objective
Learning & Growth

Customer
Measure Target Initiative Objective
Articles in
Harvard Business Review:

The Balanced Scorecard:
Measures that Drive Performance
Jan - Feb 1992

Putting the Balanced Scorecard
to Work
Sep - Oct 1993

Using the Balanced Scorecard as
Strategic Management System
Jan - Feb 1996
1. Stakeholder Satisfaction who are the key stakeholders and what do they want and need?
2. Strategies what strategies do we have to put in place to satisfy the wants and needs of these key
stakeholders?
3. Processes what critical processes do we require if we are to execute these strategies?
4. Capabilities what capabilities do we need to operate and enhance these processes?
5. Stakeholder Contribution what contributions do we require from our stakeholders if we are to
maintain and develop these capabilities?
Neely, A.; Adams, C. (2001) Perspectives on Performance: The Performance Prism, Journal of Cost Management, Vol. 15, issue 1, p7-
15
The
Performance Prism
Know your stakeholders and their want
D
e
l
i
v
e
r
i
n
g

S
t
a
k
e
h
o
l
d
e
r

V
a
l
u
e

Skandia Navigator
Edvinsson and Malone (1997)
Intellectual capital is measured through the analysis of up to 164
metric measures (91 intellectually based and 73 traditional
metrics) that cover five components: (1) financial; (2) customer;
(3) process; (4) renewal and development; and (5) human

The philosophy behind the report was that traditional financial
statements represent only past financial information about an
organization. Additional information about intellectual capital is
needed to understand both an organization's current and future
capabilities. To fill this void, Skandia developed a framework for
reporting that combined traditional financial reporting with
measures of intellectual capital. This reporting framework is
called a "navigator" for two reasons. First, it is intended to guide
an organization in managing intellectual assets. Second, it is
intended to guide people through a comprehensive set of
measures that represent the true resources, capabilities, and
future potential of an organization.
Skandia, a Swedish insurance and financial services company, published a supplement to its 1994 annual report entitled "Visualizing Intellectual
Capital in Skandia" (Skandia, 1995). Leif Edvinsson is the corporate director of intellectual capital for Skandia.
linking past, present, future
2
nd
Generation performance measurement
Frameworks
Individual stock measures (Pike / Roos, 2001).
Strategy maps (Kaplan and Norton, 2000)
Success and risk maps (Andy Neely and colleagues, 2002)
IC-Navigator model (Roos et al., 1997; Chatzkel, 2002)
Strategy Map / Strategic Linkage Model
Strategic Linkage Model
The measurable strategic objectives
organized in a cause and effect diagram to
capture management thinking on the
relationships of the medium term activities
and outcomes
Kaplan, R. S./Norton, D. P., The Strategy Focused Organization: How Balanced Scorecard Companies thrive in the
New Business Environment, Boston 2000.

To identify what actions
must be taken, and what
interim outcomes are
required, to deliver the
strategy
Success Map
Neely, A., Marr, B., Roos, G., Pike, S. and Gupta, O. (2003)
Towards the third generation of performance measurement, Controlling, Heft 3/4, Mrz/April.
3
rd
Generation performance
measurement Frameworks
Strategic Objectives
developed directly
from a detailed
vision of the
organization at a
future date called a
Destination
Statement
2020
Destination statement
Causality is
shown by
linkages
between the
objectives
selected
Balanced scorecard measures and targets
To track whether objectives are being achieved
To drive the right management actions
Destination
Statement
A clearly articulated and quantified long-range description of the desired state of the
business at a particular point in time; Typically this is focused on how the organization
will look after 3-5 years

The document describes how things are at that time, rather than the things that were
done between now and then to arrive at that end point.
To build management consensus
To articulate the intended results of implementing the chosen
strategy
PART-II
Balanced Supply Chain Scorecard
Supply Chain Performance Measures
(in various categories)
Order Fill Rate
Line Item Fill Rate
Quantity Fill Rate
Backorders/stockouts
Customer satisfaction
% Resolution on first customer call
Customer returns
Order track and trace performance
Customer disputes
Order entry accuracy
Order entry times
Customer Service Measures
Forecast accuracy
Percent perfect orders
New product time-to-market
New product time-to-first make
Planning process cycle time
Schedule changes
Process, Cross-Functional Measures
Total landed cost
Point of consumption product
availability
Total supply chain inventory
Retail shelf display
Channel inventories
EDI transactions
Percent of demand/supply on VMI/CRP
Percent of customers sharing forecasts
Percent of suppliers getting shared
forecast
Supplier inventories
Internet activity to suppliers/customers
Percent automated tendering
Extended Enterprise Measures
Product quality
WIP inventories
Adherence-to-schedule
Yields
Cost per unit produced
Setups/Changeovers
Setup/Changeover costs
Unplanned stockroom issues
Bill-of-materials accuracy
Routing accuracy
Plant space utilization
Line breakdowns
Plant utilization
Warranty costs
Source-to-make cycle time
Percent scrap/rework
Material usage variance
Overtime usage
Production cycle time
Manufacturing productivity
Master schedule stability
Manufacturing Related Measures
Finished goods inventory turns
Finished goods inventory days of supply
On-time delivery
Lines picked/hour
Damaged shipments
Inventory accuracy
Pick accuracy
Logistics cost
Shipment accuracy
On-time shipment
Delivery times
Warehouse space utilization
End-of-life inventory
Obsolete inventory
Inventory shrinkage
Cost of carrying inventory
Documentation accuracy
Transportation costs
Warehousing costs
Container utilization
Truck cube utilization
In-transit inventories
Premium freight charges
Warehouse receipts
Logistics Related Measures
Cash flow
Income
Revenues
Return on capital employed
Cash-to-cash cycle
Return on investment
Revenue per employee
Invoice errors
Return on assets
Administration/Financial Measures
Material inventories
Supplier delivery performance
Material/component quality
Material stockouts
Unit purchase costs
Material acquisition costs
Expediting activities
Purchasing Related Measures
Market share
Percent of sales from new products-
to-market
Percent of products representing
80% of sales
Repeat versus new customer sales
Marketing Related Measures
APICS trained personnel
Patents awarded
Employee turnover
Number of employee suggestions
Other Measures
Integrated Supply Chain Balanced Scorecard
Framework
CUSTOMER PERSPECTIVE
Goals
Customer view of Product
Of timeliness
Of flexibility
Customer value
Measures
No. of customer contact points
Relative Customer order response time
Customer perception of flexible response
Customer value ratio
INTERNAL BUSINESS PERSPECTIVE
Goals
Waste Reduction
Time Compression
Flexible Response

Unit cost reduction
Measures
SC cost of Ownership
SC cycle efficiency
No. of Choices / Av response time
% of SC target costs Achieved
INNOVATION AND LEARNING PERSPECTIVE
Goals
Product Innovation
Partnership Mgmt.

Information Flows
Threats and Subsitutes
Measures
Product Finalization point
Product category commitment ratio
Shared data set/total data set
Performance trajectories of Competing
technologies
FINANCIAL PERSPECTIVE
Goals
Profit Margins
Cash Flow
Revenue Growth
Return on assets
Measures
Profit margin by Supply chain partners
Cash to cash cycle
Customer Growth and profitability
Return on SC assets
Customer Benefits
SCM Goals
SCM Improvements
Financial Benefits
purchasing management and
Strategic Sourcing
sourcing pathways
Chapter-05
mks
mks@mdi.ac.in
Sourcing decisions and purchasing activities serve to link a company with
its upstream supply chain partners

Sourcing decisions
High level, often strategic decisions regarding which products or services
will be provided internally and which will be provided by external supply-
chain partners

Purchasing
The activities associated with identifying needs, locating and selecting
suppliers, negotiating terms, and following up to ensure supplier
performance.
Focus
Sourcing policy - determining dependency on suppliers and designing plans to reduce this dependency.
Direct versus indirect buying - determining the (possible) cost benefits of buying from importers and
distributors, or buying directly from the manufacturer.
Make-or-buy analysis - analysis of savings opportunities by eliminating particular production activities and
buying the required products from third parties; buy or lease may be considered as an alternative.
Integration between purchasing and other functional areas - plans aimed at removing interface
problems between purchasing and materials management, pure engineering, and between purchasing and financial
administration or treasury
Setting up a purchasing information and control system - analysis of purchasing information
needs and design of an automation plan; possibilities of linking this system with existing information systems in
other functional areas.
Centralized or decentralized purchasing - balancing cost benefits and strategic considerations related
to a centralized or decentralized organization of purchasing
Standardization - determining possibilities to achieve standardization in order to reduce product and supplier
variety; balancing savings and risks.
Supplier Development Through Procurement
The Procurement Viewpoint
Supplier Purchaser
Procurement Initiative
Marketing Response
Supplier
Purchaser
Marketing Initiative
Purchasing Response
The Marketing Viewpoint
Sourcing Pathways (Source: Mercer Mgmt Consulting)
Volume consolidation / Supply base
optimization
Buy for less
Supplier-buyer integration / Linked cost
minimization
Buy better
Value management / Optimization
Consume better
Sales synergy
Sell better
Sourcing Pathways (Source: Mercer Mgmt Consulting)

Typical Firms Benchmark Firms
Administrative costs as
percent of purchases
3.3% 0.8%
Lead time (weeks)
15 8
Time spent in placing
order
42 minutes 15 minutes
Percentage of late
deliveries
33% 2%
Percentage of rejected
material
1.5% .0001%
Number of shortages
per year
400 4
Six stage purchasing developmental model:

1. Transaction orientation serve the factory
2. Commercial orientation lowest unit price
3. Coordinated purchasing saving through synergy
4. Internal integration: cross-functional purchasing, total cost of ownership
5. External integration supply-chain optimization
6. Value chain integration total customer satisfaction
Effectiveness/
Cumulative
savings
Transactional
orientation
Commercial
orientation
Purchasing
co-ordination
Internal
integration
External
Integration
Value chain
integration
Public
utilities
Financial
Services
Pharma
Food and
beverages
telecommu-
nication
Retailers
automotive
Computer/
PCs
Consumer
electronics
time
focus
Activities
Dilemmas
serve the
factory
Clerical
Order processing
Initial purchasing
Control of
purchasing
expenditure
Reduce cost
Commercial
Tendering
Negotiating
Apr supplier lists
Supplier base
management
Savings through
synergy
Commercial
Contracting
Global sourcing
Contract
management
Ethics
Total Cost of
ownership
Cross functional
buying teams
Systems integration
Vendor rating etc.
Communication
and information
infrastructure
Supply chain
optimization
Outsourcing
EDI/Internet
E-Commerce
Cost models

Social
resistance
Total Customer
Satisfaction
Customer driven activities
Contact manufacturing
Supplier development
Global supplier network
Internationalization
HRM
CROSS-FUNCTIONAL FOCUS
DECENTREALIZED
FUNCTIONAL FOCUS
CENTRE-LED
Procurement
Process
Invoice clearance & payments
Records maintenance
Receipt and inspection
Follow up and expediting
Purchase order preparation
Supplier selection
Supplier identification
and evaluation
Description
Needs identification
Is there a preferred supplier?
No
Yes
The Purchasing Process
Order
cycle
Needs Identification
Needs identification
Purchase requisition
An internal document completed by a user that informs
purchasing of a specific need

Reorder point system
A method used to initiate the purchase of routine items.
Typically, each item has a predetermined order point and order
quantity
Description
Description by market grade/industry standard
Description by brand
Description by specification
Description by performance characteristics
Description by prototypes or samples
Description
The communication of a users needs to
potential suppliers in the most efficient and
accurate way possible

Supplier Identification and Evaluation - I
and evaluation
The complexity of the product
or service increases
The amount of money that is
committed increases
The length of the proposed
buyer-supplier relationship
increases
The amount of effort increases as:
and evaluation
Process and design capabilities
Management capability
Financial condition and cost structures
Planning and control systems
Environmental regulation compliance
Longer-term relationship potential
Criteria for supplier
assessment:
Supplier Identification and Evaluation - II
Supplier selection
Preferred supplier
Competitive bidding
Negotiation
Supplier Selection - I
Supplier selection
Preferred supplier
A supplier that has demonstrated its
performance capabilities through previous
purchase contracts and therefore receives
preference during the supplier selection
process

Supplier Selection - II
Supplier selection
The buying firm can provide qualified suppliers
with clear descriptions of the items or services
Volume is high enough to justify the cost and
effort
The firm does not have a preferred supplier
Competitive bidding is most
effective when:
Supplier Selection - III
Supplier selection
The item is new or technically complex
with only vague specifications
The purchase requires agreement about a wide range of
performance factors
The supplier must participate in the
development effort
The supplier cannot determine risks
and costs without input from the buyer
Negotiation is most effective when:
Supplier Selection - IV
Records maintenance
Invoice clearing and payment
Follow-up and expediting
74% of firms currently have electronic data interchange (EDI)
with some part of their supply base
Follow-up and expediting
Invoice clearance and payment
Records maintenance
The Order Cycle
Procurement
Process
Straight
Rebuy
Buyer reorders an existing product
or service from the list of acceptable
suppliers.
Modified
Rebuy
Users, influencers, or deciders in the
buying center want to change the
product specifications, price,
delivery schedule, or supplier.
New Buy
first-time buyer , greater risks,
buying center is enlarged to include
all who have a stake in the new buy.
Kraljics supply matrix
S
u
p
p
l
y

R
i
s
k

Profit impact Low
High
High
Bottleneck items (Distinctives)
*Suppliers technology critical
*Difficult to substitute
*Unique requirements
*Engineering Items
Ensure Supply
Non-critical items (Generics)
*Many suppliers available
*Easy-to-find substitute products
*Office Items, MRO

Simplify and Automate
Strategic items (Criticals)
*Unique specifications
*Suppliers technology critical
*Difficult to substitute
*Unique specifications
Form long-term partnerships
Leverage items (commodities)
*Large volume purchases
*can find substitutes, many suppliers available
*Basic Production, Packaging items
*Logistics Services

exploit purchasing power & minimize cost
Low
Typology of Buying Decision
C
o
m
m
e
r
c
i
a
l

U
n
c
e
r
t
a
i
n
t
y

Product Complexity
Low
Low
High
Purchasing
Department
Dominant
Finance And Admn
Dominant
Engineering
Dominant
Cross Functional
Decision
High
Supplier BASE
Single vs Multiple
Centralized vs Decentralized
Single sourcing
The buying firm depends on a single company for all or nearly all of an item or service
Multiple sourcing
The buying firm shares its business across multiple suppliers
Cross sourcing
Using a single supplier for a certain part or service and another supplier with the same
capabilities for a similar part
Dual sourcing
Using two suppliers for the same purchased product or service
Sourcing Strategies
Trends in Purchasing Management - I
Contract length Competitive bidding,
reviewed annually or
semiannually
Long-term contracts (> 2 years) with
performance improvement clauses
Purchase
consolidation
Products and services
purchased by individual
business units
Purchases consolidated across
business units to leverage volumes
and purchasing efforts
Number of
suppliers
Suppliers switched often,
with many suppliers for
each purchased item
Firms more likely to single-source or
dual-source in order to improve
performance and reduce costs
Area of Traditionally In the Future
Purchasing
Trends in Purchasing Management - II
Location of
suppliers
Primarily domestic or even
local
Global sourcing to access the best
suppliers in the world
Top
managements
perception of
purchasing
Purchasing seen as a
nuisance or non-value added
activity
Purchasing sees as a way to
harness suppliers capabilities
Importance of
time
Long cycle times tolerated;
little involvement of
suppliers in new product
development
Cycle times a critical order-winner;
suppliers cooperate in new product
development to reduce
development time
Purchasing
Trends in Purchasing Management - III
Improvement of
suppliers
capabilities
Suppliers expected to
improve . . . or else!
Buying organizations improving
supplier performance through
supplier development programs
Supplier
performance
measurement
Random or nonexistent
monitoring of suppliers,
quality, delivery, and price
over time
Detailed, formal performance
measurement systems to track
price, delivery, quality and other
measures
Supplier
performance
standards
Low standards, if any Increasing levels of performance
expected
Purchasing
Trends in Purchasing Management IV
Reliance on supplier
product and process
technology
Little to none; suppliers
expected to deliver exactly
what was asked for and no
more
Suppliers active in new
product/process development
Information systems
linking buyers and
suppliers
Little or none Increasing use of EDI, B2Bs,
CAD/CAM, and Web to link supply
chain partners
Purchasing
responsibilities
Primarily clerical
processing purchase orders
Increased use of technology for
routine activities; more time spent
managing key supplier relationships
Purchasing
Warehouse Management
Basic Decisions
Supplier Selection
through AHP
Supplier Selection Example
Suppliers: A, B, and C
Criteria: product cost, product quality, service, and delivery
PREFERENCE LEVEL NUMERICALVALUE
Equally preferred 1
Equally to moderately preferred 2
Moderately preferred 3
Moderately to strongly preferred 4
Strongly preferred 5
Strongly to very strongly preferred 6
Very strongly preferred 7
Very strongly to extremely preferred 8
Extremely preferred 9
The Southcorp Company
COST QUALITY SERVICE DELIVERY
A B C

A 1 3 2
B 1/3 1 1/5
C 1/2 5 1
A B C

A 1 6 1/3
B 1/6 1 1/9
C 3 9 1
A B C
A 1 1/3 1
B 3 1 7
C 1 1/7 1
A B C

A 1 1/3 1/2
B 3 1 4
C 2 1/4 1
Pairwise comparison
Analytical Hierarchy Process
1. Establish preferences for each alternative for each
criteria
2. Assign importance scores to each criteria
3. Preferences and importance scores are combined
for final selection
Ranks decision alternatives and selects the best one
Allows consideration of multiple criteria
A B C

A 1 3 2
B 1/3 1 1/5
C 1/2 5 1
A B C

A 1 6 1/3
B 1/6 1 1/9
C 3 9 1
A B C
A 1 1/3 1
B 3 1 7
C 1 1/7 1
A B C

A 1 1/3 1/2
B 3 1 4
C 2 1/4 1
Pairwise comparison
COST
SUPPLIER A B C

A 1 3 2
B 1/3 1 1/5
C 1/2 5 1

11/6 9 16/5
A B C

A 1 3 2
B 1/3 1 1/5
C 1/2 5 1
A B C

A 1 6 1/3
B 1/6 1 1/9
C 3 9 1
A B C
A 1 1/3 1
B 3 1 7
C 1 1/7 1
A B C

A 1 1/3 1/2
B 3 1 4
C 2 1/4 1
Pairwise comparison
COST
SUPPLIER A B C
A 6/11 3/9 5/8
B 2/11 1/9 1/16
C 3/11 5/9 5/16
A B C

A 1 3 2
B 1/3 1 1/5
C 1/2 5 1
A B C

A 1 6 1/3
B 1/6 1 1/9
C 3 9 1
A B C
A 1 1/3 1
B 3 1 7
C 1 1/7 1
A B C

A 1 1/3 1/2
B 3 1 4
C 2 1/4 1
Pairwise comparison
COST
SUPPLIER A B C Row Av.
A 0.5455 0.3333 0.6250 0.5012
B 0.1818 0.1111 0.0625 0.1185
C 0.2727 0.5556 0.3125 0.3803

1.0000
Summarized preferences
CRITERIA
SUPPLIER Cost Quality Service Delivery
A 0.5012 0.2819 0.1790 0.1561
B 0.1185 0.0598 0.6850 0.6196
C 0.3803 0.6583 0.1360 0.2243
Pairwise ranking of importance
CRITERIA COST QUALITY SERVICE DELIVERY
Cost 1 1/5 3 4
Quality 5 1 9 7
Service 1/3 1/9 1 2
Delivery 1/4 1/7 1/2 1
Summarized preferences

CRITERIA COST QUALITY SERVICE DELIVERY ROW AV.
Cost 0.1519 0.1375 0.2222 0.2857 0.1993
Quality 0.7595 0.6878 0.6667 0.5000 0.6535
Service 0.0506 0.0764 0.0741 0.1429 0.0860
Delivery 0.0380 0.0983 0.0370 0.0714 0.0612
1.0000
CRITERIA
Cost 0.1993
Quality 0.6535
Service 0.0860
Delivery 0.0612
Preference vector
Overall score
CRITERIA
Cost 0.1993
Quality 0.6535
Service 0.0860
Delivery 0.0612
CRITERIA
Cost Quality Service Delivery
A 0.5012 0.2819 0.1790 0.1561
B 0.1185 0.0598 0.6850 0.6196
C 0.3803 0.6583 0.1360 0.2243
Supplier A score = 0.1993(0.5012) + 0.6535(0.1819) +
0.0860(0.1790) + 0.0612(0.1561)
= 0.3091
Supplier B score = 0.1595
Supplier C score = 0.5314
Select Supplier C
AHP with Excel
AHP with Excel
AHP with Excel
Customer
Service
Towards DDSN
Chapter-06
mks
mks@mdi.ac.in
Demand Management and Customer
Service
Part
6.1

If we arent customer-driven,
our cars wont be, either.
Donald E. Petersen, Ford
Information-Empowered Customer
Channel power is shifting down the supply chain toward the end consumer
demand higher levels of service at lower cost

Customers seek
value in terms of:
Quality
Cost
Flexibility
Delivery
Innovation
Expectations and
Satisfaction
Our
Customers
Customer
Our
Customer
Us
How can we help
our customers win?
This is not our
problem (WRONG)
Well do whatever
they tell us
they want
Three Strategies
Strategy Focus Limitations
Customer
Service
Meet internally set
expectations
Fail to understand what customers value
Expend resources and wrong areas
Measure performance inappropriately
Fail to deliver more than mediocre service
Operational emphasis leads to service gaps
Customer
Satisfaction
Meet customer
driven
expectations
Ignore operating realities while overlooking operating innovations
Constant competitor benchmarking leads to product/service
proliferation and inefficiency
Maintain unprofitable relationship
vulnerable to new products and processes
Focus on historical needs of customers does not help customers
meet new market expectations
Customer
Success
Help customers
meet their
customers needs
Limited resources require that customers of choice be selected;
that is, customer success is inherently a resource-intensive
strategy
Customer-Centric Fulfillment Strategy
Managers should consider
two facts when developing
processes to match the right
kinds and levels of service to
specific customers:

Not all customers are
equal and they do not
all deserve the same
high level of service.

Not all customers
require the same
service.
Three types of analysis are needed to effectively tailor supply-chain
service levels to specific customers:

1. Customer Analysis - identifies customer needs, helping
managers segment customers (identify unique groups of
customers).

2. Supply Chain Analysis - identifies and customer needs and
the capabilities that must exist to meet those needs. This is used
to find customer success factors, the capabilities that first-tier
customers need to satisfy their downstream customers.

3. Competency Analysis - core competency is something that a
company does so well that it provides a competitive advantage.
True core competencies are usually cross functional.
Periodically Reevaluate
Define and Communicate
Customer Success Factors
Establish Appropriate
Processes and Systems
Customer Analysis
Competency
Analysis
Define
Relationship Intensity
Supply
Chain
Analysis
Customer-Centric Fulfillment Strategy
Transactional relationships
H
i
g
h
l
y

v
a
l
u
e
d

r
e
l
a
t
i
o
n
s
h
i
p
s

Customer Segmentation with
Pareto
Relationship intensity can be categorized as
follows:

A customers are valued and received
the highest service.

B customers should be managed
carefully.

C customers should be managed
fairly and efficiently.
Customer-of-choice relationships
Barriers to Customer Fulfillment
Customers identify the following as the cause of dissatisfaction in almost
80% of horror stories:
Training - employees do not know how their behavior and
performance affects customer perceptions.
Measurement - measures do not reinforce appropriate attitudes
and behavior toward customers.
Empowerment - employees do not have authority to solve
problems and respond to customer needs.
Policies - policies and procedures are inflexible and often run
counter to real service and satisfaction.
Being
Demand-Driven
DDSN
Start with the
Moment of Truth
and work
backwards.
How is it different???
Demand
Attract, Sell, Service
Supply
Plan, Source,
Make, Deliver
Product
Define, Design,
Promote, Supply,
Support
I think I can sell x
Here. Sell all this
Heres a new
product. Figure out
how to make it
Heres a new
Product. You should be able
to sell a lot of them.
What does it mean to be Demand Driven?
Shift from marketing-driven to being market-driven
Develop products that drive demand and that consider supply
Develop demand-driven manufacturing capacity
Create an agile supply-network for flexibility in meeting demand-
driven replenishment
Integrate customer-driven order fulfillment
Stages of
Becoming
Demand-Driven
supply
product
product
supply
supply
supply
product
product
Stage 1: Demand, Supply and Innovation
processes are focused on efficiency and
excellence within the relative domain. Little
to no process overlap.
Stage 2: Supply and Innovation processes begin to merge
at the interface of sourcing. Improvements in data sharing
and scaling for new product introductions. Supply owns the
supply chain.
Stage 3: Innovation becomes the linkage
between supply and demand. Time to market
is the corporate rallying cry.
Stage 4: Demand, supply and innovation processes
merge to become demand-drive with a focus on agility.
Demand channels and supply chains are equally owned
and understood by all organizations.
demand
demand
demand
demand
Demand-Focused Integrated Processes
Demand Demand Supply Supply
Product Product
Market, not Marketing-
Driven
Building Agile Supply
Networks
Building Products that
Drive Demand
Demand-Driven
Manufacturing
Customer-Centric
Order Fulfillment
Collaborative Planning, Forecasting, and
Replenishment (CPFR)
Part
6.2
CPFR at Wal-Mart
is a collaborative technique that formalizes the processes between two trading
partners used to agree upon a joint plan and forecast, monitor success through
replenishment, and recognize and respond to any exceptions
(Andraski & Haedicke, 2003).

a business practice that combines the intelligence of multiple trading partners in
the planning and fulfillment of customer demand
(NC State University Supply Chain Management Research Consortium, 2006).

The CPFR
Definition
WHAT IS CPFR?
Collaborative planning, forecasting & replenishment is an industry standard for trading
partner collaboration
Voluntary Inter-industry Commerce Standards (VICS) sponsored new CPFR working group in
1996
Purpose: to improve the partnership between government and industry through collaborative
processes and information sharing

Collaboration Examples:

CPFR = Primarily Applicable to Long Term Business Relationships
The CPFR
Reference Model
8 collaboration tasks form an iterative cycle of 4
activities:

A. Strategy & Planning
B. Demand & Supply Management
C. Execution
D. Analysis

Each activity consists of two collaboration tasks.
3 Primary elements of collaboration
Planning
Develop a Collaboration Arrangement
Create a Joint Business Plan
Forecasting
Sales
Orders
Collaborate on the Exceptions
Replenishment
Order Generation
Delivery Execution
Collaborative: The collaborative aspect of CPFR involves trading partners conceptualizing a
structure to share sales, inventory, and data in order to improve forecasting accuracy and
fluctuating inventory levels

Planning: The planning phase of CPFR is the period where trading partners create working
relationship agreements, processes, and actionable business plans to map out the inventory
management strategy

Forecasting: When trading partners forecast they are essentially sharing daily and weekly
sales data in order to effectively communicate future customer requirements

Replenishment: The replenishment phase involves the aspect of real-time inventory
replenishing through order and shipment status
1998 Process Map
The Role of CPFR Technology in Integrating
Retailer and Manufacturer Processes
Advanced
planning
and
scheduling
Three modes of CPFR
Basic CPFR: a limited number of business processes integrated
between a limited number of supply chain partners
Developed CPFR: will typically involve a greater number of data
exchanges between two partners, and may extend to suppliers
taking responsibility for replenishment on behalf of their customer
Advanced CPFR: goes beyond data exchanges to synchronise
forecasting information systems and coordinate planning and
replenishment processes
Typical CPFR
Benefits
Retailer Benefits Typical Improvement
Better Store Shelf Stock Rates 2% to 8%
Lower Inventory Levels 10% to 40%
Higher Sales 5% to 20%
Lower Logistics Costs 3% to 4%
Manufacturer Benefits Typical Improvement
Lower Inventory Levels 10% to 40%
Faster Replenishment Cycles 12% to 30%
Higher Sales 2% to 10%
Better Customer Service 5% to 10%
Thank You.

LSCM Jun 2014

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