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The Role of Supply Chain Management in Economy

Learning Objectives

  • Why is the supply chain important?

  • What are the key supply chain decisions made by a firm?

  • How has the supply chain evolved over the last century?

  • What are the unique challenges of managing a supply chain in India?

Supply Chain Management: Success

Stories

  • Dell: Inventory turn-over ratio of 58.7 compared to industry average of 12 (Net Profitability of 5.3.%) ( Drop from 7.8% in

2006)

  • Wal-Mart: Inventory turn-over ratio of 9.9 compared to industry average of 5.5 ( Net profitability of 3.5%)

  • Zara Corporation: Lead-time from new product to stores is 15 to 20 days compared to industry average of six months ( Net profitability of 11.3%)

Supply Chain Management: Horror

Stories

Cisco: Cisco wrote off 2.2 $ billion worth of inventory in May 2001. Biggest write-off in history.

  • Sony: PlayStation IIa lost opportunity

SONY could supply only 25% of the potential demand for Christmas market

Nintendo Wii Game Console : Shortage expected in year 2007

  • Kmart Launched supply chain initiative in

May 2000 worth $1.4 billion in software and services. In 2001-02, announced that it was abandoning most of the software purchased

and taking $130 million write-off

  • Nike- i2 Technology Controversy: Lost $100 in sales in last quarter of 2000 i2

Supply Chain Management: A

Definition

  • Encompasses all activities associated with the transformation of goods from the raw material stage to the final stage when the

goods and services reach the end

customer.

  • Involves planning, design and control of

flow of material, information and finance

along the chain in order to deliver value to the end customer in effective and efficient way.

Supply Chain Management: A Pictorial Representation

C1 C2 C3 C4 C5 C6 DISTRIBUTION VENDOR INBOUND INTERFACILITY OUTBOUND PLANTS CUSTOMERS TRANSPORTATION CENTERS TRANSPORTATION
C1
C2
C3
C4
C5
C6
DISTRIBUTION
VENDOR
INBOUND
INTERFACILITY
OUTBOUND
PLANTS
CUSTOMERS
TRANSPORTATION
CENTERS
TRANSPORTATION
TRANSPORTATION

Managing Flows in A Supply

Chain

  • Material Flow

  • Information Flow

  • Financial Flow

From An Automobile Manufacturer

Our aim is always to arrange the material

and machinery and to simplify the operation

so that practically no orders are necessary.

Our finished inventory is in transit. So is

most of our raw material inventory. Our

production cycle is about eight-one hours

f

th

i

t

th

fi

i

h

d

hi

Historical Evolution of the Supply

Chain

  • First Revolution: (Ford Motor Co. 19101920)

Single product, that is, no product variety Vertical integration

  • Second Revolution: (Toyota Motor Co. 19601970)

Wide Variety Long-term relationship with suppliers

  • Third Revolution: (Dell Computers 1995Current)

Customized products

Key Supply Chain Concepts

  • Concept of focal firm

  • Supply chain decisions

Design Operations

  • Logistics and SCM

  • Reverse Supply Chain

Supply Chain Design

  • Deciding Scope ( What activities to be done in-house and what activities to be outsourced)

  • Design of Network

Plant location and capacity decisions Warehouse location Vendor selection

  • Nature of relationships

Managing Supply Chain Operations

Demand forecasting Procurement planning Production planning Inventory management Transportation Order processing Relationship management

Importance of The Supply Chain

  • Proliferation of Product Lines

  • Shorter Product Life Cycles

Cell phone, Laptop, Automobile

  • Higher Level of Outsourcing

Dell computers, Bharti Tele ventures

  • Shift in Balance of Power in Chain

Impact of organized retail chain

  • Globalization of Manufacturing

Impact of tariff structure

Enablers of Supply Chain

Performance

  • Improvement in communication and IT

  • Better understanding of inter-firm coordination issues

  • Entry of third-party logistics service providers

Ratio of Logistics Cost to GDP for

Selected Countries*

Ratio of Logistics Cost to GDP for Selected Countries* • Does logistics cost capture every thing?

Does logistics cost capture every thing? How do we capture logistics cost of India versus China?

* Source: Raghuram and Shah 2003

Logistics Costs for the Indian Economy*

Rs billion

93-94 prices

13.4 Logistics Cost/GDP (%)
13.4
Logistics
Cost/GDP
(%)
8995.63
8995.63
GDP
GDP
95-96
95-96
95-96
1201.27 Total Logistics Cost
1201.27
Total
Logistics
Cost
13.4 Logistics Cost/GDP (%) 8995.63 GDP 95-96 1201.27 Total Logistics Cost 12.4 1261.01 10163.99 97-98 12.1

12.4

  • 1261.01 10163.99

97-98
97-98

12.1

11485.00

99-00

1388.93

12.1 11485.00 99-00 1388.93

11.89

11.59

01-02

  • 1508 12679

03-04

  • 1658 14305

12.1 11485.00 99-00 1388.93 11.89 11.59 01-02 1508 12679 03-04 1658 14305

*Source: Raghuram and Shah 2004

Logistics Costs for the US

Logistics Costs for the US Economy

Economy

Nominal Values

Organized Sector

US: 1990

US: 2001

US: 2002

Transportation

50%

60%

63%

Inventory

20%

   

Warehousing

 

Packaging

24%

40%

37%

Losses

6%

Total Cost

11.4%

9.5%

8.7%

Logistics Cost ($ billion)

659

957

910

GDP ($ billion)

5,800

10,080

10,470

Source: CASS Information Systems, 2002

Performance of the Indian

Manufacturing Industry*

Performance of the Indian Manufacturing Industry* Data Source: PROWESS, CMIE

Data Source: PROWESS, CMIE

Sector-wise Industry Performance of

Indian Firms*

Sector-wise Industry Performance of Indian Firms* Data Source: PROWESS, CMIE

Data Source: PROWESS, CMIE

Status of Logistics Management in

India

  • Neglected area in organizations

  • Taxation structure drives the logistics

related decision, not cost or service

considerations

  • Poor state of infrastructure

Complex regulations affecting logistics decisions

Supply Chain Challenges for the

Indian FMCG Sector

  • Managing Availability in the Complex Distribution Set up

  • Working with Smaller Pack Sizes

  • Entry of National Players in the

Traditional Fresh Products Sector

  • Dealing with a Complex Taxation Structure

  • Dealing with Counterfeit Goods

  • Opportunistic Games Played by the Distribution Channel

  • Infrastructure

The Marico Supply Chain

The Marico Supply Chain

Summary

  • What is supply chain management?

The supply chain encompasses all activities associated with the transformation of goods from the raw material stage to the final stage,.

Supply chain management involves planning, design and control of flow of material,

information and finance along the supply chain

  • Why is the supply chain important?

On account of globalization and increased competition, firms have to manage a larger number of product lines with shorter product life cycles under the situation of changed power in supply chain performance would help Indian

Summary-II

  • Supply Chain Evolution

Technological and managerial innovations,

along with the development of logistics specialists, have helped progressive firms to improve supply chain performance under trying

times

  • Supply Chain Challenges in India

Indian firms need to learn from progressive firms in developed economies, which have

managed to improve supply chain performance considerably,

But at the same time emerging economies like India and China have their own unique supply