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SUPPLY CHAIN MANAGEMENT

BY:

LAKSHMI NARAYANA REDDY.K

MBA,PGDFM,M.Phil

INTRODUCTION TO SUPPLY CHAIN MANAGEMENT 1970 Traditional procurement, physical distribution, materials management. management. 1980 - Logistics Management: Transportation. Management: Transportation. 1990 - SCM - materials management & Logistics Management. Management. Logistics: integration of information, Logistics: transportation, inventory, warehousing, material handling & packaging. packaging. Management: Logistics Management: it is a process of planning, implementing & controlling the efficient, effective flow & storage of goods, services & related information from POP to POC for the purpose of confirming to customer requirements. requirements.

 Supply Chain: the way that the materials flows through organizations to customers. Supply Chain Management: it is a process of planning, implementing & controlling all operations for serving customers as efficiently. OR. efficiently. OR. Ability to get closer to customers. OR. customers. OR. It is Integration of flow of products, information & funds. OR. funds. OR. It is philosophy incorporates the tools & techniques to improve the Different flows. flows. Objectives Of SCM: SCM: 1. To maximize the customer value. value. 2. To maximize the firms profitability. profitability. 3. To minimize the supply chain costs. costs.

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Designing and Planning Transportation Networks: Role of Networks: transportation - modes and their performance transportation infrastructure and policies - design options and their trade-offs tradeTailored transportation. transportation.

Role of transportation
INTRODUCTION: INTRODUCTION: It refers to the movement of products from one location to another as it makes its way from the beginning of a supply chain to the customers hands. hands. Any S C success is closely linked to the appropriate use of transportation. transportation. It is a significant component of the cost most supply chain occurs & its major component of logistics cost. cost. S C also use responsiveness transportation to centralize inventories & operate with fewer facilities. facilities. The role of transportation is a significant link B/W different stages in a global SC. SC. Example: DELL currently has suppliers world wide. Example: wide. DOCKING. WALL MART is using CROSS DOCKING.

CROSS DOCKING
It means a process in which product is exchanged B/W trucks so that each truck going to retail store has products from different suppliers. suppliers. It facilitates product mix function. function. It is used to eliminate the storage costs. costs. In simple words it means movement of goods from receiving dock to shipping dock. dock.

Factors Affecting Transportation Decisions

2 major players in Transportation: Transportation: 1. Carrier (party that moves or transports the product) Vehicle-related cost Vehicle Fixed operating cost Trip-related cost Trip Quantity related cost OH cost 2. Shipper( Supplier) (party that requires the movement of Shipper( the product between two points in the supply chain) Transportation cost Inventory cost Facility cost Processing costs Service level costs

1. Factors affecting Carrier decisions (party that moves or transports the product) Vehicle-related cost: related to costs for purchase / lease of vehicle used for Transportation of goods. Fixed operating cost: costs associated with terminals, airport gates & labour that are incurred whether vehicles are in operation or not. Trip-related cost: costs includes the price of labour & fuel incurred for each trip. It depends upon length & duration of trip. Quantity related cost: it includes loading & unloading of costs. OH cost: costs are related to planning & scheduling a transportation network.

2. Shipper( Supplier) (party that requires the movement Shipper( of the product between two points in the supply chain) cost: Transportation cost: total amount paid to various carriers. carriers. Inventory cost: Costs of holding inventory. cost: inventory. Facility cost: cost: Processing costs: loading & unloading orders. costs: orders. Service level costs: costs:

Modes of transportation and their performance characteristics

1. Trucks (Road Way) TL LTL 2. Rail way 3. Air way 4. Package Carriers 5. Water way 6. Pipeline 7. Intermodal

AIR WAYS:
1. 2. 3. 4. It is used for both passengers & cargo. It have a high fixed costs in infrastructure. Labour & fuel costs are largely trip related. Maximize the daily flying time & revenue generation per trip.

TRUCK: 1. Provides door to door operating flexibility. 2. Trucks are versatile: they can transport the products of varying sizes. 3. Trucks are compete with air ways for small shipment & rail ways for large shipment. 4. TL operations have relatively low fixed costs. 5. Higher fixed costs (terminals) and low variable costs.

Rail ways: ways: 1. Rail ways are primarily long distances. 2. Large volume movers of low value. 3. High density goods. 4. Rail price is used to encourage for large shipment over a long shipment. 5. Scheduling to minimize delays / improve service. 6. Variability of delivery times. 7. Off-track delays (at pickup and delivery end). Water Ways: Ways: 1. Limited to certain geographic areas. 2. Very large loads at very low cost. 3. Slowest 4. Involves Inland water ways: Rivers & canals, Lakes 5. Coastal & inter coastal Ocean.

Pipeline
High fixed cost. cost. Primarily for crude petroleum, refined petroleum products, natural gas. gas. Best for large and predictable demand. demand. Advantages: Dis Advantages: 1. Climatic conditions have a 1. Speed is quite low. minimal effect. 2. High installation 2. Not labour intensive( no costs. strikes). 3. Not flexible. 3. Operation is done by 4. Ltd to only few computers. products. 4. Damages are minimal. 5. Ltd accessibility. 5. High dependability.

Intermodal Transport
Use of more than one mode of transportation to move a shipment to its destination Most common example: rail/truck Also water/rail/truck or water/truck Grown considerably with increased use of containers Increased global trade has also increased use of Intermodal transportation More convenient for shippers (one entity provides the complete service) Key issue involves the exchange of information to facilitate transfer between different transport modes.

Package Carriers
Transportation Companies like FedEx, UPS, USPS, that carry small packages ranging from letters to shipments . Expensive Rapid and reliable delivery Small and time-sensitive shipments Preferred mode for e-businesses (e.g., Amazon, Dell, McMaster-Carr) Consolidation of shipments (especially important for package carriers that use air as a primary method of transport)

Transportation Infrastructure & Policies

It involves 3 major categories. 1. Design options for a transportation network. 2. Trade-offs in transportation design. 3. Tailored transportation.

1.Design options for a transportation network

The impact of this is the performance of a SC by establishing the infrastructure within which operational transportation decisions are made such as Scheduling & routing are made. made. A well designed transportation network allows a SC to achieve the desired degree of responsiveness at a low costs. costs. There are five options for transportation network: network: What are the transportation options? Which one to select? On what basis? Direct shipping network Direct shipping with milk runs All shipments via central DC Shipping via DC using milk runs Tailored network

1. 2. 3. 4. 5.

Direct shipping network: shipment comes directly from suppliers to retailer stores.

Pg: 421

Direct shipping with milk runs: it is route on which a truck either delivers products from a single suppliers to multiple retailers or goes from multiple suppliers to a single retailers.
MERITS: 1. Eliminates Intermediate WH. 2. Lower transportation cost for small lots. 3. Lower inventory. DEMERITS: 1. Increased coordination

Pg:422

All shipments via central DC: 1.The retail chain divides stores by geographical area & a DC is built for each region. 2.Suppliers sends all shipments to DC, DC will sends to each retail stores.
SUPPLIERS 1 RETAILE STORES

DC

Shipping via DC using milk runs: milk runs can be used from a DC if lots sizes to be delivered to each retail stores.
SUPPLIERS MERIT: Decreased outbound cost. DEMERIT: Difficulty to coordinate DC RETAILE STORES

Tailored network:
It reduces overall costs & improves responsiveness. It helps to uses a combination of cross docking & milk runs, TL, LTL carriers along with the package carriers in some cases. Merits: Transportation choice best matches the needs of individual products & stores. Demerits: Highest coordination complexity.

2. Trade-offs in Transportation Design Trade All transportation decisions in a SC N/W must be made taking into A/C their impact on inventory costs, facility, processing costs & the cost of coordinating operations, as well as the level of responsiveness provided to customers. customers. Example: DELL uses package carriers to deliver PCs to Example: customers to centralize the facilities & decrease the inventory cost with increased transportation costs. costs. The manager can then make the appropriate transportation decision. He must consider the following trade offs. decision. offs. 1. Transportation and inventory cost trade-off. trade-off. Choice of transportation mode. mode. Inventory aggregation. aggregation. 2. Transportation cost and customer responsiveness tradetradeoff. off.

1. Transportation and inventory cost trade-off. trade 1. 2. 3. 4. 5. 6. 7. Choice of transportation mode. mode. Nature of goods Access to carriers Price Transit time Security of goods. goods. Govt regulations. regulations. Safety. Safety. Inventory aggregation.: it decreases the SC costs if the aggregation.: product has a high value to weight ratio, high demand uncertainty & customers orders are large. When product has a large. small value, low demand, orders are small then SC costs will increase. increase.

2. Transportation cost and customer responsiveness trade-off trade1. The transportation costs a SC incurs is closely linked to the degree of responsiveness the SC aims to provide. 2. It involves temporal Aggregation ( combining orders across time). It decreases a firms responsiveness because of shipping delay but also decreases transportation costs because of economies of scale that results from larger shipment.

3.Tailored Transportation The use of different transportation networks and modes based on customer and product characteristics. Most of the firms sells a variety of products & serves many different customer segments. Example: W W grainger sells & meet customers needs at a lower costs by using TT. Factors affecting tailoring: Customer distance and density Customer size Product demand and value

Customer distance and density

The firm must consider CD & D from WH when designing a transportation N/W. When a firm serves a very high density of customers to the DC, it is often best for the firm to own a fleet of trucks are used with milkruns organizing at the DC to supply customers. Overall this helps to makes very good use of the vehicles.

Customer size
In this very large customers can be supplied using a TL carrier, where as smaller customers will require an LTL carrier or Milkruns. When using milkruns a shipper incurs 2 types of costs. 1. Transportation cost based on total route distance. 2. Delivery costs based on number of deliveries.

Product demand and value The cycle inventory for high value products with high demand is disaggregated to save transportation costs.

Routing & scheduling in Transportation

The DC manager must first assign customers to be served by each vehicle & then decision on each vehicles route. It involves 2 computational procedures: 1. Saving matrix method: it is simple to implement & can be used to assign customers to vehicles even when delivery time windows or other constraints exists. There are 4 steps: identify the distance matrix, identify the saving matrix, assign customers to vehicles / routes, sequences customers within routes. 2. Generalized assignment matrix: it is more sophisticated than saving matrix, usually results in better solution when there are few delivery constraints to be satisfied. There are 4 steps in this: Assign seed points for each route, evaluate insertion costs for each customers, assign customers to routes, sequence customers with in routes.

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