Day-1
Definition, Nature and Principles of
Supply Chain Management (SCM)Supply Chain Management (SCM)
Session Speaker
K.M....
Session Objectives
• To understand the role of Supply Chain Management in
Manufacturing and Service OrganisationsManufactu...
Session Outline
Hi t f l i ti d S l Ch i M t (SCM)• History of logistics and Supply Chain Management (SCM)
• Objectives of...
Rationale for SCM
Adding Value in Every Thing We DoAdding Value in Every Thing We Do
4M.S Ramaiah School of Advanced Studi...
5M.S Ramaiah School of Advanced Studies - Bangalore
Rationale for Logistics and Supply Chain
Management (SCM)g ( )
• Defeat of the British in the American war of Independence...
Supply Chain Management (SCM)-Supply Chain Management (SCM)
Definition
Here are two definitions:
h fThe design and managem...
Supply Chain Management (SCM)-Supply Chain Management (SCM)
Definition
Managing supply and demand,
sourcing raw materials ...
SCM : Schematic
9M.S Ramaiah School of Advanced Studies - Bangalore
Evolutionary Timeline of SCM
10M.S Ramaiah School of Advanced Studies - Bangalore
A business process
Cost
Performance
Timeliness
Product Interface
Performance
T h l I t fS i I t f
Customer
S i I t f Techn...
Value created and addedValue created and added
by outside firm providing
MIS
Value created
and delivered
by
Value created
...
SUPPLY CHAIN
Customer
SUPPLY CHAIN
Customer
Enterprise
Processes
Supplier
Enquiries
Quotations
OrdersSupplier Orders
Suppl...
One Variant
6,200 Distinct Parts
Imported from 17 CountriesImported from 17 Countries
From 240 Suppliers
Assembled in 1 Pl...
Competition is no longer betweenCompetition is no longer betweenCompetition is no longer betweenCompetition is no longer b...
Value Chain
16M.S Ramaiah School of Advanced Studies - Bangalore
1
CostCost
1
P l
2 3
People
QualityQuality TechnologyTechnology
Delivery
& Service
Delivery
& Service
4
& Service& Service...
Succeed in Technology bySucceed in Technology by
Connecting with People
18M.S Ramaiah School of Advanced Studies - Bangalo...
19M.S Ramaiah School of Advanced Studies - Bangalore
2010 Onwards
Achieve Competitive Advantage by:p g y
Focusing on both Core and Non-
Core CompetenciesCore Competencies
Ford...
Aston Martin
21M.S Ramaiah School of Advanced Studies - Bangalore
Ford India introduces its Roadside
Assistance (RSA) service in Agra
- 21 July 2010, Business Line
22M.S Ramaiah School of ...
Riding Solo, Honda Shifts to Top Gear on 2-Riding Solo, Honda Shifts to Top Gear on 2
wheelers
Company to focus on new mod...
We have combined the leading edge technology of Nissan
ith A h k L l d Li it d' d li bilit twith Ashok Leyland Limited's d...
Alto in India is Rs 1 lakhAlto in India is Rs. 1 lakh
cheaper than in Chinap
- Shinzo Nakanishi,Shinzo Nakanishi,
MD and C...
Customers get Ambushed
26M.S Ramaiah School of Advanced Studies - Bangalore
Ambushed Every Where
27M.S Ramaiah School of Advanced Studies - Bangalore
What SCM is not ?What SCM is not ?
SCM is not :SCM is not :
• Buying
• Developing suppliers o Blind man touchingDeveloping...
Bottom line SituationBottom-line Situation
SCM l k t th f b i i t d• SCM looks at the process from beginning to end
holist...
Some ExamplesSome Examples
– You get Dell laptop in 10 days after ordering. They in turnou ge e p op 0 d ys e o de g. ey u...
SCM is at play behind all thisSCM is at play behind all this
amazing transformation in
Value Chain
31M.S Ramaiah School of...
Fit Between Corporate and Functionalp
Strategies (Chopra & Meindl)
Corporate Competitive Strategy
Supply ChainProduct Mark...
The primary “drivers” for achieving strategic fitThe primary drivers for achieving strategic fit
in Supply Chain Strategy
...
34M.S Ramaiah School of Advanced Studies - Bangalore
35M.S Ramaiah School of Advanced Studies - Bangalore
Importance of Supply Chain Management?Importance of Supply Chain Management?
–Cont.
Firms with Supply Chain Management:
1 ...
Objectives of SCM
37M.S Ramaiah School of Advanced Studies - Bangalore
Objectives of a Supply Chain
• Maximise overall value created
- Supply chain value: difference between what the finalpp y
...
Components of Supply Chain
ManagementManagement
39M.S Ramaiah School of Advanced Studies - Bangalore
Supply Chain
• Organisations must embrace technologies that can
ff i l d h i l h ieffectively manage and oversee their sup...
Benefits of SCM
 I t d ti Inventory reduction
 Productivity Improvement
 P l d ti Personnel reduction
 Cost reductio...
Past and FuturePast and Future
• GLOBALISATIONG O S ON
– Whether for buying or selling, no one confines to his own
country...
Supply Chain Competitiveness
C i• Competitor
• Competition
• Competitiveness
43M.S Ramaiah School of Advanced Studies - Ba...
44M.S Ramaiah School of Advanced Studies - Bangalore
45M.S Ramaiah School of Advanced Studies - Bangalore
Source: Presentation from K.C. Manjunath, GE-Triveni
Supply Chain Competitiveness : Toyota Way
“When Toyota developed Prius hybrid car, a core part of
computer system, Insulat...
SCM : Activities
47M.S Ramaiah School of Advanced Studies - Bangalore
Effects of Supply Chain Problems
 Problems with the Supply Chain have caused armies to lose
wars & companies to go out of...
Sources of Supply Chain Problems
UNCERTAINTY POOR COORDINATION
 In demand forecast
 With Internal units and
business par...
B ll hi D H dBull whip or Dragon Head
50M.S Ramaiah School of Advanced Studies - Bangalore
B ll hip EffectBullwhip Effect
Occurs when slight demand variability is magnified asOccurs when slight demand variability ...
Equilibrium & Bull whipped
Information
q pp
Information
Suppliers Producers Distributors Retailers
Products &
Services
Pro...
Shrinking Uncertainty in SC
Source:
53M.S Ramaiah School of Advanced Studies - Bangalore
Buyer-Supplier Relationship
“Exit – Voice – Loyalty”Exit Voice Loyalty
54M.S Ramaiah School of Advanced Studies - Bangalore
Sustainability is the WaySustainability is the Way
Forward
Mulling new supplier system tog pp y
minimise natural disaster:...
Evolution of the Indian Machine ToolEvolution of the Indian Machine Tool
Industry
Ph 1 Th E l Y (th l t )• Phase 1: The Ea...
Introduction to Machine Tool Industryy
• Indian Machine tool industry grew 13% annually over 2008-11
(TAGMA)(TAGMA)
• Indi...
International Comparison of Machine ToolInternational Comparison of Machine Tool
Industries
• Japan:• Japan:
- Massive and...
International Comparison of Machine ToolInternational Comparison of Machine Tool
Industries Contd.
• Italy:• Italy:
- Inno...
Auto sector to drive Die andAuto sector to drive Die and
Machine Tool Industry in Indiay
constitutes 50% of Die & Machinec...
An Estimate of Potential aboutAn Estimate of Potential about
Machine Tool Industry
The two-wheeler industry adding a capac...
Machine Tool Industry SC Challenges
D t it t i t i I di hi t l i d t i• Due to capacity constraints in Indian machine tool...
Machine Tool Industry SC ChallengesMachine Tool Industry SC Challenges
Contd.
N d t i t b t ti ll i IT th b i id• Need to ...
Machine Tool Industry SC ChallengesMachine Tool Industry SC Challenges
Contd.
S hi ti t d hi h t d t lif l d• Sophisticate...
A Case
Bharat Fritz Werner Ltd. was able to developp
and deliver, a complex nine-axis CNC multi-
tasking machine for machi...
Machine Tool Industry SC Opportunities
T h l t i t d i ti l t thi d f• Two-wheeler sector is today importing nearly two-th...
Machine Tool Industry SC OpportunitiesMachine Tool Industry SC Opportunities
Contd.
D t h t i f d t' lif l i t• Due to sho...
Machine Tool Industry SC OpportunitiesMachine Tool Industry SC Opportunities
Contd.
• Specialisation and coordination mech...
UK Manufacturers Take on the
Supply Chain Challenge
Present ScenarioPresent Scenario
(12 January 2012)
Source: MTD Website...
Rationale for the Study
SMEs should focus on information flow and
t l d t di th bmutual understanding among the members
of...
Efficient Consumer Response (ECR)
• Consumer: An orientation toward the needs of the
consumer
• Efficient Response: A proc...
Efficient Consumer Response (ECR)
V ti l ll b ti i f t i d• Vertical collaboration in manufacturing and
retailing with the...
Concept of ECR in SCM
• Efficient replenishment
• Efficient administration• Efficient administration
• Efficient operating...
Collaborative Planning Forecasting Replenishment
(CPFR)
Definition:f
Sharing of forecast and related business information ...
Wal-Mart, Warner-Lambert,
SAP
H d i VAATZ CHyundai – VAATZ Concept
Open Standards,Broad Requirements &
S t ti I t tiSystem...
What Collaboration Should Be?
“ D Thi Diff tl ”“ Do Things Differently”
• B2B Extranet Planning Systems
• Competitive Adva...
THE CPFR 9 STEPSTHE CPFR 9 STEPS
•Develop Collaborative Arrangementp g
•What info are we going to Share?
•Create Joint Bus...
THE CPFR 9 STEPS..contd
• Resolve/Collaborate on Exception Items
• How are we going to overcome the
exceptions?
C O• Creat...
BEFORE CPFR – LIMITED COLLABORATIONBEFORE CPFR LIMITED COLLABORATION
O dOrder
1.
22
Government Vendor
Characteristics:Char...
POST CPFR
Government
Collaborative Joint Business Sales Forecast Firm Order
Government
Order
Retailer
Sales
Forecast
Suppl...
Summaryy
In order to smoothen the supply chain “bull whip”, we needpp y p ,
accurate visibility of demands:
• CPFR is an i...
Global Supply ChainsGlobal Supply Chains
 Some of the issues involved in
global supply chains;global supply chains;
 leg...
Principles and Standards for EthicalPrinciples and Standards for EthicalPrinciples and Standards for EthicalPrinciples and...
Business CultureBusiness Culture
Western
• Perfectionist
Indian
• Functionalist
• Engineer
• Planning
• Businessman
• Impr...
Supplier Negotiation and SourcingSupplier Negotiation and Sourcing
Challenges
85M.S Ramaiah School of Advanced Studies - B...
Evaluating & Selecting Key Suppliers
Wh l ti li f t t iWhen evaluating suppliers for a strategic
partnering, purchase cost...
87M.S Ramaiah School of Advanced Studies - Bangalore
Kraljic’s Matrix
88M.S Ramaiah School of Advanced Studies - Bangalore
Kraljic’s Matrix
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STRATEGIC SOURCING FOR SUCCESFUL
SUPPLY CHAIN MANAGEMENT
Why Strategic Sourcing?
- Lehman Brothers Case
90M.S Ramaiah Scho...
91M.S Ramaiah School of Advanced Studies - Bangalore
92M.S Ramaiah School of Advanced Studies - Bangalore
93M.S Ramaiah School of Advanced Studies - Bangalore
TYPES OF SUPPLIERS
• TECHNOLOGY
MACHINERY/CAPITAL EQUIPMENT• MACHINERY/CAPITAL EQUIPMENT
• RAW MATERIAL
COMPONENTS• COMPON...
NEED FOR GLOBAL SUPPLIERSNEED FOR GLOBAL SUPPLIERS
• QUALITY
• TECHNOLOGY
• COST
• SERVICE
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GENERALLY NON NEGOTIABLE ITEMSGENERALLY NON-NEGOTIABLE ITEMS
• SPECIFICATIONS
• PAYMENT TERMS
96M.S Ramaiah School of Adva...
ISSUES IN NEGOTIATIONISSUES IN NEGOTIATION
• CULTURE
• EXCHANGE RATE
• DEGREE OF TRANSPARENCY REQUIRED – OUR
MINDSET/ OUR ...
Supplier Strategies
Pl t h l hi i i
Supplier Strategies
• Plans to help achieve company mission
• Affect long-term competi...
Daimler Chrysler’s Supplier Cost Reduction
Effort
Supplier Suggestion Model SavingsSupplier Suggestion Model Savings
Rockw...
Many Suppliers StrategyMany Suppliers Strategy
• Many sources per item
• Adversarial relationship
• Short-term
• Little op...
Few Suppliers Strategy
• 1 or few sources per item
Few Suppliers Strategy
• 1 or few sources per item
• Partnership (JIT)
...
Tactics for Close Supplier Relationships
TacticTactic
Red ce total n mber of
ResultsResults
• Average 20% reduction in 5• ...
Vertical Integration StrategyVertical Integration Strategy
Raw Material
(Suppliers)
• Ability to produce
goods previously
...
Forms of Vertical IntegrationForms of Vertical Integration
Iron Ore Silicon Farming Raw Material
(Suppliers)
Steel Flour M...
Keiretsu Network Strategy
• Japanese word for ‘affiliated chain’
Keiretsu Network Strategy
• Japanese word for affiliated ...
Virtual Company StrategyVirtual Company Strategy
• Network of independent companies• Network of independent companies
– Li...
Overview of Global Procurement:
Cross Border NegotiationsCross Border Negotiations
Interpretation, Enforcement and Dispute...
Precedence's are Referred but notPrecedence s are Referred but not
Followed
Sales Act High Court Verdict on S/W CD’s
C L (...
Legal System Framework
Category 1 Category 2 Category 3
Supreme Court, Federal
Apex Judiciary
• II round
• Takes 10-12 mon...
Legal System Framework
Category 1 Category 2 Category 3
Arbitration – Alternative
to litigation
Special Jurisdiction
Place...
Points to Remember
C t t di t b t t i t i l t• Contract dispute between any two companies cannot violate
the Country law
•...
Legal System Framework
Category 1 Category 2 Category 3
Regulators
Example:
• TRAI
• SEBI
• AAI etc.
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Cross Border Negotiations
113M.S Ramaiah School of Advanced Studies - Bangalore
What is Negotiation?g
It is the art of creating agreement on a specific issue between two
(or more) parties with 4 differi...
Golden Rules of Negotiation
1 FORM1. FORM
2 People Buy People First2. People Buy People First
3 Buyers’ are liars and Non ...
Role Play
116M.S Ramaiah School of Advanced Studies - Bangalore
Session Summary
• Meaning and definition of Supply Chain Management
has been explained.
• Special cases with respect to ad...
1M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Session Speaker
K.M. Sharath Kumar
Manufacturing Logistics and
Make or B...
2M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Session Objectives
• To ascertain the key factors to optimise logistics ...
3M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Session Outline
• Logistics strategies
• Make or Buy – Factors to be con...
4
Manufacturing Logistics
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5
CLM DEFINITION OF LOGISTICS
….is that part of the supply chain process that plans,
implements, and controls the efficien...
6
Logistics - Science of managing (controlling) the movement and
storage of goods (or people) from acquisition to consumpt...
7M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Source: Presentation by Mr. K.C. Manjunath,
Triveni Engineering Ltd.
8
Five Business Systems - Tightly Interconnected within the
Organization
Measurement
Decisions
Management
Systems
Reward
D...
9
Logistics – Mission [A Bill of “Rights”]
• Logistics embodies the effort to deliver:
– the right product
– in the right ...
10
Activities and Logistics Decisions
Transportation
rate and contract negotiation
mode and service selection
routing and ...
11
Manufacturing Logistics
 Physical Distribution
Recycling/ Returns/ Waste Disposal
Location
Communication
M.S Ramaia...
12
Inbound & Outbound Logistics
MANUFACTURING
PROCESSES
INBOUND
LOGISTICS
OUTBOUND
LOGISTICS
SUPPLIER CUSTOMER
M.S Ramaiah...
13
Reverse Logistics
• To manage the flow & Storage of products and services,
moving backwards through the supply chain
• ...
14
TVS Logistics Case
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Air Asia Case
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Freight management goes online in
ThiruvananthapuramRailway division
(August 24, 2010)
Freight Operating Information sy...
17
Importance of Logistics
• Essential & Expensive - ( GDP )
10 to 13% in India
8% in USA
• Bigger than the profit margin ...
18
Logistics for life sciences still out in the cold
• A goods carrier crossing a State border in India may have to wait
a...
19M.S Ramaiah SchoolofAdvanced Studies - Bangalore
20
Role of logistics managers in strategic
decision
OTHER
MANAGERS
BUSINESS
STRATEGY
LOGISTICS
STRATEGY
ROUTINE
LOGISTICS
...
21M.S Ramaiah SchoolofAdvanced Studies - Bangalore
22M.S Ramaiah SchoolofAdvanced Studies - Bangalore
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Volvo-Case
Multi Axle Transport Solution
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Benefits
• Equivalent to 5 : 2-Axle trucks
• Higher Average speed
• Less Breakdowns
• Transportation cost saving of 20-...
25
Consolidation
• Smaller Operator’s are shrinking
• Large players are outsourcing
• Shift towards bagging quality orders...
26
Volvo’s Fuel Cost
Typical Trucks Volvo Trucks
Fuel Consumption 3.5 kmpl 2.5 kmpl
Cost/Tonne KM Rs. 4.60 Rs. 6.40
Load C...
27
Conclusion
“Big is Better”
M.S Ramaiah SchoolofAdvanced Studies - Bangalore
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Indian Government Initiatives
Allowing 100% FDI
Eliminating CST and IT exemptions on Port
development Projects
Improvin...
29
Plan for multi-modal venture by 3
logistics PSUs
SCI, Concor, Central Warehousing
Corporation would be equity partners
...
30
Delhi may soon levy congestion fee
on vehicles
08 April 2010
Source: ET
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Railways sees scope for greater
logistics play
Source:ET, September2011
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Make or Buy Decisions
M.S Ramaiah SchoolofAdvanced Studies - Bangalore
33M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Make or Buy Choice
• One of the key strategic issue in manufacturing is...
34M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Make or Buy Choice
• Inability to make in-house
(Technical capability
H...
35M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Make or Buy Choice
• BREAK EVEN ANALYSIS
TOTAL COST -BUY
TOTALCOST -
MA...
36M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Span of Process
37M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Make-or-Buy Decisions
1. Maintain core competence
2. Lower production c...
38M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Make-or-Buy Decisions
1. Frees management to deal with its core
compete...
39M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Framework for Make/Buy Decisions
• Which component to Manufacture and w...
40M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Make/Buy Decisions
Product Dependent on
knowledge
and capacity
Independ...
41M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Push and Pull Scheduling
42M.S Ramaiah SchoolofAdvanced Studies - Bangalore
• Efficient integration of suppliers, manufacturers,
warehouses, and st...
43M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Challenges can be met by Integration
– Linking front-end customer deman...
44M.S Ramaiah SchoolofAdvanced Studies - Bangalore
What is Push and Pull?
• MRP is the classic push system. The MRP system...
45M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Comparison
• These methods offer two completely different approaches
to...
46M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Push Vs. Pull Scheduling in SCM
• Push Scheduling
- Traditional Approac...
47M.S Ramaiah SchoolofAdvanced Studies - Bangalore
48M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Customer
D1
D2 D3
D4
RDC1 RDC2
Factory Warehouse
Factory Warehouse
Vend...
49M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Push-Pull Scheduling in Supply Chain
A Hybrid Approach in Todays
Scenar...
50M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Toyota’s Manufacturing Strategy
Dell’s PC Manufacturing Strategy
51M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Push-Pull Supply Chain
• Initial Stages are operated in a push based ma...
52M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Supply Chain Timeline
Push-pull supply chains
53M.S Ramaiah SchoolofAdvanced Studies - Bangalore
General Framework for Time Line
• Make a part of the product to stock –...
54M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Matching Supply Chain Strategies with
Products
Push-pull supply chains
55M.S Ramaiah SchoolofAdvanced Studies - Bangalore
GM’s Case
Failure of Make to Order Strategy
56M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Characteristics of Push & Pull in Supply
Chain
Push Pull
Objective Mini...
57M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Implementing a Push–Pull Strategy
• Achieving the appropriate design de...
58M.S Ramaiah SchoolofAdvanced Studies - Bangalore
The Impact of Lead Time
• Longer the lead time, more important it is to...
59M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Cases
60M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Grocery Industry
• Typical supermarket employs a push-based strategy
• ...
61M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Book Industry
• Initial model of Amazon.com a pure pull system with no
...
62M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Session Summary
• Meaning of Logistics, components of Logistics managem...
1M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Session Speaker
K.M. Sharath Kumar
Supply Chain (SC) Design
Day-2
2M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Session Objectives
• To identify the role of aggregate planning in suppl...
3M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Session Outline
• Introduction to SC modelling
• Managing supply through...
4
Supply chain Networks
M.S Ramaiah SchoolofAdvanced Studies - Bangalore
5
Integrated Supply Chain
• Functional Integration
- Purchasing,Manufacturing,Transportation, Warehousing
• Spatial Integr...
6
Overview of SC Models and Modelling
System
• Need to augment Transactional IT with Analytical
IT
- “Metrics is very impo...
7
Descriptive Method
• Forecasting Models
- predict demand for company’s finished products, cost of
raw materials etc.
• C...
8
Normative or Optimisation Method
- Helps managers to make better decisions
- Requires descriptive data & models as input...
9
The primary “drivers” for achieving
strategic fit in Supply Chain Strategy
(adapted from Chopra & Meindl)
CorporateStrat...
10M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Introduction to Linear Programming
Problem (LPP)
The most important fun...
11M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Definition of LPP
Linear Programming (LP) is a versatile technique for ...
12M.S Ramaiah SchoolofAdvanced Studies - Bangalore
The General LP Formulation
nix
bxaxaxa
bxaxaxa
bxaxaxa
tS
xcxcxcZMinMax...
13M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Formulation of LPP
(Production allocation problem)
Case: 1
A manufactur...
14M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Formulation of LPP
(Production allocation problem)
Solution:
Let X: Num...
15M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Conversion to LPP
(Production allocation problem) (cont..d)
Maximum Z =...
16M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Formulation of LPP
Case: 2 A firm produces two home products viz. model...
17M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Case-2 Formulation of LPP (Cont…d)
Total number of hours available each...
18M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Case-2 Formulation of LPP (Cont…d)
Solution:
Let X: Number of units of ...
19M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Case- 2 Conversion to LPP (cont..d)
Maximize Z = 40X + 60Y
Subject to (...
20M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Methods for Solving Linear Programming
Problems (LPP)
Important method ...
21M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Managing Supply in a Supply Chain
22M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Aggregate Planning in Supply Chain
• Aggregate planning is a process by...
23M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Aggregate Planning Strategies
• The planner should make trade-off’s amo...
24
Red Tomato Gardening Tool Case
• Demand for Red Tomato’s
gardening tools is highly
seasonal in spring.
• The first step...
25
Red Tomato Tools Case Contd…
• Red Tomato sells each tool at $40.
• The company has a starting inventory of 1000 toolsi...
26
Various Costs for Red Tomato Case
Item Cost
Material Cost $10/unit
Inventory holdingcost $2/unit/month
Marginal cost of...
27
Decision Variables
• Wt = Workforce size for month t
• Ht = number of employees hired at the beginning of month t
• Lt ...
28
Table Containing Decision Variable
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Table containing Constraints
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Formulae
M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Cell Cell Formula Equation
M5
(Wt
Constraints) = D5-D4-B5+C5 ...
31
Table containing Objective function
M.S Ramaiah SchoolofAdvanced Studies - Bangalore
[ ]∑=
+++++++
6
1
3010525003006640...
32
Invoking Solver Tool and following
Constraints
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33
Solver Steps
• Set Target Cell: C22,
• Equal to : Select Min
• By Changing Cells : B5 : I10
• Subject to Constraints
B5...
34
Final Solution
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Gravity Models in Supply Chain
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36
Steel Appliances (SA)
• Gravity location models are used to find locations that
minimises the transportation cost.
• SA...
37
Supply sources and Markets for SA
M.S Ramaiah SchoolofAdvanced Studies - Bangalore
38M.S Ramaiah SchoolofAdvanced Studies - Bangalore
39
Gravity Model
• This model assumes that both markets and supply sources
can be located as grid points on plane.
• All d...
40
Input Parameters
• xn, yn : coordinate location of either a market or supply
source n
• Fn: Cost of shipping one unit f...
41
Formulae
( ) ( ) 



 −+−=
22
yxd nnn
yx
FDd nn
k
n
n
TC ∑=
=
1
Total Cost (TC) is given by:
The optimal location...
42M.S Ramaiah SchoolofAdvanced Studies - Bangalore
43
Equations
Cell Cell formula Equation Copied
to
G5 =SQRT($B$16-E5)^2+($B$17-F5)^2 1 G5:G12
B19 =SUMPRODUCT(G5:G12,D5:D12...
44M.S Ramaiah SchoolofAdvanced Studies - Bangalore
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Results
• The coordinates (x, y) = ( 681, 882) has been identified as
the location of the new factory which minimises t...
46M.S Ramaiah SchoolofAdvanced Studies - Bangalore
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SC Trading Partners -
Benchmarking
using
Data Envelopment Analysis (DEA)
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Non-Parametric Analysis Tool
- Data Envelopment
Analysis (DEA)
Analyses multiple outputs and
inputs simultaneously to a...
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Contd.
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Motivations to use DEA
• Simplicity and ease-of-use
• No need to specify relationships or trade-offs among
performance ...
52
Inferences after using DEA
• Measures operational performance relative to peer groups
• Identify performance gaps in in...
53
Methodology
- Identification of input (X) and output (Y) variables of DMUs for
performance evaluation through DEA.
- In...
54
Input and Output Consideration
Consideration
• Principle to be adapted for selecting inputs/outputs:
lower the better f...
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Basic Charnes Cooper and Rhodes (CCR)
Model
FPo = Fractional Programme
M.S Ramaiah SchoolofAdvanced Studies - Bangalore
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Converting FP into LPP
LPo = Linear Programme
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Inference after Solving LPP
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Taking Dual* of the LPP (DLP)
Where,
λ is the non-negative Column Vector of Variables
Θ is radial efficiency
X is Input...
59
Example
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MathematicalFormulation
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Optimal Solution
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Reference Set
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Consolidated Results
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Output Oriented Model
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Example-Case (1 Input and 1 Output Case)
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Graphical Representation
X$1,00,000
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Demo Session
M.S Ramaiah SchoolofAdvanced Studies - Bangalore
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References
1. Chien-Ming Chen, Evaluation and Design of Supply Chain
Operations using DEA, Ph.D. Thesis, Erasmus Univer...
69M.S Ramaiah SchoolofAdvanced Studies - Bangalore
Session Summary
• Strategies adapted in aggregate planning with trade-o...
70
sharath@msrsas.org
M: 0 99005 14038
M.S Ramaiah SchoolofAdvanced Studies - Bangalore
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  1. 1. Day-1 Definition, Nature and Principles of Supply Chain Management (SCM)Supply Chain Management (SCM) Session Speaker K.M. Sharath Kumar 1M.S Ramaiah School of Advanced Studies - Bangalore K.M. Sharath Kumar
  2. 2. Session Objectives • To understand the role of Supply Chain Management in Manufacturing and Service OrganisationsManufacturing and Service Organisations • To critique the impact of Supply Chain in gaining• To critique the impact of Supply Chain in gaining competitive advantage • To assimilate the legal framework and negotiation tactics in cross-border transactionsin cross border transactions 2M.S Ramaiah School of Advanced Studies - Bangalore
  3. 3. Session Outline Hi t f l i ti d S l Ch i M t (SCM)• History of logistics and Supply Chain Management (SCM) • Objectives of SCM Ch ll d i i i M hi T l i d• Challenges and opportunities in Machine Tool industry supply chain • Kraljic’s matri• Kraljic’s matrix • Cross-border negotiation L l f k i b d ti ti• Legal framework in cross border negotiation 3M.S Ramaiah School of Advanced Studies - Bangalore
  4. 4. Rationale for SCM Adding Value in Every Thing We DoAdding Value in Every Thing We Do 4M.S Ramaiah School of Advanced Studies - Bangalore
  5. 5. 5M.S Ramaiah School of Advanced Studies - Bangalore
  6. 6. Rationale for Logistics and Supply Chain Management (SCM)g ( ) • Defeat of the British in the American war of Independence: At the height of war, 12000 troops had to be equipped and fedAt the height of war, 12000 troops had to be equipped and fed from the far away Britain. • Gulf war in 1991: Half a million people and half a million tones of equipment had to be airlifted 12,000 km with a furthero es o equ p e ad o be a ed ,000 w a u e 2.3 million tones of equipment moved by sea- all in impossible time frames. 6M.S Ramaiah School of Advanced Studies - Bangalore
  7. 7. Supply Chain Management (SCM)-Supply Chain Management (SCM) Definition Here are two definitions: h fThe design and management of seamless, value-added process across organisational boundaries to meet the real needs of the end customerneeds of the end customer - Institute for Supply Management 7M.S Ramaiah School of Advanced Studies - Bangalore
  8. 8. Supply Chain Management (SCM)-Supply Chain Management (SCM) Definition Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer. -The Supply Chain Council 8M.S Ramaiah School of Advanced Studies - Bangalore
  9. 9. SCM : Schematic 9M.S Ramaiah School of Advanced Studies - Bangalore
  10. 10. Evolutionary Timeline of SCM 10M.S Ramaiah School of Advanced Studies - Bangalore
  11. 11. A business process Cost Performance Timeliness Product Interface Performance T h l I t fS i I t f Customer S i I t f Technology InterfaceService InterfaceService Interface O i i P dOrganisation Individual Society AutomationProcesses Products 11M.S Ramaiah School of Advanced Studies - Bangalore
  12. 12. Value created and addedValue created and added by outside firm providing MIS Value created and delivered by Value created and delivered by Value created and Value created by purchasing and materials management by production/ operations management delivered by Finance, HR and Total value created and delivered for created and delivered by supplier Marketing for customer Value created and added by outside firm providing Logistics 12 Logistics M.S Ramaiah School of Advanced Studies - Bangalore
  13. 13. SUPPLY CHAIN Customer SUPPLY CHAIN Customer Enterprise Processes Supplier Enquiries Quotations OrdersSupplier Orders Supplies Invoices Money 13 Money M.S Ramaiah School of Advanced Studies - Bangalore
  14. 14. One Variant 6,200 Distinct Parts Imported from 17 CountriesImported from 17 Countries From 240 Suppliers Assembled in 1 Plant Within few minutes Exported to 34 Countries Same daySame day Without becoming inventory! Suzuki Grand Vitara 14
  15. 15. Competition is no longer betweenCompetition is no longer betweenCompetition is no longer betweenCompetition is no longer between Companies:Companies: It is between supply chainsIt is between supply chains 15M.S Ramaiah School of Advanced Studies - Bangalore
  16. 16. Value Chain 16M.S Ramaiah School of Advanced Studies - Bangalore
  17. 17. 1 CostCost 1 P l 2 3 People QualityQuality TechnologyTechnology Delivery & Service Delivery & Service 4 & Service& Service 17M.S Ramaiah School of Advanced Studies - Bangalore
  18. 18. Succeed in Technology bySucceed in Technology by Connecting with People 18M.S Ramaiah School of Advanced Studies - Bangalore
  19. 19. 19M.S Ramaiah School of Advanced Studies - Bangalore
  20. 20. 2010 Onwards Achieve Competitive Advantage by:p g y Focusing on both Core and Non- Core CompetenciesCore Competencies Ford Company Scenario 20M.S Ramaiah School of Advanced Studies - Bangalore
  21. 21. Aston Martin 21M.S Ramaiah School of Advanced Studies - Bangalore
  22. 22. Ford India introduces its Roadside Assistance (RSA) service in Agra - 21 July 2010, Business Line 22M.S Ramaiah School of Advanced Studies - Bangalore
  23. 23. Riding Solo, Honda Shifts to Top Gear on 2-Riding Solo, Honda Shifts to Top Gear on 2 wheelers Company to focus on new models, expandp y f , p dealer network Mr Shinji AoyamaS j oy Source: Business Line, 5 January 2011 23M.S Ramaiah School of Advanced Studies - Bangalore
  24. 24. We have combined the leading edge technology of Nissan ith A h k L l d Li it d' d li bilit twith Ashok Leyland Limited's delivery capability to l t th j t i t ff ti "complete the project in a cost effective manner". Nissan Motor senior vice President and theNissan Motor senior vice President and the JV chairman Dr. Andy Palmer 24 y M.S Ramaiah School of Advanced Studies - Bangalore
  25. 25. Alto in India is Rs 1 lakhAlto in India is Rs. 1 lakh cheaper than in Chinap - Shinzo Nakanishi,Shinzo Nakanishi, MD and CEO of MSIL (09 A 2010 E i Ti ) 25 (09 Aug 2010, Economic Times) M.S Ramaiah School of Advanced Studies - Bangalore
  26. 26. Customers get Ambushed 26M.S Ramaiah School of Advanced Studies - Bangalore
  27. 27. Ambushed Every Where 27M.S Ramaiah School of Advanced Studies - Bangalore
  28. 28. What SCM is not ?What SCM is not ? SCM is not :SCM is not : • Buying • Developing suppliers o Blind man touchingDeveloping suppliers • Logistics • Warehousing o Blind man touching elephant o All these together ? • Inventory Control • Kanban M k B d i i g • Make-Buy decision • Manufacturing • Distribution 28M.S Ramaiah School of Advanced Studies - Bangalore
  29. 29. Bottom line SituationBottom-line Situation SCM l k t th f b i i t d• SCM looks at the process from beginning to end holistically in a seamless way instead of glorifying unduly/underplaying an in-between event as stand aloney p y g • The customer does not see, does not have to see, the glorification of any event. He just wants the product/service early and cheap. He is not impressed if you just improve the situation by working on logistics or shorten the manufacturingsituation by working on logistics, or shorten the manufacturing lead time or you do all and even more, but still do not deliver results. 29M.S Ramaiah School of Advanced Studies - Bangalore
  30. 30. Some ExamplesSome Examples – You get Dell laptop in 10 days after ordering. They in turnou ge e p op 0 d ys e o de g. ey u order all parts to their vendors only after you order. Incidentally the beautiful consignment reaches your doorsteps. – Seven KMs above ground level, on a London bound flight from Bangalore at 7 am, when Thames is almost in sight, you get Vada Sambar very tasty more or less so at leastyou get Vada Sambar, very tasty, more or less so at least. Sitting in Bangalore through internet you book a 2nd class– Sitting in Bangalore, through internet you book a 2nd class ticket from Varanasi to Pratabgarh ten days before. The ticket is delivered to your e-mail ID. 30M.S Ramaiah School of Advanced Studies - Bangalore
  31. 31. SCM is at play behind all thisSCM is at play behind all this amazing transformation in Value Chain 31M.S Ramaiah School of Advanced Studies - Bangalore
  32. 32. Fit Between Corporate and Functionalp Strategies (Chopra & Meindl) Corporate Competitive Strategy Supply ChainProduct Marketingpp y or Operations Strategy Development Strategy Marketing and Sales Strategy Information Technology Strategy Finance Strategy Human Resources Strategy 32M.S Ramaiah School of Advanced Studies - Bangalore
  33. 33. The primary “drivers” for achieving strategic fitThe primary drivers for achieving strategic fit in Supply Chain Strategy (adapted from Chopra & Meindl)(adapted from Chopra & Meindl) Corporate Strategy Supply Chain Strategypp y gy Efficiency Responsiveness Facilities Inventory Transportation Information Market S t ti 33 y p Segmentation M.S Ramaiah School of Advanced Studies - Bangalore
  34. 34. 34M.S Ramaiah School of Advanced Studies - Bangalore
  35. 35. 35M.S Ramaiah School of Advanced Studies - Bangalore
  36. 36. Importance of Supply Chain Management?Importance of Supply Chain Management? –Cont. Firms with Supply Chain Management: 1 Start with key suppliers and move on to1. Start with key suppliers and move on to other suppliers. 2 Similar protocol for customers and2. Similar protocol for customers and shippers as well. 3. Integrate second tier suppliers and3. Integrate second tier suppliers and customers. (second tier refers to the customer’s( customers and the supplier’s suppliers) 36M.S Ramaiah School of Advanced Studies - Bangalore
  37. 37. Objectives of SCM 37M.S Ramaiah School of Advanced Studies - Bangalore
  38. 38. Objectives of a Supply Chain • Maximise overall value created - Supply chain value: difference between what the finalpp y product is worth to the customer and the effort the supply chain expends in filling the customer’s request V l i l t d t l h i fit bilit- Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)pp y ) - Supply chain incurs costs (information, storage, transportation, components, assembly, etc.) • Increase Supply chain profitability (total profit to be shared across all stages of the s ppl chain)across all stages of the supply chain) • Balance Supply and Demand 38 • Balance Supply and Demand M.S Ramaiah School of Advanced Studies - Bangalore
  39. 39. Components of Supply Chain ManagementManagement 39M.S Ramaiah School of Advanced Studies - Bangalore
  40. 40. Supply Chain • Organisations must embrace technologies that can ff i l d h i l h ieffectively manage and oversee their supply chains Distribution or disposal 40M.S Ramaiah School of Advanced Studies - Bangalore
  41. 41. Benefits of SCM  I t d ti Inventory reduction  Productivity Improvement  P l d ti Personnel reduction  Cost reduction  High customer satisfaction High customer satisfaction  Increased profit  On time delivery fulfillment On-time delivery fulfillment  Revenue/profit increase  Better cash management Better cash management  Better order management 41M.S Ramaiah School of Advanced Studies - Bangalore
  42. 42. Past and FuturePast and Future • GLOBALISATIONG O S ON – Whether for buying or selling, no one confines to his own country these days.y y • 50% under garments in the world are from Tiruppur, India • In Indian Super markets, imported potato wafers compete with l l b dlocal brands. • Roses are exported from India daily. • Many international brands of Gadgets to day do not put placeMany international brands of Gadgets to day do not put place of manufacture any more because they cannot assign any one country for adding maximum value in the supply chain. E.q., Philips– Philips – Black and Decker 42M.S Ramaiah School of Advanced Studies - Bangalore
  43. 43. Supply Chain Competitiveness C i• Competitor • Competition • Competitiveness 43M.S Ramaiah School of Advanced Studies - Bangalore
  44. 44. 44M.S Ramaiah School of Advanced Studies - Bangalore
  45. 45. 45M.S Ramaiah School of Advanced Studies - Bangalore Source: Presentation from K.C. Manjunath, GE-Triveni
  46. 46. Supply Chain Competitiveness : Toyota Way “When Toyota developed Prius hybrid car, a core part of computer system, Insulated Gate Bipolar Transistor had to be developed. Toyota was not good at semiconductors. But they decided to develop and put up a new plant for Manufacture. Why? Toyota wanted ‘Self-reliance’ as this Technology would lead to f t & ill i th titi d t “future & will give them competitive advantage “ 46M.S Ramaiah School of Advanced Studies - Bangalore
  47. 47. SCM : Activities 47M.S Ramaiah School of Advanced Studies - Bangalore
  48. 48. Effects of Supply Chain Problems  Problems with the Supply Chain have caused armies to lose wars & companies to go out of business, for example…p g , f p I WWII G In 1999 ToysRUS had problems In WWII, Germany encountered problems supplying supplying to holiday shoppers & lost business problems supplying troops in Russia, which contributed to their collapse & lost business.their collapse. 48M.S Ramaiah School of Advanced Studies - Bangalore
  49. 49. Sources of Supply Chain Problems UNCERTAINTY POOR COORDINATION  In demand forecast  With Internal units and business partners  In delivery times & production delays  Ineffective customer service production delays  High inventory costs, loss of revenue & extra cost for expediting iservices. 49M.S Ramaiah School of Advanced Studies - Bangalore
  50. 50. B ll hi D H dBull whip or Dragon Head 50M.S Ramaiah School of Advanced Studies - Bangalore
  51. 51. B ll hip EffectBullwhip Effect Occurs when slight demand variability is magnified asOccurs when slight demand variability is magnified as information moves back upstream 51M.S Ramaiah School of Advanced Studies - Bangalore
  52. 52. Equilibrium & Bull whipped Information q pp Information Suppliers Producers Distributors Retailers Products & Services Products & Services Products & Services 10 Units 10 Units 10 Units Suppliers Producers Distributors Retailers Products & Services Products & Services Products & Services 10 Units 10 Units 10 Units Cash 10 Units 10 Units 10 Units Cash 10 Units 10 Units 10 Units Suppliers Information Flow SuppliersSuppliersSuppliers Retailers Distributors Producers Suppliers 20 Units Products & Services 40 Units Products & Services Products & Services 80 Units Producers Suppliers Distributors Producers Suppliers Retailers Distributors Producers Suppliers 20 Units40 Units80 Units Cash Flow 40 Units160 Units 80 Units 40 Units80 Units160 Units 40 Units80 Units 52M.S Ramaiah School of Advanced Studies - Bangalore
  53. 53. Shrinking Uncertainty in SC Source: 53M.S Ramaiah School of Advanced Studies - Bangalore
  54. 54. Buyer-Supplier Relationship “Exit – Voice – Loyalty”Exit Voice Loyalty 54M.S Ramaiah School of Advanced Studies - Bangalore
  55. 55. Sustainability is the WaySustainability is the Way Forward Mulling new supplier system tog pp y minimise natural disaster: Boeing Source: 4 July 2011, Reuters 55M.S Ramaiah School of Advanced Studies - Bangalore
  56. 56. Evolution of the Indian Machine ToolEvolution of the Indian Machine Tool Industry Ph 1 Th E l Y (th l t )• Phase 1: The Early Years (three clusters) Ph 2 E d f th G ld Y• Phase 2 : End of the Golden Years Ph 3 1968 1983 A I i l T h l• Phase 3 – 1968 to 1983: Access to International Technology via Collaborations becomes Difficult • Phase 4 : The 1980s Open General License (OGL) • Phase 5 – The 1990s: The Liberalisation Years 56M.S Ramaiah School of Advanced Studies - Bangalore
  57. 57. Introduction to Machine Tool Industryy • Indian Machine tool industry grew 13% annually over 2008-11 (TAGMA)(TAGMA) • Indian Machine tool makers target 67% domestic market share• Indian Machine tool makers target 67% domestic market share by 2020 (IMTMA) • As per available statistics (4th Census of MSME Sector), this sector employs an estimated 59.7 million persons spread overp y p p 26.1 million enterprises • It is estimated that in terms of value, MSME sector accounts for about 45% of the manufacturing output and around 40% of 57 the total export of the country M.S Ramaiah School of Advanced Studies - Bangalore
  58. 58. International Comparison of Machine ToolInternational Comparison of Machine Tool Industries • Japan:• Japan: - Massive and low cost production with higher reliability and flexibility CNC machine toolsy - Collaborative development of components with li h b id d i b ioversea suppliers has been considered important business • Germany:Germany: - Associations play an important role in promoting collaborations - Industrial policies have been effective in strengthening upstream, downstream supply chains and collaborations 58M.S Ramaiah School of Advanced Studies - Bangalore
  59. 59. International Comparison of Machine ToolInternational Comparison of Machine Tool Industries Contd. • Italy:• Italy: - Innovation networks have been in the form of clusters • USA: - Composed of SMEs - Grappling because of lack of coordination in technology d di istandardisation - Short term transaction relationship between manufacturer supplier and clientsmanufacturer, supplier and clients • China: - Picked up from 1995 in the form of scattered SMEs - Further diversified into metal cutting and metal forming i d t 59M.S Ramaiah School of Advanced Studies - Bangalore industry
  60. 60. Auto sector to drive Die andAuto sector to drive Die and Machine Tool Industry in Indiay constitutes 50% of Die & Machineconstitutes 50% of Die & Machine Tool market TAGMA d IMTMA- TAGMA and IMTMA 60M.S Ramaiah School of Advanced Studies - Bangalore
  61. 61. An Estimate of Potential aboutAn Estimate of Potential about Machine Tool Industry The two-wheeler industry adding a capacity of 700,000 vehicles every year, calls for an overall investment of close to Rs 1,000 crore (Rs 10 billion) per annum, of which at least 60 per cent would be in the form of machine tools. Source:Sou ce: 61M.S Ramaiah School of Advanced Studies - Bangalore
  62. 62. Machine Tool Industry SC Challenges D t it t i t i I di hi t l i d t i• Due to capacity constraints in Indian machine tool industries, European, Taiwanese and Korean machine tool makers are harvesting the Indian ordersharvesting the Indian orders • With the need to frequently introduce new models as aWith the need to frequently introduce new models as a competitive measure, design and supply of such machine tools needs to be intact with high flexibility • Vendors rarely stick to delivery commitments in comparisony y p with international counterparts 62M.S Ramaiah School of Advanced Studies - Bangalore
  63. 63. Machine Tool Industry SC ChallengesMachine Tool Industry SC Challenges Contd. N d t i t b t ti ll i IT th b i id• Need to invest substantially more in IT on the business side, such as SCM and CRM in order to handle complaints before they become a source of frictionthey become a source of friction • Change relationships with parts vendors to become partnersChange relationships with parts vendors to become partners in development rather than not being just customers • Many critical components of a modern CNC machine tool are not made in the countryy 63M.S Ramaiah School of Advanced Studies - Bangalore
  64. 64. Machine Tool Industry SC ChallengesMachine Tool Industry SC Challenges Contd. S hi ti t d hi h t d t lif l d• Sophisticated machinery, short product life-cycles, and demanding user requirements have increased competition in the machine tool marketthe machine tool market • Small and medium enterprises (SMEs) face problems inSmall and medium enterprises (SMEs) face problems in coordinating their supply chain due to lack of resources and improper directions 64M.S Ramaiah School of Advanced Studies - Bangalore
  65. 65. A Case Bharat Fritz Werner Ltd. was able to developp and deliver, a complex nine-axis CNC multi- tasking machine for machining rear axletasking machine for machining rear axle housings of commercial vehicles in a single tset up 65M.S Ramaiah School of Advanced Studies - Bangalore
  66. 66. Machine Tool Industry SC Opportunities T h l t i t d i ti l t thi d f• Two-wheeler sector is today importing nearly two-thirds of its requirements of machine tools • Improve delivery capability through better internal practices by maximising in-built capacityby maximising in built capacity • Scope for exporting machine tools from here to countries• Scope for exporting machine tools from here to countries such as Poland, Czechoslovakia and Turkey, which are emerging as major auto component suppliers to westerng g j p pp Europe and west Asia, despite competition from Taiwan and Korea 66M.S Ramaiah School of Advanced Studies - Bangalore
  67. 67. Machine Tool Industry SC OpportunitiesMachine Tool Industry SC Opportunities Contd. D t h t i f d t' lif l i t• Due to shortening of a product's life cycle, companies are to focus on their service offers in order to ensure an advantage in competitionin competition • Scope for collaborative design of tools digitalScope for collaborative design of tools, digital manufacturing systems, and integrated production management systems, to augment new products to market • Strategic collaborations by integrating the upstream,g y g g p midstream, and downstream parts of their supply chains 67M.S Ramaiah School of Advanced Studies - Bangalore
  68. 68. Machine Tool Industry SC OpportunitiesMachine Tool Industry SC Opportunities Contd. • Specialisation and coordination mechanism for technological innovation have been dynamically evolvinginnovation have been dynamically evolving • Export opportunity exists to step up share of exports in the• Export opportunity exists to step up share of exports in the world market due to price competitiveness 68M.S Ramaiah School of Advanced Studies - Bangalore
  69. 69. UK Manufacturers Take on the Supply Chain Challenge Present ScenarioPresent Scenario (12 January 2012) Source: MTD Website 69M.S Ramaiah School of Advanced Studies - Bangalore
  70. 70. Rationale for the Study SMEs should focus on information flow and t l d t di th bmutual understanding among the members of supply chain Source: Rajesh K SinghSource: Rajesh K. Singh Indian Institute of Foreign Trade (IIFT), New Delhi, Business Process Management Journal, Vol. 17 No. 4, 2011,pp. 619-638 70 g , , ,pp M.S Ramaiah School of Advanced Studies - Bangalore
  71. 71. Efficient Consumer Response (ECR) • Consumer: An orientation toward the needs of the consumer • Efficient Response: A process oriented optimisation of the supply chainoptimisation of the supply chain 71M.S Ramaiah School of Advanced Studies - Bangalore
  72. 72. Efficient Consumer Response (ECR) V ti l ll b ti i f t i d• Vertical collaboration in manufacturing and retailing with the objective of an efficient ti f ti f dsatisfaction of consumer needs • All efforts should stand towards improved customer satisfaction Source: Dr Dirk SeifertSource: Dr. Dirk Seifert Harvard Business School 72M.S Ramaiah School of Advanced Studies - Bangalore
  73. 73. Concept of ECR in SCM • Efficient replenishment • Efficient administration• Efficient administration • Efficient operating standards 73M.S Ramaiah School of Advanced Studies - Bangalore
  74. 74. Collaborative Planning Forecasting Replenishment (CPFR) Definition:f Sharing of forecast and related business information among trading partners in the supply chain to enable automatic product replenishmentreplenishment. American Production and Inventory Control Society (APICS). Objective of CPFR- optimize supply chain through improved demand forecasts, with the right product delivered at right time to the right location, with reduced inventories, avoidance of stock-the right location, with reduced inventories, avoidance of stock outs, & improved customer service. Value of CPFR- broad and open exchange of forecasting information to improve forecasting accuracy where both the buyerinformation to improve forecasting accuracy where both the buyer and seller collaborate through joint knowledge of base sales, promotions, store openings or closings, & new product introductions 74 M.S Ramaiah School of Advanced Studies - Bangalore introductions.
  75. 75. Wal-Mart, Warner-Lambert, SAP H d i VAATZ CHyundai – VAATZ Concept Open Standards,Broad Requirements & S t ti I t tiSystematic Integration 75 M.S Ramaiah School of Advanced Studies - Bangalore
  76. 76. What Collaboration Should Be? “ D Thi Diff tl ”“ Do Things Differently” • B2B Extranet Planning Systems • Competitive Advantage-StrategicCompetitive Advantage Strategic • Competitive Duration-Medium to Long D i C t Eli i ti th h• Drivers-Cost Elimination through synchronization • Barriers-Medium Technology;Large People 76 M.S Ramaiah School of Advanced Studies - Bangalore
  77. 77. THE CPFR 9 STEPSTHE CPFR 9 STEPS •Develop Collaborative Arrangementp g •What info are we going to Share? •Create Joint Business PlanCreate Joint Business Plan • How are we going to do business? •Create Sales Forecast – •What does the future look like? •Identify Exceptions for Sales Forecast – •What we know that the supplier doesn’t •What the supplier knows that we don’t 77 M.S Ramaiah School of Advanced Studies - Bangalore
  78. 78. THE CPFR 9 STEPS..contd • Resolve/Collaborate on Exception Items • How are we going to overcome the exceptions? C O• Create Order Forecast • What can we live with and move forward with? • Identify Exceptions for Order Forecast R l /C ll b t E ti• Resolve/Collaborate on Exception Items 78 M.S Ramaiah School of Advanced Studies - Bangalore • Generate the Orders
  79. 79. BEFORE CPFR – LIMITED COLLABORATIONBEFORE CPFR LIMITED COLLABORATION O dOrder 1. 22 Government Vendor Characteristics:Characteristics: •Limited visibility of future demand requirements Inventories to buffer against unexpected demand • Both partners forecast independently • Outages cause adversarial relationships 79 M.S Ramaiah School of Advanced Studies - Bangalore unexpected demand
  80. 80. POST CPFR Government Collaborative Joint Business Sales Forecast Firm Order Government Order Retailer Sales Forecast Supplier Sales Forecast Joint Sal;es Forecast Display Units Needed On- Hand On-Hand Receipt Need 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OrderOrderOrder Collaborative Arrangement Joint Business Plan Sales Forecast Collaboration Firm Order Past Fzn Zone Order Forecasts with tolerances 0 61 61 0 989 0 989 2,559 1,855 0 1,855 2,993 3,492 2,773 719 3,656 7,166 10,845 -3,679 9,208 0 3,848 7,308 15,146 -7,838 3,400 10,273 14,840 -4,567 3,724 361 15,735 22,124 -6,389 3,016 361 14,719 21,803 -7,084 13,988 0 Characteristics: •Dual insights provide a better forecast demand • Long term view of demand requirements • Both partners jointly forecast Vendor p j y • Earlier visibility of issues through the exceptions • Monitor POS data via the private exchange/web portal; compare to forecast 80 M.S Ramaiah School of Advanced Studies - Bangalore p ; p • Focus of relationship becomes win-win
  81. 81. Summaryy In order to smoothen the supply chain “bull whip”, we needpp y p , accurate visibility of demands: • CPFR is an industry standard “guideline” for collaboration • Collaboration requires “trust”q • Collaboration is a transformational strategy –Roles and responsibilities can change–Roles and responsibilities can change • Collaboration facilitates long-term B2B relationships C ll b ti t hi t b i / i• Collaborative partnerships must be win / win • Collaborative benefits can be huge! 81 M.S Ramaiah School of Advanced Studies - Bangalore
  82. 82. Global Supply ChainsGlobal Supply Chains  Some of the issues involved in global supply chains;global supply chains;  legal issues, customs fees and taxes Global Supply Chains = Supply  language and cultural differences  fast changes in currencyGlobal Supply Chains = Supply chains that involve suppliers and/or customers in other fast changes in currency exchange rates  political instabilities. countries. 82M.S Ramaiah School of Advanced Studies - Bangalore
  83. 83. Principles and Standards for EthicalPrinciples and Standards for EthicalPrinciples and Standards for EthicalPrinciples and Standards for Ethical Supply Management ConductSupply Management Conductpp y gpp y g LOYALTY TO YOUR ORGANISATIONLOYALTY TO YOUR ORGANISATION JUSTICE TO THOSE WITH WHOM YOUJUSTICE TO THOSE WITH WHOM YOU DEALDEAL FAITH IN YOUR PROFESSIONFAITH IN YOUR PROFESSION 83M.S Ramaiah School of Advanced Studies - Bangalore
  84. 84. Business CultureBusiness Culture Western • Perfectionist Indian • Functionalist • Engineer • Planning • Businessman • Improvisationg • Facts matter • Mauls for non-compliance p • People matter • Bonus for successp • Single task at a time • Multi-task at a time 84M.S Ramaiah School of Advanced Studies - Bangalore
  85. 85. Supplier Negotiation and SourcingSupplier Negotiation and Sourcing Challenges 85M.S Ramaiah School of Advanced Studies - Bangalore
  86. 86. Evaluating & Selecting Key Suppliers Wh l ti li f t t iWhen evaluating suppliers for a strategic partnering, purchase cost becomes relatively less important.less important. -Tata Nano V/S A-Segment Cars Key Supplier Selection is conducted by a cross functional team selection approach whereinpp purchasing staff, primary users, product designers, and manufacturing personnel participate. - Buyer Audit 86M.S Ramaiah School of Advanced Studies - Bangalore
  87. 87. 87M.S Ramaiah School of Advanced Studies - Bangalore
  88. 88. Kraljic’s Matrix 88M.S Ramaiah School of Advanced Studies - Bangalore
  89. 89. Kraljic’s Matrix 89M.S Ramaiah School of Advanced Studies - Bangalore
  90. 90. STRATEGIC SOURCING FOR SUCCESFUL SUPPLY CHAIN MANAGEMENT Why Strategic Sourcing? - Lehman Brothers Case 90M.S Ramaiah School of Advanced Studies - Bangalore
  91. 91. 91M.S Ramaiah School of Advanced Studies - Bangalore
  92. 92. 92M.S Ramaiah School of Advanced Studies - Bangalore
  93. 93. 93M.S Ramaiah School of Advanced Studies - Bangalore
  94. 94. TYPES OF SUPPLIERS • TECHNOLOGY MACHINERY/CAPITAL EQUIPMENT• MACHINERY/CAPITAL EQUIPMENT • RAW MATERIAL COMPONENTS• COMPONENTS • FINISHED PRODUCTS 94M.S Ramaiah School of Advanced Studies - Bangalore
  95. 95. NEED FOR GLOBAL SUPPLIERSNEED FOR GLOBAL SUPPLIERS • QUALITY • TECHNOLOGY • COST • SERVICE 95M.S Ramaiah School of Advanced Studies - Bangalore
  96. 96. GENERALLY NON NEGOTIABLE ITEMSGENERALLY NON-NEGOTIABLE ITEMS • SPECIFICATIONS • PAYMENT TERMS 96M.S Ramaiah School of Advanced Studies - Bangalore
  97. 97. ISSUES IN NEGOTIATIONISSUES IN NEGOTIATION • CULTURE • EXCHANGE RATE • DEGREE OF TRANSPARENCY REQUIRED – OUR MINDSET/ OUR MANAGEMENT’S MINDSETMINDSET/ OUR MANAGEMENT’S MINDSET 97M.S Ramaiah School of Advanced Studies - Bangalore
  98. 98. Supplier Strategies Pl t h l hi i i Supplier Strategies • Plans to help achieve company mission • Affect long-term competitive position • Strategic options – Many suppliersy pp – Few suppliers – Keiretsu network – Vertical integration – Virtual company Pl V tua co pa y Plan 98 © 1995 Corel Corp. M.S Ramaiah School of Advanced Studies - Bangalore
  99. 99. Daimler Chrysler’s Supplier Cost Reduction Effort Supplier Suggestion Model SavingsSupplier Suggestion Model Savings Rockwell Use passenger car door locks on trucks Dodge trucks $280,000 Rockwell Simplify design/substitute materials on manual window system Various $300,000 window system 3M Change tooling for wood- grain panels to allow three Caravan, Voyager $1,500,000 from one die Trico Change wiper-blade formulation Various $140,000 formulation Leslie Metal Arts Exterior lighting suggestions Various $1,500,000 99M.S Ramaiah School of Advanced Studies - Bangalore
  100. 100. Many Suppliers StrategyMany Suppliers Strategy • Many sources per item • Adversarial relationship • Short-term • Little openness• Little openness • Negotiated, sporadic PO’s • High prices • Infrequent, large lots • Delivery to receiving dock © 1995 Corel Corp. 100M.S Ramaiah School of Advanced Studies - Bangalore
  101. 101. Few Suppliers Strategy • 1 or few sources per item Few Suppliers Strategy • 1 or few sources per item • Partnership (JIT) • Long-term, stable • On-site audits & visits • Exclusive contracts • Low prices (large orders) © 1995 • Low prices (large orders) • Frequent, small lots © 995 Corel Corp. • Delivery to point of use 101
  102. 102. Tactics for Close Supplier Relationships TacticTactic Red ce total n mber of ResultsResults • Average 20% reduction in 5• Reduce total number of suppliers • Certify suppliers • Average 20% reduction in 5 years • Certify suppliers • Ask for JIT delivery from key suppliersy pp • Involve key suppliers in new product design • Develop software linkages to li 102 suppliers M.S Ramaiah School of Advanced Studies - Bangalore
  103. 103. Vertical Integration StrategyVertical Integration Strategy Raw Material (Suppliers) • Ability to produce goods previously BackwardBackward IntegrationIntegration purchased – Setup operations CurrentCurrent TransformationTransformation – Buy supplier • Make-buy issue ForwardForward IntegrationIntegration • Major financial commitment Finished GoodsFinished Goods (Customers)(Customers) commitment • Hard to do all things well 103 (Customers)(Customers)well M.S Ramaiah School of Advanced Studies - Bangalore
  104. 104. Forms of Vertical IntegrationForms of Vertical Integration Iron Ore Silicon Farming Raw Material (Suppliers) Steel Flour Milling Backward Integration Automobiles Integrated Circuits Current Transformation Distribution System Circuit Boards Forward Integration Dealers Computers Watches Calculators Finished Goods (Customers) Baked Goods 104M.S Ramaiah School of Advanced Studies - Bangalore
  105. 105. Keiretsu Network Strategy • Japanese word for ‘affiliated chain’ Keiretsu Network Strategy • Japanese word for affiliated chain • System of mutual alliances and hicross-ownership – Company stock is held by allied firms • Lowers need for short-term profits • Links manufacturers, suppliers, distributors, &pp lenders – ‘Partnerships’ extend across entire supply chainp pp y 105M.S Ramaiah School of Advanced Studies - Bangalore
  106. 106. Virtual Company StrategyVirtual Company Strategy • Network of independent companies• Network of independent companies – Linked by technology • PC’s, faxes, Internet etc. – Each contributes core competencies – Typically provide services • Payroll, editing, designing • May be long or short-term – Usually, only until opportunity is met © 1995 Corel Corp. Usually, only until opportunity is met 106M.S Ramaiah School of Advanced Studies - Bangalore
  107. 107. Overview of Global Procurement: Cross Border NegotiationsCross Border Negotiations Interpretation, Enforcement and Dispute ResolutionResolution 107M.S Ramaiah School of Advanced Studies - Bangalore
  108. 108. Precedence's are Referred but notPrecedence s are Referred but not Followed Sales Act High Court Verdict on S/W CD’s C L (P Ch )Common Law (Prone to Changes) 108M.S Ramaiah School of Advanced Studies - Bangalore
  109. 109. Legal System Framework Category 1 Category 2 Category 3 Supreme Court, Federal Apex Judiciary • II round • Takes 10-12 months • Court of last resort High Court • I round • Takes 6 months • 50-60% disputes sorted District/Province/Civil Court p • Takes 24 – 30 months 109M.S Ramaiah School of Advanced Studies - Bangalore
  110. 110. Legal System Framework Category 1 Category 2 Category 3 Arbitration – Alternative to litigation Special Jurisdiction Place of evidence is very vital • Headed by professionals t j dnot judges • Three member committee • Two Industry Veterans and one retired judge 110M.S Ramaiah School of Advanced Studies - Bangalore j g
  111. 111. Points to Remember C t t di t b t t i t i l t• Contract dispute between any two companies cannot violate the Country law • Law to be referred has to be mentioned in the contract• Law to be referred has to be mentioned in the contract Ex: Bombay court may look into Hongkong/Singapore laws to deal with broadcasting rightsto deal with broadcasting rights • Choice of Forum – Depending on the issue• Choice of Forum Depending on the issue • Choice of Law – Decided by Parties 111M.S Ramaiah School of Advanced Studies - Bangalore
  112. 112. Legal System Framework Category 1 Category 2 Category 3 Regulators Example: • TRAI • SEBI • AAI etc. 112M.S Ramaiah School of Advanced Studies - Bangalore
  113. 113. Cross Border Negotiations 113M.S Ramaiah School of Advanced Studies - Bangalore
  114. 114. What is Negotiation?g It is the art of creating agreement on a specific issue between two (or more) parties with 4 differing views (Win/Loose, Win/Win, Loose/Loose, Loose/Win) imparting or conveying ideas, views or information from the mind of one person to the mind of the other. What is Purchasing? The activity of acquiring goods or services to accomplish theThe activity of acquiring goods or services to accomplish the goals of an organisation. What is Purchasing Negotiation? A process in a finite number of steps consisting mainly of alternate proposals and counter-proposals or a form of co- operation with both common and opposed interests with two or more parties. 114M.S Ramaiah School of Advanced Studies - Bangalore more parties.
  115. 115. Golden Rules of Negotiation 1 FORM1. FORM 2 People Buy People First2. People Buy People First 3 Buyers’ are liars and Non Buyers’ are bigger liars3. Buyers are liars and Non-Buyers are bigger liars 4 Emotion Sells and Logic solidifies the sale4. Emotion Sells and Logic solidifies the sale 5 N Gi U5. Never Give Up 6 PMA d K S ili 115 6. PMA and Keep Smiling M.S Ramaiah School of Advanced Studies - Bangalore
  116. 116. Role Play 116M.S Ramaiah School of Advanced Studies - Bangalore
  117. 117. Session Summary • Meaning and definition of Supply Chain Management has been explained. • Special cases with respect to advantages of SCM has been discussed. • Current trends of Supply Chain and it’s impact have b l id dbeen elucidated. 117M.S Ramaiah School of Advanced Studies - Bangalore
  118. 118. 1M.S Ramaiah SchoolofAdvanced Studies - Bangalore Session Speaker K.M. Sharath Kumar Manufacturing Logistics and Make or Buy Decisions Day-2
  119. 119. 2M.S Ramaiah SchoolofAdvanced Studies - Bangalore Session Objectives • To ascertain the key factors to optimise logistics process • To assimilate the factors to be considered for Make or Buy decisions • To match supply chain strategies with products
  120. 120. 3M.S Ramaiah SchoolofAdvanced Studies - Bangalore Session Outline • Logistics strategies • Make or Buy – Factors to be considered • Span of Process • Push vs. Pull Scheduling • Hybrid approach for supply chain
  121. 121. 4 Manufacturing Logistics M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  122. 122. 5 CLM DEFINITION OF LOGISTICS ….is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-of- consumption in order to meet customers' requirements. Council of Logistics Management, 1998; www.CLM1.org M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  123. 123. 6 Logistics - Science of managing (controlling) the movement and storage of goods (or people) from acquisition to consumption. Goods: Raw Materials → Final products, and everything in between. Movement = Transportation (between locations). Storage = Inventory, Warehousing (at locations). Difference between acquisition and consumption is a matter of space and time. NOTE: Logistics does not deal with Technology of Production, such as the design of machines, vehicles and the design of finished products. M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  124. 124. 7M.S Ramaiah SchoolofAdvanced Studies - Bangalore Source: Presentation by Mr. K.C. Manjunath, Triveni Engineering Ltd.
  125. 125. 8 Five Business Systems - Tightly Interconnected within the Organization Measurement Decisions Management Systems Reward Decisions Strategic Decisions Transportation Decisions Sourcing Decisions Inventory Decisions Logistics Systems { Price Decisions Promotion Decisions Marketing Systems Product Decisions Place (How, where, how much) } Production Scheduling Decisions Production Capacity Decisions Shop Floor Decisions Manufacturing Systems } Product Design Decisions Process Design Decisions Engineering Systems} M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  126. 126. 9 Logistics – Mission [A Bill of “Rights”] • Logistics embodies the effort to deliver: – the right product – in the right quantity – in the right condition – to the right place – at the right time – for the right customer – at the right cost M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  127. 127. 10 Activities and Logistics Decisions Transportation rate and contract negotiation mode and service selection routing and scheduling Inventories finished goods policies supply scheduling short term forecasting Warehousing private vs. public space determination warehouse configuration Stock layout and dock design stock placement Cross-docking FacilityLocation determining location, number and size of facilities allocating demand to facilities Customer Service determining customer wants determining customer response to service changes Materials Handling equipment selection equipment replacement order picking procedures Packaging design Order Processing order procedure determination Coordinating Production Schedule aggregate production quantities sequencing and timing of production runs M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  128. 128. 11 Manufacturing Logistics  Physical Distribution Recycling/ Returns/ Waste Disposal Location Communication M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  129. 129. 12 Inbound & Outbound Logistics MANUFACTURING PROCESSES INBOUND LOGISTICS OUTBOUND LOGISTICS SUPPLIER CUSTOMER M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  130. 130. 13 Reverse Logistics • To manage the flow & Storage of products and services, moving backwards through the supply chain • Supply chains create waste due to packing • New development in SCM includes the recycling of products and packing materials, “disassembly” of products for reuse, product returns for warranty claims M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  131. 131. 14 TVS Logistics Case M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  132. 132. 15 Air Asia Case M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  133. 133. 16 Freight management goes online in ThiruvananthapuramRailway division (August 24, 2010) Freight Operating Information system will enable traders to monitor arrival of the freight train, plan out the receipt and dispatch of consignments to the intended locations, besides providing adequate time to arrange for labour. M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  134. 134. 17 Importance of Logistics • Essential & Expensive - ( GDP ) 10 to 13% in India 8% in USA • Bigger than the profit margin on goods • Affects Financial Performance M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  135. 135. 18 Logistics for life sciences still out in the cold • A goods carrier crossing a State border in India may have to wait anywhere between two to 24 hours to get the necessary clearances before it can enter the next State. Compare this to transit across borders in China, which takes between 15 minutes to two hours. Or in the EU, where the carrier usually does not have to wait for more than a few minutes. • According to World Bank's Logistics Performance Index ranked India 47 with a score of 3.1 (world average 2.5) in 2010, dropping from 39 in 2007. The index evaluates the logistics performance of countries on the basis of following key dimensions such as Customs clearances, infrastructure, ease of shipment and tracking. Source:Joint Studyby DHL and Organisationof Pharmaceutical Producers ofIndia , October 2011 M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  136. 136. 19M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  137. 137. 20 Role of logistics managers in strategic decision OTHER MANAGERS BUSINESS STRATEGY LOGISTICS STRATEGY ROUTINE LOGISTICS DECISIONS LOGISTICS MANAGER DISCUSSIONS & AGREEMENTS M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  138. 138. 21M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  139. 139. 22M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  140. 140. 23 Volvo-Case Multi Axle Transport Solution M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  141. 141. 24 Benefits • Equivalent to 5 : 2-Axle trucks • Higher Average speed • Less Breakdowns • Transportation cost saving of 20-40% to Fleet owners • Takes 16 m road space but the latter take 90 m • Cut in fuel consumption by 50% • Environmental safety M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  142. 142. 25 Consolidation • Smaller Operator’s are shrinking • Large players are outsourcing • Shift towards bagging quality orders • Warehousing etc. M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  143. 143. 26 Volvo’s Fuel Cost Typical Trucks Volvo Trucks Fuel Consumption 3.5 kmpl 2.5 kmpl Cost/Tonne KM Rs. 4.60 Rs. 6.40 Load Carried 10 Tonnes 30 Tonnes Fuel cost/Tonne KM Re 0.46 Re 0.21 M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  144. 144. 27 Conclusion “Big is Better” M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  145. 145. 28 Indian Government Initiatives Allowing 100% FDI Eliminating CST and IT exemptions on Port development Projects Improving Multi Modal Transport and PPP M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  146. 146. 29 Plan for multi-modal venture by 3 logistics PSUs SCI, Concor, Central Warehousing Corporation would be equity partners M.S Ramaiah SchoolofAdvanced Studies - Bangalore Source:BL, 5 January2011
  147. 147. 30 Delhi may soon levy congestion fee on vehicles 08 April 2010 Source: ET M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  148. 148. 31 Railways sees scope for greater logistics play Source:ET, September2011 M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  149. 149. 32 Make or Buy Decisions M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  150. 150. 33M.S Ramaiah SchoolofAdvanced Studies - Bangalore Make or Buy Choice • One of the key strategic issue in manufacturing is the decision regarding “what to make and what to buy”. • Companies rarely make their own products/services from start to end. • Mostly these decisions have been taken on an ad-hoc manner and lack adequate scientific consideration.
  151. 151. 34M.S Ramaiah SchoolofAdvanced Studies - Bangalore Make or Buy Choice • Inability to make in-house (Technical capability High-Investment Low Utilisation) • Retaining Core Technology L & T Komatsu-Welding Robot
  152. 152. 35M.S Ramaiah SchoolofAdvanced Studies - Bangalore Make or Buy Choice • BREAK EVEN ANALYSIS TOTAL COST -BUY TOTALCOST - MAKE MAKE-VARIABLE COST MAKE-FIXED COST VOLUME COST BREAK -EVEN
  153. 153. 36M.S Ramaiah SchoolofAdvanced Studies - Bangalore Span of Process
  154. 154. 37M.S Ramaiah SchoolofAdvanced Studies - Bangalore Make-or-Buy Decisions 1. Maintain core competence 2. Lower production cost 3. Unsuitable suppliers 4. Assure adequate supply (quantity or delivery) 5. Utilize surplus labor or facilities 6. Obtain desired quality 7. Remove supplier collusion 8. Obtain unique item that would entail a prohibitive commitment for a supplier 9. Protect personnel from a layoff 10. Protect proprietary design or quality 11. Increase or maintain size of company Reasons for Making
  155. 155. 38M.S Ramaiah SchoolofAdvanced Studies - Bangalore Make-or-Buy Decisions 1. Frees management to deal with its core competence 2. Lower acquisition cost 3. Preserve supplier commitment 4. Obtain technical or management ability 5. Inadequate capacity 6. Reduce inventory costs 7. Ensure alternative sources 8. Inadequate managerial or technical resources 9. Reciprocity 10. Item is protected by a patent or trade secret Reasons for Buying
  156. 156. 39M.S Ramaiah SchoolofAdvanced Studies - Bangalore Framework for Make/Buy Decisions • Which component to Manufacture and what to Outsource? • Identify Core Competencies and it should be made internally. Fine & Whitney Framework for Outsourcing • Dependency on Capacity • Dependency on Knowledge Toyotas outsourcing strategies
  157. 157. 40M.S Ramaiah SchoolofAdvanced Studies - Bangalore Make/Buy Decisions Product Dependent on knowledge and capacity Independent of knowledge, Dependent on capacity Independent of knowledge and capacity Modular Outsourcing is risky Outsourcing is an opportunity Opportunity to reduce cost through outsourcing Integral Outsourcing is very risky Outsourcing is an option Keep production internal
  158. 158. 41M.S Ramaiah SchoolofAdvanced Studies - Bangalore Push and Pull Scheduling
  159. 159. 42M.S Ramaiah SchoolofAdvanced Studies - Bangalore • Efficient integration of suppliers, manufacturers, warehouses, and stores. • Coordinating activities across the supply chain • Improve performance through cost reduction, increasing service level, reducing the bullwhip effect, better utilising resources, and effectively responding to changes Effective SCM Pre-requisites
  160. 160. 43M.S Ramaiah SchoolofAdvanced Studies - Bangalore Challenges can be met by Integration – Linking front-end customer demand and back-end production and manufacturing portion of the supply chain. • Various supply chain integration strategies: – Push, pull, push–pull strategy. – Matching products and industries with supply chain strategies. – Demand-driven supply chain strategies. – The impact of the Internet on supply chain integration.
  161. 161. 44M.S Ramaiah SchoolofAdvanced Studies - Bangalore What is Push and Pull? • MRP is the classic push system. The MRP system computes production schedule for all levels based on forecasts of end items sale. Once produced, subassemblies are pushed to next level whether needed or not. Typical PC Manufacturing • JIT is the classic pull system. The basic mechanism is that production at one level only happens when initiated by a request at the higher level. That is, units are pulled through the system by request. Dell’s PC Manufacturing
  162. 162. 45M.S Ramaiah SchoolofAdvanced Studies - Bangalore Comparison • These methods offer two completely different approaches to basic production planning • Each has advantages over the other, but neither seems to be sufficient on its own. • Both have advantages and disadvantages, suggesting that both methods could be useful in the same organisation.
  163. 163. 46M.S Ramaiah SchoolofAdvanced Studies - Bangalore Push Vs. Pull Scheduling in SCM • Push Scheduling - Traditional Approach - Move the Job when finished - Creates Excessive Inventory • Pull Scheduling - Coordinated Production - Driven by Demand( Pulled thru system ) - Extensive use of visual triggers
  164. 164. 47M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  165. 165. 48M.S Ramaiah SchoolofAdvanced Studies - Bangalore Customer D1 D2 D3 D4 RDC1 RDC2 Factory Warehouse Factory Warehouse Vendors/Suppliers Finished products, Demand forecastlevel Finished products Finished products WIP Sub Assemblies Components Demand Pull Product Push
  166. 166. 49M.S Ramaiah SchoolofAdvanced Studies - Bangalore Push-Pull Scheduling in Supply Chain A Hybrid Approach in Todays Scenario
  167. 167. 50M.S Ramaiah SchoolofAdvanced Studies - Bangalore Toyota’s Manufacturing Strategy Dell’s PC Manufacturing Strategy
  168. 168. 51M.S Ramaiah SchoolofAdvanced Studies - Bangalore Push-Pull Supply Chain • Initial Stages are operated in a push based manner whereas the remaining stage are operated in a pull based manner. • Interface between the push based stage and pull based stage is known as the push-pull boundary Supply Chain Time Line
  169. 169. 52M.S Ramaiah SchoolofAdvanced Studies - Bangalore Supply Chain Timeline Push-pull supply chains
  170. 170. 53M.S Ramaiah SchoolofAdvanced Studies - Bangalore General Framework for Time Line • Make a part of the product to stock – generic product • The point where differentiation has to be introduced is the push-pull boundary • Based on extent of customisation, the position of boundary on the timeline is decided
  171. 171. 54M.S Ramaiah SchoolofAdvanced Studies - Bangalore Matching Supply Chain Strategies with Products Push-pull supply chains
  172. 172. 55M.S Ramaiah SchoolofAdvanced Studies - Bangalore GM’s Case Failure of Make to Order Strategy
  173. 173. 56M.S Ramaiah SchoolofAdvanced Studies - Bangalore Characteristics of Push & Pull in Supply Chain Push Pull Objective Minimize Cost Maximize Service Level Complexity High Low Focus Resource Allocation Responsiveness Lead Time Long Short Processes Supply chain Planning Order Fulfillment
  174. 174. 57M.S Ramaiah SchoolofAdvanced Studies - Bangalore Implementing a Push–Pull Strategy • Achieving the appropriate design depends on many factors: – product complexity – manufacturing lead times – supplier–manufacturer relationships. • Many ways to implement a push–pull strategy – location of the push–pull boundary. • Dell locates boundary at the assembly point • Furniture manufacturers locate the boundary at the production point
  175. 175. 58M.S Ramaiah SchoolofAdvanced Studies - Bangalore The Impact of Lead Time • Longer the lead time, more important it is to implement a push based strategy. • Typically difficult to implement a pull strategy when lead times are so long that it is hard to react to demand information.
  176. 176. 59M.S Ramaiah SchoolofAdvanced Studies - Bangalore Cases
  177. 177. 60M.S Ramaiah SchoolofAdvanced Studies - Bangalore Grocery Industry • Typical supermarket employs a push-based strategy • Peapod was built on pure pull strategy with no inventory and no facilities. – Significant service problems with high stock-out rates – Changed to a push–pullstrategy by setting up a number of warehouses – Warehousecovers a large geographical area • Aggregated demand • Other challenges: – Reducingtransportationcosts – Short responsetime – Low customer density • Products having low demand uncertainty were treated with – high economies of scale in transportationcost – push-based strategy more appropriately.
  178. 178. 61M.S Ramaiah SchoolofAdvanced Studies - Bangalore Book Industry • Initial model of Amazon.com a pure pull system with no warehouses and no stock. – Ingram Book Group supplied most of Amazon’s customer demand. • As volume and demand increased: – Amazon.com’s service level was affected by Ingram Book’s distributioncapacity – Using Ingram Book in the first few years allowed Amazon.comto avoid inventory costs but significantly reduced profit margins. • As demand increased distributor no longer required. • Current Amazon.com: – Several warehouses around the countrywhere most of the titles are stocked. – Inventory at the warehouses is managed using a push strategy – Demand satisfied based on individual requests, a pull strategy. • Slow moving low volume books and CDs are not stocked at Amazon distribution centers – Amazon orders those when demand arrives.
  179. 179. 62M.S Ramaiah SchoolofAdvanced Studies - Bangalore Session Summary • Meaning of Logistics, components of Logistics management have been explained. • Factors influencing the make or buy decision has been elucidated. • Cases with respect to Push-Pull supply chain have been discussed.
  180. 180. 1M.S Ramaiah SchoolofAdvanced Studies - Bangalore Session Speaker K.M. Sharath Kumar Supply Chain (SC) Design Day-2
  181. 181. 2M.S Ramaiah SchoolofAdvanced Studies - Bangalore Session Objectives • To identify the role of aggregate planning in supply chain to manage supply and demand • To examine the key factors ‘to be’ considered when designing a distribution network • To apply optimisation techniques to evaluate trading partners
  182. 182. 3M.S Ramaiah SchoolofAdvanced Studies - Bangalore Session Outline • Introduction to SC modelling • Managing supply through Aggregate planning • Gravity Model • Supply Chain Benchmarking • Data Envelopment Analysis
  183. 183. 4 Supply chain Networks M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  184. 184. 5 Integrated Supply Chain • Functional Integration - Purchasing,Manufacturing,Transportation, Warehousing • Spatial Integration - Geographically dispersed vendors, - Facilities & Markets •Inter-temporal Integration - Strategic, Tactical & Operational •Integration of SC & Demand Management M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  185. 185. 6 Overview of SC Models and Modelling System • Need to augment Transactional IT with Analytical IT - “Metrics is very important” • Analytical IT involves - Descriptive Method - Normative Method or Optimisation method or Mathematical Programming method M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  186. 186. 7 Descriptive Method • Forecasting Models - predict demand for company’s finished products, cost of raw materials etc. • Cost Relationship -describes how direct and indirect costs vary • Resource Utilisation -how manufacturing activities consume scarce resources • Simulation Models -describes parts or all the company’s supply chain that will operate over time as function of parameters and policies M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  187. 187. 8 Normative or Optimisation Method - Helps managers to make better decisions - Requires descriptive data & models as inputs M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  188. 188. 9 The primary “drivers” for achieving strategic fit in Supply Chain Strategy (adapted from Chopra & Meindl) CorporateStrategy SupplyChain Strategy Efficiency Responsiveness Facilities Inventory Transportation Information Market Segmentation M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  189. 189. 10M.S Ramaiah SchoolofAdvanced Studies - Bangalore Introduction to Linear Programming Problem (LPP) The most important function of management is effective decision making.
  190. 190. 11M.S Ramaiah SchoolofAdvanced Studies - Bangalore Definition of LPP Linear Programming (LP) is a versatile technique for assigning a fixed amount of resources among competing factors. A mathematical technique used to obtain an optimal solution in resource allocation problems, such as production planning, scheduling, advertising, cost analysis etc. It is basically used for efficient and effective utilisation of limited resources to achieve organization objectives (Maximise profits or Minimise cost).
  191. 191. 12M.S Ramaiah SchoolofAdvanced Studies - Bangalore The General LP Formulation nix bxaxaxa bxaxaxa bxaxaxa tS xcxcxcZMinMax i mnmnmm nn nn nn ,...,2,1,0 //... ........................................................ //... //... .. .../ 2211 22222121 11212111 2211 =≥ =≥≤+++ =≥≤+++ =≥≤+++ +++= •There are n variables in m constraints to be solved Max / Min Z = C1x1 + C2x2 + …….Cnxn Subject to a11 x1 + a12x2 + …. + a1nxn < /> = b1 a21 x1 + a22x2 + …. + a2nxn < /> = b2 …………………………………… am1 x1 + am2x2 + …. + amnxn < /> = bm where xi >= 0, i = 1,2,……….n
  192. 192. 13M.S Ramaiah SchoolofAdvanced Studies - Bangalore Formulation of LPP (Production allocation problem) Case: 1 A manufacturer produces two models M1 and M2 . Each unit of model M1 requires 4 hours grinding and 2 hours polishing. Each unit of model M2 requires 2 hours grinding and 5 hours of polishing. The manufacturer has 2 grinding wheels wherein each is available for 40 hours per week only. Similarly there are 3 polishing machines wherein each is available for 60 hours per week only. Profit on model M1 is Rs. 300 per unit and profit on model M2 is 400 per unit. The manufacturer has to allocate his production capacity so as to maximize his profit.  Formulate the LPP.
  193. 193. 14M.S Ramaiah SchoolofAdvanced Studies - Bangalore Formulation of LPP (Production allocation problem) Solution: Let X: Number of units of model M1 to be produced. Y: Number of units of model M2 to be produced. Model M1 Model M2 Requirement Number of units X Y Maximize Grinding time(hrs.) 4 X 2 Y < 80 Polishing time(hrs.) 2 X 5 Y < 180 Profit (Rs) 300 X 400 Y
  194. 194. 15M.S Ramaiah SchoolofAdvanced Studies - Bangalore Conversion to LPP (Production allocation problem) (cont..d) Maximum Z = 300X + 400Y Subject to (S.t) 4 X + 2Y < 80 2X + 5Y < 180 and X > 0, Y > 0 Objective Function Constraints Decision variable (non negative)
  195. 195. 16M.S Ramaiah SchoolofAdvanced Studies - Bangalore Formulation of LPP Case: 2 A firm produces two home products viz. model A and model B. The production involves three operations- assembly, painting and testing. The relevant data are as follows: Hours required for each unit Unit selling price Assembly Painting Testing Model A Rs.40 10 2 1 Model B Rs.60 18 5 2
  196. 196. 17M.S Ramaiah SchoolofAdvanced Studies - Bangalore Case-2 Formulation of LPP (Cont…d) Total number of hours available each week are as follows: Assembly 400 Painting 100 Testing 60 The firm wishes to determine its weekly product mix so as to maximize profit.  Formulate the problem as a linear programming problem(LPP).
  197. 197. 18M.S Ramaiah SchoolofAdvanced Studies - Bangalore Case-2 Formulation of LPP (Cont…d) Solution: Let X: Number of units of model A to be produced. Y: Number of units of model B to be produced. Model A Model B Requirement Number of units X Y Assembly time(hrs.) 10 X 18 Y < 400 Painting time(hrs.) 2 X 5 Y < 100 Testing time (hrs.) 1 X 2 Y < 60 Profit (Rs) 40 X 60 Y
  198. 198. 19M.S Ramaiah SchoolofAdvanced Studies - Bangalore Case- 2 Conversion to LPP (cont..d) Maximize Z = 40X + 60Y Subject to (S.t) 10X +18Y < 400 2 X + 5Y < 100 1X + 2 Y < 60 and X > 0, Y > 0 Objective Function Constraints Decision variable (non negative)
  199. 199. 20M.S Ramaiah SchoolofAdvanced Studies - Bangalore Methods for Solving Linear Programming Problems (LPP) Important method of solving LPPs Simplex method using Solver
  200. 200. 21M.S Ramaiah SchoolofAdvanced Studies - Bangalore Managing Supply in a Supply Chain
  201. 201. 22M.S Ramaiah SchoolofAdvanced Studies - Bangalore Aggregate Planning in Supply Chain • Aggregate planning is a process by which a company determines ideal levels of capacity, production, subcontracting, inventory stock outs and pricing over a specified time horizon • Goal is to satisfy demand while maximising profit. Premium Paper Mill Case Spring – Annual Reports Fall - Car Brochure
  202. 202. 23M.S Ramaiah SchoolofAdvanced Studies - Bangalore Aggregate Planning Strategies • The planner should make trade-off’s among capacity, inventory and backlog costs/ lost sales. • If one increases the other two decreases. • Trade off Strategies (tailored strategies) - Chase strategy - using capacity as lever - Time flexibility from workforce or capacity strategy - using utilisation as a lever - Level strategy – using inventory as the lever
  203. 203. 24 Red Tomato Gardening Tool Case • Demand for Red Tomato’s gardening tools is highly seasonal in spring. • The first step towards aggregate planning is to arrive at effective demand forecasting. • Demand forecast for Red Tomato tools Month Demand Forecast Jan 1600 Feb 3000 Mar 3200 Apr 3800 May 2200 Jun 2200 M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  204. 204. 25 Red Tomato Tools Case Contd… • Red Tomato sells each tool at $40. • The company has a starting inventory of 1000 toolsin January. • At the beginning of January, company has a workforce of 80 employees. • Plant works 20 days in each month with 8 hrs per day. • Each employee earns $4 per houron regular time. • Capacityof the plant is determined by total labourhoursworked. • As per labour rules, no employee works more than 10 hrs overtime per month. • SC manager goal is to have 500 units at the end of june as inventory. • Minimising cost over the planning horizon is equal to maximising profit as all demand has to be met. M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  205. 205. 26 Various Costs for Red Tomato Case Item Cost Material Cost $10/unit Inventory holdingcost $2/unit/month Marginal cost of stock-out/backlog $5/unit/month Hiring and training costs $300/worker Layoff cost $500/worker Laborhours required 4/unit Regular time cost $4/hour Overtime cost $6/hour Cost of subcontracting $30/unit M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  206. 206. 27 Decision Variables • Wt = Workforce size for month t • Ht = number of employees hired at the beginning of month t • Lt = number of employees laid off at the beginning of month t • Pt = number of units produced in month t • It = Inventory at the end of month t • St = number of units stocked out/backlogged at the end of month t • Ct = number of units sub-contracted at the end of month t • Ot = number of overtime hours worked in month t where t = 1, 2, ........ , 6 M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  207. 207. 28 Table Containing Decision Variable M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  208. 208. 29 Table containing Constraints M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  209. 209. 30 Formulae M.S Ramaiah SchoolofAdvanced Studies - Bangalore Cell Cell Formula Equation M5 (Wt Constraints) = D5-D4-B5+C5 Wt = Wt-1 + Ht -Lt N5 (Capacity Constraints) = 40*D5+E5/4-I5 Pt ≤ 40 Wt + Ot /4 O5 (Inventory Constraints) = F4-G4+I5+H5-J5- F5+G5 It-1 + Pt + Ct = Dt +St-1 +It - St P5 (Over-time Constraints) = -E5 + 10 * D5 Ot ≤ 10 Wt Here, M5 = 0; N5 ≥ 0; O5 = 0; P5 ≥ 0
  210. 210. 31 Table containing Objective function M.S Ramaiah SchoolofAdvanced Studies - Bangalore [ ]∑= +++++++ 6 1 3010525003006640i tttttttt CPSILHoW We need to arrive at minimised solution
  211. 211. 32 Invoking Solver Tool and following Constraints M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  212. 212. 33 Solver Steps • Set Target Cell: C22, • Equal to : Select Min • By Changing Cells : B5 : I10 • Subject to Constraints B5 : I10 ≥ 0 (All decision variables are non-negative) F10 ≥ 500 ( Inventory at end of period 6 is at least 500) G10 = 0 (Stock-out at the end of 6 months equals0) M5 : M10 = 0 (workforce constraints) N5 : N10 ≥ 0 (capacity constraints) O5 : O10 = 0 (inventory constraints) P5 : P10 ≥ 0 (over-time constraints) Assumelinear model in options and press solve M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  213. 213. 34 Final Solution M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  214. 214. 35 Gravity Models in Supply Chain M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  215. 215. 36 Steel Appliances (SA) • Gravity location models are used to find locations that minimises the transportation cost. • SA manufactures high quality refrigerators and cooking ranges - currently one plant in Denver which supplies entire US - Three parts plant located at Buffalo, Memphis and St. Louis will supply parts for new factory which will serve Atlanta, Boston, Jacksonville, Philadelphia and Newyork. - The coordinates, demand, required supply and shipping cost has been collected. M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  216. 216. 37 Supply sources and Markets for SA M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  217. 217. 38M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  218. 218. 39 Gravity Model • This model assumes that both markets and supply sources can be located as grid points on plane. • All distances are calculated as the geometric distance between two points on the plane. • Assumes transportation cost linearly grows with quantity shipped. M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  219. 219. 40 Input Parameters • xn, yn : coordinate location of either a market or supply source n • Fn: Cost of shipping one unit for one mile between facility and either market or supply source n • Dn: Quantity to be shipped between facility and market or supply source n • If (x,y) is the location selected for the facility, the distance dn between the facility at location (x,y) and the supply source or market n is given by: M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  220. 220. 41 Formulae ( ) ( )      −+−= 22 yxd nnn yx FDd nn k n n TC ∑= = 1 Total Cost (TC) is given by: The optimal location is one that minimises the total TC M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  221. 221. 42M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  222. 222. 43 Equations Cell Cell formula Equation Copied to G5 =SQRT($B$16-E5)^2+($B$17-F5)^2 1 G5:G12 B19 =SUMPRODUCT(G5:G12,D5:D12, C5:C12) 2 - Afterentering these formulae, invoke solver to solve the problem M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  223. 223. 44M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  224. 224. 45 Results • The coordinates (x, y) = ( 681, 882) has been identified as the location of the new factory which minimises the total transportation cost. • From the map, these coordinates are close to the border of North Carolina and Virginia. • The manager should look for desirable sites close to optimal coordinates that have the required infrastructure and appropriate worker skills. M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  225. 225. 46M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  226. 226. 47 SC Trading Partners - Benchmarking using Data Envelopment Analysis (DEA) M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  227. 227. 48 Non-Parametric Analysis Tool - Data Envelopment Analysis (DEA) Analyses multiple outputs and inputs simultaneously to arrive at single overall performance index Uses Linear Programming technique to objectively derive individual weights under MCDM Organisation under study is called as DMU Limitations • Dependent on data X$1,00,000 M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  228. 228. 49 Contd. M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  229. 229. 50
  230. 230. 51 Motivations to use DEA • Simplicity and ease-of-use • No need to specify relationships or trade-offs among performance measures prior to computation • The frontier principle suits benchmarking goal • Evaluate multiple outputs and multiple inputs simultaneously • Addresses quantitative and qualitative data together • Weights obtained by solving LPP from the data objectively M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  231. 231. 52 Inferences after using DEA • Measures operational performance relative to peer groups • Identify performance gaps in inefficient DMUs • Evaluate improvement opportunities • Assess operational progress over time M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  232. 232. 53 Methodology - Identification of input (X) and output (Y) variables of DMUs for performance evaluation through DEA. - In general, radial efficiency (θ) measure takes the form of ratio - Considering all ‘m’ inputs and ‘s’ outputs portraying total factor productivity measure of a DMU, the unknown variable weights will be represented as vi and ur Virtual Input = v1x1o + ...............+ vmxmo Virtual Output = u1y1o + ............... + usyso - Finally the linear programming techniquewill be used to maximise the ratio and to determine weights individually Input Output =θ M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  233. 233. 54 Input and Output Consideration Consideration • Principle to be adapted for selecting inputs/outputs: lower the better for input value higher the better for output value • n = max { (m*s), (3*(m+s)) } condition has to be satisfied M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  234. 234. 55 Basic Charnes Cooper and Rhodes (CCR) Model FPo = Fractional Programme M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  235. 235. 56 Converting FP into LPP LPo = Linear Programme M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  236. 236. 57 Inference after Solving LPP M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  237. 237. 58 Taking Dual* of the LPP (DLP) Where, λ is the non-negative Column Vector of Variables Θ is radial efficiency X is Input vector and Y is Output vector xo, yo is DMU under study M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  238. 238. 59 Example M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  239. 239. 60 MathematicalFormulation M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  240. 240. 61 Optimal Solution M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  241. 241. 62 Reference Set M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  242. 242. 63 Consolidated Results M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  243. 243. 64 Output Oriented Model M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  244. 244. 65 Example-Case (1 Input and 1 Output Case) M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  245. 245. 66 Graphical Representation X$1,00,000 M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  246. 246. 67 Demo Session M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  247. 247. 68 References 1. Chien-Ming Chen, Evaluation and Design of Supply Chain Operations using DEA, Ph.D. Thesis, Erasmus University Rotterdam, 2009. 2. William W. Cooper, Lawrence M. Seiford, Kaoru Tone, Introduction to Data Envelopment Analysis and Its Uses, Springer, 2006. 3. William W. Cooper, Lawrence M. Seiford, Kaoru Tone, Data Envelopment Analysis, 2nd edition, Springer, 2007. M.S Ramaiah SchoolofAdvanced Studies - Bangalore
  248. 248. 69M.S Ramaiah SchoolofAdvanced Studies - Bangalore Session Summary • Strategies adapted in aggregate planning with trade-off’s has been elucidated. • Facility location model in the form of gravity model has been applied. • DEA models to evaluate the trading partners has been demonstrated.
  249. 249. 70 sharath@msrsas.org M: 0 99005 14038 M.S Ramaiah SchoolofAdvanced Studies - Bangalore
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