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  2. 2. Companies are facing rapidCompanies are facing rapid change and are under a variety of pressureschange and are under a variety of pressures • An increased focus on Globalization • An increased focus on Supply Chain Management TODAY’S OPERATING ENVIRONMENTTODAY’S OPERATING ENVIRONMENT Mass Customization Reduce Time to Markets Introduce New Products Frequently Customize products in Niche Markets Sell Globally CompaniesCompanies Reduce Costs
  3. 3. CUSTOMER EXPECTATIONS • Many players in each industry - domestic / international / unorganised: competition in all segments • Expectations being shaped by products & services across industries • Unwilling to bear inefficiencies / costs of suppliers • Increasing need for customized services & products • Need for responsiveness in fast changing scenarios • Loyalty cannot be taken for granted
  4. 4. WHAT DOES THIS MEAN FOR THE MANUFACTURER? • “Loyal consumers” may switch to competition if desired product is not available / delivered • Retailers expect immediate response to product / service needs • Distributors are unwilling to carry inventory beyond accepted norms • Cost of inventory in the supply chain is eventually borne by manufacturer
  5. 5. COMPETITIVE PRESSURES Rapid SKU proliferation To address different customer segments: •Increasing need for wide variety •Great push to introduce new products rapidly Forecasting Errors Long cycle times High uncertainty
  6. 6. LEADING TO…. •Poor responsiveness •Inventory build-up at various stages … a sluggish & inefficient supply chain
  7. 7. • Being responsive to market needs & changes • Optimise on inventory levels across the chain: vendor, mfr., distributor, retailer, etc • OTIF: Order fulfillment on time in full OBJECTIVES OF SCM:
  8. 8. WHAT IS SUPPLY CHAIN MANAGEMENT? ?? ?? ?? ?? ?? ??
  9. 9. If you think it is to... Manage the component parts from Suppliers Manage inbound freight Manage outbound freight Manage product distribution Manage logistics and warehouses SUPPLY CHAIN MANAGEMENT
  10. 10. SCM requires managing the flow of information & material…. across suppliers, manufacturer, CFAs, distributors, retailers etc. to meet customer expectations
  11. 11. A WELL-DESIGNED SUPPLY CHAIN ADDRESSES ISSUES THROUGHOUT THE CHAIN: Time to Market Lead Times / cycle times Inventory formation and accumulation Information and demand flow Product flow Planning & procurement processes Distribution and logistics
  12. 12. SUPPLY CHAIN DESIGN Information Supplier Supplier Manufacturer Wholesale Distribution Sales Level 3 Level 2 Means: Evolves to: - Seam less Flow - Eliminate waste - Reduce cycle time Profitability Customer Satisfaction ROA EPS Materials & Products Waste Waste Waste Waste Waste
  13. 13. INFORMATION FLOW : A CRITICAL COMPONENT OF SCM • Flow of information up & down the chain is as important as Material Flow • Helps reduce uncertainty • Improves credibility & defines customer expectations • In the internet age - it will be a must for all supply chains • IT is playing a big role in keeping communication flowing
  14. 14. IMPROVING INFORMATION FLOW IS CRITICAL TO ACHIEVING A WORLD CLASS SUPPLY CHAIN 2 18 37 43 0 0 10 20 30 40 50 Not Important Somewhat Important Important Very Important Critical % of Respondents
  15. 15. METHODS TO IMPROVE INFORMATION FLOW: ROLE OF IT • ERP systems – Focus on transaction processing – Integrates various functions within the organisation – Ensures connectivity across geographic locations – Provides a clean & single information back bone – Is fast becoming an industry standard – Helps the organisation to become process oriented • E-connectivity – Is useful as a medium for connectivity across various entities – Cheaper , faster , non-hierarchical (network)
  16. 16. ROLE OF IT… CONTD. • SCM Packages – Used mainly as a decision support tool in the planning function – Optimise various planning processes: forecasting, demand planning, factory planning, etc.. – Helps modify the planning process based on real time changes or constraints in the operations e.g.: likely order completion date due to unforeseen delays, etc – Draw basic information from ERP / other transaction processing systems
  17. 17. PERFORMANCE MEASURES • Motivation of supply chain links can improve only if performance measures are put in place • Focus of performance measures on Interfaces between entities of the chain in place of independent individual entity performance • Performance measures need to be derived from overall objective of supply chain - I.e. they need to be aligned across the chain
  18. 18. PERFORMANCE MEASURES Some common examples: • Production alignment to demand • Order Fulfilment ratio (On time in full) or Availability cover • Forecasting efficiencies • Distribution efficiency • Vendor rating on delivery reliability, lead times • Inventory turns • Cycle times / Response time / Average Lead time
  19. 19. SCOPE OF SCM • Demand Planning • Production Planning • Distribution planning • Supply Chain Strategies • Information management • Performance Measures
  20. 20. EXTENDING THE SUPPLY CHAIN TO INCLUDE OUR BUSINESS ASSOCIATES Aligned Distribution The New LinkSynchronized Production Trade SUPERMARKET RDS/WOTSuppliers Factory Tomorrow - Demand Communication CFA Tomorrow - Inventory Visibility Today
  21. 21. Before SAP Showroom SUPERMARKET RDS Factory CFACorporate RO
  22. 22. Today - with SAP R/3 Showroom SUPERMARKET RDS Factory CFACorporate RO SAP R/3
  23. 23. HOW IS THIS HELPING US? • Facilitation of CRP flow • Better distribution and stock correction • Smarter demand planning • Rapid demand communication • Responsive supply chain - changes in demand / supply being incorporated
  24. 24. TOMORROW - A “PULL” BASED SYSTEM ACROSS THE SUPPLY CHAIN ConsumerShowroomPlantsSuppliers RDS CFA Extended CRP system
  25. 25. THE EXTENDED SUPPLY CHAIN A win-win situation – Secondary sales data will be available to us leading to sharper forecasting – Pull system will ensure leaner inventories across the chain – Increased availability of A category products for BAs – Leading to better customer service (End & intermediate customers)
  26. 26. Fit Between Competitive & Functional Strategies
  27. 27. Components of Logistics Management Management Actions Planning Implementation Control Natural resources (land, facilities, & equipment Human resources Financial resources Information resources Marketing orientation (competitive advantage) Time & place utility Efficient movement to customer Proprietary asset Raw materials In-process inventory Finished goods Logistics Management Suppliers Vendors • Customer service • Demand forecasting • Distribution communication • Inventory control • Material handling • Order processing • Parts and service support • Plant & warehouses site selection • Procurement • Packaging • Return goods handling • Salvage and scrap disposal • Traffic and transportation • Warehousing and storage Logistics Activities Inputs into Logistics Outputs of Logistics
  29. 29. CHANNELS OF DISTRIBUTION • A channel of distribution can be defined as the collection of organization units either internal or external to the manufacturer, which performs the functions involved in the product marketing. • The functions of marketing include: – Buying - Providing marketing Information – Selling - Grading – Transporting - Financing – Storing The channel member performs one or more of the above functions
  30. 30. Alternative Channels of Distribution for Consumer Goods
  31. 31. Alternative Channels of Distribution for Industrial Goods Manufacturer ManufacturerManufacturer Manufacturer Industrial User Agent or broker Industrial user Industrial Distributor Industrial user Agent or broker Manufacturer Industrial User
  32. 32. How Intermediaries Reduce the Cost of Market Contact between Supplier & Customer
  33. 33. Distribution Channels – Grocery Products Manufacturer Suppliers Manufacturer Plant Another plant Field Warehouses Wholesalers Chain store warehouses Co-ops Military Retailers Consumers Product flows Information flows Key:
  34. 34. Inventory Positions and Major Flows in a channel of distribution Supplier Manufacturer Wholesalers Retailers Orders Payments Information Product Orders Payments Information Product Orders Payments Information Product Variable cost of product $5 Variable cost of material $10 Variable cot of product $60 Variable cost of product $80 Full manufactures cost $7 Acquisition costs $1 Other acquisition costs $2 Other acquisition costs $2 Selling price $10 Other variable costs $14 Selling price $80 Selling price $150 Total variable cost of product $25 Full manufactured cost $40 Selling price $60
  35. 35. CHANNELS OF DISTRIBUTION - Functions • Reduce number of market contacts • Provide utility by – sorting out, accumulating, allocation, and assorting. • Routinization of transactions • Reduce costs of – selling, transportation, inventory carrying, storage and order processing
  36. 36. CHANNELS OF DISTRIBUTION – Channel structure • Postponement – of changes in form and identity of a product and inventory location to the last possible point in the marketing process. E.g. mixing of paint, • Speculation – Converse of postponement, reduces costs through economies of scale
  37. 37. CHANNELS OF DISTRIBUTION – Design process • Establish channel objectives • Formulate a channel strategy • Determine channel structure alternatives • Evaluate channel structure alternatives • Select channel structure
  38. 38. CHANNELS OF DISTRIBUTION – Design process • Determine alternatives for individual channel members • Evaluate and select individual channel members • Measure and evaluate channel performance • Evaluate channel alternatives when performance objectives are not met
  39. 39. CHANNELS OF DISTRIBUTION – Design considerations Market coverage objectives – Customer buying behavior – Type of distribution – intensive, exclusive and selective – Channel structure – Control Customer service objectives Availability order cycle Communication
  40. 40. CHANNELS OF DISTRIBUTION – Design considerations Product characteristics – Value - Perishability – Technicality - Market concentration – Seasonality - Market acceptance – Substitutability - Width and Depth – Bulk Profitability
  41. 41. CHANNELS OF DISTRIBUTION – Quick Response • Quick seeks to maximize customer satisfaction by having the right inventory in the right place, without incurring the expenses associated with excess inventory
  42. 42. Channel Cost / Revenue Analysis – Contribution Approach with a charge for assets Employed Channel Alternative 1 2 3 4 5 Net Sales Cost of good sold (variable manufacturing cost) Manufacturing contribution Marketing and logistics costs Variable costs: Sales commissions Transportation Warehousing (handling in and out) Order processing Charge for investment in accounts receivable Segment contribution margin
  43. 43. Channel Cost / Revenue Analysis – Contribution Approach with a charge for assets Employed Channel Alternative 1 2 3 4 5 Assignable nonvariable costs (costs incurred specifically for the segment during the period): Bade debts Display racks Sales promotion Salaries Segment related advertising Other Segment controllable marginCharge for assets used by segment Net segment margin