Supply chain management- A Case Study on SCM Drivers

1. SUPPLY CHAIN
MANAGEMENT
SUPPLY CHAIN MANAGEMENT-
CASE STUDY

2. WHAT IS A SUPPLY
CHAIN?
A supply chain is the system of organizations, people, activities, information
and resources involved in moving a product or service from supplier to
customer. Supply chain activities transform raw materials and components into
a finished product that is deliveredto the end customer.
 Supply chain comprises of:
◦ Suppliers, manufacturers,warehouses,distribution
centers and retail outlets –“facilities”
◦ Raw materials
◦ Work-in-process (WIP)inventory
◦ Finished products
that flow between thefacilities

5. EXAMPLE OF A SUPPLY CHAIN
 Say we get an order from a European retailer to produce 10,000 garments. For this
customer we might decide to buy yarn from a Koreanproducer,but have it wovenanddyed
in Taiwan. So, wepickthe yarn and ship it toTaiwan.The Japanesehavethe best zippers… so
we go toYKK, a big Japanesezipper manufacturer,andwe orderthe right zippers fromtheir
Chinese plants. …the best place to make the garments is Thailand. So, we ship
everythingthere. …the customer needs quick delivery; we may divide the order across
five factories in Thailand. Effectively, we are customizing the value chain to best meet the
customer’sneeds. (Interview of Victor Fung of Li & Fung in HBR, Sept-Oct1998.)
 In the interviewexample,it can be seen thatLi & Funghas createda supplychainfor the
purpose of meetinga customer’sneeds. In general,thiscaseis morethe exceptionthanthe
rule, but servesto illustratesomeof the pieces of a supply chain.

6. A SUPPLY CHAIN
EXAMPLE…

7. SUPPLY CHAIN MANAGEMENT
 Supply chain management deals with linking the organizations within the
supply chain in order to meet demand across the chain as efficiently as
possible.
Demand

8. WHY IS SUPPLY CHAIN MANAGEMENT SO IMPORTANT?
 Togain efficiencies from procurement, distributionand logistics
 Tomake outsourcingmore efficient
 Toreduce transportation costsof inventories
 Tomeet competitive pressures from shorterdevelopment times,
 more new products, and demand for more customization
 Tomeet the challenge of globalization and longer supply chains
 Tomeet the new challenges from e-commerce
 Tomanage the complexitiesof supply chains
 Tomanage the inventoriesneeded across the supply chain

9. SUPPLY CHAIN DRIVERS

10. SUPPLY CHAIN STRATEGY & DRIVERS
 Responsiveness
 Efficiency

11.  WHAT -Raw materials, work in process, finished
goods, and supplies required for creation of a
company's goods and services. The number of units
and/or value of the stock of goods held by a
company.
 WHY- Exists because of mismatch in demand and supply
and to support a firm’s competitive strategy.
 IMPACT – On material flow time.
INVENTORY

12. ROLE IN COMPETITIVE STRATEGY
 If responsiveness is a strategic competitive priority –locate larger amount of
inventory closer to customers.
 If cost is more important , inventory can be reduced to gain efficiency .

13. INVENTORY DRIVERS
 Why Do we need Drivers for Inventory ???
 Inventory drivers are consequences of certain supply & demand
characteristics like :
 Product desirability
 Responsiveness
 Supplying complete & accurate information
 Customer collaboration
 Getting visibility as much as we can from our customers
 Defining drivers brings to light optimism to………..

14.  Demand Variation/ forecast accuracy/demand planning Supply Planning
 Demand & Supply synchronization Service levels
 capacity
 Lot sizes/order sizes Lead times
Speculation
 Customer service level segmentation
 Network Design Data Accuracy
INVENTORY DRIVERS……..

15.  Transportation moves the product between
different locations in a supply chain
 Transportation is prominent in a company's
competitive strategy
 Faster transportation makes supply chain more
responsive
TRANSPORTATION

16. ROLE IN THE COMPETITIVE STRATEGY
 If company targets a customer who demands a very high level of
responsiveness and that customer is willing to pay for this responsiveness,
then company can make transportation as one driver to make supply chain
more responsive.
 Opposite holds true as well. If the customers are concerned only with
money not responsiveness then company can lower the cost of product.
Both depend on company’s competitive strategy.
 The fundamental trade-off for transportation is cost (efficiency) versus
speed (responsiveness). A transportation cost analysis must consider the
effects of speed on inventory required.
 Use of fast modes of transport raises responsiveness and transportation
cost but lowers inventory holding cost.

18. FACILITIES
 Facilities include all locations in the supply chain
to store, assemble, or fabricate inventory.
 Two major types of Facilities are:
 Manufacture/Repair Sites
 Storage (warehouse, distribution) Sites

19. ROLE IN COMPETITIVE STRATEGY
 Facilities are a key driver of supply chain performance.
 Factors such as
location, capacity, manufacture/repair methodology, and warehousing
methodology also affect supply chain performance by way of the
facilities component.
 The fundamental trade off that managers face when making
facilities decisions is between the cost of the number, location
and type of facility & the level of responsiveness they provide to
the company’s customers.

20. FACILITIES DRIVER

21. INFORMATION
 It consists of data and analysis concerning
facilities, inventory and transportation.
 It is the biggest driver of performance.
 Presents management with the opportunity to
make supply chain more responsive and efficient.

22. ROLE IN COMPETITIVE STRATEGY
 Impact of IT in Supply Chain Management.
 Helps in taking key decisions which help in reducing cost and
improving responsiveness.
 Deeply affects every part of supply chain.
 Serves as a connection between different stages of supply chain.
 Also crucial to daily operations of each stage in a supply chain.

23.  Improves Responsiveness and efficiency.
 Improves performance of other drivers.
 Accurate information can help a firm improve efficiency by decreasing
inventory and transportation costs.
 Improves responsiveness by matching supply and demand.
TRADE OFF: RESPONSIVENESS VS EFFICIENCY

24. CASE STUDY
People think we got big by putting big stores in small towns. Really, we got big by replacing
inventory with information."
Sam Walton, Founder of Wal-Mart

25. BACKGROUND
Sam Walton founded the company in 1962
• Walmart is the largest grocery retailer in U.S.
In 2009, it generated 51% of its US$258 billion sales in the U.S. from grocery
business.
First store opened in Rogers, Arkansas
Bentonville, Arkansas(U.S.)
• It is headquartered in
• The company employs 2.2 million associates worldwide and serves 200
million customers each week at more than 10,000 stores in 27 countries.

26. TRADITIONAL SUPPLY CHAIN MODEL

27. WALMART’S SIMPLIFIED SUPPLY CHAIN

28. FACILITIES
 There are 140 Walmart distribution centres within US.
 Walmart’s distribution centers by Facility type:
 Regional General Merchandise Distribution Centers
 Import/Redistribution Centers
 Fashion Distribution Centers
 Full line Grocery and perishables Food Distribution Centers
 Speciality Distribution Centers

29. TRANSPORTATION
 Involves fast and responsive transportation system.
 More than 7000 company owned trucks services the distribution
centers.
 Shipping of goods to stores within 2 days.
 Use idea of Back-Hauling

30. INVENTORY
 Walmart set up its own satellite communication system in 1983.
 Allows the management to monitor each and every activity at any
point of day.
 Allows stores to manage their own stock.
 The order management and store replenishment of goods are entirely
executed with the help of computers through the Point- of-Sales
(POS) system.

31. PRICING
 Walmart practices every day low pricing (EDLP) for its products.
 Customer demand stays steady and does not fluctuate with price variations.
CROSS DOCKING
 Finished goods are directly picked up from the manufacturing site of
supplier, sorted out and directly supplied to the customers.
 Reduces handling and storage of finished goods
 System shifted from “supply chain” to “demand chain”

32. INFORMATION
 Use of bar codes and RFID to label different products, shelves and bins in
the center.
 Use of handheld computer (Magic Wand)
 Use of computers to track movement of goods and stock levels.
 Order management and store replenishment of goods is entirely executed
with the help of computers through Point of Sale (POS) system.
 Use of centralized Inventory database

33. CASE STUDY: TATA NANO

34.  The secret of designing the Tata Nano is a concept called Target Pricing or
Target Costing.
 Once the features and functions are finalized target costs are assigned to
each and every component/system – transmission system,
instruments, engine, body, interiors, electri cal systems. The sub-teams
then design the components/systems within the target cost. They look at
every bolt and nut and keep driving cost out of the components/ system.
TATANANO

35.  Cost and waste is driven out of supply chains by reducing inventory, eliminating
waiting times and delays, increasing utilization of warehouse and trucks,
optimizing location of warehouses and plants, drawing up the optimum
transportation network, utilizing backhauls etc.
 Reducing inventory reduces the working capital cost , reduces warehousing costs
and obsolescence costs. To reduce inventory, demand fluctuation will have to be
reduced, reliability of inventory replenishment will have to increased, Inventory
Record Accuracy will have to be above
 ~95% and supply chain length will have to be reduced.
 Reducing supply chain times reduces inventory and increases responsiveness. To
eliminate waiting times and delays the complete supply chain process will have to be
mapped. For this a lead time map is used. Delays like waiting for loading or
unloading and waiting for documents can be minimized. Transit times can be
reduced [ not by fast and rash driving ] but by using AC cabins and double-drivers.
Also, backhauls are a way to reduce costs.
TATANANO

36.  Truck utilization can be improved by using truck optimization softwares. Similarly,
warehouse space can be utilized more efficiently by increasing storage height- by
increasing the rack heights or having a mezzanine.
 On a strategic level, Supply Chain Network Design - locating plants, contract
manufacturers, Distribution Centres and warehouses- is important because 70% of
the cost of a supply chain is fixed at the design stage.
 So while Tata Nano has created a breakthrough in car manufacture by reducing the
cost of a car significantly, it has led me to think about doing a Tata Nano with my
supply chain.
TATANANO

37. CONCLUSION
 LOWER PRODUCT COSTS
 REDUCED INVENTORY CARRYING COSTS
 IMPROVED IN-STORE VARIETY AND SELECTION
 HIGHLY COMPETITIVE PRICING FOR THE CONSUMER

38. SUPPLY CHAIN SUCCESS STORY (CASE STUDY)- L&T CONSTRUCTION LTD
 L&T's ECCDivision
 ECC handled turnkey industrial and infrastructure projects in civil, mechanical, electrical, and instrumentation
engineering and it also offered turnkey construction services. Headquartered in Chennai and with more than 50 years
of experience and expertise, ECC commandeda leadership positionin theindustry...
 The Engineering Construction and Contracts (ECC) division is the construction division of Larsen& ToubroLtd.,
(L&T).Withproject siteslocatedin all parts of India,ECCexpandedits operationstocountrieslike the UAE, Bangladesh,
SriLanka,Malaysia, andSouthAfrica.
 Given its large geographical spread of operations and the large number of participants involved in the supply
chain (in India alone, it had approximately 6000 suppliers, spread over 350 locations), theeffectivemanagement of
the supplychainsystemturnedout tobe a challenging taskforECC. The absenceofany establishedITsolutionforthe
construction industrymadethe situationstill morecomplex.

39. • In orderto handlethe challengeofimplementing aneffectivesupplychainmanagement (SCM) systemin the
company,L&TECC optedfora web-based SCMsolution.Itnotonly made the task of tracking the vendors easier
but also reduced the time spent on negotiations with them since the vendors could post their bids online through
ECC's website.
• In orderto keep trackof its operations atdifferentlocations,ECC cameup with the idea of
connectingall its project sites with its headquarters in Chennai throughthe Internet and
launchedits in-house information solution,EnterpriseInformation Portal(EIP).
• EIP not only helpedECC keep trackof its activitiesatdifferentlocations but also allowedit to leverage
onits hugepurchasing power.Italso helpedin reducing project costs and increasing the return on
capital employed (ROCE). Company sources claimed that EIP was of great help in bringing together
the different phases of the construction cycle - design, development,tendering/bidding,budgets,
planning/scheduling,etc.

40.  By collaborating and bringing together different stakeholders ona single platform, EIP is fastemergingas a
powerfulERP solution."
 - K.V. Rangaswami, Executive Vice-President (L&T ECC Division),
 March'2003
 SupplyChain Management Strategyin ECC
• ECC structured itself into seven regions in order to handle the complexity in terms of stageof completion, sizeof
project, andthegeo-politicalsituation. Eachregioncatered to the demand of specialized construction services in
that region and had its own materialsdepartment.
 The materials department of ECC got itself ISO-9002 certified, indicating thelevel of importance it gave to the
managementof its suppliers. ECC adopteda sound and efficientSupplyChainManagementStrategyinorderto
keep thesupplychaincosts to the minimum. Its quality policies emphasized minimum landed costs, transparent
practices,andoptimuminventorylevels.

41.  The Challenges
 The constant challenge that ECC faced was in integratingand collaborating its supply chain participants. The root
cause of this challenge was the construction industry itself. The project sitesbeingspreadoutat variouslocations
andthelarge supplierbasemade it difficult for ECCto minimize its supplychaincost.
 SupplyChain Management Solution
 In order to handle the complex challenge of implementingan effective supply chain management(SCM)system
inthe company,L&TECC optedtoimplementa web-based SCM solution built on Microsoft technologies - SQL
Server 2000 and Windows 2000 Server in early 2000. Thesystemworkedon an on-line-order-off-line-delivery
strategy. The company couldnow streamlineits entire vendor network. ECC also arrangeda proper training
program for its vendors in order to familiarize them with the functioning ofthe system...
 https://www.lntecc.com

42. • Service Benefits
oPersonal Service, Family service
• Other job related Benefits
oFlexible work schedule, Cafeteria Benefits