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1. Introduction to supply chain management
What is supply chain ?
It consists of all parties involved directly or
indirectly in fulfilling a customers request

Define supply chain
“a supply chain is a network of facilities &
distribution options that performs the functions
of procurement of materials transformation of
these materials into intermediate & finished
products & distribution of these finished products
to customers
Meaning of supply chain management

Definition of SCM:
It is the management of a network of all
   business processes and activities involving
   procurement of raw materials, manufacturing
   and distribution management of Finished
   Goods.

SCM is also called the art of management of
  providing the Right Product, At the Right
  Time, Right Place and at the Right Cost to the
  Customer.
Other definition of SCM
• Oliver and Webber (1982) – SCM covers the
  flow of goods from supplier through
  manufacturing and distribution channels to
  end user.
• Ayers (2000) – SCM is the design, maintenance
  and operation of supply chain processes for
  satisfaction of end users.
• Ellram (1991) – An integrative approach to
  dealing with the planning and control of the
  materials flow from suppliers to end users.
• Sunil Chopra and Peter Meindl (2001) – SCM
  involves the management of flows between and
  among stages in a supply chain to maximize
  total profitability.
Objectives of supply chain
Efficient supply chain
1. To maximize overall value generated
2. To look for Sources of Revenue and Cost
3. Improving the visibility of the demand
4. Improving the quality
5. Minimizing the time
6. Reduces the transportation cost
7. Reduces warehousing cost
8. Expanding width/depth of distribution
9. Product Life cycle support
10. Rationalize supplier base
11. Service orientation
DECISION PHASES IN SUPPLY CHAIN MANAGEMENT
• successful scm requires many decisions
  relating to the flow of information, product,&
  funds

• These decision falls into 3 categories/phases
  depending on the frequency of each
  decisions & timeframe
1. Supply chain strategy or design
2. Supply chain planning
3. Supply chain operation
DECISION PHASES IN SUPPLY CHAIN MANAGEMENT

Supply chain strategy or design:
During this phase ,
 A company decides how to structure the supply
  chain over the next several years.
 it decides the supply chain configuration will be,
  how resources will be allocated
 Decision includes whether to perform or outsource
  functions
 Decisions regards to warehousing facilities & modes
  of the transportation & types of information utilized
 Decision regarding products to be manufactured or
  stored at various location
DECISION PHASES IN SUPPLY CHAIN MANAGEMENT

 Supply chain planning
In this phase decision includes
• Definition of a set of policies that govern short-term
   operations
• Starts with a forecast of demand in the coming year
• The inventory policies to be followed
• Timing & size of marketing promotion
• The subcontracting of manufacturing
• The goal of planning to maximize supply chain
   surplus
• In this phase, companies must include uncertainty
   in demands, exchange rate & competition
Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and operating
   policies are determined
• Goal is to implement the operating policies as
   effectively as possible
• Allocate orders to inventory or production,
  set order due dates,
  generate pick lists at a warehouse,
  allocate an order to a particular shipment,
  set delivery schedules,
  place replenishment orders
  Much less uncertainty (short time horizon)
Process view of supply chain
• Cycle view:
 processes in a supply chain are divided into a
   series of cycles, each performed at the
   interfaces between two successive supply chain
   stages
• Push/pull view:
processes in a supply chain are divided into two
   categories depending on whether they are
   executed
 in response to a customer order (pull)
or
  in anticipation of a customer order (push)
Cycle View of Supply Chains

                               Customer
      Customer Order Cycle

                               Retailer
         Replenishment Cycle

                               Distributor

       Manufacturing Cycle

                               Manufacturer
       Procurement Cycle
                               Supplier
                                              1-10
Cycle View of a Supply Chain
• Each cycle occurs at the interface between two
  successive stages
• Customer order cycle (customer-retailer)
• Replenishment cycle (retailer-distributor)
• Manufacturing cycle (distributor-manufacturer)
• Procurement cycle (manufacturer-supplier)

• Cycle view clearly defines processes involved and the
  owners of each process. Specifies the roles and
  responsibilities of each member and the desired
  outcome of each process.


                                                          1-11
Push/Pull View of Supply Chains

 Procurement,                    Customer Order
 Manufacturing and               Cycle
 Replenishment cycles




  PUSH PROCESSES                PULL PROCESSES



                        Customer
                        Order Arrives
                        Push-Pull boundary
Push/Pull View of
               Supply Chain Processes
Supply chain processes fall into one of two
categories depending on the timing of their
execution relative to customer demand
Pull:
In this execution is initiated in response to a
customer order (reactive)
It operate in an environment in which
customer demand is known
Therefore, at time of execution of a pull
process ,demand is known with certainty
• Push:
In this execution is initiated in anticipation of
  customer orders (speculative or forecast)
In this execution process ,customer demand
  is not yet known & must be forecast
• Push/pull boundary separates push processes
  from pull processes
• The relative proportion of push and pull
  processes can have an impact on supply chain
  performance
Push/Pull View of Supply Chains
Procurement,                    Customer Order
Manufacturing and               Cycle
Replenishment cycles




 PUSH PROCESSES                PULL PROCESSES



                       Customer
                       Order Arrives
Supply Chain Management [SCM]

              Process View of a Supply Chain: Push – Pull View
    LL Bean                                           DELL

                          PULL                                                PULL

                          Process                                             Process

 Customer Order
 Cycle
                                                   Cust Order & Mfrg
                  Customer order arrives           Cycle


Repl & Mfrg
Cycle
                                                                       Customer order arrives


   Procurement                                       Procurement
   Cycle                                             Cycle

                         PUSH                                                PUSH
                         Process                                             Process
Pull                                  Push


Execution initiated in response to a   Execution initiated in anticipation of
customer order                         customer order



At time execution of pull, customer    At time execution of pull, customer
demand is known with certainty         demand is not known and must be
                                       forecasted




Its also called as reactive process    It is called as speculative process
Competitive/supply chain strategy
Competitive strategy:
 defines the set of customer needs a firm seeks to satisfy through its products and
services

Product development strategy:
specifies the portfolio of new products that the company will try to develop


Marketing and sales strategy: specifies how the market will be segmented and
product positioned, priced, and promoted


Supply chain strategy:
   determines the nature of material procurement,
   transportation of materials, manufacture of product or
   creation of service, distribution of product
   Consistency and support between supply chain strategy,
   competitive strategy, and other functional strategies is
   important
Competitive & supply chain strategies
A company's competitive strategy defines, relative to its
competitors, the set of customer needs that it seeks to
satisfy through its products & services

Supply chain strategy
It specifies what the operations, distribution, & service
functions ,whether performed in house or outsourced.

This strategy determines
the nature of procurement of raw materials,
transportation of materials ,
manufacture of the product & distribution of the product
to customer, along with any follow up service
Achieving strategic fit
• Introduction
• How is strategic fit achieved?
• Other issues affecting strategic fit
 Strategic fit:
   – Competitive and supply chain strategies have the
     same goals or aligned goals
   – In other words strategic fit require that a firm
     achieve balance between responsiveness& efficiency
     in its supply chain which meets the needs of
     company's competitive strategy
• A company may fail because of a lack of strategic
  fit or because its processes and resources do not
  provide the capabilities to execute the desired
  strategy
• Example of strategic fit -- Dell
How is Strategic Fit Achieved?
• Step 1: Understanding the
  customer and supply chain
  uncertainty

• Step 2: Understanding the supply
  chain

• Step 3: Achieving strategic fit
How is Strategic Fit Achieved?
Step 1: Understanding the Customer and
  Supply Chain Uncertainty

Identify the needs of the customer segment
 being served
Quantity of product needed in each lot
Response time customers will tolerate
Variety of products needed
Service level required
Price of the product
Desired rate of innovation in the product
Demand uncertainty & Implied Demand
  Uncertainty

Demand uncertainty reflects the
 uncertainty of customer demand for
 product.

Implied demand uncertainty is the demand
 uncertainty due to the portion of demand
 that supply chain is targeting ,not the entire
 demand
Impact of Customer Needs on Implied Demand Uncertainty
Customer Need                    Causes implied demand
                                 uncertainty to increase because
                                 …
Range of quantity increases      Wider range of quantity implies
                                 greater variance in demand
Lead time decreases              Less time to react to orders

Variety of products required     Demand per product becomes
increases                        more disaggregated
Number of channels increases     Total customer demand is now
                                 disaggregated over more
                                 channels
Rate of innovation increases     New products tend to have
                                 more uncertain demand
Required service level increases Firm now has to handle unusual
                                 surges in demand             2-25
Levels of Implied Demand Uncertainty

Predictable            Predictable supply and uncertain    Highly uncertain
supply and             demand or uncertain supply and     supply and demand
 demand                predictable demand or somewhat
                         uncertain supply and demand



  Salt at a                     An existing                     A new
supermarket                     automobile                   communication
                                  model                         device


 Figure 2.2: The Implied Uncertainty (Demand and Supply)
 Spectrum




                                                                          2-26
Step 2: Understanding the
                 Supply Chain
• How does the firm best meet demand?
• Dimension describing the supply chain is
  supply chain responsiveness

• Supply chain responsiveness -- ability to
  – respond to wide ranges of quantities demanded
  – meet short lead times
  – handle a large variety of products
  – build highly innovative products
  – meet a very high service level
  – Handle supply uncertainties
• achieving responsiveness however comes at
  cost
• Supply chain efficiency: cost of making and
  delivering the product to the customer
• Increase in cost lower efficiency.
• Increasing responsiveness results in higher
  costs that lower efficiency
• Second step to achieving strategic fit is to
  map the supply chain on the responsiveness
  spectrum
Understanding the Supply Chain: Cost-
  Responsiveness Efficient Frontier
      Responsiveness


       High




      Low
                                  Cost
              High         Low
                                         2-29
Step 3:achieving strategic fit
After mapping level of implied uncertainty &
understanding supply chain position on
responsiveness spectrum,
The third & final step is to ensure that the
degree of supply chain responsiveness is
consistent with implied uncertainty,
The goal is to target high responsiveness for
a supply chain facing high implied uncertainty,
&
high efficiency for a supply chain facing low
implied uncertainty
Achieving Strategic Fit Shown on the
    Uncertainty/Responsiveness Map (Fig. 2.5)
  Responsive
 supply chain




Responsiveness
   spectrum




Efficient supply
      chain

                   Certain     Implied     Uncertain
                   demand    uncertainty    demand
                              spectrum
                                                 2-31
Comparison of Efficient and Responsive Supply Chains


                              Efficient                      Responsive
Primary goal                  Lowest cost                    Quick response
Product design strategy       Min product cost               Modularity to allow
                                                             postponement
Pricing strategy              Lower margins                  Higher margins
Mfg strategy                  High utilization               Capacity flexibility
Inventory strategy            Minimize inventory             Buffer inventory
Lead time strategy            Reduce but not at expense      Aggressively reduce even if
                              of greater cost                costs are significant
Supplier selection strategy   Cost and low quality           Speed, flexibility, quality
Transportation strategy       Greater reliance on low cost   Greater reliance on
                              modes                          responsive (fast) modes

                                                                           2-32
Other Issues Affecting Strategic Fit
Multiple products and customer segments
Product life cycle
Competitive changes over time
Multiple Products and
             Customer Segments
• Firms sell different products to different
  customer segments (with different implied
  demand uncertainty)
• The supply chain has to be able to balance
  efficiency and responsiveness given its
  portfolio of products and customer segments
• Two approaches:
  – Different supply chains
  – Tailor supply chain to best meet the needs of
    each product’s demand
                                             2-34
Product Life Cycle
• The demand characteristics of a product and
  the needs of a customer segment change as a
  product goes through its life cycle
• Supply chain strategy must evolve throughout
  the life cycle
• Early: uncertain demand, high margins (time
  is important), product availability is most
  important, cost is secondary
• Late: predictable demand, lower margins,
  price is important
                                      2-35
Competitive Changes Over Time

• Competitive pressures can change over time
• More competitors may result in an increased
  emphasis on variety at a reasonable price
• The Internet makes it easier to offer a wide
  variety of products
• The supply chain must change to meet these
  changing competitive conditions



                                       2-36
A Framework for
                   Structuring Drivers

                     Competitive Strategy


                        Supply Chain
                          Strategy
Efficiency                                      Responsiveness
                    Supply chain structure

                      Logistical Drivers

      Facilities          Inventory          Transportation


    Information           Sourcing              Pricing


                    Cross Functional Drivers
                                                          3-37
Drivers of Supply Chain Performance

•   Facilities
     – places where inventory is stored, assembled, or fabricated
     – production sites and storage sites
•   Inventory
     – raw materials, WIP, finished goods within a supply chain
     – inventory policies
•   Transportation
     – moving inventory from point to point in a supply chain
     – combinations of transportation modes and routes
•   Information
     – data and analysis regarding inventory, transportation, facilities throughout the
         supply chain
     – potentially the biggest driver of supply chain performance
•   Sourcing
     – functions a firm performs and functions that are outsourced
•   Pricing
     – Price associated with goods and services provided by a firm to the supply chain


                                                                         3-38

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Introduction to supply chain management

  • 1. 1. Introduction to supply chain management What is supply chain ? It consists of all parties involved directly or indirectly in fulfilling a customers request Define supply chain “a supply chain is a network of facilities & distribution options that performs the functions of procurement of materials transformation of these materials into intermediate & finished products & distribution of these finished products to customers
  • 2. Meaning of supply chain management Definition of SCM: It is the management of a network of all business processes and activities involving procurement of raw materials, manufacturing and distribution management of Finished Goods. SCM is also called the art of management of providing the Right Product, At the Right Time, Right Place and at the Right Cost to the Customer.
  • 3. Other definition of SCM • Oliver and Webber (1982) – SCM covers the flow of goods from supplier through manufacturing and distribution channels to end user. • Ayers (2000) – SCM is the design, maintenance and operation of supply chain processes for satisfaction of end users. • Ellram (1991) – An integrative approach to dealing with the planning and control of the materials flow from suppliers to end users. • Sunil Chopra and Peter Meindl (2001) – SCM involves the management of flows between and among stages in a supply chain to maximize total profitability.
  • 4. Objectives of supply chain Efficient supply chain 1. To maximize overall value generated 2. To look for Sources of Revenue and Cost 3. Improving the visibility of the demand 4. Improving the quality 5. Minimizing the time 6. Reduces the transportation cost 7. Reduces warehousing cost 8. Expanding width/depth of distribution 9. Product Life cycle support 10. Rationalize supplier base 11. Service orientation
  • 5. DECISION PHASES IN SUPPLY CHAIN MANAGEMENT • successful scm requires many decisions relating to the flow of information, product,& funds • These decision falls into 3 categories/phases depending on the frequency of each decisions & timeframe 1. Supply chain strategy or design 2. Supply chain planning 3. Supply chain operation
  • 6. DECISION PHASES IN SUPPLY CHAIN MANAGEMENT Supply chain strategy or design: During this phase ,  A company decides how to structure the supply chain over the next several years.  it decides the supply chain configuration will be, how resources will be allocated  Decision includes whether to perform or outsource functions  Decisions regards to warehousing facilities & modes of the transportation & types of information utilized  Decision regarding products to be manufactured or stored at various location
  • 7. DECISION PHASES IN SUPPLY CHAIN MANAGEMENT  Supply chain planning In this phase decision includes • Definition of a set of policies that govern short-term operations • Starts with a forecast of demand in the coming year • The inventory policies to be followed • Timing & size of marketing promotion • The subcontracting of manufacturing • The goal of planning to maximize supply chain surplus • In this phase, companies must include uncertainty in demands, exchange rate & competition
  • 8. Supply Chain Operation • Time horizon is weekly or daily • Decisions regarding individual customer orders • Supply chain configuration is fixed and operating policies are determined • Goal is to implement the operating policies as effectively as possible • Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders Much less uncertainty (short time horizon)
  • 9. Process view of supply chain • Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages • Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)
  • 10. Cycle View of Supply Chains Customer Customer Order Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier 1-10
  • 11. Cycle View of a Supply Chain • Each cycle occurs at the interface between two successive stages • Customer order cycle (customer-retailer) • Replenishment cycle (retailer-distributor) • Manufacturing cycle (distributor-manufacturer) • Procurement cycle (manufacturer-supplier) • Cycle view clearly defines processes involved and the owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process. 1-11
  • 12. Push/Pull View of Supply Chains Procurement, Customer Order Manufacturing and Cycle Replenishment cycles PUSH PROCESSES PULL PROCESSES Customer Order Arrives Push-Pull boundary
  • 13. Push/Pull View of Supply Chain Processes Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand Pull: In this execution is initiated in response to a customer order (reactive) It operate in an environment in which customer demand is known Therefore, at time of execution of a pull process ,demand is known with certainty
  • 14. • Push: In this execution is initiated in anticipation of customer orders (speculative or forecast) In this execution process ,customer demand is not yet known & must be forecast • Push/pull boundary separates push processes from pull processes • The relative proportion of push and pull processes can have an impact on supply chain performance
  • 15. Push/Pull View of Supply Chains Procurement, Customer Order Manufacturing and Cycle Replenishment cycles PUSH PROCESSES PULL PROCESSES Customer Order Arrives
  • 16.
  • 17. Supply Chain Management [SCM] Process View of a Supply Chain: Push – Pull View LL Bean DELL PULL PULL Process Process Customer Order Cycle Cust Order & Mfrg Customer order arrives Cycle Repl & Mfrg Cycle Customer order arrives Procurement Procurement Cycle Cycle PUSH PUSH Process Process
  • 18. Pull Push Execution initiated in response to a Execution initiated in anticipation of customer order customer order At time execution of pull, customer At time execution of pull, customer demand is known with certainty demand is not known and must be forecasted Its also called as reactive process It is called as speculative process
  • 19. Competitive/supply chain strategy Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services Product development strategy: specifies the portfolio of new products that the company will try to develop Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted Supply chain strategy: determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important
  • 20. Competitive & supply chain strategies A company's competitive strategy defines, relative to its competitors, the set of customer needs that it seeks to satisfy through its products & services Supply chain strategy It specifies what the operations, distribution, & service functions ,whether performed in house or outsourced. This strategy determines the nature of procurement of raw materials, transportation of materials , manufacture of the product & distribution of the product to customer, along with any follow up service
  • 21. Achieving strategic fit • Introduction • How is strategic fit achieved? • Other issues affecting strategic fit  Strategic fit: – Competitive and supply chain strategies have the same goals or aligned goals – In other words strategic fit require that a firm achieve balance between responsiveness& efficiency in its supply chain which meets the needs of company's competitive strategy • A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy • Example of strategic fit -- Dell
  • 22. How is Strategic Fit Achieved? • Step 1: Understanding the customer and supply chain uncertainty • Step 2: Understanding the supply chain • Step 3: Achieving strategic fit
  • 23. How is Strategic Fit Achieved? Step 1: Understanding the Customer and Supply Chain Uncertainty Identify the needs of the customer segment being served Quantity of product needed in each lot Response time customers will tolerate Variety of products needed Service level required Price of the product Desired rate of innovation in the product
  • 24. Demand uncertainty & Implied Demand Uncertainty Demand uncertainty reflects the uncertainty of customer demand for product. Implied demand uncertainty is the demand uncertainty due to the portion of demand that supply chain is targeting ,not the entire demand
  • 25. Impact of Customer Needs on Implied Demand Uncertainty Customer Need Causes implied demand uncertainty to increase because … Range of quantity increases Wider range of quantity implies greater variance in demand Lead time decreases Less time to react to orders Variety of products required Demand per product becomes increases more disaggregated Number of channels increases Total customer demand is now disaggregated over more channels Rate of innovation increases New products tend to have more uncertain demand Required service level increases Firm now has to handle unusual surges in demand 2-25
  • 26. Levels of Implied Demand Uncertainty Predictable Predictable supply and uncertain Highly uncertain supply and demand or uncertain supply and supply and demand demand predictable demand or somewhat uncertain supply and demand Salt at a An existing A new supermarket automobile communication model device Figure 2.2: The Implied Uncertainty (Demand and Supply) Spectrum 2-26
  • 27. Step 2: Understanding the Supply Chain • How does the firm best meet demand? • Dimension describing the supply chain is supply chain responsiveness • Supply chain responsiveness -- ability to – respond to wide ranges of quantities demanded – meet short lead times – handle a large variety of products – build highly innovative products – meet a very high service level – Handle supply uncertainties
  • 28. • achieving responsiveness however comes at cost • Supply chain efficiency: cost of making and delivering the product to the customer • Increase in cost lower efficiency. • Increasing responsiveness results in higher costs that lower efficiency • Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum
  • 29. Understanding the Supply Chain: Cost- Responsiveness Efficient Frontier Responsiveness High Low Cost High Low 2-29
  • 30. Step 3:achieving strategic fit After mapping level of implied uncertainty & understanding supply chain position on responsiveness spectrum, The third & final step is to ensure that the degree of supply chain responsiveness is consistent with implied uncertainty, The goal is to target high responsiveness for a supply chain facing high implied uncertainty, & high efficiency for a supply chain facing low implied uncertainty
  • 31. Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map (Fig. 2.5) Responsive supply chain Responsiveness spectrum Efficient supply chain Certain Implied Uncertain demand uncertainty demand spectrum 2-31
  • 32. Comparison of Efficient and Responsive Supply Chains Efficient Responsive Primary goal Lowest cost Quick response Product design strategy Min product cost Modularity to allow postponement Pricing strategy Lower margins Higher margins Mfg strategy High utilization Capacity flexibility Inventory strategy Minimize inventory Buffer inventory Lead time strategy Reduce but not at expense Aggressively reduce even if of greater cost costs are significant Supplier selection strategy Cost and low quality Speed, flexibility, quality Transportation strategy Greater reliance on low cost Greater reliance on modes responsive (fast) modes 2-32
  • 33. Other Issues Affecting Strategic Fit Multiple products and customer segments Product life cycle Competitive changes over time
  • 34. Multiple Products and Customer Segments • Firms sell different products to different customer segments (with different implied demand uncertainty) • The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments • Two approaches: – Different supply chains – Tailor supply chain to best meet the needs of each product’s demand 2-34
  • 35. Product Life Cycle • The demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle • Supply chain strategy must evolve throughout the life cycle • Early: uncertain demand, high margins (time is important), product availability is most important, cost is secondary • Late: predictable demand, lower margins, price is important 2-35
  • 36. Competitive Changes Over Time • Competitive pressures can change over time • More competitors may result in an increased emphasis on variety at a reasonable price • The Internet makes it easier to offer a wide variety of products • The supply chain must change to meet these changing competitive conditions 2-36
  • 37. A Framework for Structuring Drivers Competitive Strategy Supply Chain Strategy Efficiency Responsiveness Supply chain structure Logistical Drivers Facilities Inventory Transportation Information Sourcing Pricing Cross Functional Drivers 3-37
  • 38. Drivers of Supply Chain Performance • Facilities – places where inventory is stored, assembled, or fabricated – production sites and storage sites • Inventory – raw materials, WIP, finished goods within a supply chain – inventory policies • Transportation – moving inventory from point to point in a supply chain – combinations of transportation modes and routes • Information – data and analysis regarding inventory, transportation, facilities throughout the supply chain – potentially the biggest driver of supply chain performance • Sourcing – functions a firm performs and functions that are outsourced • Pricing – Price associated with goods and services provided by a firm to the supply chain 3-38