The document discusses supply chain management and its importance for competitive advantage. It outlines the key components of an organization's supply chain including material providers, plants, distributors, retailers, and consumers. Effective supply chain management can lower costs and increase productivity, creating advantages over competitors. The document also discusses how logistics and supply chain efficiencies can provide long-term competitive benefits through cost optimization without affecting consumer value. Overall, the document emphasizes that world-class companies use supply chain management to lower total costs by 3-6% of revenue compared to average companies.

1. Supply Chain Management
For Competitive Advantage
Delhi, 17th February.

2. The faces of The Organization
Brand - The face & promise to the
consumer

3. The faces of The Organization
Service Providers
Manufacturing : Value Addition
Statutory
Compliance

4. The faces of The Organization
Material Providers Plants (17) Service Providers
CFAs +
CSAs (48)
Value Statutory
Compliance
Addition Distributors (1500)
Possibilities Retailers ( 0.15
Whole-sellers-
10K
mn)
Consumers

5. Value Drivers In Today’s
Business
Supply Chain
R&D
Branding Value
Finance
S&D

6. Compaq Sentence...
„We‘ve done most of what we need to do to
be more competitive. We‘ve changed the way we develop
products, manufacture, market, and advertise. The one piece
of the puzzle we haven‘t addressed is logistics. It‘s the next
source of competitive advantage.
The possibilities are just astounding.“
Daryl White
CFO, Compaq Computer

7. Logistics and Competitive Advantage
Cost and Service
High
Service Leader
Leader
Value Advantage
Commodity Market Cost Leader
Low
Low High
Productivity Advantage

8. Supply Chain As Competitive
Advantage
• Successful Companies either have a productivity advantage or
they have a “Value” advantage or a combination of the two.
•Productivity Advantage gives a lower cost profile and the Value
Advantage gives the product or offering a differential ‘plus’ over
competitive offerings
•Logistics and Supply Chain Management can provide a
multitude of ways to increase efficiency and productivity and
hence contribute significantly to reduced unit costs
•A position of enduring superiority over competitors in terms of
customer preference may be achieved through logistics and
Supply Chain Management
•Companies have focused upon service as a means of competitive
advantage

9. Changed Business Equation
Earlier New Paradigm
Cost + Profit Sales Price – Cost
Sales Price Profit / Loss
Only way for more margin is cost optimization without
affecting the consumer value equation

10. Supply Chain Efficiencies As
Competitive Advantage
• Efficiency here can seriously translate into long term
competitive advantage
• Since the effect is directly on final output of
product/service the mantra is not cost reduction but
cost optimization.
• Being still a blind spot an early mover advantage in
SC optimization is not hygiene factor but tangible
value to the business still

11. Best-in-class companies have an advantage in total
supply-chain management cost of 3% – 6% of
revenue
Best-in-Class '97
14 Average '97
13.1
Total Supply- 12.2
11.5
Chain 12 11.3
10.9
Management 10.3
Cost 10
8 7.1 7.0
6.7 6.5
% of 5.8 6.1
6
Revenue
4
2
0
Computers Industrial Telecom Chemicals Packaged Overall
Goods
Source: PRTM’s 1997 Integrated Supply-Chain Benchmarking Study.
Definition: Total supply-chain management cost is the sum of Order Management, Material Acquisition,
Inventory Carrying, and Supply-Chain Finance, Planning, and MIS Costs.

12. The Future of Operations
SUPPLY CHAIN MANAGEMENT
The Flywheel
Scale
Drive Operating
Volume Expenses
VELOCITY
Enhance Focus on
Lower
Profits Throughput
Prices
• Lower Inventory
• Faster Time
to Market

13. Supply Chain Management
Design and Operation of the
Physical, Managerial, Informational and
Financial Systems needed to transfer goods and
services from vendor to customer (point of
production to point of consumption) in an
Efficient and Effective manner.

14. Efficient : Doing things right
Productivity
Cost minimization
Supply driven
Effective: Doing right things
Quality, Flexibility, Service level
Profit maximization
Customer (demand) driven

15. Supply Chain Costs
Organised Sector 1987 1994 US: 90
Transportation 38% 45% 50%
Inventory 28% 25% 20%
Warehousing 20% 30% 24%
Packaging
Losses 14% 6%
Total Cost 10% 12% 15-20%

16. Challenges…..
•Demanding Consumer
• Complex Distribution Models
• Ever Changing Demands
•Limited Shelf Life
•Complicated Taxation Structures

17. A Responsive supply chain..
Accurate response
– Reducing the demand uncertainty
– Lead time reduction
– Estimating the forecast accuracy

18. Improving the Forecast Accuracy
• If possible eliminate the need to forecast
• Measure & monitor the forecast at SKU level
• Fix up the accoutability
• Try to capture the trends at the POS to make the
necessary changes
Measuring and monitoring is the only way to
progress.

19. A Responsive supply chain..
Risk Based Production Planning
– Produce the items with stable demand on a
continuous basis and the highly fluctuation
demand items on need basis
– Try to capture some early trends through the
market

20. Performance Measures …
•Service
•Assets
•Speed

21. Service
•Line Item Fill Rate / On Time completion
•Lost Sales
•Delivery Process On Time
•Cost of poor Supply Chain

22. Assets
• Monetary Value
•Inventory Turn-over Ratio
Key is to monitor both of these for optimal
performance

23. Speed
•Cycle Time
•Cash conversion Cycle
•Upside Flexibility

24. Performance Matrix..
High
Sales Happy
Inventory
Happy
Finance happy Business
Low High
Service

25. Some Dilemmas
• Stock out Vs excess stock – which one is
better ???
• Upto what level can you keep on
producing ???
Balance between the cost of service and
potential revenue opportunity

26. Bulk Vs Smaller Lots

27. Supply Chain ….
Paradigm Shifts At Cargill ….

28. Paradigm Shift - #1
Supply Chain Impacts A Small Portion of costs..
12%
10%
10%
%
8%
8%
o
f
R
e 6%
v 5%
e
n
u 4%
e
2%
2%
1% 1%
0%
Packaging Freight Warehousing Handling A&M Var. Margin

29. Paradigm Shift # 2
Business Models evolve slowly and supply
chain gets time to react.
The nature of our business and the low margin structure
makes small cost advantages worthy of metamorphosis of
business.

30. Paradigm Shift # 3
Consumer pays for ethics…..
In the long run maybe…. In the short run ????
We run this business with ethics & quality
of a large ethical transnational corporation
and compete with the local unorganized
players ……..

31. Paradigm Shift # 4
Supply chain job is transactional in nature….
• This is extremely strategic as it can potentially create
huge value
•Advances in technology and business also have made
greater focus on planning possible.

32. Paradigm Shift # 5
SCM is cost management
SCM is value management as it can impact
business strongly

33. Supply Chain
Learnings At Cargill…

34. Consumer is the mai baap…
• Internal Vs External focus
– SCM is the part of entire brand offering
– The customer is not the sales deptt. It is the
consumer who buys Atta/Oils
– So it is critically important to manage the “last
mile” as television companies call it.

35. Innovate ….Or Perish
• Direct deliveries to the maximum possible
extent.
• Flexible Contract Manufacturing.
• Use various modes of transportation.
• Variable cost / Fixed cost arrangements.
• Question everything including the Question .

36. Innovate ….Or Perish
• Shipments of Oil through the Rakes
• Bulk Break to avoid the Union Costs
• Resizing of the cartons to maximise cube
utilisation

37. It pays to be informed.
• IT ……
– All depots are connected on the NIS/JDE system
– Secondary sale data captuering through the system
– Mini ERP Supply Chain Planning Module to Ensure “
Inventory Visibility ”
Using IT to pay for itself and not because it is
fashionable.

38. Supply chain value is more than
the sum of boxes.
• Add value at every box of the chain.
– Making the material reach the Depot/WD is not
enough. Ensure
• Timely Supply as per the order
• Storage in Hygienic conditions
• Transportation w/o Damages
• Handling w/o Damages
• Helping the WD to sell through the TM activity
• Retail Audit for testing the Product Freshness

39. Vendors….. Or Associates ????
Win-Win & Mutual Growth
• Less No of Vendors
• Long term Business
• Strict adherence to the Norms
• Understanding & ensuring the vendor profitability
• Monthly Performance Review

40. How can one create a good
supply Chain
• People
• Processes
• Performance

41. Our Goal …
Overwhelming Market Presence Delighted Consumer

42. Summary
“Excellence is to do a common thing, in an
uncommon way.”
Booker T. Washington