Walmart revolutionized supply chain management through an emphasis on information. By replacing inventory with information sharing across its supply chain, Walmart was able to dramatically reduce costs and improve responsiveness. This allowed everyday low pricing and high in-store variety. Key aspects included efficient transportation and facilities networks, minimal inventory levels managed through up-to-date sales data, and collaborative planning with suppliers. The Tata Nano similarly achieved breakthrough low costs through a target costing approach and extensive supply chain optimization to remove waste.
7. INVENTORY
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.
8. Inventory : Role in Supply
Chain
Trade off ???
Responsiveness Vs Efficiency as a strategic
competitive priority.
inventory
responsiveness
inventory
cost
responsiveness
cost
9. 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 .
10. Inventory in different
Domains
Manufacturing :
From Financial
perspective:
The largest asset often
seen on
manufacturer’s sheet.
Management emphasis –
Keep inventories down so that cost is not
much consumed.
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. Drivers…
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
15. Inventory Related Metrics
Average inventory
Products with more than a specified no of
days of inventory
Average replenishment batch size
Average safety inventory
Seasonal inventory
Fill rate
Fraction of time out of stock
16.
17. TRANSPORTATION
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
18. 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.
20. Metrics
Average inbound transportation cost: cost of bringing
product into a facility as percentage of sales or cost of
goods sold.
Average incoming shipment size: average number of units
or dollars in each incoming shipment at a facility.
Average inbound transportation cost per shipment:
average transportation cost of each incoming delivery.
Average outbound transportation cost: average number of
units or dollars in each outbound shipment at a facility.
Fraction transported by mode: measures fraction of
transportation using each mode of transportation. This
enables analysis on which all modes are overused and
underused.
22. Responsiveness v/s
Efficiency
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.
23.
24.
25. 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
26. Role in Supply Chain
If we think of inventory as what is being
passed along the supply chain and
transportation is how it is passed along, then
facilities are the where of the supply chain.
Facilities include all locations in the supply
chain to store, assemble, or fabricate
inventory.
27. 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.
29. Facility Related Metrics
Following are some facility related metrics:
Capacity
Utilization
Theoretical flow/cycle time of production
Actual average flow/cycle time
Flow time efficiency
Product Variety
Volume Contribution of top 20% SKU’s and
customers
Processing/setup/down/idle time
Average production batch size
Production service level
30. Responsiveness vs.
Efficiency
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.
33. 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.
34. Role in the supply chain
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.
35. Role in competitive strategy
Impact of IT in Supply Chain Management.
Helps in taking key decisions which help in
reducing cost and improving responsiveness.
38. Trade Off: Responsiveness VS
efficiency
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.
39. Impact on E-commerce
Cost Efficiency
Changes in the distribution system
Customer orientation
Shipment Tracking
Shipping Notice
Shipping Documentation and labeling
Online Shipping inquiry
41. "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
42. BACKGROUND
Sam Walton founded the company in 1962
• First store opened in Rogers, Arkansas
Walmart is the largest grocery retailer in U.S.
• It is headquartered in
Bentonville, Arkansas(U.S.)
In 2009, it generated 51% of its US$258 billion
sales in the U.S. from grocery business.
• The company employs 2.2 million associates
worldwide and serves 200 million customers
each week at more than 10,000 stores in 27
countries.
46. Pricing
Walmart practices every day low pricing
(EDLP) for its products.
Customer demand stays steady and does
not fluctuate with price variations.
47. 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 Pointof-Sales (POS) system.
48. 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
49. 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
50. 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”
51. 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
56. Tata Nano
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.
57. Tata Nano
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.
58. Tata Nano
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.
Supply chain activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains.
Cross functional are those processes whose impact spans more than one functional boundary. Logistics is concerned with managing business process concerned with a department or functional portion.
Companies begin with competitive strategy and then decide what their supply chain strategy ought to be.Supply chain strategy determines how the supply chain would perform with respect to efficiency and effectiveness.Supply chain employs all its drivers to reach the performance level the supply chain strategy dictates. Even though the framework is viewed from top down, drivers are potential enough to change the supply chain strategy and even the competitive strategy of the company.
The responsiveness of supply chains to changing market requirements and their overall efficiency are important issues in supply chain design and management and therefore currently receive wide attention in the scientific community as well as in practice.Responsiveness can be defined as the “ability to react purposefully and within an appropriate time-scale to customer demand or changes in the marketplace, to bring about or maintain competitive advantage.Responsiveness and efficiency are contradicting at somme point but they are complementary at other.
Material flow time is the time elapsed b/w when material enters supply chain to the time when it exists supply chain.Inventory is synonyms to throughput.
Exchange that occurs as a compromise is called a trade off ! If responsiveness is a strategic competitive priority , a firm can locate larger amounts of inventory closer to customers.If cost is more important , inventory can be divided to make firm more efficient.
Pipeline inventory - Pipeline inventory exists because material cannot be transported instantaneously between the point of supply and the point of demand.Cycle stock - Occurs because one or more stages in the process cannot supply all the items it produces simultaneously. This type of inventory only results from the need to produce products in batches and the amount of it depends on volume decisions.Anticipation inventory -Inventory that is accumulated to cope with expected future demand or interruptions in supply.Hedge inventory -A form of inventory buildup to buffer against some event that may not happen. Hedge inventory planning involves speculation related to potential labor strikes, price increases, unsettled governments, and events that could severely impair a company’s strategic initiatives. Risk and consequences are unusually high, and top management approval is often required.Seasonal Inventory- Inventory built up in anticipation of a seasonal peak of demand in order to smooth production..
I would explain myself !
Transportation moves the product between different locations in a supply chain and significantly affects both responsiveness and efficiency. Quicker methods (modes of transport, different amounts) increase supply chain responsiveness but decrease efficiency. The type of transportation can also affect inventory and facility location. For example, international transactions are the current commercial trend, but the supply chain manager must plan for travel time and customs processing.Transportation is prominent in a company's competitive strategy when considering customer need. If a firm's competitive strategy targets a customer that demands high responsiveness and that customer is willing to pay for this level, then they can use transportation as a driver for increasing supply chain responsiveness.
Processes or transforms inventory into another product, or it stores the inventory before shipping it to the next facility.Facilities include all locations in the supply chain to store, assemble, or fabricate inventory. In DoD, it is where personnel repair weapon systems and secondary items.
Whatever the function, decisions regarding location, capacity, and flexibility of facilities significantly affect supply chain performance. For example, a company can increase responsiveness by setting up warehouses near its customers instead of creating only one remote stock facility. This usually decreases cost while increasing responsiveness. Since 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. For instance auto-parts distributor striving for responsiveness could have many warehousing facilities located close to customers even though this practice reduces efficiency. Alternatively, a high efficiency distributors will have fewer warehouses to increase efficiency despite the fact that this practice will reduce responsiveness. In DoD, depot and field repair facilities are cornerstones of the supply chain.
IT CONSISTS OF DATA AND ANALYSIS CONCERNING FACILITIES , INVENTORY AND TRANSPORTATION.IT IS THE BIGGEST DRIVER OF PERFORMANCEPRESENTS MANAGEMENT WITH THE OPPORTUNITY TO MAKE SUPPLY CHAIN MORE RESPONSIVE AND EFFICIENT.E.G WITH INFORMATION ON CUSTOMER DEMAND PATTERNS, A PHARMACEUTICAL COMPANY CAN PRODUCE AND STOCK DRUGS IN ANTICIPATION OF CUSTOMER DEMAND, WHICH MAKES SUPPLY CHAIN VERY RESPONSIVE BECAUSE CUSTOMERS WILL FIND DRUGS WHEN THEY WANT THEM. IT MAKES SC MORE EFFICIENT ALSO BCZ THE PHARMA FIRM IS BETTER ABLE TO FORECAST DEMAND AND PRODUCE ONLY THE REQUIRED AMOUNT AND ALSO PROVIDING MANAGERS WITH SHIPPING OPTIONS, FOR INSTANCE ALLLOW THEM TO CHOOSE THE LOWEST COST ALTERNATIVE WHILE STILL MEETING THE NECESSARY SERVICE REQUIREMENTS..
DEEPLY AFFECTS EVERY PART OF SUPPLY CHAIN.SERVES AS A CONNECTION BETWEEN DIFFERENT STAGES OF SUPPLY CHAIN ALLOWING THEM TO COORDINATE AND MAXIMIZE TOTAL SUPPLY CHAIN PROFITABILITY.ALSO CRUCIAL TO DAILY OPERATIONS OF EACH STAGE IN A SUPPLY CHAIN. FOR INSTANCE , A PRODUCTION SCHEDULING SYSTEM USES INFORMATION ON DEMAND TO CREATE A SCHEDULE THAT ALLOWS A FACTORY TO PRODUCE THE RIGHT PRODUCTS IN AN EFFICIENT MANNER. A WAREHOUSE MANAGEMENT SYSTEM USES INFORMATION TO CREATE VISIBILITY OF THE WAREHOUSE’S INVENTORY. THE COMPANY CAN THEN USE THIS INFORMATION TO DETERMINE WHETHER NEW ORDERS CAN BE FILLED.
Information is an important driver that companies have used to become both more efficient and more responsive. The tremendous growth of information technology is a testimony to the impact that information can have on improving a company. Like all the other drivers, however, even with information, companies reach a point when they must make the tradeoff between efficiency and responsiveness. Another key decision involves what information is most valuable in reducing cost and improving responsiveness within a supply chain. This decision will vary depending on the supply chain structure and the market segments served. Some companies, for example, target customers who require customized products that carry a premium price tag. These companies might find that investments in information allow them to respond more quickly to their customers. The following examples illustrate this type of investments. Dell takes orders directly from customers over the phone and via the internet. Building this direct channel required an investment because of the added functions Dell must perform. A large part of the cost can be attributed to information. With the direct channel model, however, Dell is able to view the actual consumer demand much sooner than most PC manufacturers. Therefore, the company can respond more quickly to changes in consumer needs. Dell can then modify its product offering to meet these new needs. Dell is not the low cost provider. The company is, however, the cheapest for its level of responsiveness, and a large part of its responsiveness is due to the information flow between Dell and its customers, and Dell and its suppliers, that is made possible by its investment in information.
When designing processes of the supply chain, managers must determine whether these processes are part of the push or pull phase in the chain. Push systems generally require information in the form of elaborate material requirements planning systems to take the master production schedule and roll it back, creating schedules fir suppliers with part types , quantities, and delivery dates. Pull systems require information on actual demand to be transmitted extremely quickly throughout the entire chain so that production and distribution of products may reflect the real demand accurately.
In a typical supply chain, raw materials are procured and items are produced at one or more factories, shipped to warehouses for intermediate storage, and then shipped toretailers or customers.
1. As the world’s largest retailer, Walmart has immense amount of money to spend on purchasing manufactured goods.2. By purchasing incredibly large quantities from manufacturers, they are able to pay exceptionally low prices for their goods.3. By driving down the purchase price of their goods, Walmart can resell these goods to the consumers at low prices.The ship point is the point of origin from which the vendor is expected to ship the products to a Wal-Mart DC. Generally, Wal-Mart would like vendors to use common ship points for DCs to keep transportation costs low and ensure that products arrive at the same time. Retail Link also determines which type of carrier will be used for the shipment. Approximately 50% of shipments from vendors to Wal-Mart are made by common carriers and the other 50% is made by Wal-Mart's own private fleet. The vendor works with the carrier to coordinate the actual date and time for pick up. The carrierdelivers the product to three possible destination types: distribution centers, center points or directly to stores.
Wal-Mart ensures that unproductive inventory is as less as possible, by allowing the stores to manage their own stocks, thereby reducing pack sizes across many categories and timely price markdowns.
vital implementation of Wal-Marts supply chain is its in-house non-unionized truckdrivers. Using trucks as a mode as transportation will provide flexible point-to-point service,delivering small quantities with less risk.These dedicated truck fleets enables shipping of goods from distribution centers to the stores within 2 days and replenish the store shelves twice a week. since the distribution centers are on average 130 miles away from retail stores its relatively inexpensive. This concept allowstransportation of unsold merchandise back on trucks that have just dropped off inventory to the retail store from the distribution center. This means that the Wal-Mart trucks leaving and coming back to the distribution center are never empty.
Because of “cross-docking” the system shifted from “supply chain” to “demand chain” which meant, instead of retailers ‘pushing’ the products into the system, the customers could ‘pull’ the products, when & where they required.
Wal-Mart makes full use of its IT infrastructure to make more inventories available in case of items that customers wanted most, while reducing overall inventory.The hand held computers guide employee to the location of the specific product. The quantity of the product required from the center is entered in the hand held computer, which updates the information on the main central server. Employees use “Magic Wand”, which is linked to in-store terminals through a Radio frequency network, to keep track of the inventory in stores, deliveries and backup merchandise in stock at the distribution centers. Wal-Mart owns the “Massively Parallel Processor (MPP)”, largest & the most sophisticated computer system in private sector, which enables it to easily track movement of goods & stock levels across all distribution centers and stores. For emergency backup, it has an extensive contingency plan in place as well. A Centralized inventory database allows the personnel at the store to find out the level of inventories and location of each product at a given time. It also shows the location of the product like distribution center or transit on the truck. When the goods are unloaded at the store, the inventory system is immediately updated.
Wal-Mart’s supply chain management strategy has provided the company with several sustainable competitive advantages, including lower product costs, reduced inventory carrying costs, improved in-store variety and selection, and highly competitive pricing for the consumer. This strategy has helped Walmart become a dominant force in a competitive global market.