This document discusses integrated supply chain management. It begins with an agenda that covers supply chain laws, business cases, and communication. It then discusses concepts like achieving an integrated supply chain through internal and external integration. It introduces four "laws of logistics" - the law of lowest total cost, the law of speed quality and accuracy, the law of supply chain volatility, and the law of counter-intuition. Several business cases are presented involving supply network design and logistics optimization at P&G. The document emphasizes the importance of information sharing, speed, and counteracting natural human tendencies to introduce delays that can increase volatility and costs.

1. Integrated Supply Chain
by Dr. Gopalan Uppiliappan

2. • To expose you to current trends and thinking on
Logistics & Supply Chain Management
• To share with you some of Integrated SCM
Experience & thoughts
3 2
Purpose

3. • 4 Laws of Logistics
• Business Cases
• Communication
3 3
Agenda

4. Two Moments of Truth for the Consumer
When she chooses and when she uses

5. 5

6. Retailers and manufacturers loose when a consumer faces an empty shelf
European consumer behavior facing Out-of-Stock in store
Doesn't buy
anything
9%
Buys different size
16%
Buys brand
elsewhere
21%
Buys a different
brand 37%
Returns later
17%
30 % lost
opportunities
for Retailer
46% lost
opportunities
for
Manufacturer
6
4 billion
Euro of
lost sales
in
Europe!

7. Supply Chain Management
3 7
• “Supply chain management can be defined as
the management of upstream and downstream
relationships with suppliers, distributors and
customers to achieve greater customer value-
added at less total cost”.

8. Mission of Supply
Chain/Logistics
Get your product to the consumer
at the lowest possible cost & cash
8

9. What are Supply Chain “Laws” ?
Manufacturing Distribution RetailMaterial Supplier Customers
Supply Chains conform to Physical / Empirical Laws
Implication:
• Supply chain performance is predictable and can be designed
• By precisely specifying the structure of the supply chain, the
operating strategy and quantifying measures consistently, we can
dramatically improve Supply Chain performance
3 9

10. The Laws of Logistics*
3 10
The Law of Lowest Total Cost
The Law of Speed, Quality and Accuracy
The Law of Supply Chain Volatility
The Law of Counter-intuition
The Laws of Logistics are an original concept of Logistics Consulting Partners Ltd.
They may be quoted but must be accredited. © LCP Ltd. All rights reserved

11. Achieving an Integrated Supply Chain
Stage I: Isolation
Stage II: Internal Integration
Materials
Management
Stage III: External Integration
Manufacturing
Management
Distribution
Suppliers Internal Supply Chain Customers
Purchasing Material Control Production Sales Distribution
Consumers
11

12. • Extended enterprise
thinking
 Focus on the ultimate
• consumer
 Increase profits for all
 Consider total costs
 Share ideas, information
• and resources
 Improve joint process
efficiency
• (Source : A.T. Kearney)
12
The Extended Enterprise Viewpoint
• Single company thinking
 Focus on the customer
 Increase own profits
 Consider own costs only
 Guard ideas, information
and resources
 Improve internal process
efficiency

13. Destructive Negotiations
13

14. Choosing The Operating Strategy
P
Planning
Operating Strategy – The set of parameters and principles which
guide the way resources will be managed to achieve the business
objectives at the lowest total system cost.
Demand Capability
C
capacity
I
inventory
D
demand

15. P&G‟s approach towards Supply Chain:
15
Consumer Driven Supply Network
• Win at the first and second month of truth: when the consumer
buys (1st) and when they try (2nd) the product
By Making sure that:
• The Right Product arrives at
• The Right Place at
• The Right Time at
• The Right Cost

16. 1.The Law of Lowest Total Cost
16
“The total cost of producing & delivering
product is usually larger than the sum of
the lowest functional costs of each element
in the supply chain”

17. The Effect of Time
Lead-Time Gap 85 days !!!
17
Procurement Manufacturing Delivery
Logistics Lead Time
(90 days)
Customer‟s Order Cycle
Order Fulfillment
(5 days)

18. Demand Predictability and
Lead-time
Forecast
Error
Lead-Time
+
-to
tn
18

19. Traditional Supply Chain
Manufacturer Customers
Goods flow
Demand flow
DC Store
• Sequential backward action
• Filtering of real demand by
inventory
• Significant batching activity
• Noise in demand patterns
• Forecast dependent
19

20. Continuous flow requires Information Sharing
20
• Using shared information to reduce time in the supply chain
• Optimize use of capacity
• Managing upstream inventory
• Using shared information to reduce forecast horizon

21. Why Do We need Inventory?
Inventory
B
Volatile
Demand
Inaccurate
Forecasts
Unreliable
Suppliers
Quality
Problems
Bottlenecks
A
Inventory Hides the Problems
21

22. Dell Computers
• Logistics strategy plays an important role in Dell Computer’s
impressive financial performance.
• Dell’s direct distribution eliminates as much as 2 months of warehouse and
retail storage.
• About 80% of the cost of a PC consists of components.
• Component prices fall while on the shelves at 30% per year.
• The consequences of logistics delays are overpriced products and possible
obsolescence.
• Direct sales also helps Dell in forecasting.
22

23. Two key techniques:
• Vendor Managed Inventory (VMI)
• Collaborative Planning, Forecasting & Replenishment (CPFR)
23
Achieving Speed in the Supply Chain:
Substituting Information for Inventory

24. 2.The Law of Speed, Quality and Accuracy
“In logistics & supply chain management, faster
simpler and better is almost always cheaper”
24

25. P&G Ukraine Supply Chain
• 2 plants and 2 distribution centers
• 40 brands, 3000 stock keeping units
• Products are shipped to 50+ customers
• Imports from 31 foreign plants
• 30 trucks enter Ukraine border everyday
• 30 trucks arrive to customers everyday
• 1500 employees are involved in P&G supply chain
plus 400 from our partner companies

26. Business Case 1: Supply network design
Customization center
P&G DC and buffer
Gillette DC and buffer
Gala DC and buffer
P&G distributors Gillette distributors Gala distributors
Question: do we need change?
If yes, what exactly would you suggest to change?

27. Case 1: what we need to change?
P&G DC with in-house
customization center
P&G ship to
•optimize number of DCs
•close buffers
•establish in-house manipulation capability
•optimize number of distributors and ship-to
•maximize direct supply from plants to customers
Direct deliveries
Direct deliveries
Direct deliveries
Direct deliveries

28. • Reduced supply chain lead-time
• Reduced inventory
• Improved service
• Improved productivity
• Several $ millions savings annually
Executed by Supply Network Operations department
Case 1: Streamlined and cost effective
supply net-work design

29. Variety Grows
29
Increased competition
Consumer demand for new products
Customer demand for new products
Marketing why we are unique
High profit margin products
What happens when variety increases ?

30. Company A Company B Company C
Consumer
Required
capacity
180%
40%
100%
Company A
The “ ForresterEffect"
Company B
Company C
30

31. Shall we produce once a month ?
Every week ?
Every day ?
3 times a day ?
Is there a right answer?
31
Volatility caused by Manufacturing

32. Shall we ship a full truck ?
A small full truck?
Half a truck ?
1 pallet ?
Is there a right answer?
32
Volatility caused by Logistics

33. 3.The Law of Supply Chain Volatility
33
“The volatility of final consumer demand is
always less than what we experience through
the supply chain by distribution, manufacturing
and suppliers”

34. Example
Tide detergent weight/pallet– 1000 kg
How many pallets of Tide will fit into truck?
Answer: 1 truck of Tide – 20 pallets
Pampers weight/pallet – 150 kg
How many pallets of Pampers will fit into truck?
Answer: 1 truck of Pampers – 33 pallets
Challenge: how to ship 33
pallets of Tide and 33
pallets of Pampers in 2
trucks?
Business Case 2 :Logistics at P&G
Load shipment:
By euro trucks – 33 pallets, 20 tons;

35. Challenge: how to ship 33 pallets of Tide and
33 pallets of Pampers in 2 trucks?
33 pallets,20 tons.
Truck 1:
16 pallets of Tide + 17 pallets of Pampers. (18550 kg)
Truck 2:
17 pallets of Tide + 16 pallets of Pampers.(19400 kg)
2000 kg are left. How to use them?
Loading on top. Truck 1 – 43 pallets, truck 2 – 37 pallets.
Therefore, combining products in trucks helps to reduce
number of trucks (and logistics costs)!
Logistics at P&G. Case 2

36. assortment: 600 SKUs, 50 categories, different
densities and pressures.
Limit: total weight, weights on axis
In practice: heterogeneous transport, quality
constraints, different product mix for
different customers, how to implement into
automated processes at warehouses?
Result: 21 – 21.5 tons range
Logistics at P&G
In reality: how to increase weight
limit up to 22 tons?

37. If only manufacturing would
make what we ask for we
could do the business
MANUFACTURING PREFERENCEATTRIBUTE MARKETING PREFERENCE
Minimum
Stable
Minimal
Long
Unacceptable
Maximum
Continually Changing
“Infinite”
Short
Fact of Life
PRODUCT RANGE
PRODUCT SET
FLEXIBILITY
LEAD TIME
UNFORECAST DEMAND
If only marketing could
forecast accurately and sales
deliver the orders we could
meet requirements
Source: Inger
37
Centre of Conflict

38. Circular References
38
Volatility is caused by time lags
Time lags are created to optimize cost
Cost is not necessarily lowered by slowing things down
Slowing things down is a function of variety and complexity
Variety and complexity mean it all gets „too difficult‟
which is why we do n’ t trus t a ny
on e &
we slow things down more
adding more time creates volatility
volatility costs money so we add more time
adding more time makes us careless and unreliable
Unreliability creates volatility…………………………………………………….

39. 4.The Law of Counter-intuition
39
“The normal human response to the effects of the
previous laws is to introduce delay in an attempt to
increase certainty which simply makes the situation
worse
- effective supply chain management is counter
intuitive”

40. What Is the source of
Most troubles at Work ?
40
Distortion Of
Information

41. 44
Distortion of Information
Wrong information
Too much information
Increases confusion

42. How to Reduce Confusion
42
• Listening
• Simple language
• Single point accountability
• KPI’s
• Being in touch with reality
• Frequent feedback from customers
• Few layers in the organization
• Daily Reviews

43. Communication Style Reducing Confusion
• Stick to facts, don’t speculate
• Check understanding
• Avoid slogans, jargon and generic
• Don’t repeat
• Phone/Talk Vs. e-mail
• Know when to stop talking
• Get to the point / conclusion
• Be open / direct
43