Summary of Case studies on the sourcing hub concept by Anupam Agarwal, Arnoud...Haris Naved Ahmed
This paper that I have analyzed is about a concept called the Sourcing Hub. This paper includes various concepts pertaining to Sourcing and Supply chain management. The primary objective of this study is to fit in information on upstream Raw Material suppliers so as to add value to the Supply chain.
IJERD (www.ijerd.com) International Journal of Engineering Research and Devel...IJERD Editor
This document discusses the key steps for implementing a Vendor Managed Inventory (VMI) system between a manufacturer and customer. The four main steps are: 1) Set clear objectives for the VMI program focused on business and supply chain goals. 2) Select the supplier that is most experienced with VMI and can design an effective model. 3) Choose the correct VMI model to implement based on material and supply chain characteristics. Common models include third-party logistics and consignment. 4) Implement the program with a well-defined project plan, internal resource commitment, testing, and process to ensure correct operation. Effective VMI implementations require selecting the right supplier, model, and implementation approach tailored to each situation.
It deals right from the basic entities and till the end which covers every entity in detailed explanation which will help a candidate or a learner to understand the concept of Supply Chain Management.
This presentation deals with the basics of Supply Chain Management.It gives short notes on what is it that makes a complete supply chain network and industrial terminologies are explained here.
This chapter discusses demand management and outlines several key learning objectives. It focuses on forecasting, the sales and operations planning (S&OP) process, collaborative forecasting approaches, and the fulfillment process. Effective demand management requires coordination between departments and viewing demand information strategically rather than just tactically. The chapter also examines different fulfillment channel options like direct-to-customer, integrated, dedicated, outsourced, drop-shipped, store, and flow-through fulfillment. Each channel has advantages and disadvantages regarding factors like costs, inventory management, and order conflicts.
The document discusses supply chain management and various supply chain models. It summarizes that a supply chain involves suppliers, manufacturers, distributors, and retailers working together to acquire raw materials, convert them to final products, and deliver the products to retailers. Supply chain management plans, organizes, coordinates, and controls all supply chain activities. The document then discusses Dell's supply chain and how Dell transformed its supply chain to address problems through innovations like build-to-order manufacturing and electronic integration with suppliers and customers. This allowed Dell to become the number one PC seller.
Home Work Chapter 1 to 12: Book Reference: Simchi-Levi, D., Kaminsky, P., and...Shaheen Sardar
Home Work Chapter 1 to 12:
Book Reference: Simchi-Levi, D., Kaminsky, P., and Simchi-Levi, E., & (2008). Designing and managing the supply chain: Concepts, strategies, and cases (3rd edition). United-States: McGraw-Hill.
The document summarizes the value of collaborative planning, forecasting, and replenishment (CPFR). It discusses how past collaboration efforts in the 1990s like JIT II, ECR, and QR helped companies realize the benefits of looking beyond their own boundaries. CPFR goes further by developing joint sales and order forecasts between trading partners and using exception reporting to identify discrepancies and collaboratively resolve them. Case studies found CPFR led to improved forecast accuracy, higher sales, lower inventory levels and costs. A specific case study of Superdrug's CPFR pilot with Johnson & Johnson found a 13% reduction in stock, 1.6% increase in warehouse availability, and 21% improvement in forecast accuracy.
Summary of Case studies on the sourcing hub concept by Anupam Agarwal, Arnoud...Haris Naved Ahmed
This paper that I have analyzed is about a concept called the Sourcing Hub. This paper includes various concepts pertaining to Sourcing and Supply chain management. The primary objective of this study is to fit in information on upstream Raw Material suppliers so as to add value to the Supply chain.
IJERD (www.ijerd.com) International Journal of Engineering Research and Devel...IJERD Editor
This document discusses the key steps for implementing a Vendor Managed Inventory (VMI) system between a manufacturer and customer. The four main steps are: 1) Set clear objectives for the VMI program focused on business and supply chain goals. 2) Select the supplier that is most experienced with VMI and can design an effective model. 3) Choose the correct VMI model to implement based on material and supply chain characteristics. Common models include third-party logistics and consignment. 4) Implement the program with a well-defined project plan, internal resource commitment, testing, and process to ensure correct operation. Effective VMI implementations require selecting the right supplier, model, and implementation approach tailored to each situation.
It deals right from the basic entities and till the end which covers every entity in detailed explanation which will help a candidate or a learner to understand the concept of Supply Chain Management.
This presentation deals with the basics of Supply Chain Management.It gives short notes on what is it that makes a complete supply chain network and industrial terminologies are explained here.
This chapter discusses demand management and outlines several key learning objectives. It focuses on forecasting, the sales and operations planning (S&OP) process, collaborative forecasting approaches, and the fulfillment process. Effective demand management requires coordination between departments and viewing demand information strategically rather than just tactically. The chapter also examines different fulfillment channel options like direct-to-customer, integrated, dedicated, outsourced, drop-shipped, store, and flow-through fulfillment. Each channel has advantages and disadvantages regarding factors like costs, inventory management, and order conflicts.
The document discusses supply chain management and various supply chain models. It summarizes that a supply chain involves suppliers, manufacturers, distributors, and retailers working together to acquire raw materials, convert them to final products, and deliver the products to retailers. Supply chain management plans, organizes, coordinates, and controls all supply chain activities. The document then discusses Dell's supply chain and how Dell transformed its supply chain to address problems through innovations like build-to-order manufacturing and electronic integration with suppliers and customers. This allowed Dell to become the number one PC seller.
Home Work Chapter 1 to 12: Book Reference: Simchi-Levi, D., Kaminsky, P., and...Shaheen Sardar
Home Work Chapter 1 to 12:
Book Reference: Simchi-Levi, D., Kaminsky, P., and Simchi-Levi, E., & (2008). Designing and managing the supply chain: Concepts, strategies, and cases (3rd edition). United-States: McGraw-Hill.
The document summarizes the value of collaborative planning, forecasting, and replenishment (CPFR). It discusses how past collaboration efforts in the 1990s like JIT II, ECR, and QR helped companies realize the benefits of looking beyond their own boundaries. CPFR goes further by developing joint sales and order forecasts between trading partners and using exception reporting to identify discrepancies and collaboratively resolve them. Case studies found CPFR led to improved forecast accuracy, higher sales, lower inventory levels and costs. A specific case study of Superdrug's CPFR pilot with Johnson & Johnson found a 13% reduction in stock, 1.6% increase in warehouse availability, and 21% improvement in forecast accuracy.
The document discusses demand management and forecasting. It explains that demand management involves collaboration across the supply chain to coordinate product, information, and capital flows. Effective demand management requires coordination between departments and using demand information for strategic planning. The document also discusses forecasting types and collaborative forecasting approaches. It describes the sales and operations planning process and order fulfillment channels like direct-to-customer, integrated, outsourced, and store fulfillment.
Unit 5 strategic issues in logistics lscm (32 pages)logistics management Suzana Vaidya
This document discusses logistics pipeline management and time-based competition. It defines logistics pipeline management as linking manufacturing and procurement lead times to meet market needs, while increasing response speed. The goals of logistics pipeline management are listed as lower costs, higher quality, more flexibility, and faster response times. Drivers requiring logistics pipeline management include time-based competition, globalization, increasing shareholder value, and customers taking more control. Specific goals of logistics pipeline management are also outlined, such as reducing costs by minimizing inventory levels, delivery times, and the overall order-to-collection cycle.
Physical distribution management (PDM) involves ensuring efficient movement of goods from production to consumption. It includes order processing, inventory management, warehousing, and transportation. PDM aims to balance cost and customer service by integrating these functions and optimizing individual efforts. As customer demands have increased, such as just-in-time manufacturing requiring minimal stock levels and rapid deliveries, PDM has grown in importance for coordinating efficient product flows within tight timeframes.
Preserving Supply Base Integrity During an Economic Downturn (15 Page Article)
Are Your Organization’s Current Policies and Practices a Threat to Your Supply Base?
Do your suppliers perceive your current e-procurement strategy as a threat or a benefit to their organization? While it is a simple question, the answer is one that will ultimately determine the success or failure of your e-procurement initiative, and in these challenging financial times even your business itself.
This article will examine how the e-LYNXX methodology accomplishes this seemingly paradoxical, and some would suggest contradictory outcome from the perspective of both the buyers and sellers of specification-defined goods and services. In the end, the information within this article will enable you to ultimately be the judge as to how effective the solution is in achieving the elusive win-win result outcome.
Supply Chain Management With Brief Case StudiesMohit Jain
The document provides information about a seminar presentation on supply chain management. It discusses what a supply chain is, provides an example of a supply chain using Coca-Cola, and discusses issues in supply chain management such as matching supply and demand, inventory management challenges, and the bullwhip effect. It also provides examples of successful supply chain management by companies like Walmart and Dell.
(i) Cycle View (ii) Push & Pull View of the Supply Chain, Supply Chain Responsiveness. Strategic Fit between Business Strategy and Supply Chain Strategy, Achievement of Strategic Fit through different steps, Obstacles to achieving Strategic Fit.
Mark Fasold, Strategic Advisor to Falls River Group (FRG) – IMAP USA, shares with Creating Value the guiding principles companies should follow to optimize their supply chains including the vital dos and don’ts.
Reverse logistics programs are complicated but can provide opportunities. They involve managing returns, repairs, and used goods in ways that (1) generate additional revenue, differentiate companies, and support new product demand; (2) establish customer loyalty; and (3) are considered part of successful growth strategies. However, reverse logistics requires defined processes and metrics since returns are variable, and many companies currently do not handle returns well due to a lack of focus on this area.
This document discusses strategic lead-time management. It argues that reducing lead times provides both cost and customer service benefits. Long lead times require more inventory and less responsiveness. The document outlines various pressures that have increased the importance of time-based competition, such as shortening product life cycles and customers' drive for reduced inventories. It discusses concepts like order-to-delivery cycle, cash-to-cash cycle, and the benefits of logistics pipeline management and reducing non-value adding time to compress lead times.
Inventory Management: How Incremental Improvements Drive Big GainsCognizant
By feeding social and mobile data into planning systems and overlaying analytics, manufacturers and retailers can reduce inventory waste and more precisely target customers.
This document summarizes a research paper about the concept of a sourcing hub in supply chain management. The sourcing hub aims to integrate information about upstream raw material suppliers to add value to the supply chain. The researchers conducted case studies of four companies to understand how they source raw materials. The findings showed that a sourcing hub can eliminate the bullwhip effect by sharing information, enable collaborative design, reduce ordering costs through centralized transactions, and optimize the supplier network to rely on fewer raw material suppliers. However, the research was limited to the automotive industry and increased dependency on few suppliers poses risks.
Multi agent system for knowledge management in SCMGeorge Ogrinja
This document provides an overview of supply chain management and multiagent systems. It begins by introducing supply chain management as a business practice used to address industrial problems through inter-company collaboration. It then discusses multiagent systems, defining agents and comparing them to objects. Finally, it synthesizes these two areas by discussing how agent-based approaches can be applied to supply chain management problems.
the presentation is about managing coordination between the supply chains for fast movement of resources.factors affecting the coordiantion in supply chain.
Beyond the 'Perfect Order' Index: Obtaining a True Measure of Customer ValueCognizant
This document discusses redefining the concept of a "perfect order" for manufacturers and retailers in today's dynamic business environment. It argues that the traditional definition of a perfect order is outdated and doesn't account for customer needs. The document recommends that companies: 1) rethink how they understand customer needs rather than relying on assumptions; 2) reinvent fulfillment operations from end-to-end; and 3) rewire performance metrics using new data sources, in order to develop a definition of a perfect order that truly meets customer value.
The document discusses using inventory modeling to develop a holistic inventory strategy. It describes how companies aim to improve service levels while reducing inventory levels, but it is difficult to do both simultaneously without modeling. The document outlines factors like demand variability, supply chain complexity, different types of inventory levels, and demand patterns that must be considered in developing an effective inventory strategy. It provides an example of how modeling helped a manufacturer optimize inventory levels at dealers and distribution centers.
The knowledge of Coordination for Supply Chain IntegrationMohammad Rahman
Hi, This is Habib, student of Msc in Textile Engg. BUTex and tried to gather some info about the topic and published for the help of any guys if needed.Thanks-Habib
The document discusses strategies used by "Complexity Masters" - companies that have successfully managed increasing supply chain complexity. It identifies forces like cost pressures that drive complexity. It also analyzes paradoxes where company priorities don't align with actions. Complexity Masters resolve these through strategies like collaborating with customers, managing products, and advanced technology. They have mastered processes within their organization and across partners.
CHAPTER 15 MANAGING SUPPLIERS AND CUSTOMERS solution.pdfQunho15
This document discusses supply chain management and supplier relationships in the context of a chapter on managing suppliers and customers from an accounting textbook. It provides details on supply chain management concepts, benefits of strategic supplier relationships for different parties, criteria for supplier selection and performance evaluation, just-in-time systems, customer relationship management, and customer profitability analysis techniques.
SCM SESSION 1 - FUNDAMENTALS OF SCM.pptxssuser653579
This document discusses the evolution of supply chain management over three revolutions from 1910-1970. The first revolution involved Henry Ford's vertically integrated supply chain for the Model T, offering high efficiency but low flexibility. The second revolution involved Toyota adopting integrated supply chains while offering a wide variety of products through close supplier relationships and low setup times. The third revolution saw increased use of information technologies like EDI to facilitate looser integration and global supply chain networks without requiring physical proximity between firms.
Telco Construction Equipment Company (TELCON) manages its supply chain through strategic, tactical, and operational activities. At the strategic level, this includes network optimization and supplier partnerships. Tactical activities involve sourcing, production planning, and transportation. Operational activities include planning, sourcing, production, fulfillment, and performance tracking across the supply chain on a daily basis. An integrated supply chain management approach aims to deliver the right products to customers at the lowest cost by streamlining processes and information sharing between partners.
12 steps to transform your organization into the agile org you deservePierre E. NEIS
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Colby Hobson: Residential Construction Leader Building a Solid Reputation Thr...dsnow9802
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Unit 5 strategic issues in logistics lscm (32 pages)logistics management Suzana Vaidya
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This document discusses strategic lead-time management. It argues that reducing lead times provides both cost and customer service benefits. Long lead times require more inventory and less responsiveness. The document outlines various pressures that have increased the importance of time-based competition, such as shortening product life cycles and customers' drive for reduced inventories. It discusses concepts like order-to-delivery cycle, cash-to-cash cycle, and the benefits of logistics pipeline management and reducing non-value adding time to compress lead times.
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Supply chain management Mod5@AzDOCUMENTS.in.pdf
1. SCM Module 3 notes
Dept. of Mechanical Engineering, MITE
SCM Module 5
Current Trends: Supply Chain Integration
Supply Chain Integration:
A typical firm is functionally organized, and material and information have to go through
multiple departments across the internal supply chain. As each function is myopic in nature
and is focusing on a narrowly defined local performance, there are many inefficiencies and
buffers at departmental boundaries. This is illustrated using two examples.
1. An electric machinery firm, which has a manufacturing plant in Mumbai, serves the
southern market through a stock point in Chennai. The Mumbai plant ships goods to
the Chennai stock point once a month because monthly demand amounts to
approximately a full truckload. Obviously by shipping goods using full truckloads, the
plant is able to minimize transportation costs. As it receives goods only once a month,
the Chennai stock point has to keep high safety stocks to ensure a reasonable level of
service to its customers. Thus, both the Mumbai plant and the Chennai regional stock
point have made so-called locally optimal decisions A detailed analysis shows that it
will be optimal (total transportation and inventory cost will be lowest) for the firm to
ship goods to Chennai from Mumbai once a week. There is a trade-off between
transportation and inventory costs, individual departments chose to ignore this trade-
off to make locally optimal decisions, resulting in a substantial increase in the overall
cost in the system.
2. A split pump manufacturer used to offer about 30-odd varieties of pumps in the
marketplace. As per the product design, the pump housing consisted of a top housing
and a bottom housing and the exact size of the pump housing varied with each model.
The machining of housings was one of the most critical tasks, involving expensive
equipment and a significant amount of time. One of the critical operations in the
machining of housing involved joint machining of both the housing castings (top and
bottom of same model) in one setup. However, the firm found that though it had a huge
inventory of housing castings, it rarely had matching pairs of top and bottom housing
castings, resulting in serious difficulties in scheduling machining operations, upsetting
promised customer delivery schedules. The purchase department had placed orders for
top housings with one vendor and bottom housings with another. Since one vendor had
quoted lowest for top housing castings and another had quoted lowest for bottom
2. SCM Module 3 notes
Dept. of Mechanical Engineering, MITE
housing castings, the purchase department had placed orders accordingly. While the
purchase department had substantially minimized the buying cost at the purchase stage,
this kind of ordering resulted in uncoordinated supply by each vendor leading to
constant problems for manufacturing. The manufacturing team faces serious problems
in scheduling its operations. Even with a huge inventory of individual top and bottom
housing castings, operations find it difficult to match pairs for manufacturing. Hence,
the company had a typical problem of high inventory and low customer service. A
simple solution therefore will be an order of top and bottom housing casting with the
same vendor with clear instructions to supply both castings of the same model in one
shipment. The purchase department had tried to similarly cut costs by splitting “C”
category hardware items’ orders to several suppliers and found eventually that many
times crucial shipments could not be made because of non-availability of some of these
items
Building partnership and trust in Supply chain Value of
Information:
Bullwhip Effect: Demand Volatility and Information Distortions
Across Supply Chains:
Supply chain coordination improves if all stages of the chain take actions that
together increase total supply chain profits. Supply chain coordination requires
each stage of the supply chain to take into account the impact its actions have
on other stages.
A lack of coordination occurs either because different stages of the supply chain
have objectives that conflict or because information moving between stages is
delayed and distorted. Different stages of a supply chain may have conflicting
objectives if each stage has a different owner. As a result, each stage tries to
maximize its own profits, resulting in actions that often diminish total supply
chain profits.
Today, supply chains consist of stages with many different owners. For
example, Ford Motor Company has thousands of suppliers from Goodyear to
Motorola, and each of these suppliers has many suppliers in turn.
Information is distorted as it moves across the supply chain because complete
information is not shared between stages.
3. SCM Module 3 notes
Dept. of Mechanical Engineering, MITE
This distortion is exaggerated by the fact that supply chains today produce a
large amount of product variety. For example, Ford produces many different
models with several options for each model. The increased variety makes it
difficult for Ford to coordinate information exchange with thousands of
suppliers and dealers.
The fundamental challenge today is for supply chains to achieve coordination
in spite of multiple ownership and increased product variety.
Many firms have observed the bullwhip effect, in which fluctuations in orders
increase as they move up the supply chain from retailers to wholesalers to
manufacturers to suppliers, as shown in Figure 1.
The bullwhip effect distorts demand information within the supply chain, with
each stage having a different estimate of what demand looks like. The result in
a loss of supply chain coordination.
Proctor & Gamble (P&G) has observed the bullwhip effect in the supply chain
for Pampers diapers. The company found that raw material orders from P&G to
its suppliers fluctuated significantly over time. Farther down the chain, when
sales at retail stores were studied, it was found that the fluctuations, while
present, were small. It is reasonable to assume that the consumers of diapers
(babies) at the last stage of the supply chain used them at a steady rate. Although
consumption of the end product was stable, orders for raw material were highly
variable, increasing costs and making it difficult for supply to match demand.
Figure 1: Demand fluctuations at different stages of a supply chain
4. SCM Module 3 notes
Dept. of Mechanical Engineering, MITE
Effective Forecasting
The following basic, six-step approach helps an organization perform effective forecasting.
1. Understand the objective of forecasting.
2. Integrate demand planning and forecasting throughout the supply chain.
3. Understand and identify customer segments.
4. Identify the major factors that influence the demand forecast.
5. Determine the appropriate forecasting technique.
6. Establish performance and error measures for the forecast.
UNDERSTAND THE OBJECTIVE OF FORECASTING
Every forecast supports decisions that are based on the forecast, so an important first step is to
identify these decisions clearly. Examples of such decisions include how much of a particular
product to make, how much to inventory, and how much to order. All parties affected by a
supply chain decision should be aware of the link between the decision and the forecast. For
example, Wal-Mart's plans to discount detergent during the month of July must be shared with
the manufacturer, the transporter, and others involved in filling demand, as they all must make
decisions that are affected by the forecast of demand. All parties should come up with a
common forecast for the promotion and a shared plan of action based on the forecast. Failure
to make these decisions jointly may result in either too much or too little product in various
stages of the supply chain.
INTEGRATE DEMAND PLANNING AND FORECASTING THROUGHOUT THE
SUPPLY CHAIN
A company should link its forecast to all planning activities throughout the supply chain.
These include capacity planning, production planning, promotion planning, and purchasing,
among others. This link should exist at both the information system and the human resources
management level. As a variety of functions are affected by the outcomes of the planning
process, it is important that all of them are integrated into the forecasting process. In one
unfortunately common scenario, a retailer develops forecasts based on promotional activities,
whereas a manufacturer, unaware of these promotions, develops a different forecast for its
production planning based on historical orders. This leads to a mismatch between supply and
demand, resulting in poor customer service.
To accomplish this integration, it is a good idea for a firm to have a cross-functional team, with
members from each affected function responsible for forecasting demand and an even better
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idea is to have members of different companies in the supply chain working together to create
a forecast.
Coordination in supply chain
Effectively managed supply chain relationships foster cooperation and trust, thus
increasing supply chain coordination. In contrast, poorly managed relationships lead to
each party being opportunistic, resulting in a loss of total supply chain profits. The
management of a relationship is often seen as a tedious and routine task. Top
management, in particular, is often very involved in the design of a new partnership but
rarely involved in its management. This has led to a mixed record in running successful
supply chain alliances and partnerships.
Figure 2 shows the basic process by which any supply chain partnership or alliance
evolves. Once the partnership has been designed and established, both partners learn
about the environment in which the partnership will operate, the tasks and processes to
be performed by each partner, the skills required and available on each side, and the
emerging goals of each side. The performance of each side is evaluated based on the
improvement in profitability and on equity or fairness. At this stage, a better evaluation
of the value of the partnership becomes available, which provides both parties in the
supply chain partnership an opportunity to revise the conditions of the partnership to
improve profitability and fairness. It is important that the initial contracts be designed
with sufficient flexibility to facilitate such alterations.
Formal contracts may be restructured to reflect the changes. As the business
environment and company goals change, the cycle repeats itself and the relationship
evolves. Any successful supply chain partnership will go through many such cycles. A
supply chain partnership falters if the perceived benefit from the relationship diminishes
or one party is seen as being opportunistic. Problems arise when communication
between the two parties is weak and the mutual benefit of the relationship is not
reiterated regularly. When managing a supply chain relationship, managers should
focus on the following factors to improve the chances of success of a supply chain
partnership:
1. The presence of flexibility, trust, and commitment in both parties helps a supply chain
relationship succeed. In particular, commitment of top management on both sides is
crucial for success.
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2. Good organizational arrangements, especially for information sharing and conflict
resolution, improve chances of success. Lack of information sharing and the inability
to resolve conflicts are the two major factors that lead to the breakdown of supply chain
partnerships.
3. Mechanisms that make the actions of each party and resulting outcomes visible help
avoid conflicts and resolve disputes. Such mechanisms make it harder for either party to be
opportunistic and help identify defective processes, increasing the value of the relationship
for both parties.
4. The more fairly the stronger partner treats the weaker, vulnerable partner, the stronger
the supply chain relationship tends to be.
Figure 2: Process of alliance and partnership Evolution
The issue of fairness is extremely important in the supply chain context because
most relationships involve parties with unequal power. Unanticipated situations that
hurt one party more than the other often arise.
The more powerful party often has greater control over how the resolution occurs.
The fairness of the resolution influences the strength of the relationship in the
future.
The relationship between Marks & Spencer and a manufacturer of a kitchen product
provides an excellent example of a fair sharing of benefits. A few months after the
product's introduction, the manufacturer realized that costs had been miscalculated
and exceeded the price at which the product was being sold to Marks & Spencer.
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Meanwhile, given its low retail price, customers found the product an outstanding
value and made it a big hit.
When the manufacturer brought the problem to the attention of Marks & Spencer,
its managers helped the manufacturer reengineer both the product and the process
to lower cost. Marks & Spencer also lowered its margin to provide a sufficient profit
for the manufacturer. The outcome was one in which the relationship was
strengthened between the two partners because Marks & Spencer's fairness allowed
a resolution that recognized the manufacturer's needs. In the long run, both partners
benefited and a higher level of trust developed.
Supply chain Restructuring:
Introduction:
In the era of globalization, firms are under relentless pressure to continuously
improve their supply chain performance so as to minimize cost and maintain high
levels of customer service.
In the last decade, several leading firms have reaped substantial benefits by working
on initiatives involving supply chain integration and supply chain optimization.
These initiatives have helped these firms in ensuring above-average business
performance in their respective industry sectors.
But in the last few years, leading firms have realized that initiatives involving
supply chain integration and supply chain optimization are not enough for ensuring
above-average business performance. These initiatives are necessary for the very
survival of a firm. These do not ensure an above-average performance.
Supply chain integration and related best practices have received adequate attention
in the industry. These practices have percolated down from the best firms to emerge
as necessary but insufficient conditions for firms to establish themselves as market
leaders.
Industries have realized that if they want to retain their leadership, they will have to
go beyond these initiatives and look at ways in which they can restructure supply
chain architecture and processes. Supply chain restructuring focuses on these
innovative practices that separate leaders from the “also-ran” companies.
Unlike supply chain integration and supply chain optimization, supply chain
restructuring goes beyond supply chain function and requires integrating product
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and process engineering with supply chain function. Similarly, it may also involve
closer integration between marketing and supply chain function.
Supply Chain Mapping:
Before a firm sets out to restructure its supply chain, it has to find a method to
successfully capture and evaluate the existing supply chain processes. The method
used to capture current supply chain processes is termed supply chain mapping.
As can be seen in Figure 3, existing supply chain processes can be characterized on
the basis of the following dimensions:
• Shape of the value-addition curve
• Point of differentiation
• Customer entry point in the supply chain
Figure 3: Supply chain mapping:
existing position.
Restructuring of the supply chain process involves altering the supply chain on at least one the
three dimensions. It may also involve altering more than one dimension of the supply chain
process. We initially take one dimension at a time and later on discuss a specific innovation,
which involves altering two dimensions in the process.
Value-addition Curve:
The supply chain encompasses all the activities/processes associated with the
transformation of goods from the raw material stage to the final stage when the goods
and services reach the end customer.
A typical supply chain starts with some input material and information, which are
transformed into the end product and delivered to the customer. This transformation
involves a number of activities, with each activity taking time, incurring cost and adding
value.
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One can debate on whether all activities add value or if there some activities that are
non-value-added activities. At this stage, we assume that the firm has removed all non-
value added activities from the supply chain processes.
On the x-axis we have the total time in a chain or the average flow time in the chain
and on the y-axis we have the total cost (cumulative) in the chain.
Customer Entry Point in the Supply Chain:
The point at which a customer places an order is shown as a dotted line in Figure 3. In
several industries customers expect material off the shelf in the neighbourhood retail
store.
In such a case, the customer entry point is at the end of chain and is the same as the
delivery time. But in several industries it is not uncommon for customers to give some
amount of delivery lead time and in such a case obviously the customer entry point will
be ahead of the delivery time. This is similar to build-to-order or configure-to-order
supply chain situations.
Essentially, the customer entry point captures the order to delivery lead time. This
dimension is important because all the operations before the customer order has to be
done based on forecast, whereas after the customer order one will be working with
actual orders.
In other words, before the customer entry point all the activities are carried out based
on forecast while subsequent activities are done based on order. As discussed in the
chapter on demand forecasting, however good the forecasting process, as per the first
law of forecasting, a forecast is always wrong.
So if bulk of the activities can be carried out based on order rather than forecast one
does not have to worry about the likely forecast error that is inherent in any forecasting
exercise.
Point of Differentiation:
The concept of the point of differentiation is valid for any organization that is offering
a variety of end products to customers. Products are made in a supply chain consisting
of multiple stages. As the product moves in the chain, progressively, the product
assumes an identity that is closer to the end product.
The point of differentiation is a stage where the product gets identified as a specific
variant of the end product. We will illustrate the concept using a toothpaste
manufacturing firm. Let us assume that the firm offers variety only in pack sizes.
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In such a firm, the packing stage is a point of differentiation. At a packing station the
same basic material, that is, toothpaste, is packed in sizes of varying dimensions. So till
the packing station one has been working with the generic material, but at the packing
station the firm has to make an irreversible decision in terms of committing the generic
material to a specific product variant. Similarly, at a garment manufacturing firm, at the
stitching stage the firm is committing the fabric to different sizes and styles of garment.
In automobile manufacturing firms like Tata, where usually large variety is offered in
terms of colours, the painting stage becomes the point of differentiation because at that
stage the firm makes an irreversible decision about the colour of the car.
Supply Chain Process Restructuring:
Supply chain process restructuring involves playing around with at least one of the three
dimensions of the supply chain in the direction as shown below:
• Postpone the point of differentiation. By moving the point of differentiation as much
as possible, a bulk of the activities can be carried out using the aggregate-level forecast
rather than the variant-level forecast.
• Alter the shape of the value-addition curve. Shift the bulk of the cost addition as
late as possible. This will reduce the inventory in the chain and also help the firm in
having some flexibility. If the bulk of the cost addition takes place at a later point in
time in the chain, one will be in a position to respond to unforeseen changes with the
least cost.
• Advance the customer ordering point. Move from an MTS to a CTO supply chain.
By moving the customer ordering point as early as possible, one can carry out the bulk
of the activities against an order, which reduces the importance of forecasting. If one
were also able to postpone the point of differentiation, one will be able to move from
an MTS to a CTO supply chain.
In a CTO supply chain, since the point of differentiation takes place after customer
order, one does not have to prepare a variant-level forecast.
Before we get into a detailed discussion about supply chain restructuring, it will be
important to compare it against supply chain integration and supply chain optimization.
As can be seen in Figure 4, supply chain integration and supply chain optimization
focus on lowering the value-addition curve. This results in overall reduction in cost and
time and will result in an absolute shift in the point of differentiation but the relative
position of the point of differentiation does not change. Unlike these two approaches,
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supply chain restructuring affects the shape of the value-addition curve, shifts customer
ordering, or shifts the point of differentiation.
This will essentially require supply chain process restructuring and may also involve a
change in product design or a change in the product service bundle offered to customers.
Supply chain restructuring is likely to bring in substantial business benefits in general
and in special cases it fundamentally changes the way in which the supply chain is
managed by moving from the MTS to the CTO business model.
Figure 4: Impact of supply chain
Integration /optimization.
Postpone the Point of Differentiation:
Delaying an operational process that results in variety explosion or customization to a
later point in the supply chain postpones the point of product differentiation. Delaying
the differentiating operations, apart from reducing inventories, also reduces the time
period for which one has to carry out forecasting at the variant level and thereby reduces
inventory and improves customer service and reduces product obsolescence.
Postponement for Reducing Transportation Cost
Usually, postponing of the assembly process is carried out for shifting the point of
differentiation to a later stage. But there have also been cases where firms have used
the postponement strategy for delaying an operational process to a later point in the
supply chain in order to reduce transportation costs. Transportation cost is reduced in
the case of bulky finished products by shifting the assembly operations to the customer
end as transporting parts as kits is cheaper than transporting a finished product.
Postponement in Bicycle Industry
The bicycle industry in India belongs to a category of industries that traditionally
practices the postponement strategy. The reasons for this practice are as follows:
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• To reduce transport complexities and costs. The bicycle manufacturers limit their
activities to production of frames, handle bars and transmission parts. Other suppliers
produce the tyres, tubes, seats and many extra fittings. A large number of bicycle
dealer’s stock products of all bicycle manufacturers. The bicycle purchasing process is
as follows: when the customer arrives at the bicycle shop, she/he opts for a particular
frame size offered by a particular bicycle manufacturer. Similarly, she/he will opt for a
particular tyre size, offered by a particular tyre manufacturer and so on. Given this
situation, it is imperative that the assembly of the final product is carried out at the
dealer point. Additionally, the entire assembly takes just 15–30 minutes.
• Less exposure to damage than when transported as fully assembled bicycles.
• Less need for shop space when material is stocked as components instead of as fully
assembled bicycles.
• Low-technology nature of the assembly operation, which ensures there are no
inconsistencies in product quality.
Though the bicycle industry has worked on the idea of postponement of assembly so as
to primarily reduce transportation cost, they can also take advantage of this strategy and
offer higher variety. The bicycle industry can design a modular-level variety and allow
customers to choose a combination of modules and the retailer can assemble the
bicycle, which is essentially configured to customer requirements. This facilitates the
bicycle industry’s transition to a mass-customization environment.
Problems with Implementing the Postponement Strategy
The examples cited above help in understanding the industrial and technological
characteristics that make the postponement strategy viable. In general, postponement
strategy is likely to be advantageous in the following situations:
• High level of product customization
• Existence of modularity in product design
• High uncertainty in demand
• Long transport lead time
• Short lead time of postponed operation
• Low value addition in transportation
• High value addition in postponed operation
• Difference in tariff rates for components and finished goods in different markets.
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THE ROLE OF IT IN NETWORK DESIGN:
Even though it may seem at first glance that the strategic nature of the network design
problem makes information technology systems less valuable, good IT systems can
significantly improve the capability of a network designer. In this chapter, we discuss
a variety of methodologies in Excel that can be used to solve network design problems.
Even though the core models are the same, problems in practice tend to be much larger
than the problems considered in the chapter. For much larger problems, there are four
ways that an IT system can help with network design relative to the use of a general-
purpose tool such as Excel.
1. A good network design IT system makes the modeling of the network design
problems much easier than in a general-purpose tool such as Excel. These applications
have many built-in tools that facilitate an accurate description of a large supply chain
network and incorporate realistic features that would be time consuming and difficult
to build in Excel.
2. An IT system contains high-performance optimization technologies, which deliver a
high-quality solution for large problems in a reasonable amount of time. Although
Excel's solver can be upgraded, there are many cases in which the size and complexity
of the optimization require a more sophisticated system that a network design
application can provide.
3. A good network design application also allows for an analysis of various "what if"
scenarios. Given the uncertainty associated with forecasts, the ability to evaluate
network designs in a variety of scenarios is a very powerful tool for a designer. A
network designer may find it much more appropriate to select a design that gives very
good costs in many likely scenarios rather than a design that is optimal in one scenario
but very poor in another. The ease of modeling and speed of solution allows a good
network design application to facilitate what-if analysis to a far greater extent than a
general-purpose tool such as Excel.
4. Finally, network design applications are structured to interface easily with the
planning and operational software used by firms, which contain much of the actual data
required for network design. The ease of interfacing with the data source speeds up the
creation and solution of a network design model.
Network design applications are often quite inexpensive relative to the other uses of IT
we discuss. Network design applications, sometimes called supply chain strategy
modules, are often thrown in for free on top of the much more expensive planning and
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execution modules. In fact, many companies have rights to these products without even
realizing it, as a result of past software purchases.
There are some caveats, however, to the use of IT systems in network design.
Network design decisions are strategic and involve many factors that are hard to
quantify.
When using a network design tool, it is easy to fall into the trap of allowing the
application to make the decision based only on aspects that are quantifiable. Important
factors such as culture, quality-of-life issues, and cost of coordination that are hard for
IT to handle can be significant in making a network design decision. Thus, relevant non
quantifiable factors should be included with the output of IT systems when making
network design decisions.