Afl Scm Project


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Operational Overview of Logistic Industry with reference to AFL Logistics

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Afl Scm Project

  3. 3. ACKNOWLEDGMENT Feeling gratitude and not expressing it is like wrapping a present and not giving it. Though some feelings are best expressed when left unsaid, words been superfluous, yet I make my bets efforts to acknowledge our esteemed personalities who have contributed in a significant measure towards the completion of this project. I look back to see how it could have been possible without them. The day, marked the beginning of our project, bears a special status to all of us, we begin with the proceedings and blessings of our parents and good wishes of our friends on the project work. We wish to acknowledge and express our sincere gratitude to our Project Guide Mr. H. S. Shyam, Professor, Supply Chain Management, IMS DAVV, whose excellence, inspiration and constant guidance helped us in steering the present work through its completion. We also express our sincerest gratitude to Mr. Kallol Roy, Sr. Executive, AFL Pvt. Ltd. For his valuable guidance and supervision. His knowledge and the resources has helped us a lot in gaining Practical Knowledge about Logistics Industry. We are highly obliged to all the staff personnel of AFL Pvt. Ltd. for their immense support during our visit at your works. Last but not the least, we pay sincere thanks to Almighty GOD for enabling us to complete the work with His Grace. Thanking you all, Saumya Shrivastav roll no. 50 Saumya Tripathi roll no. 51 Sharon Caleb roll no. 52 Shilpa Kureel roll no. 53 Shreya Patel roll no. 54 Shubhra Singh roll no. 55 Snehal Paradkar roll no. 56 Souyma Mishra roll no. 57 Sumit Deshmukh roll no. 58 Sunil Malvia roll no. 59 Sushant Agarwal roll no. 60 Swati Khandelwal roll no. 61 Urvashi Balchandani roll no. 62 Virendra Jaiswal roll no. 63
  5. 5. INTRODUCTION A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm. Below is an example of a very simple supply chain for a single product, where raw material is procured from vendors, transformed into finished goods in a single step, and then transported to distribution centers, and ultimately, customers. Realistic supply chains have multiple end products with shared components, facilities and capacities. The flow of materials is not always along an arbores cent network, various modes of transportation may be considered, and the bill of materials for the end items may be both deep and large. Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved. Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management. Cooper and Ellram [1993] compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.
  6. 6. CONCEPT Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. The term supply chain management was coined by consultant Keith Oliver, of strategy consulting firm Booz Allen Hamilton in 1982. The definition one America professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.. Some experts distinguish supply chain management and logistics, while others consider the terms to be interchangeable.Supply chain management is also a category of software products. THE OBJECTIVE OF SUPPLY CHAIN. The objective of supply chain can be summarized into following heads: - - Maximize the overall value - Maximize the supply chain Profitability - Customer Satisfaction (the sole source of revenue) - Effective Management of product, funds and Information
  7. 7. CONFLICTING OBJECTIVES IN SUPPLY CHAIN 1. PURCHASING - flexible delivery time - little variation in mix 2. MANUFACTURING - Long run production - Low production cost - High Quality 3. WAREHOUSING - Low Inventory - Reduced Transportation Cost 4. CUSTOMER - Short Order Lead Time - High in Stock - Low Prices
  9. 9. IMPORTANCE OF SUPPLY CHAIN. Why is SCM Important? • Strategic Advantage – It Can Drive Strategy - Manufacturing is becoming more efficient - CM offers opportunity for differentiation (Dell) or Cost Reduction (Wal- Mart or Big Bazaar) • Globalization – It Covers The World - Requires greater coordination of production and distribution - Increased risk of supply chain interruption - Increases need for robust and flexible supply chains. • At the company level, supply chain management impacts - COST - SERVICE There is a close connection between the design and management of supply chain flows (product, information and flows) and the success of supply chain. All the big retailing companies such as Wal-Mart, Dell computer, big bazaar etc…, have built their success on superior design, planning and operation of their supply chain. It is important because all the companies are leader in using supply chain design, planning, and operation to achieve success. From its beginning, the companies invested heavily in tranportation and information infrastuctureto facilitate the effective information and collabarating with suppliers to bring down costs and improve product availability. Some companies bypass distributors and retailers and sell directly to customers. Close contacts with customers and their nedds makes them to develop better forecasts. Talking about other aspects of any companies supply chain success is that it is facilitated by sophisticated information exchange. It provides real time data to suppliers on the current state of demand. Suppliers are able to access their components’ inventory levels at the factories along with daily production requirements. They create customised Web pages for its major suppliers to view demand forecasts and other customer-sensitive information, thus helping suppliers to get a better idea of customer demand and better match their production schedules to that of the companies.
  10. 10. Clearly, any companies supply chain design and management of product, information and cash flows play a very a key role in the companies success. Supply Chain Management Components Integration The management components of SCM The SCM management components are the third element of the four-square circulation framework. The level of integration and management of a business process link is a function of the number and level, ranging from low to high, of components added to the link (Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link. The literature on business process reengineering buyer-supplier relationships, and SCM suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components which are: Planning and control Work structure Organization structure Product flow facility structure Information flow facility structure Management methods Power and leadership structure Risk and reward structure Culture and attitude However, a more careful examination of the existing literature will lead us to a more comprehensive structure of what should be the key critical supply chain components, the quot;branchesquot; of the previous identified supply chain business processes, that is what kind of relationship the components may have that are related with suppliers and customers accordingly. Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highest level of joint achievement (Bowersox and Closs, 1996).
  11. 11. A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects financial risk, thus including primary level components (Bowersox and Closs, 1996). A secondary level participant (specialized), is a business that participates in channel relationships by performing essential services for primary participants, thus including secondary level components, which are supporting the primary ones. Also, third level channel participants and components may be included, that will support the primary level channel participants, and which are the fundamental branches of the secondary level components. Consequently, Lambert and Cooper's framework of supply chain components, does not lead us to the conclusion about what are the primary or secondary (specialized) level supply chain components that is what supply chain components should be viewed as primary or secondary, and how should these components be structured in order to have a more comprehensive supply chain structure and to examine the supply chain as an integrative one Baziotopoulos reviewed the literature to identify supply chain components. Based on this study, Baziotopoulos (2004) suggests the following supply chain components For Customer Service Management: Includes the primary level component of customer relationship management, and secondary level components such as benchmarking and order fulfillment. For Product Development and Commercialization: Includes the primary level component of Product Data Management (PDM), and secondary level components such as market share, customer satisfaction, profit margins, and returns to stakeholders. For Physical Distribution, Manufacturing support and Procurement: Includes the primary level component of Enterprise Resource Planning (ERP), with secondary level components such as warehouse management, material management, manufacturing planning, personnel management, and postponement (order management). For Performance Measurement: This includes the primary level component of logistics performance measurement, which is correlated with the information flow facility structure within the organization. Secondary level components may include four types of measurement such as: variation, direction, decision and policy measurements. More specifically, in accordance with these secondary level components total cost analysis (TCA), customer profitability analysis (CPA), and Asset management could be concerned as well. In general, information flow facility
  12. 12. structure is regarded by two important requirements, which are a) planning and Coordination flows, and b)operational requirements. For Outsourcing: This includes the primary level component of management methods and the company's cutting-edge strategy and its vital strategic objectives that the company will identify and adopt for particular strategic initiatives in key the areas of technology information, operations, manufacturing capabilities, and logistics (secondary level components). DRIVERS OF SUPPLY CHAIN PERFORMANCE To understand how a company can improve supply chain performance in terms of responsiveness and efficiency, we must examine the logistical and cross- functional drivers of supply chain performances: facilities, inventory, transportation, information, sourcing and pricing. These drivers interact with each other to determine the supply chain’s performance in terms of responsiveness and efficiency. FACILITIES are the actual physical locations in the supply chain network where product is stord, assembled, or fabricated. The two major types of facilities are production sites and storage sites. Decisions regarding the role, location, acapacity, and flexibility of facilities have a significant impact in the supply chain’s performance. INVENTORY encompasses all raw materials,work in process, and finished goods within a supply chain. Changing inventory policies can dramatically alter the supply chain’s efficiency and responsiveness. A large inventory , however , increases the retailer’s cost, thereby making it less efficient. Reducing inventory makes the retailer more efficient but hurts its responsiveness. TRANSPORTATION entails moving inventory from point to point in the supply chain. Tranportation can take the form of many combinations of modes and routes, each with its own performance characteristics. Transportation choices have a large impact on supply chain responsiveness and efficiency. INFORMATION consists of data and analysis concerning facilities, inventory, tranportation, costs, prices and customers throughout th supply chain. Information is potentially the biggest driver of performance in the supply chain because it directly affescts each of the other drivers. Information presents management with the oppurtunity to make supply chains more responsive and more efficent.
  13. 13. SOURCING is the choice of who will perform a particular supply chain activity such as production, storage, transportation, or the mangement of information. At the strategic level, these decisions detemine what functions a firm performs and what functions the firm out sources. Sourcing decisions affect both the responsiveness and efficiency of a supply chain. PRICING detemines how much a firm will charge for goods and services that it makes available in the supply chain. Pricing affects the behavior of the buyer of the good or service, thus affecting supply chain performance. Our definition of these supply chain drivers attempts to delineate logistics and supply chain management. Supply chain management includes the use of logistical and cross- functional drivers to increase the supply chain surplus. Cross- functional drivers have become increasingly important in raising the supply chain surplus in recent years. While logistics remains a major part, supply chain management is increasingly becoming focused on the three cross-functional drivers.
  14. 14. GLOBALIZATION DRIVERS Converging customer Transportation Cost needs Scale Economies Transferable Marketing Product Development High Imports and Cost MARKET DRIVERS Exports POLICY DRIVERS COST DRIVERS SUPPLY CHAIN MANAGEMENT Integrative Trade Policies Mergers & Govt. Regulation Acquisition COMPETITIVE DRIVERS Compatible Flexible Structures. Technical Competition Standards
  15. 15. ACHIEVING STRATEGIC FIT For any company to be successful, its supply chain strategy and competitive strategy must fit together. Strategic fit means that both the competive and supply chain strategies have aligned goals. It refers to consistency between the customer priorties that the competitive strategy hopes to satisfy and the supply chain capabilties that the supply chain strategy aims to build. All processes and functions that are part of a company’s value chain contribute to its success or failure. These processes and functions do not operate in isolation; no one process or function can ensure the chain’s success.failure at any one process or function, however, may lead to failure of the overall chain. A company’s success or failure is thus closely linked to the following keys: The competive strategy and all functional strategies must fit together to form a 1. coordinated overall strategy. Each strategy must support other, and help a firm reach its competitive strategy goal. 2. The different functions in a company must appropriately structure their proccess and resources to be able to excute these startegies successfully 3. The design of the overall supply chain and the role of each stage must aligned to support the supply chain strategy. HOW STRATEGIC FIT IS IS ACHIEVED? What does a company need to do to achieve that all important strategic fit between the supply chain and competitive strategies? A commpetitive strategy will specify, either explicitly or implicitly, one or more customer segments that a company hopes to satisfy. To achieve strategic fit, a company must ensure that its supply chain capabilities support its ability to satisfy the targeted customer segments. There are three basic steps to achieving this strategic fit, which we are discussing here: 1. Under standing the customer and supply chain uncertainty. 2. Understanding the supply chain capabilities. 3. Achieving Strategy Fit
  17. 17. Responsive supply chain f e o Fit Responsivenes n Zo tegic spectrum ra St Efficient supply chain Certain Uncertain Implied demand demand uncertainty spectrum ACHIEVING STRATEGY FIT
  18. 18. AFL PRIVATE LTD. The AFL history can be traced back to 1867 when Nusserwanji Tata, the founder of the TATA Empire entrusted Framji Guzder with the entire shipping arrangement of the British Commissariat campaign supplies. AFL was founded in 1945 by Jamshed Guzder when he was appointed by TATA Airlines as its first sole cargo agent in India. Eventually AFL added a range of services to its name. Indtavels, one of the first travel agencies to be appointed by IATA in India, was launched in 1948. By 2000, Indtavels became 50:50 JV company between AFL and Carlson Wagonlit Travel, the global corporate travel leader. In 1979, AFL introduced India to the concept of Express Delivery through an exclusive alliance with DHL Worldwide Express, the world’s largest international express company. In 1993, AFL pioneered the concept of 3PL Services in India. In 1997, the company was renamed AFL Private Limited. In 2001, AFL launched its Domestic Courier service under the brand name AFL WiZ. In 2004, AFL strengthened its position as India’s leading 3PL service provider with 45 Warehouses having an area of over 5 lac sq. ft. The year 2005 saw the company entering into the booming Retail Industry and in the early 2006, the first AFL Touch World store was set up in Mumbai. On 9th February 2007, AFL joined hands with one of the largest logistics company of the world, DACHSER Germany.
  19. 19. AFL Business Divisions: - GLOBAL LOGISTICS - LOGISTICS - WiZ EXPRESS - CARTRIDGE WORLD 1. GLOBAL LOGISTICS - To take the advantage of the globalization of Indian companies and the growing presence of multinational forwarding companies in India, AFL Cargo has entered into a joint venture with a global partner, DACHSER GmbH, w.e.f. February 1st, 2007 and its freight forwarding business has been transferred into a new company called AFL DACHSER Private Limited, with the partners each have a 50% stake. Services offered: - Air Freight (Import and Export) - Ocean Freight - Customs Clearance and Documentation - Project Cargo Management - Bonded Trucking Esteemed Clients: Automobile – FORCE Motors MAN, M&M, TATA Consumer Goods – Hindustan Unilever Ltd. Phillips, IFB Engineering – Alfa Laval, Larson & Toubro, Kirloskar Telecom – TATA Indicom, Reliace Telecom. 2. AFL LOGISTICS - Ever since it pioneered the Third Party Logistics service in India in 1996, AFL has remained the trendsetter in the logistics industry. Today, AFL operates 16 modern hubs and 46 networked, state-of-the art warehouses across India. It has a fleet of over 1000 containerized vehicles operating on 140 National and Feeder routes and provides a delivery network of over 1300 destinations across India. Services offered: - Supply Chain Solutions - Warehousing - Package Express (Surface Express and Air Express) - Value Added Services
  20. 20. Esteemed Clients: IT & Technology – HP, IBM, TATA Honeywell, HCL Pharmaceutical – Ranbaxy, Pfizer, Wockhardt Ltd. Consumer Goods – Blue Star, Voltas, Carrier, IFB Automobile – Hyundai, MICO BOSCH, VOLVO Retail & RMG – Shoppers Stop, Globus, Raymonds 3. AFL WiZ Express - The first international express servicing India after the tie up with DHL in 1979, AFL WiZ EXPRESS has ushered world class standards in domestic couriering for the first time in India. Building on its expertise and close customer relationships, AFL launched domestic courier service in 2001 to usher international standards in this business. Services Offered: - Domestic Express • WiZ Premium Express • WiZ Lite Express • WiZ Package Express - International Express • Worldwide Document Express • Worldwide Package Express • Import Express Esteemed Clients: • ICICI Bank • HDFC Bank • HSBC Bank • Colgate Palmolive • Bajaj Auto Ltd. • Godrej • Bayer
  22. 22. PLANING DEMAND AND SUPPLY CHAIN Forecasts of future demand are essential to a supply chain manager’s decision making process. Here, we explain how historical demand information can be used to forecast future demand and how these forecasts affect the supply chain. ROLE OF FORECASTING IN A SUPPLY CHAIN Forecast of demand forms the basis for all strategic and planning decisions in a supply chain. In a supply chain, all push processes are performed in anticipation of customer demand where as all pull processes are performed in response to customer demand. For push process, manager must plan level of production. For pull process, manager must plan level of available capacity and inventory. In both instances, first necessary step which a manager must take is to forecast what customer demand will be. All stages of a supply chain must produce a collaborative forecast, because it is more accurate than any forecasts which are different for different stages. Accuracy in forecast enables supply chain to be more responsive and more efficient in serving their customer. Promotion information is used to update the demand forecast. Mature products with stable demand are usually easiest to forecast. For a product of long life cycle, impact of forecasting error is less significant. CHARACTERISTICS OF FORECAST: Companies and supply chain managers should be aware of the following characteristics of forecasts:  Forecasts are always wrong and should thus include both the expected value of the forecast and a measure of forecast error.  Long-term forecasts are usually less accurate than short term forecasts, long term forecasts have a larger standard deviation of error relative to the mean than short term forecasts.  Aggregate forecasts are usually more accurate than disaggregate forecasts as they tend to have a smaller standard deviation of error relative to the mean. The greater the degree of aggregation, more accurate the forecast.
  23. 23. COMPONENTS OF FORECAST A company must be knowledgeable about numerous factors that are to be related to the demand forecast. Some of these factors are listed • Past demand • Lead time of product • Planned advertising or marketing efforts • State of the economy • Planned price discounts • Actionable competitors have taken FORECASTING METHODS: These are classified according to the following fore types: 1. QUALITATIVE: This methods are primarily subject and rely on human judgment. They are most appropriate when there is little historical data available or when experts have market intelligence that is critical in making the forecast. 2. TIME SERIES: This method use historical demand to make a forecast. It is based on assumption that past demand history is a good indicator of future demand. It is most appropriate when basic demand pattern does not vary significantly from one year to next. It is the simplest methods to implement and can serve as a good starting point for a demand forecast. 3. CASUAL: This method assumed that demand forecast is highly correlated with certain factors in the environment. It finds correlation between demand and environmental factors and use estimates of what environmental factors will be to forecast future demand. E.g. - product pricing strongly correlated with demand. 4. SIMULATION : Simulation forecasting methods imitate the consumer choice that give rise to demand to arrive at a forecast .using simulation , a firm can combine time series and casual method to answer question such as What will the impact of a price promotion be? What will the impact be of competitor opening a store nearby? Airlines simulate customer buying behavior to forecast demand for higher fare seats when there are no seats available at lower fare.
  24. 24. MANAGING SUPPLY: A firm can vary supply of product by controlling a combination of the following two factors: a. PRODUCTION CAPACITY b. INVENTORY The objective is to maximize the profit, which is the difference between revenue generated from sales and the total cost associated with material capacity and inventory. MANAGING CAPACITY a) TIME FLEXIBILITY FROM WORK FORCE – In this, firm uses flexible work hours from work force to manage capacity o better meet demand. b) USE OF SEASONAL WORK FORCE - A firm use temporary workforce during the peak season to increase capacity to match the demand. Toyota regularly uses seasonal workforce in Japan to better match supply and demand. c) USE OF SUBCONTRACTING- In this approach a firm subcontracts peak production so that internal production remains level and can be done cheaply. With the sub contractor handling the peaks the company is able to build a relatively inflexible but low cost facility where production rates are kept relatively constant d) USE OF DUAL FACILITIES- In this approach a firm builds both dedicated and flexible facilities. DEDICATED FACIITES produce a relatively stable output of products over time in a very efficient manner. FLEXIBLE FACILITIES produce a widely varying volume and variety of products but a higher unit of cost e) DESIGNING PRODUCT FLEXIBILITY INTO THE PRODUCTION PROCESS – In this approach, a firm has flexible production lines whose production rate can be easily varied .production is then changed to match demand. The production lines are designed such that changing the number of workers on a line can vary the production rate. Production flexibility can also be achieved if the production machinery
  25. 25. being used is flexible and can be changed easily from producing one product to another. MANAGING INVENTORY  USE COMMON COMPONENTS ACROSS MULTIPLE PRODUCTS- In this approach, a firm designs common components use in multiple products, with each product having predictably variable demand that results in relatively constant overall demand. Use of common components across these products will result in the demand for components being relatively constants Part of supply chain producing components can easily synchronize low inventory of parts will have to be build  BUILD INVENTORY OF HIGH DEMAND OR PREDICTABLE DEMAND PRODUCTS –when most of products a firm produces have same peak demand season, the previous approach is no longer feasible. A firm must then decide which inventors to build during off season. Answer is to build products during the off season that have more predictable demand because there less to be learned about their demand by waiting. As more is know about demand closer to the selling season, production of more uncertain items should take place. MANAGING DEMAND Supply chain can influence demand by using pricing and other forms of promotion. But changing the demand pattern can change the cost the company incurs to meet that demand. Thus, pricing decisions based only on revenue consideration often result in a decrease in overall profitability. The same is true when thinking of supply chain. The retailer set price and run promotion to generate demand. This is regularly done without taking into account the impact on the rest of supply chain. Management would like to identify whether each factor favors offering a promotion during the high or low demand periods. They start by considering the impact of promotion on demand .when a promotion is offered during a period, that’s periods demand will go up. This increase in demand results from a combination of the following three factors:
  26. 26. 1) MARKET GROWTH 2) STEALING SHARE 3) FORWARD BUYING The first two factors increase the overall demand for Toyota, where as the third simply shifts future demand to the present. It is important to know the relative impact from the three factors as the result of promotion before making the decision regarding the optimal timing of the promotion. In general, as the fraction of increasing demand coming from forward buying grows, offering the promotion during the peak demand period become less attractive.
  27. 27. HOW AFL MANAGES SUPPLY AND DEMAND? It’s a big question how a logistic company manages its supply and demand. As being observed, many Indian Logistic companies forecast their demand on the Intuition Basis. They merely forecast coming demand on the basis of their experience. AFL is also following the same forecasting criteria. AFL is the leader when it comes to warehousing. AFL has around 50 warehouses across India with 5 mother warehouses across 5 zones. AFL provides their space to the corporate clients in their warehouse and manages their inventory on their client’s behalf. Let’s say HP is being provided a space in their warehouse of 1000 sq. ft. The area being allotted will be utilized by HP to keep their stock – PC, Servers, Printers and all other products of HP. Managing the inventory is the sole responsibility of AFL. While making the contract, HP mentions the minimum inventory to be maintained in the warehouse. Regarding the demand forecasting, it’s the HP that do the forecasting. AFL has nothing do with the forecasting part. However, during festivals like Diwali AFL asks for more stocks in hand as the demand tends to be increasing during Diwali season. There are some occasions where AFL forecasts the demand seeing the past trends and on the basis of their experience. No Mathematical Approach is followed. It’s just Intuitions. Indore is a hub as far as AFL operations are concerned. The warehouse spacing is utilized by HP, Ranbaxy etc… whenever the space being given to the clients is not sufficient in case of increase in demand or any other space constraints, the extra stock is transferred to the nearest mother warehouse i.e. Nagpur. The mother warehouses are having very huge area to support their clients demand. They maintain rack system to bear any amount of load. AFL uses latest technology like automatic Loading and Unloading by Frock Lifts. AFL only manages the space for their clients and in case of forecasting, AFL does not follow any scientific model but merely intuition based forecasting helps them to manage their supply and demand. Locations of mother warehouses of AFL: SOUTH - BANGLORE WEST - BOMBAY EAST - CALCUTTA NORTH - DELHI CENTRAL - NAGPUR
  28. 28. MANAGING INVENTORY By: Sumit Deshmukh Sunil Malvia Saumya Tripathi Saumya Shrivastav
  29. 29. INVENTORY MANAGEMENT One of the largest costs to any business is that of inventory or stock at hand. Whether a manufacturer, retailer or distributor, the amount of inventory held directly impacts your bottom line most of the cases. A product that is in excessive demand is usually extremely difficult to manage. Supplying the right amount of products implies that an accurate demand forecast is essential. This impacts the entire supply chain. A similar situation exists at the warehouse level and even the manufacturer end. Continuous replenishment in a warehouse can become a mammoth task if consumer response is not studied accurately. To facilitate efficient consumer response based on consumer demands, warehouse data, sales forecasts, and inventory planning, it becomes imperative that such companies consider inventory management seriously. Inventory management can remove barriers between manufacturer and retailers and establish a closer relationship between them. If items wanted are not at hand or even if merchandize wanted is reordered often, sales will be lost to competitors. Precise control of inventory is an essential ingredient for a successful company. Three Objectives behind Inventory Management - Improved Customer Services - Reduced Inventory Investment - Increased Productivity Benefits of Inventory Management - Complete control of inventory - Response Time reduced - Complete visibility of Quantities on hand, quantities sold - Frequent Analysis of purchase, sales and inventory An inventory control system is an integrated package of software and hardware used in warehouse operations, and elsewhere, to monitor the quantity, location and status of inventory as well as the related shipping, receiving, picking and put away processes. In common usage, the term may also refer to just the software components. An inventory control system may be used to automate a sales order fulfillment process. Such a system contains a list of order to be filled, and then prompts workers to pick the necessary items, and provides them with packaging and shipping information.Real time inventory control systems use wireless, mobile terminals to record inventory transactions at the moment they occur. A wireless LAN transmits the transaction information to a central database.
  30. 30. HOW TO REDUCE INVENTORY Most executives agree that top-heavy inventories are a giant cash vacuum and need to be reduced in order to free up cash for investment in revenue-growth activities. How can this be accomplished? One of the major impediments to inventory reduction is the mistaken notion that just improved inventory management is all that is required to get the job done. The real culprits are the inefficient business processes that cause excessive inventories to exist in the first place. Here are eight suggestions: Don’t always blame inventory control. Certainly, lack of control contributes to excessive inventory, but often behavior in inventory-controlling functions is driven by management's highly negative reaction to material shortages For the most part, it is inadequacies in cross-functional business processes that cause the need for inventory buffers to exist; address the cause of the problem, not the result. Identify the underlying causes, get control so that inventory buffers are not needed, then reduce the inventory accordingly. Re-engineer. Major reductions (20 to 50 percent or more) in all forms of inventory, without harming customer service, usually require the re-engineering of the order-to- delivery cycle to find ways to do it faster, better, cheaper. Improve supply chain management. By streamlining the entire supply chain, a company can reduce inventory, improve time to market, compress cycle times, free up more cash, decrease costs and improve profitability. Go for fewer vendors but establish closer relationship with them. Use of IT in speeding up the order – to – delivery cycle. Improve production scheduling. This is one of the least understood and least appreciated aspects of manufacturing and distribution. A common result of poor production scheduling is product flow imbalances, causing bottlenecks and reduced throughput. This results in erratic output, high inventory, long cycle times and reduced customer service. Use effective performance metrics. Utilize “pull” based on demand. Companies that use a total “push” inventory system will often end up with high inventories. An excellent method for achieving greater
  31. 31. effectiveness with working capital and freeing up valuable cash is to acquire materials and put them through production so fast that inventory doesn’t have time to become a “liability”. Reduce cycle times. Cycle-time reduction almost always means reduced costs, reduced inventory levels, improved production predictability, increased customer service, and better quality. Develop flexible manufacturing. When a manufacturer is rigidly set up to produce long production runs, there is a tendency to maintain higher than necessary production levels even in the face of reduced demand. To minimize inventory and improve customer responsiveness, bring flexibility into the operations – flexibility in how they operate in order to quickly respond to changing customer demand. Today, the VALUE that a manufacturer offers its customers is more important than having just the lowest overall price. Today’s customers are demanding short lead times, quality products, on-time delivery, good customer service, and a good price. The consequence of non-compliance to these customer demands will be lost business – something you can not allow to happen.
  32. 32. INVENTORY MANAGEMENT IN AFL AFL is the leader in warehousing in India. It has about 50 warehouses across the country. Having such a good market share in ware housing AFL’s main concern is of Warehouse Management and Inventory Management. Inventory Management in AFL’s mother warehouses are considered every 15 days. Warehouse manager counts the inventory. AFL has supported their managers with front end application of IT. The whole ware house is equipped with SAP system. Each and every stock item is being bar coded. The bar code is entered into the system and through SAP-ERP the manager comes to know the exact quantity being sold during that period and how much more stock is available. Application of SAP-ERP has made the inventory management much simpler and saves lot of time. AFL main business comes from space selling. They sell their space in their warehouse to their corporate clients and manage inventory for the client. While negotiating the space selling deal, clients often mention the minimum inventory to be maintained in the ware house. This makes the job of the ware house manager more challenging. Any extra stock due to increase in demand has to be arranged in the same space. There is annual inventory check up with 15 days routine check up. The application of SAP has helped AFL to manage their inventory more efficiently and effectively. Through SAP system, right from the procurement of the item to the delivery of the item, every thing is recorded in the system and whenever there is shortage of any item or mismatch, the system application helps the organization to detect the error and minimize or eliminate them as early as possible.
  34. 34. TRANSPORTATION AND NETWORK FACILITY Transportation refers to the movement of product from one location to another as it makes way from the beginning of a supply chain to the customers hand. Transportation plays a key role in every supply chain to the because products are rarely produced and consumed in the same location .transportation is a significant component of the cost most supply chain incur. Supply chain also use responsive transportation to centralize inventories and operate with fewer facilities. Transportation allows products to move from suppliers to the assembly plants to customers. Factors affecting Transportation decisions: SHIPPERS DECISIONS CARRIER DECISIONS 1. Transportation Cost 1. Vehicle related cost 2. Inventory Cost 2. Fixed Operating cost 3. Facility Cost 3. Trip Related Cost 4. Processing Cost 4. Quantity Related Cost 5. Overhead Cost Carrier – party that moves or transports the product Shipper – party that requires the movement of the product from one point to another in supply chain.
  35. 35. Modes of Transportation: - Air - Labor and Fuel Cost: Trip related - Independent of cargo carried - Small high value and Time sensitive items - Package Carriers - Service Providers like FedEx, AFL, GATI etc… - Uses air, rail and road transport - Rapid and Reliable delivery. - Expensive. Cannot compete for large shipments. - Trucks - Expensive than rail but offers door-to-door service facility. - TI Transportation based on truck loading and charges vary with distance - LTL Transport based on quantity to be shipped. - Rails - Large Shipments over long distance - Cheaper rates for large shipments. - Ideal for heavy low value shipments that are not very time sensitive - Water - Slowest of all modes. - Delay particularly observed at sea ports and terminals. - Giant Shipments to be shipped across the globe, sea mode is the cheapest.
  36. 36. FACTORS INFLUENCING DISTRIBUTION NETWORK DESIGN Two dimensions to be considered: - Customer Needs that are met. - Cost of Meeting Customer Needs. Note: The Distribution Network design options must be compared according to their impact on customer service and the cost incurred in providing such service. Elements of Customer service influenced by Network Structure: – Response time – Product variety – Product availability – Customer experience – Order visibility – Return ability Elements of Supply Cost affected by Network Structure: – Inventories – Transportation – Facilities and handling – Information Categorizing the factors of Influence: - Strategic: Cost v/s Responsiveness - Technological: Economies of Scale; Lower fixed costs - Macroeconomic: Tariffs; Demand Risk - Political - Infrastructure - Logistics and Facility costs.
  37. 37. Total Costs Related to Number of Facilities Total Costs Total Costs Facilities Inventory Transportation Number of Facilities 11 Total costs decrease and then increase as we increase the number of facilities. The responsiveness improves as we increase the number of facilities. A supply chain should always operate above the lowest cost point. Operating beyond that point makes sense if the revenue generated from better responsiveness exceeds the cost of better responsiveness.
  38. 38. Global competition Competitive Strategy PHASE I Internal constraints SUPPLY CHAIN Tariffs and Tax Capital, existing STRATEGY Incentives network PHASE II Production Regional demand REGIONAL Technologies FACILILTY Cost, flexibility. CONFIGURATION Political, Demand Risk Competitive Environment Available PHASE III Infrastructure DESIRABLE SITES Production methods Logistics Cost PHASE IV Factor Costs LOCATION CHOICES Labor, Materials FRAMEWORK FOR GLOBAL SITE LOCATION
  39. 39. DESIGN OPTIONS FOR DISTRIBUTOR NETWORK  MANUFACTURER STORAGE WITH DIRECT SHIPPING Manufacturer Storage with Direct Shipping Manufacturer Retailer Customers Product Flow Information Flow  IN TRANSIT MERGE NETWORK In-Transit Merge Network Factories In-Transit Merge by Retailer Carrier Customers Product Flow Information Flow
  40. 40.  DISTRIBUTOR STORAGE WITH LAST MILE DELIVERY Distributor Storage with Last Mile Delivery Factories Distributor/Retailer Warehouse Customers Product Flow Information Flow  DISTRIBUTOR STORAGE WITH CARRIER DELIVERY Distributor Storage with Carrier Delivery Factories Warehouse Storage by Distributor/Retailer Customers Product Flow Information Flow
  41. 41. AFL MODEL FOR DISTRIBUTION NETWORK AFL model for distribution network can be said to be following ‘DISTRIBUTOR STORAGE WITH CARRIER DELIVERY’ model. In Indore, AFL is having its carrier delivery vans distributed across the city. When ever there is an order to work upon, AFL simply calls its Pick – up Delivery vans. The van goes to the client’s place, picks up the consignment and delivers it back to the Indore ware house. There are 9 pick – up delivery vans in Indore. AFL provides its customer door – to – door service. As shown in the model, the consignment is first brought to their warehouse and then the consignment is delivered to the required address. The routes of AFL are scheduled. In fact, there is a saying in AFL – We don’t run TRUCKS but we run ROUTES. Let’s suppose there is a consignment for Mumbai from Bhopal. AFL is not having any direct route to Mumbai from Bhopal. But Indore-Mumbai route is fixed. So the consignment will be brought to Indore through AFL’s Fider Route (Indore – Bhopal route) and from Indore, it will sent to its destination. The trucks will not wait till the truck is full up to 9 tones as being seen in case of transportation company but will run as per the schedule; even if the truck is under utilized. However, AFL plans its schedule in such a way that there is always an optimum utilization of the trucks.
  42. 42. ROUTING AND SCHEDULING The most important operational decision related to transportation in a supply chain is the routing and scheduling of deliveries. The success of operation turns on its ability to decrease the transportation and delivery cost while providing the promised level of responsiveness to the customer. The manager decides to use the following procedures to support his decision. 1) The saving matrix method. 2) The generalized assignment method. SAVING MATRIX METHOD This method is simple to implement and can be used to assign customer to vehicle even when deliver time window and other constraints exists. The major steps in saving matrix: 1) Identify the distance matrix. 2) Identify the saving matrix 3) Assign customer to vehicle or routes 4) Sequence customers within routes. Identify the distance matrix The distance matrix identifies the distances between different pairs of location to be visited. The distance is used as a surrogate for cost of traveling between the pair of locations. If the transportation cost between every player is known the cost can be used in place of distances. Identify the saving The saving matrix represents the saving that accrues on consolidating two customers on a single truck. Savings may be evaluated in terms of distance, time, or money. The process involves here is: Assign customers to vehicles or routes. Sequence customers within routes
  43. 43. Process for route sequencing: 1) Farthest inserts: Choose to insert the customer with the largest minimum increase to obtain a new trip. This step is referred as a farthest insert because the customer farthest from the current trip is inserted. The process is continued until all remaining customer to be visited by vehicle are included in a trip . 2) Nearest insert: Insert the customer with the smallest minimum increase to obtain a new trip. This step is referred to as a nearest insert because the customer closest to current trip is inserted. The process is continued until all remaining customers the vehicle will visit are included in trips. 3) Nearest neighbor: Starting at the DC this procedure adds the closest customer to extend the trip. At each step, the trip is build by adding the customer closest to the point last visited by the vehicle until all customers have been visited. 4) Sweep: In the sweep procedure any point on the grid is selected and a line is selected and a line is swept either clockwise or counter wise from that point. The trip is constructed by sequencing customers in order they are encountered during the sweep. Route improvement procedures The two route improvement procedure are as follows: 1) 2-opt: The 2-opt procedure starts with a trip and breaks it at two places. This results in the trip breaking into two paths, which can be reconnected in two possible ways. The length for each reconnection is evaluated and the smaller of the two is used to define a new trip. The procedure is continued on the new trips until no further improvement results. 2) 3-opt: The 3-opt procedure breaks a trip at three points to obtain three paths that can be reconnected to form up to eight different trips. The length of the each of the eight possible trips is evaluated and the shortest trip is retained. The procedure is continued on the new trips until no further improvement results.
  44. 44. GENERALIZED ASSIGNMENT METHOD The generalized assignment method is more sophisticated than the saving matrix method and usually results in better solution where there are few delivery constraints to be satisfied. This process involves the following steps: 1) Assign seed points for each route. 2) Evaluation insertion cost for each customers 3) Assign customers to route 4) Sequence customers within routes. The first three steps assign customers to vehicle and fourth step identifies a route for each vehicle to minimize the distance traveled. Making transportation decisions in practice a) Align transportation strategy with competitive strategy b) Consider both in- house and out sourced transportation c) Design a transportation network that can handle e- commerce d) Use technology to improve transportation performances.
  46. 46. FRAMEWORK FOR STRATEGIC ALLIANCES THIRD PARTY LOGISTICS 3PL: A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or quot;third partyquot; logistics services to companies for part or sometimes all of their supply chain management function. Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials. TYPES OF 3PL 1. Standard 3PL Provider 2. Service Developer 3. Customer Adapter 4. Customer Developer 5. Non – Asset based Logistics Providers. We can also classify the 3PL Providers on the basis of following heads: 1. Transportation based 2. Warehouse/Distribution based 3. Forwarder based 4. Financial based 5. Information based
  47. 47. Why Use 3PL? Why use 3PL’s? - Save Time - Help Expand - Narrow Focus - Reach more customers more effectively.
  48. 48. 3PL Vs. Transportation Services
  49. 49. SUCCESSFUL IMPLEMENTATION OF 3PL 1. Have an OUTSOURCING STRATEGY - Need to be well thought out and measured - SWOT analysis. 2. Do the Complete Homework - Do a comprehensive study - Document Expectations - Create a robust selection process 3. Measure and Review performance - Have an efficient and accurate measurement system - Have an efficient costing system 4. Create an Implementation Strategy - Create a project plan road map 5. Nurture the Relationship - Mutual trust, respect and sense of integrity
  50. 50. RETAILING Retailing consists of the sale of goods or merchandise, from a fixed location such as a department store or kiosk, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be individuals or businesses. In commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells smaller quantities to the end-user. Retail establishments are often called shops or stores. Retailers are at the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategies. Shops may be on residential streets, or in shopping streets with few or no houses, or in a shopping center or mall. Shopping streets may or may not be for pedestrians only. Sometimes a shopping street has a partial or full roof to protect customers from precipitation. Retailers often provided boardwalks in front of their stores to protect customers from the mud. Online retailing, also known as e-commerce is the latest form of non-shop retailing (cf. mail order). Shopping generally refers to the act of buying products. Sometimes this is done to obtain necessities such as food and clothing; sometimes it is done as a recreational activity. Recreational shopping often involves window shopping (just looking, not buying) and browsing and does not always result in a purchase. Most retailers have employees learn facing; a hyperreal tool used to create the look of a perfectly-stocked store (even when it's not). TYPES OF RETAIL 1. MARKET 2. SHOP AND STORE TRADING 3. VIRTUAL RETAIL via email, online etc…
  51. 51. VERTICAL INTEGRATION Integration: Act/process of integrating---to join with something Else, make into a whole by bringing all parts together, to unite. Categories: 1. Horizontal 2. Vertical Horizontal Integration: A type of ownership and control.  A strategy used by a business / corporation that seeks to sell a type of product in numerous markets.  Methodology—creates several small subsidiary companies.  Each markets the product to a different market segment or to a different geographical area.  Also referred to as horizontal integration of marketing. Horizontal integration of production  A firm having plants in several locations producing similar goods. More common in marketing in production:  A monopoly through horizontal integration.
  52. 52. VERTICAL INTEGRATION  Term widely used in Microeconomics and strategic management.  Describes a style of ownership and control.  Determined through the degree to which a firm own its upstream suppliers and downstream buyers.  Usual practice---each member produces a different product / service and the products combine to satisfy a common need.  Vertically integrated companies are united through a hierarchy and share a common owner.  A method to avoid hold up problem.  The hold-up problem --a term used to describe a situation where two parties (such as a supplier and a manufacturer) may be able to work most efficiently by cooperating, but refrain from doing so due to concerns that they may give the other party increased bargaining power, and thereby reduce their own profits.  To avoid the hold-up problem the firms merge, a tactic known as vertical integration. Three types:  Activities downstream – forward integration  Expansion upstream – backward integration.  Balanced vertical integration - The company sets up subsidiaries that both supply them with inputs and distribute their outputs (concept visualized through value chain). Problems and Benefits: Society wide-- internal and external gains and losses.
  53. 53. Will differ according to the state of technology in the industries involved, roughly corresponding to the stages of the industry lifecycle. The lifecycle passes through 5 distinct stages: I - dormant stage with low numbers of competitors enjoying high monopoly profits II - quot;takeoffquot; stage with soaring entry and virtually non-existent exit from the market III - high turnover stage with many firms entering the market and leaving it IV - quot;shakeoutquot; stage with mass exit via mergers, bankruptcies, etc. V - Stabilization stage during which a stable oligopoly emerges Industry lifecycle :-- commonly correlated with the cycle of product and process innovation. Other factors that may launch industry lifecycle include: A--government intervention (e.g., deregulation), B--liberalization of external trade, C--lower transportation costs. Static technology:--The simplest case, where the gains and losses have been studied extensively. Internal gains: --Lower transaction costs --Synchronization of supply and demand along the chain of products --Lower uncertainty and higher investment --Ability to monopolize markets throughout the chain by market foreclosure Internal losses:
  54. 54. --Higher monetary and organizational costs of switching to other suppliers/buyers Benefits to society: --Better opportunities for investment growth through reduced uncertainty Losses to society: --Monopolization of markets --Rigid organizational structure, having much the same shortcomings as the socialist economy , etc... Dynamic technology Vertical integration may eventually hurt a company when new technologies are available, the company is forced to reinvest in its infrastructures in order to keep up with competition. Very quickly evolving technologies can cause a company to invest into new technologies, only to reinvest in even newer technologies later, thus costing a company financially. However, a benefit of vertical integration is that all the components that are in a company product will work harmoniously, which will lower downtime and repair costs. Conglomerate:-- a type of large company that consists of divisions of often seemingly unrelated businesses. Vertical market:--or niche market, is a group of similar businesses and customers engaged in trade based on specific and specialized needs. Often, participants here are limited to a subset of a larger industry. An example of this sort of market is the market for point-of-sale terminals, which are often designed specifically for similar customers and aren't available for purchase to the general public. Vertical Disintegration refers to a specific organizational form of industrial production. As opposed to integration, here production occurs within a singular organization. It means that various diseconomies of scale or scope have broken a production process into separate companies, each performing a limited subset of activities required to create a finished product.
  55. 55. Why Disintegrate? One major reason --- share risk. In some cases, smaller firms can be more responsive to changes in market conditions. Is more likely when operating in volatile markets. Stability and standardized products more typically engender integration, as it provides the benefits of scale economies. Benefits of vertical integration:  reduce transportation costs if common ownership results in closer geographic proximity.  improve supply chain coordination.  provide more opportunities to differentiate by means of increased control over inputs.  capture upstream or downstream profit margins. increase entry barriers to potential competitors,, for example, if the firm can gain sole access to a scarce resource.  gain access to downstream distribution channels that otherwise would be inaccessible.  facilitate investment in highly specialized assets in which upstream or downstream players may be reluctant to invest.  lead to expansion of core competencies. Drawbacks of vertical integration:  Capacity balancing issues. Firm may need to build ex-cess upstream capacity –ensure downstream operations have sufficient supply under all demand conditions.
  56. 56.  Potentially higher cost due to low efficiencies resulting from lack of supplier competition.  Decreased flexibility due to previous upstream or downstream investments.(Flexibility to co-ordinate vertically related activities may increase).  Decreased ability to increase product variety if significant in-house development is required.  Developing new core competencies may compromise existing competencies.  Increased bureaucratic costs. FACTORS FAVOURING VERTICAL INTEGRATION:  Taxes and regulations on market transactions.  Obstacles to the formulation and monitoring of contracts.  Strategic similarity between between the vertically related activities.  Sufficiently large production quantities so that the firm can benefit from economies of scale.  Reluctance of other firms to make investments specific to the transaction. FACTORS AGAINST VERTICAL INTEGRATION:  Quantity required from a supplier is much less than the minimum efficient scale for producing the product.  Product—a widely available commodity and its production cost decreases significantly as cumulative quantity increases.  Core competencies between the activities are very different.  Vertically adjacent activities are in very different types of industries— manufacturing vs. retailing.
  57. 57.  Addition of a new activity places the firm in competition with another player with which it needs to cooperate—firm viewed as competitor instead of a partner. ALTERNATIVES TO VERTICAL INTEGRATION:  long term explicit contracts.  franchise agreements.  joint ventures  co-location of facilities.  implicit contracts (relying on firm’s reputation). Major issues to be considered while deciding for vertical integration: Cost and control.  Cost aspect depends upon cost of market transaction between firms versus the cost of administering the same activities internally within a single firm.  The second issue is the impact of asset control, which can impact barriers to entry and which can assure co-operation of key value-adding players. Product range Capacity balancing Service & Maintenance Sales contacts Information Legal Political and cultural Intellectual Property ownership
  58. 58. Innovations An integrated supply chain can be defined of an association of customer & suppliers who using management techniques .work together to optimize their collective performance in the creation distribution & support of an end product it may be helpful to think of the participants of their divisions of a large vertically integrated corporation although the independent companies in the chain are bound together only by trust share objectives and contract entered into on a voluntary basis. All supply chains are integrated to some extend one objective of increasing integration is focusing and coordinating the relevant resources of each participant on the needs of the supply chain to optimize the overall performances of the chain the integration process and requiring the disciplined application of management, skills, process and technologies to couple key functions and capabilities of the chain and take advantages of the available business opportunities. DEMERITES OF NON INTEGRATION PROCESS 1) Adversarial relationship between customers and suppliers including win loss negotiations. 2) Short term focus with little concern for mutual long term success. 3) Primary emphasis on cost and delivery with little concern of added value 4) Limited communication 5) Little response for sharing benefits and risky TYPES OF INTEGRATION PROCESS 1) Integration by function 2) Integration by process
  59. 59. OUTSOURCING Outsourcing is the action taken by an organization to move a part of its internal processes to an outside entity or group to improve efficiency, quality, or reduce time to deliver services or products. EXTENT OF OUTSOURCING IN SUPPLY CHAIN Outsourcing What is the extent of outsourcing of supply chain activities? Inventory Management Yes No Order Processing Customer Service Procurement Import/Export Mgmt Information Systems Manufacturing Warehousing Transportation 0 10 20 30 40 50 60 70 80 90 100 Percentage Number of Respondents
  60. 60. Major Reasons for Outsourcing Outsourcing What are the major reasons for outsourcing of supply chain activities? Process Effectiveness Strategic Reasons 24% 26% Investment Reasons 12% Lower Cost Lack of Internal 27% Capability 11%
  61. 61. The Seven Steps of Outsourcing Process 1. Defining requirements and the request for proposal (RPF). 2. Evaluating bids and selecting outsource partners. 3. Creating outsource relationships. 4. Forging the legal relationship. 5. Getting started: Putting the relationship in motion. 6. Establishing the outsource relationship. 7. Managing the outsource relationship.
  62. 62. Procurement Management - All Organizations Need Inputs Of Goods And Services From External Suppliers Or Providers. - Savings In Material Costs Mean Significant Opportunities For Improving Corporate Profitability And Return On Investment. - Quality Of Input Materials Affects Final Product Quality In A Major Way. - In Most Concerns, Large Or Small, Purchasing Is Fast Acquiring Wider Recognition And A More Strategic Role, Day By Day, Due To: A) Advancing Technologies B) Limited Resources C) Increasing Proportion Of Revenue Spent On Purchased Goods And Services. D) Opportunities in Outsourcing E) Fewer and Larger Suppliers/Conglomerates. F) Increasing Environmental Concerns. G) Successful Adoption of ‘World Class’ Ideas (Tqm, Jit Etc.,) And Cutting Edge Technologies By Leading Concerns.
  63. 63. For All The Above Reasons, Buyers Role Is Becoming More Strategic In Nature. It Includes, Among Others. 1) Advising Top Management on Market Trends – Short Term and Long Term 2) Negotiating Long Term Relationships with Critical Suppliers 3) Building Strategic Linkages with Key Supplier Units 4) Vendor Development 5) Quality Thrust 6) Supply Chain Management 7) Total Cost Reduction 8) Purchase Research 9) Value Addition Through Creative Purchasing Route And Working More Towards ‘Total Cost Concept And Value Addition’ With Continuous Improvement Perspective. PROCUREMENT OBJECTIVES: - RIGHT QUALITY - RIGHT TIME - RIGHT QUANTITY - RIGHT SOURCE - RIGHT PRICE
  64. 64. Procurement is acquiring a more strategic role in business - Integrate purchasing into your organization’s strategic planning - ‘make or buy’ decision - Gain competitive advantage through excellence in purchasing performance - Set and apply right criteria for selection of your vendors - Supplier development - Set right performance standards for your purchasing function - Re-engineer your procurement process for better user satisfaction and achieve continuous improvements in inventory and purchasing costs through improvement in purchasing cycle. - Logistics and supply chain - Bench marking the purchasing function - Total quality in purchasing - Role of purchasing in the value chain
  65. 65. IT Technology and E- Business in Supply Chain Management By: SNEHAL PARADKAR SOUMYA MISHRA SHILPA KUREEL
  66. 66. INFORMATION TECHNOLOGY Information is crucial to the performance of a supply chain because it provides the basis upon which supply chain manager make decisions. Information technology consists of the tools used both to gain awareness of this information and to analyze the information to make the best decision for the supply chain. What It Is ? Information technology ( IT) consist of the hardware and software used throughout a supply chain to gather and analyze the information. The supply chain scope is made up entirely of information and the breadth of this information determines whether the scope is global or local. To obtain a global scope of the supply chain , a manager needs accurate and timely information on all company functions and organizations in the supply chain. The information is necessary to achieve a global scope may be divided into the following basic components, which correspond to different stages of the supply chain : • Supplier Information • Manufacturing information • Distribution and retailing information • Demand information
  67. 67. INFORMATION SHOULD HAVE FOLLOWING CHARACTERSTICS • Information must be accurate • Information must be accessible in a timely manner • Information must be of right kind. Information is most important when it is used to create a global scope across all stages and drivers of a supply chain. This allows decision to be made that maximize total supply chain profitability . Information → Global Scope → Good Decisions → Supply Chain Success
  68. 68. Information Technology : The Information Enabler It system can be segmented according to the stages in the supply chain on which they focus and the phase of supply chain decision for which they are used. Using these segments we can prepare the Matrix upon which any IT system used in supply IT system can be used to make Following type of decisions in Supply chain management. • Strategic • Planning • Operational And Its level of functionality is as follows:- High Level in Long Time Little Low Highly Strategic Organization Frame Level Detail Analytical Planning ↕ ↕ ↕ ↕ Low Level in Short Time Lots of Low Mostly Operational Transactional Frame Level Detail
  69. 69. Some of the History The old IT system based upon mainframe technology that usually work at an operational level on only one stage or even one function within a stage of supply chain “ Legacy system” is a very broad label and applies to wide variety of system with applications that can range from order entry to manufacturing scheduling to delivery. Advantages of this system- • Legacy system tend to be able to get the operation to be done. • Legacy system sometime take less incremental investment . Disadvantages of this system- • Focus only on a small part of a stage within the supply chain. • Usually have only transactional capabilities. • Difficult to modify. The Present- Enterprise Resource Planning This system monitor material ,order schedules , finished goods inventory and other information throughout the entire organization. Modules to an ERP system:- • Finance • Logistics • Manufacturing • Order fulfillment • Human resources • Supplier Management
  70. 70. Advantages of ERP- • Wider scope • It gives real-time information • Useful in using internet The enterprise resources Planning players SAP - It has its roots in writing software for manufacturing • environment • Oracle-It initially added financial applications to its database programs and eventually grew to be a full ERP provider. • Peoplesoft- It started with human resources. Analytical applications- • Procurement and content cataloging application. • Advance planning scheduling. • Transportation planning and Content System. • Demand planning and Revenue Management • Customer Relationship Management and Sales Force Automation. • Supply chain management. • Inventory Management System • Manufacturing Execution System • Transportation Execution. • Warehouse management system.
  71. 71. E-Business: Ecommerce Supply Chain The basic ecommerce supply chain model is the start of creating and maintaining an online presence with your business, and most if not all successful companies are starting to take advantage of the cost efficiencies to be gained from e-business. In most supply chain models, a customer can place an order by viewing real time information about products and services over the Internet at the same time that a vendor is notified that inventory has to be restocked or that the shipment should be sent to the customer.
  72. 72. It is important to exchange Links to web sites that meet two criteria: 1. They will help your store attract visitors 2. They will pay a revenue stream for hits or sales 3. They will increase your sites Page Rank Attracting users is very important to succeeding online. You Need to provide users a reason to visit and stay on the shopping cart site so you can generate revenue. This is accomplished by utilizing a one-stop ecommerce shopping cart solution. This will allow you to complete transactions without human intervention and will require a system that can manage both a real inventory stored in a warehouse and a virtual inventory stored at your vendors or partners.. All information for billing, accounting and purchases need to be calculated in real time, and all inventory systems should be capable of storing and uploading images of the products that are sold.. Companies Conducting e-business can perform some or all of the following supply chain transaction over the internet- • Providing information across the supply chain • Negotiating prices and contracts with customer and supplier • Allowing customer to place order • Allowing customer to trace order. • Receiving payment from customer. Revenue Impact Of E-business- An e-business allows a firm or supply chain to exploit the following revenue enhancing opportunities-
  73. 73. • Offering direct sell to customer. • Providing 24- hour access from any location. • Aggregating information from various sources. • Providing personalization and customization of information • Speeding up time to market. • Implementing flexible pricing • Allowing price and service discrimination based on buying power of individual customer. • Facilitating efficient funds transfer. Cost Impact Of E-Business E-Business is helpful in cost reduction- • Reducing product handling with a shorter supply chain • Postponing product differentiating until after an order is placed • Decreasing delivery cost and time with downloadable product • Reducing facility and processing cost • Decreasing inventory cost through centralization • Improving supply chain co-ordination through information sharing Potential cost Disadvantage- • Increase transportation cost due to inventory aggregation • Increase handling coat if customer participation is reduced • Large initial investment in information infrastructure Customer Customer ↑ Pull ↑ Pull Dell Retail Store ↑ ↑ PC Manufacture ↑ Supplier Supplier Dell Supply Chain Traditional PC Supply Chain
  74. 74. Setting up E-Business In Practice Integrate the Internet with the existing physical network • • Devise shipment pricing strategies that reflect cost • Optimize e-business logistics to handle packages , not pallets. • Design the e-business supply chain to handle returns efficiently • Keep customers informed throughout the order fulfillment cycle.
  75. 75. AFL SHOWS THE USE OF INFORMATION TECHNOLOGY IN SUPPLY CHAIN MANAGEMNET AS….. AFL Logistics provides a full range of value –added services like kitting , promotional ,building refurbishing equipment , activation etc. AFL’s IT initiatives equips to provide Technology Edge to customer with all transaction location across the country connected on AFL’s dedicated network of leased line for both Voice and Data Transmission. AFL’s “ AGRANI” a state of the art Software developed in-house with Price Waterhouse Cooper (PWC) to meet current and also future requirements of the trade, is now enabled and fully functional . This new system is fully web enabled and integrates all products and services and is capable of bridging with customer systems via EDI and XML interfaces. This software can provide customer with seamless Integration of Supply Chain Services i.e. Warehousing and Domestic Logistics. With such infrastructure in place and with the aim to extract maximum values for its customers AFL has designed a customer centric organization structure with Program managers acting as surrogates customers within the organization and monitoring the service levels for customers across the supply chain. Using ENA ENA is a electronic network of AFL. This can be used instead of an STD line to talk to your colleagues for official purpose across the country. You will find the access codes for use over the ENA for each division at the end of each section. Through ENA, client is given SMS service facility so that customer can just SMS his consignment details and AFL would reach him in no time.
  76. 76. IT Infrastructure of AFL • An investment of over Rs 500 million in IT infrastructure. • An integrated suite of ERP’S known as AGRANI and STRATOS , respectively for 3PL end –to-end solutions and express business. • A captive network for seamless data transfer. • A desktop PC for each employee , networked on a nation wide basis. • Lotus notes for data flow and messaging system. • A robust Business Continuity Process and Disaster Recovery infrastructure. • A 24-hour customer call center.
  77. 77. So the information flows in this way ( as shown in figure) and added value to the company
  79. 79. Customer service through Effective and Responsive Supply Chain- 2 3 1 4
  80. 80. 1. Implementation - Information System - Policies and Procedures - Facilities and Equipments - Organizational And Change Management 2. Functional - Warehouse design and Operations - Transportation Management - Materials Management 3. Structural - Channel Design - Network Design 4. Strategic - Customer Service There should be a synchronized working between all these levels of supply chain for better Customer Focus.
  81. 81. India as a Corporate is emerging out to be one of the huge market for consumer goods, white goods etc… The reason being India’s huge population. The population which was considered to be one of the constraints in India’s development is now one the most important factor that any MNC is targeting to tap on. Today, customer is treated like GOD. The concept of business is now getting changed into Marketing Concept from Production Concept. Now the products are designed keeping in view of the customers. Previously, the concept was to find customers for the company’s product but in the current scenario, the concept has gone through a paradigm shift. Now, the company designs product keeping in mind the perception of customer. So the Customer service is perhaps the most important concept of Supply chain. In Supply chain giving satisfaction to a customer is the foremost objective. The main function of a supply chain company is procuring and delivering the goods at right time and in right form as well as satisfying its customer by giving them time to time information. Now –a – days companies are more customers oriented. The object of every supply chain is to maximize the overall value generated. The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customers request. A supply chain company gives customer satisfaction by • COST REDUCTION • AUGMENTED SERVICE (PACKAGING, GIFTS) • TIMELY AVAILABILITY OF PRODUCT • REVERSE LOGISTIC • RAPID RESPONSE
  82. 82. CUSTOMER RELATIONSHIP MANAGEMENT IN AFL PVT. LTD. AFL believes in customer relationship management. A customer is made to believe that He is an integral part of the company. At each and every involvement of customer AFL provides better and satisfactory services. AFL Global Logistics Business division offers services like Project Cargo Management, Customs Clearance and Documentation. The customers who are exporting for the first time are facilitated with free service of documentation. As in export and import, the documentation part is one of the most complicated activities; customers are satisfied if a third party offers them a service that would relax them from documentation. Custom Clearance is also one of the most tedious and complicated obligation. AFL clears Client’s Customs duties and also provide them pick – up facility from door – to – door and door – to – airport as well. AFL Logistics Business Division offers services like Supply Chain Solutions, Warehousing, Package Express and other Value Added Services. AFL provides their customer Value Added Services like: - Pick and Pack - Packing and Unpacking - Temperature Controlled Warehousing and Transportation - Reverse Logistics - Quality Control - Customized Supply Chain MIS - Pre – dispatch inspection AFL has ‘Trace and Track your consignment’ Facility available for their customers so that the customer is in full knowledge about the whereabouts of his consignment. AFL Logistics Division can trace your consignment via: Goods Consignment Number GCN; Customer Reference Number or Email Track/SMS Track. Hence, AFL is focusing more on Customer Satisfaction by making their Operations more Customer Oriented and Convenient for the Customers to trace their valuable consignment which they have entrusted to AFL.