Logistics and Supply Chain Management - An Over View

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Logistics & Supply Chain Management

K.S.Srinivasa murty

12th February 2005


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Agenda

Review the role and relevance of Supply ChainManagement and its historical evolution.

Importance of strategic fit between the productmarket scope / product type and Supply ChainManagement and steps to achieve it.

Role of Logistics Service Providers

Brief over view of an Indian Case


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Success in business today is all about

Delightingthe customer andgrowing

profitably


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Enhancing Customer Satisfaction.

Reducing Working Capital

Ensuring cost-effectiveness

Improving competitiveness, being

ahead of competition

So, The Thrust Is On...


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What is Supply Chain?

A supply chain is anetwork of facilitiesand

distribution options that perform the

functions of procurement of materials,

transformation of these into intermediate

and finished products and the distribution

of finished products to the customers.


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The Traditional Vision of Supply ChainConstrained Itself to the Boundaries of an

Organization


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An Evolved Definition of the Supply Chain WebEmerged in the Last Decade

Collaboration with partners

Rapid Response

Information visibility

Shortened product life cycles

Time to market (SPEED)

Product variety proliferation

New ResponsesKey Challenges


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A Supply Chain means more thanphysical flow of goods

Information FlowInformation Flow

l h ll h


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Supply Chain Excellence Supports theRealization of the Strategic Objectives of

a Business, Through..

Reduced Costs (C)

Shorter Lead Time (T)

Best Quality (Q)

Flexibility (F)

Enhanced Service (S)

Better Product availability

& reliability (R)


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Strategic Fit Is Critical

A company must ensure that its supply chaincapabilities support its ability to to satisfy thetargeted customer segments.

Depending on the market segments targeted, thecompany will focus on either

Functional Products, or Innovative products.

The supply chain design would vary dependingon the nature of the product / market segment.


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Comparison Of Efficient And ResponsiveSupply Chains


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Comparison Of Efficient And ResponsiveSupply Chains


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Strategic Fit : Establish the differentiatorsfor each class of products.


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Some Illustrative Conversion(manufacturing)Policies Could Be...


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An Illustration of Strategic Fit :The Dell Experience

In 1994, a struggling second-tier PC maker;manufactured to inventory.

Implemented a new business model

Converted operations to a build-to-order process Eliminated inventories through a just-in-time system Sold its products directly to consumers

Results were spectacular

Went far beyond the simple pursuit of efficiency andasset productivity


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An Illustration of Strategic Fit :

The Dell Experience Other strategies like product development strategy

Dells new product development strategy emphasized

designing products that are easily customizable, which

may include designing common platforms across several

products and using common components.


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Supply Chain Excellence

Suppliernetwork

DELLFACTOR

Y(Ireland

)

Web site

Call center

Customer

network


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Supply Chain Excellence

Its not just that we sell direct, its also our ability to

forecast demand - Its both the design of the product

and the way the information from the customer flowsall the way through manufacturing to our suppliers.

- Michael Dell (Source: HBR, March/April 1998)


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Avoiding the vicious spiral of Supply Chaininefficiency will require

Partner Collaboration ( information sharing w.r.t demandpatterns, pipe line inventory)

Tracking demand variability through more effectiveforecasting and demand communication

Synchronisation at all points of commit in a supply chain

SuppliersSuppliers


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Logistics Service Providers

A 3PL ( logistics provider) is a company which hasexpertise in logistics management ( transportation,warehousing, inventory management, distribution,customer support and service).

They are in the business of supplying /coordinating the logistics function across multiplelinks in the supply chain.

They would have invested in technology that wouldallow them to manage information on consignmentmovement, billing, auditing and paymentefficiently.


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The use of such service providers can help acompany to focus on its core business activities /core competencies and simultaneously benefit fromthe best practices of service providers to increase

efficiency and flexibility of its supply chain.

Success in 3PL arrangements would need a strategicalliance and a long-term commitment as it involves

multiple functions / processes in the supply chain -like the design and operation of in-bound andoutbound logistics, inventory management, customerservice - on time delivery etc.


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Asset owning 3PL : Advantages : Economies of scope and scale due to the

infrastructure and systems in place and large customer base and

human resources

Disadvantages : They may tend to favor their own divisions inawarding work, be somewhat bureaucratic and longer decision

making cycles.

Non asset owning 3PL:

Advantages : More flexible and able to tailor services and the

freedom to size and match providers. They may also have low

overhead cost and specialized industry expertise.

Disadvantages : Limited resources and lower bargaining power.


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Outsourcing in SC: 3 PL and 4 PL

+

+ + Activities carried out by 4 PL


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SERVICES


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Products :

1. Transportation Management

2. Distribution Management

3. Warehousing and Inventory Management

4. Round-the-Clock Parts Bank Management

5. Financial Services

6. Other Value Added Services like MAN Materials as

Needed or JIT


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1. Transportation Management

Customized transportation solutions

Best in Class transportation services

In-bound and Outbound transportation

Full/Part Truck loads

Assured space in Indian Airlines flights

Refrigerated trucks

Containers

Ships

Multi-model connectivity


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2. Distribution Management

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Provides you instant distribution network

Hub & Spoke Model

Can reach the remotest corners of the country.

Present in 575 out of 585 districts

340 locations

Services includes : Order Booking, Order Fulfillment,

Inventory management

Provides most transparent and seamless information

flow on inventories.


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3. Warehousing and InventoryManagement

Ready to use, state-of-the-art warehouses

Visibility of stock at multiple locations

Reduces stockholding cost

Stock Count

Reservations and Back Order prioritization

Customized Invoicing

Inventory Control

MIS Report generation


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Logistics /Distribution Services-contd.

Retail Supplier Partnership

Distribution Integration

3PL/ 4PL

Customer Supplier Partnership

Vendor Managed Inventory

d h l k k


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4. Round the clock Parts BankManagement

Unique solution for managing your critical parts

movement

Offers 24 x 365 day accessibility

Shared infrastructure facilities in terms of both

space and cost

Handle Return Management

Reverse Logistics

Expedited critical parts delivery

Improve technical team efficiency


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5. Financial Services :

Collection of payment against delivery, on behalf of

customers

Banking assistance

Invoicing & Billing Assistance

Receivable Management I.e. collection of

outstanding bill payments on behalf of customers


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6. Other value added services

Freight forwarding

Customs clearance

Documentation Assistance

Packaging


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Other Value Added Services:

Kitting

Assembly

Pick-Packing

Scrap Handling

Customer Material Rejected Return

Repair Return


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You achieve :

Proximity to markets

Reduced C2C time

Shared cost - reduced costs

Real time inventory visibility

Flexible solutions

Reduced product obsolescence and damage


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3PL Successes KPI Gains*

Reduced Inventory HoldingReduced Inventory Holding 10-20d10-20d 7-12d7-12d

Improved Lead TimeImproved Lead Time 48-24h48-24h 24-6h24-6h

Inventory AccuracyInventory Accuracy 80-90%80-90% 95-99%95-99%ProductProductAvailabilityAvailability 90-95%90-95% 95-99%95-99%

Picking AccuracyPicking Accuracy 98%98% 99.5%99.5%

Pick/Pack Throughput per EmpPick/Pack Throughput per Emp 150-157150-157225-250225-250

Overall Throughput per EmpOverall Throughput per Emp 75-10075-100 125-150125-150

Space UtilizationSpace Utilization 100%100% 70-80%70-80%

Reduced Damaged ProductsReduced Damaged Products 1-2%1-2% 0.1-0.5%0.1-0.5%

Actual results from a 3PL outsourced program for an international beverage brand

leader, August 2001, Malaysia


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SCM : Key Performance Drivers

Quality

Cost

Time / responsiveness ( speed)

Innovation


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SCM : KeyPerformance Drivers

Vendor Transformation:

Vendor selection / development and the unique

way relations are managed on an ongoing basis

pre-selection audits to establish capabilities and

potential synergies

post selection operational reviews, certification

( at different levels , reflecting the strength,

depth and maturity of relationships)


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Knowledge sharing with strategic vendors

participationin new component and product

developmentetc.

Identify and set targets forcost savingsto be

achieved by key suppliers through cross

corporate teams (supplier & buyer

companies) / through knowledge sharing.


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Leverage technology to automate transaction

oriented , non strategic purchase activity and

release time for strategic sourcing. This will improve

purchasing efficiency as well as effectiveness. You can add greater value to company profitability

and still handle much larger value of purchase with

out excessive pressure and the job can also be

more exciting when pure chasing becomes strategic

sourcing!


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Leverage technology ( connectivity with

suppliers and key customers) to manage

supplier and customer partnerships.

Capable3P service providerscan greatly help

timely deliveries without excessive inventories.


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It is absolutely necessary for the purchase,

planning, stores, transport and quality

functions to act as one team with shared

purpose and objectives, if you want to win in

the new emerging global competition.


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Supply Chain Efficiencies in India

Cash to Cash Cycle Time 116.49 Days Inventory Turnover 22.70 For Finished

Goods10.09 For Raw Material

Total Supply Chain ManagementCosts

26.4% of Gross Sales


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Some Best in Class and Median Performances inSupply Chain Management

Cash - to - cash cycle time ( the number of daysbetween paying for raw materials and getting paidfor product)

Best in class ..Best in class .. 30 days or less30 days or less Median ..Median ..100 days100 days

Delivery performance to request ( the % of ordersfulfilled on or before customers request date)

Best in class ..Best in class ..94%94% Median Median 69 to 81%69 to 81%

St d d f E ll


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Standards for ExcellenceBest-in-class - Inventory Management

Attribute Benchmark

Material Down Time & 0Commodity Inventory < 1 day

Ingredient Inventory < 10 days

Packaging Inventory < 5 days

Supplier Inventory < 5 days

Inventory : FG 15 days

Inventory : RM 5 daysInventory Turns 46

Amount of Inventory for Top

90% SKUs by Sales

Volume

Less than 5 days

plus shipping time

S R


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Summary - RecapIn a business environment that requires more

responsiveness and focus on the bottom line, supplychain performance management is vital tocompetitive advantage and sustainable businessImprovement.

Set in place SCM performance measurementmatrices consistent with your strategic business goals

Identify performance exceptions, understand issuesand alternatives, act on high impact problems andopportunities and continuously validate actionsrelative to objectives and results.

S R


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By adopting such systems, companies have increasedresponsiveness and customer service, reduced

inventory and procurement costs and improved the

utilization of production and distribution assets. Thebenefits are compelling & the path to success has been

validated.

The time to act on supply chain performance

management is now.

Summary - Recap


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Integrated Supply Chain ManagementAn Indian Case

S l Ch i S


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Supply Chain Strategy Better customer service

Daily Replenishment between Depots & factories

Buffer Depots for B category SKUs Reduced Response time / Fill rate

Manufacturing Flexibility

Buffer Depots for B category SKUs

Significant Reduction in Total Supply Chain Cost Improved working capital management Improved Fixed asset productivity

Driving down costs of materials-win - win forstrategic partners.


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Fact.2

.

Improved Servicing of B Category SKUs


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Supply Chain Strategy

Manufacturing Focus on :

Flexibility: A shift in focus fromProduction

orientation to plan compliance

Reduced change over times dramatically to enhance

response time.

Increasedregionalized servicingof demand

Quantum improvement in productivity through

Rationalization, restructuring, debottlenecking and TPM


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Quest For Further Improvements

Business drivers NPS Growth

Profitability

Focus on supply chain to directly impact

the above

IT enablers

Availability ofnext generation IT Tools

ImprovedCommunication Infrastructure

Advent ofeCommerce


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An End to End Supply Chain Solution


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Project Leap

An integrated Supply Chain System for ContinuousReplenishment of RSs stocks

Receipt of Goods

from Depot/ Factory Despatch to Trade

Continuous replenishment


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Continuous replenishmentAcross the Extended Supply Chain


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RS ( Redistribution Stockist)Connectivity


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RS Connectivity : Objectives

Main Objectives

Facilitate replenishment based primary

sales

Information and analysis of secondary

sales

Secondary Objective

Interactive communication with the RS


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Continuous Replenishment System For RS

Stock Norms, Promotions

HLL RS NetHLL RS NetHLL RS NetHLL RS Net

Suggested order

Confirmed order

Stocks

Replenishment Planning


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Replenishment Planning

JIT Depot

Order Servicing


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Back-end Supply Chain : Process Areas

Operations Planner

Source NetworkOptimizer

Supply Chain Planner

BACK - END PLANNING SYSTEM


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JIT DepotBuffer

Factory

Supplier

Central Purchase


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Logistics Management is a key part of Supply Chain

Management. The design and operation of the

Logistics impacts both costs and responsiveness.

Logistics Management achieves efficiency and

effectiveness througha focus on -optimizing the network design, improving

demand forecasting , reducing the cash to cash cycle

time and leveraging IT for information transparency

all across the supply chain.

Logistics and Supply Chain Management - An Over View

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