Dr. RAVI SHANKARProfessor

Department of Management StudiesIndian Institute of Technology DelhiHauz Khas, New Delhi 110 016, India

Phone: +91-11-26596421 (O); 2659-1991(H); (0)-+91-9811033937 (m)Fax: (+91)-(11) 26862620

Email: r.s.research@gmail.comhttp://web.iitd.ac.in/~ravi1

SESSION#1: Basics & Beyond (CFVG: 2012)

OPERATIONS MANAGEMENT: A

Supply Chain Management

Perspective

2

The Objectives of this Session is to:

�Understand the course objective

�Understand the basic concepts of Supply Chain Management (SCM) & Operations Management (OM)

�Relate SCM with practical business world

�Assess organizational needs towards SCM

�Take decision related to operations of SCM

�Understand the Recent Trends in SCM

3

Few Information

� Text Book� Simchi-Levi et al.: Designing

and Managing the Supply Chain: 3rd edition, McGraw Hill, NY (2008): Available in Your Library

� Reference Books� Sunil Chopra & Peter Menidel,

Supply Chain Management: 3rd edition, Pearson Education (2007).

� Wisner, Leong and Tan, Principles of Supply Chain Management, Thomson South-Western, 2005 (Complete List Available on course outline)

4

Another Reference Book

5

In case you are interested in further study

in SCM

� Journal(s):

� Supply Chain Management: An International Journal (Available on www.emaraldinsight.com)

� Supply Chain Management Review

� Purchasing World

� International Journal of Purchasing and Materials Management

� International Journal of Physical Distribution & Logistics Management

6

Course Objectives

� To understand the basics of SCM

� To understand the current practices in SCM

� To develop decision making capabilities in SCM

� To understand and develop different strategies of SCM

7

Purchasing

Manufacturing

Distribution

SUPPLIERS

Sales

The Functional Approach

� Traditional Approach: Functional, silo based !

� No attempt to look holistically!

CU

S

TO

ME

RS

8

Purchasing

Manufacturing

Distribution

SUPPLIERS

Sales

Integrated Supply Chain Approach

� Looks at the entire chain

� Global rather than local focus

� Integrated rather than fragmented approach

CUSTOMERS

9

Supply Chain StagesSupply Chain (SC) encompasses all activities associated with the flow

and transformation of materials from the raw material stage through to the end user.

Supply Chain Management (SCM) involves management of FOUR flows in a Supply Chain: (i) Material, (ii) Information , (iii) Money &

(iv) Ownership

Supplier Manufacturer Distributor Retailer Customer

The Linear Supply Chain

� Limited visibility & velocity

� Inventory build-up

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11

What are the Goals of Supply Chain

Management?

� Supply chain management is concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed:

� In the right quantities

� To the right locations

� At the right time

� In order to

� Minimize total system cost

� Satisfy customer service requirements

12

Evolution of Supply Chain Management

1950s 1960s 1970s 1980s 1990s 2000s Beyond

Traditional Mass Manufacturing

Inventory Management/Cost Optimization

JIT, TQM, BPR, Alliances

SCM Formation/Extensions

Further Refinement of

SCM Capabilities

13

Evolution of Logistical Integration, 1960-2012

Demand Forecasting

Purchasing

Requirements Planning

Production Planning

Manufacturing Inventory

Operations Scheduling

Materials Handling

Packaging

Inventory

Facility Planning

Order Processing

Transportation

Quality &Customer Service Strategic Planning

Materials

Management

Physical

Distribution

LogisticsSupply Chain

Management

Information Technology

Marketing

1980s

1990s

2000s

TYPICAL OM DOMAINS

14

Supply Chain Decisions: Structuring

Drivers

Strategy

(Design)

Planning

Operation

15

Supply Produce Distribute Sell

Plan/Design

Source

•Product Architecture

•Make/Buy

•Early Supplier Involvement

•Strategic Partnerships

•Suppliers Selection

•Supply Contracts

Fulfillment Supply Chain

Develo

pm

en

t Su

pp

ly C

hain

The Enterprise Fulfillment and Development Supply Chains

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Decision <> time horizon

Strategic Planning

Detail

Hour Week Quartile YearTime

Supply Chain Structure Design

Supply Chain Network Design

Demand Planning

Sales & Operations Planning

Supply Chain Planning

Inventory Planning

Distribution Planning

Manufacturing Planning

Transportation Planning

Operations Scheduling

Delivery Scheduling

Execution Systems

Source: AMR Research

Execution

Tactical

Strategical

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Let us start the course with a Quiz

A box of cereal spends ? days in the supply chain

Poor coordination in the food industry supply chain wasted ? dollars.

A typical new car spends ? days traveling from the factory to the dealership.

U.S. companies spend ? % of Gross Domestic Product on Supply Chain & Logistics

Total inventory in the pharmaceutical supply chain exceeds ? days.

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Complexity: The Magnitude

� A typical box of cereal spends 104 days getting from factory to supermarket.

� The grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies

� A typical new car spends 15 days traveling from the factory to the dealership.

� U.S. companies spend more than $1 trillion in supply-related activities (10-15% of Gross Domestic Product)

� Transportation 58%

� Inventory 38%

� Management 4%

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Consider the following

� Wal-Mart and K-Mart were founded in the same year. While K-Mart declared Bankruptcy in 2001 while Wal-Mart became the largest retailer in USA and perhaps in the world.

� Dell has been able to generate profits even when its competitors lost money on their PC operations.

� Honda has established itself as a dominant brand in automobiles.

What have these firms done? What is the secret of their success?

20

Logistics: Past

The study of logistics has its roots in the military…The traditional view emphasized local optimization within

functional silos and within individual corporations

But functional optimization leads to conflicts ...

21

What is Supply Chain Management?

� SCM is the collaborative design and

management of seamless, value-added

processes to meet the real needs of the

end customer.

22

Supply

Sources:plantsvendorsports

RegionalWarehouses:stocking points

Field Warehouses:stockingpoints

Customers,demandcenterssinks

Production/purchase costs

Inventory &warehousing costs

Transportation costs

Inventory &warehousing costs

Transportation costs

23

Transactional Complexity

National Semiconductors:• Production:

– Produces chips in six different locations: four in the US, one

in Britain and one in Israel

– Chips are shipped to seven assembly locations in

Southeast Asia.

• Distribution

– The final product is shipped to hundreds of facilities all over

the world

– 20,000 different routes

– 12 different airlines are involved

– 95% of the products are delivered within 45 days

– 5% are delivered within 90 days.

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upstream

downstream

Example: Typical supply chain

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Example: Toshiba PC supply chain

upstream

downstream

Intel,

AMDSeagate,

IBM

Microsoft,

Red Hat

Toshiba America

Irvine, California

Europe DC

Toshiba Turkey

North America DC

26

Example: Dell Computers Supply Chain

Website

or Phone

Dell Assembly

PlantCustomer wants

To buy computer

Master Board

Hard disk

SRAM

Direct Shipment

Customer’s Order

Concept of Disintermediation in Dell Direct Supply Chain

What are its benefits for Dell?

Any other example of similar type in Vietnam?

27

Magnitude of Supply Chain CostsExample: The Apparel Industry

Manufacturer Distributor Retailer Customer

Cost per Percent

Shirt Saving

$52.72 0%

$41.34 28%

$20.45 62%

Manufacturer Distributor Retailer Customer

Manufacturer Distributor Retailer Customer

28

29

QC & Shipping

[Hong Kong]

QC & Shipping

[Hong Kong]Product Design

[Hong Kong]

Product Design

[Hong Kong]

Zippers+…

[Japan+…]

Zippers+…

[Japan+…]

Stitching

[Indonesia]

Stitching

[Indonesia]Weaving

[Taiwan]

Weaving

[Taiwan]Yarn Spinning

[Korea]

Yarn Spinning

[Korea]

An Illustration: How Li & Fung Limited Might

Make a Dress

Globally Dispersed Manufacturing

30

Discussion Questions for you

� Are all supply chains same/similar?

� How about cold chains?

� Where does the retail fit in supply chain?

� Where does OM fit in supply chain?

� What are inbound/outbound activities in supply chain?

� What about information and inventory? Are they related in some way in supply chain?

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Complexity in Logistics

� Multi-location

� Multi-product

� Added Cost at various stages and locations

� Multi-modal transportation

� Different perspectives held by various stakeholders in the logistics !

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Magnitude of Supply Chain CostsCost Elements of a Typical Trade Book

33

Conflicting Objectives

in the Supply Chain

1. Purchasing

• Stable volume requirements

• Flexible delivery time

• Little variation in mix

• Large quantities

2. Manufacturing

• Long run production

• High quality

• High productivity

• Low production cost

34

Conflicting Objectives

in the Supply Chain

3. Warehousing

• Low inventory

• Reduced transportation costs

• Quick replenishment capability

4. Customers

• Short order lead time

• High in stock

• Enormous variety of products

• Low prices

35

Managing a Supply Chain is not EasyManaging a Supply Chain is not Easy

1. Uncertain ___________________

2. Conflicting ___________________ across the supply chain

Manufacturers Distributors Retailers Consumers

Convenience

Short lead time

Large variety of

products

Few stores

Low inventory

Little variety

Close to DCs

Low inventory

Few DCs

Large shipments

Large production batches

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Uncertainty and Risk FactorsFluctuations of Inventory and Backorders throughout the Supply Chain

Order variations in the supply chain

37

� Forecasting is not a final solution

� Demand is not the only source of uncertainty

� Recent trends make things more uncertain

� Lean manufacturing

� Outsourcing

� Off-shoring

Uncertainty and Risk Factors

38

� August 2005 – Hurricane Katrina� P&G coffee supplies from sites around New Orleans

� Six month impact

� 2002 West Coast port strike � Losses of $1B/day

� Store stock-outs, factory shutdowns

� 1999 Taiwan earthquake

� Supply interruptions of HP, Dell

� 2001 India (Gujarat state) earthquake� Supply interruptions for apparel manufacturers

Uncertainty and Risk Factors

39

�Compaq estimates it lost $0.5 billion to $1 billion in sales in

1995 because laptops were not available when and where

needed

�P&G estimates it saved retail customers $65 million by

collaboration resulting in a better match of supply and demand

�In 1997, American companies spent $862 billion, or about

10% of GNP on supply chain related activities which include the cost of movement, storage and control of products across

the supply chain.Most of these costs include unnecessary cost

components due to redundant stock, inefficient transportation strategies, and other wasteful strategies in the supply chain

Similar SCM Experiences

40

Other Issues in Management of Supply Chain

� Lead time

� Total cost

� Management of Inventory

� Material Handling

� Performance Monitoring & Control

� Sensitization about the Logistics cost to all the stakeholders !

� Information Sharing…………..

41

Supply Chain Responsiveness

� Respond to wide ranges of quantities demanded

� Meet short lead times

� Handle a large variety of products

� Build highly innovative products

� Meet a very high service level

42

EExamples of logistics strategy decisionsxamples of logistics strategy decisions

� Middle-men / direct deliveries

� Structure of logistics network

� Control principles of a logistics network

� Integrating production and logistics

� Effect of reducing the number of suppliers

� Location issues

� Selecting the most appropriate price/quality combination of logistics services

� Frequencies and cycle times in production and distribution

� Inventory level policy

� Sensitivity analyses with varying scenarios (volumes, costs...)

43

InitiativesTechnologyIntegration

Cost Management

Cycle Time Alliances

EnvironmentalPressures

Inbound, Operations

& Outbound

The Core Issuesin Supply Chain Management

634

44

�Let us list few, which are relevant for Vietnam..

� Lead Time??

� Integration??

� Coordination??

� Environmental Issues??

� …

Effective Supply Chain-Challenges

Case Study: CJ GLS (VN) Freight Co. Ltd

• Founded in 1998

• Revenue (FY 2007): US$900 mil

• More than 2,000 employees worldwide

• CJ GLS Inc. – HQ in South Korea

• CJ GLS Asia – RHQ in Singapore

• 17 owned entities in 11 countries

across the Asia-Pacific region and Europe

• More than 100 strategic partners

and agents around the world

CJ GLS Inc.

AlabamaAlabama

QingdaoQingdao

ShanghaiShanghai

Los AngelesLos Angeles

CJ GLS Inc.

CJ Global Logistics Service, Inc. (CJ GLS) is a logistics and supply chain management solutions provider with three key business areas.

Express

3rd PartyLogistics

InternationalForwarding

� Inventory Management, Put-away, and Pick and Pack

� Transportation, Cross-Docking, and Home Delivery

� Reverse Logistics and Disposal

� Proprietary IT System for Interface and Data Analysis, and Supply Network Analysis and Re-design

� Inventory Financing, Tariff and Taxes Management� Container Maximization and Routing Optimisation

� Order Processing Management

� Global Control Centre

� CSI Survey and Feedback

� Ocean Transportation

� Air Transportation

� Customs Clearance and Bonded Transportation

� Global Freight Tender and Negotiation

� Single Freight Payment

� Global Tracking and Tracing

� Customer Support

* Global Freight Management

* Customer Order Management

* Supply Network Solutions

* Supply Chain Functions

* Total Door-to-Door Service

� Home Shopping Delivery

� Last Mile Delivery and Return

� Web Solution such as Order Management

� Payment Solution such as Escrow Service

� Call Centre Management

Milestones

Following its acquisition of HTH and Accord in 2006, CJ GLS is now on of the top 3PL in Asia with a total revenue of US$ 900 million.

Year Key Milestones of CJ GLS

1998

1999

• Established

• Launch of International Forwarding and

Express Business

2001

2002

• ISO 9001 Certification

• Awarded the Order of Industrial Merit for Logistics

(Top Prize of Korean Logistics Association)

• 2nd Prize – Enterprise 50 Awards (Singapore)

2003

2004

• Start of Integrated Logistics Business

• Fastest Growing 50 Award (Singapore)

2005

2006

2008

• CJ Logistics Institute set up

• Acquired HTH and Accord

• Grand Prize – 1st Korea RFID-Industrialization

Contest (Ministry of Commerce, Korea)

Aquited EC Logistics Malaysia

Global 3PL and Forwarding (US$320 mil)

Express(US$310 mil)

3PL (Korea)(US$270 mil)

1998 2000 2002 2004 2006

US$90M

US$135M

US$175M

US$390M

US$800M

US$900M

2007

(M&A)

• One of the world’s 25 largest logistics and supply chain management companies

Global logistics and supply chain management company with an extensive international network, including

own physical network.

▪ Manage 17 subsidiaries in 11 countries

▪ Also work closely with about 100 strategic partners and agents throughout the world

Global Network

− Korea (Seoul, Incheon, Suwon, Pusan, Daegu,

Kwangju and Daejeon)

− Singapore (Toh Guan, Jurong, Changi and Keppel)

− China (Shanghai, Shenzhen, Tianjin, Fuzhou,

Suzhou and Qingdao)

− Hong Kong

− Indonesia (Jakarta, Denpasar, Semarang, Medan

and Surabaya)

− Malaysia (Klang, Kuala Lumpur, Penang and Johor

Bahru)

− Netherlands (Amsterdam)

− Philippines (Manila)

− Thailand (Bangkok and Laem Chabang)

− USA (Alabama and Los Angeles)

− Vietnam (Ho Chi Minh City, Hanoi and Danang)

AlabamaAlabama

QingdaoQingdao

ShanghaiShanghai

Los AngelesLos Angeles

CJ GLS (VN) Freight Co., Ltd’s Facts & Figures

� Founded in VietNam 2002

� BinhDuong Warehouse : 10,000 sqm

� Hanoi Warehouse : 7,500 sqm

� Danang Warehouse : 2,300 sqm

� Distribution : 30,000 cbm/month

� Employees : 150

� Revenue 2007 : USD 8.5 million

CJ GLS (VN) Freight Offices

� Corporate Office in HoChiMinh :

� Room 304, 3rd Floor , Waseco Plaza

� 10 Pho Quang St., Ward 2, TanBinh Dist.,

� HCMC, VietNam

� Tel: +(84) 8 9976134-8

� Fax:+(84) 8 9976130-2

� Branch Office in Hanoi :

� Room 401,4th Floor, Thanh Dong Building

� 132-138 Kim Ma St., Ba Dinh Dist.,

� Hanoi, VietNam

� Tel: +(84) 4 5122560

� Fax:+(84) 4 5122561

CJ GLS (VN): Products & Services

� Integrated Logistics Operations

� Air Freight Forwarding

� Sea Freight Forwarding

� Consolidation Services

� Land Transport

� Customs Brokerage

� Door-To-Door Delivery

� Warehousing & Distribution Center

� Project Cargo Handling

CJ GLS (VN): Song Than Logistics Center

� Operated June 2007

� Normal Warehouse Facility

� Located in Song Than Industrial Park 2

20 minutes from HoChiMinh City.

� Rack storage

� Full warehouse management system

� Dedicated machinery and staff

� Pick/Pack operations

� Bar coding potential

� Customs facilities

� QA/QC services

� Export/import documentation facility

CJ GLS (VN): New Organization

BDRichard Dien

FinanceSon Dien

HR and AminThao Vien

ForwardingTBA

LogisticsTBA

Samsung Account

Lee Seung Hoon

Managing DirectorNae Seok Jeong

Ho Chi MinhBranch managerKim Goo Yeon

Effective from 1 Jan, 2009

CJ GLS (VN): New Organization

OperationTBA

FinanceThanh Ha

HRQuoc An

LogisticShin Sung Moo

Managing DirectorNae Seok Jeong

Hanoi Branch manager

Terry Kim

Effective from 1 Jan, 2009

Customer Industry Coverage Area Business ScopeLogistics Function

Electronics •Factory in Yen Phong IP , Nortern of VietNam

• Manufacturting cellphones to export Asia, Europe & Middle East in Mar2009

Airfreight services

Warehouse & Distribution

Electronics HoChiMinh,Hanoi,

Danang

• Distributors of Sanyo,Panasonic,

• Philips, Toshiba,Mitshubitshi,

• Pionner

WH, trucking, distribution,customs brokers

F&B Nhatrang,HoChiMinh . Manufacture of F&B products Trucking & customs clearances

Constructions tiles, marbles,…

HoChiMinh • Manufacturing construction products

International freight import handling

Electronics Factory in Bien Hoa, VietNam • Lighting products, local sales WH, customs broker, distribution

CJ GLS (VN): Major Projects

CJ GLS VietNam & Samsung Mobile Division MOU in Hanoi Oct 2008

CJ GLS (VN): Major Customers

Cosmetics and ApparelFootwear Others

ElectronicsConsumer Goods