Getting Started with Operations and Supply Chain

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Business as a word that keeps the economy running, is something that ranges from a small job shop next door to a

global giant with a presence in almost all countries.

It could be anything tangible, like a daily use product, like soap or toothpaste to a rocket ship or something intangible,

a cashless transaction or online shopping. Do you remember a company called CMS, which gets into online

transactions, goes and puts the money in the bank? That's service, that's intangible but that has supply chain and

operations.

So, what keeps a business running? There are three things.

• The power of brands through sales and marketing

• The power of people and technology which have to coexist through product and HR

• Ultimately the power of supply chain and operations leading to the power of distribution

Transcription

Getting Started with Operations and Supply Chain


The fact is that today supply chain and operations is the key differentiator between the competencies of different

organization and a differentiator of success or failure.

Finance of course is a common thread that stitches the organization together and provides the measurable leavers. In

this course, we will focus on the third point, the power of supply chain and operations. To appreciate the impact of

supply chains, let us understand how the businesses have evolved, over the last few decades.

Consider two following equations.

1. Revenue = Cost + Profit

2. Profit = Revenue - Cost

Now that's important. While these two equations are essentially equal, the difference lies in the fact that there has

been a shift in the leavers that can be pulled. 20 years ago, you could simply count on one hand the number of

companies offering automobile cars in India. Ambassador, Fiat, much later came Maruti. For that matter, soaps, Lux,

Pears, Hamam and Lifebuoy. Since, options were limited and the market's not fully penetrated, the leavers that could

be pulled was increasing the revenue with a cost-plus model. You could simply go on and sell more. Remember the

age of Maruti 800 or Bajaj Chetak or Lux. You had to book so much in advance, but today the times have changed.

If you start counting the offering by companies in automobile or soap, you will fall short of fingers to count on. Similarly,

just imagine a couple of years back, they used to be waiting and getting your MTNL connection. But today that's not

the case. You have so many operators offering services each day. With this intense competition you can no longer

continue to use revenue or top line as a free lever as competition restricts market share. Now the focus shifts on

delivering the offerings at the fastest paced with the least cost.


Getting a product into the hands of a consumer is a complex process involving multiple internal and external processes

and companies along the way. So, with this, we get to the formal definition of operations and supply chain. Well, the

traditional view perceives operations management as a system that is involved with the manufacturer and production

of goods and services. The modern view perceives operation management as a system designed to deliver value.

Operation management focuses on running a business effectively and efficiently, including maintenance, material

planning, and the analysis of production systems.

So, what does supply chain do?

Supply chain management includes the collection of materials, the manufacturer of products, and the delivery to the

consumer. Thus, a supply chain, consists of all parties involved, directly or indirectly in fulfilling a customer request.

The supply chain includes not only the manufacturer and suppliers, but also transporters, warehousers, retailers and

even customers themselves. Within each organization such as a manufacturer, the supply chain includes all functions

involved in receiving and fulfilling a customer request.

Both the operations management and supply chain management are expected to add a value to the business

supporting more efficient processes and ultimately delivering better revenue for the company. In fact, to achieve this

common objective, the two roles are implicitly linked together. Supply chain management controls the process for

having the product produce. Without it, operations management wouldn’t have a product to oversee operations for.


Now we will try and structure the process in a way that it takes you through the journey of a product and service till it

reaches the end consumer and along its journey, discuss the concepts that makes for a truly world class supply chains.

Source, make, move, and sell, that's the cycle. Let us now have a bird's eye view at the business value chain.

Just imagine you wish to have a soft drink. So, what did the beverage company do to make it happen?

First, we will look for all the raw materials. It could vary from anything as trivial as portable water to an agro-based

product like sugar to food-grade gas like carbon dioxide along with their lab formulated secret sauce which is also

called as concentrate.

Next, they need to get the right packaging material or PM in short form to hold it, so that it reaches you in the perfect

shape and form. They would look at getting the right pet preforms or bottles of glass or cans and similarly caps and

crowns that seal effectively. And that funky design on the label which resonates with the product branding strategy.

Then some secondary packaging like cartoons and shrink grabs to enable a safe transit. This forms that source part of

the value chain

Similarly, a service-based organization such as an eCommerce company has to source a lot of packaging material with

the right assortment of finished goods or FG that make for the source leg. Now the company needs to make the

beverage for you in the right quantity with the perfect quality in the flavour that you like. This is called SKU or the stock

keeping unit, or anything that is differentiated by product or price point. A lot of operations go into making this

beverage for you. This will be the make part of the value chain.

For an e-commerce company, there are generally no physical make operations as it does not transform a product

before shipping. However, there are organizations which are actually getting materials in bigger bulks and converting

them into smaller bulks before they supply it to you. And that is a hybrid model.

Now once made, this beverage needs to be delivered to the customer. For this, the product will be moved from the

manufacturing plants to the distributors using transporters from where to the retailers or directly to the bigger modern

trade players like Hyper city or Reliance Retail, Big Bazaar, etc. And from there the consumer may pick.


Also, if there is also an eCommerce platform for the same product, the service provider may also deliver the beverage

to the company directly. The interim storage of products to get this augment right and last mile transportation to make

it sure it reaches every desired market from the move part of the value chain.

Now, most eCommerce companies are very move heavier as the process of getting and sorting large number of SKUs

required evolved move operations, that is storage and transportation. Let's imagine an Amazon, what do you do? You

have a plethora of products that it is offered. You just click the product you want from the right category. So, ultimately,

it's obviously a very, very move heavy, both inbound and outbound. Why inbound? Because the product is coming

from various sources to be part of its kitty and then outbound because it's being delivered to you.

So, move is both coming in and going out.

Now let's try and understand that how a supply chain is structured. So, a traditional supply chain has a plan, source,

make and move functions, which means if a product needs to be sent to the customer, first we need to start off with

planning how much is required and what is required for the customer. Then you need to source the raw material to

produce the product. Then you need to manufacture, which means make the product and then you need to move it

towards the customer.


And now let's try and understand that how a eCommerce company is different from a traditional manufacturing or

supply chain company. In an eCommerce company, which is usually a marketplace, the function is to connect the

sellers to the customers through a platform, which is the eCommerce platform. And hence, there are no physical make

operations or production operations. At the same time, for an eCommerce company, returns becomes very important,

which means that the customer also return the product.

So, for an eCommerce company, the return rates are as high as 30%, which means 30% of the products which are

bought for the customers are returned back to the producers as compared to a traditional brick and mortar company

wherein the return rates are as low as 9%. So, as compared to a traditional supply chain company, which will have

plan, source, make and move functions; for an eCommerce company, it would be plan, source, move and return. So,

that's how an eCommerce company is structured.

Now let's take an example to understand this in further detail. So, let us assume that there is a customer who is based

out of Delhi, and he wants to order a product from a seller who's based out of Mumbai, right? So, he goes to an

eCommerce website and he places an order. Now, the seller who's based out of Mumbai now needs to send it to the

customer who is in Delhi.

So, what happens is that, there are first mile operations involved. The first mile operation, what they do is that they

go to the different sellers based out of Mumbai and they pick up a product and then they bring it to a central processing

center, which is in Mumbai. The function of central processing unit is now to segregate, the books or the shipments to

the different destination. So, there might be customers in Delhi, there might be customers in Bangalore, there might

be customer in Calcutta. So, they segregate the load by the destination. And then, they hand it to the line haul

operations.


The function of line haul operation is then to take the product from the source to destination, which can happen

through surface, which is road or it can happen through air. So, line haul operations, then take it from the source to

the destination. At the destination, let's say in Delhi, now you will have various areas, right? So, there will be Chandni

Chowk, there will be MG road, right?

So, what happens is that at the source there are again, the processing operations, which are sorted by the area, which

are then taken to a last mile operations and at the last mile operations, then there is a delivery boy who comes to the

customer's home or goes to the customer home and deliver the product. So, that's how the entire supply chain of a

eCommerce company operates, and that's how the product is moved from source to a destination. And then if it is

returned, then it has to go through the same process on the reversal.

In summary, as we have understood how the business dynamics have changed, looking at the two equations,

remember cost, revenue, profit, ringing back. So, remembering those two equations in the beginning, let us refresh

the purpose of supply chain. Getting the right product to the right place at the right time in the right condition at the

right cost.

This also actually sounds really similar to the Philip Kotler vocabulary for marketing. The only thing that is getting added

is right. So, when marketing, to get the marketing done right, we get into supply chain in a way.

Effective supply chain management involves the management of supply chain assets and products. Information and

fund flows to maximize total supply chain profitability.

To achieve all these right, immaculate planning is of essence. Demand and supply planning are the horizontals that run

across the value chain, balancing the product, moving downstream from an organization to market while capturing

the right information and passing it on to upstream to take the right decisions.


Having understood the structure of supply chain and what are the key processes in supply chain, let's try and

understand what are the costs associated with supply chain. So, supply chain costs usually, can be divided into fixed

costs and variable costs. Fixed costs are costs wherein you have already invested in the infrastructure. And you pay

that cost month on month. Variable cost are costs, which you pay per shipment or per product which is being shipped

out.

So, for a traditional supply chain structure, the cost associated would be mostly cost, which are related to procurement

cost, for procurement of the raw material. Then there'll be a processing or a manufacturing cost wherein you convert

the raw material to a finished good and then there'll be cost related to transportation wherein once the finished goods

is ready, it is moved to a retailer or a distributor nearer to the customer.

As compared to this in an eCommerce company, since there are no make operations or there are no manufacturing

operations, the cost trends are slightly different. The major costs in an e-commerce supply chain are related to the

line haul operation, which is moving the product to the customer as well as the last mile operation wherein a delivery

agent or a delivery executive comes to the customer's home and delivers the product. So, the line haul cost as well as

the delivery cost together almost make around 80 to 85% of the overall cost. The balance costs are costs related to

the first mile operations wherein the product is sourced from a seller or a retailer, and also the processing costs

wherein there is a segregation of the load that happens for the destination.


Now this cost, which are very high for line haul operation, that will also vary whether a product is being shipped locally,

whether it is shipped regionally or whether it is shipped nationally. That means that if a seller is based out of Mumbai

and a customer is also based out of Mumbai, then it becomes a local shipment. Whereas if the customer is based out

of Gujarat for a seller in Mumbai, then it becomes a zonal operation. But if a customer is based out of Assam, then it

becomes a national shipment. So, depending on the distance that the product needs to travel, the cost will vary.

Now on top of this, there are also costs related to returns because the returns being high in an eCommerce kind of an

operation, there will be a cost of returns which will be as good as the forward cost. Other than that, there are also

value-added services which are provided to the customer, like cash on delivery, exchanges, slotted delivery, etc. So, in

these scenarios, there will be additional costs over and above about the traditional costs, which are there.

Once we have understood our strategic fit for the organization, the next step for the organization comes to setting up

its operation. But where, that's what we're going to now talk about. Location and layout that become an important

aspect of what factors to consider, while doing it whether you are in a manufacturing or a service setup.

Hi. Most of you would have heard about supply chain. Supply chain in past used to be known as just a fulfillment

function whose objective was to take product from point A to point B. But now in modern times, supply chain has

become a differentiator. For companies, supply chain has become a key cornerstone to differentiate itself in the


market and it is using it strategically, globally as well as in India. So, let's try and take example one global and one

Indian to understand how supply chain is becoming key to companies.

First example is of Zara. Zara is a fast fashion company based out of Spain. The differentiator for the company is that

the product lead time for the company is one week as compared to six months in the market, which means that the

company takes one week from the time a product is designed to the time it is available in the store for the customer

to buy. Whereas globally it takes about six months. So, let's understand how this is achieved.

Zara does everything in house. So whether it is designing of the product or manufacturing, all of it is done in house.

Whereas competition in order to cut costs has gone global. It has outsourced most of the functions to low cost

countries like China and Bangladesh. What it does is that it means that all the functions which are critical are located

in Spain or around Spain and hence cutting down the lead time.

What Zara also does is that it has cut down the batch size. So in past, it used to be, that companies used to order in

bulk for the season, but what Zara does is that it only orders a small batch. So that it can test out whether the customer

is buying it or not, and then it orders more if it is required. And since the factories are located nearby, it can react

quickly to the demand. So, that's how Zara being a fast fashion retailer has differentiated itself in market.

Now let's look at an Indian example. So, some of you would have heard about Mumbai Dabbawallas. Mumbai

Dabbawallas, their function is basically to ensure that the tiffin box or the lunchbox of the customer is delivered to

their office from their home, hot and fresh. The beauty of the supply chain is that it's a 15-year-old supply chain.


There are 5,000 dabbawallas in Mumbai, who deliver about two lakh dabbas in a day. And this is done at a cost of

about 600 rupees to 1000, depending on the distance from the home to the office, which means a cost of about 20

rupees per day. And this is done at a error rate of about one in million, which means a six Sigma process.

So, let's understand how Dabbawallas achieve an error rate of one in a million. This is done through a very homegrown

and indigenous method of coding. So, there is coding in terms of numeric and color. Now let us take an example, if a

Dabba is originating from Vile Parle and going to Church Gate. Now Vile Parle becomes the source and Church Gate

becomes the destination. So, all the coding for Vile Parle is done in one color, which might be green. And all the coding

for Church Gate is done in a different color, which might be red. So, on a dabba which is a dabba that is given by the

dabbawallas in which the tiffin of a customer is put.

You might see a code which says VLP, which means Vile Parley. If you see a code which says 3, it means that it needs

to go to the third station from Vile Parle, which is Church Gate. In red, if you see a code which says 12, it means that

at the destination, it needed to go to floor number 12. And if you see a code, let's say 9, it means that it needs to go

to area number 9. Now, while this might look a difficult to a person who does not understand a code, but all the

dabbawallas, they understand this code completely, right? And this is the system that they are able to use and relate

to their areas to deliver the dabbas without an error and very, very quickly. So, that's how dabbawallas have grown

over the last 125 years. And the interesting thing about the supply chain is that nobody else has been able to replicate

this system in terms of cost or error rate.


Now let's discuss the process of supply chain. There are methods of how you perceive it.

So, one is a cycle view. Information flow of customer order cycle or sale moves to the replenishment cycle. Through

moving to the manufacturing cycle or make and then the procurement cycle. Let us source, the product flow is the

opposite. So, one is the information flow, other is the product flow.

The other impact is the push and the pull view, reactive versus speculator. A push pull boundary can be set between

any cycles depending upon a strategic view of the organization.

Let us consider an example of a paint, organization out here, a very popular one. The number of colours in today's

world is numerous. Handling finished goods of such a large number of stocks keeping units is not only inefficient but

very tricky to plan as every person chooses a shade customization based on his or her needs. Do you remember the

ad Mera Wala blue? That's exactly.

Now what a prominent paint organization did was to postpone it's boundary to the last retailer. Very intelligently. They

only shipped standard white paints, thereby gaining massive economics of scale and reducing planning error and did

the last shade mixing at the retailer, post the customer confirmation.

A key thing to note here is that a key role of supply chain management is to ensure the organization finds the right

strategic fit in the terms of understanding supply chain uncertainty, customer uncertainty, and the supply chain


capability while keeping sustainability in mind. In fact, the paint organization has really contributed very well in keeping

the sustainable objectives also in mind.

To bring things in perspective, a supply chain capability or an operations capability of a plane maker which needs high

reliability in terms of operational, all the aspects in terms of R&D, in terms of quality, in terms of sourcing. Here they

are very, very critical but there is no immediate customer expectation. That means that the distribution part of supply

chain is still not so complex. But it largely varies from a soft drink manufacturer where such high precision at the level

of operations is not required at each level because the recipes get fixed across, but what is more important is an

extremely reliable raw material to the suppliers and at the same time, the distribution section is extremely complex.

Where there is a steady need to fulfill orders in the market, which also includes, for example, if it's a glass bottle, the

terms of reverse logistics, which is an added arm for the supply chain operations and distribution and is important in

today's scenario. It is again different from an eCommerce company where the speed of delivery matters the most. And

here, where they need to get into a sustainability aspect of relooking, we need to look at the packaging part.

Now let's try to understand all the examples that we just talked about. How do they fit in a graphically manner?

Here, let's just try to put the responsiveness and efficiency of supply chain on the Y axis and the certainty of demand

moving to uncertainty on the X axis. We are trying to actually, what are we trying to establish? We are trying to


establish what is the zone of strategic fit for the organization because when there is a demand which is certain versus

a scenario of responsiveness, what will be the case.

So, when there is high certainty, it is obvious that there could be more efficient supply chain which could really lead to

lot of organization’s benefit. On the other hand, as the uncertainty increases, as the uncertainty increases, the

responsiveness required by the supply chain has to increase and the efficiency of the supply chain can actually go

down.

So, when setting up plant operations, there are numerous, often conflicting factors to consider. As you can see in the

picture, the factors are classified into general factors and specific factors. Look at the specific factors first. For

manufacturing operations, we are defining it as dominant factors and secondary factors. Similarly, for service

organizations, dominant and secondary. This particular location which the earlier had as a factory, now they are

planning to change into a service organization, so it could be a scenario that the existing land may become one of the

key factors of defining where the location is in which the question of location will not arise at all.


Now let's come to the general factors. The controllable factors include proximity to markets, availability of raw

materials, transportation facilities, infrastructure available for transport and operations, labor and wages, external

economies, availability of capital. The uncontrollable factors include government policy, climate conditions, supporting

industry and services, community and labor attitudes, community infrastructure. Also is the environment conducive

to fast setup and growth?

Now, when setting up a plant, ensure that you are aware of every authority that you may be involved in the process

and obtain clearances from each of them. Understand the laws and legislations pertaining to the industry in the

country or state, and plan to meet all the requirements. It could also be that many states are giving incentives. That

could also become one of the reasons of taking up a facility in a particular location if other factors are constant. So, let

us know understand what are the different methods for deciding on location.

A. First, location factor rating method.

B. Second, center of gravity method.

C. Third, load distance model.

D. Fourth, transportation method.


So, what is a factor rating method. Here, you identify the important factors, what are going to be dominant for the

plant. Now you give them a weight factor which starts from 0.0 and moves up to one. Now you subjectively score each

factor, that means you're going to give weightage to each factor. Now you sum the weighted scores.

Now as you will be able to see in this table which explains, we're talking about three sides. On one side we've also

given the location factor, labor pool and climate, proximity to suppliers, wage rates, community environment, proxy

to customers, shipping modes, air service. Now what happens is that each of the location factor, for example, labor

pool and climate has been given a weight of 0.3. The proximity to suppliers has been given a weightage of 0.2, wage

rates 0.15. Now this is what is important to that particular organization. This weightage may actually change depending

on what business you are and how important the factor is for you.

Now once you have given this weightage, we basically multiply this weightage to the individual site points. So, you can

see the weighted score for labor pool and climate for site one is equal to 0.3 into 80 is equal to 24. So, we have given

them scores based on how that particular property is performing in terms of availability of labor. So, if it is scoring 80,

it is multiplied by 80. Site two is scoring a 65 rating out of hundreds, hence, it's multiplied by 65. So, each site is

evaluated on how it performs against each and every factor and then given with a weightage and sum total.


Now you will see that when you compare the weighted scores in the next chart, site one, site two, site three, all of

them are compared. And for all the factors, the labor pooling factor, etc., site one comes to a sum total of 77.5. Site

two comes to a sum total of 80.8. Site three comes to a sum total of 82.5. Looking at this, it becomes obvious that we

are going to give importance to site three for the selection of the location.

We now go to the next method which is center of gravity technique. Here, locate facility at the center of the

geographical area. Now based on weight and distance traveled, establish the grid map of the area. Now, identify

coordinates, and wage shipped for each location.


Let us now look at the center of gravity method, looking at this particular graph in front of you. Look at the X axis and

the Y axis. This is an arbitrary origin, which is a center point. From here, on the right-hand side, which is the Y axis,

we are moving on the East West, and then we are moving towards X axis which is the North South.

Now, for example, Chicago is located at 13-120, now that's because it's 30 on the East-West axis, whereas 120 on the

North-South axis. Similarly, we place Atlanta, 60-40. Then we move to Pittsburgh, 90-110. New York, 130-130. Now

looking at all this, we create a center of gravity, this is obtained. Now the calculation of center of gravity follows like

this. Look at the store location, Chicago, Pittsburgh, New York, and Atlanta. Now we will determine how many numbers

of containers are shipped per month from each of these locations.

Say for example, from Chicago, 2000 containers are shipped, whereas from Pittsburgh 1000, New York 1000, and

Atlanta 2000. Now we will calculate the center of gravity, the X coordinate. How do we do that? So, if you remember

the Chicago, the X coordinate was 30, so we multiply 30 by 2000. Similarly, Pittsburgh was 90. So, 90 into 1000 and so

on.

Now we divide all of this by individual number of containers shipped and sum it up total. So, 2000 plus 1000 plus 1000

plus 2000, we now arrive at 66.7 as the new center of gravity on the X coordinate. Similarly, we work out the Y

coordinate for which we arrive at a infinitive figure of 93.3. Now you can understand 66.7 and 93.3 are the center of

gravity back in our chart. We will now evaluate based on this number what is the closest point which coordinates with

this center of gravity method and choose that as a location.


The next two models are basically the programming models, the load distance model, which enables a location planner

to evaluate two or more potential candidates for locating a proposed facility, vis-a-vis the demand or the supply points.

This provides an objective measure of total load distance for each candidate. The fourth category is the transportation

method.

A transportation problem basically deals with the problem which you aim to find the best way to fulfill the demand of

N demand points using the capacities of M supply points. While trying to find the best way, generally, a variable cost

of shipping the product from one supply point to demand point or a similar constraint should be taken into

consideration.

Methods of finding an optimal solution will consist of two steps. First, to find an initial basic feasible solution. Second,

to obtain an optimal solution by making successive improvements in the initial basic feasible solution, until no

further decrease in the transportation cost is possible.


One of the key decisions in a supply chain would be where to locate its facility, like manufacturing location or a

warehouse. And there are various factors which impacts this decision. So, let's say for example, if there is an

eCommerce company that is expanding rapidly and it wants to put one more of its warehouse or distribution center.

Let's see, what are the factors, which it has to take care to decide on the right location. So, it has to start off with

understanding how its customer base is placed, right? So, the facility should be nearer to the customer so as to reduce

the cost and improve the speed.

The second thing is to have proximity to logistics providers and suppliers. So, because e-commerce industry is very

heavy on the move functions, that is you need to move the product to the customers, you need to have logistics service

providers who will give you trucks or if it is air than there should be aircraft availability also. So, you need to be in a

location wherein you get sufficient availability of the logistics service provider, as well as the suppliers also need to be

nearer to your facility. So, for example, if the supplier base is in Tamil Nadu, and if your facility is located in Bangalore,

it will help as compared to the facility being located in let’s say Gujarat. This will reduce the cost as well as the service

time.

The next factor which becomes important is availability of the workforce. Because a lot of processes in warehouses

are manual, you need sufficient availability of workforce. So, if you end up putting a facility in a location where you

don't have local workforce available, then you might have to get the workflows from other locations, which might be

costly and you might not get the available workforce.


The next point to be considered is the local regulations and the rules which are there. So, there might be certain states

or certain locations wherein there is additional incentives which are given from government if you put a facility. So,

which might be useful or there might be certain locations wherein there are environmental regulations which does

not allow you to put a facility. So, that also needs to be considered.

Finally, the ecosystem needs to be there, so which means that you might need, let's say 1 million square feet

warehouse, but there might be smaller cities where in such a big warehouse and infrastructure is not available at all.

So, that also needs to be considered. So, if you take into consideration some of these factors and then optimize for

cost as well as speed of the supply chain, then you will end up getting the facility in the right location.

Let us now get onto an example of strategic location decision in supply chain and its contribution in building an agile

and effective logistics and distribution system. This is an actual real time issue tackled in the Asia Pacific region for

Michelin tires, which had its regional headquarters at Singapore.

So, what then is the objective? The objective was to create a stocking warehouse in Asia in a single location for high

value products, upward of $250 per tire in order to improve availability to customers in the region for these products,

which are critical as far as the passenger car tire strategy is concerned.


What are the subject sub-objectives that it would meet?

• It would reduce the lead time to customers from the existing 160 days to approximately 65 days or less.

• It would help create local safety stock in order to handle variation in sales level versus forecast.

• And finally, it would reduce the overall cost in the system.

What deliverables would this objective meet? It would help support an annual sales volume of 35,000 tires, which

comprises of 170 different stock keeping units.


Second, the tire lines considered are predominantly the performance tires and the four by four or the four-wheel drive

tires. These are the two categories and their brand names are listed as you see them. The average cost per tire is in

the range of 400 to 450 dollars.

What then is the current situation?

1. All tire lines are sourced from manufacturing locations in Europe and North America. What are the supply

problems that are faced currently? Availability is poor because factory capacities are extremely tight. Add to

this, individual countries today in the Asia Pacific region order at different times, making it difficult in

consolidation and shipping out.

2. Second, there is a wait time for assignment of order due to factory planning in Europe and North America, as

they keep very little or practically nil inventory. Thereby making it more of a make to order and that too on a

very firm demand.

3. There is also a wait time for containerization because volumes ordered are small. The 160-day lead time is

seen by the Asia Pacific customers on an average primarily because of the above where containerization takes

a lot of time.


If one were to look at the current situation or the demand, you'd see that there are 11 countries in the Asia Pacific

region that have a demand of approximately 35,000 tires per annum. But this is skewed, if we were to analyse it

further.

Four countries make up a demand of approximately 90% of this 35,000 units that are sold in these 11 countries. Hong

Kong at 31%, Singapore and Malaysia at 41%, and Indonesia at 18% make up this close to 90% of the demand within

the region.

What is the current situation in logistics? So, from the source, only full containers are normally shipped. A 20-foot

container takes approximately 500 tires, a 40-foot-high cube container takes approximately 1,200 tires.


Shipments are made directly from a factory, the port closest to the factory causing wait time at each factory for

containerization. Shipments are made directly to customers. The lead times, as you can see from the split between

validation of order, allocation of order, credit release, order generation, dispatch, and the transit time totals now 160

days from order placement to receipt at the port.

So, what then are the alternatives that are available, that were available with the regional team at Singapore, as they

ended up designing a much more efficient and robust system.


There were three in all, one splinter warehouses by countries to have both high-performance tires, as well as regular

tires, but then this would not have created a cost benefit ratio, which would have been worse as you end up mixing

the lower margin tires with the really higher margin tires.

Second was to include Japan within the Asia Pacific region, which it is a part of as a location for high-performance tires.

Very soon, we realized that Japan had to get excluded from this study primarily because it is one, at one end of the

geographic region. And two, it is the highest cost location to hold inventory.

So, the only option that therefore was available, when we did the, when we saw through the analysis and did the

calculations on costs for redistribution also was to have a warehouse that could be located either between Singapore,

Malaysia, or Indonesia, because these three countries together took a total of 60% of the overall demand.

So, Singapore was finally chosen as the high-performance tire platform for the simple reason that we stated earlier,

60% of the demand is within the three countries of Singapore, Malaysia, and Indonesia, all of which are practically

next-door neighbours. And therefore, it would be at a reduced logistics cost.


Connectivity from the source locations, factories in Europe and North America to Singapore and from Singapore to the

Asia Pacific countries, which now form the spokes, so to call, are good and very frequent both by sea and air, making

it a prime location for hub with other countries as spokes.

So, the final decision became from a location standpoint, towards creating Singapore as a strategic location or to be

designated as a hub.

So, if you were to look at the final proposal and the replenishment function that would be done within the Asia Pacific

region, Singapore would be managing inventory and ordering as a single entity from the factories within Europe and

North America using the replenishment method.

The lead times now, if we were to recalibrate from the earlier ones are reduced by more than 50% to 67 days, which

was a remarkable decision and finding.

With the choice of now Singapore having been taken as a hub or a strategic location to place the high-performance

tire platform, what are the other logistics and supply chain benefits that were derived out of this decision of choosing

Singapore as a strategic location?


You could immediately take out three key takeout, three key takeaways:

1. We had a very agile and responsive supply chain as can be seen from the fact that the lead time reduced by

approximately 50% from order to fulfilment.

2. Two, there was a 100% demand being met since it was only one location acting as a customer racing its orders

on two sources within Europe and North America. So, the on time and in-full demand that we talk about, the

order or the customer satisfaction was 100% met.

3. Also equally crucially, we saw a reduction in the overall logistics cost by approximately 5% through

consolidation. And this was achieved through consolidation in inventories, consolidation of storage space,

which otherwise was splinted across various locations. And therefore, as a consequence of it, a reduction in

the handling that happened.

So, overall, if you see, Singapore acted as a strategic location and it gave birth, so to speak to three different factors

that helped in betterment of the supply chain indicators of responsiveness and agility, customer satisfaction and

reduction in overall logistics costs.

Now we move to a very important aspect of supply chain, which is sustainability in supply chain, because anything we

study later is ultimately dependent on the impact that it is creating into the market, into the environment.

So, before we move any further in discussing the details about operations and supply chains, it is important that we

know and throughout keep in mind the environmental impacts of what actions and ensure they are responsible and

sustainable for the future, for the planet So, sustainability, what does it mean in today's world?

Today when a 17-year-old Swedish girl can take the world by storm by looking at the president of the United States in

eye and ask for a better future, sustainability truly means something.


The concept of a triple bottom line approach -> People, Profit, Planet; put sustainability in focus for management of

organizations. Most global and Indian companies have incorporated this triple bottom line approach in a way they

conduct their business. So, what does sustainability mean in supply chain?

The UN Global Compacts 2013 global corporate strategy report finds that the companies are increasingly taking and

talking about sustainability in their supply chains and are willing to incorporate all the supplies in the value chain in

this effort.

To continue with our soft drink example, what is the possible environmental impact in it’s supply chain? In other words,

what footprint does it leave? Footprint meaning carbon footprint. The questions we need to ask to assess the impact

are as follows.

• First, how efficient are the suppliers in making the reforms?

• You remember the preform, the pet bottles.

• What percent of plastics do they waste in making the preforms, caps or labels?

• How efficient is the machinery that transforms the product?

• What is the energy consumption of the machines and yield more importantly?

• How much of the purchased raw material is being used for production and how much is getting wasted in

name of new and promotions?

You remember new Surf Excel, new this, new that? Now when they're launching these new's and promotions, they are

maybe left with certain inventory in their stocks, both in terms of especially raw materials which are not a common

recipe item. So, then there is definitely something being left as a waste. In the absence of a good material planning,

this is going to create problems.

• How efficient is the fleet of trucks that transports the finished goods to your doorstep?

• Is it an aging fleet adding to the pollution more than desired?

• How much of the produce is getting wasted by getting expired and being thrown away because they have

expired even before they were sold due to vast gaps in forecasting versus actual sales?

• What happens to the final bottle once you are done consuming the beverage?


• What will happen to the volume of excess packaging which arise when you order an eCommerce over and

above the primary packaging of the product?

• All of the ways and initials created in the supply chain, how much of it is reduceable, that is a avoidable?

• If not reduceable, then how much of it is reusable and then how much is it at least recyclable?

• Meaning either you're able to reduce the consumption. If you're not able to reduce it, are you able to then

recycle it?

All this without creation of further carbon footprints. Incorporating sustainability into a company's supply chain maybe

complex, but the failure to act maybe the biggest risk of all, and hence, the real success of an organization is

dependable in the responsible roles played by the supply chain.

The steps we as supply chain managers must take are as follows.

1. First of all, map your entire value chain. There might be inefficiencies within the multiple divisions of an

organization that by leveraging common resources can reduce the environmental impact.

2. Second, to communicate effectively across your value chain, do not work in silos, work in transparencies. It is

important not to keep buffers.

3. Then finally identifying address vendor issues and make them a part of your larger plans to incorporate a

sustainable growth.


Then set performance matrix, set minimum standards and ensure you enable all suppliers in the chain to adopt best

practices and commit to them. This also reduces waste across the value chain as percentage rejections go down. That

means you really work on quality. Also go ahead with training and capability. Invest in training of all partners in the

value chain so as to make them aware of the impacts and ways to improve efficiency. Collaborate, each industry has

competitors who fight for the market share, but in today's world, it is a huge responsibility for all the players in the

industry to join forces, put the innovation expenses to figure out better and ecofriendly ways of packaging which are

recyclable and reusable.

As we're all aware in the eCommerce service industry, the usage of packaging material is under the lens of the quantum

of the same is increasing. It is imperative to find efficient ways of shipping products to reduce environmental impact.

Now, while the direct impacts through responsible supply chains roles are mapped correctly, plan efficiently and

execute effectively. That's the mantra of supply chain.

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Getting Started with Operations and Supply Chain