LEADING EDGE LOGISTICS

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BY:FARAH (10)SOHILA(34)

SUPPLY CHAIN MANAGEMENT (SCM)

A supply chain is a sequence of suppliers, warehouses, operations & retail outlets.

Integration of various activities encompassed by the supply chain through improved supply chain relationships to achieve a sustainable competitive advantage.

GOODS /SERVICES

INFORMATION (ORDER & SCHEDULES)

PAYMENT

Supplier’s Supplier Supplier Firm

Customer

Customer’s Customer 2

ELEMENTS OF SCM

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SUPPLY CHAIN MANAGEMENT

How is Supply Chain Management applied in the Logistics Function?

– It provides for a strategic view of logistics functions.

– It is not simply what occurs inside of a company

– It is completely customer driven

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LOGISTICS

What is Logistics = Logical thinking +Statistics

"Logistics means having the right thing, at the right place, at the right time in the right quantity at the right price.“

Therefore, Logistics is an optimization process of the location, movement and storage of resources from the point of origin, through various economic activities, to the final consumer.

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LEADING EDGE LOGISTICS The companies with following features have leading edge in logistics:

Exhibit an overriding commitment to customers (100% customer satisfaction).

Emphasize planningEncompass a significant span of functional

controlHave a highly-formalized logistical process Place a premium on operational flexibilityEmploy comprehensive performance

measurement Invest in I.T.

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HOW LEADING-EDGE COMPANIES MANAGE LOGISTICS??

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BUSINESS TRANSFORMATION

Functions To Processes.

Profit To Performance.

Products To Customers.

Inventory To Information.

Transactions To Relationships.

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FUNCTIONS TO PROCESSES

COVENTIONAL VERTICAL SYSTEM

HORIZONTAL SYSTEMHORIZONTAL SYSTEM

HELPS IN:•Better co-ordination & co-operation•Connects the customer with the business & its suppliers

{CORE PROCESS} •Cross functional capabilities

EXAMPLE: HUL entering a strategic tie-up with PepsiCo India for bottling & distribution of Lipton’s ready-to-drink.

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PROFIT TO PERFORMANCE

NON-FINANCIAL PERFORMANCE INDICATORS INCLUDE:

Customer Satisfaction

Flexibility People Commitment

Customer Retention Set up times Employee Turnover

Brand Preference

Commonality of materials

Suggestions

Dealer Satisfaction Reduction of complexity

Internal climate and culture

Service Performance Training And Development

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PRODUCTS TO CUSTOMERS

EMERGING TRENDS Ultimate objective- Customer Satisfaction Demand management Using measures like ‘activity based costing’

& ‘throughput costing’ instead of ‘traditional accounting’.

Replace ‘brand value’ by ‘customer value’. Develop an ‘offer’ or ‘package’ that

positively impact customer’s perceptions of the value.

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INVENTORY TO INFORMATION

BEFORE NOW UNCERTAINTY INFORMATION

FORECAST LOGISTICS SYSTEM

SUBSTITUTING INFORMATION FOR

INVENTORYBENETTON, ITALIAN FASHION

MANUFACTURER12

TRANSACTIONS TO RELATIONSHIPS

Winning Keeping

Absolute Quality of market share

Longer customer stays with us, the more profitable they become.

SINGLE SOURCING: IMPROVED QUALITY INNOVATION SHARING REDUCED COSTS INTEGRATED SCHEDULING OF PRODUCTION 13

MODIFYING INTERNAL ENVIRONMENT WITH EXTERNAL

ENVIRONMENT

PARADIGMSSHIFT

LEADING TO SKILLS REQUIRED

FUNCTION TO PROCESS

Integral management of

Material and goods

Cross Functional Management

PROFIT TO PERFORMANCE

Focus on market and customer value

Perfect order Achievement

PRODUCTS TO CUSTOMER

Focus on performance drivers

of profit

Understanding Costs to serve &

time based performance indicators.

INVENTORY TO INFORMATION

Demand based and quick response

systems

Systems and technology

TRANSACTIONS TO

RELATIONSHIPS

Supply chain partnership

Win-Win Orientation

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Sources RetailersConverters

EXTENDED ENTERPRISE

Today’s business is increasingly ‘boundaryless’

Extended Enterprise

Suppliers Distributors Consumer

Product and service flowInformation flow

Funds flow15

VIRTUAL SUPPLY CHAIN E-mail Chain: When a supply chain is

managed electronically, usually with Web-based software, it is referred to as an e-supply chain.

Example:

FedEX started Virtual Order – Online B2B site. Shippers can setup an online catalog of goods that

consumers can order from. FedEx setup Express Distribution Centres like Dubai,

Philipines.16

CONTD… FedEX systems are fully integrated with that of the

shippers

Customer places the order.

Shippers notified

Order Enters into FedEx network.

Order collected from a variety of shippers.

Within 48 hours delivery to customer17

INTERNET APPLICATION & SUPPLY CHAIN

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RECONFIGURING THE VALUE CHAIN THROUGH ‘POSTPONEMENT’

Postponement creates flexibility in terms of time, place & form utility. Time & Place postponement occurs when

organization centralizes inventory leading to:

reduction in total inventory & improving product availability by effective forecast.

But increases transportation & holding costs.

Final Form postponement is attractive as: Products have short life cycle leading to

increased levels of obsolescence & stock write-offs.

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Requirement of rapid transmission of information to upstream & downstream supply chain partners, so that the final product is made on demand creating a competitive edge.

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THE EXTENDED VALUE CHAIN

The challenge is to delay the final configuration as long as possible & hence reduce the risk.

Hewelett Packard- “design for a localization” product development philosophy

InboundLogistics

Operations BrandingOutboundLogistics

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Thus, the unit costs of manufacturing will go higher but the overall cost/benefit will be considerable as

Inventory holding cost Obsolescence Customer service Postponement concept makes the conventional

economies of scale redundant.

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EXAMPLE23

WAL-MART IS THE WORLD’S LARGEST RETAIL COMPANY

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HUB AND SPOKE SYSTEM In the early 1970s, Wal-Mart

became one of the first retailing companies in the world to centralize its distribution system, pioneering the retail hub-and-spoke system.

Under the system, goods were centrally ordered, assembled at a massive warehouse, known as ‘distribution center’ (hub), from where they were dispatched to the individual stores (spoke).

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HUB AND SPOKE SYSTEM

The hub and spoke system enabled Wal-Mart to achieve significant cost advantages by the centralized purchasing of goods in huge quantities..

and distributing them through its own logistics infrastructure to the retail stores spread across the U.S.

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WAL-MART’S PROCUREMENT

Wal-Mart emphasized the need to reduce purchasing costs and offer the best price to the customer.

The company directly procured from manufacturers, by passing all intermediaries.

Wal-Mart finalizes a purchase deal only when it is fully confident that the products being bought is not available else where at a lower price.

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WAL-MART’S PROCUREMENT…

Wal-Mart spends a significant amount of time meeting vendors and understanding their cost structure.

By making the process transparent, the retailer can be certain that the manufacturers are doing their best to cut down costs.

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USING EDI FOR PROCUREMENT

The computer systems of Wal-Mart were connected to those of its suppliers.

EDI enabled the suppliers to download purchase orders along with store-to-store sales information relating to their products sold.

On receiving information about the sales of various products, the suppliers shipped the required goods to Wal-Mart’s distribution centers.

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LOGISTICS MANAGEMENT

An important feature of Wal-Mart’s logistics infrastructure was its fast and responsive transportation system.

The distribution centers were serviced by more than 3500 company owned trucks.

Wal-Mart believed that it needed drivers who were committed and dedicated to customer service.

The company hired only experienced drivers who had driven more than 300,000 accident-free miles, with no major traffic violation.

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INVENTORY MANAGEMENT

Wal-Mart invested heavily in IT and communication systems to effectively track sales and merchandise inventories in stores across the country.

With the rapid expansion, it was essential to have a good communication system.

Hence, Wal-Mart set up its own satellite communication system in 1983.

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INVENTORY MANAGEMENT…

Wal-Mart was able to reduce unproductive inventory by allowing stores to manage their own stocks, reducing pack sizes across many product categories, and timely price markdowns.

Instead of cutting the inventory across the board, Wal-Mart made full use of its IT capabilities to make more inventories available in the case of items that customers wanted most, while reducing the overall inventory levels.

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INVENTORY MANAGEMENT…

Employees at the stores had the “Magic Wand,” a hand-held computer which was linked to in-store terminals through a radio frequency network.

These helped them to keep track of the inventory in stores, deliveries, and backup merchandise in stock at the distribution centers.

The order management and store replenishment of goods were entirely executed with the help of computers through the Point-of-Sales (POS) system.

Through this system, it was possible to monitor and track the sales and merchandise stock levels on the store shelves.

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INVENTORY MANAGEMENT… (RETAIL LINK SYSTEM)

In 1991, Wal-Mart had invested approximately $4 billion to build a retail link system.

More than 10,000 Wal-Mart retail suppliers used the retail link system to monitor the sales of their goods at stores and replenish inventories.

Details of daily transactions (~10 million per day) were processed through this system.

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CPFR

By the mid 1990s, Retail Link had emerged into an Internet-enabled SCM system whose functions were not confined to inventory management alone, but also covered collaborative planning, forecasting and replenishment (CPFR).

In CPFR, Wal-Mart worked together with its key suppliers on a real-time basis by using the Internet to jointly determine product-wise demand forecast.

CPFR is defined as a business practice for business partners to share forecasts and results data through the Internet, in order to reduce inventory costs while at the same time, enhancing product availability across the supply chain.

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RFID TECHNOLOGY(RADIO FREQUENCY IDENTIFICATION)

In efforts to implement new technologies to reduce costs and increase the efficiency, in July 2003, Wal-Mart asked its top 100 suppliers to be RFID compliant by January, 2005.

Wal-Mart planned to replace bar-code technology with RFID technology.

The company believed that this replacement would reduce its supply chain management costs and enhance efficiency. 36

RFID TECHNOLOGY(RADIO

FREQUENCY IDENTIFICATION)

Because of the implementation of RFID, employees were no longer required to physically scan the bar codes of goods entering the stores and distribution centers, saving labor cost and time.

Wal-Mart expected that RFID would reduce the instances of stock-outs at the stores.

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