Unit 2 SCM
Topics covered
Unit 2 SCM
Topics covered
SUPPLY CHAIN
2.1. ROLE OF DISTRIBUTION IN THE
distributionnetworks
chains
P & G has chosen to distribute directly to large supermarket
from distributors.
while obligatingsmaller players to buy P&G products
Supply Chain Management
2.2 thmough
from P&G to the larger chains, but move
P r o d u c t s move directly
when going to smaller supermarkets.
an additionalstage
distribution network
should be evaluated along two
Performance of a
Dimensions:
Produet availability: -
customer orderarrives.
Desired
Response
Time
Fig 2.1. Relationship between Desired Response Time and Number of Facilities
Number of
Facilities
Costs
Fig. 2.2. Relationship between Number of Facilities and Inventory
Supply Chain Managemen
Number of
Fig. 2.3. Facilities
Relationship between Number of
Facilities and
Transportution Cosi
ly Chain Network Desi
NuriiDer of
Facilities
Fig. 2.4. Relationship between Number of Facilities and Faciliy Cost
Total logistics costs are the sum of inventory, transportation, and facility
costs for a supply chain network.
A s the number of facilities increases, total logistics costs first decrease and
then increase as shown in Figure 2.5.
that minimize total
Each firm should have at least the number of facilities
Amazon has more than one warehouse
logistics costs. For example,
costs (and improve response time).
primarily to reduce its logistics
Response Time
Number of Facilities
OO Manufacturers
Retailer
Customers
Product Flow
--4
Information Flow
Fig. 2.6.
Performance Characteristics of
Manufacturer Storage with
Direct Shipping Network
Inventory Lower costs because
of
aggregation aggregation. Benefits of
are
highest for low demand, high value
items. Benefits are
very large if product
customization can be proaue
postponed by the manufacture
Sgn
Transportation 2.7
Higher transportation
costs because
distance and of increased
Facilities and handling
Lower
disaggregate shipping.
facility costs because of
saving on handling costs if aggregation. Some
small shipments. manufacturer can manage
Information
Significant investment in information
to
integrate manufacturer and retailer. infrastructure
Response Time Long response time of one to two weeks because of
increased distance and two stages for order
processing. Response time may vary by product, thus
complicating receiving
(i) Manufacturer storage with direct shipping and in-transit merge
Unlike pure drop shipping, under which each product in the order is sent
Customers
-Product Flow
--Information Flow
Fig. 2.7.
Sony monitor,
PC from
Dell along with a
orders a and the monitor
the Dell factory
customer
QQP Factories
Customers
Product Flow
Information Flow
Fig. 2.8.
Under this option, inventory is held by manufacturers
not at the facto
but is held by distributors/ retailers in intermediate and
warehouses,
Nefwort Design
Network
Factories
Distributor / Retailer
Retailer Warehouse
6-8-868S Customerss
Product Flow
Information Flgw
Fig. 2.9.
Supply Chain Manageme
Pickup Sites
Customers
Customer Flow
Product Flow
Information Flow
Fig. 2.10.
Supply Chain Network Design
2.11
Inventory 1s stored at the
manufacturer or distributor warehouse but
customers place their orders
online or on the phone and then travel to
designated pickup points to collect their
Orders are shipped from the
merchandise
storage site to the pickup points as needed.
Such a network is likely to be most effective
if existing locations such as
coffee shops, convenience stores, or
grocery stores are used as pickupP
sites, because this type of network improves the economies from existing
infrastructure.
Performance Characteristics of Distributor Storage with Customer Pickup
Pickup
Retailer storage with
Customer
shopping
arive from a centralized
Returnability online
orders,
which typically
be much higher for
to
is harder with is also likely the
It
of
returns
and feel
proportion unable to touch
location. The customers
are
because
the
orders
online
purchase.
before
their
product
2.14 Supply Chain Managemen
Direct Sales to Customers
chann
to enhance revenues by bypassing intermediaries and
channels
selling directlv t
Distribution networks that have exactly the same physical flow but
different ownership structures can have
vastly different performance.
For eg, a manufacturer that owns its
distribution network can control tne
network's actions.
However, if the manufacturer does not own the distribution a
wide variety of issues need to network
be taken into account to
network. optimize over u
The choice of a
distribution network has very long term
The structure of the consequences:
distribution network is one of the most fricult
decisions to change. di
*The impact often lasts for decades, amplifying the
of the
choice. importance
Supply Chain Network Des
For 2.15
eg, In the early days, PC
distributors and retailers. Dell's manufacturers sold through independent
the direct model emergence was a clear example of how
was often superior to the
Other PC
traditional model.
manufacturers, such as HP, made forays into selling PCS
directly.
Consider whether an exclusive distribution
A manufacturer
strategy is advantageous
of consumer electronics such as Sony could choose to
have relationships with many distributors such as eZone.
Product price, commoditization, and criticality affect the type of distribution
system preferred by customers:
Interactions between a buyer and a seller take time and resources. Many
buyers would like to establish a relationship with a single enterprise that
can deliver a full line of products.
This can be accomplished by a manufacturer with a broad line of products.
distributor
effectively by a
However, this is often accomplished
more
manufacturers.
carrying products from many
NETWORK:
EXISTING PHYSICAL
2.4.1. INTEGRATE THE INTERNET WITH THE
should integrateit
ebusinesses, firms
benefit from
To extract maximum
chain networks.
with their existing supply inefficiencies within the
often results in
two networks
Separating the
supply chain. network has been
physical
e-business with the existing online and
This coupling of
order
clicks-and-mortar.
For eg. Placing
referred to as
store.
from the physical
collecting goods
SUPPLY CHAIN
THE
DESIGN IN
NETWORK
.5. THE ROLE OF
performed
are
each
What role should
at eachfacility?
Faclity location: be
cated?
located
facilities
should
Where
2.16 Supply Chain nagemem
Capacity allocation:
What markets should each facility serve? Which supply sources shoul
ho d
feed eachfacility?
Tariffs refer to any duties that must be paid when product and/or
equipment are moved across international, state, or city boundaries.
areas
e c o n o m i e s of
changes in the
ppiy nain
2.1N
Manageme
263 POLITICAL FACTORS
able countrie
Compunies preler to locate facilities in politically table countries wher
the rules of commerce and ownership are well defined
Countries with independent and clear legal systems allow fims tofel n
el the
they have recourse in the courts should they need it.
demand as well
ameasure of the s1Z
as a
determination of whetl.er the customer requremen
are
homogenous or variable across different
countries.
*omogenous requirements favor large vhere"
localized io
Suppiy Chain Nenwork Design
2.19
Phase 1: Select a Set of
Desirable Potential Sites
Hard intrastructure requirements
include the availability of
transportation services, communication, suppliets,
utilities and warehousing
infrastructure
Soft infrastructure facilities include the
availability of skilled worktorce,
workforce turnover and the community
receptivity to business and
industry.
Phase IV: Location Choices
Maximize total profits taking into account the expected margin and
demand in each market, various logistics and facility costs, and the taxes
and tariffs at each location.
objective.
chain?
supply
2. What is the need for integrated networks.
collaboration of dynamic
supply
End-to-end
inventories.
flow, and
Transparency of materials supply,
networks.
orchestration of production
The nimble information.
transportation systems that receive inventories of goods and then deliver them to
customers. It is an intermediate point to get products from the manufacturer to
the end customer, either directly or through a retail network.
7. How to create the effective supply chain process?
Supply chain management (SCM) is the broad range of activities required to
plan, control and execute a product's flow, from acquiring raw materials and
production through distribution to the final customer, in the most streamlined
and cost- effective way possible.
8. What are the
various factors to be considered before selecting the site for
warehouse?
Cost of distribution from warehouse to market area
Availability of transportation and infrastructure-cost of transportation
Presence of competitors
Availability and cost of labor-Cost of lar.d
Local resident's attitude
Local taxation etc.
Supply Chain Network Design
2.21
Who are the participants of
The
supply chain management?
participants of
supply chain management
distributors, retailers and customers.
are
Suppliers, wholesalers,
10. What is network planning in
supply chain?
Supply Chain Network Design (SNDC) also
known as 'strategic supply chain
planning' is the process for building and
understand the costs and time to bring modelling the supply chain to
goods and services to market within an
organizations available resources.
11. What is meant by network optimization models in supply chain?
Supply chain network optimization seeks to find an optimal combination of
factories and distribution centers in the supply chain.
Based on the optimization results, a manager can compare potential network
designs and evaluate the maximum profitability of each of them.
12. What do you mean by decision making under uncertainty in supply chain?
value.
that get the final product to the customer,
Outbound logistics: Actions
and order fulfillment.
including warehousing
decision nodes in supply chain
.Iist the any benefits ofusing
Better collaboration.
REVIEW QUESTIONS
.
Explain various design options available for a
Distribution Network.
2 Elucidate the frame work for
network design decisions.
3. Explain the Role of Distribution in the
4. supply chain.
Explain the factors influencing Distribution
5. State the role of network network design.
6.
design in Supply Chain.
Compose the different methods for
diagram. selecting the proper channel i detail with
7.
Interpret the
objectives & process of
models. Supply Chain Network
8.
optimization
Describe the outcome
and benefits of
models. Supply Chain Network
9.
optimizauoon
Why is it important to
consider
decision? Explain. uncertainty when evaluating
supply chain o sign
10. What type of
distribution network is typically best
11. ldentify factors influencing suited for
supply chain network commodity item>8?
decisions.
OD
Adding facilities beyond the point where logistics costs are minimized can increase total costs if not strategically justified. Only if managers are confident that the improved responsiveness will lead to greater revenue than the additional costs should new facilities be added. This decision also needs to fit with the firm's strategic position .
Manufacturer storage with direct shipping has lower costs due to inventory aggregation, especially beneficial for low-demand, high-value items. However, it incurs higher transportation costs because of increased distances and disaggregated shipping, and requires significant investment in information infrastructure. Response times are typically long due to increased distance and processing stages .
Exchange rate fluctuations can significantly affect the profitability of a supply chain serving global markets, creating risks if a country's currency appreciates. High tariffs may discourage serving a local market or encourage setting up local manufacturing to avoid duties. Strategically, firms must balance these economic factors with political stability and infrastructure availability when designing global supply chains .
E-business allows for a wider product variety and faster dissemination of demand information, leading to better supply-demand alignment. It provides customers access outside of regular business hours and geographically distant customer access. However, e-business often incurs longer fulfillment times for physical products compared to retail stores due to shipping, impacting the overall efficiency and structure of distribution networks .
In-transit merge combines shipments from different manufacturers, reducing transportation costs compared to pure drop shipping, which sends separate shipments from each manufacturer. While in-transit merge increases handling costs at merging points, it can provide a single, consolidated delivery to the customer, potentially enhancing customer satisfaction .
Customer pickup strategies can significantly lower transportation costs by utilizing existing delivery networks, but may require high infrastructure investments for new pickup facilities. They allow for same-day delivery if goods are locally stored, providing customers with rapid response times, which is essential for fast-moving items or when quick customer response is valued .
Collaboration among supply chain participants, such as suppliers, distributors, and customers, enhances transparency and agility. It leads to improved quality control, better demand forecasting, and cost efficiency, thereby optimizing the network. Strategic collaboration ensures a streamlined flow of goods and information, aligning partners with competitive strategies .
Political stability, clearly defined commerce rules, and reliable legal systems make countries attractive for facility location. Infrastructure factors such as availability of transportation, utilities, and a skilled workforce are also crucial. These factors ensure operational success and minimized risks, influencing supply chain location selection .
The framework involves four phases: designing a supply chain strategy, defining regional facility configuration based on demand forecasts and customer requirements, selecting potential site locations with adequate infrastructure and community support, and making location choices while maximizing profits by considering logistics and facility costs, demand, and taxes .
Distributor storage with last-mile delivery is advantageous in dense urban areas where the value of quick response times justifies higher delivery costs. It allows for very quick deliveries, same-day to next-day, but has much higher transportation costs compared to other methods and requires exploiting economies of scale within existing networks to improve cost efficiency .