Professional Documents
Culture Documents
1 Organization Portfolio 3
2 Literature Survey 13
3 An Introduction to Supply Chain and Supply 26
Chain Management
4 Supply Chain of Pepsi Haidri Beverages 80
5 Ideal Features of a Supply Chain Management 100
Software
6 Supply Chain Management Systems and the 129
Current Marketplace
7 Proposed System for Pepsi Haidri Beverages 167
8 Limitations and Future Recommendations 186
Chapter 1
Organization
Portfolio
Chapter 1
Organization Portfolio
The Haidiri Beverages Group was set up in 1979 and is Pepsi's sole selling agent for
District Rawalpindi and Islamabad. It is based in the CDA Industrial Triangle, Kahuta
Road, Islamabad. It manages the supply for several wholesalers, retailers, restaurants,
hotels and other such food outlets. In order to achieve the projected sales targets
effectively, the organization ensures a comprehensive strategic alignment with the
overall Pepsi Cola’s business strategy. Haidiri Beverages’ primary functions are to
conduct a systematic manufacturing and supply of the product without any tactical
flaws. Backed by a powerful competitive strategy and empowered by some effective
supply chain strategies, the group has been managing an effective supply chain
throughout the region. It has set up a sophisticated manufacturing and storage plant in
Rawalpindi with multiple production units and huge production capacity. Haidiri
Beverages has different management departments dealing with specialized Marketing,
Human Resource, Information Technology and Supply Chain Processes. In this section
we conduct a brief analysis of the basic supply chain management functions of Haidri
beverages.
PepsiCo is a world leader in convenient snacks, foods and beverages, with revenues of
more than $39 billion and over 185,000 employees. The company consists of PepsiCo
Americas Foods (PAF), PepsiCo Americas Beverages (PAB) and PepsiCo International
(PI). PAF includes Frito-Lay North America, Quaker Foods North America and all Latin
America food and snack businesses, including Sabritas and Gamesa businesses in
Mexico. PAB includes PepsiCo Beverages North America and all Latin American
beverage businesses. PI includes all PepsiCo businesses in the United Kingdom, Europe,
Asia, Middle East and Africa. PepsiCo brands are available in nearly 200 countries and
generate sales at the retail level of more than $98 billion. Some of PepsiCo's brand
names are more than 100-years-old, but the corporation is relatively young. PepsiCo
was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was
acquired in 1998 and PepsiCo merged with The Quaker Oats Company, including
Gatorade, in 2001.
PepsiCo offers product choices to meet a broad variety of needs and preference -- from
fun-for-you items to product choices that contribute to healthier lifestyles. PepsiCo’s
mission is: “To be the world's premier consumer “Products Company” focused on
convenient foods and beverages. We seek to produce healthy financial rewards to
investors as we provide opportunities for growth and enrichment to our employees, our
business partners and the communities in which we operate. And in everything we do,
we strive for honesty, fairness and integrity.” (www.pepsico.com)
Haidri Beverages is one among a number of PepsiCo’s franchisers all around the
country. Haidri Beverages, solely, have three branches in Pakistan located in
Islamabad/Rawalpindi, Gujranwala and Peshawar. All the franchises in Pakistan have
divided their area of distribution and the domain of each franchiser is restricted to their
area of operation. Not much of expansion is done since it might violate the domain area
of other franchisers. We will be dealing with the area covered by Haidri Beveravges
Islamabad.
The business cycle starts from forecasting customer demand for each product of
PepsiCo individually. According to the demand forecasted by the sales and distribution
department, the annual plan is prepared for the running year which is then further
divided into quarterly, monthly, weekly and daily basis and production plan is created.
For the production, the company needs raw materials, these raw materials include the
following:
1. Pepsi Concentrate
2. Sugar
3. Carbonated Water
4. Glass Bottles
5. PET bottles
6. Plastic in Raw Form
7. Packaging material
8. Crates
9. Cans
10. Bottle caps
11. … and many others
Much of the raw materials are acquired by local manufacturers. However, cans, Pepsi
concentrate, glass bottles etc. are purchased from manufactures that are:
According to the defined sales strategy, the production plan is prepared for the year
divided further into quarters, months, weeks and days. The daily or weekly production
plan is forwarded to production department. According to the production plan, the
production department makes a production schedule which is done on daily basis. The
production department makes a complete sketch of products to be produced and the
required raw materials and their quantity. These raw materials are requisitioned from
the inventory (store). The inventory control department is divided into two areas: store
management and warehouse management. The store mainly contains the raw material
which is required to produce the product as well as all the other raw materials required
for operations management throughout the organization. The warehouse stores the
finished product only. The organization keeps only the safety inventory in its
warehouse. A daily shipment of product is done to the distributors in order to fulfill
consumer demand.
The purchased items are moved first to the store where the raw material is issued to
concerned department according to the requisition done. The finished product is moved
to warehouse where the shipment department is responsible for loading product to
vehicles for delivery to distributors. A small amount of finished goods inventory is kept
by the company as safety inventory.
The peak season when the demand is highest usually starts from May and continues till
September. During this period, the demand is fulfilled by making longer shifts and
utilizing the production equipment 24 hours a day.
The waste produced during manufacturing process is sold out to concerned parties. The
supply chain designed in this research will therefore follow the Lean Supply Chain
Management strategy.
The cash is collected by the finance department by hand. The company has not opted
for any credit or online credit-card sale as yet.
The company has partially automated its four (4) major business processes:
1. Sales Process
2. Accounting and Finance
3. Human Resource
4. Store and warehouse management
The details of these modules and how they help in the business processes is provided as
under:
Figure 2 Production process of beverages [Source: Pepsi Haidri Beverages Production Department]
1. Sales or Shipment Module
The sales module encapsulates all information regarding distributor data
management, key accounts management, sale (cash inflow) and shipment etc.
The distributor information is captured with regards to the area it is covering in
the local market, the location of the distributor, name, contact numbers, contact
persons etc. Key accounts are those retailers to which the company distributes
the product directly. This happens in the case of fountain fresh Pepsi products
which are delivered to the customer using the post-mix cylinders delivered by
company owned vehicles. Such customers include KFC, Pizza Hut, Savour Foods
and others. Sales are done on cash payments which are deposited in advance by
the distributor. The products are then shipped the distributor. Usually, the
distributors bring along their own vehicles to load the shipment. At the time of
sale, the data is saved in ERP sales module, the finance data (cash inflow) is
updated and a receipt is generated by the system called sales invoice.
The system keeps track of which distributor purchased what quantity and the
frequency of sales can also be captured. A daily sales report is generated by the
system which shows the distributor, units of product purchased, date of
purchase, the total amount and other key information. The company defines a
target sale for each distributor at the beginning of month. This target is defined
on the basis of previous sales history of the distributor which is managed by the
software. The reports generated by the system also provide the user with the
information of what percentage of the target has been achieved by the distributor
as yet. The distributor can be judged on this basis if he will be able o achieve the
set target or not.
The ERP system not only keeps track of the primary sales done to the distributor,
it also captures the secondary sale data provided by Territory Development
Managers (TDMs), the personnel designated by the company to monitor the
distributor sales (at distributor end) and to keep a check that a distributor does
not enter the domain of another distributor. The secondary sales data contains
information regarding distributor’s sale to retailers which is recorded in units per
day and does not actually contain information as to which retailer the product
was sold.
The reports generated the system include trial balance, balance sheet, income
statement and other basic financial statements.
3. Inventory Management
It is also a limited-functionality module which only records how much items are
produced today. This entry is done at the end of the day and still there is
confusion about what actually is inserted in the system since the total
manufactured amount is reduced at the end of the day due to sales transaction
and the corresponding batch numbers or lot numbers are not recorded in sales
module.
The system still supports the inventory control system since it contains up-to-
date information regarding the finished product available in the warehouse only
and also the store data which contains information of raw materials. The stock-in
and stock-out is also updated whenever requisition is made from the production
department for the raw material used for production.
In order to support the ERP system and network as a whole, the following hardware
configuration has been adopted by the MIS department:
• Full LAN support, using domain server, switches, boosters and other network
equipment
• Internet facility is provided to all users
• 1 oracle database server, 1 application server, Linux server (for network
management), and a print server
• Requisition for a backup database server has already been placed
• The network facilitates almost 50-60 users around the organization
The system, collectively, has proved to be very beneficial for the employees and
managers at Haidri Beverages and the employees seem to be satisfied over the system’s
performance. Further enhancements are done at frequent basis in order to facilitate the
company’s management and human resource to perform their tasks in a much better
way.
Chapter 2
Literature Survey
Chapter 2
Literature Survey
2.1 Article: How should we define SCM?
In the early years of SM it is considered to breaking down the walls but now the concept
is change it not breaking down the walls but rearranging the walls. SCM helps to
achieve CEO agenda. Professional organizations try to provide knowledge of SCM.
Through this figure we get overview of business and understand how actually it makes
money. The purpose is to see the bigger picture and creating value to enterprise and not
stuck into conflicts and debates.
Profit leaks also provide the opportunity for product and process innovation.
SCM is flow of information, funds and material from supplier to producer and then to
distributor and ultimately to consumer but it also includes after sale service. SCM
involves the coordination of material and information between firms but inventory
management coordinates with inventories at different locations.
SCM is famous in recent years for a number of reasons. Action taken by one person of
the firm can influence others profitability in the chain. But nowadays firms compete
with other supply chain as a part of supply chain. So as a firm successfully streamlines
its operation, the next step for improvement is coordination with their suppliers and
customers.
In the Italian pasta industry, the demand of consumer was stable throughout the year
however because of trade promotions, volume discounts, long lead times and end of
quarter sales incentives the order seen at the manufacturers are highly
variable(Hammond 1994).So it lead that to a Bull Whip effect.
Information technology and retail power are the key catalysts in SC. E-business is
playing an important role and is facilitating the virtual supply chain
Figure 5 Supply Chain Process [Source: M. Eric. Johnson (1999), Supply Chain Management]
1. Location
2. Transportation and Logistics
3. Inventory and forecasting
4. Marketing and channel restructuring
5. Sourcing and supplier management
6. Information and electronic mediated environments
7. Product design and new product introduction
8. Service and after sales support
9. Reverse logistics and green issues
10. Outsourcing and strategic alliances
11. Metrics and incentives
12. Global issues
Location includes both qualitative and quantitative facility location. This includes
models of facility location, geographic information systems (GIS),country differences,
taxes and duties, transportation costs associated with certain locations, and government
incentives (Hammond & Kelly (1990)).Transportation and logistics includes all the
issues which are related to the flow of goods through the supply chain including
transportation, warehousing and material handling. Inventory and forecasting includes
traditional inventory and forecasting models. Marketing and restructuring includes the
basic thinking on the on SC structure (Fisher 1997) and it includes the interfaces with
marketing. Bull whip effect has received many attentions in the research literature. But,
increased in consumer demand through the EDI and the internet can decrease the Bull
whip effect. Other initiatives can also mitigate the bullwhip effect. For example, changes
in pricing and trade promotions (Buzzell, Quelch, &Salmon (1990)) and channel
initiatives, such as vendor managed inventory (VMI), coordinated forecasting and
replenishment (CFAR), and continuous replenishment (Fites (1996), Verity (1996),
Waller, Johnson, & Davis (1999)), can significantly reduce demand variance.
Figure 6 Typical VMI impplmentation [Source: M. Eric Jonhson (1999), Supply Chain Management]
Marketing focuses downstream in the supply chain, whereas sourcing and supply
management focuses on upstream to suppliers. Information and electronic mediated
environments focuses on application of IT to reduce inventory (Woolley (1997) and the
expanding area of e-commerce (Benjamin & Wigand (1997) and Schonfeld (1998)).
The sale and after sale support addresses the critical problem of providing service and
service parts (Cohen and Lee (1990). Reverse logistics and green issues are emerging
dimensions of supply chain management (Marien (1998)).
Figure 7 Product recovery options [Source: M. Eric Johnson (1999), Supply Chain Management]
Outsourcing and strategic alliances sees the SC impact of outsourcing. With the rapid
growth in third party logistics providers, there is a large and expanding group of
technologies and services to be examined. These include fascinating initiatives such as
supplier hubs managed by third parties. Metrics and incentives include organizational
and economic issues. This category includes both measurement within the supply chain
(Meyer (1997)) and industry benchmarking ((1994), (1997)).Final one is global issue
when a company operates in foreign multiple country. When a company operates in
foreign country then tax rate, duties and currency exchange rate and govt. issues
matters a lot.
2.3 Article: Artificial Intelligence in Supply Chain Management - Theory
and Applications
Udin, khan & Zairi describes in this paper the hybrid KB/GAP analysis Collaborative
Supply chain management system for manufacturing organization. Knowledge base
system is the information system application those support organization in decision
making. The use of KBS application in the SCM is mostly use in area of procurement;
purchasing, supplier selection and evaluating supplier performance. The use of
knowledge base approach in SCM and systemic planning and design of CSCM improve
the competitiveness of organization. This paper presents the idea to develop
collaborative supply chain management. This paper promotes CSCM as a strategy and
eliminates disintegration in Supply chain. CSCM based on GAP analysis enable
management to identify firm performance. In this paper the production rule based type
of KBS is used to structure the information that is gathered from literature and from
users. All modules are developed separately and integrated using phase technique.
Trust among parties in SCM, communication, resources sharing, responsibility, profit
and risk sharing, technology, business processes adjustment and other issues are taken
as a basic guideline to develop CSCM system in this paper. This system enables users to
use the knowledge that reside in the system. The GAP analysis technique used in rule
based structure show the organization position.
In this paper the prototype of KBCSCM system for the planning stage has been
developed and tested using artificial data. Three modules of planning are organization
environment perspective module, Collaborative business perceptive module and
external-internal chain perspective module. In organization environment perceptive
module gather the general information like company background, number of
employees, type of industry, SCM investment activities etc. Purpose of this module is to
identify the current condition of organization and its environment. The purpose of
collaborative supply chain perspective module is to show current market position and it
has tree sub modules: financial performance, market analysis and product
development. Product development phase measure the interest of suppliers and
customers in product development activities. Internal-external chain perspective
module consist two sub modules internal function strategy and supplier customer
strategy. The function of this module is to understand the current market position based
on internal-external relationship based on some variables such as commitment,
integration, trust development, relationship management, information and
communication and etc.
Udin Z.M, Khan .M.k & Zairi. M (2006). A collaborative supply chain management. The
hybrid KB/GAP analysis system for planning stage, Business Process Management journal,
Vol. 12, No. 5, 671-687
2.5 Article: The Internet-Enabled Supply Chain: From the “First Click”
to the “Last Mile”
Author: Dr. David L. Anderson, Anderson Consulting
2.5.1 Purpose:
The purpose of this article is to study how the internet has changed the way in which
supply chains are managed, planned and controlled. The authors state that the web
offers the supply chain enormous potential and entirely new methods for streamlined
coordination between business partners, including third and even fourth-party
providers. The authors further state that companies who want to succeed in the new
economy need to enhance communications with their partners and providers.
2.5.2 Review
The internet has provided companies a wide range of opportunities to create value.
Using the internet to connect the supply chain systems to all the other supply chain
participants becomes the medium through which the essential processes of managing
and synchronizing supply chains are carried out. The reason why the change in supply
chains, by shifting them over to internet, is so certain is, firstly, that the customers are
looking beyond cost as the sole arbiter of value. They demand innovation and
personalization of not only the products but of the associated velocity of the supply
chain issues exponentially and yet at the same time requires greater flexibility.
How will the Internet-enabled supply chain be different from the traditional supply
chain? The authors believe there are some key areas that distinguish the new Internet-
enabled supply chain from the traditional supply chain. These areas and issues are
discussed by the authors as follows:
The marketplace, according to the authors, is being reinvented. Companies can now
buy and sell across a wide spectrum of emerging Internet-enabled marketplaces. Like
traditional marketplaces, trading networks may take many forms. In the supplier-
centric model, like W.W. Grainger, sellers provide their catalogs online for all buyers to
access. Global companies like BP Amoco are utilizing the buyer-centric model to display
their needs online and allow vendors to make bids.
The latest development is online marketplaces – the business-to-business equivalent of
eBay. These marketplaces are like online bazaars, where anyone can buy or sell all types
of goods and services. Each of these various exchanges provides companies with unique
opportunities to tap into performance and cost benefits unavailable prior to the Internet.
Regardless of the type of marketplace, the benefits are many: lower product acquisition
costs, lower procurement transaction costs, the ability to tap into almost unlimited
supply sources to respond to changing market needs, and a means to profitably dispose
of unused excess inventory.
References:
Anderson D.L., Lee H.L. (2000), Internet-Enabled Supply Chain: From the “First Click”
to the “Last Mile”, Acset, vol. 2 [online] Available at:
http://www.ascet.com/documents.asp?d_ID=199
Chapter 3
An Introduction to
Supply Chain &
Supply Chain
Management
Chapter 3
&
With the advancement of business processes, supply chain gained more and more
importance for each member of business community including manufacturers, retailers,
suppliers, suppliers’ suppliers and even consumer. Strategies were developed in order
to accelerate product sales and distribution. With the expansion of sales from areas to
cities and cities to countries, the need arose for proper tracking of demand and supply
as well as forecasting of materials, supplies, sales and distribution schemas. After the
emergence of Information Technology and business globalization, the concept of
integrated supply chain management was revolutionized. Information technology
consists of the tools used to gain awareness of information, analyze this information,
and execute on it to increase the performance of the supply chain.
Consider a customer walking into a Wal-Mart store to purchase detergent. The supply
chain begins with the customer and his or her need for detergent. The next stage of this
supply chain is the Wal-Mart retail store that the customer visits. Wal-Mart stocks its
shelves using inventory that may have been supplied from a finished-goods warehouse
or a distributor using trucks supplied by a third party. The distributor in turn is stocked
by the manufacturer (say Proctor & Gamble [P&G] in this case). The P&G
manufacturing plant receives raw material from a variety of suppliers, who may
themselves have been supplied by lower-tier suppliers. For example, packaging
material may come from Tenneco packaging, while Tenneco receives raw material to
manufacture the packaging from other supplier. This supply chain is illustrated as
follows:-
Figure 10 Wal-Mart SCM Process [Source: Supply Chain Management System by Sunil Chopra &Pete
Meindl]
A supply chain is dynamic and involves the constant flow of information, product and
funds between different stages. In the above example, Wal-Mart provides the product,
as well as pricing and availability information, to the customer. The customer transfers
funds to Wal-Mart. Wal-Mart conveys point-of-sales data as well as replenishment
orders to the warehouse or distributor, who transfers the replenishment order via trucks
back to the store. Wal-Mart transfers funds to the distributor after the replenishment.
The distributor also provides pricing information and sends delivery schedule to Wal-
Mart. Wal-Mart may send back packaging material to be recycled. Similar information,
material, and fund flows take place across the entire supply chain.
A typical supply chain may involve a variety of stages. These supply chain stages
include:
Customers
Retailers
Wholesaler/distributors
Manufacturers
Component/raw material suppliers
Each stage in a supply chain is connected through the flow of products, information,
and funds. These flows often occur in both directions and may be managed by one of
the stages or an intermediary. Each stage need not be present in a supply chain. The
appropriate design of supply chain depends on the customer’s needs and the roles
played by stages involved.
The objective of every supply chain should be to maximize the overall value generated.
The value a supply chain generated is the difference between what the final product is
worth to the customer and the costs the supply chain incurs in filling the customer’s
request. For most commercial supply chains, value will be strongly correlated with
supply chain profitability (also known as supply chain surplus), the difference between
the revenue generated from the customer and the overall cost across the supply chain.
Supply chain profitability or surplus is the total profit to be shared across all supply
chain stages and intermediaries. The higher the supply chain profitability, the more
successful is the supply chain. Supply chain success should be measured in terms of
supply chain profitability and not in terms of profits at an individual stage.
Many of the exchanges encountered in the supply chain will therefore be between
different companies who will seek to maximize their revenue within their sphere of
interest, but may have little or no knowledge or interest in the remaining players in the
supply chain. More recently, the loosely coupled, self-organizing network of businesses
that cooperates to provide product and service offerings has been called the Extended
Enterprise.
Supply chain management has generated much interest in recent years for a number of
reasons. Many managers now realize that actions taken by one member of the chain can
influence the profitability of all others in the chain. Firms are increasingly thinking in
terms of competing as part of a supply chain against other supply chains, rather than a
single firm against other individual firms. Also, as firms successfully streamline their
operations, the next opportunity for improvement is through better coordination with
their suppliers and customers. The cost of poor coordination can be really high. The
figure below illustrates an example of a supply chain network and how closely each
partner is linked to one another in order to fulfill the demand and supply process:-
In the Italian pasta industry, consumer demand is quite steady throughout the year.
However, because of trade promotions, volume discounts, long lead times, fully-
truckload discounts, and end-of-quarter sales incentives the orders seen at the
manufacturers are highly variable. In fact, the variability increases in moving up the
supply chain from consumer to grocery store to distribution center to central warehouse
to factory, a phenomenon that is often called bullwhip effect.
The costs of this variability are high – inefficient use of production and warehouse
resources, high transportation costs, high inventory costs, to name a few. Acer Inc.
sacrificed $20 million in profits by paying $10 million for air freight to keep up with
surging demand, and then paying $10 million more later when that inventory became
obsolete. The bullwhip effect phenomenon has been observed in many different
industries and occurs whenever demand uncertainties and variability become
magnified at each link in the supply chain. It’s one of the most important causes of
inefficiency in a supply chain.
Order Quantity
Retailer’s Orders to
Wholesaler
The supply chain involves both internal and external supply chain operations. The
suppliers and customers both are inter-linked to the manufacturing organization. The
internal supply chain involves sequential links of the purchasing, production and
distribution department. The purchases department of a company is directly linked to
the suppliers of that company to purchase materials is raw, semi-finished or finished
form. After these materials are purchased, they are passed on to the production
department to covert this material into finished product. This finished product is
forwarded to distribution department for the distribution of finished goods to retailers
and ultimately, to the customers.
Figure 14 Supply Chain Process [Source:
http://en.wikipedia.org/wiki/File:A_company%27s_supply_chain_(en).png]
The extended supply chain is a clever way of describing everyone who contributes to a
product. So if you make text books, then your extended supply chain would include the
factories where the books are printed and bound, but also the company that sells you
the paper, the mill where that supplier buys their stock, and so on. It is important to
keep track of what is happening in your extended supply chain because with a supplier
or a supplier’s supplier could end up having an impact on you (as the old saying goes, a
chain is only a strong as its weakest link). For example, a fire in a paper mill might
cause the text book manufacturer’s paper supplier to run out of inventory. If the text
book company knows what is happening in its extended supply chain it can find
another paper vendor.
Consider a typical manufacturer. The supply chain is made up of many interrelated
firms as shown in the figure below. There are part suppliers, component suppliers and
subassembly suppliers. Further up the chain are the suppliers’ suppliers, finally
reaching raw materials suppliers at the top of the chain. Going downstream, back
through the producing firm, the supply chain continues through the warehousing and
distribution channels, and then through the retail channels, ending with the consumer.
Raw Material Suppliers Raw Material Suppliers Raw Material Suppliers
Manufacturers
Retail Channels
Consumer
The supply chain encompasses all activities associated with the flow and transformation
of goods and services from the raw material stage (at one end of the supply chain)
through to the consumer (at the other end of the chain), including all associated
information flows.
2. Source – Choose the suppliers that will deliver the goods and services you need to
create your product. Develop a set of pricing, delivery and payment processes
with suppliers and create metrics for monitoring and improving the relationships.
And put together processes for managing the inventory of goods and services you
receive from suppliers, including receiving shipments, verifying them, transferring
them to your manufacturing facilities and authorizing supplier payments.
3. Make – This is the manufacturing step. Schedule the activities necessary for
production, testing, packaging and preparation for delivery. As the most metric-
intensive portion of the supply chain, measure quality levels, production output
and worker productivity.
4. Deliver – This is the part that many insiders refer to as logistics. Coordinate the
receipt of orders from customers, develop a network of warehouses, pick carriers
to get products to customers and set up an invoicing system to receive payments.
5. Return – The problem part of the supply chain. Create a network for receiving
defective and excess products back from customers and supporting customers
who have problems with delivered products.
3.9 SCM Flows
Supply chain management flows can be divided into three main flows:
If the goal of SCM is to provide high product availability through efficient and timely
fulfillment of customer demand, then how is the goal accomplished?
There is a close connection between the design and management of supply chain flows
(product, information, and funds) and the success of a supply chain. Wal-Mart, Dell
Computer, and Seven-Eleven Japan are examples of companies that have built their
success on superior design, planning, and operation of their supply chain. In contrast,
the failure of many e-businesses such as Webvan can be attributed in weaknesses in
their supply chain design and planning.
Wal-Mart has been a leader at using supply chain design, planning and operation to
achieve success. From its beginning, the company invested heavily in transportation
and information infrastructure to facilitate the effective flow of goods and information.
Wal-Mart designed its supply chain with clusters of stores around distribution centers
to facilitate frequent replenishment at its retail stores in a cost-effective manner.
Frequent replenishment allows stores to match supply and demand more effectively
than the competition. Wal-Mart has been a leader in sharing information and
collaborating with suppliers to bring down costs and improve product availability. The
results are impressive. In their annual 2004 report, the company reported a net income
of more than $9 billion on revenues of about $250 billion. These are dramatic results for
a company that reached annual sales of only $1 billion in 1980. The growth in sales
represents an annual compounded growth rate of 26 percent.
3.11 Decision Phases in a Supply Chain
Successful supply chain management requires many decisions relating to the flow of
information, product, and funds. Each decision should be made to raise the supply
chain profitability. These decisions fall into three categories of phases, depending on the
frequency of each decision and the time frame during which a decision phase has an
impact. As a result, each category of decisions must consider uncertainty over the
decision horizon.
During this phase, given the marketing and pricing plans for a product, a
company decides how to structure the supply chain over the next several years.
It decides what the chain’s configuration will be, how resources will be allocated,
and what processes each stage will perform.
A firm must ensure that the supply chain configuration supports its strategic
objectives and increases supply chain profitability during this phase. For
example, a company’s decisions regarding its choice of supply sources for
components, contract manufacturers for manufacturing, and the location and
capacity of its warehouses , are all supply chain design or strategic decisions.
Supply chain design decisions are typically made for long-term and are very
expensive to alter on short notice. Consequently, when companies made these
decisions, they must take into account the uncertainty in anticipated market
conditions over the next few years.
For decisions made during this phase, the time frame considered is a quarter to a
year. Therefore, the supply chain’s configuration determined in the strategic
phase is fixed. This configuration establishes constraints within which planning
must be done. The goal of planning is to maximize the supply chain profitability
that can be generated over the planning horizon given the constraints establishes
during the strategic or design phase. Companies start the planning phase with a
forecast for the coming year (or a comparable time frame) of demand in different
markets.
The time horizon here is weekly or daily, and during this phase companies make
decisions regarding customer orders. At the operational level, supply chain
configuration is considered fixed, and planning policies are already defined. The
goal of supply chain operations is to handle incoming customer orders in the best
possible manner. During this phase, firms allocate inventory or production to
individual customer orders, set a date that an order is to be filled, generate pick
lists at a warehouse, allocate an order to a particular shipping mode and
shipment, set delivery schedules of trucks, and place replenishment orders.
Because operational decisions are being made in the short term (minutes, hours,
or days), there is a less uncertainty about demand information. given the
constraints established by the configuration and planning policies, the goal
during the operational phase is to exploit the reduction of uncertainty and
optimize performance.
Daily production and distribution planning, including all nodes in the supply
chain
Production scheduling for each manufacturing facility in the supply chain
(minute by minute).
Demand planning and forecasting, coordinating the demand forecast of all
customers and sharing the forecast with all suppliers
Sourcing planning, including current inventory and forecast demand, in
collaboration with all suppliers
Inbound operations, including transportation from suppliers and receiving
inventory
Production operations, including the consumption of materials and flow of
finished goods
Outbound operations, including all fulfillment activities and transportation to
customers
Order promising, accounting for all constraints in the supply chain, including
all suppliers, manufacturing facilities, distribution centers, and other
customers...
The design, planning, and operation of a supply chain have a strong impact on overall
profitability and success. It is fair that a large part of the success of a firm can be
attributed to their effective supply chain design, planning, and operation.
1. Cycle View: The processes in a supply chain are divided into a series of cycles,
each performed at the interface between two successive stages of a supply chain.
Given the five stages of a supply chain, all supply chain processes can be broken
down into the following four process cycles:-
a. Customer order cycle
b. Replenishment cycle
c. Manufacturing cycle
d. Procurement cycle
Customer
Supplier
Manufacturer
Distributor
Retailer
Customer
Replenishment
Manufacturing
Procurement
Order
Cycle
Cycle
Cycle
Cycle
Each cycle occurs at the interface between two successive stages of the supply
chain. The five stages thus result in four supply chain process cycles. For
example, when customers shop online at Amazon, they are part of the customer
order cycle – with the customer as the buyer and Amazon as the supplier. In
contrast, when Amazon orders books from a distributor to replenish its
inventory, it is part of the replenishment cycle – with Amazon as the buyer and
the distributor as the supplier.
Within each cycle, the goal of the buyer is to ensure product availability and to
achieve economies of scale in ordering. The supplier attempts to forecast
customer orders and reduce the cost of receiving the order. The supplier then
works to fill the order on time and improve efficiency and accuracy of the order
fulfillment process. The buyer then works to reduce the cost of the receiving
process. Reverse flows are managed to reduce cost and meet environmental
objectives.
A cycle view of the supply chain clearly defines the processes involved and
owners of each process. This view is very useful when considering operational
decisions because it specifies the roles and responsibilities of each member of the
supply chain and the desired outcome for each process.
2. Push/Pull View
All processes in a supply chain fall into one of the two categories depending upon
the timing of their execution relative to end customer demand. With pull processes,
execution is initiated in response to a customer order. With push processes,
execution is initiated in anticipation of customer orders. Therefore, at the time of
execution of pull process, customer demand is known with certainty, whereas at the
time of execution of a push process, demand is not known and must be forecasted.
Pull processes may also be referred to as reactive processes because they react to
customer demand. Push processes may also be referred to as speculative processes
because they respond to speculated (forecasted) rather than actual demand. The
push/pull view is very important when considering strategic decisions relating to
supply chain design.
All supply chain processes discussed in the two process views can be classified into the
following three macro processes:
All three supply chain macro processes and their component processes are shown in the
figure below:
Figure 19 SCM Macro Processes [Source: Copra S., Meindl P., Supply Chain Management]
For a supply chain to be successful, it is crucial that the three macro processes are well
integrated. The organizational structure of the firm has a strong influence on the success
or failure of the integration effort. In many firms, marketing is in charge of the CRM
macro process, manufacturing handles the ISCM macro process, and purchasing
oversees the SRM macro process – with very little communication among them. It is not
unusual for marketing and manufacturing to have two different forecasts when making
their plans. This lack of integration hurts the supply chain’s ability to match supply and
demand effectively, leading to dissatisfied customers and high costs. Firms should
structure a supply chain organization that mirrors the macro processes and ensures
good communication and coordination among the owners of processes that interact
with each other.
Success and profitability in a supply chain requires that a company’s supply chain
achieve the balance between responsiveness and efficiency that best meets the needs of
the company’s competitive strategy. To understand how a company can improve supply
chain performance in terms of responsiveness and efficiency, we must examine the
logistical and cross-functional drivers of supply chain performance: facilities, inventory,
transportation, information, sourcing, and pricing. These drivers interact with eachother
to determine the supply chain performance in terms of responsiveness and efficiency.
As a result, the structure of these drivers determines if and how strategic fit is achieved
across the supply chain.
3.14.1 Facilities
Facilities are the actual physical location in the supply chain network where product is
stored, assembled, or fabricated. The two major types of facilities are production sites
and storage sites. Decision regarding the roles, location, capacity and flexibility of
facilities have a significant impact on the supply chain performance. For instance, an
auto parts distributor striving for responsiveness could have many warehousing
facilities located close to customers even though this practice reduces efficiency
alternatively a high efficiency distributor would have fewer warehouses to increase
efficiency despite the fact that this practice will reduce responsiveness.
3.14.2 Inventory
Inventory encompasses all raw materials, work in process, and finished goods within a
supply chain. Changing inventory policies can dramatically alter the supply chain’s
efficiency and responsiveness. For example, a clothing retailer can make itself more
responsive by stocking large amounts of inventory and satisfying customer demand
from stock. A large inventory, however, increases the retailer’s cost, thereby making it
less efficient. Reducing inventory makes the retailer more efficient but hurts its
responsiveness.
3.14.3 Transportation
Transportation entails moving inventory from point to point in the supply chain.
Transportation can take the form of many combinations of modes and routes, each with
its own performance characteristics. Transportation choices have a large impact on
supply chain responsiveness and efficiency. For example, a mail-order catalog company
can use a faster mode of transportation such as FedEx to ship products, thus making its
supply chain more responsive, but also less efficient given the high costs associated
with using FedEx. Or the company can use slower but cheaper ground transportation to
ship the product, making the supply chain efficient but limiting its responsiveness.
3.14.4 Information
Information consists of data and analysis concerning facilities, inventory, transportation,
costs, prices, and customers throughout the supply chain. Information is potentially the
biggest driver of performance in the supply chain because it directly affects each of the
other drivers. Information presents management with the opportunity to make supply
chains more responsive and more efficient. For example, with information on customer
demand patterns, a pharmaceutical company can produce and stock drugs in
anticipation of customer demand, which makes the supply chain very responsive
because customers will find the drugs they need when they need them. This demand
information can also make the supply chain more efficient because the pharmaceutical
firm is better able to forecast demand and produce only the required amount.
Information can also make this supply chain more efficient by providing managers with
shipping options, for instance, that allow them to choose the lowest-cost alternative
while still meeting the necessary service requirements.
3.14.5 Sourcing
Sourcing is the choice of who will perform a particular supply chain activity such as
production, storage, transportation, or the management of information. At the strategic
level, these decisions determine what functions a firm performs and what functions the
firm outsources. Sourcing decisions affect both the responsiveness and efficiency of a
supply chain. After Motorola outsourced much of its production to contract
manufacturers in China, it saw its efficiency improve but its responsiveness suffer
because of the long distances. To make-up for the drop in responsiveness, Motorola
started flying in some of its cell phones from China even though its choice increased
transportation cost. Flextronics, an electronics contract manufacturer, is hoping to offer
both responsive and efficient sourcing options to its customers. It is trying to make its
production facilities in United States very responsive while keeping its facilities in low-
cost countries efficient. Flextronics hopes to become an effective source for all customers
using this combination of facilities.
3.14.6 Prices
Pricing determines how much a firm will charge for goods and services that it makes
available in supply chain. Pricing affects the behavior of the buyer of the good or
service, thus affecting supply chain performance. For example, if a transportation
company varies its charges based on the lead time provided by the customers who
value responsiveness will be willing to wait and order just before they need a product
transported. Early orders are less likely if prices do not vary with lead time.
The visual framework for supply chain decision making is shown in figure below;
Most companies begin with a competitive strategy and then decide what their supply
chain strategy ought to be. The supply chain strategy determines how the supply chain
should perform with respect to efficiency and responsiveness. The supply chain must
then use the three logistical and three cross-functional drivers to reach the performance
level this supply chain strategy dictates and maximize the supply chain profits.
Although this framework is generally viewed from the top-down, in many instances, a
study of six drivers may indicate the need to change the supply chain and potentially
even the competitive strategy
3.16.1 Facilities
Decisions regarding facilities are a crucial part of supply chain design. Following are
the components of facilities decisions that companies must analyze.
3.16.1.1 Role
For production facilities, firms must decide whether they will be flexible, dedicated, or a
combination of the two. Flexible capacity can be used for many types of products but is
often less efficient, whereas dedicated capacity can be used for only a limited number of
products but is more efficient. Firms must also decide whether to design a facility with
a product focus or a functional focus. A product-focused facility performs many
different functions (e.g., fabrication and assembly) in producing a single type of
product. A functional-focused facility performs few functions (e.g., only fabrication or
only assembly) on many types of products. A product focus tends to result in more
expertise about a particular type of product at the expense of the functional expertise
that comes from a functional methodology.
For warehouses and DCs, firms must decide whether they will primarily cross-docking
facilities or storage facilities. At cross-docking facilities, inbound trucks from suppliers
are unloaded; the product is broken into smaller lots, and is quickly loaded onto store-
bound trucks. Each store-bound truck carries a variety of products, some from each
inbound truck. For storage facilities, firms must decide on the products to be stored at
each facility.
3.16.1.2 Location
Deciding where a company will locate its facilities constitutes a large part of the desing
of a supply chain. A basic trade-off here is whther to centralize in order to gain
economies of scale or to decentralize to become more responsive by being closer to the
customer. Companies must also consider a host of issues related to the various
characteristics of the local area in which the facility is situated. These include
macroeconomic factors, quality of workers, cost of workers, cost of facility, availability
of infrastructure, proximity to customers, the location of that firm’s other facilities, tax
effects, and other strategic factors.
3.16.1.3 Capacity
Companies must also determine a facility’s capacity to perform its intended function(s).
A large amount of excess capacity allows the facility to be very flexible and to respond
to wide swings in the demands placed on it. Excess capacity, however, costs money and
therefore can decrease efficiency. A facility with little excess capacity will likely be more
efficient per unit of product it produces than one with a lot of unused capacity. The
high-utilization facility, however, will have difficulty responding to demand
fluctuations. Therefore, a company must make a trade-off to determine the right
amount of capacity to have at each of its facilities.
The major inventory related decisions that supply chain managers must make to
effectively create more responsive and more efficient supply chains are:
The key components of transportation that companies must analyze when designing
and operating a supply chain are:
Once a company creates a forecast, the company needs a plan to act on this forecast.
Aggregate planning transforms forecasts into plans of activity to satisfy the projected
demand. A key decision managers face is how to collaborate on aggregate planning
throughout the entire supply chain. The aggregate plan becomes a critical piece of
information to be shared across the supply chain because it affects both the demand on
a firm’s suppliers and the supply to its customers.
3.16.4.4 Information-related Metrics
A manager should track the following information-related metrics that influence supply
chain performance.
• Forecast horizon identifies how far in advance of the actual event a forecast is
made. The forecast horizon must equal the lead time of the decision that is driven
by the forecast.
• Frequency of update identifies how frequently each forecast is updated. The
forecast should be updated somewhat more frequently than a decision will be
revisited, so that large changes can be flagged and corrective action taken.
• Forecast error measures the difference between the forecast and actual demand.
The forecast error is a measure of uncertainty and drives all responses to
uncertainty such as safety inventory or excess capacity.
• Seasonal factors measure the extent to which the average demand in season is
above or below the average in the year.
• Variance from plan identifies the difference between the planned
production/inventories and the actual values. These variances can be used to
raise flags that identify shortages and surpluses.
• Ratio of demand variability to order variability measures the standard
deviation of incoming demand and supply orders places. A ratio less than one
potentially indicates the existence of the bullwhip effect.
3.16.5 Components of Sourcing Decisions
The key sourcing decisions that are made within a firm are as under:
3.16.5.3 Procurement
Procurement is the process in which the supplier sends product in response to customer
orders. Managers must decide on the structure of procurement of direct as well as
indirect materials, and strategic as well as general materials. In each case, it is important
to identify the critical mechanism for increasing supply chain profits, for example, a
firm should set up procurement for direct materials to ensure good coordination
between the supplier and buyer.
1. Past demand
2. Lead time of product
3. Planned advertising or marketing efforts
4. State of the company
5. Planned price discounts
6. Actions that competitors have taken
A company must understand such factors before it can select an appropriate forecasting
methodology. For example, historically a firm may have experienced low demand for
chicken noodle soup in July and high demand in December and January. If the firm
decides to discount the product in July, the situation is likely to change, with some of
the future demand shifting to the month of July. The firm should make its forecast
taking the factor into consideration.
3.16.8.4 Forecasting Methods are Classified According to the Following Four Types:
1. Qualitative: qualitative forecasting methods are primarily subjective and rely on
human judgment. They are most appropriate when little historical data is
available or when experts have market intelligence that may affect the forecast.
Such methods may also be necessary to forecast demand several years into the
future in a new industry.
2. Time series: Time-series forecasting methods use historical demand to make a
forecast. They are based on the assumption that past demand history is a good
indicator of future demand. These methods are most appropriate when the basic
demand pattern does not vary significantly from one year to the next. These are
the simplest methods to implement and can serve as a good starting point for a
demand forecast.
3. Causal: Causal forecasting methods assume that the demand forecast is highly
correlated with certain factors in the environment (the state of the economy,
interest rates, etc.). Causal forecasting methods find their correlation between
demand and environmental factors and use estimates of what environmental
factors will be to forecast future demand. For example, product pricing is
strongly correlated with demand. Companies can thus use causal methods to
determine the impact of price promotions on demand.
4. Simulation: simulation forecasting methods imitate the consumer choices that
give rise to demand to arrive at a forecast. Using simulation, a firm can combine
time-series and causal methods to answer such questions as: what will be the
impact of a price promotion? What will be the impact of competitor opening a
store nearby? Airlines simulate customer buying behavior to forecast demand for
higher-fare seats when there are no seats available at the lower fares.
A company may find it difficult to decide which method is most appropriate for
forecasting. In fact, several studies have indicated that using multiple forecasting
methods to create a combined forecast is more effective than using any one method
alone.
• Production Rate: The number of units to be completed per unit time (such as per
week or per month)
• Workforce: the number of workers/units of capacity needed for production
• Overtime: the amount of overtime production planned
• Machine Capacity Level: the number of units of machine capacity needed for
production
• Subcontracting: the subcontracted capacity required over planning horizon
• Backlog: demand not satisfied in the period in which it arises but carried over to
future periods
• Inventory on Hand: the planned inventory carried over the various periods in
the planning horizon
3.16.9 Design Options for a Transportation Network
3.16.9.1 Distributor Storage with Carrier Delivery
Under this option, inventory is not held by manufacturers at the factories but is held by
distributors / retailers in intermediate warehouses and package carriers are used to
transport products from the intermediate location to the final customer. Amazon.com as
well as industrial distributors like W.W. Grainger use this approach combined with
drop shipping from a manufacturer. Information and product flows when using
distributor storage with delivery by a package carrier are shown in Figure.
Figure 20 Distributor Storage with Carrier Delivery [Source: Sunil Chopra and Pete Meindl, Supply Chain
Management]
Response time with distributor storage is better than with manufacturer storage
because distributor warehouses are, on average, closer to customers and the entire order
is aggregated at the warehouse when shipped. Amazon, for example, processes all
warehouse-stored items within a day and it then takes 3-7 business days using ground
transportation for the order to reach the customer. Grainger processes customer orders
on the same day and has enough warehouses to deliver most orders next day using
ground transport. Warehouse storage will limit to some extent the variety of products
that can be offered. Grainger does not store very low volume items at its warehouse,
relying on manufacturers to drop ships those products to the customer. Customer
convenience is high with distributor storage because a single shipment reaches the
customer in response to an order. Order visibility becomes easier than with
manufacturer storage because there is a single shipment from the warehouse to the
customer and only one stage of the supply chain is directly involved in filling the
customer order. Return ability is better than with manufacturer storage because all
returns can be processed at the warehouse itself. The customer also has to return only
one package even if the items are from several manufacturers.
Figure 21 Distributor Storage With Last Mile Delivery [Source: Sunil Chopra and Pete Meindl, Supply Chain
Management]
Distributor storage with last mile delivery requires higher levels of inventory than all
options other than retail stores, because it has a lower level of aggregation. From an
inventory perspective, warehouse storage with last mile delivery is suitable for
relatively fast moving items where disaggregation does not lead to a significant increase
of inventory. Staple items in the grocery industry fit this description.
Transportation costs are highest using last mile delivery. This is because package
carriers aggregate delivery across many retailers and are able to obtain better economies
of scale than available to a distributor / retailer attempting last mile delivery. Delivery
costs (including picking and transportation) can be as high as $30-$40 per home
delivery in the grocery industry. Last mile delivery may be somewhat cheaper in dense
cities. Transportation costs may also be justifiable for bulky products where the
customer is willing to pay for home delivery. Home delivery for water and large bags of
rice has proved quite successful in China, where the high population density has helped
decrease delivery costs.
Facility and processing costs are very high using this option given the large number of
facilities required. Facility costs are somewhat lower than a network with retail stores
but much higher than either manufacturer storage or distributor storage with package
carrier delivery. Processing costs, however, are much higher than a network of retail
stores because all customer participation is eliminated. A grocery store doing last mile
delivery performs all the processing until the product is delivered to the customer's
home unlike a supermarket where there is much more customer participation.
The information infrastructure with last mile delivery is similar to distributor storage
with package carrier delivery. It requires, however, the additional capability of
scheduling deliveries. Response times are faster than the use of package carriers.
Product variety is generally lower than distributor storage with carrier delivery. The
cost of providing product availability is higher than every option other than retail
stores. The customer experience is very good using this option, particularly for bulky,
hard to carry items. Order visibility is less of an issue given that deliveries are made
within 24 hours. The order-tracking feature does become important to handle
exceptions in case of incomplete or undelivered orders. Of all the options discussed,
return ability is best with last mile delivery because trucks making deliveries can also
pick up returns from customers. Returns are more expensive to handle than at a retail
store where a customer can bring the product back.
The performance characteristics of distributor storage with last mile delivery are
summarized in Table.
In areas with high labor cost, it is very hard to justify distributor storage with last mile
delivery on the basis of efficiency or improved margin. It can only be justified if there is
a large enough customer segment willing to pay for this convenience. In that case, an
effort should be made to couple last mile delivery with an existing network to exploit
economies of scale and improve utilization. An example is Albertson's use of existing
grocery store facilities and labor to provide home delivery. A portion of the grocery
store serves as a fulfillment center for online orders as well as a replenishment center for
the grocery store itself. This helps improve utilization and lower the cost of providing
this service. Last mile delivery may be justifiable if customer orders are large enough
and customers are willing to pay for this service. All home delivery companies like
Peapod now charge for this service even for very large order sizes.
Figure 22 Manufacturer or Distributor Warehouse Storage with Customer Pickup [Source: Sunil Chopra and
Pete Meindl, Supply Chain Management]
7 Eleven has distribution centers (DC) where product from manufacturers is cross-
docked and sent to retail outlets on a daily basis. A retailer delivering an online order
can be treated as one of the manufacturers with deliveries cross-docked and sent to the
appropriate 7 Eleven outlet. Serving as an outlet for online orders allows 7 Eleven to
improve utilization of its existing logistical assets.
Inventory costs using this approach can be kept low with either manufacturer or
distributor storage to exploit aggregation. Grainger keeps its inventory of fast moving
items at pickup locations, while slow moving items are stocked at a central or
warehouse or in some case the manufacturer.
Transportation cost is lower than any solution using package carriers because
significant aggregation is possible when delivering orders to a pickup site. This allows
the use of truckload or less-than-truckload carriers to transport orders to the pickup
site. In a case like 7 Eleven Japan, the marginal increase in transportation cost is small
because trucks are already making deliveries to the stores and their utilization can be
improved by including online orders.
Facility costs are high if new pickup sites have to be built. A solution using existing sites
will lower the additional facility costs. This, for example, is the case with 7dream.com
and W.W. Grainger where the stores already exist. Processing costs at the manufacturer
or the warehouse are comparable to other solutions. Processing costs at the pick up site
are high because each order must be matched with a specific customer when they
arrive. Creating this capability can increase processing costs significantly if appropriate
storage and information systems are not provided. Increased processing cost at the
pickup site is the biggest hurdle to the success of this approach.
A response time comparable to the use of package carriers can be achieved in this case.
Variety and availability comparable to any manufacturer or distributor storage option
can be provided. There is some loss of customer experience because unlike the other
options discussed, customers must come and pick up their orders. On the other hand,
customers who do not want to pay online can pay by cash using this option. In
countries like Japan where 7 eleven has over 8,000 outlets, it can be argued that the loss
of customer convenience is small because most customers are close to a pickup site and
can collect their order at their own convenience. In some cases, this option can be
considered more convenient because it does not require the customer to be at home at
the time of delivery.
Order visibility is extremely important for customer pickups. The customer must be
informed when the order has arrived and the order should be easily identified once the
customer arrives to pick it up. Such a system will be hard to implement because it
requires integration of several stages in the supply chain. Returns can potentially be
handled at the pickup site. The problem with some existing sites such as 7 Eleven stores
is that they are not equipped to accept and process returns for products not sold at the
stores. From a transportation perspective, however, return flows can be handled using
the delivery trucks. For customers, returning a product will be easy because they have a
physical location to bring it to. Overall, return ability is fairly good using this option.
Local storage increases inventory costs because of lack of aggregation. For very fast
moving items, however, there is marginal increase in inventory even with local storage.
Albertson's uses local storage given that most of its products are relatively fast moving
and are being stocked at the supermarket in any case. Similarly, Grainger keeps its
inventory of fast moving items at pickup locations, while slow moving items are
stocked at a central warehouse.
Transportation cost is much lower than other solutions because inexpensive modes of
transport can be used to replenish product at the retail store. Facility costs are high
because many local facilities are required. A minimal information infrastructure is
needed if customers walk into the store and place their order. For online orders,
however, a significant information infrastructure is needed to provide visibility of the
order until the customer picks it up.
Very good response times can be achieved in this case because of local storage. For
example, both Albertson’s and Grainger offer same day pickup from their retail
locations. Product variety stored locally will be lower than other options. It is more
expensive than all other options to provide a high level of product availability. Order
visibility is extremely important for customer pickups where orders are placed online or
on the phone. Returns can be handled at the pickup site. Overall, return ability is fairly
good using this option.
The performance characteristics of a network with customer pickup sites and local
storage (such as retail stores) are summarized in Table.
The main advantage of a network with local storage is that it can lower the delivery cost
and provide a faster response than other networks. The major disadvantage is the
increased inventory and facility costs. Such a network is best suited for fast moving
items or items where customers value the rapid response.
Figure 23 Direct Shipping with Milk Runs, Single supplier to multiple retailers
Figure 24 Direct shipping with milk runs, multiple suppliers to single retailer [Source: Sunil Chopra and Pete
Meindl, Supply Chain Management]
In direct shipping with milk runs, a supplier delivers directly to multiple buyer
locations on a truck or a truck picks up deliveries destines for the same buyer location
from many suppliers. When using this option, a supply chain manager has to decide on
the routing of each milk run.
Another important concept in supply chain is effectively managing the waste generated
during supply chain operations particularly production also referred to as Lean Supply
Chain management. Lean supply chain management is not exclusively for those
companies who manufacture products, but by businesses who want to streamline their
processes by eliminating waste and non-value added activities. Companies have a
number of areas in their supply chain where waste can be identified as time, costs or
inventory. To create a leaner supply chain companies must examine each area of the
supply chain. The study of different aspects when considering lean manufacturing or
lean supply chain is illustrated as follows:
1. Procurement
Many businesses have complex purchasing operations. Large companies often
have corporate purchasing groups as well as local purchasing. This can lead to
vendors being given multiple contracts leading to variations in prices depending
on location. Companies that practice lean supply chain management reduce their
procurement function so that each vendor has one point of contact, one contract
and offers one price for all locations. Businesses are looking to new technologies
to assist them in improving procurement processes. These include internet based
purchasing that allows requisitioners to purchase items from vendor’s catalogs
containing companywide contract prices. Changes in payment options to
vendors can also streamline processes. Companies that use a two-way match,
which is payment on receipt rather than payment on invoice, will reduce
resources in their purchasing department as well as improve supplier
relationships.
2. Manufacturing
Lean supply chain management gained popularity in the manufacturing area as
this is where significant improvement can be achieved. Manufacturing processes
can be improved to reduce waste and resources while maintaining operational
performance. Companies who have adopted lean supply chain practices have
examined each of their routings, bill of materials and equipment to identify
where improvements can be achieved.
3. Warehousing
Warehouse processes should be examined to find areas of eliminating waste of
resources and non-value added steps. One area the companies should always be
working on is the reduction of unnecessary inventory. The accumulation of
inventory requires resources to store and maintain it. By reducing unnecessary
inventory, a company can minimize warehousing space and handling, in turn
reducing overall costs.
4. Transportation
Businesses who want to implement lean processes often look to their
transportation procedures to see where they can be streamlined. In many
instances companies find that their efforts to improve customer satisfaction leads
to poor shipping decisions. Orders are shipped without combining additional
orders to minimize costs or expensive shipping options are selected because of a
customer request. Businesses often find that they are using a number of shippers
unnecessarily when they could be reducing their shipping options and reduce
overall costs.
Lean supply chain management requires businesses to examine every process in their
supply chain and identify areas that are using unnecessary resources, which can be
measured in dollars, time or raw materials. This will improve the company’s
competitiveness as well as improve the company’s overall profitability.
Businesses are examining every area of their supply chain to reduce costs. Reducing
waste has become a key component of any cost reduction program that is implemented.
There are a number of processes that can be used in order to reduce waste in a
company’s supply chain.
1. Product Design
Many companies are examining the design of their products to identify where
the use of raw materials can be reduced or expensive materials be replaced.
Indeed many businesses are reviewing each component to identify whether it
can be manufactured or purchased more cheaply. When designing product
packaging options, companies are examining cheaper and less wasteful
materials.
2. Resource Management
Each production process should be examined to minimize the waste of raw
materials. In manufacturing operations processes that waste material that cannot
be recycled or reused must be redesigned. Even in processes that do produce
waste that can be recycled should be examined due to the costs in recycling
processes.
3. Use of Scrap Material
As well as minimizing the waste of raw materials in manufacturing processes,
the use reuse of waste material can be expanded. Improvements in the
technology of reclaiming waste material has meant that companies that
previously discarded waste products now have the ability to reuse that material.
As the recycling technology becomes more available the costs will inevitably fall
helping more businesses with waste issues.
4. Improving Quality
Quality control is built into all manufacturing processes but is usually focused on
the finished product rather than minimizing waste. Quality management should
include the goal of minimizing the waste of raw materials as well as producing a
quality product. Improving the overall quality of a company’s manufacturing
process will reduce waste overall as it will increase the quantity of finished goods
that pass quality inspection.
When companies are considering waste minimization programs, they will find that
some costs will be required in the implementation. However as those programs come
online, the reduction in waste will produce cost savings greater than the initial
investment. The implementation of waste minimization programs has been successful
in improving company’s products as well as reducing overall costs.
Chapter 4
As we have already discussed the concept of supply chain in detail; it would now be
much easier to understand the current supply chain operated manually by Haidri
beverages.
In order to ensure a good supply chain strategy, Haidri Beverages plans two years in
advance. It has several contracts with manufacturers, and receives raw material on a
convenient basis. The company also decides where production plants are to be placed.
Haidri has production plants at Peshawar and Islamabad. The production process is
65% automated. The company has to provide and manage transport for the delivery of
products as well as the arrangement of third party services for the procurement of
products. The shipping department handles orders and the transport department
decides the vehicles for safe delivery.
Material planning and sourcing is carried out as well. Sources of supply of raw material
both local and foreign are identified and terms and conditions are negotiated. Capacity
planning is also done at this stage. Sales forecasting and production planning depends
upon the capacity of the organization with respect to:
1. Production (180,000 converted 250 ML crates per day).
2. Storage: Raw and packing (80,000 Sq Ft)
3. Storage: Finished goods (120,000 Sq Ft)
Haidri has a procurement budget of Rs 2.9 billion. Approved suppliers cannot go
beyond this budget. The supplier is audited by the most cost efficient quality control
department. Distributors are also decided by the company, keeping in mind past
performances. The company has increased its distribution capacity from one to six
filling lines during the last few years lending it a competitive edge over Coca Cola.
4.3 Supply Chain Planning
As the above configurations have been set, planning must be done within the above
stated constraints. The goal of planning is to maximize the supply chain surplus.
Planning establishes parameters within which a supply chain will function over a
period of time. Companies start the planning phase with a forecast for the coming year
of demand. Pepsi carries out sales forecasting for local demand as well as for export
purposes to countries such as Afghanistan. The annual sales target is conveyed to the
supply chain department of Haidri Beverages. Planning is carried out on a monthly,
weekly and daily basis at Haidri.
Company makes decision regarding individual customer orders. The goal of supply
chain operations is to handle incoming customer orders in the best possible manner.
During this phase, firms allocate inventory or production to individual orders, set a
date that an order is to be filled, generate pick lists at a warehouse, allocate to shipping,
set delivery and so on. There is less uncertainty about demand. At Haidri, the
production, sales and supply chain departments get together to decide the inventory
usually on a weekly basis.
Pepsi has a seasonal demand. Just in time concept is applicable in non-seasonal period
and not applicable in seasonal period. All processes that are part of the procurement
cycle, manufacturing cycle, replenishment cycle, and customer order cycle are push
processes.
Pepsi Sales order and processing: The Shipping Manager receives sales order from Sales
Team, distributors through telephone, fax & email one day before dispatch. The sales
are made to base distributors on advance payment against orders then shipping
manager plans according to the demand of distributors on daily basis.
4.6 Competitive Edge and Supply Chain Strategies
There are three major sustainable advantages that give PepsiCo a competitive edge as
they operate in the global marketplace:
1. Big, muscular brands,
2. Proven ability to innovate and create differentiated products and
3. Powerful go-to-market systems.
PepsiCo's overall mission is to increase the value of shareholder's investment. They do this
through sales growth, cost controls and wise investment of resources. They believe their
commercial success depends upon offering quality and value to their consumers and
customers; providing products that are safe, wholesome, economically efficient and
environmentally sound; and providing a fair return to their investors while adhering to the
highest standards of integrity. A customer while purchasing a bottle of Pepsi will
consider product quality, price and availability of the product. Thus, Pepsi in Pakistan
particularly focuses its competitive strategy as to producing sufficient variety, reasonable
prices, and the availability of the product.
S
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t
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Figure 26
The efficiency and responsiveness varies according to the consumer needs, implied
demand uncertainty, product type and market segments. In remote areas the company
focuses on being somewhat efficient as other modes of transportation could turn the
product to be highly expensive. According to the company it does not deal with
distributors who do not have 20 to 25 vehicles, therefore as the company has focus on
cost reduction, uses slow and inexpensive modes of transportation, the demand is
certain, and uses economies of scale in production, the product Pepsi is more inclined
towards being somewhat efficient. In cities, the company focuses its attention on being
highly responsive as Pepsi has to meet short lead time, meet a high service level, handle
a large variety of products and respond to wide ranges of quantity demanded especially
at the retail stage.
Step 3: Achieving the Strategic Fit
Making one stage more responsive allows the other stage to focus on being more
efficient. The Pepsi supply chain assign different roles to its different stages, the
company has to decide either to transfer the responsiveness to the manufacture stage or
to the retailer stage. While discussing the Pepsi’s supply capability it is seen that Pepsi
tends to be more responsive in the cities and a bit less in towns. Therefore, transferring
the responsiveness to the retailer and distributor, allowing them to face the higher
implied demand uncertainty. This in return allows the manufacturer and supplier to be
more efficient. At the same time, multiple beverage types contribute to a broader
product portfolio causing Haidri to adjust its strategies accordingly; tailoring the supply
chain to best meet the needs of each beverage demand.
➢ Direct distribution:
○ Delivery of post mix cylinders & handling of key accounts: The key
accounts are different wholesalers, restaurants and hotels like Pizza Hut,
KFC, Metro which serve as a place for key sale. These are known as national
key accounts and are very important in terms of competition.
○ Export Parties
➢ Indirect distribution:
○ Through Base market distributors
○ Through Outstation distributors
Haidri uses light and heavy vehicles for safe delivery of goods to the distributors for
timely delivery. It follows the just in time concept which is applicable in Non-seasonal
period and not applicable in the seasonal period.
This is usually done through taking over key revenue areas. If the distributor does not
achieve its sales target, the distribution is taken back and an addition of new distributor
is done. Therefore Pepsi’s supply is low supply uncertainty. Some of its supply source
capabilities are:
➢ Less breakdowns
➢ High quality
➢ Flexible supply capacity
➢ Mature production process
Figure 27 Distributor Storage with Carrier Delivery method is used by Pepsi Haidri Beverages [Source: Pepsi
Shipment Department]
4.12.1 Importance
Demand forecasts form the basis of all supply chain planning at Haidiri Beverages.
Forecasts of future demand are essential for making accurate supply chain decisions
and ensuring the company’s success. Examples of such decisions include how much of
the product to make, how much to inventory, how much to replenish and how much to
order.
1. Time-Series Method
3. Causal Method
Causal forecasting assumes that the demand forecast is highly correlated with
certain factors in the environment such as the state of the economy, interest rates,
and product pricing that can cause a change in the demand. An example is how
by introducing a product variant, such as Pepsi Twist, can influence demand for
the original product that is Pepsi. Promotional activities by PepsiCo International
planned for the year is another example. Haidiri Beverages plans its demand
forecast in collaboration with PepsiCo international, knowing that increased
promotional activity leads to higher demand.
The aggregate planning strategy used by Haidri beverages is the time-flexible strategy,
as it is most suited to the beverage industry.
Capacity: The plant at Haidri Beverages normally works at 12 hours a day machine
capacity, but this capacity can be taken up to 24 hours a day when required, as in peak
times of demand. This excess machine capacity can be utilized when needed.
Stockouts: The costs are distributed over the workforce and stockouts are avoided.
Haidiri Beverage’s supply chain strategy is closely linked to the appropriate use of
transportation. In a typical market, quick response enables supply chains to meet the
customer demands for ever-shorter lead times, and to synchronize the supply to meet
the peaks and troughs of demand. The major focus is to determine the processes that
are to be integrated in the supply chain network with their corresponding suppliers,
distribution centers and the associated transport links between them.
Land: Truck offers advantage of door to door shipment, a shorter delivery time and no
transfer between pick up and delivery. Haidiri beverage uses the TL (truck load)
approach. This approach provides paves the way for economies of scale and is able to
meet service requirements while minimizing both trucks idle and empty travel time.
Truck loads are more suited to Haidiri beverages because of the use of warehouses and
larger shipments therefore making it cheap. Raw materials from the suppliers are
brought using trucks; finished products are transported to distributors and then
retailers using trucks as well. Haidri beverages have its own fleet of small and large
trucks and vehicles for carrying goods and raw material, while the distributors also use
their own vehicles.
Water: This mode forms only a very small part of the total transport network. It is used
for shipping of empty cans from Dubai to Port Qasim in Karachi, from where it is
brought by land to the plant in Rawalpindi.
Air: It is again a very small part of the entire transport network. This mode is used to fly
in concentrate form New York to Lahore, from where it is transported by land to a
storage facility in Hatter and collected from there by Haidiri Beverages’ own trucks. The
shipping department is in charge for storage and subsequent displacement of the
product orders. The inventory capacity is being utilized and maintained in coordination
with the production department and is based on the term production estimates.
4.16 Design Options for a Transportation Network
4.16.1 Shipment via central DC with inventory storage using milk-runs: This is the
main mode used for transporting goods to consumers who are far away. Products are
transferred to the distribution center in a particular region and are stored there. Smaller
trucks then carry these products to the local retailers as per demand in smaller vehicles
using milk runs.
This method is cost effective because it saves on high transport cost that would have
been involved in transporting to each retailer directly form the supplier, and also
prevents stockouts because inventory is maintained closer to the retail outlets.
D.C
Haidiri Beverages
4.16.2 Direct Shipping: This method is used for transporting products to key account
holders such as KFC and Pizza Hut. Haidri transports to them directly. Diagram in
Appendix.
4.16.3 Direct Shipping with Milk-Runs: This method is used for transporting post mix
cylinders to retailers within the Islamabad/Rawalpindi region for fountain fresh Pepsi.
The shipment is made in milk runs.
For Haidiri Beverages, outsourcing results in the supply chain function being
performed by a third party. It is in fact one of the most important factors facing the firm.
Raw material for production and packaging is being outsourced through contracts.
Inbound and outbound transportation of products from the manufacturing place to the
distribution center and then to the final customer is also being outsourced to a third
party. The basic considerations of Haidiri in this regard are:
For the manufacturing of Pepsi products, Haidiri procures raw materials like packaging
materials, bottles, cans, sugar and concentrate etc. from both local and foreign suppliers.
The materials used in the manufacture of beverages are primarily being procured from
various parts of the country. Plastic bottles are mostly obtained from APCO plant,
which is located right next to Haidiri’s factory. Cans are imported ready-made and
printed from Dubai in two parts-the case and the lid. Sugar is purchased from several
different suppliers chosen from a list already selected by PepsiCo International. The
concentrate is obtained directly from PepsiCo International. The management usually
advertises in the newspaper to invite tenders for the supply of these raw materials. The
basic components of raw material are: concentrate, CO2, sugar and gas.
Selection of distributors is a critical step, because the majority of supply to the retailers
is handled by the distributors. Efficient and well-placed distributors are essential for
ensuring product availability, which is the main target of the company. For this purpose,
applicant distributors must have: 20-25 vehicles (depends upon area supplied), have
20,000 cases of empty bottles, and deposit Rs.1,000,000 as security. Distributors who
meet these criteria are then considered as potentials and then selected after negotiations
on cost and other factors. In case of Haidiri’s distributors the company allocates a fixed
quota to its distributors and does not show flexibility of buying back. Revenue sharing
contract exists between the distributor and Haidiri.
Pepsi’s strategic item is its drink formula. It is considered to be a base line for the
company’s business all over the world. The critical item is the gas component that is
CO2; the company must ensure the availability of this item with less comparative
accumulated cost. Cans and bottles come into the category of general items, the
company tries to ensure maximum efficiency while buying these items. The use, type
and specifications of bottles differ with different products. General items have more
specific use as compared to bulk items. Sugar may rightly be placed under the category
of bulk items. Haidiri procures sugar for its use in the production process. Maximum
efficiency has been ensured while buying sugar and its related products in bulk. Bulk
items are used invariably in all products of Pepsi with slightly variations of proportion.
Figure 29 Product Categorization by value & Criticality 4.21
Strategic Item s
High Critical Item s Pricing
Criticality Ensure availability
Ensure long term
relationship
Gas CO2 Drink Formula and
Bulk P urchase
General Item s Item s
Ensure low cost Ensure low cost
Low Cans and bottles Sugar
Low High
Value/Cost
26
utdallas .edu/~ m etin
Revenue Management
Being a franchise of PepsiCo International, Haidiri beverages cannot vary the price of its
drinks in the retail market in order to regulate revenue and profit; it has to follow the
pricing set and determined by PepsiCo international. However, all the revenue
management policy guide lines are provided from PepsiCo International. For an
effective revenue management, pricing is an important lever to increase supply chain
profit by better matching supply and demand. As per Pepsi’s policy, Haidiri uses
differential pricing based on customer segment, time of use, and product or capacity
availability. In order to increase supply chain profits and total margin earned from these
assets, managers use all available levers, including price. This is a primary role of
revenue management.
Seasonal peaks of demand are common every year. In Pepsi the seasonal demand varies
as it increases considerably in summer than in winters. Off-peak discounting can shift
demand from peak to non-peak periods. This is exactly what Pepsi does as it reduces its
prices on litre bottles and comes up with new saving schemes just to attract customers.
Pepsi charges higher price during peak periods and a lower price during off-peak
periods.
4.23 Pricing and Revenue Management for Multiple Customer Segments
These are different segments which Pepsi has allocated and targets multiple customers
from these segments such as children, teenagers and adults. The product range is
available in tin, glass bottles, plastic liter bottles and fountain fresh. Tin is relatively
expensive than glass bottles and caters to a different segment. To use revenue
management successfully when serving multiple customer segments, Haidiri follows
these tactics effectively by basing price on the values assigned by each segment. They
also use different prices for each segment for example a Pepsi can costs Rs 30 and at the
same time Pepsi bottle costs only Rs 12, so Pepsi uses different prices for each segment.
To gain the edge Pepsi forecasts at the segment level as well to help keep Pepsi
competitive in their pricing and revenue management
4.24 Pricing and Revenue management for Bulk and Spot Customers
Haidiri’s has key accounts like Savor foods, KFC, Pizza Hut etc., and pricing is adjusted
in order to facilitate these customers. They are offered discounted prices because they
are potential long term customers and they always purchase in bulk. Not only that, they
serve as an important means of promotion. By offering lower prices to such large scale
customers, the company ultimately benefits. At the same time the distributors also reach
out to the retailers who usually buy at the spot in small quantities.
Managers do gather accurate and complete data relating to products, offered prices,
competition and most important customer behavior. For Pepsi it’s equally important to
quantify the expected benefits from revenue management. Historical data and a good
model of customer preferences are being used to estimate the benefits. Pepsi
differentiates between the customers who truly need the supply chain asset during peak
period and those who will benefit from moving their order to the off-peak period. This
approach increases profits for the firm while also satisfying the customers creating a
double impact. Revenue management tactics have brought in huge profits to the
company.
Chapter 5
SCM is very complex, and because products move through multiple partners, it is quite
difficult to achieve maximum profits, minimum costs, and to gain the needed
competitive edge. SCM has many nodes that connect suppliers, manufacturers, and
distributors together. The supply chain also brings manufacturers and distributors
closer to the outsourced producers, creating a value chain, where each manufacturing
process and each product is tracked from the manufacturer all the way to the final
consumer.
In order for this value chain to be created, throughout the supply chain as well as at
each node, software has been developed to help companies turn out a profitable bottom
line and increase market share in their respective industries. Using these software
solutions, profits are maximized, costs are kept to a minimum, and scheduling and
timing are kept in check.
In addition, collaboration between partners can be daunting, especially since each
partner wants to make a profit. Because of this and other factors (such as rising petrol
prices and the steady increase of goods being manufactured in China and Eastern
European countries), international collaboration and quick inventory turnover are
essential. SCM software can equip a facility with the capacity to receive the increased
volume of product shipments coming from lower-cost countries.
Because of the growing complexity of today’s supply chains, including geographic and
international issues, financial constraints, and the sheer number of players that can be
involved, SCM software has been developed so that manufacturers and distributors can
work without missing a beat.
People typically involved in supply chain activities include manufacturers, distributors,
logistics professionals, procurement specialists, vendor managers, commodity buyers,
planners, and even retailers. All of these players need assistance in solving complex
business issues that arise in the supply chain.
SCM software addresses the needs of both manufacturers and distributors. The
software can be customized to meet manufacturers’ needs by sourcing and obtaining
the materials required to produce semi-finished or finished goods, and to aid
distributors in moving products quickly and efficiently, allowing maximum visibility
across the logistics network.
Supply chain software includes many types of software solutions that may be sold as
stand-alone modules. Yet when combined together, these solutions give supply chain
professionals the visibility they need into their operations. In terms of lean
manufacturing, a hybrid of both manufacturing and distribution modules is used,
giving way to maximum efficiency and low or zero wasted materials in the
manufacturing environment.
7. Order Management
Eliminate the soft costs, delays and errors associated with manually generating,
sending, receiving, and acknowledging orders. SCM automates this entire process,
cutting administration costs and saving hundreds of thousands of dollars per year in
overheads, while making supply chain more efficient. Supply Chain Management
Hub enables the supply chain to extend way beyond enterprise. Much of the
inefficiency and cost that carry is a direct result of poor, late, or non-existent
1
Key Performance Indicators (KPI) are financial and non-financial measures or metrics
used to help an organization define and evaluate how successful it is, typically in terms of
making progress towards its long-term organizational goals. KPIs can be specified by
answering the question, "What is really important to different stakeholders?"
communication with suppliers. SCM system simply take the information
organization choose to provide and deliver it to the people, in real-time and in the
format they require.
2. Visibility
Current inventory levels tend to bloat as a result of poor visibility into demand flowing
through supply chain. By making upcoming demand transparent to suppliers, help to
lower all of costs and run a far more efficient supply chain. Once suppliers see
inventory levels and short term and long term requirements for their products, they
can better run their own operations, buying smarter, holding less inventory, doing less
last-minute and expensive transportation, and cutting their production setups.
SCM includes features and functions to support collaborative supply chain planning
processes, including strategic, tactical, and operational planning.
5.5.1 Strategic, Tactical, and Operational Planning
SCM can optimize a full range of planning activities, including:
• Demand Planning and Forecasting – Forecast and plan anticipated demand for
products or product characteristics. Use state-of-the-art forecasting algorithms
for product life-cycle planning and trade promotion planning.
• Safety Stock Planning – Assign optimal safety stock and target stock levels in all
inventories in the supply network. Meet desired customer service levels while
maintaining a minimum amount of safety stock.
• Supply Network Planning – Integrate purchasing, manufacturing, distribution,
and transportation plans into an overall supply picture – so that users can
simulate and implement comprehensive tactical planning and sourcing decisions
based on a single, globally consistent model. This can involve heuristics and
capacity planning, optimization, and multilevel supply and demand matching.
• Distribution Planning – Determine the best short-term strategy to allocate
available supply to meet demand and to replenish stocking locations. To achieve
this, planners can determine which demands can be fulfilled by existing supply
elements.
• Supply Network Collaboration – Work with partners across supply network.
Using collaboration features that improve visibility into supply and demand,
company’s partners can reduce inventory buffers, increase the velocity of raw
materials and finished goods through the pipeline, improve customer service,
and increase revenues.
Many technologies exist to share and analyze information in a supply chain system.
Managers must decide which technologies to use and how to integrate these
technologies into their companies and their partners’ companies. The consequences of
these decisions are becoming more and more important as the capabilities of these
technologies grow. Some of these technologies include the following:
2. The Internet has critical advantages over EDI with respect to information
sharing. The internet conveys much more information and therefore offers much
more visibility than EDI. Better visibility improves decisions across the supply
chain. Internet communication among stages in the supply chain is also easier
because a standard infrastructure (World Wide Web) already exists. Thanks to
the internet, e-commerce has become a major force in the supply chain.
7. Customer Experiences
An e-business can greatly increase customer experience in term of access,
customization and convinces.
8. Product Variety
E-business offers a large variety of products to customers.
9. Efficient Fund Transfer
An e-business can enhance revenues by speeding up collection.
5.9 Impact of E-Business on Cost
Types of inventory :
By uncertainty type:
• Cycle Inventory: designed to meet economies of scale (EOS)
• Safety Inventory: designed to meet uncertainties (marginal analysis)
By supply chain stage:
• Raw materials Process inventory
• Ready product inventory
2. Transportation: Transportation Modes (air, truck, sea, rail) In House or
Outsource. Transportation speed makes a positive contribution to responsiveness
and can be increased at a cost.
3. Facilities – Capacity: Two basic types of facilities costs must be included in the
analysis are cost related to Location of factories, warehouses, retail outlets and
cost related to operation. Increasing the number of warehousing facilities in a
logistics network generally improves customer service, because additional
stocking locations reduce average delivery times to customers. However, more
warehouses increase warehousing and inventory costs. Warehousing costs
increase because there are more overhead and fixed costs to absorb. Inventory
costs increase because a greater number of warehouses means more safety stock
inventory must held system-wide to provide a specified level of customer
service.
In contrast, transportation costs decrease as the number of facilities is increased
over some range. Rather than shipping smaller quantities direct from points of
supply (eg. Plants) to customers, warehouses serve as product mixing centres
that allow larger, consolidated shipments between supply points and
warehouses. This transportation cost advantage becomes diminished, however, if
too many warehouses are present because the shipment sizes between supply
points and warehouses decrease to the point that there is little shipment
consolidation advantage over direct shipments to customers.
4. Information
➢ Accurate forecasting
➢ Coordination between stages of S.C.
➢ Fast cycles
➢ Inventory reduction
➢ Lost sales reduction
➢ Markdowns reduction
There is a natural role of IT in forecasting, given the large amount of data involved. The
frequency with which forecasting is performed, and the importance of getting the
highest quality results possible. The forecasting module within a supply chain IT
system often called the demand planning module is a core supply chain software
product.
Good demand planning modules link not only to customer orders but often directly to
customer sales information as well, incorporating the most current data into the
demand forecast. Much of the progress in areas such as collaborative planning is due to
IT innovations that allow the exchange and incorporation of forecasts between
enterprises.
Good demand planning modules contain tools to perform what-if analysis regarding
the impact of potential changes in prices on demand. These tools help analyze the
impact of promotions on demand and can be used to determine the extent and timing of
promotions.
Keep in mind that none of these tools is foolproof. Forecasts are virtually always wrong.
A good IT system should help track the historical forecast errors so they can be
incorporated into future decisions. A well structured forecast, along with a measure of
error, can significantly improve decision making.
Forecasting modules are available from all the major supply chain software companies,
including the ERP firms such as SAP and Oracle. Finally, some of the DRM focused
firms have elements of forecasting in their products, given their focus on customer
facing processes. Forecasting and IT have a long history. The classic supply chain IT
package has a forecasting module feeding forecasts to a planning module. Forecasting is
core part of IT in the supply chain.
The risk associated with forecast error must be considered when planning for the
future. Errors in forecasting can cause significant misallocation of resources in
inventory, facilities, transportation, sourcing, pricing, and even in information
management. Forecast errors during network design may cause too many, too few, or
the wrong type of facilities to be built. At the planning level, plans are determined from
forecasts so the actual inventory, production, transportation, sourcing and pricing plans
that a company produces and follows depend on accurate forecasting. Even on an
operational level, forecasting plays a role I the actual day to day activities that are
executed within a company.
Long lead times require forecasts to be made further in advance. Seasonality also tends
to increase forecast error. Forecast error increase when product life cycles are short,
because there are few historical data to build on when producing a forecast. Firms with
a few customers often experience very lumpy demand that is harder to forecast than
demand from many small customers, which tends to be smoother. Forecast quality
suffers when it is based on orders placed by intermediaries in a supply chain rather
than on end customer demand.
Improved responsiveness and pooling often come at a cost. Increase speed may achieve
capacity investment. Whereas pooling tends to increase transportation cost. To achieve
the right balance between risk mitigation and cost, it is important to tailor the
mitigation strategies. For instances, when dealing with a commodity for which
shortfalls can easily be made up or by spot market purchases, spending large amounts
to increase the responsiveness of the supply chain is not warranted.
Aggregate planing is the supply chain area in which information technology is mostly
used. The aggregate production planning (APP) problem is about determining the
optimum production, work force, and inventory levels for each period of the planning
horizon for a given set of production resources and constraints. Such planning usually
involves one product or a family of similar products with small differences so that
considering the problem from an aggregated viewpoint is justified. The product
demand data are assumed to be known with certainty; however, provisions for forecast
error may be incorporated. The goal is to meet the forecasted product demand in a cost-
effective manner. Typical costs related to APP include payroll, hiring/layoffs,
overtime/under time, and inventory shortage/backordering. Numerous APP models
with varying degrees of sophistication have been introduced in the last four decades.
Most of the researches in supply chain areas are concerned about optimizing the supply
chain in terms of its efficiency and competence in the product market, but only limited
studies are done considering the inventory management in supply chains. Effective
inventory management in a supply chain can play a vital role in cutting inventory
holding costs across the different stages of the supply chain. The prime objective for all
supply chains is to provide clients with what they want, when they want it. Inventory
management plays a central role in every supply chain’s need to satisfy its clients.
Inventory management help the companies develop an effective approach to inventory.
it analyze the impact of internal and external factors to integrate inventory with
purchasing, manufacturing, distribution, marketing and sales to create inventory
policies that make sense. It help to analyses the
• Client needs and their influence on in-stock/fill rates, lead time and accuracy
• Costs incurred from purchase transaction expenses, manufacturing set-
up/changeover expenses, and more
• Operations changes driven by promotions or recalls and SKU proliferation
• Technology and its ability to provide trend, profiling and seasonality-based
forecasting, trading partner visibility and planning collaboration
• Corporate goals whether revenue, unit sales, increases inventory
management help to understand inventory and lower inventory cost.
Information systems that focus on micro processes are much more successful. For firm
targeting macro process functionality the ability to integrate across macro processes.
This conclusion is an important implication of companies those use software.
Characteristics of software improve the performance of its users. Thus a user of supply
chain software should first identify areas within the tree macro processes where
improvement will provide the maximum leverage. Software and IT decisions should
then support the goal of improving performance along these processes.
There are two potential ways for a company to enter in a market. The first is trough the
superior functionality, whether it is specific functionality needed by a particular
industry or an application with vastly improved ease of use. Provide an integrated
product that increases the linkage between the macro processes. It is difficult for start
up to build an integrated product across CRM, ISCM and SRM. However a large
software company with tremendous resources and a history of pulling desperate
products into an integrated package could take this path.
5. 19 Risk Management in IT
There are several risks associated with the use of IT in the supply chain; the larger the
change in the IT system the greater is the risk of a negative impact on operations. The
firm cannot function properly if IT suffers from a major failure.
The major areas of risk in IT can be divided into two broad categories:
The fist is the risk involved with installing new IT systems. During the process of
getting new IT systems running a firm is forced to transition from the old processes it
used in its operations to the new process in its IT system. Here problem can be
occurring in both business process and in technical issues. on the business process side
new IT system requires employees to operate according to new processes. There may be
difficult to learn and employees who prefer the old ways of doing business may feel
difficulty.
There are some technical issues. The amount of integration that needs to take place
between desperate systems is often overwhelming. When firm switch to new system
which is not properly integrated than problems occur. Even when the employees are
bought into the new process and all the technical hurdles are overcome, it is often a
delicate balance to actually make the transaction over to the new system.
A firm still faces risks once its IT systems are operating. The more a firm relies in IT to
make decision and execute processes the higher is the risk that any sort of IT problem,
ranging from software glitches to power outages to virus can completely shutdown
firms operations. Some systems only allow a process to be executed in one way. Then
the firm settles in to a pattern of doing thing in one way obviously there are great
efficiency benefits of this but firm also run this risk that the process is not of the
performance level of its competitors and that its systems make it difficult to change to
newer, more effective processes.
Sourcing related IT has had the most ups and down of any supply chain software sector.
The sourcing software world created many electronic marketplaces in the late 1990s that
were expected to transform the purchase of goods and services. There are a wide
variety of areas in which IT can and is used in sourcing today. In fact there is a greater
diversity if IT sourcing products than in most supply chain areas.
5.22.2 Source
Sourcing software assists in the qualification of suppliers and helps in supplier
selection. Contract management and supplier evaluation. An important objective is to
analyze the amount that an firm spend with each supplier. Supplier are evaluated along
several criteria include lead time, reliability, quality and price. This thing improves
supplier performance and help in selection of suppliers. Contact management is also an
important part of sourcing.
5.22.3 Negotiate
Negotiation with supplier contains many steps, starting with request for quote. The
negotiation process may also include the design and execution of auctions. The goal of
this process is to negotiate an effective contract that specifies price and delivery
parameters for a supplier in a way that best match the enterprise needs. Successful
software automates the RFO process and the execution of auctions.
5.22.4 Buy
Buy software executes the actual procurement of material from suppliers. This includes
the creation, management and approval of purchase order. Successful software in this
area automates the procurement process and helps decrease processing cost and time.
The most significant problem to success of sourcing software is that employees often
just do not want to use the software. As sourcing software often limits what can be
purchased, many people bristle at the loss of freedom to purchase what they feel are the
best item for their company. In many cases people just go around the system and buy
the products they want. Another difficulty arises when successful use of the IT systems
requires collaboration among different enterprises. Difficult to convince firms of the
benefits of using the system and often each firm is suspicious of the others.
The risk of higher procurement costs can be significant when industry wide demand for
the product exceeds available supply, exchange rates are unfavorable or there is a single
supply source. Exchange rate risk can be minimized by developing a global supply
network that is flexible enough to be reconfigured based in exchange rate fluctuations.
The risk of holdup because of a single source can be countered by developing
alternative sources or bringing part of the supply capability in house.
Intellectual property risk can be mitigated by keeping products in house. Even when
product is outsourced, firm can maintain ownership of part of the equipment if it is
viewed as having significant intellectual property value.
The area of impact for IT within PRM is he pricing of retail goods in the consumer
package good category. The grocery store have utilized this technology t price their
products at the retail level. The pricing problem tackle involves both the regular as well
as promotional pricing of products.
PRM systems have also impact on fashion goods. Here the challenge revolves around
how to optimally mark down the price of goods as the styles and seasons change. The
goal is to mark down the price enough to sell most of the product but without marking
it down so much that profit is thrown away.
The major pitfall in the pricing and revenue management area of IT revolve around
linking PRM decisions with other areas and systems of the company. Pricing is
generally determined within a relatively well defined area of a company, making it easy
to setup pricing software. This ease of installation can cause problems if there is no
integration with inventory, distribution, and production system. A common problem is
a software recommendation of a price reduction, which in turn brings on a surge in
demand. This lead o dissatisfied customers if there is insufficient inventory because the
pricing systems did not communicate with the inventory management system. This lack
of coordination can be quite harmful and greatly dilute the benefits of PRM.
SCM software has been designed to meet the needs of firms with global distribution,
logistics, and manufacturing needs. Lean manufacturing and visibility in the supply
chain are crucial elements for both distributors and manufacturing executives. Moving
products among multiple locations and countries can be a daunting task, and SCM
software offers the flexibility to track all inventory at any point in the supply chain.
Additionally, the issues of compliance, scheduling, flexibility, coordination, and
visibility can be greatly improved because of the combination of business processes
integrated into SCM software, no matter how complex the supply chain is.
Chapter 6
The worldwide market for supply chain management (SCM) software topped an
estimated $6 billion last year, and is expected to reach or exceed $8 billion by 2010,
according to the most current estimates from AMR Research (617-542-6600) and ARC
Advisory Group. That’s a segment that includes supply chain planning (SCP)
applications as well as supply chain execution systems including transportation
management (TMS), warehouse management (WMS), and manufacturing execution
(MES).
Leading at the top are three Enterprise Resource Planning (ERP) vendors; SAP at $735
million, Oracle at $585 million, and Infor at $348 million. Others include two best-of-
breed suppliers, Manhattan Associates with $289 million and i2 Technologies with $280
million, both providers of supply chain planning and execution solutions.
Driving that growth, according to John Fontanella, AMR’s vice president of research, is
the need to manage pcomplex, global supply chains that include a mix of global
suppliers, contract manufacturers as well as company-owned plants, third-party
logistics providers and a network of transportation providers.
In fact, AMR’s research found that the typical U.S. manufacturer is managing on
average more than 30 contract relationships. Supply chain management solutions allow
enterprises to handle that complexity while still responding to increasingly demanding
customers.
The list of top 20 SCM vendors was published in 2007 by AMR Research (617-542-6600)
and ARC Advisory Group who evaluated the following vendors with respect to
revenue earned in previous years and quality of benefits/services offered to their
customers.
2006
revenue
Supplier Web site SCP WMS MES/MRP TMS
(in
million)
1 SAP $735 * www.sap.com x x x x
2 Oracle $585 * www.oracle.com x x x x
3 Infor $348 ** www.infor.com x x x x
Manhattan
4 $289 www.manh.com x x x
Associates
5 i2 Technologies $280 www.i2.com x x
6 JDA Software $278 www.jda.com x x
7 RedPrairie $189 www.redprairie.com x x x
8 IBS $178 www.ibsus.com x x x x
9 Epicor $124 www.epicor.com x x x
10 Aldata $99 www.aldata-solution.com x x x
11 Swisslog $93 *** www.swisslog.com x x x
12 HighJump $90 www.highjumpsoftware.com x x x
Brooks Software
13 (Applied $85 www.brookssoftware.com x
Materials)
14 ClickCommerce $76 www.clickcommerce.com x x
2006
revenue
Supplier Web site SCP WMS MES/MRP TMS
(in
million)
15 Microsoft $72 www.microsoft.com x x
16 QAD $67 www.qad.com x x x x
17 IFS $57 www.ifsworld.com/us x x
Descartes
18 $46 www.descartes.com x x
Systems Group
19 Catalyst $41 www.catalystwms.com x x x
20 Logility $37 www.logility.com x x x
* Industry estimate ** Combined Infor, SSA Global & Provia Software *** Swisslog - Industry
estimate for WMS, WCS and supply chain planning
SCP: Supply chain planning WMS: Warehouse management system MES/MRP: Manufacturing
execution system TMS: Transportation management system
Given below is a list of some of the top SCM software vendors along with their profile
and a brief history to help develop a better understanding of the vendors themselves as
well as the system offered by them.
SAP Americas is a subsidiary of SAP AG, the world’s largest business software
company and the third-largest software supplier overall. SAP Americas’ corporate
headquarters is located in Newtown Square, PA, a suburb of Philadelphia. The
company’s officers and executives lead a team of professionals dedicated to delivering
high-level customer support and services.
Founded in 1972 as Systems Applications and Products in Data Processing, SAP has a
rich history of innovation and growth that has made it the recognized leader in
providing collaborative business solutions for all types of industries – in every major
market. The company, headquartered in Walldorf, Germany, employs more than 46,100
people in more than 50 countries, and serves more than 43,400 customers worldwide.
The SAP Supply Chain Management (SAP SCM) application can help an
organization transform a linear supply chain into an adaptive supply chain
network, in which communities of customer-centric, demand-driven companies
share knowledge, intelligently adapt to changing market conditions, and
proactively respond to shorter, less predictable life cycles.
The SAP solution synchronizes supply to demand – robust, configurable
components allow customers to balance push and pull network planning
processes, replenish inventory quickly, and execute production based on actual
demand.
Customers can sense and respond to changing environments with an adaptive
supply chain network – and drive distribution, transportation, and logistics
processes that are integrated with real-time planning processes.
SAP’s SCM solution suite provides network wide visibility, collaboration, and
analytics – as well as full capability to monitor and analyze the extended supply
chain.
More than 25,000 small and midsize companies have selected SAP to drive
operational efficiency and profitable growth.
The SAP solutions suite comprises licensed and on-demand applications and services.
The company’s Enterprise Service-Oriented Architecture (Enterprise SOA) is a blueprint
for an adaptable, flexible, and open IT architecture for developing services-based,
enterprise-scale business solutions. With SAP NetWeaver as a technical foundation,
enterprise SOA moves IT architectures to higher levels of adaptability – and moves
companies closer to the vision of real-time enterprises by elevating Web services to an
enterprise level.
The company’s software portfolio includes five key Supply Chain Solution Suites:
Planning and Forecasting, Inventory Optimization, Order Lifecycle Management,
Transportation Lifecycle Management and Distribution Management. These
solution suites are enhanced by Platform Applications -- including Supply Chain
Intelligence, Supply Chain Visibility and Supply Chain Event Management --
that organize and deliver the information and processes needed to optimize
supply chains across functions and locations within and outside an enterprise.
For 17 years, Manhattan Associates has concentrated exclusively on helping
companies streamline their supply chains to achieve lower costs, higher profits
and happier customers. Virtually all of the company’s 2,300 employees focus on
supply chain optimization. They work directly to bring value to 1,200 customers
through research and development, training, implementation and ongoing
support.
6.18 Infor
Infor is one of the world’s largest providers of business software, with approximately
$2.1 billion in revenue, and the 10th largest software company in the world. A company
unparalleled in application breadth, market experience, open technology and global
reach, Infor has 9,200+ employees, direct offices and implementation and support
capabilities in 100 countries, and over 70,000 customers worldwide. The thought leaders
at Infor understand that their customers want to reduce the number of vendors they
work with and Infor strives to continue as their trusted “vendor of choice.” Infor has a
consistent 95% customer retention rate — one of the highest in the industry and 72% of
its license revenues are generated by its current customers. Additionally, over 1,000 new
customers chose Infor last year for its unparalleled application breadth, open
technology, and global reach. The company is committed to continuing its growth by
broadening its best-in-class focus, and by providing the most innovative solutions and
services globally.
Customers can expect Infor to continue adding solutions based on market need and
customer demand. Infor is a unique software company — four years old with more than
thirty years experience. It has the stability, the agility, and the resources to meet the
business demands of a rapidly changing world.
6.19 Infor Key Strengths
JDA Software Group, Inc. is a global leader in delivering integrated software and
professional services for the retail demand chain. By capitalizing on its substantial
market position and financial strength, JDA commits significant resources to advancing
its best-of-class collection of solutions that address a wide array of critical business
functions including merchandise and inventory management, store operations and
point of-sale, supply chain collaboration, and business analysis.
Across the global ERP landscape, JDA Software Group supplies the links in the supply
chain. The company’s supply and demand optimization (SDO) software helps retailers
and other businesses manage supply and demand chains, as well as business processes
ranging from planning and forecasting to e-commerce and store operations.
The company also offers point-of-sale applications to handle back-office functions,
including inventory management, receipts, and returns. Other products include analytic
applications for decision support and collaborative tools for maintaining product and
catalog information with partners, distributors, and suppliers. JDA boasts more than
5,400 customers worldwide.
With North American operations established in 1985, JDA is headquartered in
Scottsdale, Arizona and employs more than 1,200 associates operating from 32 offices in
major cities throughout North America, South America, Europe, Asia and Australia.
JDA has been serving the supply and demand chain for nearly 30 years. The company’s
Supply & Demand Optimization solution set is powered by a collection of best-in-class
products designed to enable retailers, manufacturers and whole sale distributors to
more profitably anticipate, create and satisfy customer demand.
This comprehensive solution integrates JDA’s proven planning, analysis optimization
and execution capabilities with collaborative workflow, for seamless integration and
interoperation spanning a wide range of processes across the Customer-Driven Value
Chain.
With Supply & Demand Optimization, decision makers can work together to reduce
operational costs and increase top line revenues across the enterprise, and down to the
store level. JDA customers represent more than 65% of software license sales each
quarter, a testament to the real demand chain results that JDA repeatedly delivers. JDA
acquired Manugistics in July 2006. This provider of demand and supply chain solutions
enabled JDA to grow its product line with supply management, demand management
and pricing, and transportation and logistics applications.
JDA is uniquely positioned to support an optimized Customer-Driven Value Chain. It
can help its customers to optimally plan various aspects of their business – from raw
materials acquisition, through manufacturing and replenishment, to the shelf.
JDA offers several hosting and on-demand managed services to ensure a fit tailored
specifically to the needs of its customers. Whether an organization’s needs are as simple
as hardware hosting or as substantial as complete application management, JDA
provides a full-spectrum technology platform and support.
6.28.1 Epicor 9
The latest Epicor ERP solution, Epicor 9, represents the convergence of Epicor’s rich tool
sets into a single product. As the first solution built on ICE 2.0, Epicor 9 redefines the
ERP experience, combining a full range of enterprise, manufacturing and distribution
functionality with the most collaborative, flexible service oriented architecture available.
Epicor 9 eliminates the technological and industrial boundaries that stifle productivity,
enabling business anywhere - business without barriers.
6.28.2 Epicor Manufacturing
Epicor Manufacturing is designed to meet the needs of progressive manufacturers,
regardless of shop environment. Epicor Manufacturing delivers built-in workflow
processes to manage the entire order cycle: from marketing, sales and customer
relationship management, through production, planning, sourcing and procurement to
installation, service and financial recognition. Complimented by a full-range of
enterprise capabilities, Epicor Manufacturing helps achieve maximum efficiency at each
plant, while providing innovative technology to span the entire enterprise.
6.28.3 Epicor Distribution
Epicor Distribution is an end-to-end solution providing tools to efficiently assemble
ship and deliver the finished goods. Epicor Distribution offers a full range of order
management, supply chain and warehousing capabilities built on a single business
platform based on industry-leading Web services architecture. Complimented by a full
suite of enterprise functionality, Epicor Distribution supports the needs of truly agile
distributors.
With Microsoft Dynamics, an organization can connect its entire supply chain in a
productive, fast-moving flow. The business value of vendors and business partner
relationships is enhanced significantly. And these increased efficiencies in distribution
translate to improved customer satisfaction and reduced cost of doing business.
A Microsoft Dynamics solution provides employees with a multitude of ways to plan,
coordinate, and executive delivery of goods and services productively. Companies
realize strong return on investment as a result of better individual and team
productivity, streamlined operations, and more effective collaboration.
Using Microsoft Dynamics, people can effectively improve supply chain efficiency, with
minimal time spent on product training and learning. The user interface is familiar,
consistent, and comfortable—just like that of other Microsoft programs people work
with.
Microsoft Dynamics gives people across the supply chain visibility into customer
demand and the delivery of goods—helping them make faster, better business decisions
and take the best course of action when adjustments are necessary.
With features such as automatic notification, a team can easily can keep tabs on
inventory, helping sustain optimal item levels without tying up funds in the warehouse.
They can plan purchasing at favorable terms and in a timely manner, controlling costs
and ensuring that the organization meets its customer commitments. And they can
connect closely with operations to make sure manufacturing has the materials it needs
to deliver products on time.
Microsoft Dynamics’ supply chain strengths can help the team fulfill customer
commitments with greater reliability and accountability, and deliver the products and
services customers want, when they need them.
The Microsoft Dynamics licensed suite of software products and applications, built on
familiar and widely used Microsoft technologies, offers a wide array of full-spectrum
ERP solutions for Supply Chain Management.
Many Pakistani software companies offer information systems with database support.
While most of the software companies in Pakistan are registered as a franchise for SAP
and Oracle products, only a few among them offer ERP systems of their own. One of the
biggest franchises of SAP and Oracle products in Islamabadcity is ERPSoft. While most
of the companies consider purchasing software from local vendors, SAP and Oracle still
have got a huge market share in Pakistani software industry when it comes to ERP
systems or Supply Chain Management Systems (SCMS).
Companies that can afford huge budgets, while not sacrificing quality, go for
purchasing SAP or Oracle products. It is surprising, however, that many foreign
companies including companies from India and UAE offer excellent ERP, CRM and
SCM systems that offer a wide range of functionality without any major setbacks in the
system and costing unpredictably lesser than those developed by domestic software
industry.
Companies like TeraData (NCR), Ultimus, DPS, etc. have developed their own ERP
systems giving it different terminologies like Business Process Management (BPM), B2B
systems (Business-to-Business), Enterprise Class etc. Some of these systems provide full
supply chain support while others only support half of the functionality eliminating the
key business planning software features.
Some of the supply chain management systems vendors in Pakistan are listed below
along with the features offered by the systems:
Teradata is the world’s largest company solely focused on raising intelligence through
data warehousing and business analytics. Teradata delivers award-winning, integrated,
purpose built platforms based on the most powerful, scalable, and reliable technology
platform in the industry. Their assets include:
• Approximately 6,000 associates in more than 60 countries
• Strong diversified client base of over 900 customers worldwide and companies of
all sizes
• 2,000+ implementations worldwide
Trillions of bytes of data don't faze Teradata. The company designs and implements
enterprise data warehousing systems that store information about customers, finances,
operations, and other business data. Its software includes its core database system, as
well as applications for managing data, demand and supply chains, customers,
compliance and risk, and performance. The company also offers consulting, support,
and training services. Teradata targets companies in the entertainment, financial
services, government, health care, insurance, manufacturing, retail, telecom, and
transportation sectors.
6.36.1 Products
• Customer Relationship Management: Teradata Relationship Manager
• Data Warehousing
• Demand Chain Management
• Financial Management
• Industry Solutions
• Profitability Analytics
• Supply Chain Intelligence
• Master Data Management
• Operational Intelligence - for front-line workers and systems. This extends the
value of your enterprise data warehouse to customer service representatives,
retail cashiers and call-center agents - anyone who makes day-to-day decisions.
Teradata’s strategy for pervasive BI, known as Active Enterprise Intelligence™, provides
the foundation for near real-time, smarter decisions throughout your organization. We
deliver Active Enterprise Intelligence™ solutions through our Active Data
Warehousing™ technology, professional services expertise and partner products.
6.39 Ultimus
Ultimus is the first BPM Company with complete global capabilities, including offices
in 16 countries and customers in 80 countries. The Ultimus product is available in 20
languages, and is supported by a worldwide professional services team and a 24/7
support center.
With over 1,900 customers worldwide, Ultimus has deployed BPM processes for more
customers than any other BPM company. Over 125 Large Enterprise customers, with
annual revenues above $1 Billion, have deployed Ultimus BPM.
With over 15 years experience and more than 1,900 customers, many with extensive
process deployments, Ultimus has deployed more BPM processes than any other BPM
company. Ultimus is recognized for innovation and has a history of BPM industry firsts.
Customers and analysts agree that Ultimus has the most complete and mature set of
capabilities to support both the human needs and system needs of business processes.
Business Process Management is about making things work better. It’s about making
your life easier. It’s about making your business more efficient, more effective, and more
successful.
We believe you should be relentless in your pursuit of success. That’s why we believe in
continuous process improvement: We aren’t just workflow software. We go far beyond
simple workflow automation, and we don’t stop at mere process management. We bring
you a suite of tools with the power to match your passion, and the adaptability to meet
your changing business needs instantly.
6.42 DPS
Supply chain management, through its impact on resources, directly affects both the
bottom line and customer satisfaction. Nothing is more crucial to your success than
effectively managing the supply chain. Relying on outdated means of procurement
provides an open invitation to competitors to take away ever-larger shares of your
market.
The DPS B-to-B package offers medium and large enterprises a secure online venue for
procurement—a venue completely under your control. A streamlined supply chain
enables economies for buyers and vendors, better service to customers, and the
opportunity to expand into new markets and forge new relationships.
For the chain, the browser-based interface lets you maintain vendors and stores, review
and update products and purchase contracts, assign retail prices, control delivery
schedules, place and track orders, and review profit margins on a product-by-product
basis.
For the store, DPS B-to-B lets you review information for products, prices, purchases,
and delivery schedules, as well as print invoices and place and track orders.
For the vendor, DPS B-to-B lets you manage product offerings and prices, manage costs,
maintain existing contracts, negotiate delivery schedules, and view and confirm orders.
6.47.1 Xavor's VMI (Vendor Managed Inventory) Supply Chain Integration Solution, a
process management enablement accomplished by a scalable information technology
solution that allows manufacturers/suppliers of goods to monitor their sales
consumption by linking directly with retailer/reseller's store level point of sale data,
using industry standard XML data interchange B2B standards such as EDI or
RosettaNet. Replenishment order decisions are made using store and product combo
information by analyzing inventory data statistically in order to maximize the customer
service level while minimizing inventory and logistical costs.
6.47.2 VMI Supply Chain Integration Platform provides:
Business To business Integration
Efficiency by inventory integration with partners
Industry standard protocols and customized protocols for our clients
6.47.3 How is it done?
Supply chain analysts work closely with the customer in order to understand the
relevant vendor and supplier inventory related processes. The analyst builds a VMI
integration process model with replenishment rules. Xavor's Systems Integration
Analysts work closely working with the customer's technology team to implement the
technology of the customer's choosing, such as Sterling, BizTalk or Tibco. Xavor's team
of analysts customizes a solution that suffices customer's business process re-
engineering and automation needs.
6.47.4 Benefits:
• Integrated delivery solution
• Combined forecast and better business solutions
• Gap reduction between client and vendor material management
Chapter 7
Up until 10 or 15 years ago, the term “supply chain” did not even exist. Back then,
purchasing was purchasing, warehousing was warehousing, transportation was
transportation and each function operated in relative isolation from one other. Today,
most companies are looking for ways to integrate these and additional functions into a
holistic supply chain strategy. Supply chain execution involves how well things move
through the supply chain—the operations that occur from the raw materials delivered
to a manufacturer, then to the distributor, and finally to the customer.
While more and more companies are seeking ways to coordinate and streamline their
supply chains, the overall task can be intimidating. Companies face numerous
challenges, including increasing transportation costs, growing retailer influence,
tightening requirements for fast order fulfillment, SKU proliferation, physical labor
constraints and the demand for consistently “perfect orders.”
Indeed, these very challenges are what make supply chain management so important to
embrace. Nate Rosier, director, supply chain practice, for supply chain consulting firm
CIBER Inc. (Greenwood Village, CO, USA) specializes in supply chain initiatives for the
beverage industry. “A lot of beverage distributors have inventory management
challenges,” he points out. “For example, a lot of our clients import products from
around the world or buy from smaller suppliers that still don’t even place bar codes on
their products or send advance shipment notifications.” In addition, Rosier says that a
lot of beverage distributors are still behind the curve when it comes to the
implementation and usage of supply chain technology.
The first step in creating and/or improving your supply chain is to identify your goals.
Overall goals of supply chain management processes for distributors generally focus on
efficient and accurate receiving, inventory accuracy, effective slotting, flexible
replenishment, multiple picking options, increased warehouse productivity, reduced
returns and flexible exception handling.
Next, decide whether your supply chain improvement project is one you can handle on
your own, or whether you need a consultant. It’s a trade-off between cost and internal
resources. While consultants can be expensive, your organization may not have the
internal expertise necessary to handle the project on its own. And even if you do, you
may not be able to pull these people away from their regular jobs. If you do opt to hire a
consultant, find one who has specific experience in the beverage industry.
The technology to be used for implementation of the proposed system is ERP-II. ERP II
can be defined as the next generation of enterprise resource planning strategies and
applications. ERP II focusses not just on information usage, but also upon delivering it
to the individual who requires it, and in a way that best suits their needs. ERP II
superseded ERP and its two lesser known iterations called extended ERP and Enterprise
Application Suite (EAS).The most apparent change from ERP to ERP II is a change in
focus from one that is totally enterprise-centric and preoccupied with internal resource
optimization and transactional processing to a new focus on process integration and
external collaboration. ERP II application deployment strategies relates to information
that is exchanged between two or more businesses over the Internet. This exchange of
information electronically via the Internet is known as collaborative commerce or c-
commerce2. So it can be concluded that ERP II has c-commerce features. ERP II has also
expanded to include areas such as Supply Chain Management (SCM), Customer
Relationship Management (CRM), Knowledge Management (KM), business intelligence
(BI), and inventory optimization(IO). The features in ERP II is very much in line with the
Gartner research paper which predicted that ERP II would take ERP foundation and
extend it outward to position the enterprise in the supply chain.
The proposed system, as a first step, will customize the current traditional ERP system
in such a way that it supports both legacy ERP system as well as the supply chain and
customer relationship management systems deployed over web application.
The proposed ERP-II SCM focuses more on supply chain execution rather than supply
chain planning. The reason is quite obvious; Pepsi Haidri Beverages is quite a mature
company where planning of supply chain network is already done and the location of
facility installation has already been chosen. There is no chance of expansion since the
other business units of Pepsi manufacturing are already operating in their respective
areas and the areas of responsibility has been divided and well-managed.
2
Collaborative Commerce, also referred to as c-commerce, involves the collaborative,
electronically enabled business interactions among enterprise’s internal personnel, business
partners and customers throughout a trading community. The trading community can be an
industry, industry segment, supply chain or supply chain segment.
• As a first step, ERP-I modules will run in parallel with ERP-II modules which
include Supply Chain Management and Customer Relationship Management.
This is will be done by making changes in the database so that the legacy
software will not be affected by those changes and even if it does, it would be so
minor that a little customization will overcome the changes made to the
database. Major changes like creation of new screens, reports, and all work
related to business process reengineering will be done in such a way that it
would not disturb the current legacy system. A new database will be created for
this purpose and development of new system will go head-to-head with the old
system. After completion of ERP-II system, the old database will be merged into
the new system so that the previous on-going operations would not get
interrupted.
• The aim of creating a new application is to shift the whole application to a web-
based solution so that personnel who are working outside the company’s
boundary can also access the information and operate the system as per their role
and requirement.
• Security is another major issue regarding successful implementation and
deployment of web-based ERP application. For this purpose, special encryption
and decryption algorithm will be created and incorporated in all those areas of
software that deals with information transfer from the user to the host
application or vice versa and specifically those which contain sensitive
information like product ingredients, customer and supplier transactions,
inventory information, shipment and sales information etc. For this purpose, the
information coming from either of the three supply chain participants will be
first encrypted using hash functions which are embedded to support digital
signatures for the verification of sender. The information will then further be
encrypted using different techniques and decrypted at the receiver’s end. The
encryption and decryption process will be kept hidden from the users to ensure
ease of use.
1. The biggest benefit of web SCM is the easy and equal access to all participants of
the supply chain of Haidri Beverages. It would not cost them even a single extra
penny to give access of the solution to distributors and suppliers while the
benefits are far-reaching.
2. There is no need to install the whole or any part of the web-based solution at
individual participant’s location. The web-based solution allows all parties to
access information from a single database or distributed databases (proposed for
future developments). The other key benefit extracted from it is the elimination
of EDI (Electronic Data Interchange). A question may arise as to what makes the
Internet different from electronic data interchange (EDI), a technology that has
been around for more than 20 years. Essentially, the Internet performs the same
function as EDI at a fraction of the cost. Moreover, it has capabilities that EDI
does not possess, namely, real-time versus batch processing, transmission of
unlimited data types including graphics, forecasts and an open, non-proprietary
network. If carefully exploited, these Internet characteristics can lead to
significant value creation.
3. A short word that covers a huge range of benefits itself is “collaboration”. Web-
SCM offers a great level of collaboration among all partners of the supply chain
by exchanging real-time information with each other. a good starting point is to
think of the number of ways in which your company interacts with both
customers and suppliers. These interactions can be categorized as one of the
following: executing a transaction; determining optimal prices; discovering
available supply and unmet demand; and supply chain planning for new and
existing products. Thus, three distinct categories emerge where B2B e-commerce
can be applied to extract value:
• Reduced transaction charges
• Improved market efficiencies
• Enhanced supply chain benefits
Prior to making any investment in B2B e-commerce, a company has to identify the value
created and the effort required for implementation under each of these categories. The
relative position of these categories will not be the same for all firms but will vary based
on the supply chain strategy and competitive environment. A company must tailor e-
commerce implementation to support categories where the value created is high
relative to the cost of implementation.
A simple diagram of the network setup has been developed which depicts how the
suppliers and distributors are connected to the internet. The web application is hosted
by the company itself which is connected to the internet with a firewall installed. The
web-based application is accessible by the suppliers and distributors via internet.
Further, more illustrative diagram is given as follows:-
Distributor/Wholesaler
Suppliers
Suppliers
Distributor/Wholesaler
Distributor/Wholesaler
Distributor/Wholesaler
Suppliers
Suppliers
Distributor/Wholesaler
Suppliers
The following modules have been identified as the core supply chain management
system modules to be implemented phase-by-phase (implementation of operations-
supported TPS modules in the first phase):-
1. Demand Management
2. Supply Chain Analytics
3. Vendor Managed Inventory
4. Inventory Management
5. Transportation Management
6. Supplier Relationship Management
7. Manufacturing Execution
8. Facility Management
9. Sourcing
10. Sales and Customer Support
11. Financial Management
7.9.1 Demand and Supply Forecasting: In demand and supply forecasting, the
forecasts will be based on time series, qualitative and causal methods. Data for time
series will be acquired from previous year’s sales records. Other features include:
i. Forecast horizon
ii. Frequency of update
iii. Forecast error
iv. Seasonal factors
v. Procurement forecast based on previous production and store data
vi. Variance from plan
vii. Ratio of demand variability to order variability
See Information-related metrics for study of details of the included features.
7.9.2 Aggregate Planning: In this section, the forecast will be divided into biannually,
quarterly, monthly, weekly and daily forecast to make it easier for the staff to plan the
demand and supply. The aggregate plan will be made in accordance with the user
specification, that is, to what extent he wants to divide the forecast. The aggregate
planning module will then be able to generate the following plans:
i. Sales Forecasting
ii. Procurement Forecasting
iii. Production Forecasting
Figure 32 Data Input and Output Diagarm - Data generated from demand forecast will be used as input for
Aggregate Planning subsystem
The data generated from demand forecast, that is, the forecast data will be used as input
by the aggregate planning module to generate time-specific plans.
This module deals with the analysis of Pepsi Haidri Beverages’ supply chain. This
module performs the following tasks:
i. Define and select Key Performance Indicators (KPIs)
ii. Monitoring and analysis of KPIs
iii. Safety stock planning
iv. Supplier delivery performance ratings, including lead times, quality of product
delivered, items returned, items found damaged/non-usable, and durability of
delivered product
Vendor Managed Inventory (VMI) is a family of business models in which the buyer of
a product provides certain information to a supplier of that product and the supplier
takes full responsibility for maintaining an agreed inventory of the material, usually at
the buyer's consumption location (usually a distributor warehouse). A third party
logistics provider can also be involved to make sure that the buyer have the required
level of inventory by adjusting the demand and supply gaps.
The VMI module will provide the following features:-
i. Inventory management at distributor end
ii. Stock-in and stock-out
iii. Secondary sales
iv. Daily opening and ending report
v. Re-order levels
vi. Other key features include tracking of:
a. Quantity damaged
b. Maximum inventory quantity
c. Returns from customer
d. Maximum quantity/daily quantity agreed upon
Though items are the same, the inventory management system will be in use by the
company only. This module provides full support for the management of raw, semi-
finished and finished material. The raw and semi-finished material records will be kept
separate from warehouse or finished goods inventory records to support customization.
The features included for inventory management system are:-
This module supports all features related to transport. Following are the features
proposed for transport management module:
i. Transportation Modes Management: This is a master file which contains all
modes available for transportation.
ii. Transportation Facilities Management: This module maintains records of all
transportation facilities held by the company. This will include vehicle number,
engine and chassis numbers, type of vehicle, load capacity etc.
iii. Routing Management: This feature contains routing tables and tax details. For
example, the route for importing Pepsi concentrate from New York can be
defined as:
This module is responsible for maintenance of supplier records, including master data
as well as supplier history. This will also allow collaboration among supplier and Haidri
beverages by setting up which modules and screens the supplier can access by defining
access right incorporated in supplier master data. Following are the features supported
by this module:
This module allows full monitoring and planning of production process. The following
features are proposed for this module:
i. Production scheduling
x. Reports
a. Production Plan
b. Product Costing
This module offers full support for management of all facilities installed at Pepsi Haidri
Beverages as well as those which are used for operating purposes like vehicles,
computer systems, photocopy machines, printers, fax machines, security gate, loaders,
fork lifters, etc. The following features are supported by this module:
a. Type
b. Capacity
d. Location
iv. Utilization
v. Product variety
a. Capacity
b. Utilization
f. Product variety
g. Processing/setup/down/idle time
7.17 Sourcing
Sourcing refers to all activities involved in purchasing raw and semi-finished materials
from suppliers or third parties. The key features of this module are:
vii. Invoicing
f. Supply quality
h. Purchases History
a. Storage Capacity
b. Location
ix. Reports
a. Distributor Data
c. Target tracking
d. Distributor ranking
g. Forecast variability
This module controls a wide range of activities. All matters relating to “money” are
dealt here. The key features of this module include:-
i. Capital Budgeting
v. Report Generation
c. Payment Schedules
d. Analysis of Financial Statements
Chapter 8
1. Rough-cut Method: The supply chain management system proposed for Pepsi
Haidri Beverages was, in the first stage, has been designed using the Rough-cut
model only. These models typically assume a "single site" (i.e., ignore the
network) and add supply chain characteristics to it, such as explicitly considering
the site's relation to the others in the network. Therefore, the supply chain system
proposed for the company would only contain suppliers and distributors of
Pepsi Haidri Beverages Islamabad only. The other franchise owners of Pepsi will
be connected to the supply chain in future, as mentioned in article 8.2,
2. RFID Technology: RFID technology has not been proposed due to the huge
budget required to implement this technology. Moreover, the company does not
need this technology since, firstly, tracking of the items being sold is already
supported by the SCM features and secondly, the distribution area is limited to
urban and rural areas of Rawalpindi and Islamabad district only.
Most of the modules proposed in the supply chain system are re-engineered, that is,
they need major changes in the core business processes. The modules which needed
some customization include the following:-
• Forecasting
• Sales
From the above modules, sales module is the module that needs maximum
customization. The payment modes are proposed to be changed although the payment
method would remain the same, that is, advanced payment. The requirements for
distributor and manufacturer inventory management system remain that same with
some addition in fields to support decision-making process.
The following enhancements and upgrades are recommended for the proposed system
in future:-
2. Point of Sale system for distributors: The distributor will be provided a point-
of-sale application connected to the system from where real-time data will be
captured
4. Network security
5. Data mining
8.4 Conclusion
Supply chain management is an exploding field, both in research and in practice. Major
international consulting firms have developed large practices in the supply chain field.
Through better information engineering, supply chain improvements have resulted in a
reduced bullwhip effect, lower inventory levels, reduced logistics costs, and streamlined
payments. These improvements appear to have helped macroeconomic benefits such as
more stable economic output and higher productivity growth. However, Firms who
operate in global environment and deal with multiple suppliers and customers, are
required to manage inventories in new and innovative ways, and are faced with
possible channel restructuring. The field promises to continue growing as the research
advances and as firms continue to apply knowledge in their global networks. Finally, as
the internet changes fundamental assumptions about business, firms operating in
supply chains will be required to understand this new phenomenon and respond
accordingly.
As for Pepsi Haidri Beverages, in order to survive in the current economic conditions as
well as the increased competition in beverage industry with the ever growing
competitors like Coca Cola adopting new techniques of expanding their supply chain
and reaching their customers in a much more efficient manner and producing
beverages according to consumer demand, it is more advisable to Pepsi Haidri
Beverages to conduct the business in a strategic way with technological support and
efficient demand and supply network which seems impossible without supply chain
collaboration and information technology support.
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