Supply Chain Management Notes

Mahima alekh
Notes on
SUPPLY CHAIN MANAGEMENT
Prepared by
PEDINA SIBAKRISHNA
ROLL NO-15MBA41
REGN. NO.-1506279048
GANDHI INSTITUTE OF MANAGEMENT STUDIES, GUNUPUR
DIST-RAYAGADA, ODISHA, PIN-765022
Prepared by Pedina Sibakrishna, Asst. Professor, Chemical Engg. GIET, Gunupur Page 1
MNG 306 E
Credit: 4, Class Hours: 45
Module I: Supply Chain Foundations: Supply Chain as a network of entities:

Role and interactions between the entities. Value Chain Focus of Supply Chain.
Impact of Supply Chain Management on Sales, Cost, Profit, Profitability,
Balance Sheet, Profit and Loss Account, and Customer Accounts Profitability.
Centralized and Decentralized Supply Chains: their coordination and aligning
business activities.
Module II: Customer Orientation: Customer Satisfaction oriented Supply

Chain Management strategy, Customer segmentation, Customer requirements
analysis, Aligning supply chain to customer needs: Quick response logistics,
Vendor Managed Inventory, Cross docking, Packaging Innovations, Third
Party Logistic and Service concepts and applications.
Procurement Logistics: Source Identification: Global Vs. Domestic Sourcing,
Landed Cost Computation, Vendor Rating, Contract Negotiation,
Consolidation, Self Certified Vendor Management, Individual component Vs.
Module Purchases. Vendor Development and Vendor Relationship
Management, Vendor Performance Monitoring.
Module III: Manufacturing Logistics Management: Lean and Agile

Manufacturing, Virtual Manufacturing, Just in Time Manufacturing, Lead time
Components and their Compression, Lot Streaming.
Module IV: Distribution Management: Distribution Channels: Structure and

Operation, Distribution Cost Components, Pipe line Inventory and Response
Considerations, Hub and Spoke Models, Cross docking, Carrier Selection,
Vendor Consolidation, Vehicle Loading and Vehicle Routing Methods.
MODULE-1
SUPPLY CHAIN
A supply chain consists of all parties involved, directly or indirectly, in fulfilling a
customer request. The supply chain includes not only the manufacturer and suppliers, but
also transporters, warehouses, retailers, and even customers themselves. Within each
organization, such as a manufacturer, the supply chain includes all functions involved in
receiving and filling a customer request. These functions include, but are not limited to,
new product development, marketing, operations, distribution, finance, and customer
service. It is the Networks of manufacturers and service providers that work together to
move goods from the raw material stage through to the end user Linked through physical,
information, and monetary flows.
A supply chain is dynamic and involves the constant flow of information, product,
and funds between different stages. In our 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 schedules 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.
The above example illustrates that the customer is an integral part of the supply
chain. In fact, the primary purpose of any supply chain is to satisfy customer needs and, in
the process, generate profit for itself. The term supply chain conjures up images of product
or supply moving from suppliers to manufacturers to distributors to retailers to customers
along a chain. This is certainly part of the supply chain, but it is also important to visualize
information, funds, and product flows along both directions of this chain. The term supply
chain may also imply that only one player is involved at each stage. In reality, a
manufacturer may receive material from several suppliers and then supply several
distributors. Thus, most supply chains are actually networks. It may be more accurate to
use the term supply network or supply web to describe the structure of most supply chains,
as shown in Figure 1-2.
A typical supply chain may involve a variety of stages. These supply chain stages include:
Customers
Retailers
Wholesalers/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 in Figure 7.1 need not be present in a supply chain.
The appropriate design of the supply chain depends on both the customer's needs and the
roles played by the stages involved.
Supply chain flows
DEFINITION OF SUPPLY CHAIN

A supply chain is a network of autonomous or semi-autonomous business entities
collectively responsible for procurement, manufacturing, and distribution activities
associated with one or more families of related products. A supply chain is a network of
facilities that procure raw materials, transform them into intermediate goods and then
finished products, and then finally deliver the products to customers through a distribution
system or a chain. Moreover we can also express that a supply chain is a network of
facilities and distribution options that performs the functions of procurement of materials.
This also transforms these materials into intermediate and finished products, and finally
the distribution of these finished products to customers.
Various definitions of a supply chain have been offered in the past several years as the
concept has gained popularity.
The APICS Dictionary describes the supply chain as:
The processes from the initial raw materials to the ultimate consumption of the
finished product linking across supplier-user companies; and the functions within
and outside a company that enables the value chain to make products and provide
services to the customer.
Another source defines supply chain as, the network of entities through which
material flows. Those entities may include suppliers, carriers, manufacturing sites,
distribution centers, retailers, and customers.
The Supply Chain Council (1997) uses the definition: "The supply chain - a term
increasingly used by logistics professionals - encompasses every effort involved in
producing and delivering a final product, from the supplier's supplier to the
customer's customer. Four basic processes - plan, source, make, deliver - broadly
define these efforts, which include managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly, warehousing and inventory
tracking, order entry and order management, distribution across all channels, and
delivery to the customer."
Quinn (1997) defines the supply chain as "all of those activities associated with
moving goods from the raw-materials stage through to the end user. This includes
sourcing and procurement, production scheduling, order processing, inventory
management, transportation, warehousing, and customer service. Importantly, it
also embodies the information systems so necessary to monitor all of those
activities."
A supply chain is the stream of processes of moving goods from the customer order
through the raw materials stage, supply, production, and distribution of products to
the customer.
OBJECTIVES OF SUPPLY CHAIN
The objective of every supply chain should be to maximize the overall value
generated. The value a supply chain generates 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 the profits at an individual stage.
FEATURES OF SUPPLY CHAIN

All organizations have supply chains of varying degrees, depending upon the size of the
organization and the type of product manufactured. These networks obtain supplies and
components, change these materials into finished products and then distribute them to the
customer.
All stages involved, directly or indirectly, in fulfilling a customer request
Includes manufacturers, suppliers, transporters, warehouses, retailers, and
customers
Within each company, the supply chain includes all functions involved in fulfilling a
customer request (product development, marketing, operations, distribution,
finance, customer service)
CUSTOMER is an integral part of any supply chain
Includes movement of products from suppliers to manufacturers to distributors, but
also includes movement of information, funds, and products in both directions
Probably more accurate to use the term supply network or supply web.
All stages may not be present in all supply chains.
PROCESS VIEWS OF A SUPPLY CHAIN

A supply chain is a sequence of processes and flows that take place within and
between different stages and combine to fill a customer need for a product. There are two
different ways to view the processes performed in a supply chain.
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.
2. Push/Pull View: The processes in a supply chain are divided into two categories
depending on whether they are executed in response to a customer order or in
anticipation of customer orders. Pull processes are initiated by a customer order,
whereas push processes are initiated and performed in anticipation of customer
orders.
CYCLE VIEW OF SUPPLY CHAIN PROCESSES
All supply chain processes can be broken down into the following four process cycles.
Each cycle occurs at the interface between two successive stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
Cycle view clearly defines processes involved and the owners of each process and
specifies the roles and responsibilities of each member and the desired outcome of each
process.
Each cycle consists of six subprocesses
PUSH/PULL VIEW OF SUPPLY CHAIN PROCESSES
All processes in a supply chain fall into one of two categories depending on 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 a 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 forecast. 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 (or forecasted)
rather than actual demand. Push processes operate in an uncertain environment because
customer demand is not yet known. Pull processes operate in an environment in which
customer demand is known. A push/pull view of the supply chain is very useful when
considering strategic decisions relating to supply chain design. The goal is to identify an
appropriate push/pull boundary such that the supply chain can match supply and demand
effectively.
Process Description of Process
Customer relationship management In the customer relationship management process,
key customers are identified and worked with
closely to establish product and service agreements
that specify the levels of expected performance.
Also, customer service teams work with customers
to further identify and eliminate sources of demand
variability.
Customer service management A single source of customer information is
provided in this process. A key point of contact for
administering the product/service agreement is
established.
Demand management Point-of-sale and key customer data is used to
reduce uncertainty and provide efficient flows
throughout the supply chain.
Order fulfillment Integration of the firms manufacturing distribution
and transportation plans is performed in this
process in order to guarantee timely and accurately
filled orders.
Manufacturing flow management Ideally, orders are processed on a just-in-time (JIT)
basis where required delivery dates drive
production priorities. Furthermore, manufacturing
processes must be flexible enough to respond
quickly to market changes.
Procurement Long-term strategic alliances with a small core
group of suppliers are utilized in conjunction with
rapid communication mechanism (e.g. EDI,
Internet, etc.)
Product development and Customer Relationship Management is coordinated
commercialization with this process to identify customer-articulated
and unarticulated needs. Procurement is involved
in this process as well to select materials and
suppliers. Coordination with Manufacturing Flow
Management is needed to develop production
technology and integrate into the best supply chain
flow for the product / market combination.
Returns The Returns process enables identification of
productivity improvement opportunities.
Eight Supply Chain Processes Proposed by Lambert and Cooper (2000).

Supply Chain Management (SCM) was introduced in the 1990s as a buzzword often
used by logistics and software providers to describe the integrated network of product,
information, and cash flow between the various entities in a supply chain. SCM has been
embraced by many non-supply chain professionals simply as a new and faster way of
acquiring goods and services using integrated software tools and global logistics. The
phrase supply chain management appears to have originated in the early 1980s. Oliver
and Webber (1982) discussed the potential benefits of integrating the internal business
functions of purchasing, manufacturing, sales and distribution. Supply chain management
is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses,
and stores, so that merchandise is produced and distributed at the right quantities, to the
right locations, and at the right time, in order to minimize system wide costs while
satisfying service level requirements. Effective supply chain management involves the
management of supply chain assets and product, information, and fund flows to maximize
total supply chain profitability. SCM is the active management of supply chain activities and
relationships to maximize customer value and achieve a sustainable competitive
advantage.
In Supply Chain Management System, any product which is manufactured in a

company, first reaches directly from manufacturer to distributors where manufacturer sold
the product to the distributor with some profit of margin. Distributors supply that product
to retailer with his profit and then finally customers received that product from retailer.
That is called supply chain management system which implies that a product reaches from
manufacturer to customer through supply.
DEFINITION OF SUPPLY CHAIN MANAGEMENT (SCM)
Several authors have further defined the concept of supply chain management.
As defined by Ellram and Cooper (1993), supply chain management is "an

integrating philosophy to manage the total flow of a distribution channel from
supplier to ultimate customer".
Monczka and Morgan (1997) state that "integrated supply chain management is
about going from the external customer and then managing all the processes that
are needed to provide the customer with value in a horizontal way". They believe
that supply chains, not firms, compete and that those who will be the strongest
competitors are those that "can provide management and leadership to the fully
integrated supply chain including external customer as well as prime suppliers,
their suppliers, and their suppliers' suppliers".
Supply Chain Management encompasses every effort involved in producing and
delivering a final product or service, from the suppliers supplier to the customers
customer.
Supply Chain Management includes managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly, warehousing and inventory
tracking, order entry and order management, distribution across all channels, and
delivery to the customer. (The Supply Chain Council, U.S.A.)
Supply Chain Management deals with the management of materials, information,
and financial flows in a network consisting of suppliers, manufacturers, distributors
and customers. (Stanford Supply Chain Forum)
Supply Chain Management is primarily concerned with the efficient integration of
suppliers, factories, warehouses and stores so that merchandise is produced and
distributed in the right quantities, to the right locations and at the right time, and so
as to minimize total system cost subject to satisfying service requirements. (Simchi-
Levi)
COMPONENTS OF SCM
The following are five basic components of SCM.
1. Plan:-This is the strategic portion of SCM. Companies need a strategy for managing
all the resources that go toward meeting customer demand for their product or
service. A big piece of SCM planning is developing a set of metrics to monitor the
supply chain so that it is efficient, costs less, and delivers high quality as well as
value to customers.
2. Source:- Next, companies must choose suppliers to deliver the goods and services
they need to create their product. Therefore, supply chain managers must develop a
set of pricing, delivery and payment processes with suppliers and create metrics for
monitoring and improving the relationships. And then, SCM managers can put
together processes for managing their goods and services inventory, including
receiving and verifying shipments, transferring them to the manufacturing facilities
and authorizing supplier payments.
3. Make. This is the manufacturing step. Supply chain managers schedule the activities
necessary for production, testing, packaging and preparation for delivery. This is the
most metric-intensive portion of the supply chain where companies are able to
measure quality levels, production output and worker productivity.
4. Deliver:-This is the part that many SCM insiders refer to as logistics, where
company manager 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:-This can be a problematic part of the supply chain for many companies.
Supply chain planners have to create a responsive and flexible network for receiving
defective and excess products back from their customers and supporting customers
who have problems with delivered products.
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT

These issues span a large spectrum of a firms activities, from the strategic through the
tactical to the operational level:
The strategic level deals with decisions that have a long-lasting effect on the firm.
This includes decisions regarding product design, what to make internally and what
to outsource, supplier selection, and strategic partnering as well as decisions on the
number, location, and capacity of warehouses and manufacturing plants and the
flow of material through the logistics network.
The tactical level includes decisions that are typically updated anywhere between
once every quarter and once every year. These include purchasing and production
decisions, inventory policies, and transportation strategies, including the frequency
with which customers are visited.
The operational level refers to day-to-day decisions such as scheduling, lead time
quotations, routing, and truck loading. Below we introduce and discuss some of the
key issues, questions, and trade-offs associated with different decisions.
VALUE CHAIN FOCUS OF SUPPLY CHAIN
A value chain is a set of activities that a firm operating in a specific industry

performs in order to deliver a valuable product or service for the market. The concept
comes through business management and was first described by Michael Porter in his 1985
best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.
The concept of value chains as decision support tools was added onto the
competitive strategies paradigm developed by Porter as early as 1979.In Porter's value
chains, Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and
Service are categorized as primary activities. Secondary activities include Procurement,
Human Resource management, Technological Development and Infrastructure
The original focus of Porters value chain firm was firm that transfers raw materials
into relatively standardized, physical products, where the value of the product in the
market is the medium that makes difference from competitors product.
The value chain. (Source: M. Porter, Competitive advantage)
The value chain begins with new product development, which creates specifications
for the product. Marketing and sales generate demand by publicizing the customer
priorities that the products and services will satisfy. Marketing also brings customer input
back to new product development. Using new product specifications, operations
transforms inputs to outputs to create the product. Distribution either takes the product to
the customer or brings the customer to the product. Service responds to customer requests
during or after the sale. These are core processes or functions that must be performed for a
successful sale. Finance, accounting, information technology, and human resources support
and facilitate the functioning of the value chain.
The value chain emphasizes the close relationship between the functional strategies
within a company. Each function is crucial if a company is to satisfy customer needs
profitably. Thus, the various functional strategies cannot be formulated in isolation. They
are closely intertwined and must fit and support each other if a company is to succeed.
A supply chain strategy determines the nature of procurement of raw materials,
transportation of materials to and from the company, manufacture of the product or
operation to provide the service, and distribution of the product to the customer, along
with any follow-up service and a specification of whether these processes will be
performed in-house or outsourced.
All processes and functions that are part of a company's value chain contribute to its
success or failure. These processes and functions do not operate in isolation; no one
process or function can ensure the chain's success. Failure at any one process or function,
however, may lead to failure of the overall chain. A company's success or failure is thus
closely linked to the following keys:
1. The competitive strategy and all functional strategies must fit together to form a
coordinated overall strategy. Each functional strategy must support other functional
strategies and help a firm reach its competitive strategy goal.
2. The different functions in a company must appropriately structure their processes
and resources to be able to execute these strategies successfully.
3. The design of the overall supply chain and the role of each stage must be aligned to
support the supply chain strategy.
Traditional supply chain reasoning usually believes that all individual firms function
according to the activity logic of the value chain, i.e. the value chain functions within the
supply chain, and shares its focus on the chronological value adding activities of acquiring,
transforming and distributing products.SCM models thereby conventionally discover the
pattern of value creation as associated to the pattern of chronological activities in the chain
(i.e. when direct interdependence can be located and its order specified), although these
two may not essentially be the same, since the natural interface between value adding
steps may not agree with the legal or practical interfaces between firms. In line with
Porters interpretation, a firms value chain is thus rooted in a system of sequentially
interdependent value chains (the value system), and it is this that generates the value of
the product in the market place. For example electronic banking use the internet as its
medium for payment services, which itself uses the general telecom networks
infrastructure, within which network operators deliver the infrastructure for telecom
service providers. Thus the business value system in a sole mediation industry comprises
of a set of coproducing, layered and interconnected value networks, which are
interdependent on each other.
IMPACT OF SUPPLY CHAIN MANAGEMENT

There are various ways to look at supply chain. One can say that it starts from the
raw material vendor and ends with the customer; thus, it includes purchasing, marketing
and even consumer buying the product. Therefore all the processes involved in the entire
spectrum from demand generation to demand satisfaction can be called as supply chain
management. Today, in some advanced companies supply chain extend right from the
vendor procuring his raw material to the point of sale where the last sale of the product
takes place. This implies that there is transparency and information flow in the entire chain
resulting in appropriate action at each point. This action by each entity contributes to the
smooth functioning of supply chain.
In some companies supply chain could only be internal that is across the
manufacturing facilities to company owned depots. One can always choose a part of the
supply chain that is most relevant and focus resources to achieve increased productivity.
The objective of every supply chain should be to maximize the overall value
generated. The value a supply chain generates 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.
For example, a customer purchasing a mobile Best Buy pays Rs.1800, which
represents the revenue the supply chain receives. Best Buy and other stages of the supply
chain incur costs to convey information, produce components, store them, transport them,
transfer funds, and so on.The difference between the Rs.1800 that the customer paid and
the sum of all costs incurred by the supply chain to produce and distribute the router
represents the supply chain profitability or surplus. 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 the profits at an individual stage.
Having defined the success of a supply chain in terms of supply chain profitability,
the next logical step is to look for sources of revenue and cost. For any supply chain, there
is only one source of revenue: the customer. Thus, the appropriate management of these
flows is a key to supply chain success. Effective supply chain management involves the
management of supply chain assets and product, information, and fund flows to maximize
total supply chain profitability.
Retailing is largely consolidated, with large chains buying consumer goods from
most manufacturers. This consolidation gives retailers sufficient scale that the introduction
of an intermediary such as a distributor does little to reduce costs and may actually
increase costs because of an additional transaction. In contrast, India has millions of small
retail outlets.
Due to the purchasing power that comes with control over consumer contacts,
retailers are often dominant in a supply chain. Closeness to end consumer markets gives
retailers fast and precise information about matters such as shifting fashion preferences
and attractiveness of competitors offerings, comparable to continuous market research.
Even though power is no end in itself, it does include the opportunity to organize the
supply chain in a suitable way. Many challenges face retailers today. Expanding product
variety, greater fluctuations in demand, and shorter and shorter product life cycles make
time-to-market reductions essential. The ever-increasing need for reduced lead times
continues. Maximum coordination of work in and between companies is therefore
necessary, as otherwise it will lead to higher costs as well as to longer lead times.
There is however no single best way to manage a supply chain, the way retailers
compete in consumer markets influence what should be focused on. As no company can be
everything for everyone, there is interdependence between what a company sets out to be
for a consumer, i.e. the companys value proposition, and that companys supply chain.
CENTRALIZED AND DECENTRALIZED SUPPLY CHAINS

Decision-making in a supply chain network can be performed in a centralized or a
decentralized way. In a centralized structure, there exists a central authority responsible
for decision-making, whereas in a decentralized structure the individual entities can make
their own decisions. In practice no supply chain can be completely centralized or
decentralized and both approaches have their advantages and disadvantages. Most
commonly the strategic decisions are usually made centrally while operation decisions are
decentralized. The performance of each approach has been found to depend on the specific
environment and the particular decisions.
Centralized supply chain planning
A centralized SCP approach requires a single decision maker to optimize the

network with the union of information that the various decision makers have. In general,
however, a SC comprises of a multiple number of decision makers (independent firms or
planning units) acting in their own best interests, presupposing that all of the other firms
will do the same. Due to the incongruence between locally faced motivation and the global
optimisation problem, a centralized SCP will either be rejected by the firms in the SC or will
not lead to system-wide efficiency. A centralized SCP approach is best applied to master
planning within a multi-echelon system of a single firm, but not to the whole SC. The major
task of SCP is the coordination of decisions upon medium-term production, inventory and
transportation quantities which are distributed among a multiple number of firms involved
in the SC. In the context of a centralized SCP, it is assumed that a super ordinate decision
unit, i.e., a SC Leader, exists, which has the power and the competency not only to generate
a SC-wide master plan but also to enforce its realization. In monocentric SCs it is often
assumed that a powerful focal company, which dominates all other firms in the SC, is in the
position to generate and enforce SC-wide master plans. In polycentric SCs, without such a
powerful focal company, a centralized SCP is also considered possible. Presumably, SC-
wide master plans are then determined by a central planning unit, i.e., a SC committee
which is appointed by the participating firms. In the current discussion, it is also suggested
that a 4th Party Logistics provider (4PL) adopts the role of a neutral and independent
master planner.
Limitations of the centralized supply chain planning approach
On the basis of the model presented above, it can be made clear that a centralised approach
cannot in general be implemented in a SC consisting of a multiple number of firms. Three
major impediments prevent a centralized SCP from being implemented; these are:
1. alignment of individual decisions to SC-wide objectives

2. SC-wide information sharing
3. Delegation of SCP decisions to a central planning unit.
Decentralized supply chain planning

A decentralized SCP is given, when production, inventory and transportation
decisions are distributed amongst diverse (intra- or inter-organizational) planning units.
Inter-organizational planning units are appointed by two or more firms and perform SCP
for the nodes and arcs of these firms. Intra-organizational planning units make decision for
all nodes and arcs of a given firm or only for subsets. The latter can be observed when SCP
decisions are distributed among a number of profit centers or site managers which then
conclude upon plans for the single nodes and arcs that are under their specific control. In
general, a decentralized SCP will yield a lower overall SC profit than a centralized SCP. Most
commonly SCP decisions are coordinated on a decentralized basis.
MODULE-2
CUSTOMER SATISFACTION
Customer satisfaction has long been a fundamental concept in marketing and
business strategy. In building a customer satisfaction program, however, the first question
that must be answered is, what does it mean to say that a customer is satisfied? The
simplest and most widely accepted method of defining customer satisfaction is known as
expectancy disconfirmation. Simply stated, if a customer's expectations of a supplier's
performance are met or exceeded, the customer will be satisfied. Conversely, if perceived
performance is less than what the customer expected, then the customer is dissatisfied. A
number of companies have adopted this framework for customer satisfaction and follow a
commitment to meet or exceed customers' expectations. In fact, many organizations have
gone further by speaking in terms of delighting their customers through performance
which exceeds expectations. While this framework for customer satisfaction is relatively
straightforward, the implications for building a customer service platform in logistics are
not. To build this platform it is necessary to explore more fully the nature of customer
expectations. What do customers expect? How do customers form these expectations?
What is the relationship between customer satisfaction and customer perceptions of
overall logistics service quality? Why do many companies fail to satisfy customers, and why
are so many companies perceived as providing poor logistics quality? If a company satisfies
its customers, is that sufficient?
CUSTOMER SATISFACTION ORIENTED SUPPLY CHAIN MANAGEMENT STRATEGY
Today, SCM is widely recognized as a better way of doing business in a complex

global economy. Traditionally, Supply Chain Management has focused on negotiating long
term agreements, cost reduction, outsourcing, third-party logistics, and the use of SCM
software tools. Customer Focused Supply Chain Management, CFSCM, is a strategic
approach to acquiring goods and services. CFSCM is based on the idea that by enhancing
your customers overall satisfaction with your product or service, in the long run, you will
improve the profitability and efficiency of your entire enterprise which includes your
supply chain partners. The overriding philosophy of CFSCM is that everyone in a
customers supply chain is linked to the customer, and that the supply chain is only as
strong as its weakest link. The strategy of CFSCM is to establish collaborative relationships
up and down the supply chain; from upstream raw material suppliers to downstream final
users of the product or service. With CFSCM we seek new and better ways to acquire goods
and services that will increase our customers satisfaction and improve profitability.
Increased customer satisfaction means greater profitability, because loyal satisfied
customers provide long term revenues and reduced costs. It is less costly to maintain
satisfied customers than it is to acquire new ones. Also, by dealing with loyal customer-
focused suppliers, you can achieve efficiencies and cost savings well beyond those
achieved from the traditional approaches of competitive bidding and price negotiations.
The mistake that too many companies make is employing the tools and techniques
of SCM without having first established collaborative relationships with their customers
and suppliers. It is not the tools that make you successful in SCM; it is the relationships.
Collaborative relationships start with trust, honesty, mutual interests, and mutual benefits.
Traditional arms-length relationships with suppliers do not support collaboration. Many of
these relationships are competitive based on everyone getting their share of the pie, often
at the expense of others.
Once the entire supply chain becomes focused on the needs of the customer, you can
begin to employ the tools and techniques of SCM: outsourcing, 3rd and 4th party logistics,
supply chain collaboration, early supplier involvement (ESI), and SCM software.The first
step in implementing a CFSCM program is to establish free and open two-way
communications with your customers and suppliers. Understand their needs. Work with
them to solve design, fulfillment or quality problems. Establish functional interfaces
between your companies. And, collaborate with them on product design and improvement.
Find out what the customer is looking for: low cost? Speed to market? Service? Flexibility?
Technological innovations? Only when you truly understand the needs and strategic
objectives of your customer can you set operational strategies for your company and the
suppliers in your supply chain. The goal is to establish a smooth flow of information up the
supply chain from customers to suppliers, and smooth flow of product and services down
the supply chain from suppliers to customers. The more information that suppliers know
about their customers actual requirements, the less inventory needed in the supply chain.
To illustrate this point: In the traditional supply chain with multiple tiers of
suppliers and customers, each operation plans production or distribution requirements
based on forecasted demand. Actual demand is only generated by a customer order. This
means that each entity needs to carry inventory in anticipation of customer orders.
Typically, each member of the supply chain will tend to over-plan inventory to assure
good customer service. This is known as the bullwhip effect; where a small change in
demand downstream generates increasingly larger demands as it progresses up-stream. In
a synchronized supply chain, the actual demand captured at the point-of-sale can be
communicated up the supply chain, using information technology, greatly reducing the
amount of inventory that each entity needs to maintain in order to support customer
service goals.
This example is one of the many ways that a customer focused approach to Supply
Chain Management will improve customer service and profitability. Key performance
factors such as reliability, responsiveness, flexibility, lower costs, and better resource
management can be achieved faster and more effectively through a collaborative supply
chain than by the individual efforts of any one member of the supply chain.
A customer value oriented supply chain management is able to produce competitive

cost and time advantages, as well as solving problems in convergence, coordination and
information sharing during the creation and transfer of value, by implementing resource
sharing and collaboration between members in the supply chain. This paper starts by
defining the connotation of customer value, and then utilizes models to analyze the
mechanism of customer value creation via supply chain management. It is proposed that a
customer value oriented supply chain management should aim to enhance customer
perceived benefits and reduce customer perceived sacrifices, in order to maximize
customer value through ways of supply chain designing, product selection and business
process reengineering etc.
CUSTOMER SEGMENTATION
Customer segmentation is the practice of dividing a customer base into groups of
individuals that are similar in specific ways relevant to marketing, such as age, gender,
interests and spending habits. Customer segmentation, also called consumer segmentation
or client segmentation, procedures include:
Deciding what data will be collected and how it will be gathered
Collecting data and integrating data from various sources
Developing methods of data analysis for segmentation
Establishing effective communication among relevant business units (such as
marketing and customer service) about the segmentation
Implementing applications to effectively deal with the data and respond to the
information it provides
Companies employing customer segmentation operate under the fact that every
customer is different and that their marketing efforts would be better served if they target
specific, smaller groups with messages that those consumers would find relevant and lead
them to buy something. Companies also hope to gain a deeper understanding of their
customers' preferences and needs with the idea of discovering what each segment finds
most valuable to more accurately tailor marketing materials toward that segment.
Customer segmentation relies on identifying key differentiators that divide customers

into groups that can be targeted. Information such as a customers' demographics (age, race,
religion, gender, family size, ethnicity, income, education level), geography (where they live
and work), psychographic (social class, lifestyle and personality characteristics) and
behavioral (spending, consumption, usage and desired benefits) tendencies are taken into
account when determining customer segmentation practices.
By enabling companies to target specific groups of customers, a customer segmentation

model allows for the effective allocation of marketing resources and the maximization of
cross- and up-selling opportunities. When a group of customers is sent personalized
messages as part of a marketing mix that is designed around their needs, it's easier for
companies to send those customers special offers meant to encourage them to buy more
products. Customer segmentation can also improve customer service and assist in
customer loyalty and retention. As a by-product of its personalized nature, marketing
materials sent out using customer segmentation tend to be more valued and appreciated by
the customer who receives them as opposed to impersonal brand messaging that doesn't
acknowledge purchase history or any kind of customer relationship.
Other benefits of customer segmentation include staying a step ahead of competitors in

specific sections of the market and identifying new products those existing or potential
customers could be interested in or improving products to meet customer expectations.
Not only do companies strive to divide their customers into measurable segments
according to their needs, behaviors or demographics but they also aim to determine the
profit potential of each segment by analyzing its revenue and cost impacts. Value-based
segmentation evaluates groups of customers in terms of the revenue they generate and the
costs of establishing and maintaining relationships with them. It also helps companies
determine which segments are the most and least profitable so that they can adjust their
marketing budgets accordingly.
Customer segmentation can have a great effect on customer management in that, by

dividing customers into different groups that share similar needs, the company can market
to each group differently and focus on what each kind of customer needs at any given
moment. Large or small, niche customer segments can be targeted depending on the
company's resources or needs. In B2B marketing, companies are concerned with decision-
makers' job titles, the industry sector, whether the company is public or private, its size,
location, buying patterns and their technology at their disposal, for example. In B2C
marketing, companies are concerned with particular customers' profiles, attitudes and
lifestyles. Approaches to B2B customer segmentation include vertical or horizontal
alignments. In vertical segmentation, companies select certain industries or job titles that
would likely find their products appealing and then focus marketing efforts on those
segments that they feel are most ready to buy. In horizontal segmentation, companies
simply focus on one job title across a wide range of industries and organizations.
CUSTOMER REQUIREMENT ANALYSIS
Customer requirement analysis has been well recognized as one of the principal
factors in product development for achieving success in the marketplace. Due to the
difficulties inherent in the customer requirement analysis process, reusing knowledge from
historical data suggests itself as a natural technique to facilitate the handling of
requirement information and the tradeoffs among many customers, marketing and
engineering concerns. The process of studying and analyzing the customer and the user
needs to arrive at a definition of the problem domain and system requirements.
Requirements analysis, also called requirements engineering, is the process of

determining user expectations for a new or modified product. These features, called
requirements, must be quantifiable, relevant and detailed. In software engineering, such
requirements are often called functional specifications. Requirements analysis is an
important aspect of project management.
Requirements analysis involves frequent communication with system users to determine

specific feature expectations, resolution of conflict or ambiguity in requirements as demanded by
the various users or groups of users, avoidance of feature creep and documentation of all aspects of
the project development process from start to finish. Energy should be directed towards ensuring
that the final system or product conforms to client needs rather than attempting to mold user
expectations to fit the requirements.
Requirements analysis is a team effort that demands a combination of hardware, software

and human factors engineering expertise as well as skills in dealing with people. Requirements
analysis is critical to the success or failure of a systems or software project. The requirements
should be documented, actionable, measurable, testable, traceable, related to identified business
needs or opportunities, and defined to a level of detail sufficient for system design.
Conceptually, requirements analysis includes three types of activities:
Eliciting requirements:(e.g. the project charter or definition), business process

documentation, and stakeholder interviews. This is sometimes also called
requirements gathering or requirements discovery.
Analyzing requirements: determining whether the stated requirements are clear,
complete, consistent and unambiguous, and resolving any apparent conflicts.
Recording requirements: Requirements may be documented in various forms,
usually including a summary list and may include natural-language documents, use
cases, user stories, process specifications and a variety of models including data
models.
Requirements analysis can be a long and tiring process during which many delicate
psychological skills are involved. Large systems may confront analysts with hundreds or
thousands of system requirements. New systems change the environment and
relationships between people, so it is important to identify all the stakeholders, take into
account all their needs and ensure they understand the implications of the new systems.
Analysts can employ several techniques to elicit the requirements from the customer.
These may include the development of scenarios (represented as user stories in agile
methods), the identification of use cases, the use of workplace observation or ethnography,
holding interviews, or focus groups (more aptly named in this context as requirements
workshops, or requirements review sessions) and creating requirements lists. Prototyping
may be used to develop an example system that can be demonstrated to stakeholders.
Where necessary, the analyst will employ a combination of these methods to establish the
exact requirements of the stakeholders, so that a system that meets the business needs is
produced. Requirements quality can be improved through these and other methods
Visualization. Using tools that promote better understanding of the desired end-
product such as visualization and simulation.
Consistent use of templates. Producing a consistent set of models and templates to
document the requirements.
Documenting dependencies. Documenting dependencies and interrelationships
among requirements, as well as any assumptions and congregations.
Customer Requirements
The customers are those that perform the eight primary functions of systems
engineering, with special emphasis on the operator as the key customer. Operational
requirements will define the basic need and, at a minimum, answer the questions posed in
the following listing:
Operational distribution or deployment: Where will the system be used?
Mission profile or scenario: How will the system accomplish its mission
objective?
Performance and related parameters: What are the critical system parameters
to accomplish the mission?
Utilization environments: How are the various system components to be
used?
Effectiveness requirements: How effective or efficient must the system be in
performing its mission?
Operational life cycle: How long will the system be in use by the user?
Environment: What environments will the system are expected to operate in
an effective manner?
Requirements analysis issues
Stakeholder issues
Steve McConnell, in his book Rapid Development, details a number of ways users can
inhibit requirements gathering:
Users do not understand what they want or users don't have a clear idea of their
requirements
Users will not commit to a set of written requirements
Users insist on new requirements after the cost and schedule have been fixed
Communication with users is slow
Users often do not participate in reviews or are incapable of doing so
Users are technically unsophisticated
Users do not understand the development process
Users do not know about present technology
This may lead to the situation where user requirements keep changing even when system
or product development has been started. It is also means that the requirement that is
under action process.
Engineer/developer issues
Possible problems caused by engineers and developers during requirements analysis are:
A natural inclination towards writing code can lead to implementation beginning
before the requirements analysis is complete, potentially resulting in inelegant
refactoring to meet actual requirements once they are known.
Technical personnel and end-users may have different vocabularies. Consequently,
they may wrongly believe they are in perfect agreement until the finished product is
supplied.
Engineers and developers may try to make the requirements fit an existing system
or model, rather than develop a system specific to the needs of the client.
Analysis may often be carried out by engineers or programmers, rather than
personnel with the domain knowledge to understand a client's needs properly.
OBJECTIVES
Discover the boundaries of the new system (or software) and how it must interact
with its environment within the new problem domain
Detect and resolve conflicts between (user) requirements
Negotiate priorities of stakeholders
Prioritize and triage requirements
Elaborate system requirements, defined in the requirement specification document,
such that managers can give realistic project estimates and developers can design,
implement, and test
Classify requirements information into various categories and allocate
requirements to sub-systems
Evaluate requirements for desirable qualities
ALIGNING SUPPLY CHAIN TO CUSTOMER NEEDS

Supply chain triangle is Alignment. It seems simple, but in practice there are few
supply chains that consistently align themselves with that most important element, the end
customer. In most companies this alignment gap is a result of good intentions, usually
based around solving the challenges of cost, quality and inventory. But along the way,
service to the customer suffers. Late deliveries, out of stock and lost sales are the
symptoms, swiftly followed by the sound of customers heading towards the
competition. How do you avoid this?
The solution lies in designing and optimizing your supply chain for the customers
you serve, through fully understanding what they need from your product and service. It
sounds deceptively straight-forward, but most supply chains are designed around the
things in the supply-chain. Some organizations will concentrate on optimizing warehouse
utilization and truck capacity, and at others they are focused on the manufacturing facility
productivity. Another organization may be driven by their enterprise resource planning
systems. On top of these physical structures, we layer on any number of different process
optimization tools to make these things as productive and efficient as possible. The net
result is often a highly cost-effective supply chain that is inflexible to customer needs.
In contrast, companies with Triple-A supply chains have re-designed them around
their customers. They recognize that their customers may require for different products,
and can offer a variety of service options with differing replenishment times and inventory
levels to support them. Crucially, the piece that makes the biggest difference is that
everyone involved in the supply chain is organized around meeting customer expectations,
and they know which behaviors to use to achieve them. This includes suppliers, trading
partners, logistics providers and manufacturers, as well as their own associates. Their
reward systems are also based on customer service, so that bonuses are paid on meeting
the targets, and costs are incurred if they do not. These companies revolve around
incentivizing the people in the supply chain to deliver service to their customers.
QUICK RESPONSE LOGISTICS

Quick response is becoming a way of life for many companies today. Getting closer
to your customer to anticipate what he wants next sounds good but how is it done? Having
the products always available for customers seems to call for a very accurate forecast or at
least a lot of inventory. Yet companies are competing with quick response and lower
inventories. How do they do it? Have they found a way to hold the sales people accountable
for the forecast? Do they have sophisticated computer systems?
The QR is a management concept created to increase consumer

satisfaction and survive increasing competition from new competitors. It
intends to shorten the lead time from receiving an order to delivery of the
products and increase the cash flow. The concept of a quick response system
cannot be easily separated from those of efficient consumer/customer response
systems (ECR), agile systems or other variations on the theme. The Council
of Supply Chain Management Professionals (CSCMP) definition of Quick
Response (QR) is A strategy widely adopted by general merchandise and soft
lines retailers and manufacturers to reduce retail out-of-stocks, forced
markdowns and operating expenses. These goals are accomplished through
shipping accuracy and reduced response time. QR is a partnership strategy in
which suppliers and retailers work together to respond more rapidly to the
consumer by sharing point-of-sale scan data, enabling both to forecast
replenishment needs. Although originating in the apparel industry, the QR
concept appears to have broader implications than just this field. Efficient
Consumer Response, although focused more on the grocery sector, is
characterized as a process that tightly integrates demand management,
production scheduling, and inventory deployment to allow the company to
better utilize information, production resources, and inventory. Christopher
and Towill (2008) describe agility as a supply chain philosophy with six
dimensions: marketing, production, design, organization, management and
people. They define agility as a business-wide capability that embraces
organizational structures, information systems, logistics process and in
particular, mindsets. The common theme across QR, agile and ECR is the
effective rapid sharing of information using in formation and communication
technology to deal efficiently with market volatility. Rapid changes in
technology allow industry to continuously adapt its view of traditional ways
of doing things. Given the major financial return of effective supply/demand
chain management for quick response to market changes, this is an obvious
target for the use of new technologies. However this is an area in which these
technologies have radically changed the way in which we view the management
of the flow of materials an d information from the raw material supplier to the
final customer. Although the traditional term is supply chain the move to
provide more customer focus refers to these as demand driven supply chains,
demand-driven value chains, demand chains or demand networks. The principle
here is that customer demand should be fuelling the need for supply fulfillment.
THE MOST COMMON MISTAKES BEING MADE TODAY TO ACHIEVE QUICKRESPONSE IN

LOGISTICS.
The three common mistake areas have to do with: Order Processing,
Forecasting and Inventory Management:
O r d er p r o c es s i n g
Quick Response, too many people, means doing everything quickly to ship the
customer's order. Quite often people begin with improvements to order processing;
believing customer orders must be processed quickly for them to be shipped quickly. It is
very common for order processing to be automated using Electronic Data Interchange
(EDI). Often companies upgrade their order processing system to improve quick response
performance. Unfortunately, the effort to automate the current process has minimum
benefit toward reaching the goal of quick response. What operations needs is advance
notice of what the customer is about to order so that it can be made available when he
orders it. A quicker transfer of a customer order or a new order entry system still leaves
operations with the need fill the order from an inventory or from a very flexible
manufacturing operation. Inventory built in anticipation of future orders relies on the
accuracy of the forecast. Because there is no such thing as an accurate forecast, failure in
achieving quick response is almost guaranteed. Another approach often taken is to make
manufacturing more flexible using the latest quick setup or change over techniques. Until
operations is flexible enough to meet any Customer demand, there needs to be an
alternative strategy. The best alternative strategy companies have found is to preplan
frequently making small changes often as customer demand becomes known.
Forecasting
Some of the most common approaches used to develop a sales forecast do nothing
to support quick response. Here are three of the more common mistaken
approaches used in industry today.
1. Aggregate forecasts. A common approach is to develop an aggregate
forecast for the business and then to use historical or projected
percentages to calculate detail forecasts. Unfortunately, customers
buy what they want and not necessarily what is budgeted. A budget
forecast is good for budgeting but it is not good for logistics forecasting.
Logistics forecasts must identify by stock keeping unit what is expected to be
sold.
2. Computer aided forecaster. A second very common approach is to use
a computer to generate a forecast and then to have a person review and
analyze the forecast. This is a way o f u s i n g p r o c e d u r e t o c h a n g e t h e
f o r e c a s t . T h i s a p p r o a c h i s v e r y s u b j e c t . I t a s s u m e s forecasting
is an art and not a science. It also tends to encourage second guessing
throughout the organization. If you have to change the forecast numbers
from the forecasting system, you need a new forecasting system that people
believe in.
3. Forecasts from field sales. The third common approach is to ask the
sales people or key customers what they think future sales will be for each
item. Sales people and customers have many reasons for purposely raising
the forecast or lowering the forecast. For example salespeople are measured
on sales and may give an optimistic forecast simply to encourage
higher inventories to protect against out of stocks. Sales people are
measured against targets and may purposely minimize the forecast in
order to look good when actual sales exceed forecast. If sales people do not
purposely forecast too high or too low, the enormous task of forecasting
every item on a frequent basis will quickly take second priority to the main
priority of selling. It is a fallacy that the best person to forecast sales
is the sales person in the field. When business is good sales people are
not worried about forecasting sales and it is something "we need to get
around to". When business is poor, sales people are not worried about
forecasting sales because their main effort has to be to get more sales and the
last thing they want to tell their boss is that they are working on a forecast.
In fact, most common sales forecasting approaches are
d o o m e d f o r f a i l u r e b e c a u s e companies have defined the need for
accuracy incorrectly. Specifically, how accurate will be defined later in this
presentation. A more accurate forecast is a good thing for companies but
something more is needed. A closer look at many business
operations reveals the need for better distribution inventory planning.
Inventory Management
There are three common inventory mistakes.
1. Get it on order as soon as possible. The thinking is the sooner product is put
on order the sooner it is shipped, the more likely the distribution center will
have product available to ship totheir customers. Unfortunately, it is
more difficult to order product needed for future months than for
future weeks because it is more likely the forecast will be wrong the farther
out in the future sales are forecasted. The result is a lot of items on
order and in inventory and a lot of emergency orders to get what is
really needed.
2. Increase inventory on the hard to forecast items because they are more
likely to be out of stock. The logic is that hard to forecast items need
additional inventory to protect against forecast error. Unfortunately,
carrying extra inventory on these items ensures there will be a significant
amount of slow moving inventory and a greater possibility for out of stocks
popular fast moving items. The reason this is true is that forecast error can
be positive or negative. The extra inventory on all the slow moving items will
protect all of them against positive forecast error and will leave half of
them with excess inventory. To make up for this extra inventory,
lowering the inventory on popular items means when there is an out of stock
it a larger amount of sales that will be lost. The real objective is to minimize
lost sales dollars not to minimize the number of items out of stock.
3. When there is an out-of-stock or an overstock, check the forecast
accuracy. This would make sense if the following problems were
extremely unlikely: suppliers who shipped late or who short shipped,
inventory record errors, open order errors, inability to accurately know what
is in transit, failure to communicate discontinued items or new products,
inability to manage use up of the discontinued inventory before the new
inventory is shipped to customers.
FOCUS FORECASTING
Here are the forecasting requirements for quick a response competitor. They are
conveniently shaped around the very popular Focus Forecasting strengths. Most people
would agree they are an excellent place to begin.
The forecast must be:
1. As accurate as possible
2. Easy to understand
3. Require very little maintenance
4. Quickly generated
If the forecast is not accurate people will not use it. People have got to believe they
have the very best forecast possible. One very effective way to convince people
the forecast system does provide accurate forecasts is to compare forecasts of
different systems or different strategies for past periods and determine what is the
best forecasting strategy or system. The forecast system you choose should be the most
accurate strategy or system available. Notice there is no need to set a specific
accuracy percentage. Playing can you outguess Focus F o r e c a s t i n g i s o n e w a y
t o c o n v i n c e p e o p l e F o c u s F o r e c a s t i n g i s m o r e a c c u r a t e t h a n a person's
judgments. Comparing how Focus Forecasting and other forecasting systems would have
forecast sales is another way to convince people that Focus Forecasting provides a more
accurate forecast.
People need to understand how the forecast was developed in order to
believe in it. Focus Forecasting quickly compares the forecast accuracy of fifteen
formulas using past sales history for each item in order to select the best formula
for each item. Focus Forecasting uses the formula it found most accurate in the
past to forecast the future. The formulas are simple. Formulas used by Focus
include: sales will be an average of the past twelve months, sales will be the same as last
year, sales will be the same as last year plus ten percent, etc. Focus Forecasting
requires almost no maintenance. Detail forecasts are reviewed on an exception basis and
usually to help develop estimated sales during promotion periods or to add
some other marketing intelligence amendment to the forecast. These
amendments to the forecast are called special requirement quantities and are
added to the forecast to become gross r e q u i r e m e n t s f o r D i s t r i b u t i o n
R e s o u r c e P l a n n i n g . B e c a u s e t h e r e i s n o n e e d t o r e v i e w forecasts, the
person responsible for managing the forecasting proces s can spend time
gathering outside information such as promotions, price changes, new
m a r k e t s , n e w customers, new product introductions, product phase outs, the effects of
competitor actions, etc. Competing with quick response performance means there is not a
lot of time to analyze the data. Inventory management decisions are being made
daily and whether or not the forecast has been finalized makes no difference.
Focus Forecasting will forecast thirty -two thousand items in less than 4 minutes.
DISTRIBUTION RESOURCE PLANNING
Here are the inventory management requirements for a quick response
competitor. The inventory management process must:
1. Frequently revise customer replenishment plans.
2. Connect and then summarize customer replenishment plans with
supplier replenishment plans.
3. Identify exceptions where current replenishment plans need to be modified to
prevent lost sales or excess inventory conditions.
4. Quickly create a transportation unit, i.e. truckload, shipping container, using
item minimum and multiple order quantities and allow management to control
the number of periods of supply in inventory for all items. Distribution
Resource Planning replaces customer orders and a g g r e g a t e
forecasts with customer replenishment plans. Today with so
m u c h p e r s o n a l computing power available it becomes easy to frequently
revise customer replenishment plans. We did not have the ability, in the
past, to replan frequently. Today, frequent replanning is a competitive
advantage.
Connecting customer replenishment plans means using a computer to add
up what your customers plan to order in detail by week, by item for as far into
the future as you care to know. This summarized plan is used to plan supplier
inventory replenishments in detail by week by item. Current manufacturing and
purchasing schedules and projected inventory plans automatically adjust quickly to
customer replenishment plans or at least provide an exception message.
Distribution Resource Planning presents exceptions to the inventory
manager suggesting current management plans for item replenishments be
expedited or delayed. Messages identify specific items, orders, dates and quantities
that need to be revised to respond quickly to current customer plans.
Distribution Resource Planning gives the inventory
m a n a g e r t h e a b i l i t y t o m a k e a transportation unit order that includes
those items most needed as well as enough weight or cube to make full
transportation units. Using safety time the inventory manager can equalize the number of
periods of supply for all items and order each item in minimum and multiple
order quantities by item.
NEW BUSINESS PARTNERS

Businesses need to more than automate their past practices and need to
work smarter by utilizing the logistics tools of the twenty first century, Focus Forecasting
and DRP. As customers and suppliers connect their sales plans, replenishment
plans and inventory plans the goal becomes quick response through the supply chain
to meet customer demand. Only by trading i n f o r m a t i o n f o r i n v e n t o r y c a n
b u s i n e s s e s a c h i e v e q u i c k r e s p o n s e . T h e s e t o o l s e n a b l e businesses to
connect to each other in such a way as to ensure they are both working to
achieve quick response. Electronic Data Interchange (EDI) is the technology that allows for
the quick transfer of information between partners. DRP and Focus Forecasting are the
new tools that can turn this information into a competitive advantage.
ELECTRONIC DATA INTERCHANGE AND POINT OF SALES

Electronic data interchange (EDI) software is designed to automate inter -
o r g a n i z a t i o n a l communication and thus improve the effectiveness of QR program. EDI is
the use of standard e l e c t r o n i c f o r m a t s f o r t h e c r e a t i o n , t r a n s m i s s i o n , a n d
s t o r a g e o f d o c u m e n t s , s u c h a s requisition, quotation, purchase orders, and invoices.
EDI connects the databases of different c o m p a n i e s . F o r e x a m p l e , o r d e r p l a c e d b y a
c o m p a n y i s t r a n s m i t t e d d i r e c t l y f r o m t h e companys system to its suppliers
system. Suppliers system then transmits the billing information directly to the ordering
companys system. In its early use, EDI allowed companies to utilize material requirements
planning (MRP) to inform suppliers of the upcoming orders by providing them with access
to the database of planned orders. Although this approach was innovative at that time,
it still represented only a limited sharing of information between the supply chains. In supply
chain management, EDI is a means of sharing information among all members of a supply
chain. Additionally, shared databases can ensure that all supply chain members have access
to the same information, providing visibility to everyone and avoiding problems such as
the bullwhip effect. Moreover, EDI system contributes to cutting lead times by reducing
the portion of the lead time that is linked to order processing, paperwork, stock
picking, transportation delays, and so on. POS, on the othe r hand, is an integral
part of EDI s y s t e m . P O S d a t a t r a n s f e r s y s t e m p r o v i d e s a
d i s t r i b u t o r / m a n u f a c t u r e r w i t h r e a l - t i m e information on what is selling at
the retailers. POS data are viewed by many as the answer. The major benefit of
using POS data is that it reflects the true sales. This leads to a more efficient
inventory replenishment, which ultimately leads to customer -driven
replenishment (CDR). POS also allows companies to employ more responsive and real-
time pricing strategy. The Beer Store, for example, is using POS data to automatically alert
their system to modify their pricing for in-stock brand or package configuration of beers
when particular item is out of stock. Sharing POS data is insignificant since the
manufacturer can utilize available order history to forecast the demand.
QR IMPLEMENTATION ELEMENTS, FMS, POS TRACKING

The retailers are using QR in different segments. Retailers and vendors
are developing QR partnerships very quickly between each other. Some
retailers are implementing QR during u s i n g E D I ( e l e c t r o n i c d a t a
i n t e r c h a n g e ) f o r t h e t r a n s m i s s i o n o f p u r c h a s e a n d s h i p p i n g information,
while a few are using QR throughout their products logistics.
The concepts of partnerships, bar-coding, EDI, PoS (point of
sales) tracking, flexible manufacturing system, seasonality and
benchmarking with their flexible adaptation in the supply chain must be
combined together for the useful implementation of QR. Equal Added Value Assessment
(AVA) for pipeline integration, minimum order rescheduling of minimum order,
collaboration of upstream supply chain agents, more elastic retail control, data storage EDI
& interfacing formats, fundamental change in business attitude and Quality
Management(QM) with better code of behavior development and standards
these are some important factors that must be obtained in the pipeline for holistic QR
implementation.
QR evaluation largely depends on partnerships and alliances. In order to create
supply chain synergy all process duplications must be eliminated &
infrastructures should be reformed which will lead to attain amplified
profitability, efficiency and market share . For energetic i n v o l v e m e n t o f a l l
the agents in the pipeline wit h controlled QR ele ment execution it is
necessary to apply special QR programs.
Merchandise bar-coding is also very indispensable. UPC (Universal Product Code)
and NRF (National Retail Federation) ensure proper transaction and inventory
management. PoS scanning at the tear-off sections of the retails make certain
speedy communication. It is possible to exchange of business documents like purchase
orders, invoices and schedules under a common web platform by using EDI. It is very
much essential for QR as it saves time, cuts error and improve chance to form deliberate
relationship.
The complexity of dealing can be minimized by using Value
A d d e d n e t w o r k ( V A N ) a s i t provides innumerous computer systems and software,
security and conformance to standards. PoS Tracking has greatly been expanded in the
recent years which is helping in the progress of QR with better inventory control, re-orders
processing, SKU management & reduction of cost. There should be a connection between
QR responses and the production system to make it more flexible. Modular production
system or Vendor Managed Inventory (VMI) may be the example of flexible
manufacturing system which is crucial to react to the requirements of QR ensuring
minimum order lead-times, additional productivity and effective use of
resources.
In order to have complete system redesigning, rapid designing and
product development p r o c e s s , p r o c e s s s i m u l a t o r s a n d L i n e B a l a n c i n g
D e c i s i o n T r a i n e r s 3 - D i m e n s i o n a l Concurrent Engineering can be followed. The
product seasonality should be understood for the better implementation of QR
philosophies. Depending upon the shelf life, products could be Basic, Seasonal
or Fashion. As these merchandise have different characteristics they have unlike QR
requirements. There seems marginal demand variation with firm requirement
throughout the year in case of Basic products. This scarcely caters the necessity to apply
QR responses for such products although the growth of PoS tracking, inventory
management and sharing of information are rather fundamental to be implemented. The
organizations require going for multi season assortments in case of Seasonal products that
indicate the necessity of QR management.
QR implementation is difficult for single season goo ds as it
r e q u i r e s s p r e a d i n g o u t o f manufacturing schedule and inventory procedures. On
the other hand, inventory management requirements & spaced product sales have
made the QR application easy for multi product lines. A lot of research is to be
expected to correctly determine the strategies for Fast Fashion products. In order to
fulfill the high speed changing customer demand, QR is an es sential
requirement to streamline the design, manufacturing and logistics-
p r o c e s s e s . F u l l Q R implementation also requires benchmarking that helps to alter
corporate mindset and measure as per the standards. ATC and AAMA benchmarking may
be the best example for sustaining QR.
Advantages and Disadvantages Of QR Implementation:

Implementation of QR strategies provides a lot of advantages.
Economic benefits and advantages to both the retailers and to the
s u p p l y c h a i n m e m b e r s h a v e b e e n o b t a i n e d because of QR implementation.
Suppliers benefits Retailers benefits-

Reduction of buying mistakes Improvement of communication
Minimization of stock holding Improvement of planning systems
Quick tracking of merchandise Quick access to sales information
Higher stock turn Easy tracking of products
Improvement of cash flow Security of getting more orders
Increment of customer service Improvement of manufacturing
systems
Very higher level of profit High volume of production
Enlarged competitive advantages- Reduction of stockholding
Higher level of sales
Good profit margin-
Getting of competitive advantages
Enhanced customer satisfaction &
loyalty
The typical disadvantages of implementing QRsystems for the

suppliers are:
Installing of IT systems increases the cost.
Increased retailer demands may erode the margin
VENDOR MANAGED INVENTORY
Vendor-managed inventory (VMI) is a family of business models in which the

buyer of a product provides certain information to a supplier (vendor) 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 store). A third-party logistics
provider can also be involved to make sure that the buyer has the required level of
inventory by adjusting the demand and supply gaps. As a symbiotic relationship, VMI
makes it less likely that a business will unintentionally become out of stock of a good and
reduces inventory in the supply chain. Furthermore, vendor (supplier) representatives in a
store benefit the vendor by ensuring the product is properly displayed and store staffs are
familiar with the features of the product line, all the while helping to clean and organize
their product lines for the store. VMI can also decrease the magnitude of the bullwhip
effect.
One of the keys to making VMI work is shared risk. In some cases, if the inventory
does not sell, the vendor (supplier) will repurchase the product from the buyer (retailer).
In other cases, the product may be in the possession of the retailer but is not owned by the
retailer until the sale takes place, meaning that the retailer simply houses (and assists with
the sale of) the product in exchange for a predetermined commission or profit (sometimes
referred to as consignment stock). A special form of this commission business is scan-based
trading, where VMI is usually applied but its use is not mandatory.
This is one of the successful business models used by Walmart and many other big
box retailers. Oil companies often use technology to manage the gasoline inventories at the
service stations that they supply (see Petrolsoft Corporation). Home Depot uses the
technique with larger suppliers of manufactured goods. VMI helps foster a closer
understanding between the supplier and manufacturer by using electronic data
interchange formats, EDI software and statistical methodologies to forecast and maintain
correct inventory in the supply chain.
Vendors benefit from more control of displays and more customer contact for their
employees; retailers benefit from reduced risk, better store staff knowledge (which builds
brand loyalty for both the vendor and the retailer), and reduced display maintenance
outlays.
Consumers benefit from knowledgeable store staffs that are in frequent and familiar
contact with manufacturer (vendor) representatives when parts or service are required.
Store staffs have good knowledge of most product lines offered by the entire range of
vendors. They can help the consumer choose from competing products for items most
suited to them and offer service support being offered by the store.
At the goods' manufacturing level, VMI helps prevent overflowing warehouses or
shortages, as well as costly labor, purchasing and accounting. With VMI, businesses
maintain a proper inventory, and optimized inventory leads to easy access and fast
processing with reduced labor costs.
CROSS DOCKING
Cross-docking is a practice in logistics of unloading materials from an incoming
semi-trailer truck or railroad car and loading these materials directly into outbound trucks,
trailers, or rail cars, with little or no storage in between. This may be done to change the
type of conveyance, to sort material intended for different destinations, or to combine
material from different origins into transport vehicles (or containers) with the same
destination or similar destinations.
Cross-dock operations were first pioneered in the US trucking industry in the 1930s,
and have been in continuous use in less-than-truckload (LTL) operations ever since. The US
military began using cross-docking operations in the 1950s. Wal-Mart began using cross-
docking in the retail sector in the late 1980s.
In the LTL trucking industry, cross-docking is done by moving cargo from one
transport vehicle directly onto another, with minimal or no warehousing. In retail practice,
cross-docking operations may utilize staging areas where inbound materials are sorted,
consolidated, and stored until the outbound shipment is complete and ready to ship.
Advantages of retail cross-docking
Streamlines the supply chain, from point of origin to point of sale
Reduces labor costs through less inventory handling
Reduces inventory holding costs by reducing storage times and potentially
eliminating the need to retain safety stock
Products reach the distributor, and consequently the customer, faster
Reduces or eliminates warehousing costs
May increase available retail sales space
Less risk of inventory handling
Disadvantages of cross-docking
Potential partners may not have the necessary storage capacities
An adequate transport fleet is needed to operate
A computerized logistics system is needed
Additional freight handling can lead to product damage
Labour costs are also incurred because the moving and shipping of stock happens
Typical applications
"Hub and spoke" arrangements, where materials are brought in to one central
location and then sorted for delivery to a variety of destinations
Consolidation arrangements, where a variety of smaller shipments are combined
into one larger shipment for economy of transport
Deconsolidation arrangements, where large shipments (e.g., railcar lots) are broken
down into smaller lots for ease of delivery
Retail cross-dock example: using cross-docking, Wal-Mart was able to effectively

leverage its logistical volume into a core strategic competency.
Wal-Mart operates an extensive satellite network of distribution centers serviced by

company-owned trucks
Wal-Mart's satellite network sends point-of-sale (POS) data directly to 4,000
vendors.
Each register is directly connected to a satellite system sending sales information to
Wal-Marts headquarters and distribution centers.
Factors influencing the use of retail cross-docks
Cross-docking depends on continuous communication between suppliers,
distribution centers, and all points of sale
Customer and supplier geography, particularly when a single corporate customer
has many multiple branches or using points
Freight costs for the commodities being transported
Cost of inventory in transit
Complexity of loads
Handling methods
Logistics software integration between supplier(s), vendor, and shipper
Tracking of inventory in transit
Cross-dock facility design
Cross-dock facilities are generally designed in an "I" configuration, which is an
elongated rectangle. The goal in using this shape is to maximize the number of inbound and
outbound doors that can be added to the facility while keeping the floor area inside the
facility to a minimum. Bartholdi and Gue (2004) demonstrated that this shape is ideal for
facilities with 150 doors or less. For facilities with 150200 doors, a "T" shape is more cost
effective. Finally, for facilities with 200 or more doors, the cost-minimizing shape is an "X".
PACKAGING
Packaging is the technology of enclosing or protecting products for distribution,
storage, sale, and use. Packaging also refers to the process of designing, evaluating, and
producing packages. Packaging can be described as a coordinated system of preparing
goods for transport, warehousing, logistics, sale, and end use. Packaging contains, protects,
preserves, transports, informs, and sells. In many countries it is fully integrated into
government, business, institutional, industrial, and personal use.
HISTORY
Ancient era
The first packages used the natural materials available at the time: baskets of reeds,
wineskins (bota bags), wooden boxes, pottery vases, ceramic amphorae, wooden barrels,
woven bags, etc. Processed materials were used to form packages as they were developed:
for example, early glass and bronze vessels. The study of old packages is an important
aspect of archaeology. The earliest recorded use of paper for packaging dates back to 1035,
when a Persian traveler visiting markets in Cairo noted that vegetables, spices and
hardware were wrapped in paper for the customers after they were sold.
Modern era
Tinning
The use of tinplate for packaging dates back to the 18th century. Tinplate boxes first
began to be sold from ports in the Bristol Channel in 1725. The tinplate was shipped from
Newport, Monmouthshire.Tobacconists in London began packaging snuff in metal-plated
canisters from the 1760s onwards.
Canning
With the discovery of the importance of airtight containers for food preservation by
French inventor Nicholas Appert, the tin canning process was patented by British merchant
Peter Durand in 1810. The progressive improvement in canning stimulated the 1855
invention of the can opener. Robert Yeates, a cutlery and surgical instrument maker of
Trafalgar Place West, Hackney Road, Middlesex, UK, devised a claw-ended can opener with
a hand-operated tool that haggled its way around the top of metal cans.
Paper-based packaging
Set-up boxes were first used in the 16th century and modern folding cartons date
back to 1839. The first corrugated box was produced commercially in 1817 in England.
Corrugated (also called pleated) paper received a British patent in 1856 and was used as a
liner for tall hats. Commercial paper bags were first manufactured in Bristol, England, in
1844, and the American Francis Wolle patented a machine for automated bag-making in
1852.
20th century
Packaging advancements in the early 20th century included Bakelite closures on
bottles, transparent cellophane overwraps and panels on cartons. These innovations
increased processing efficiency and improved food safety. As additional materials such as
aluminum and several types of plastic were developed, they were incorporated into
packages to improve performance and functionality. In 1952, Michigan State University
became the first university in the world to offer a degree in Packaging Engineering.
Many prominent innovations in the packaging industry were developed first for military
use. Some military supplies are packaged in the same commercial packaging used for
general industry. Other military packaging must transport materiel, supplies, foods, etc.
under severe distribution and storage conditions. Packaging problems encountered in
World War II led to Military Standard or "mil spec" regulations being applied to packaging,
which was then designated "military specification packaging". As of 2003, the packaging
sector accounted for about two percent of the gross national product in developed
countries. About half of this market was related to food packaging.
THE PURPOSES OF PACKAGING
Physical protection The objects enclosed in the package may require protection
from, among other things, mechanical shock, vibration, electrostatic discharge,
compression, temperature, etc.
Barrier protection A barrier to oxygen, water vapor, dust, etc., is often required.
Permeation is a critical factor in design. Some packages contain desiccants or
oxygen absorbers to help extend shelf life. Modified atmospheres or controlled
atmospheres are also maintained in some food packages. Keeping the contents
clean, fresh, sterile and safe for the duration of the intended shelf life is a primary
function. A barrier is also implemented in cases where segregation of two materials
prior to end use is required, as in the case of special paints, glues, medical fluids, etc.
At the consumer end, the packaging barrier is broken or measured amounts of
material are removed for mixing and subsequent end use.
Containment or agglomeration Small objects are typically grouped together in
one package for reasons of storage and selling efficiency. For example, a single box
of 1000 pencils requires less physical handling than 1000 single pencils. Liquids,
powders, and granular materials need containment.
Information transmission Packages and labels communicate how to use,
transport, recycle, or dispose of the package or product. With pharmaceuticals, food,
medical, and chemical products, some types of information are required by
government legislation. Some packages and labels also are used for track and trace
purposes. Most items include their serial and lot numbers on the packaging, and in
the case of food products, medicine, and some chemicals the packaging often
contains an expiry/best-before date, usually in a shorthand form. Packages may
indicate their construction material with a symbol.
Marketing Packaging and labels can be used by marketers to encourage potential
buyers to purchase a product. Package graphic design and physical design have been
important and constantly evolving phenomena for several decades. Marketing
communications and graphic design are applied to the surface of the package and
often to the point of sale display. Most packaging is designed to reflect the brand's
message and identity.
Security Packaging can play an important role in reducing the security risks of
shipment. Packages can be made with improved tamper resistance to deter
manipulation and they can also have tamper-evident features indicating that
tampering has taken place. Packages can be engineered to help reduce the risks of
package pilferage or the theft and resale of products: Some package constructions
are more resistant to pilferage than other types, and some have pilfer-indicating
seals. Counterfeit consumer goods, unauthorized sales (diversion), material
substitution and tampering can all be minimized or prevented with such anti-
counterfeiting technologies. Packages may include authentication seals and use
security printing to help indicate that the package and contents are not counterfeit.
Packages also can include anti-theft devices such as dye-packs, RFID tags, or
electronic article surveillance tags that can be activated or detected by devices at
exit points and require specialized tools to deactivate. Using packaging in this way is
a means of retail loss prevention.
Convenience Packages can have features that add convenience in distribution,
handling, stacking, display, sale, opening, reclosing, using, dispensing, reusing,
recycling, and ease of disposal
Portion control Single serving or single dosage packaging has a precise amount of
contents to control usage. Bulk commodities (such as salt) can be divided into
packages that are a more suitable size for individual households. It also aids the
control of inventory: selling sealed one-liter bottles of milk, rather than having
people bring their own bottles to fill themselves.
PACKAGING TYPES
Packaging may be of several different types. For example, a transport package or

distribution package can be the shipping container used to ship, store, and handle the
product or inner packages. Some identify a consumer package as one which is directed
toward a consumer or household.
Packaging may be described in relation to the type of product being packaged: medical
device packaging, bulk chemical packaging, over-the-counter drug packaging, retail food
packaging, military materiel packaging, pharmaceutical packaging, etc.
It is sometimes convenient to categorize packages by layer or function: "primary",
"secondary", etc.
Primary packaging is the material that first envelops the product and holds it. This
usually is the smallest unit of distribution or use and is the package which is in
direct contact with the contents.
Secondary packaging is outside the primary packaging, and may be used to prevent
pilferage or to group primary packages together.
Tertiary or transit packaging is used for bulk handling, warehouse storage and
transport shipping. The most common form is a palletized unit load that packs
tightly into containers.
PACKAGE DEVELOPMENT CONSIDERATIONS

Package design and development are often thought of as an integral part of the new
product development process. Alternatively, development of a package (or component) can
be a separate process, but must be linked closely with the product to be packaged. Package
design starts with the identification of all the requirements: structural design, marketing,
shelf life, quality assurance, logistics, legal, regulatory, graphic design, end-use,
environmental, etc. The design criteria, performance (specified by package testing),
completion time targets, resources, and cost constraints need to be established and agreed
upon.
An example of how package design is affected by other factors is its relationship to
logistics. When the distribution system includes individual shipments by a small parcel
carrier, the sorting, handling, and mixed stacking make severe demands on the strength
and protective ability of the transport package. If the logistics system consists of uniform
palletized unit loads, the structural design of the package can be designed to meet those
specific needs, such as vertical stacking for a longer time frame. A package designed for one
mode of shipment may not be suited to another. Packaging processes, labeling, distribution,
and sale need to be validated to assure that they comply with regulations that have the well
being of the consumer in mind.
PACKAGING INNOVATIONS
Packaging Innovations 2016 is dedicated to bringing the packaging industry
together to demonstrate new innovations, inspire developments and new approaches, and
discover the latest trends and technologies.
THIRD PARTY LOGISTICS
Third-party logistics (abbreviated 3PL, or sometimes TPL) in logistics and supply
chain management is a company's use of third party businesses to outsource elements of
the company's distribution and fulfillment services. Third party logistics providers typically
specialize in integrated operation, warehousing and transportation services which can be
scaled and customized to customers' needs based on market conditions, such as the
demands and delivery service requirements for their products and materials. Often, these
services go beyond logistics and include value-added services related to the production or
procurement of goods, i.e., services that integrate parts of the supply chain. When this
integration occurs, the provider is then called a third-party supply chain management
provider (3PSCM) or supply chain management service provider (SCMSP). 3PL targets
particular functions within supply management, such as warehousing, transportation, or
raw material provision.
TYPES
Third-party logistics providers include freight forwarders, courier companies, as well as

other companies integrating & offering subcontracted logistics and transportation services.
Hertz and Alfredsson (2003) describe four categories of 3PL providers:
Standard 3PL Provider: this is the most basic form of a 3PL provider. They would
perform activities such as, pick and pack, warehousing, and distribution (business)
the most basic functions of logistics. For a majority of these firms, the 3PL function
is not their main activity.
Service Developer: this type of 3PL provider will offer their customers advanced
value-added services such as: tracking and tracing, cross-docking, specific
packaging, or providing a unique security system. A solid IT foundation and a focus
on economies of scale and scope will enable this type of 3PL provider to perform
these types of tasks.
The Customer Adapter: this type of 3PL provider comes in at the request of the
customer and essentially takes over complete control of the company's logistics
activities. The 3PL provider improves the logistics dramatically, but does not
develop a new service. The customer base for this type of 3PL provider is typically
quite small.
The Customer Developer: this is the highest level that a 3PL provider can attain with
respect to its processes and activities. This occurs when the 3PL provider integrates
itself with the customer and takes over their entire logistics function. These
providers will have few customers, but will perform extensive and detailed tasks for
them.
Outsourcing may involve a subset of an operation's logistics, leaving some products or

operating steps untouched because the in-house logistics is able to do the work better or
cheaper than an external provider. Another important point is the customer orientation of
the 3PL provider. The provider has to fit to the structures and the requirements of the
company. This fit is more important than the pure cost savings, like a survey of 3PL
providers shows clearly: The customer orientation in form of adaptability to changing
customer needs, reliability and the flexibility of third party logistics provider were
mentioned as much more important than pure cost savings.
Characteristics of the different types of third party logistics services:
Transportation Based Third Party Logistics Services
Services extend beyond transportation to offer a comprehensive set of logistics

offerings.
Leveraged 3PLs use assets of other firms.
Non-leveraged 3PLs use assets belonging solely to the parent firm.
Examples: Ryder, Schneider Logistics, FedEx Logistics, UPS Logistics
Warehouse/Distribution Based Third Party Logistics Services
Many have former warehouse and/or distribution experience.

Examples: DSC Logistics, USCO, Exel, Caterpillar Logistics
Forwarder Based Third Party Logistics Services
Very independent middlemen with forwarder roles.

Non-asset owners that provide a wide range of logistics services.
Examples: AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, Hub Group
Shipper/Management Based Third Party Logistics Services
Focused on the management of the shipping process from beginning to end.
Provides technology, such as a transportation management system, and integrated
freight management services to eliminate heavy process and cumbersome features
such as claims and accounting (freight payment and accounting)
Provides management of carrier relations for ongoing rate maintenance and
negotiation
Gives information, such as freight data and matrix reports for better visibility and
control on future logistics outcomes
Examples: Cerasis, AFS Logistics, GlobalTranz, Worldwide Express
Financial Based Third Party Logistics Services
Provide freight payment and auditing, cost accounting and control, and tools for
monitoring, booking, tracking, tracing, and managing inventory.
Examples: Cass Information Systems, CTC, GE Information Services, FleetBoston
Information-based firms Third Party Logistics Services
Significant growth and development in this category of Internet-based, business-to-

business, electronic markets for transportation and logistics services.
Examples: Transplace, Nistevo, FreightQuote.com, uShip
LEAD LOGISTICS PROVIDERS
3PL providers without their own assets are called lead logistics providers. Lead
logistics providers have the advantage that they have specialized industry expertise
combined with low overhead costs, but lower negotiating power and less resources than a
third party provider has, based on a normally big company size, a good customer base and
established network systems. 3PL providers may sacrifice efficiency by preferring their
own assets in order to maximize their own efficiency. Lead logistics providers may also be
less bureaucratic with shorter decision making cycles due to the smaller size of the
company.
LAYERS
First party logistics providers (1PL) are single service providers in a specific
geographic area that specialize in certain goods or shipping methods are: carrying
companies, port operators, depot companies. The logistics department of a producing firm
can also be a first party logistics provider if they have own transport assets and
warehouses.
Second party logistics providers (2PL) are service providers which provide their
specialized logistics services in a larger (national) geographical area than the 1PL do. Often
there are frame contracts between the 2PL and the customer, which regulate the conditions
for the transport duties that are mostly placed short term. 2PLs provide own and external
logistics resources like trucks, forklifts, warehouses etc. for transport, handling of cargo or
warehouse management activities. Second party logistics arose in the course of the
globalization and the uprising trend of lean management, when the companies began to
outsource their logistics activities to focus on their own core companies. Examples are:
courier, express and parcel services; ocean carriers, freight forwarders and transshipment
providers.
The most significant difference between a second party logistics provider and a
third party logistics provider is the fact that a 3PL provider is always integrated in the
customs system. The 2PL is not integrated, in contrast to the 3PL he is only an outsourced
logistics provider with no system integration. A 2PL works often on call (e.g. express parcel
services) whereas a 3PL is almost every time informed about the workload of the near
future. Another point that differs 2 and 3PL is the specification and customizing of services.
A 2PL normally only provides standardized services. 3PLs against it often provide services
that are customized and specialized on the needs of their customer. This is possible by the
long term contracts that are usual in the third party logistics market. So there are
customized logistics services are needed the contracts in the 3PL segment have to be long
term, because customizing always costs money. Cost effectiveness for the third party
logistics provider is only given over longer periods of time with a stable contract and stable
profits. In contrast to that second party logistic services cant be customized, concerning to
the fluctuating market with hard competition and a price battle on a low level. And there
we have another distinguishing point between 2PL and 3PL: Durability of contracts. 3PL
contracts are long term contracts, whereas 2PL contracts are of a low durability, so that the
customer is flexible in responding to market and price changes.
A fourth party logistics provider has no own transport assets or warehouse capacity.
They have an allocative and integration function within a supply chain with the aim of
increasing the efficiency of it. The idea of a fourth-party logistics provider was born in the
seventies by the consulting company Accenture. Firms are outsourcing their selection of
third party logistics provider and the optimization process of the integration of these to a
PL as an intermediary. That reduces costs and the 4PL have to have an overview about the
whole logistics market to choose the ideal 3PL for all operative logistic activities. For being
able to provide such an ideal solution fourth party logistics providers need a good
knowledge of the logistics branch and a good IT infrastructure. A fourth party logistics
provider selects the 3PL providers from the market which are most suitable for the
logistical issues of his customer. Unlike the allocative function of a 4PL in the supply chain,
the core competence of a 3PL provider is the operative logistics.
Fifth party logistics providers (5PL) provide supply chain management and offer system
oriented consulting and supply chain management services to their customers.
Advancements in technology and the associated increases in supply chain visibility and
inter-company communications have given rise to a relatively new model for third-party
logistics operations the non-asset based logistics provider.
ON-DEMAND TRANSPORTATION
On-demand transportation is a relatively new term coined by 3PL providers to

describe their brokerage, ad-hoc, and "flyer" service offerings. On-demand transportation
has become a mandatory capability for today's successful 3PL providers in offering client
specific solutions to supply chain needs. These shipments do not usually move under the
"lowest rate wins" scenario and can be very profitable to the 3PL that wins the business.
The cost quoted to customers for on-demand services are based on specific circumstances
and availability and can differ greatly from normal "published" rates. On-demand
transportation is a niche that continues to grow and evolve within the 3PL industry.
Specific modes of transport that may be subject to the on-demand model include (but are
not limited to) the following:
FTL, or Full Truck Load
LTL, or Less-than Truck Load
Hotshot (direct, exclusive courier)
Next Flight Out, sometimes also referred to as Best Flight Out (commercial airline
shipping)
International Expedited
On-demand transportation is a term to reflect what have become known as "smile and
dial" brokerages that essentially work as telemarketing call centers. Brokers have no
obligation to successfully ship all loads (as opposed to contract logistics providers) and
almost all sales representatives are heavily (and 100%) commissioned, and much of the
workers' day is spent cold-calling sales leads. Smile-and-dial brokerages typically require a
15% gross profit margin (the difference between what the shipper pays the brokerage and
what the brokerage pays the carrier), and the commission compensation scheme means
that the turnover of personnel in the call centers approaches 100% per year.
For the occasional shipper, smile-and-dial brokerages can provide a convenient way to
have goods shipped. But the lack of deep expertise due to constant turnover combined with
the 15% pricing margins, mean that a reasonably capable traffic professional can obtain
transportation services much more economically and reliably.
Advantages
Cost and time savings
Logistics is the core competence of third party logistics providers. Providers may
have better related knowledge and greater expertise than the producing or selling
company, and may also have more global networks enabling greater time and cost
efficiencies. The equipment and the IT systems of 3PL providers are constantly updated
and adapted to match the requirements of their customers and their customers suppliers.
Producing or selling companies often do not have the time, resources, or expertise to adapt
their equipment and systems as quickly.
Low capital commitment
If most or all operative functions are outsourced to a 3PL provider, there is usually
no need for the client to own its own warehouse or transport facilities, lowering the
amount of capital required for the client's business. This is particularly beneficial if a
company's warehouse has high variations in capacity utilization, leading to over
purchasing of warehouse capacity and reducing profitability.
Focus
Logistics outsourcing allows companies with limited logistics expertise to focus on their
core business. Increasing complexity in business suggests that companies benefit from not
devoting resources to areas in which they are not skilled.
Flexibility
Third party logistics providers can provide higher flexibility for geographic distribution
and may offer a larger variety of services than clients could provide for themselves. This
also allows businesses to more predictably manage their resources including workforce
size, and turn fixed costs into variable costs.
Disadvantages
Loss of control
One particular disadvantage is the loss of control a client has by working with third
party logistics. With outbound logistics, the 3PL provider usually assumes communication
and interactions with a firm's customer or supplier. To mitigate this, some 3PLs attempt to
brand themselves as their clients, such as painting clients logos on their assets and dressing
their employees like their clients ones.
IT
The IT systems of the provider and the client must be interoperable. Technology helps
increase visibility for the client by way of continuous status updates via Dispatch
Management Software and Electronic Data Interchange (EDI) which does involve a cost,
but it can help avoid penalties for delays and subsequent financial losses such as from not
unloading freight in time.
PROCUREMENT LOGISTICS
Procurement logistics is the procurement of materials needed to manufacture products.
Procurement logistics includes obtaining the following necessities:
Raw materials.
Auxiliary supplies.
Operating supplies.
Replacement parts.
Purchased parts and similar items.
The materials are the building blocks of an actual product, but the materials do not
magically appear. In other words, an entire section of the supply chain must be devoted to
purchasing, shipping, organizing and storing these various components at the procurement
warehouse. If the flow of procurement logistics becomes inhibited, it could undermine
production in manufacturing centers and subsequent storage warehousing, creating a
strain on the distributor and customers.
Procurement logistics has to ensure that the raw materials, semi-finished products and
auxiliary materials are available in the right quantity, at the right time and at the right
place. Therefore procurement logistics must know:
the potential demand
the need date and
The place of consumption.
These key data in materials management are the result of the production planning
made by the production department. To make a procurement planning we need the
following basic data from the purchasing department:
the suppliers
the prices
the quality of the products
the terms of delivery
the terms of payment
The procurement logistics has to ensure the economic supply of the company with not
self produced raw materials and supplies, trade goods and buying parts in line to the
demand. Especially in medium-sized and large companies, the procurement logistics
quickly reaches a high level of complexity which is difficult to master. The complexity
arises primarily due to
the diverse and heterogeneous tasks and targets in the functional departments of
purchasing, materials management and logistics,
the numerous to be optimized in-house interfaces (e.g. between materials
management and production) and
The high number of individual business relationships with suppliers, which require
continuous reviews and adjustments (see figure below).
Increasing cost pressure, volatile customer demands, decreasing real net output ratios
and increasing requirements for the quality and delivery reliability put a tremendous
pressure on procurement managers. Therefore, decision-makers in procurement are
required to constantly monitor and improve the procurement processes, strategies and
concepts in order to realize an efficient procurement. In addition, the procurement logistics
needs to be designed so that it can be quickly and flexibly adapted to changing conditions
in the business environment at any time; it has to be changeable.
Procurement logistics consists of activities such as market research, requirements

planning, make-or-buy decisions, supplier management, ordering, and order controlling.
The targets in procurement logistics might be contradictory: maximizing efficiency by
concentrating on core competences, outsourcing while maintaining the autonomy of the
company, or minimizing procurement costs while maximizing security within the supply
process.
The systematic coordination of all aspects of the procurement process including bids,
price negotiations, assuring proper quantities and specifications, shipping and delivery is
called procurement logistics. The goal is to obtain materials, services or products at the
best possible cost which meet the needs and time constraints of the organization.
Example of Procurement Logistics
Example the procurement logistics department has to procure fabrics, yarns and buttons
for the production line of blouses. In the part list is the necessary material required. Hence
the following are needed for the production of the blouses:
fabrics, which will be cut out in the first production line
yarn, which will be sewed together with the cut-out fabrics
Buttons, which will be sewed on the blouses.
Service Overview of Procurement Logistics

Analysis and evaluation of the procurement portfolio
Make-or-buy decision
Selection of appropriate forms of procurement (single sourcing, supply
procurement, JIT / JIS, call-off orders and framework contracts, etc.)
Evaluation of the assessment of demand as well as material planning and scheduling
Analysis, evaluation and improvement of delivery procedures and procurement
processes
Inventory dimensioning and optimization
Analysis and selection of appropriate sourcing strategies (e.g. local vs. global
sourcing, single vs. multiple sourcing)
Choice of supply concepts and strategies (e.g. VMI, consignment storage)
Choice, analysis and development of logistics key figures in the procurement
Selection, qualification and evaluation of suppliers
SOURCE IDENTIFICATION
GLOBAL VS DOMESTIC SOURCING
DOMESTIC SOURCING
Domestic sourcing is the activity of contracting for goods or services that are
delivered or manufactured within the buyers home country borders. Domestic sourcing is
becoming central to the discussion of "Buy American" or the protectionist debate that is
being discussed at the highest levels of all major countries.
Advantages of Domestic Sourcing
Fast Delivery
Domestic sources are usually closer to the distributor or retailer than 'imported
sources'. Sources like raw materials, services or products can be delivered in shorter
periods of time compared to foreign sources. After sales, exchange or refunds of faulty
products will benefit as well; as it is always easier to communicate with local business
rather than international cooperations. Further, there is also quicker reaction to emergency
situations or faster decision making to uncertainties in the market.
Consumer confidence
Shorter time for transportation could ensure that products such as food and drinks stay
fresh. It is statistically proven that domestic sourcing increases consumer confidence;
according to a report by IGD, 57% of consumer who consider buying local food because it is
fresher. It may also influence a consumer's decision when it comes to multiple options;
with a domestic sourcing strategy, selling local products can help to gain support from
consumers who are concerned about the origin of the product that they are buying for
political, ethical, or environmental reasons. It is also persuasive to tell consumers that local
products are quality assured; buying with confidence is a very important aspect for
retailers to gain trust from consumers, subsequently increasing brand awareness and
loyalty.
Cost benefit
Business or retailers who have strong relationships with local suppliers do not have to
go through a long supply chain which will help to reduce the cost of sales, resulting in
attracting more consumers with a lower selling price. Less transportation between the
suppler and retailer may also reduce the selling price as transportation costs are cut.
Job opportunities
Increases in domestic sourcing rather than international sourcing will increase the job
opportunities for locals. If all local business supports domestic sourcing, and the demand
for domestic sourcing will increase, more job opportunities is then created to meet the new
demands.
Benefits to the local economy
According to IGD report, over 54% of consumers buy local food as they feel obliged to
support local producers and farmers in 2006. An increase in domestic sourcing for the
labour force would benefit the economy of the state or country by increasing the circular
flow of income; it is estimated that every 10 spent on local product is worth a 25
increase in the circular flow of income of the local economy. When there is an increase in
demand for domestic sourcing, local suppliers have to hire more people to meet the boost
in the demand, these new workforces will spend more money in the local economy which
will thereafter produce a positive multiplier effect. Further, local business tends to give
more wages than most corporate chains, which means that employees will receive more
disposable income.
Protecting local culture

There are many local business selling unique products or services such as handcrafting
or tailored products that nowhere else can offer; supporting domestic sourcing could
prevent large corporate chains taking over the high street, preventing small business from
being eliminated. Domestic sourcing also encourages more entrepreneurs to start small
businesses in local markets.
Time Zone advantage

Firms that support domestic sourcing or manufacturing could enjoy the benefit of
having the same time zone with the supplier, which means quicker respond from supplier
for any enquiry or questions, sometimes a couple of minutes of delay in solving problems
could cost millions for the business, it is always good to be easy to communicate supply.
Disadvantage of domestic sourcing
Trade war / Price war

Domestic sourcing campaign may trigger trade war globally. When one country starts
to encourage their citizens to buy domestic goods, there are usually resistances from other
countries, as a result of that, poorer countries with significant disadvantage, maybe forced
to add levy against a certain country. The most recent example of trade war happened in
2013 when EU claimed that China is selling solar panels below the average cost which
resulted in lesser demand for solar panels made in Europe, which then led to trade war
between China and EU.
Import
Certain domestic resources can be very expensive compare to the neighbour country,
business who attempted to promote local resource may lose market share, it is simply
because not everyone would agree with the idea of paying more just to support domestic
sourcing; sometimes the proportion of consumer who choose to buy cheaper product or
services is outnumber of consumer who is willing to pay extra money to support local
sourcing, with the result of that, business which is more concentrated on local sourcing
may be threatened by the reaction of the market which choose to buy import from
neighbour countries, this can lead to trade deficit that export is less than import, and
unemployment rate may increase because of the demand for local sourcing reduced and
hence cut in employee.S
Export
Export firms who chose to use more expensive domestic resources may lose their
competitiveness in the global market due to higher cost of production, oversea demand will
shrink eventually and with a consequence of a negative balance of trade and affect national
GDP (Consumption + Investment + Government spending + (Export Import))
GLOBAL SOURCING
Global sourcing is the practice of sourcing from the global market for goods and
services across geopolitical boundaries. Global sourcing often aims to exploit global
efficiencies in the delivery of a product or service. These efficiencies include low cost
skilled labor, low cost raw material and other economic factors like tax breaks and low
trade tariffs. A large number of Information Technology projects and Services, including IS
Applications and Mobile Apps and database services are outsourced globally to countries
like Pakistan and India for more economical pricing.
Common examples of globally sourced products or services include: labor-intensive

manufactured products produced using low-cost Chinese labor, call centers staffed with
low-cost English speaking workers in the Philippines and Pakistan and India, and IT work
performed by low-cost programmers in India and Pakistan and Eastern Europe. While
these examples are examples of Low-cost country sourcing, global sourcing is not limited to
low-cost countries. Majority of companies today strive to harness the potential of global
sourcing in reducing cost. Hence it is commonly found that global sourcing initiatives and
programs form an integral part of the strategic sourcing plan and procurement strategy of
many multinational companies.
A definition focused on this aspect of global sourcing is: "proactively integrating and
coordinating common items and materials, processes, designs, technologies, and suppliers
across worldwide purchasing, engineering, and operating locations
The global sourcing of goods and services has advantages and disadvantages that
can go beyond low cost. Some advantages of global sourcing, beyond low cost, include:
learning how to do business in a potential market, tapping into skills or resources
unavailable domestically, developing alternate supplier/vendor sources to stimulate
competition, and increasing total supply capacity. Some key disadvantages of global
sourcing can include: hidden costs associated with different cultures and time zones,
exposure to financial and political risks in countries with (often) emerging economies,
increased risk of the loss of intellectual property, and increased monitoring costs relative
to domestic supply. For manufactured goods, some key disadvantages include long lead
times, the risk of port shutdowns interrupting supply, and the difficulty of monitoring
product quality.
LANDED COST COMPUTATION

Landed costs are the additional costs incurred in getting goods you purchase from
your supplier to your premises. The total cost of a landed shipment includes the purchase
price of the goods, freight costs, insurance, warehousing and other costs. In some instances,
it may include customs duties and other taxes that may be levied on a shipment.
Knowledge of the purchase price and the landed costs is critical in understanding the true
value of your stock. You need to know the total cost to set the selling price in order to
determine your profit margin.
Product cost
+ Shipping: Costs associated with crating, packing, handling, and freight
+ Customs: Duties, taxes, tariffs, VAT, brokers fees, harbor fees
+ Risk: Insurance, compliance, quality, safety stock cost
+ Overhead: Purchasing staff, due diligence cost, travel, exchange rates
= Landed cost
While landed cost generally refers to the costs associated with importing goods, the
calculation, which is also referred to as added cost, is also valuable for determining the true
cost for all products.
VENDOR RATING
Vendor rating is the result of a formal vendor evaluation system. Vendors or

suppliers are given standing, status, or title according to their attainment of some level of
performance, such as delivery, lead time, quality, price, or some combination of variables.
The motivation for the establishment of such a rating system is part of the effort of
manufacturers and service firms to ensure that the desired characteristics of a purchased
product or service is built in and not determined later by some after-the-fact indicator. The
vendor rating may take the form of a hierarchical ranking from poor to excellent and
whatever rankings the firm chooses to insert in between the two. For some firms, the
vendor rating may come in the form of some sort of award system or as some variation of
certification. Much of this attention to vender rating is a direct result of the widespread
implementation of the just-in-time concept in the United States and its focus on the critical
role of the buyer-supplier relationship.
Most firms want vendors that will produce all of the products and services defect-
free and deliver them just in time (or as close to this ideal as reasonably possible). Some
type of vehicle is needed to determine which supplying firms are capable of coming
satisfactorily close to this and thus to be retained as current suppliers. One such vehicle is
the vendor rating.
In order to accomplish the rating of vendors, some sort of review process must take
place. The process begins with the identification of vendors who not only can supply the
needed product or service but is a strategic match for the buying firm. Then important
factors to be used as criteria for vendor evaluation are determined. These are usually
variables that add value to the process through increased service or decreased cost. After
determining which factors are critical, a method is devised that allows the vendor to be
judged or rated on each individual factor.
It could be numeric rating or a Likert-scale ranking. The individual ratings can then
be weighted according to importance, and pooled to arrive at an overall vendor rating. The
process can be somewhat complex in that many factors can be complementary or
conflicting. The process is further complicated by fact that some factors are quantitatively
measured and others subjectively.
Once established, the rating system must be introduced to the supplying firm
through some sort of formal education process. Once the buying firm is assured that the
vendor understands what is expected and is able and willing to participate, the evaluation
process can begin. The evaluation could be an ongoing process or it could occur within a
predetermined time frame, such as quarterly. Of course the rating must be conveyed to the
participating vendor with some firms actually publishing overall vendor standings. If
problems are exposed, the vendor should formally present an action plan designed to
overcome any problems that may have surfaced. Many buying firms require the vendor to
show continuing improvement in predetermined critical areas.
CRITERIA FOR EVALUATION
Vendor performance is usually evaluated in the areas of pricing, quality, delivery,

and service. Each area has a number of factors that some firms deem critical to successful
vendor performance.
Pricing factors include the following:
Competitive pricing. The prices paid should be comparable to those of vendors

providing similar product and services. Quote requests should compare favorably to
other vendors.
Price stability. Prices should be reasonably stable over time.
Price accuracy. There should be a low number of variances from purchase-order
prices on invoiced received.
Advance notice of price changes. The vendor should provide adequate advance
notice of price changes.
Sensitive to costs. The vendor should demonstrate respect for the customer firm's
bottom line and show an understanding of its needs. Possible cost savings could be
suggested. The vendor should also exhibit knowledge of the market and share this
insight with the buying firm.
Billing. Are vendor invoices are accurate? The average length of time to receive
credit memos should be reasonable. Estimates should not vary significantly from the
final invoice. Effective vendor bills are timely and easy to read and understand.
Quality factors include:
Compliance with purchase order. The vendor should comply with terms and
conditions as stated in the purchase order. Does the vendor show an understanding
of the customer firm's expectations?
Conformity to specifications. The product or service must conform to the
specifications identified in the request for proposal and purchase order. Does the
product perform as expected?
Reliability. Is the rate of product failure within reasonable limits?
Reliability of repairs. Is all repair and rework acceptable?
Durability. Is the time until replacement is necessary reasonable?
Support. Is quality support available from the vendor? Immediate response to and
resolution of the problem is desirable.
Warranty. The length and provisions of warranty protection offered should be
reasonable. Are warranty problems resolved in a timely manner?
State-of-the-art product/service. Does the vendor offer products and services that
are consistent with the industry state-of-the-art? The vendor should consistently
refresh product life by adding enhancements. It should also work with the buying
firm in new product development.
Delivery factors include the following:
Time. Does the vendor deliver products and services on time; is the actual receipt
date on or close to the promised date? Does the promised date correspond to the
vendor's published lead times? Also, are requests for information, proposals, and
quotes swiftly answered?
Quantity. Does the vendor deliver the correct items or services in the contracted
quantity?
Lead time. Is the average time for delivery comparable to that of other vendors for
similar products and services?
Packaging. Packaging should be sturdy, suitable, properly marked, and undamaged.
Pallets should be the proper size with no overhang.
Documentation. Does the vendor furnish proper documents (packing slips, invoices,
technical manual, etc.) with correct material codes and proper purchase order
numbers?
Emergency delivery. Does the vendor demonstrate extra effort to meet
requirements when an emergency delivery is requested?
Finally, these are service factors to consider:
Good vendor representatives have sincere desire to serve. Vendor reps display
courteous and professional approach, and handle complaints effectively. The vendor
should also provide up-to-date catalogs, price information, and technical
information. Does the vendor act as the buying firm's advocate within the supplying
firm?
Inside sales. Inside sales should display knowledge of buying firms needs. It should
also be helpful with customer inquiries involving order confirmation, shipping
schedules, shipping discrepancies, and invoice errors.
Technical support. Does the vendor provide technical support for maintenance,
repair, and installation situations? Does it provide technical instructions,
documentation, and general information? Are support personnel courteous,
professional, and knowledgeable? The vendor should provide training on the
effective use of its products or services.
Emergency support. Does the vendor provide emergency support for repair or
replacement of a failed product?
Problem resolution. The vendor should respond in a timely manner to resolve
problems. An excellent vendor provides follow-up on status of problem correction.
Pricing, quality, delivery, and service are suitable for supplies that are not essential to
the continued success of the buying firm, a more comprehensive approach is needed for
suppliers that are critical to the success of the firm's strategy or competitive advantage. For
firms that fall into the latter category performance may need to be measured by the
following 7 C's.
1. Competencymanagerial, technical, administrative, and professional competence

of the supplying firm.
2. Capacitysupplier's ability to meet physical, intellectual and financial
requirements.
3. Commitmentsupplier's willingness to commit physical, intellectual and financial
resources.
4. Controleffective management control and information systems.
5. Cash resourcesfinancial resources and stability of the supplier. Profit, ROI, ROE,
asset-turnover ratio.
6. Costtotal acquisition cost, not just price.
7. Consistencysupplier's ability to exhibit quality and reliability over time.
If two or more firms supply the same or similar products or services, a standard set of
criteria can apply to the vendor's performance evaluation. However, for different types of
firms or firms supplying different products or services, standardized evaluation criteria
may not be valid. In this case, the buying firm will have to adjust its criteria for the
individual vendor. For example, Honda of America adjusts its performance criteria to
account for the impact of supplier problems on consumer satisfaction or safety. A supplier
of brakes would be held to a stricter standard than a supplier of radio knobs.
AWARDS AND CERTIFICATION
Many buying firms utilize awards and certification programs to rate vendors.
Attainment of certification status or an award serves as an indicator of supplier excellence.
Certification and awards-program recognition represents a final step in an intense journey
that involves rigorous data collection under the total-quality-management-rubric as well as
multitudes of meetings with suppliers and purchasing internal customers. Serious buying
firms view these programs as an integral part of their overall efforts to improve the total
value of the company.
The attainment of a supplier award usually serves as an indication that the vendor
has been rated as excellent. Intel awards their best suppliers the Supplier Continuous
Quality Improvement Award (SCQI). Other firms may utilize a hierarchy of awards to
indicate varying degrees of performance from satisfactory to excellent. DaimlerChrysler
awards its best suppliers the Gold Pentastar Award. Several hundred vending firms receive
this award per year.
For other firms, supplier certification is desirable. Supplier certification can be

defined as a process for ensuring that suppliers maintain specific levels of performance in
the areas of price, quality, delivery, and service. Certification implies that participating
firms have reached a level of excellence that other firms were unable or unwilling to
achieve. For example a quality certified firm maintains a level of quality such that
customer-receiving inspection may be utilized with decreasing frequency up to the point
where it is eliminated altogether. Theoretically, this will ensure that all of the supplier's
products meet the customer's product specifications. In this case, the goal of supplier
certification is quality at the source.
While it is uncertain whether individual firms are consistent in the manner in which
they certify vendors, a quality certification would likely require that the vending firm be
part of a formal education program, utilize statistical process control (SPC), and have a
quality assurance plan (set written procedures).
BENEFITS
Benefits of vendor rating systems include:

Helping minimize subjectivity in judgment and make it possible to consider all
relevant criteria in assessing suppliers.
Providing feedback from all areas in one package.
Facilitating better communication with vendors.
Providing overall control of the vendor base.
Requiring specific action to correct identified performance weaknesses.
Establishing continuous review standards for vendors, thus ensuring continuous
improvement of vendor performance.
Building vendor partnerships, especially with suppliers having strategic links.
Developing a performance-based culture.
CONTRACT NEGOTIATION
Contract negotiation is the process of give and take the parties go through to reach
an agreement. Or, as they often say in business, "you don't get what you deserve; you get
what you negotiate."
The final stage in the vendor selection process is developing a contract negotiation
strategy. The worst contract negotiation objective is to bleed every last cent out of the
vendor for the lowest price. Remember, you want to "partner" with your vendor so that
both of you will meet your corporate goals and objectives by signing the contract.
Successful contract negotiation means that both sides look for positives that benefit both
parties in every area while achieving a fair and equitable deal.
OBJECTIVES OF CONTRACT NEGOTIATIONS
The following contract negotiation objectives can be use to evaluate the contract on
each of the following items:
Explain clearly all essential prerequisites, terms and conditions
Goods or services to be provided are unquestionably defined
Compensation is clearly stated: Total cost, payment schedule, financing terms
Acknowledgement of: Effective dates, completion/termination dates,
renewal dates
Identify and address potential risks and liabilities
Define and set reasonable expectations for this relationship currently and
into the future
Strategies for Planning Contract Negotiations
1. List Rank Your Priorities Along With Alternatives
As you develop your contract negotiation strategy, you may keep returning to this
area to add additional items. You will not be able to negotiate effectively all areas of
the contract at once. You want to be sure that what is most important to you is
discussed and agreed upon before you move to less important items. In addition,
you may want to refer to the least important items if you have to give up something
to get your top items.
2. Know the Difference Between What You Need and What You Want
Review your priorities frequently throughout the contract negotiations planning
process and one final time at the end. Be sure to ask the hard questions: "Is this
really a priority for our company, or is it a 'nice to have'?" "Was this priority a result
of some internal political jockeying, or is it for real?"
3. Know Your Bottom Line So You Know When to Walk Away
Is there a cost or hourly fee that your company cannot exceed? Have you come to
realize that one or two of the top priorities are truly non-negotiable and you will be
better to walk-away from this contract if the vendor does not agree to it? List these
along with the rationale so they are not forgotten.
4. Define Any Time Constraints and Benchmarks
In any substantial project you will want to set performance measurement standards
that you will expect from your vendor. If these are essential to your business, then
you will want negotiate a fair and equitable penalty when they are not met. For
example: project completion dates, delivery date for first batch of parts, start date
for the service, lead times, etc.
5. Assess Potential Liabilities and Risks
What is the potential for something to go wrong? What if unforeseen costs are
encountered? Who will be responsible if government regulations are violated?
Whose insurance will cover contract workers? These are just a few of the more
common questions that must be addressed in any contract.
6. Confidentiality, non-compete, dispute resolution, changes in requirements
These are other items that could be a potential negotiation stumbling block or deal
closer. For example, if the vendor (or an employee) have the possibility of being
exposed to confidential information, you will want to be sure a confidentiality clause
is put into the contract with the liability assumed by the vendor.
7. Do the Same for Your Vendor (i.e. Walk a Mile in Their Shoes)
Now that you have completed the contract negotiations planning process for your
business, repeat the same process as if you were the vendor. What area do you think
is most important for them? What risks or liabilities will they want you to assume?
Your list won't be perfect, but it will succeed in putting you into a frame of mind to
look at things from their perspective. This is how great partnerships between client
and vendors are built.
PREPARATION
Before the actual contract negotiations begin, make sure the following items are
reviewed and confirmed:
Determine If You Will Need Legal Counsel

Negotiating a contract for one year of janitorial services in a small office is vastly
different than negotiating a contract to outsource a fairly large call center. If you feel
the least bit uncomfortable reviewing contract "legalese", do not hesitate to retain a
lawyer specializing in contract negotiations.
On-Site or Teleconference
Agree upon where the negotiation session(s) will take place. If you think you have
the upper-hand by negotiating at the vendor's site, then propose up front that you
will travel to them. If the distance is too far to travel cost effectively, set up a
teleconference to accomplish the negotiation session. Make sure it is a video
conference because body language speaks louder than words.
Make Sure the Person Representing the Vendor Has Authority to Negotiate
Before your people travel to the vendor's site or the vendor travels to your site,
make sure the person/people representing the vendor have the authority to
negotiate on behalf of the vendor's company. It would be a huge waste of time to
hear at the end of a long negation session "Well, let me get back to you after I hear
what my boss has to say about this."
VENDOR CONSOLIDATION
Vendor consolidation is a procurement practice that involves lowering the number

of vendors your company buys from. Instead of spreading out your spend across a large
amount of vendors, you focus your spend on a limited number of select vendors. Part of the
process is identifying which supplier relationships are the most profitable for your
company. The other part is eliminating the supplier relationships your company no longer
needs. This isnt an easy process, but the benefits it can provide for your organization are
well worth it.
THE BENEFITS OF VENDOR CONSOLIDATION

When your Procurement Department figures out how to consolidate its vendors,
you will discover how much more effective your team can be. Not only that, you will be able
to see how much money your organization can save.
Increased Purchasing Power

One of the main benefits of vendor consolidation s is increased buying power.
When you cut down the number of vendors your company deals with, it frees
up more dollars to use with the remaining vendors. This means youre able to
place order with a higher volume, which means your vendor will be more
willing to lower your pricing. This is something that can save your
organization a lot of money in the long run.
Easier Vendor Management

Fewer vendors mean less relationship to manage. Captain Obvious couldnt
have said it better himself. When you manage fewer relationships, you can
use the extra time to make your team more effective. Managing tons of
vendor relationships is one of the things that can make procurement difficult.
By consolidating vendors, you dramatically reduce the impact this problem
can have. Whats great about this is the fact that your team will have more
time to spend on other important tasks and projects. Vendor management
can help you create a more productive team.
Lower Freight Costs
Vendor consolidation will also lower your freight costs. As you probably
know, each supplier you work with has their own freight costs. They charge a
certain amount to transport the product to your offices. This is another area
where your company can save a lot of money. Fewer vendors means less
money paid for freight costs. Sometimes, this fact alone can make vendor
consolidation worth it.
Better Relationships With Vendors
One of the drawbacks to having a large number of vendors is that it makes it
more difficult to nurture profitable vendor relationships. Managing that
many relationships means that your organization isnt able to invest as much
in each relationship. Most procurement managers would agree that having
better relationships with vendors is beneficial to the larger organization.
However, the more vendors you have, the harder it is to nurture these
relationships. When you lessen the amount of vendors that your company
works with, it becomes easier to cultivate better vendor relationships. Since
your team wont be occupied with juggling a lot of vendor relationships, they
will have more time to deepen the connection your company has with its
suppliers. Not only has that, less vendors meant more spending power. Since
youre now spending more money with your chosen vendors, they will value
your relationship even more.
SELF CERTIFIED VENDOR MANAGEMENT
Vendor Management is the ongoing management of third -party providers of

products or services. The goal of VM is to ensure the organization continuously obtains the
best value from external providers of products and services while controlling exposure to
vendor-related risk
A vendor management system (VMS) is an Internet-enabled, often Web-based

application that acts as a mechanism for business to manage and procure staffing services
temporary, and, in some cases, permanent placement services as well as outside contract
or contingent labor. Typical features of a VMS application include order distribution,
consolidated billing and significant enhancements in reporting capability that outperforms
manual systems and processes.
The goal of a VM program is to:
Gain control over vendors supporting the business
Optimize spending by understanding your vendor spending and classification
of vendors, as well as instituting controls on vendors that can be used in the
enterprise
Determine gaps and overlaps for VM tasks/activities
Drive value from your vendors through vendor classification and
management
Understand organizational skills to manage vendors and where they exist in
the enterprise. Identify gaps and ensure the right personnel, with the right
skills, are in place to manage vendors. Leverage vendor management best
practices across the enterprise
Articulate to vendors how you will manage them, starting with the RFP
Reduction of risk when using vendors, especially those supporting critical
business applications and processes.
VENDOR DEVELOPMENT
Vendor development is one of the popular techniques of strategic sourcing, which
improves the value we receive from suppliers. Vendor Development can be defined as any
activity that a Buying Firm undertakes to improve a Supplier's performance and
capabilities to meet the Buying Firms' supply needs.
Buying Firms use a variety of activities to improve Supplier performance, which
includes,
Assessing Suppliers' operations.
Providing incentives to improve performance.
Instigating competition among Suppliers.
Working directly with Suppliers either through training or other activities etc.,
BEST PRACTICES IN VENDOR DEVELOPMENT
Following are few of the Best Practices in Vendor development if adopted successfully
would enable World Class Supply Chain Management (WCSCM).
Creating dedicated supply developments team.
Teaching a supplier on the tactics of self-development, after initial guidance from
the supplier development team.
Focusing on underlying causes of long cycle times.
Involving suppliers in new product and process development at the buying firm.
Providing on-line training programs and off-line education programs to suppliers.
Conducting frequent improvement-focused seminars for suppliers
Creating supplier support centers at their locations itself.
Loaning-out process engineers and quality managers to share their expertise with
suppliers.
Setting 'stretch goals' to encourage radical change as well as continuous
improvement schemes for suppliers.
Improving proper metrics for supplier development improvements.
Sharing the savings from supplier development activities with suppliers.
Last, but not the least, improving the supplier's supply management system
COLLABORATION BETWEEN CUSTOMER AND SUPPLIER
WCSCM requires a commitment to collaboration between customer and supplier.

The commitment must be approached with mutual benefit in mind. Effective supplier
development is more than getting cost reduction for a particular part; it means helping
suppliers remove wasteful costs from their processes. The strategic intent is to create win-
win situation where in both the buyer and supplier gain.
Collaboration requires COMMITMENT on the part of the buying firm
To provide financial assistance for supplier investment needs,
to share all savings from supplier development projects,
to educate supplier on waste management techniques, improve quality,
better delivery, reduce cycle-times, reduce costs etc.,
to treat supplier as if, they are a department within the buying company
Collaboration requires COMMUNICATION on the part of the buying firm ,

to ensure that supplier is well informed of all aspects of the supplier
development programs.
to provide a very transparent feed-back system available to suppliers on
their reaction to all supplier development initiatives of the buying firm
Collaboration requires MEASUREMENT mechanism.

to ensure that all members of the supplier development programs, are
benefited
to ensure success of the collaboration efforts, there must be transparency in
sharing accurate costs of both the parties.
Collaboration requires TRUST building measures between the parties
to ensure that mutual beliefs and trust between the two organizations
personnel must be present, while sharing all confidential information.
SUPPLIER DEVELOPMENT PROCESSES
A generalized process for managing supplier development projects is presented in
following six phases;
Phase-1: Initiating the Project:-The main activities are to develop and confirm a
preliminary supplier development charter, define the supplier's processes, assess the
customers needs and assess the business environment.
Phase-2: Mapping and measuring:-In this phase, the team maps the supplier's process
and determines the measurement required. Deliverable from this phase include: process
maps, a final project charter and a baseline of "before" process improvement status.
Phase-3: Developing the Process:-In this phase, a project implementation plan that
addresses performance gaps in current processes and identifies measures to bridge the
same. The following critical activities occur in this phase: create solutions, select solutions,
and develop new processes, plan implementations and so on.
Phase-4: Achieving Results:-The Project team executes the implementation plan,

conducting any necessary simulations, pilots and releases the outcomes. The deliverables
from this phase are a new, lean process that has been implemented, documented and is
actually demonstrating results.
Phase-5: Controlling the Process:-In this phase, plans and documents are created to
ensure consistent implementation of the process with minimized variation. Ongoing
metrics are defined to allow review of the process. A closed-loop corrective action
procedure system is identified to review the process, address gaps in performance, and
continuously improve performance. The deliverables from this phase are a process control
plan and a corrective action plan.
Phase-6: Recognizing the team:-The final phase provides team recognition. Activities are
organized by the project team, project champion and process owners to promote the
success of the project. In this phase, the team shares the lessons learned and best practices
with the suppliers.
SUPPLIER DEVELOPMENT PROJECT CHARTER
The supplier development project charter is a dynamic document that is continually

updated during the planning, execution and completion of a supplier development project.
It generally consists of the following sections:
Business's Case-A Business case to financially assess the projects estimated savings
and other benefits.
Situation and goals a qualitative and quantitative description of the current
situation and the goals for improvement are documented.
Mission/Vision- The Project's mission and Visions statements need to be identified
to be able to communicate quickly to others on the areas of development, the team
is trying to achieve.
Project scope- Clarifying project scope helps to assure the team has narrowed the
project focus by refining its understanding of the activities required to complete the
project.
Schedule and Deliverables-A common approach in this section is to provide for
developing PERT (Program Evaluation and Review Technique) or Gantt Chart
Assignments and roles- this sections simply documents who is responsible for
what activities.
Signatures- Signatures are required from the upper management of all
participating companies as well as key participants when establishing the charter as
an official document.
BARRIERS TO SUPPLIER DEVELOPMENT
There are many barriers to effective supplier development, such as,

Poor communication and feedback
Complacency
Misguided improvement objectives
Credibility of customers
Misconception regarding purchasing power
Lack of clarity and commitment
Lack of a unified approach
Misaligned sourcing and performance metrics
Concealment problems
Initiative fatigue
Resource limitations
"Blame the supplier" culture
Lack of trust
Confidential issues
Legal issues and
Imbalance of power in the relationship.
VENDOR RELATIONSHIP MANAGEMENT
Vendor relationship management (VRM) is a category of business activity made

possible by software tools that aim to provide customers with both independence from
vendors and better means for engaging with vendors. These same tools can also apply to
individuals' relations with other institutions and organizations.
VRM tools provide customers with the means to bear their share of the relationship
burden with vendors and other organizations. They relieve CRM of the perceived need to
"target," "capture," "acquire," "lock in," "direct," "own," "manage," and otherwise take the
lead of relationships with customers. With VRM operating on the customer's side,
customers are also involved as participants, rather than as followers.
In its description of Project VRM, the Berkman Center says "The primary theory
behind Project VRM is that many market problems (including the widespread belief that
customer lock-in is a 'best practice') can only be solved from the customer side: by making
the customer a fully empowered actor in the marketplace, rather than one whose power in
many cases is dependent on exclusive relationships with vendors, by coerced agreement
provided entirely by those vendors."
In early 2012, Customer Commons, a non-profit, was born out of Project VRM at
Harvard, to support VRM principles. Customer Commons' mission is to educate research,
support and create VRM tools, and generally advocate for individuals as they interact with
entities on and offline.
Vendor Relationship Management is the discipline of managing vendors to extract

maximum possible value from a contractual arrangement through governance and
relationship building. The proactive management of ongoing commercial relationships
ensures that any technical or contractual loopholes are closed and that commercial
conversations are escalated to the appropriate level to ensure prompt resolution of issues.
SCOPE OF VRM ACTIVITIES
The objectives of vendor relationship management is to develop contract and

commercial tools, models, systems and processes to manage vendors and to ensure the
proper investment into the relationship happens.
Examples of vendor relationship management activities:
VENDOR PERFORMANCE MONITORING
The term performance monitoring means measuring a supplier's ability to comply

with, and preferably exceed, their contractual obligations i.e. monitoring post contract.
It can also be argued that monitoring the performance of suppliers can be;
a. An aspect of supplier appraisal (i.e. the process of evaluating potential suppliers)
and can be extended to supplier selection criteria during tendering; and
b. An aspect of the management of approved supplier lists.
Performance monitoring is a fundamental element within contract management and

supplier development. . Contract management includes activities of a buyer during a
contract period to ensure that the seller fulfils all his obligations under the contract.
At the start of a contract there is inevitably a degree of risk and uncertainty for the
parties involved. As the contract precedes both parties learn from experience and the risk
begins to diminish as the original contract assumptions come to be tested. For these
reasons too it is important to hold regular review meetings where both parties ask how
they can make the contract perform better. Hence the need for monitoring and
measurement of performance against that agreed in the contract, its supporting service
level descriptions and other documentation such as partnering agreements. These
meetings should be two-way, with both parties learning from each other. Thus the buying
organization needs to seek the supplier's comments as to how well they are carrying out
their side of the contract; for example, to check whether all information is being provided
on a timely basis.
It is vital that the buyer keeps managing the supplier and deals with problems as
and when they arise. If a supplier begins to suffer financial strain in discharging his
obligations then, commercial nature being what it is, the supplier will begin making
behind-the-scenes cutbacks, irrespective of what may or may not be specified in the actual
contract. The key is to address problems when they are still minor and therefore easier to
resolve.
There are many contractual relationships with suppliers where it is more important
to agree joint goals and jointly measure performance against these goals - rather than the
buyer simply monitoring the supplier's performance. This requires transparency and a
sharing, as appropriate, of business goals. This type of relationship allows for the supplier
to monitor performance provided a suitable process of validation is in place.
Relationship management is part of the performance monitoring process. It is a key
skill for the buyer and can be summarized as the proactive development of particular
relationships with suppliers. A managed relationship is one in which both parties are
sufficiently intimate that they each know how the other will react; the relationship is
predictable. The purpose of investing in a relationship with a supplier is to improve the
supplier's performance in fulfilling the needs of the buying organization.
CHARACTERISTICS
Performance monitoring of suppliers is a fundamental part of contract management.

Relationship management is a key skill of purchasing and supply management
professionals.
Purchasing and supply management professionals should perceive performance
monitoring as a two-way process and be open to feedback and suggestions for
improvement from the supplier.
Buyers and suppliers should, as appropriate, jointly measure combined
performance towards joint goals.
The monitoring of suppliers' performance should be against that which is agreed in
the contract and supporting documentation such as service levels and partnering
agreements; and a key objective from the outset should be to aim for continual
improvement.
Effective purchasing and supply management involves determining the appropriate
methods of managing the supply base - different solutions are appropriate for
different situations
Purchasing and supply management professionals should also monitor the
performance of their main suppliers to ensure they remain familiar with their
profiles in terms of e.g. growth, market share and financial performance.
Purchasing and supply management professionals need not be those undertaking
the performance monitoring of suppliers, or indeed the wider role of contract
management; however they should be responsible for ensuring that those who are
undertaking the role are properly trained and supported.
ASSESSMENT OF SUPPLIER PERFORMANCE

There are a number of key themes which might be used to assess supplier
performance and which might be used as a yardstick for determining whether good
practice is being achieved in specific situations. Some examples of such themes (together
with their sub-categories) are as follows:
Product Quality
MTBF (Mean Time Between Failure)
Percentage of incoming rejects (delivery accuracy)
Warranty claims
Service Quality (against agreed SLAs)
Call-out time
Customer service response time
Performance against agreed delivery lead times
Relationship/Account Management
Accessibility and responsiveness of account management
Commercial
Costs are maintained or reduced
The measures, objectives and targets used in the monitoring of the suppliers
performance must reflect those that were agreed when the contract was let. That is why it
is important to specify a commitment to continuous improvement at the outset. It would be
unfair to the supplier to suddenly introduce a range of measures after the contract had
begun - however if such an introduction mid-term through the contract is unavoidable then
it should be negotiated and agreed in a professional manner and not merely imposed on
the supplier.
ELEMENTS OF SUPPLIER PERFORMANCE
In summary, there are three different aspects to the monitoring of supplier performance
post-contract.
1. Gathering factual, and therefore objective, information about their performance
such as lead-times from order, quality standards being met, pricing compliance and
whatever else is laid out in the contract. This type of information can usually be
obtained from IT systems within the organization in the form of management
information. With all of these aspects, it is good practice to be as consistent as
possible in the approach to the performance monitoring.
2. Obtaining the experiences of the customers in respect of service, attitude and
response rates for instance which should be as objective as possible and reflect
reality but, inevitably may in some cases be subjective. One way to collect
information on performance is by individual interview against a defined set of
questions. This can be face-to-face or on the phone but needs to be interactive so
that the interviewer can explore the background when necessary. The purchasing
and supply management function will have to assess the validity of any subjective
remarks. Sometimes commitment is required from customers, such as engineers in
the field, to keep records of their experiences of working with a supplier in order
that objective factual data can be used. Another way is to undertake customer
satisfaction surveys which can be quite short and distributed by email.
3. The supplier's experience of working with the buying organization must be
considered in the evaluation, as it might be the case that they are facing unnecessary
obstacles or dealing with difficult people.
MODULE-3
MANUFACTURING LOGISTIC MANAGEMENT

Manufacturing Logistics refers to all planning, coordination and service functions
required to carry out manufacturing activities. The temporal scope of manufacturing
logistics begins from the point where end-item customer demands are determined, and
extends to the point where the demands are fulfilled. In this process, the flow of material,
information, and service may move across enterprise, industry and national boundaries.
Coordinating the complex variety of activities in this environment poses significant
challenges to manufacturing enterprises. While manufacturing logistics can be viewed as
an academic research area encompassing many aspects of operations management and
developments in supply chain logistics, it can be also viewed as a domain of ever evolving
industry problems that are driven by technological innovations and the global economy.
MANUFACTURING LOGISTICS: DEFINITIONS, SCOPE AND KEY ELEMENTS

We offer two perspectives on manufacturing logistics the primary domain and the
essential context.
THE PRIMARY DOMAIN OF MANUFACTURING LOGISTICS:

Manufacturing Logistics addresses opportunities and problems whose primary
focus falls within a given scope. These opportunities either involve a set of key logistic
activities or support the deployment of a set of key resources that support manufacturing
activities. The scope of manufacturing logistics begins at the point where end-item
customer demands are determined, and extends to the point where they are fulfilled. A
narrow and more traditional view of manufacturing logistics includes the planning,
scheduling and control of all activities resulting in the acquisition, processing, movement
and storage of inventory. These activities include order a acceptance, production planning
and scheduling, inventory control, inventory distribution, and the design of the
corresponding decision processes and decision support systems. A more appropriate,
broader view of manufacturing logistics considers the flow of material, information, and
services across enterprise, industry and national boundaries. Coordinating these complex
activities may require integration of multiple facilities and firms, integration of
manufacturing and service functions including sales, marketing, and information
technology, and integration with traditional logistics functions such as transportation,
warehousing and distribution.
THE ESSENTIAL CONTEXT OF MANUFACTURING LOGISTICS:

Substantial contributions to manufacturing logistics must address, or at a minimum
be compatible with, important aspects of the business environment. These aspects include,
for instance, various sources of uncertainty, ambiguity, and inaccurate information in the
application domains, restrictions imposed by legacy systems and organizational
structures, issues raised by new business paradigms such as electronic commerce, the
effects of product and technology life-cycles, outsourcing opportunities and strategic
alliances, and the firms long term strategic directions. The essential business context of
manufacturing logistics is a dimension that is ever evolving over time. Technological
innovations, business alliances, and global competitive positioning can all have significant
influence on the essential context of manufacturing logistics.
LEAN AND AGILE MANUFACTURING
Agile manufacturing is manufacturing that responds quickly to customer desires
and input through a highly integrated information technology communication system to
produce high-quality, highly customizable modular products.
The internal structure of the organization is radically different from the traditional
model, converting communication to a level playing field with bosses and managers taking
the role as enablers of small teams of highly responsible employees who are given the
freedom to use their skill and creativity in short uninterrupted cycles to complete the work
in a way that makes the customer happy.
PRINCIPLES OF AGILE
Lean Manufacturing is a manufacturing approach that focuses on minimizing costs.

It means there is a minimal amount of money invested in raw materials and inventory at all
times. It follows a demand-based flow style. It is driven by a mindset that there is always
room for improvement, and regularly measures how well facilities, materials, and time are
being utilized.
PRINCIPLES OF LEAN
SIMILARITIES
Both lean and agile manufacturing are suited for modern managers who desire to
increase business sustainability and revenue. Both are designed to keep companies
competitive. They both must be decided on early in the manufacturing planning process, as
they affect all aspects of the process. Both rely on statistical analysis and open
communication between all involved stakeholders.
DIFFERENCES
Lean manufacturing focuses on reducing costs, allowing companies greater price
flexibility. Agile manufacturing focuses on responding quickly to unexpected customer
requests, allowing companies to capitalize on the highest possible number of sales
opportunities.
Production configuration for agile manufacturing uses fewer people, relying more
on automation and modular design than lean manufacturing, which relies heavily on
people. Regarding inventory, lean manufacturing requires a higher inventory of smaller
parts, while agile manufacturing requires a lower inventory due to modular design. The
modular design also makes agile manufacturing systems more ready to adapt to
customization requests.
VIRTUAL MANUFACTURING
Virtual manufacturing (VM) is the use of computers to model, simulate and optimize
the critical operations and entities in a factory plant. Virtual manufacturing started as a
way to design and test machine tools but has since expanded to encompass production
processes and the products themselves. The main technologies used in VM include
computer-aided design (CAD), 3D modeling and simulation software, product lifecycle
management (PLM), virtual reality, high-speed networking and rapid prototyping.
Virtual manufacturing provides an organization with the ability to analyze the

manufacturability of a part or product as well as evaluate and validate production
processes and machinery and train managers, operators and technicians on production
systems. There are three main subcategories of VM:
Design-centered VM provides information about the manufacturing process to
engineers and designers so they can optimize products for production purposes or
learn how production issues might impact product design. They can also save
money by testing 3D product models and processes instead creating of physical
prototypes.
Production-centered VM simulates manufacturing processes so they can be tested
and optimized.
Control-centered VM simulates the controls that are used to run the actual
production processes.
VM can be extended to multiple manufacturers and suppliers, creating in effect a virtual

manufacturing network for collaborating on production and sharing models and other
types of information. It can also be used to assess business risks and identify potential
breakdowns in machine tools and other equipment. The market for specialized VM
software consists mostly of niche vendors that often focus on one aspect, such as robotics
simulation. However, many vendors of CAD, 3D modeling and PLM software support the
modeling and simulation of a "virtual" product, process or machine -- sometimes called a
digital twin -- that is central to virtual manufacturing.
JUST IN TIME (JIT) MANUFACTURING
Just-in-time (JIT) manufacturing, also known as just-in-time production or the

Toyota Production System (TPS), is a methodology aimed primarily at reducing flow times
within production system as well as response times from suppliers and to customers.
Following its origin and development at the British Motor Corporation (Australia) plant in
Sydney in the mid-1950s (though the term JIT was not used at that time), it was also
adopted in Japan, largely in the 1960s and 1970s and particularly at Toyota.
Alternative terms for JIT manufacturing have been used. Motorola's choice was
short-cycle manufacturing (SCM). IBM's was continuous-flow manufacturing (CFM), and
demand-flow manufacturing (DFM), a term handed down from consultant John Constanza
at his Institute of Technology in Colorado. Still another alternative was mentioned by
Goddard, who said that "Toyota Production System is often mistakenly referred to as the
'Kanban System,'" and pointed out that kanban is but one element of TPS, as well as JIT
production.
But the wide use of the term JIT manufacturing throughout the 1980s faded fast in
the 1990s, as the new term lean manufacturing became established as "a more recent name
for JIT." As just one testament to the commonality of the two terms, Toyota production
system (TPS) has been and is widely used as a synonym for both JIT and lean
manufacturing.
METHODOLOGY
Sepheri provides a list of methodologies of JIT manufacturing that "are important but not
exhaustive":
Housekeeping physical organization and discipline.
Make it right the first time elimination of defects.
Setup reduction flexible changeover approaches.
Lot sizes of one the ultimate lot size and flexibility.
Uniform plant load leveling as a control mechanism.
Balanced flow organizing flow scheduling throughput.
Skill diversification multi-functional workers.
Control by visibility communication media for activity.
Preventive maintenance flawless running, no defects.
Fitness for use producibility, design for process.
Compact plant layout product-oriented design.
Streamlining movements smoothing materials handling.
Supplier networks extensions of the factory.
Worker involvement small group improvement activities.
Cellular manufacturing production methods for flow.
Pull system signal [kanban] replenishment/resupply systems.
OBJECTIVES AND BENEFITS
Objectives and benefits of JIT manufacturing may be stated in two primary ways: first, in
specific and quantitative terms, via published case studies; second, general listings and
discussion.
A case-study summary from Daman Products in 1999 lists the following benefits:
reduced cycle times 97%, setup times 50%, lead times from 4 to 8 weeks to 5 to 10 days,
flow distance 90% achieved via four focused (cellular) factories, pull scheduling, kanban,
visual management, and employee empowerment.
Another study from NCR (Dundee Scotland) in 1998, a producer of make-to-order

automated teller machines, includes some of the same benefits while also focusing on JIT
purchasing: In switching to JIT over a weekend in 1998, eliminated buffer inventories,
reducing inventory from 47 days to 5 days, flow time from 15 days to 2 days, with 60% of
purchased parts arriving JIT and 77% going dock to line, and suppliers reduced from 480
to 165.[42]
Hewlett-Packard, one of western industry's earliest JIT implementers, provides a set

of four case studies from four H-P divisions during the mid-1980s.[43] The four divisions,
Greeley, Fort Collins, Computer Systems, and Vancouver, employed some but not all of the
same measures. At the time about half of H-P's 52 divisions had adopted JIT.
Computer
Greeley Fort Collins Vancouver
Systems
Inventory reduction 2.8 months 75% 75%
Labor cost reduction 30% 15% 50%
Space reduction 50% 30% 33% 40%
22 days to 1
WIP stock reduction
day
Production increase 100%
30% scrap, 79% 30% scrap &

Quality improvement 80% scrap
rework rework
Throughput time 17 days to 30

50%
reduction hours
Standard hours
50%
reduction
No. of shipments
20%
increase
LEAD TIME COMPONENTS
A lead time is the latency between the initiation and execution of a process. For
example, the lead time between the placement of an order and delivery of a new car from a
manufacturer may be anywhere from 2 weeks to 6 months. In industry, lead time reduction
is an important part of lean manufacturing.
A more conventional definition of lead time in the supply chain management realm
is the time from the moment the customer places an order (the moment you learn of the
requirement) to the moment it is ready for delivery. In the absence of finished goods or
intermediate (work in progress) inventory, it is the time it takes to actually manufacture
the order without any inventory other than raw materials.
In the manufacturing environment, lead time has the same definition as that of
Supply Chain Management, but it includes the time required to ship the parts from the
supplier. The shipping time is included because the manufacturing company needs to know
when the parts will be available for material requirements planning. It is also possible for
lead time to include the time it takes for a company to process and have the part ready for
manufacturing once it has been received. The time it takes a company to unload a product
from a truck, inspect it, and move it into storage is non-trivial. With tight manufacturing
constraints or when a company is using Just In Time manufacturing it is important for
supply chain to know how long their own internal processes take.
Lead time is made of:

Preprocessing Lead Time (also known as "planning time" or "paperwork"): It
represents the time required to release a purchase order (if you buy an item) or
create a job (if you manufacture an item) from the time you learn of the
requirement.
Processing Lead Time: It is the time required to procure or manufacture an item.
Post processing Lead Time: It represents the time to make a purchased item
available in inventory from the time you receive it (including quarantine, inspection,
etc.)
EXAMPLE
Company A needs a part that can be manufactured in two days once Company B has
received an order. It takes three days for company A to receive the part once shipped, and
one additional day before the part is ready to go into manufacturing.
If Company A's Supply Chain calls Company B they will be quoted a lead time of 2
days for the part.
If Company A's manufacturing division asks the Supply Chain division what the lead
time is, they will be quoted 5 days since shipping will be included.
If a line worker asks the Manufacturing Division boss what the lead time is before
the part is ready to be used, it will be 6 days because setup time will be included.
IN MORE DETAIL
Lead Time terminology has been defined in greater detail. The Supply Chain from
customer order received to the moment the order is delivered is divided into five lead
times.
Order Lead Time - Time from customer order received to customer order
delivered.
Orders Handling Time - Time from customer order received to sales order created.
Manufacturing Lead Time - Time from sales order created to production finished
(ready for delivery).
Production Lead Time - Time from start of physical production of first sub
module/part to production finished (ready for delivery).
Delivery Lead Time - Time from production finished to customer order delivered.
Example
A restaurant opens up and a customer walks in. A waiter guides him to a table, gives
him the menu and asks what he would like to order. The customer selects a dish and the
waiter writes it in his notepad. At that moment the customer has made an order which the
restaurant has accepted Order Lead Time and Order Handling Time have begun. Now the
waiter marks the order in the cash register, rips the paper from the notepad, takes it into
the kitchen and puts into the order queue. The order has been handled and is waiting in the
factory (kitchen) for manufacturing. As there are no other customers, the waiter decides to
stand outside the kitchen, by the door, waiting for the dish to be prepared and begins
calculating Manufacturing Lead Time.
Meanwhile, the chef finishes what he was doing, takes the order from the queue,
starts his clock as a mark for the start of Production Lead Time and begins cooking. The
chef chops the vegetables, fries the meat and boils the pasta. When the dish is ready, the
chef rings a bell and stops his clock. At the same time the waiter stops calculating
Manufacturing Lead Time and rushes through the kitchen door to get the food while it is
hot.
When he picks it up, begins counting of Delivery Lead Time that ends when the dish
is served to the customer, who can now happily say that the Order Lead Time was shorter
than he had expected.
ORDER LEAD TIME

When talking about Order Lead Time (OLT) it is important to differentiate the
definitions that may exist around this concept. Although they look similar there are
differences between them that help the industry to model the order behavior of their
customers. The four definitions are:
The Actual Order Lead Time (OLTActual) The order lead-time, refers to the time
which elapses between the receipt of the customer's order (Order Entry Date) and the
delivery of the goods."
The Requested Order Lead Time (OLTRequested) represents the time between the
Order Entry Date and the customer requested delivery date; this measurement
could help the company to understand the order behavior of the customers and help
to design profitable models to fulfill customer needs.
The Quote Order Lead Time (OLTQuote) is the agreed time between the Order Entry
Date and the suppliers committed deliver date of goods as stipulated in a supply
chain contract.
The Confirmed Order Lead Time (OLTConfirmed) represents the time between the
Order Entry Date and the by the supplier confirmed delivery date of goods.
OLT FORMULAS
OLTRequested = Wish Date Order Entry Date
The OLTRequested will be determined by the difference between the date the customer
wants the material in his facilities (wish date) and the date when they provided its order to
the supplier.
OLTQuote = Quote Date Order Entry Date
The OLTQuote will be determined by the difference between the date the customer agree
to receive the material in their facilities (Quote date) and the date when the order is
provided to the supplier.
OLTActual = Delivery Date Order Entry Date
The OLTActual will be determined by the difference between the day the provider deliver
the material (Delivery date) and the date when they enter the order in the system.
OLTConfirmed = Confirmed Date Order Entry Date
The OLTConfirmed will be determined by the difference between the date the confirmed
date by the provider to deliver the material in the customer facilities (Confirmed date) and
the date when they provide the order to the supplier.
AVERAGE OLT BASED ON VOLUME
The Average OLT based on Volume (OLTV) is the addition of all the multiplications
between the volume of product we deliver (quantity) and the OLT divided by the total
quantity delivered in the period of time we are studying for that specific facility.
By doing this the company will be able to find a relation of volume weighted between
the quantities of material required for an order and the time requested to accomplish it.
The volume metric could be applied to the 4 types of OLT.
The figure obtained from this calculation will be the average time (e.g. in days) between
order placing and the requested delivery date of a specific customer under consideration of
the average quantities ordered during that particular time.
LOT STREAMING
The advances in manufacturing automation and the changing nature of business
competitiveness created demand for viable production scheduling systems. Very simply
stated, lot streaming is moving some portion of a process batch ahead to begin a
downstream operation. Lot streaming is a process of breaking a batch of jobs into smaller
lots, and then processing these in an overlapping fashion on the machines. This important
concept can significantly improve the overall performance of a production process, and
thereby make the operation of a manufacturing system lean. Lot streaming is closely
related to batching and lot sizing.
Lot streaming is the process that splits the production lot into sub lots and streams
these sub lots among the machines with regard to some performance criteria. A
performance criterion can be time-based (e.g., makespan) or cost-based (e.g., total cost),
while some studies consider both of them together. In lot streaming problems, the
production system characteristics are important. The case that the production system is
single/multi stage or single/multi product determines the complexity of the lot streaming
problems. Lot streaming technique splits the production lot into smaller sub lots. Each
sublot can be considered as individual jobs so that two different sub lots of the same type
can be processed on two different machines simultaneously. This makes the manufacturing
lead time (MLT) be shortened. Lot streaming also provides a reduction on the average
work-in-process (WIP). If the production lot is processed without splitting, the average
WIP will be equal to production lot size. However, in case of splitting the production lot
into sub lots, departure of the first sub lot reduces the WIP level by its size and the
remaining sub lots continue to reduce the WIP level by their sub lot sizes. Reduction in
space requirements and material handlings system capacity requirements can be thought
as the other benefits of lot streaming.
COMPONENTS OF LOT STREAMING PROBLEMS
Product Type: A single product or multiple products

Production Type: Flow shop, job shop, open shop, arborescent shop
Jobs visit a number of operations according to a sequence through manufacturing

systems. If the route of all job types is the same, this system is called flow shop. If jobs have
different routes, this is called job shop. In a job shop environment, jobs may visit the same
machines once or more.
The open shop scheduling model consists of m machines and n jobs. Each job has m
operations. A machine can process at most one job at a time and operations of a job cannot
be processed simultaneously. The routing for a job is the order of machines that the job
visits. If each job is to be processed consecutively on a machine, the shop is called a non-
preemptive open shop; otherwise it is a preemptive open shop.
The arborescent shop is an m-stage production system, in which each stage has at
least one immediate successor except for the last stage (i.e., the finished goods stage), and
has only one immediate predecessor except for the first stage (i.e., the raw materials or
purchased parts stage)
Sub lot Type: Fix, Equal, Consistent, Variable sub lots

Fix sub lots means that all sub lots for all products consist of the identical number of items
on all stages.
Equal sublots means that sublot sizes are fix for each product. The difference between fix
and equal sublots applies to multiple products only.
A sublot is called consistent if its size does not change over the stages of processing. In
other words, the sizes of consistent sublots between any two adjacent stages are identical,
given the same sublot count.
An example is given for three machines and two sublots in Figure 1.
In variable sublot case, the sublot sizes between stages i and i+1 are not equal to those
between stages i+1 and i+2, given the same sublot count.
Divisibility of the Sublot Size: Discrete and Continuous sublots In discrete version, the
sublot size has to be integer, while in the continuous version it can be a real number.
Sequence of the Sublots: Intermingling and Non-Intermingling sublots In the multi-
product case, if intermingling sublots are allowed, the sequence of sublots of product j may
be interrupted by sublots of product k. In this case, each sublot is treated as an independent
product. For non-intermingling sublots, no interruption in the sequence of sublots of a
product is allowed, which is obviously always given in one-product settings and can be
forced in multi-product settings.
Operation Continuity: Idling and No Idling case
In no idling case, when the sublots start their operation on the same stage, they must finish
their operation without interruption. However, the idling case allows idle times. As known,
under the same sublot type, the makespan with idle times generates better results than no
idling case.
Transfer Timing: Wait and No-wait schedules
In no-wait schedules, each sublot has to be transferred to and processed on the next stage
immediately after it has been finished on the preceding stage. In a wait schedule, a sublot
may wait for processing between consecutive stages
Consider that 12 units of a single product must be processed on three machines. The
unit processing times are 1, 3, and 2 on machines M1, M2, and M3, respectively. Suppose
that maximum allowable number of sublots is three. If the batch is processed as a single lot,
the makespan would be 12(1+3+2) = 72. However, if the batch is split into three sublots
with 2, 6, and 4 units, respectively, then the makespan is only 46.
Performance Measures: Time models and Cost models

For the time models, the performance measures can be makespan, mean flow time, total
flow time, mean tardiness, number of tardy jobs and total deviation from due date. The
minimization of total cost is considered as the performance measure for cost models.
Activities Involved: Setup, Production, Transportation
Setup: No setup, Attached setup, Detached setup
Some production environments may not involve a setup activity, i.e., no setup. In the case of
attached setup, a machine can be setup if and only if at least one unit is received from the
previous stage. In a detached setup, a machine can be setup without receiving any unit from
the previous stage.
Production: Raw materials, Work-In-Process, Finished goods

For the time models, only the production time is important. However, for the cost models,
the type of inventory should be taken into account. A cost model may only consider the WIP
inventory and its associated cost. In some cases, either the WIP and finished good
inventories or all the inventories (raw materials, WIP, finished goods) can be involved in
cost functions.
Transportation:
Transportation activity includes the movement of a sublot between stages and the return of
an empty transporter. For cost models, the transportation cost per trip is the only
important component. For time models, the load and unload times, transportation time,
return time of the transporter and the number of capacitated transporters should be taken
into account.
Flow Shop Lot Streaming introduces the reader to this significant production
process, presents various analysis techniques, and allows the reader to quickly become
conversant with the state-of-the-art techniques necessary to embark on new research
directions. This text begins with an introduction to and a brief historical perspective of the
lot streaming problem, and continues with generic mathematical models for this problem.
Flow Shop Lot Streaming presents systematic analysis, algorithms, key ideas and
illustrative examples using 2-machine, 3-machine, and the general m-machine flow shop lot
streaming problems. Flow Shop Lot Streaming will appeal to production and operations
management engineers, researchers, and academics interested in implementing the latest
models, analysis, and algorithms in the study of manufacturing systems.
MODULE 4
DISTRIBUTION MANAGEMENT
Distribution management determines real-time profitability by warehouse, product line,
location, or business unit, while reducing costs across your entire supply and distribution
chain.
FUNCTIONS OF DISTRIBUTION CHANNELS
Distribution channels perform a number of functions that make possible the flow of
goods from the producer to the customer. These functions must be handled by someone in
the channel. Though the type of organization that performs the different functions can vary
from channel to channel, the functions themselves cannot be eliminated. Channels provide
time, place, and ownership utility. They make products available when, where, and in the
sizes and quantities that customers want. Distribution channels provide a number of
logistics or physical distribution functions that increase the efficiency of the flow of goods
from producer to customer. Distribution channels create efficiencies by reducing the
number of transactions necessary for goods to flow from many different manufacturers to
large numbers of customers. This occurs in two ways. The first is called breaking bulk.
Wholesalers and retailers purchase large quantities of goods from manufacturers

but sell only one or a few at a time to many different customers. Second, channel
intermediaries reduce the number of transactions by creating assortmentsproviding a
variety of products in one locationso that customers can conveniently buy many
different items from one seller at one time.
Channels are efficient. The transportation and storage of goods is another type of
physical distribution function. Retailers and other channel members move the goods from
the production site to other locations where they are held until they are wanted by
customers. Channel intermediaries also perform a number of facilitating functions,
functions that make the purchase process easier for customers and manufacturers.
Intermediaries often provide customer services such as offering credit to buyers and
accepting customer returns. Customer services are oftentimes more important in B2B
markets in which customers purchase larger quantities of higher-priced products.
Distribution channels are not limited to products only even the services provided by
a producer may pass through this channel and reach the customer. Both direct and indirect
channels come into use in this case. For instance, the hotel industry provides facility for
lodging to its customers, which is a non-physical commodity or a service.
The hotel may provide rooms on direct booking as well as through indirect channels
like tour operators, travel agents, airlines etc. Distribution chain has seen several
improvements in the form of franchising. Also there has been link ups between two service
sectors like travel and tourism which has made services available more accessible to the
customer. For instance hotels also provide cars on rent.
The primary function of a distribution channel is to bridge the gap between

production and consumption.
A close study of the market is extremely essential. A sound marketing plan depends
upon thorough market study.
The distribution channel is also responsible for promoting the product. Awareness
regarding products and other offers should be created among the consumers.
Creating contacts or prospective buyers and maintaining liaison with existing ones.
Understanding the customers needs and adjusting the offer accordingly.
Negotiate price and other offers related to the product as per the customer demand.
Storage and distribution of goods
Catering to the financial requirements for the smooth working of the distribution
chain.
Risk taking for example by stock holding
Some wholesalers and retailers assist the manufacturer by providing repair and
maintenance service for products they handle. Channel members also perform a risk-
taking function. If a retailer buys a product from a manufacturer and it doesnt sell, it is
stuck with the item and will lose money. Last, channel members perform a variety of
communication and transaction functions.
Wholesalers buy products to make them available for retailers and sell products to
other channel members. Retailers handle transactions with final consumers. Channel
members can provide two-way communication for manufacturers.
They may supply the sales force, advertising, and other marketing communications
necessary to inform consumers and persuade them to buy. And the channel members can
be invaluable sources of information on consumer complaints, changing tastes, and new
competitors in the market.
DISTRIBUTION COST COMPONENTS

Distribution costs (also known as Distribution Expenses) are usually defined as
the costs incurred to deliver the product from the production unit to the end user.
INVENTORY
There are five major reasons for holding inventory:
(1) Pipeline inventory:- A pipeline inventory is the minimum inventory an organisation

needs in order to function. E.g. a producer of wine that needs to age for two years in order
to be sold needs a minimum inventory of wine for two years in order to exist.
(2) Seasonal inventory:- A seasonal inventory is helpful, if an organisation wants to

produce at a constant (cost-efficient) capacity, yet the demand varies with the seasons. E.g.
a toy company can cheaply produce at at steady pace and build up a seasonal inventory for
higher sales during the Christmas holidays.
(3) Cycle inventory:- A cycle inventory is helpful if keeping an inventory saves costs
associated with buying supplies on time. A private household will, for example, keep a box
of water bottles in the cellar for practical reasons instead of satisfying the demand for
water at the store every time it comes up again.
(4) Safety inventory:- A safety inventory is a buffer agains high external demand, e.g. a
burger chain keeping an inventory of pre-made burgers so that customers can be satisfied
immediately. Safety inventories are closely associated with the meme buffer or suffer,
meaning that if a process is not able to buffer for variabilities (such as an unexpected
external demand) it will lose on flow rate.
(5) Decoupling inventory:- Whereas the safety inventory can be seen as the buffer against
heightened external demand, the decoupling inventory can be seen as the buffer against
heightened internal demand. Such an inventory decouples supply from demand and
supports a higher (and steadier) flow rate.
PIPE LINE INVENTORY

Pipeline Inventory : Inventory moving from point to point in the materials flow
system is called pipeline inventory . Materials move from suppliers to a plant, from one
operation to the next in the plant, from the plant to a distribution center or customer, and
from distribution center to a retailer. Pipeline inventory consist of orders that have been
placed but not yet received. Therefore stocking locations, improving materials handling
and delays in distribution should be overcome.
Pipeline inventory, also known as pipeline stock is used to refer to those goods that
have left firms warehouse but are still in company's distribution chain as they are yet to be
bought by ultimate consumers. This concept is similar to work in progress inventory where
the product is still under production whereas in pipeline inventory the finished good is still
under the process of delivery.
Eg: The inventory with flipkart which is still to be delivered but has left their warehouse is
considered as Pipeline inventory.
FUNCTIONS OF PIPELINE INVENTORY
Pipeline inventory refers to those products that are in the company's shipping chain
that have yet to reach their ultimate destination. While the items are in transit, they are still
considered to be part of the shipper's inventory if the recipient has yet to pay for them.
When the recipient pays for the items, even if that recipient has not taken physical custody
of the items that pipeline inventory goes on the recipient's inventory list.
EXAMPLES OF PIPELINE INVENTORY
In many instances, especially with overseas shipments, inventory can remain in the
transit pipeline for days or weeks at a time. For instance, a shipment of video game
consoles made in Japan can take several days to arrive by container ship to an American
port. If the wholesaler has already purchased the consoles, they are part of that
wholesaler's inventory until he sells them to his retail store customers. When the retail
store purchases the consoles from the wholesaler, the pipeline inventory goes on their
records
HUB AND SPOKE MODEL

The spoke-hub distribution paradigm (or model or network) is a system of
connections arranged like a wire wheel in which all traffic moves along spokes connected to
the hub at the center. The model is commonly used in industry, particularly in transport,
telecommunications, freight, and distributed computing (where it is known as a star
network).
A hub and spoke network is a centralized, integrated logistics system designed to

keep costs down. Hub and spoke distribution centers receive products from many different
origins, consolidate the products, and send them directly to destinations.
HOW IT WORKS
DRAWBACKS
A hub and spoke model is essentially a centralized distribution system where
customer premise equipment (CPE) inventory is processed and then shipped to smaller
nodes or directly to consumers. The smaller nodes may be smaller warehouses, office
locations, local pickup and drop-off locations. Converting to a hub and spoke model has
significant advantages for cable companies which include:
Advantages
Reduced Capital for Inventory and Lowering Facilities Costs are the primary
reasons to convert to a hub and spoke distribution system
o Reducing the number of warehouses significantly reduces rent and other
building expenses such as utility and maintenance expenses. In addition,
lower operational and administrative overhead is achieved as taxes,
insurance, telephone and other facility overhead is eliminated.
o Reducing the number of warehouses and centralizing inventory dramatically
decrease the amount of inventory carried. Only the hub needs to carry a
lengthy supply and nodes can switch to a more economic Just-in-Time
inventory method.
o Moving of equipment easier as logistics becomes simpler to manipulate.
Increased Efficiencies as specialization takes the place of generalist performing
multiple tasks. Functions positively impacted by centralization are
o Testing
o Diagnostics
o Cleaning
o Repacking
o Box and Set up
o Speed of moving CPE between facilities and to the consumer increases.
Economies of scale result in cost savings because
o Mass shipping and receiving of larger quantities will lower inbound and
outbound shipping costs
o Larger more efficient equipment such as copiers and labeling equipment
replaces smaller less used equipment at remote locations lowering
maintenance and repair expenses
o Centralized purchasing lowers per unit, shipping and administrative time as
operating supplies can be purchased in larger quantities
o Inventory control is better by not having to reconcile as many locations
o Duplication or elimination of software packages and administrative tasks
Lower CPE loss
o Ability to perform am accurate serialized inventory is enhanced. A serialized
reconciliation provides detailed CPE information traceable by the serial
number on each piece of equipment. A full reconciliation tells you what is
missing by gathering all records for the specified location from the billing
system and then comparing it to the scanned data. Fewer locations needing
to be reconciled means better control and less CPE loss.
o Outside vendor repairs shops can be minimized as economies of scale are
developed thus reducing missing CPE
Drawbacks
A hub and spoke system does have potential drawbacks and these should be recognized
and planned for with contingency plans or adjustments.
Bottlenecks: From an operational standpoint the central hub has the potential to
become a non-functioning bottleneck especially with regard to weather and other
environmental problems. In addition to weather related issues, poor operations
management can negate virtually all of the above listed advantages to the point
where customers must wait extended periods of time to receive CPE thus impacting
revenues.
Reduced Flexibility: Other drawbacks include flexibility that smaller operations
have over larger operations. Problems and issues that may be of concern to a
particular location are now lumped into a bigger pot and may not receive the
attention they need. This is an operations management issue to be thought out
before conversion.
Not all tasks can be centralized: For example CPE resets have historically been
performed by the location that the CPE originated from. Plans should be made to
accommodate these types of issues.
CARRIER SELECTION
VEHICLE LOADING AND VEHICLE ROUTING METHODS
Drop-Shipping or Direct Shipping to Consumer
Products are shipped directly to the consumer from the manufacturer
Manufacturer often uses package
carriers for delivery
Retailer picks consumer orders from customers and passes them to the
manufacturers
Retail does not hold product inventory, rather it is purely for order generation
(naturally or via promotions, ads)
Examples: Dell, Nordstrom
Drop shipping for high-value and low unpredictable demand items

All consumers needs for a particular product is satisfied from a manufacturer: All
finished goods inventory for a product reside at one manufacturer. Finished goods
inventory is aggregated over different consumers.
Aggregated demand often has smaller standard deviation than the sum of the
standard deviations of the individual demands in the aggregation because
extremes cancel out.
Manufacturers postpone customization of products until order is placed.
Component and sub-assembly inventory is aggregated over different products.
A wide range of products can be provided at a low cost due to postponement.
e.g. Dell uses postponement very effectively.
Direct shipment simplifies retailers functions but complicates manufacturers. Can
manufacturers handle shipping units one by one to the consumers? Manufacturers
and retailers must coordinate their actions using an integrated information systems.
Product returns are harder to handle.
Response times to consumer orders are longer with direct shipping.
Direct shipping increases shipment costs.
In-Transit Merge (How to reduce shipment costs for medium demand?)

The distribution network is too extensive with direct shipping and economies of
scale in transportation costs cannot be achieved.
Consider merging shipments at Mergers. Shipments to Mergers are larger
economies of scale is achieved.
Mergers increase facility costs.
Mergers can be done within trucks: Crossdocking becomes useful.
Response time may go up.
Example:
Furniture retailers merge couches and coffee tables produced by different
manufacturers
Dell merges a Dell PC with a Sony flat screen
Distributor Storage with Carrier Delivery (How to reduce transportation costs and
response times further?)
Keep finished goods inventory at a warehouse which ships to consumers using
carriers.
Shipments from manufacturers to warehouses are in TL or LTL to exploit economies
of scale.
Warehouses are physically closer to consumers which leads to
Shorter order fulfillment time
Shorter distance to cover with package carriers.
With respect to In-Transit Merge
Inventory aggregation is less
Facility costs are higher
Easier to run. Warehouse meets the demands so infrequent orders from
manufacturers to warehouses.
Less information to keep track of. Only warehouses need real time demand/order
status information.
Example: Amazon
Distributor Storage with Last Mile Delivery (How to provide more delivery service?)
Very similar to Distributor Storage with Carrier Delivery except that the warehouse
delivers to the consumers using Milk Runs.
Transportation costs go up because warehouses are not as effective as package
carriers in aggregating loads to have economies of scale.
Warehouse may need to own a trucking fleet so the physical infrastructure costs are
higher. Products must be flowing fast to justify the infrastructure.
The cost for drivers and load handlers are high. Last mile delivery can be a sound
option if labor costs are relatively small with respect to the premium consumers are
willing to pay for home delivery.
Response times are shorter
Warehouses are located closer to consumers
A private fleet of trucks can deliver faster than package carriers.
Home delivery is high customer service; appreciated by the customers for bulky
products,
e.g. a washer
Consumer must pay for delivery costs.
Peapod charged $9.95/delivery
Delivery costs can depend on the time of the day
Example: Milk delivery, Grocery delivery
Manufacturer or Distributor Storage with Consumer Pickup(How to reduce eliminate consumers

delivery cost?)
If consumers are willing to pick up the products easily, let them do so. Otherwise,
they would be charged for the delivery costs.
This is very similar to Last Mile Delivery except that the consumers come to pick up
sites (warehouse, retailer) to get the products.
Order tracking is crucial. Consumers must be alerted when their order is ready for
pick up. Once a consumer arrives at the pickup site, the products must be quickly
located.
Significant amount of information is required to run.
Example: 7dream.com of Japanese 7- Eleven
Check it out but it is in Japanese
Retail Storage with Consumer Pickup (How to push products closer to consumers?)
Consumers can also pick up from retailers. This is the most common form of
shopping.
This is very similar to consumer pick up from warehouses except that now the
consumers go to retailers which are closer to consumers and more conveniently
located for pickups.
Inventories at warehouses are aggregated over consumers. Typically a single
warehouse serves many more consumers than a single retailer would. Inventory
aggregation happens at a greater extent when consumers pick up from the
warehouses.
Order tracking may not exist. If the product is available at the retailer, the consumer
buys. Otherwise goes to another retailer
Example: All the retail stores. Wal-Mart, Albertsons, Van Heusen Shirts,
The vehicle routing problem lies at the heart of distribution management. It is
faced each day by thousands of companies and organizations engaged in the delivery and
collection of goods or people. Because conditions vary from one setting to the next, the
objectives and constraints encountered in practice are highly variable. The Classical Vehicle
Routing Problem (VRP) is one of the most popular problems in combinatorial optimization,
and its study has given rise to several exact and heuristic solution techniques of general
applicability.
The vehicle routing problem (VRP) is a combinatorial optimization and integer

programming problem which asks "What is the optimal set of routes for a fleet of vehicles
to traverse in order to deliver to a given set of customers?". It generalises the well-known
travelling salesman problem (TSP). It first appeared in a paper by George Dantzig and John
Ramser in 1959,[1] in which first algorithmic approach was written and was applied to
petrol deliveries. Often, the context is that of delivering goods located at a central depot to
customers who have placed orders for such goods. The objective of the VRP is to minimize
the total route cost. In 1964, Clarke and Wright improved on Dantzig and Ramser's
approach using an effective greedy approach called the savings algorithm.
Determining the optimal solution is an NP-hard problem in combinatorial

optimization, so the size of problems that can be solved optimally is limited. The
commercial solvers therefore tend to use heuristics due to the size & frequency of real
world VRPs they need to solve.
The VRP has many obvious applications in industry. In fact the use of computer
optimization programs can give savings of 5% to a company [3] as transportation is usually
a significant component of the cost of a product (10%) - indeed the transportation sector
makes up 10% of the EU's GDP. Consequently, any savings created by the VRP, even less
than 5%, are significant.
A figure illustrating the vehicle routing problem
SETTING UP THE PROBLEM
The VRP concerns the service of a delivery company. How things are delivered from
one or more depots which has a given set of home vehicles and operated by a set of drivers
who can move on a given road network to a set of customers. It asks for a determination of a
set of routes, S, (one route for each vehicle that must start and finish at its own depot) such
that all customers' requirements and operational constraints are satisfied and the global
transportation cost is minimized. This cost may be monetary, distance or otherwise.
The road network can be described using a graph where the arcs are roads and
vertices are junctions between them. The arcs may be directed or undirected due to the
possible presence of one way streets or different costs in each direction. Each arc has an
associated cost which is generally its length or travel time which may be dependent on
vehicle type.
To know the global cost of each route, the travel cost and the travel time between
each customer and the depot must be known. To do this our original graph is transformed
into one where the vertices are the customers and depot, and the arcs are the roads
between them. The cost on each arc is the lowest cost between the two points on the
original road network. This is easy to do as shortest path problems are relatively easy to
solve. This transforms the sparse original graph into a complete graph. For each pair of
vertices i and j, there exists an arc (i,j) of the complete graph whose cost is written as Cij
and is defined to be the cost of shortest path from i to j. The travel time t i j is the sum of the
travel times of the arcs on the shortest path from i to j on the original road graph.
Sometimes it is impossible to satisfy all of a customer's demands and in such cases

solvers may reduce some customers' demands or leave some customers unserved. To deal
with these situations a priority variable for each customer can be introduced or associated
penalties for the partial or lack of service for each customer given
The objective function of a VRP can be very different depending on the particular
application of the result but a few of the more common objectives are:
Minimize the global transportation cost based on the global distance travelled as
well as the fixed costs associated with the used vehicles and drivers
Minimize the number of vehicles needed to serve all customers
Least variation in travel time and vehicle load
Minimize penalties for low quality service
VRP VARIANTS
A map showing the relationship between common VRP subproblems.
Several variations and specializations of the vehicle routing problem exist:

Vehicle Routing Problem with Pickup and Delivery (VRPPD): A number of goods
need to be moved from certain pickup locations to other delivery locations. The goal
is to find optimal routes for a fleet of vehicles to visit the pickup and drop-off
locations.
Vehicle Routing Problem with LIFO: Similar to the VRPPD, except an additional
restriction is placed on the loading of the vehicles: at any delivery location, the item
being delivered must be the item most recently picked up. This scheme reduces the
loading and unloading times at delivery locations because there is no need to
temporarily unload items other than the ones that should be dropped off.
Vehicle Routing Problem with Time Windows (VRPTW): The delivery locations have
time windows within which the deliveries (or visits) must be made.
Capacitated Vehicle Routing Problem: CVRP or CVRPTW. The vehicles have limited
carrying capacity of the goods that must be delivered.
Vehicle Routing Problem with Multiple Trips (VRPMT): The vehicles can do more
than one route.
Open Vehicle Routing Problem (OVRP): Vehicles are not required to return to the
depot.
EXACT SOLUTION METHODS
There are three main different approaches to modeling the VRP
1. Vehicle flow formulationsthis uses integer variables associated with each arc
that count the number of times that the edge is traversed by a vehicle. It is generally
used for basic VRPs. This is good for cases where the solution cost can be expressed
as the sum of any costs associated with the arcs. However it can't be used to handle
many practical applications.
2. Commodity flow formulationsadditional integer variables are associated with
the arcs or edges which represent the flow of commodities along the paths travelled
by the vehicles. This has only recently been used to find an exact solution.
3. Set partitioning problemthese have an exponential number of binary variables
which are each associated with a different feasible circuit. The VRP is then instead
formulated as a set partitioning problem which asks what is the collection of circuits
with minimum cost that satisfy the VRP constraints. This allows for very general
route costs.
VEHICLE FLOW FORMULATIONS
The formulation of the TSP by Dantzig, Fulkerson and Johnson was extended to create the
two index vehicle flow formulations for the VRP
Constraints 1 and 2 state that exactly one arc enters and exactly one leaves each
vertex associated with a customer, respectively. Constraints 3 and 4 say that the number of
vehicles leaving the depot is the same as the number entering. Constraints 5 are the
capacity cut constraints, which impose that the routes must be connected and that the
demand on each route must not exceed the vehicle capacity. Finally, constraints 6 are the
integrality constraints.
One arbitrary constraint among the 2|V| constraints is actually implied by the
remaining 2|V|-1 ones so it can be removed. Each cut defined by a customer set S is crossed
by a number of arcs not smaller than r(s) (minimum number of vehicles needed to serve set
S).
An alternative formulation may be obtained by transforming the capacity cut
constraints into generalised subtour elimination constraints (GSECs).
which imposes that at least r(s) arcs leave each customer set S.S
GCECs and CCCs have an exponential number of constraints so it is practically

impossible to solve the linear relaxation. A possible way to solve this is to consider a
limited subset of these constraints and add the rest if needed.
A different method again is to use a family of constraints which have a polynomial

cardinality which are known as the MTZ constraints, they were first proposed for the TSP
and subsequently extended by Christofides, Mingozzi and Toth.
Where is an additional continuous variable which represents the load of

the vehicle after visiting customer i and d_i is the demand of customer i. These impose both
the connectivity and the capacity requirements. When Xij=0 constraint then i 'is not
binding' since Ui < C and Uj> dj whereas Xij=1they impose that Uj> Ui+ dj.
These have been used extensively to model the basic VRP (CVRP) and the VRPB.
However their power is limited to these simple problems. They can only be used when the
cost of the solution can be expressed as the sum of the costs of the arc costs. We cannot also
know which vehicle traverses each arc. Hence we cannot use this for more complex models
where the cost and or feasibility is dependent on the order of the customers or the vehicles
used.
Manual vs. Automatic Optimum Routing
There are many methods how to solve vehicle routing problem manually. For example,
optimum routing is a big efficiency issue for forklifts in large warehouses. Some of the
manual methods to decide upon the most efficient route are: Largest gap, S-shape, Aisle-by-
aisle, Combined and Combined +. While Combined + method is the most complex, thus the
hardest to be used by lift truck operators, it is the most efficient routing method. Still the
percentage difference between the manual optimum routing method and the real optimum
route was on average 13%.
Free software for solving VRP
Name API
License Brief info
(alphabetically) language
lightweight, java based, open source

toolkit for solving rich VRPs. link An
jsprit Apache License Java Excel-compatible user interface for jsprit
is available with mapping, reporting and
route editing functionality. link [10]
Open-VRP for Lisp, hosted on Github. link

Open-VRP LGPL Lisp [10]
Open Source Java constraint solver

OptaPlanner Apache License Java
(optaplanner.org) with VRP examples. [10]
Open-source solver for mixed-integer

Common Public
SYMPHONY linear programs (MILPs) with support
License 1.0
for VRPs. link [10]
Creative Commons Microsoft Excel and VBA based open

VRP Spreadsheet Attribution 4.0 source solver, with a link to public GIS for
Solver International coordinate, driving distance and duration
License retrieval. link Video tutorial link [10]
SOLVED NUMERICAL OF SUPPLY CHAIN MANAGEMENT
Problem 1
Phil Carter, President of Carter Computer Components, Corp. has the option of shipping
computer transformers from its Singapore plant via container ship or airfreight. The typical
shipment has a value of $75,000. A container ship takes 24 days and costs $5,000; airfreight
takes 1 day and costs $8,000. Holding cost is estimated to be 40% in either case. How should
shipments be made?
Solution
Cost via container ship:
(.40 * 75,000)
[24 * ] + 5,000 = (24 * 82.19) + 5,000 = 1,972.56 + 5,000 = $6,972.56
365
Cost via airfreight:
(.40 * 75,000)
[1* ] + 8,000 = (1* 82.19) + 8,000 = 82.19 + 8,000 = $8,082.19
365
Therefore, use the container ship as it has a lower total cost.

Problem 2
Carol King is evaluating the inventory performance of Johnston Systems. A recent annual
report (all figures in millions) indicates assets of $16,000, inventory of $1,000, and cost of
goods sold of $24,000. What is the inventory turnover and what percent of assets are tied up
in inventory?
Solution
Cost of goods sold / inventory investment = 24,000 / 1,000
= 24 (inventory turnover)
Total inventory investment/ Total assets = 1,000 / 16,000
= .0625 = 6.25% (percent of assets in inventory)
SHORT QUESTIONS
1) What are the responsibilities of a logistician?
Primary role of a logistician is to
Manage the supply chain
Transportation and storage of material
Transportation management
2) What is the different position a person can work in logistic industry?
A person can work under various position
Logistic director
Logistic supervisor
Logistic associate
Logistic engineer
Logistic coordinator
Logistic specialist
Logistic analyst
3) Explain what is supply chain management?
Supply chain management includes an integrated approach of planning, implementing and
controlling the flow of information, materials and service from raw material to the finished
good for the ultimate distribution to the customer.
4) Explain what is ASN (Advance Shipping Notice)?
It is a notice that is sent to the customer about the detailed shipment information in
advance of delivery. It may also include carrier and shipment related information like time
of shipment and expected time of arrival.
5) Explain what is Anti-Dumping duty?
Anti-dumping duty is an import duty levied in cases where imported goods are priced at
less than the normal price in the exporters domestic market and cause material loss to the
domestic industry of the importing country.
6) Explain what is LTL (Less than truckload)?
LTL (Less than Truckload) shipment is a contract between the shipper and transport
owner. According to the contract, instead of the entire truck, the shipment are priced
according to the weight of the freight and mileage within designated lanes.
7) Explain the term deadweight tonnage?
Deadweight tonnage is the difference between the laden and unladen weight of the ship. In
other words, it is the weight of everything that ship carries except the ship itself.
8) Explain how to organize storage area for bulk items?
Look storage place which has the facility of single, double or multiple depth locations
Bulk storage in vertical or straight direction: It is the most common method of organizing
the container, it is organized in a vertical direction piling the container over each other.
Bulk storage at angle: It is one of the solutions that can be applied in a situation when
there is a limited place to accommodate containers. But it is applicable in special cases only,
depending upon what material it carries.
9) Explain what is cross docking?
Cross docking is a process of unloading materials from an incoming semi-truck and loading
directly into out-bounds trucks or trailers. It reduces handling costs, operating costs and
the storage of inventory.
10) Explain what is TEU?
TEU stands for Twenty foot Equivalent Unit. It is a method of calculating vessel load or
capacity, in units of containers that are twenty feel long. For example, a 40ft long container
measure 2TEUs.
11) What is the advice of shipment and advising bank?
Advice of shipment: It is a notice sent to a foreign buyer or local trader informing them
that the shipment has processed forward and carried information about packing, routing,
etc. A copy of the invoice is often sent with it and if recommended a copy of landing also
attached along with that.
Advising Bank: Advising bank is a bank operating in the sellers country, that handles
letters of credit in behalf of a foreign bank
12) Explain what is affreightment?
Affreightment is a contract between ship owner and merchant, where ship owner provides
or rented the space in the ship to the merchant for an agreed amount and for a specific
period. In this contract, merchant is liable for the payment whether or not the ship is ready
for the shipment.
13) What does a bill of lading include?
A bill of lading includes following details
Name and complete address of shippers and receivers
Special account numbers or PO used between business for order tracking
Instruction for the carrier for secure delivery
Date of the shipment
Number of shipping units
Types of packaging that includes cartons, pallets, skids and drums
Description about the shipped items (common name & material of manufacture)
Declared value of the goods being shipped
Note included if there is any hazardous substance in it
Exact weight of the shipments for multiple commodities, weight for each commodity is
mentioned separately
Freight classification of the items shipped, according to NMFC (National Motor freight
classification)
14) Explain what is blanket way bill?
A way bill which covers two or more consignment of freight is referred as blanket way bill.
15) What are the activities performed at operational level in logistics?
Various activities at operational level includes
Goods receipt and checking
Bulk storage
Order picking
Stock replenishment
Order marshalling
Load Scheduling
Returns
Availability of Personnel
Update of stock
Completion of documentation
16) Mention what is freight class based on?
Freight class is based on four factors
Density: Weight per cubic foot
Freight Stowability: width and length based on carrier mode rules
Ease of handling: Evaluation of the effort required in transporting
Liability: It includes liability to damage, breakability and perishability, freight price per
pound and susceptibility of theft
17) Explain what is declared the value for carriage?
Declared value for carriage is the value of the goods, declared by the shipper on the bill of
lading, to determine the limit of the carriers liability or a freight rate.
18) Explain what is export declaration?
Export declaration is a government document that defines the goods to be supplied out of
the country. This declaration should be filed by exporter to the U.S government.
19) Explain what is documents against acceptance?
A documents against acceptance are an arrangement or provision, where exporter
instructs a bank to hand over shipping and title documents to the importer only if the
importer agrees the accompanying bill of exchange or draft by signing it. This provision
ensures that the buyer is legally bound to pay the full price to the exporter for the
shipments, before ownership is transferred.
20) Explain what is the difference between document against acceptance and
document against payment?
Document against payment: The document remains with bank and importers have to pay
the exporter before they release the documents. In this payment is immediate, and
document is released quickly
Document against acceptance: In this importer gives 30-45 days to bank to deduct the
amount and then release the documents. In this provision, there is much risk, and if there is
no sufficient balance in the account then, the process will get delayed.
21) Explain what is Carton Clamps?
It is the most versatile attachment used for handling and transporting multiple unpalletized
products such as furniture, carton, appliances, etc.
22) What is SKU number?
Stock Keeping Unit also referred as SKU number is a unique code used to identify particular
line items.
23) What are APS, ASN and ASRS?
APS: It stands for Advance Planning and Scheduling
ASN: It stands for Advanced Shipment Notifications
ASRS: Automated Storage and Retrieval Systems
24) What is compliance labels?
Compliance label are used as shipping labels, carton labels, pallet labels and they usually
contain bar codes. It is used for the identification of goods delivered.
25) Explain what is consignment inventory?
Consignment inventory is in the possession of the customer but still owned by the
supplier. It means you will pay the supplier only when their goods are sold.
26) Explain what is chargeback?
When any shipment that does not meet the customers decided terms and conditions, a
financial penalty is charged against the supplier by customer. This charge is referred as
charge back. For example, lack of proper packaging or labelling.
27) Explain what is cycle time?
Cycle time is the time consumed to get and order from order entry to the shipping dock.
28) Explain what is bonded warehouse?
Bonded warehouse is a dedicated portion of a facility where imported goods are stored
before the customs duties or taxes are being paid.
29) Explain what is blind shipment and bread bulk?
When the source of the supplier is hidden from the customer, such shipment is referred as
a blind shipment.
Bread bulk is referred to overseas shipments, where the cargo being shipped consists of
smaller units like crates, bales, cartons and so on.
30) What are the major transportation issues in warehousing?
The major transport issues in warehousing are
Costs
Delays
Tracking and communications
Warehouse Safety
31) Explain what is batch picking?
The technique of transporting inventory which are grouped into small batches at one go is
known as batch picking.
32) Explain what is wave picking?
Wave picking is a technique of assigning orders into groups and release them together, so
as to allow several activities to run parallel and complete the task.
33) Explain what is the difference between logistics and transport?
Logistics: Logistics is referred as the procedure of managing goods, resources and
information from the source to the consumers in a manner that it fits the requirements of
both parties.
Transportation: Transport is the movement of the goods from one point to the other. It is
considered as part of logistics.
34) In inventory management what do you mean by allocation?
It is a demand which is created by the Sales Order or Work Orders next to a particular
team.
35) Explain what is a capacity requirement planning?
It is a process for determining the quantity of machine and manual labor resources
necessary to assemble a production.
36) Explain what is activity based costing?
It is a method which helps in the breakdown of the costs into specific activities in order to
maintenance of accuracy in the distribution of costs in product costing.
37) Explain what is the meaning of Triage?
The sorting of products or goods based on their condition or quality is referred as
Triage. Some of the goods needs to be repaired and sent back, others have to be sold off as
used or defective goods.
38) Explain what is meant by Reverse Logistics?
Reverse Logistics is the collection of all processes that come into play for goods that move
in the reverse directions which means transportation of goods customer to the business.
39) What are the main supply chain challenges companies face today?
The five big challenges that companies face today is
Ignoring the continued growth of e-commerce as a channel in the industrial sector
No attention to the potential risk like volatile transportation costs
Over expectation that supply chain management technologies will fix everything
Over-reliance on past performance to predict future sales
Increase complexity added to supply chain operations with implementation of
unnecessary technologies
Lack of understanding of the full capacities of suppliers and service
40) What are the areas should be focussed more in order to improve warehouse
transportation?
Delivery Frequency
Turnaround Times
Journey Times
Fixed Routing
Unification of product
Performance standard
Vehicle fill
Scheduling
Vehicle and operational records
Preloading
41) Explain what is WTS (Warehouse Tracking System)? How does it work?
WTS or Warehouse Tracking System is a software application which is specifically designed
for the warehouse industry. It uses the system of barcode labels which allows you to track
product movement, audits and shipments easily. It enables you to identify each piece of
stock by a unique serial number.
42) With the help of WTS how you can generate an Invoice?
There are two ways you can generate Invoice using WTS technique
One way of creating an invoice is assigning it directly with the orders that you are
working on
And the other way is to export the order to QuickBooks and create the invoice there.
43) How Warehouse Tracking System will be helpful in warehouse transportation?
In the warehouse, WTS will help you
Eliminate searching for lost products and saves your transportation time
Reduce picker walk time
Monitor warehouse activity and order status in real time
44) What are the important aspects of transportation and fleet management?
The important aspects of transportation and fleet management
Transport Acquisition
Transport Planning
Routing maintenance planning
Fleet maintenance and Scheduling
Risk management
Human resource management
45) From health and safety point what are things to be taken care while warehouse
transportation?
Dont leave items in aisles on the floor or perched insecurely on a surface
Clean up all spills immediately
Dont block fire exits, sprinklers or fire extinguishers
Put items in their assigned places
Dont leave sharp tools or cutters perching out
Keep cord and wires off the floor
Report loose flooring or tripping hazards
Dispose of trash immediately in proper containers
OBJECTIVE QUESTIONS
1. Which of the following is true for d. all of the above
supply chain management?
(Ans:d)
a. The physical material moves in the
direction of the end of chain 5. Due to small change in customer
b. Flow of cash backwards through the demands, inventory oscillations
chain become progressively larger
c. Exchange of information moves in looking through the supply chain.
both the direction This is known as
d. All of the above
a. Bullwhip effect
(Ans:d) b. Netchain analysis
c. Reverse logistics
2. The sequence of a typical d. Reverse supply chain
manufacturing supply chain is
(Ans:a)
a. StorageSuppliermanufacturing
storagedistributorretailer
customer 6. VMI stands for
b. SupplierStorage-manufacturing
storagedistributorretailer a. Vendor material inventory
customer b. Vendor managed inventory
c. SupplierStorage-manufacturing c. Variable material inventory
distributorstorageretailer d. Valuable material inventory
customer
d. SupplierStorage-manufacturing
(Ans:b)
storage retailerdistributor
customer
7. The major decision areas in supply
(Ans:b) chain management are
3. The purpose of supply chain a. location, production, distribution,

management is inventory
b. planning, production, distribution,
a. provide customer satisfaction inventory
b. improve quality of a product c. location, production, scheduling,
c. integrating supply and demand inventory
management
d. location, production, distribution,
d. increase production
marketing
(Ans:c)
(Ans:a)
4. Logistics is the part of a supply
chain involved with the forward 8. Distribution requirement planning is
and reverse flow of a system for
a. goods a. Inventory management

b. services b. Distribution planning
c. cash c. Both a and b
d. None of the above resellers and then to end users is
classified as
(Ans:c) A. risk averse distribution
B. reverse distribution
9. Reverse logistics is required because C. inbound distribution
D. outbound distribution
a. Goods are defective
b. Goods are unsold Ans-D
c. The customers simply change their
minds 14.Logistic network which moves
d. All of the above materials from suppliers to
manufacturing unit is classified as
(Ans:d) A. inbound distribution
B. outbound distribution
10.3-PL stands for C. forward distribution
D. reverse distribution
a. Three points logistics
b. Third party logistics Ans-A
c. Three points location
d. None of the above 15.Process of managing upstream and
downstream of final goods, flow of
(Ans:b) raw materials and information about
resellers and final consumers is
classified as
A. marketing logistics network
11.Process which involves controlling, B. supply chain management
implementing and planning materials C. delivery network
and final goods to meet final customer D. physical distribution network
at high profits is classified as
A. exclusive distribution ans-B
B. exclusive dealing 16.A supply chain is a sequence of firms that
C. physical distribution perform activities required:
D. supply chain management A) to find products that are similar
B) to facilitate wholesalers inventory
Ans-C selections
C) to create synergy in their training
12.Logistic network through which
unwanted or excess products by programs
resellers or consumers is classified as D) to create and deliver goods to
A. inbound distribution consumers
B. outbound distribution E) to support the acquisition of raw
C. forward distribution materials
D. reverse distribution 17. An important feature of supply chain
management is its application of
Ans-D electronic commerce technology that
allows companies to share and operate
13.Logistic network which moves
finished product from company to systems for:
A) order processing, transportation
scheduling, and inventory management. 23. Pricing interacts with a supply chain in
B) cost-effective flowing of raw materials many ways. For instance, transportation
C) future purchasing of computer systems rate structures are adjusted by the carrier
D) future merger opportunities based on:
E) prospecting new business ventures. A) cost to unload
18. A supply chain is essentially a B) the size of the shipment
sequence of linked: C) local currency rates
A) customer and prospects D) the logistics costs concept
B) supplier and manufacturer 24. The total logistics cost includes
C) suppliers and customers expenses associated with transportation,
D) warehousing and wholesaling units materials handling and:
E) events in the marketing process A) customer complaints, cost of food and
19. In the automotive industry, the highway usage taxes
person who is responsible for translating B) warehousing, inventory, stock outs
customer requirements into actual orders and order processing
and arranges delivery dates is the car C) inventory control with sales forecasting
maker: D) stock outage control with sales
A) supply manager forecasting
B) purchasing manager E) historical figures weighted by last
C) production manager years numbers
D) supply chain manager 25. The total logistics cost factors need to
E) VP for production be balanced against the:
20. It is estimated that the logistics costs A) supply chain managers total
of a new car are about: experience
A) 10-20% B) 20-25% B) total expected transportation needs
C) 25-30% D) 30-40% C) customer service factors
E) 40-45% D) lead time expectations
21. Poor supply chain management E) replenishment time forecasts
practices can ____________________ an 26. Lead time and order cycle time are
otherwise excellent marketing strategy. the same as:
A) seriously damage A) customer service time
B) make SWOT analysis difficult for B) supply chain flow
C) keep people employed on C) logistical clockage
D) mean quarterly lessons for D) replenishment time
E) repair E) real time service time
22. The physical characteristics of a 27. The inventory management systems
product will often dictate what: designed to reduce the retailer's lead
A) types of sales can be made time for receiving merchandise is called:
B) forms of sales promotion to be used A) efficient consumer response delivery
C) types of instructions needed system.
D) geographic regions will be included B) effective response.
E) kinds of transportation can be used C) on-time market delivery system.
D) efficient logistical response. D) lower costs created by FIFO.
E) on-time consumer response systems. E) other transportation modes take more
28. Examples of third-party logistics time.
providers are: 34. A reason to carry inventory would
A) FedEx and Rosenau Transport include:
B) Sentinel Self-Storage and UPS A) to have tax write-off opportunities
C) FedEx and UPS B) having a wide variety to meet
D) UPS and Metro Van Lines customer expectations
E) Purolator and Metro Van Lines C) to increase ways to use the product
29. The seller must concentrate on D) supplementation of synergy strategies
removing unnecessary barriers for: E) to promote purchasing and
A) a quick response. transportation discounts
B) Customer convenience. 35. Saturn's manufacturing operations in
C) Transportation modes. Spring Hill, Tennessee, uses a
D) a piggyback operation. sophisticated system called:
E) a more personable relationship with A) JIT B) OJT
the customer. C) OJE D) POP
30. There are five basic transportation E) FOB
modes. They are air carrier, motor carrier, 36. A marketing expert described a _____ as
and: looking like a butterfly. The manufacturer is the
A) pipelines, railways an water carriers body of the butterfly with many different
B) railways, ocean vessels and dirigibles suppliers accumulated on one side of the body for
C) trucks, canals and robotics the left wing and a large number of buyers
D) water routes, railways and trucks collected on the other side to form the right wing.
E) pipeline, water routes and ocean A) logistical flow
vessels B) demand chain
31. Rail has the largest shipping capacity C) materials handling facility
compared to all except: D) supply chain
A) pipeline B) air carrier E) retailer cooperative
C) water carrier D) motor carrier 37. ____ is the integration and organization of
E) none of the above information and logistics across firms in a supply
32. TOFC is the same as: chain for the purpose of creating and delivering
A) piggyback goods and services that provide value to
B) total fleet command consumers.
C) tri-optic float carrier A) Supply chain management
D) one-way dispatching B) Logistics management
E) deadhandle control C) Point-to-point management
33. Air freight is costly, but its speed may D) Just-in-time management
create savings because of: E) Cost-effective flow
A) the extensive availability of airports 38. What is the first step in choosing a supply
B) lower inventory. chain?
C) getting to store shelves before water A) developing an umbrella mission statement
carriers. B) understanding the customer
C) making sure the members of the supply chain companies that ship export their products. Celarix
harmonize with the organizational culture is an example of a:
D) creating a unifying interorganizational strategy A) materials handling expert.
E) determining what the competition is doing B) content provider.
39. Bombardier makes corporate jets and its C) freight forwarder.
strategy involves streamlining production D) third-party logistics provider.
activities, maintaining its reputation for quality, E) logistics manager.
and reducing its costs. It has developed the 43. Which of the following statements about air
Continental, an airplane assembled from just a carriers is true?
dozen large component parts (not counting A) One advantage of air carriers is door-to-door
rivets). While building planes with subassemblies delivery.
is not new, Bombardier is the first to not use B) There are no space constraint limitations as to
vertical integration. All parts are supplied by what can be transported in planes.
carefully chosen independent companies that C) This method of transportation is especially
share the development costs and market risk. In effective for piggybacking.
terms of its supply chain, Bombardier has D) Air carriers are commonly used for perishable
A) lengthened its supply chain unnecessarily. flowers, clothing, and electronics parts.
B) implemented a just-in-time materials handling E) All of the above statements about air carriers
policy. are true.
C) created a marketing channel. 44. William "Gus" Pagonis is an executive vice
D) harmonized its supply chain and its strategy. president at Sears and oversees the systems the
E) used a production repositioning strategy. retailer depends on to make 5,000 home
40. Winemaker Robert Mondavi Corp. buys deliveries per day and move 250,000 truckloads
satellite images from NASA to spot problems in its of goods every year. With 30 large distribution
vineyards and aims to push those images out over centres and 90 smaller outlets, it's Pagonis's job
a(n) _____ to its independent growers this year. to supply 100,000-plus products to more than
Mondavi will help growers avoid vineyard 2,000 Sears stores. When asked to describe the
problems-and improve the grapes it buys. retailer's distribution centres, Pagonis would most
A) Extranet likely say,
B) customized search engine A) "Just like other companies, Sears spends more
C) electronic downloadable information (EDI) money on distribution centres than any other
D) customized database management system element of its supply chain."
E) entrepreneurial Internet B) "Our success is due to the centralization of our
41. With which customer service factor are quick distribution centres."
response and efficient consumer response C) "Because our distribution centres are so
delivery systems most closely related? efficient, they are the least expensive part of our
A) time supply chain."
B) dependability D) "We use our distribution centres to facilitate
C) inventory costs sorting consolidating products from different
D) communication suppliers."
E) convenience E) "Distribution centres are the most important
42. Celarix.com is a business entity that monitors element of our order processing."
and calculates tariffs and exchange rates for small 45. Modes of transportation are typically
evaluated on the basis of all of the following C) publicity D) inventory
criteria EXCEPT: E) billing
A) accessibility. 50. Supply chain management impacts all of the
B) perishability. following aspects of the marketing mix strategy
C) frequency. EXCEPT:
D) capability. A) the target market selection decision.
E) dependability. B) product mix decisions.
46. TransCanada PipeLines, a natural gas C) pricing decisions.
transmission and distribution company, launched D) promotion decisions.
an advertising campaign in national Canadian E) distribution decisions.
newspapers and the country's major dailies to 51. An online retailer like Amazon.com relies on
educate people about what pipelines do and an efficient supply chain. The development of its
where they fit into the economics of the supply chain supported its clearly defined
community. The advertising might have told marketing strategy and began with:
Canadians that pipelines: A) inventory forecasts.
A) are expensive to use. B) a logistics mission statement.
B) have a high degree of reliability. C) the mature stage of the product life cycle.
C) are weather sensitive. D) understanding the customer.
D) rank high in terms of accessibility. E) none of the above.
E) are accurately described by all of the above 52. In Canada, Coca-Cola Beverages has rolled out
47. The Danish-flagged Carsten Maersk can carry new marketing, technologies, and packaging to
enough merchandise packed in containers that outmaneuver private-label Canadian cola bottlers,
when they are laid end to end, the containers which have captured considerable market share.
would stretch 27 miles. When it reaches its Coke will bring in a new just-in-time distribution
destination, the containers will be removed from system based on unit trains and cross-docking
the ship and loaded onto trucks and railcars. This sales centres. Which of the following statements
is an example of: describes how Coke will use cross-docking?
A) piggyback. A) Cross-docking will allow Coca-Cola to greatly
B) freight forwarding. reduce the need to store and warehouse
C) intermodal transportation. products.
D) an export agent. B) The use of cross-docking means Coca-Cola will
E) an efficient consumer delivery system. rely more on business-to-business marketing.
48. Traditionally, stores have carried inventory to: C) The use of cross-docking means Coca-Cola will
A) prevent strikes or product shortages. implement the customer service concept in its
B) provide better service for those customers relations with ultimate consumers.
who wish to be served on demand. D) Cross-docking will allow Coca-Cola to use less
C) eliminate forecasting uncertainty. freight forwarding.
D) terminate production economies. E) Cross-docking will allow Coca-Cola to outsource
E) avoid purchasing and transportation discounts. its manufacturing.
49. Dramatic cost savings are possible when
efficient transportation systems and information 53. In physical distribution decisions, total
technology can be substituted for _____ costs. logistics cost includes:
A) advertising B) personal selling A) order processing.
B) materials handling and warehousing. allow it to:
C) transportation. A) have a dedicated train that uses permanently
D) inventory and stockouts. coupled cars that run a continuous route from
E) all of the above. Coke's bottling plants to its retailers and back.
54. Canadian graphic arts, publishing and B) use intermodal transportation for export
advertising companies, as well as their clients and purposes.
suppliers, can exchange camera-ready art and C) use trucks to make door-to-door deliveries.
other images faster and cheaper than before as D) use more warehousing.
the result of an agreement between Bell Nexxia E) reach ultimate consumers through one-to-one
and Montreal-based Cenosis. These two marketing.
companies market a(n) _____ for the graphic arts. 58. The major purpose of a trailer on flatcar
It allows a graphic designer to transmit the full (TOFC) is to:
contents of a magazine to clients or printing firms A) deregulate the motor carrier industry.
across the country-reducing production costs and B) combine the economy of rail carriers with the
delivery time. flexibility of motor carriers.
A) efficient response system C) implement a JIT transportation strategy both
B) vendor-managed communication system domestically and internationally.
C) Extranet D) eliminate the need for containers.
D) online logistics system E) provide a common power unit from origin to
E) communication bot destination.
55. Lead time is: 59. Air Canada, a Montreal-based airline, uses its
A) also called replenishment time. excess storage capacity on passenger flights to
B) typically more important to resellers than to Europe to haul cargo. It typically collects several
consumers. small shipments consigned to a common
C) defined as the time that passes from ordering European destination. Shipment schedules are
an item until it is received and ready for use or mandated by the passenger side of its business.
sale. Air Canada is an example of a(n):
D) also called order cycle time. A) third-party service provider.
E) accurately described by all of the above. B) Extranet.
56. Combining different transportation modes in C) vendor-managed logistics expert.
order to get the best features of each is called: D) import agent
A) freight forwarding. E) freight forwarder.
B) dual distribution. 60. A warehouse that emphasizes speed and
C) intermodal transportation. efficient product flow to hold goods for short
D) bimodal logistics. periods of time and move them out as soon as
E) intramodal transport. possible:
57. In Canada, Coca-Cola Beverages has rolled out A) is a storage warehouse.
new marketing, technologies, and packaging to B) is a freight forwarder.
outmaneuver private-label Canadian cola bottlers, C) is a distribution centre.
which have captured considerable market share. D) is an inventory expediting centre.
Coke will bring in a new just-in-time distribution E) has a just-in-time inventory system.
system based on unit trains and cross-docking
sales centres. Coca-Cola's use of unit trains will

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SUPPLY CHAIN MANAGEMENT

Module I: Supply Chain Foundations: Supply Chain as a network of entities:

Module II: Customer Orientation: Customer Satisfaction oriented Supply

Module III: Manufacturing Logistics Management: Lean and Agile

Module IV: Distribution Management: Distribution Channels: Structure and

DEFINITION OF SUPPLY CHAIN

The APICS Dictionary describes the supply chain as:

OBJECTIVES OF SUPPLY CHAIN

FEATURES OF SUPPLY CHAIN

PROCESS VIEWS OF A SUPPLY CHAIN

Each cycle consists of six subprocesses

Eight Supply Chain Processes Proposed by Lambert and Cooper (2000).

In Supply Chain Management System, any product which is manufactured in a

As defined by Ellram and Cooper (1993), supply chain management is "an

KEY ISSUES IN SUPPLY CHAIN MANAGEMENT

VALUE CHAIN FOCUS OF SUPPLY CHAIN

A value chain is a set of activities that a firm operating in a specific industry

IMPACT OF SUPPLY CHAIN MANAGEMENT

CENTRALIZED AND DECENTRALIZED SUPPLY CHAINS

Centralized supply chain planning

A centralized SCP approach requires a single decision maker to optimize the

Limitations of the centralized supply chain planning approach

1. alignment of individual decisions to SC-wide objectives

Decentralized supply chain planning

Today, SCM is widely recognized as a better way of doing business in a complex

A customer value oriented supply chain management is able to produce competitive

Customer segmentation relies on identifying key differentiators that divide customers

By enabling companies to target specific groups of customers, a customer segmentation

Other benefits of customer segmentation include staying a step ahead of competitors in

Customer segmentation can have a great effect on customer management in that, by

CUSTOMER REQUIREMENT ANALYSIS

Requirements analysis, also called requirements engineering, is the process of

Requirements analysis involves frequent communication with system users to determine

Requirements analysis is a team effort that demands a combination of hardware, software

Conceptually, requirements analysis includes three types of activities:

Eliciting requirements:(e.g. the project charter or definition), business process

Requirements analysis issues

ALIGNING SUPPLY CHAIN TO CUSTOMER NEEDS

QUICK RESPONSE LOGISTICS

The QR is a management concept created to increase consumer

THE MOST COMMON MISTAKES BEING MADE TODAY TO ACHIEVE QUICKRESPONSE IN

NEW BUSINESS PARTNERS

ELECTRONIC DATA INTERCHANGE AND POINT OF SALES

QR IMPLEMENTATION ELEMENTS, FMS, POS TRACKING

Advantages and Disadvantages Of QR Implementation:

Suppliers benefits Retailers benefits-

The typical disadvantages of implementing QRsystems for the

Vendor-managed inventory (VMI) is a family of business models in which the

Advantages of retail cross-docking

Retail cross-dock example: using cross-docking, Wal-Mart was able to effectively

Wal-Mart operates an extensive satellite network of distribution centers serviced by

THE PURPOSES OF PACKAGING

Packaging may be of several different types. For example, a transport package or

PACKAGE DEVELOPMENT CONSIDERATIONS

Third-party logistics providers include freight forwarders, courier companies, as well as

Outsourcing may involve a subset of an operation's logistics, leaving some products or

Characteristics of the different types of third party logistics services:

Transportation Based Third Party Logistics Services

Services extend beyond transportation to offer a comprehensive set of logistics

Warehouse/Distribution Based Third Party Logistics Services

Many have former warehouse and/or distribution experience.

Forwarder Based Third Party Logistics Services

Very independent middlemen with forwarder roles.