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Cases in logistics prof. G.pherwani


Case 3: MARUTI UDYOG-And Supply Chain
The Web That Runs Maruti
 1996-e-biz efforts restricted to B2B(e-mail, dialup
connectivity)2Mblink to VSNL-e-ordering
 This how Maruti Udyog’s InfoTech team of 60 has wired
up India’s largest auto maker.
 All offices are connected on a 256-kbps link
 Result: Inventories are now down from five days to less
than 36 hours
 Production plans are shared with key vendors up to three
weeks advance.
 The Delivery Instruction System is an extension of
Maruti’s wired structure, the extranet, for key vendors.
By mutual agreement. not more than 5-10per cent
variation from the plans is allowed
 Result: Many vendors have cut their inventories by a
third
 Rejection ,warranty claims from TIER I Suppliers
Rs.100bn.business-2MB link to VSNL-Tie-up with 3Banks
(ANZ Grind lays Corporation Bank, BOA for EFT).STDI.
Application. s/w for online DataUpdation
 Its market share is 60 per cent.
 With 12 high-end Compaq Alpha servers, with 17.9
terabyte storage capacity
 Largest-handled transactions worth Rs19,000 crore
during 2000-01
 Rs 1.2crore worth of spares every week
 189 dealers across 147 cities
 Maruti also extended his extranet
 “Whole system helps to take decision faster”
 The Maruti network will soon be expanded to a part of
the 1,723 workshops spread over 740 cities.
 Fault repair online ,and maruti to monitor service quality
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 All 216 sales outlets are hooked to the Maruti extranet


 The mess of manual booking and conformation has been
eliminated.
 Coming up :e-learning for dealers and service center
 Soon it will be used to monitor quality of service too
 Result: Logging an order once took five days. It's down
now to a few minutes
 Everyday nearly 1,400 vehicles a min of 8,000
components each
 11 brands, 35 variants and 100 colors.
 A 25-kms mesh of optic fiber runs across the plant,
allowing the 4,600 workers real-time access to
information.
 Vendors can access the information on a need-to-know
basis across the extranet ( dealer dial up order online)
 Result: Plant can access information regarding
availability of components and production schedules
24X7x365
 Order online--->EFT--->Cars in Transit--->Engine
Chassis numbers updated and vehicle becomes
“IN STOCK”. B2C+Brandsite the Product Speed
Flash 15, September 2005
Maruti Udyog sign up with Oracle Corporation to deliver an ERP
solution in order to link its entire inbound logistics, process and
outbound logistics even more electronically to leave no room for
errors or human intervention. This will make them even more
agile. Indian Car market has become fiercely competitive. The
main advantages fro Maruti are:
1. proven Japanese technology and design
2. awesome reach and service networks
3. J.D. Powers repeatedly ranks them the highest in
customer Satisfaction due to their responsiveness
4. Full use of E-commerce in SCM.
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Problems-
 Analyze the case and discuss its core factor fro
competitiveness.
 How channel members act in coordination and
effect of inventory on profitability?
 What effect will efficiency have of price
advantage over competition? Give your opinion.

Case 2: Sponge Iron


Containerization and multimodal transportation of sponge iron
from India’s west coast to consumers in west coast

Advantages
1. Containerization has increased world trade, &
intermodal has got an impetus.
2. containers are easy to transfer from one mode to
another-& their use facilitates intermodal transportation
3. Global freights use truck/water rail transportation-
because factories & markets may not be close to the
ports.
4. On land too, truck/rail combinations offers low costs
than only truckloads & delivery times are improved.
5. It creates a price/service offering that can’t be matched
by any single mode.
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6. It creates convenience for shippers which have now to


deal with only one entity representing all carriers who
together provide intermodal service.
7. key issues:
⇒ Exchange of information to facilitate shipment
transfers between different modes because
transfers involve considerable delays, hurting
delivers time performance.

Costs can be tabulated in a simple 2-mode transfer:

⇒ Loading

⇒ Trucking cost to port

⇒ Unloading-crane-

⇒ loading onto ship


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⇒ Ship freight

⇒ Unloading into truck


⇒ Truck to destination
⇒ Unloading at destination Transit insurance

⇒ Information transmission

By ship
Alibag Marmugao: ship size-35,000dwt
Payload- 34,000dwt
Standing charges-Rs.153, 000
Fuel cost-Rs.120, 000
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Fuel cost at anchor-Rs.15, 000


Port dues-336,000
Unloading charges/t Rs. 50
Travel time-1 day
Waiting/loading-4, 5 days
Unloading rate 2000t/hr.
1. Deep water operations at Alibag not possible for 120
days in a year, due to monsoon
2. Alibag is minor port, hence cargo needs barges to
load/unload in deep waters to jetty, & used 1 round trip
in a day due to tidal conditions
3. Operating cranes on the ship limit loading/unloading to
10,000 t per day.
4. 10 barges will be required, 5 at the side & 5 at jetty
5. Charter rates will be Rs. 300 per tonne per month

By rail
Alibag Marmugao: Rail 500 kms
IRCA tariffs-Rs.27, 24/quintal
For cat. 210
By road
Alibag Marmugao: Road 520 kms.
Rs.0, 50-0, 70/tonne km.

Product:
1. Sponge iron produced at sponge iron plant in Alibag,
Maharashtra-an intermediate product in steel making,
substitutes scarp iron-users: foundries, mini-steel plants
& large integrated steel plants-the former intensely
used in Maharashtra & Gujarat, later in Eastern India,
except SAIL plant at Bhadravati in Karnataka.
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UPSTREAM ACTIVITY

⇒ Location-availability of Natural Gas from Bombay


High form where it is brought of shore about 25
miles

⇒ Gas available at-land fall prices- Rs. 25,000 per


2,500 cubic meters-less than what inland
customers would pay-& 300 cu. Meters required
per tonne of sponge iron produced.
⇒ Site was on shore to get access to sea route also

during construction & operation.


⇒ Gas-based method, under License from HylSa
Mexico is cheaper alternative to coal-based
methods used by competitors in eastern India.
⇒ It had capacity of 0,5m t per annum
⇒ Needs 1, 24 t of pellets of DRI [direct reduced
iron] & 0, 31 t of lump ore per tonne of finished
product- in feed mix of 80:20.
⇒ Iron ore & pellets are not available at Alibag

LOGISTICS PROBLEM
I. UPSTREAM- Natural gas by pipeline form
ONGC-pellets from Kudremukh Iron Ore
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Company [an export-oriented unit where Rupee

prices will fluctuate with


The negotiated price was $12 per tonne F.O.B
Annually renewable terms]-LUMP ORE from:

Goa 20% Rs. 330/t


Banspani, Orissa 30% Rs. 250/t
Diatari, Orissa 30% Rs. 250/t

⇒ Nearest rail head is 15 kms. Away. Railway Board


asked them to construct a line along with other
local industries at accost of Rs. 10m/km. road cost
will be Rs. 30/t
⇒ IRCA has categorized finished sponge iron under
Category 210.
II. DOWNSTREAM
⇒ Markets are all over India
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Bombay High

Chandigarh
Dehra Dun
Delhi
Ghaziabad
Guwahati
Jaipur
Lucknow
Patna
Ahmadabad Kolkata
Indore Jabalpur

Vapi Nagpur Raipur Bhubaneshwar

Mumbai Gateway

Hyderabad
Regional Distribution Center
Belgaum
Sub Distribution Center
Bangalore
Chittoor Local Billing Point
Chennai
Palakkad Salem
Coimbatore Optional Local Billing
Point
Kochi Madurai

⇒ Distance to markets is from 2,300 kms.


[Durgapur] To 70 kms.[Bombay]
⇒ Ships won’t be returning empty from
Eastern India since they will be carrying
back iron ore from Orissa.
⇒ It will need additional time for loading &
unloading, since ships are under time
charter, but not due to travel time-
scheduling ships will need expertise.
⇒ Stock yard for redistribution would cost Rs.
100,000 per month-inventory carrying cost
will be a factor too.
⇒ Plant will need 10 trucks a day
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⇒ Each additional handling of product will cost


1% -average selling price is Rs. 4,000/t
⇒ Demand exceeds supply-market is good.

PROBLEMS
1. What is the best solution for both IBL & OBL?
2. Should they do it in-house or outsource it to a
professional firm?
3. What is the best solution in mode choice?

Please discuss the above in view of sponge iron supplies.


Natural gas is a vital input for gas-based sponge iron plants set up by various companies
Grasim Industries, Ispat and Essar. The supply from Bombay High is around 50 to 55 per
cent of the committed linked quantity.

The price of LNG works out to around $3.5 per MMBTU, which is uneconomical for the
operations of the sponge iron plant at present.

“If the price of LNG can be reduced to $2.7 MMBTU, then it will be economical for our
operations”, Mr Bagrodia said.

“Natural gas is a major concern in terms of quality, quantity and price”, he said, adding
“we are in talks with ONGC and Reliance who can supply us gas at a cheaper rate”.

Grasim is awaiting the gas policy which will deregulate the prices of gas in the country in
a phased manner. “We have to sign agreements with the oil companies who will give us
an idea.”

Grasim had invested Rs 600 crore in the plant at Alibag near Mumbai, which has an
installed capacity of 800,000 metric tonnes per year.

“The regassification plant involves huge investments and may be considered if natural
gas supplies are stabilised”, Ratan K Shah, president Vikram Ispat told FE.

He said all gas-based sponge iron manufacturers in the Uran sector are facing a challenge
on maintaining their operations in the scenario of lack of natural gas supplies and rising
gas prices for the next two years till alternate LNG supplies are made available from
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private players. One such player from whom gas may be sourced is Petronet LNG which
will transport gas from Rasgas of Qatar.

Vikram Ispat has a turnover of around Rs 360 crore and made a net profit of around Rs
40 crore.

Most of the gas-based sponge iron producers are running their plants at 50 to 55 per cent
of their capacity.

Industries is weighing three options to overcome shortage of fuel (natural gas) at its
sponge iron unit Vikram Ispat which includes setting up of a coke re-gassification plant.

Grasim will go in for setting up of this plant if the existing supply of natural gas does not
improve and the company is also unable to source liquefied natural gas (LNG) from
private players at an attractive price. The existing prices of natural gas are also
unattractive for the company.

“We are weighing two to three options to maintain operations at the plant which is
running at 70 per cent capacity. We will be able to reach full capacity only if ONGC or
Gail increase supply of natural gas. Alternatively, we can source LNG from private
companies at a rate which is economical,” Grasim Industries director MG Bagrodia said.

He ruled out divestment of the sponge iron unit by the company.

Customer orders jeans

Wal-mart P.O.S
SUPPLY flows

LEVI’S registers order

Milliken makes fabric

DuPont makes fiber

Cotton grower sells cotton

ORDER FLOWS
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Hand-held GPS detects item need-identical


software/hardware with the entire 5 Major player
and 4 Logistics service providers get to know about
replenishment simultaneously-THIS IS WHERE THE
MAJOR SAVINGS come from!
Pre-requisites:
o Long-term Partnering
o Harmonized code sharing
o Information-sharing, trust
o Revenue sharing-remember don’t squeeze
the supplier, squeeze the process!
oResponsiveness
oTime goals
oCost goals
oCommitments
oSystem access
oSynergy
Customer delivered value
Total value Total cost
Product value Monetary cost
Service value Time cost
Personal value Energy cost
Image value Psychic cost

Competition is between networks and not companies-winner


is the firm with a better network.
Compression- time-information-communication-transaction
cost-unpredictability [risks]-multiple service providers.
Process-
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Customer at POS SCREEN at vendor screen at carrier screen at Wal-Mart

Screen at bank-EFT

Stock interface
Customer interface
Finance interface
Management interface

Customer buys-depletes merchandize-online signal


to vendor at ROL point to supply ROQ-in turn to
carrier-EDI-acknowledge instruction [info flow]-
ahead of goods-goods tagged, RFID coded-hung-
priced-move directly to selling counter WITHOUT
ANY FURTHER CHECK BY Wal-Mart-payment by EFT.

At sales point
SCANNER identifies article-picks up price from the Price
master –signals quantity from actual stock to be deducted
ROL identified-prints receipts for the customer-gives him
change-adds to sales- signals EDI for action-subtracts form
stock-records cost of transaction-tax to be paid-net profit.

Selling space-laid merchandize+ hung merchandize on a


carousel
Storage space-is non-selling space which norm is 25%, IS
10% FOR Wal-Mart.
EDI-is electronic data interchange, is documentation in
electronic format
Merchandize-article in a ready-to-sale condition, duly
tagged, bar-coded-in hanger-washing instruction, sales
price.
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ROQ-deliver only what’s ordered by Wal-Mart” EDI, EFT will


pay only for this.
SCM at Wal-Mart:

Article coded-barcodes-LAN/WAN NETWORKS-S.W.-


links-POS+dB+vendor+carrier+bank for EFT+ mgmt.

Logistics Planning for Projects in Remote environments


The success of planning the Logistics Support for Projects, is often a direct
contributor to the overall project success, and nearly always has a direct influence on cost
and schedule. After all, the way that materials are provided for a project, and are
controlledand utilised can affect Cost, Schedule and Quality (the 3 pillars of project
management). In a developed environment, where suppliers are close by, transport is
regular, security is sound, IT systems are in place and ‘interconnected’ and we have well
trained and largely ethical staff involved through the process, you have a fair chance of
getting it right.

But what needs to be done when one, some or all of these factors are not in place?

The delivery of Supply Chain support for a Project in a remote location has a number of
differences which need to be considered during planning. The easiest way is often to
identify these variances at each stage of the Project Cycle to develop a clear and effective
support plan.

Buying for the Project.

Materials are probably being sourced far from the end project location. For example,
materials may be purchased and supplied from Australia, or the US, for delivery to a
project in a developing country such as Papua New Guinea, Africa, or even Antarctica.
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Project Materials. Inappropriately packaged for forwarding to remote environment.


Wasted time and cost that could have been avoided.

Two principles should be considered in these cases…

1. Ensure the goods are properly inspected before payment, and do so as close to the
supplier as possible. This often goes against what is now common practice to accept
delivery and make payment when the goods arrive at the site. A ‘receiving and
inspection point’ needs to be established outside of the remote location. A shipping or
consolidation point before the goods are forwarded to the remote location is often sound.
This should be controlled and tightly managed, preferably supported with a receiving
system linked to the Purchasing and Payment system.

Why? Well, you don’t want to find out that you have the wrong goods once you have
paid for expensive freight and handling half way accross the world. Also, if you are
going to pay the supplier on time, that is only going to be put at risk if you are going
to inspect and pay after you have freighted the goods through some of the worst
conditions imaginable. Consider the potential for delays, damage and theft. No supplier
wants to wear the responsibility or consequences of that. If you find a supplier who will
accept terms such as this, expect to pay for the privelage.

2. If systems are poorly connected (perhaps an immature site, or poor communications


infrastructure limits IT integration), make sure that the system which will be used to
manage the goods through the supply chain is the one used to actually raise and manage
the Purchase Orders. In some cases, this can mean that the order are perhaps done on
behalf of a contractor, as opposed to the contractor raising their own orders utilising their
own ERP systems. At first this appears inefficient, but in many cases the end result is
often a smoother operation where the Supply Chain has been integrated into the one
system. Often too, having on-site staff who understand the operation take ownership of
the material supply early in the process adds to increased ownership of the project and
early identification of other issues that might not be identified by someone at the Head
Office. For example:
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• Identifying local import/customs issues, that the contractor may not be familiar
with.
• Incorporating local transport, storage and handling issues into the plan.
• Identifying alternative sources of supply, often local, that may offer a lower cost.
• Advise on the most practical and efficient shipment methods.

Transport and Import arrangements.

As above, hopefully planning has been started to identify solutions early in the process.
However, too often the first moment these issues are identified are when the goods arrive
at the Port (perhaps without correct documentation) or everyone is scratching their head
about how to move the goods, and who will pay for it.

Often, for a remote site, there is only one well established transport route that has been
especially developed (or evolved) to meet the requirements of the operation. This is
different to a well connected operation where there may be a multitude of roads, airports
and providers to move freight inwards. Not recognising this in the early stages of
planning will mean that either the existing Transport chain will be stretched to
accommodate the project requirements or the ‘new’ arrangements which may be put in
place independently could be unproven or note even appropriate for the environment.
This could result in unexpected risk and cost to the project.

Often, contracts are struck with delivery terms stating payment for materials to be
provided to the work site, but in many remote locations this is not appropriate as the
supplier or contractor does not have control over the Distribution chain through to the end
location. Thought needs to be given to who is best equipped to manage the risk of the
Transport chain, and who best to operate it. Transfer of custody and ownership needs to
occur at this point, normally where the supply cain transitions from ‘developed’ to
‘undeveloped’ and where there is a resource to contractually manage that transition.

Liability and Ownership of the Transport Chain

Both parties will also need to appreciate that some risks and factors associated with the
transport cannot be managed effectively by either party. For example, road closures due
to weather, road accidents, or civil disturbance. In these cases, consideration needs to be
given to ensuring adequate insurance for some of these events (if possible) and
incorporating transport delays into the project plan.

Another common mistake is to mobilise a work crew on the assumption that the materials
will arrive for a project on a given day. When the materials don’t arrive on the often
over-optimistic time, the crew is often sitting idle incurring cost. While it may delay start
by a couple of days, major mobilisation of work crews should be considered once the
‘risk period’ of material delivery has passed.
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Managing the Risk of Transport in a Remote location

Receipt and Control of Materials.

The control of materials once at the worksite is often a problem area. Ideally, the
location and resources that will be required to control materials will be determined, and
resources put in place, before they arrive. Project Materials may often be ‘directs’ and
more often than not will not be established within an inventory system. An alternative
system will often need to be developed to ensure the materials are tracked and controlled.
This can be a simple Excel spreadsheet, which references the orders that have arrived,
who has collected the materials and when. Ideally, materials should not be issued to the
project in less than the base Unit of Measure from the order. Care should be given to
who will actually collect the materials as well, with perhaps an ‘authorised’ list of people
being developed who are given the authority to collect and sign for the project materials.
Either way, all players at the start of the project should be advised of the arrangements
and suitable care given to keep the materials in order.

Poorly Planned Project stores - Lost Control, Project delays, Cost.


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Because a unique system may need to be established for the project, the control of the
store often lends itself to being clearly assigned to a single person, or small group of
people. This also facilitates building a rapport and effective working relations between
the project group and the supporting supply chain. The team controlling the stores should
be recognised as stakeholders and participants in the project, and also be asked to
contribute regularly status-updates to project stakeholders and be encouraged to propose
new ideas for improvement that will help in the flow and control of project materials.

Well Organised Project Lay Down yard - Controlled, Secure, Accountable.

Close Out.

This is another area where the ‘remote’ project has a few issues of its own, and one that
few people consider. Because of the difficulties in supplying the project, there is often a
tendency to over-supply with greater than usual levels of contingency built into the Bills
of Material. This inevitably leads to a large surplus that nobody wants to know about.
The tendency is to put it ‘into the site inventory’ for a rainy day. This also usually means
that the surplus is written off the account for the project, hence there is little disincentive
for the project to minimise surplus.

Disposal is often difficult as well, due to cost of getting the gear out again, and the
limited options for disposal of the materials. There are no easy answers to this issue, but
the following suggestions can assist:

• Ensure there is an incentive for Project Managers to minimise surplus materials in


their planning.
• At least look for other ’surplus’ materials that are already in location during the
planning stages for the project.
• Ask contractors to provide proposals for what to do with Surplus materials. They
may know of other buyers or projects nearby where the surplus materials can be
transferred and utilised.
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The remote project can have a number of unique characteristics that need to be
recognised and addressed, in order to develop a project plan that will be successful. This
report covers just some of the issues that may be encountered. Overall, it is about
engaging in a planning process. Understand what is different about the remote
environment you are working in, and develop solutions that are integrated and will work.
Trust the people who work in that environment every day as they will know what can and
can’t work, and are often more resourceful and responsive to change than their developed
world counterparts. I also strongly recommend drafting a specific ‘Logistics Support
Plan’ for a project, so that the concepts which will be applied for a project can be clearly
communicated and understood by all involved.

Packaging and Logistics Services from Gordano Support Group


Ltd

Businesses, both large and small, can benefit from Gordano's


subcontract packing and logistics services, either on or off
customer own sites. They offer Collection Service Packing,
where items will be collected and packed at one of their units,
and either returned to customers own premises or despatched
to the final customer.

Alternatively, Gordano offer on-site packing service options,


including their on-site Packing and Despatch Management
Operation, whereby a Packing Supervisor will manage the
despatch and packing operations, as required, on your own
site, allowing you to concentrate on your core objectives.

• Skilled packing teams provide fast and reliable turnaround. Handling month end
peaks, variable despatch patterns, daily multi trip pick up and drop offs.
• Gordano operate 24 hours 365 days a year (meeting AOG demands).
• Customised IT and software systems ensure complete traceability and instant
management reporting. Systems can be interfaced direct with customer own
computers.
• Customers goods are fully insured.
• Their teams are security cleared, and trained to pack to the exacting standards
of the aerospace, engineering and defence industries.
• All relevant personnel are trained and certified to UK National Aviation Cargo
Security - Level 1, with select members of the teams trained and certified to
pack ‘Dangerous Goods’ as approved by IATA and the CAA.
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Therefore, you can be assured that whatever your


products, they are in the safest of hands. Gordano's
expert teams, supplying consistently high
performance, will provide you with an efficient service,
whichever you choose, resulting in many benefits
through savings in costs and time.
Gordano run a number of dedicated packing units
located in close proximity to, or within customer own
sites, and have the ability to extend these initiatives to
other geographic areas

Reverse Logistics - DC Returns


As competitive pressures force retailers to implement more liberal return policies, return
volumes have exploded. Today, it is not uncommon to find retailers receiving back as
much as one-third of the total items they ship.

Returns processing can be an extremely expensive activity, consuming space, labor, dock
doors, and other resources while tying up potentially valuable inventory. While the
challenges are different from the order fulfillment side of the warehouse, the goals are
essentially the same. You want the process to be fast, accurate and cost effective. Key
components of an integrated

Reverse Logistics operations should include:

Barcoded RMA Labels

Timely, accurate Information is paramount to an efficient reverse logistics process.


Barcoded RMA labels are key to getting product off the dock and processed quickly.

Streamlined Receiving / Triage Process


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The primary goals of the triage process are speed and accuracy. A robust information
system is leveraged to capture information for multiple departments (sales, accounting,
operations, ) disposition product, and to set up downstream processing.

Automated Sortation

The information gathered during the triage process is used to sort product by disposition.
Secondary sorts may be used to separate product into logical groupings (I.e. putaway
zone, vendor, ). In many cases it makes sense to automate this process.

Integrated Repack Stations

Repack or rework workstations should be integrated into the reverse logistics process. It
is important to minimize the pools of inventory that can accumulate in these operations.

System Directed Re-stocking


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The returns processing software should be tightly integrated with the Warehouse
Management System to facilitate seamless transitioning of saleable product back into
inventory.

Streamlined Return To Vendor Process


It is critical that product to be returned to the manufacturer is processed in a timely
manner so appropriate credit may be received. If it is necessary to accumulate product
prior to shipment, this process should be system directed and occupy space out of the way
of on-going operations.

Intelligent Scrap Process


Product with no value or with value less than the cost to process should be identified and
scrapped as early in the process as possible.

Located just outside of Chicago, our 75,000 square foot, clean, gated storage facility is heated &
sprinkler controlled which gives us flexibility to handle sensitive medical and computer equipment
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without being concerned with the effects of temperature on electronics. Our tracking and
retrieval process begins with a descriptive inventory prepared at your home or facility. Each
piece, its description and location in the warehouse are readily available. This data can be
communicated to you via e-mail, fax or phone. Whether you need short or long-term storage, we
have a storage plan to fit your needs.
Records management is the proper archiving of information vital to the life of the company. The
ability to quickly and accurately locate critical information is an important part of a firm's
infrastructure. Proper record management insures that business information can be accessed at
any time in a timely and cost-effective manner. It also ensures that documents are retained and
eventually disposed of in accordance with appropriate regulatory requirements and company
policy.

Companies rely on records not only for vital financial and operational information, but also for
regulatory and litigation protection. Compliance with federal, state and local law, responding to
an audit or legal proceeding or reacting to a medical emergency are simplified when an
appropriate records management program is in place.

Each company is unique and has a different set of records management needs. In many cases, it
is advantageous to have an outside vendor manage the bulk of the information. It can be an
excellent method for professional, cost-effective management of vital information.

Industry Solutions - Logistics

CASE STUDIES
Intermodal Container System - Case Study

With volumes of inbound and outbound containers soon to surpass a facility's


capacity, the Canadian Pacific Railway (CPR) needed a tool to help determine an economical solution.
Visual Thinking responded by developing a facility-wide simulation to analyze the performance of the
Inter-modal facility under various capital improvement options.

The simulation provides detailed analysis of all aspects of the Inter-modal facility, including all activities,
resources and storage capacities within the facility. Examples of key management statistics include:

• Trucker dwell times


• Train turn around times
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• Resource utilization
• Track turnover ratios
• Toplifter travel distances
• Overall cost per handling

Intermodal Waste Management - Case Study

A Waste Management consortium is being supported by Visual8 in their bid


for a major city's waste management system through a detailed simulation of the proposed system
demonstrating how this system is designed to operate under extreme conditions. This simulation study
helps answer questions such as:

• How many containers, barges?


• Tug boats and unit trains are required in the system?
• What is the cost of operation?
• How will the system perform under adverse weather/operating conditions?
• What are the handling limits and bottlenecks?

Border Gateways - Case Study

Visual8 dveloped Border-Flow© in conjunction with Border Gateways to


analyze truck queuing issues at the major border crossings between Canada and the U.S.

The model simulates commercial truck traffic flow from the major arterial routes into the primary city
roads feeding the border crossing. The tool also takes into account bridge and tunnel crossing constraints
as well as staffing levels at the border security and inspection kiosks.

Methods to reduce truck queuing times and street congestion were examined using this simulation.

Wine Supplier - Case Study


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A hierarchical supply chain simulation model was developed in SIMUL8 to


address warehousing and distribution issues within a $3 billion wine supplier network (our client would
like to remain anonymous).

This simulation provides the ability to investigate improved service strategies to their 500 retail outlets
based on new inventory management and supply methods. The system provided a direct comparison of
current state to potential future scenarios and forecast the storage capacity requirements at the
distribution centers in terms of racking, dock space, and staffing requirements.

The resultant simulation allows users to conduct 'what-if' analysis around increased product demand and
assess the limits of the current supply network.

Pharmaceutical Company - Case Study

A warehouse simulation for a large pharmaceutical company (our client


would like to remain anonymous) was developed to provide a detailed analysis of all their automated
warehouse materials handling. This includes the inflow of materials from receiving docks to palletized
ASRS storage through to the shipping of finished product on containers out of the warehouse.

The resultant simulation model was used to analyze the bottleneck processes in the system to handle
increased production volumes. The ability to quickly analyze the entire system and its interdependencies
using this simulation model led to an increase in materials handling capacity of 20% through the
addition of AGV's.

Push Vs. Pull Inventory Management - Case Study

Visual8 assisted NIBCO in their use of simulation to evaluate the feasibility


and cost-benefit of implementing a pull rather than a push inventory supply chain system. Simulating this
radical change to the distribution system of copper products the tool identified how parts could be staged
at levels of competition reduce manufacturing lead times and inventory in the field.

The model was used to analyze which parent products could be staged, at what stage in the
manufacturing cycle to satisfy downstream requirements. Replenishment points and order quantities for
staged product were established through the simulation, given the variability of demand, in order to
26

maintain high order service levels but minimize inventory investment.

Rail Network Modeling - Case Study

Visual8 Corporation has worked with a major North American railroad (our
client would like to remain anonymous) to develop a simulation model of their entire parts supply network.
This computer model takes into account geographic locations of the many source and supply points in the
system together with the frequency of stock replenishments and product demand levels.

By taking into account transportation travel times and costs across the network, product consumption
rates and reordering policies, holding charges, truck-load (TL) and less-than-truck-load (LTL) policies,
order consolidation rules, milk-runs, and other key parameters, the simulation provides performance
results over a years operation. The tool was used to support the rationalization of stocking levels and
warehousing location for supplies across the network in support of reducing costs for the railroad's
maintenance operations.

LOGISTICS MODELING SIMULATION


BENEFITS
Typical Logistics Models:
• Rail and Shipping
• Traffic flow management
• Warehouse and inventory management
• Supply chain analysis

Types of Problems We Resolve:


• Service strategies and forecasting
• Capacity and bottleneck analysis
• Pull vs. push inventory management
• Intermodal interfacing

We Can Ensure Your Goals Are Met:


• Optimization of Service Levels and Resources
• Maximizing your ROI
• Integrating all stages of the supply chain
27

“Redhead have proved themselves to be a professional and reliable service provider consistently meeting
our requirements for the delivery of time-sensitive products”
Nicky George, National Operations Manager, Mirror Group Newspapers.

High praise indeed, but then with daily experience of working with live news, 25 years of working with
publishers, printers and clients AND moving around 450 tonnes of print into Ireland each week, it’s what our
customers have come to expect.

Because with experience comes trust; and trust is something you cannot put a value on. At Redhead we
have developed the perfect print logistics solution.

15,000 sq.m of modern, racked warehousing not only offers you bulk stockholding and collation facilities, but
our stringent stock management procedures enable us to take in stock from a number of sources and
despatch complex, multiple consignments to any number
of destinations.

uperb engineering and flawless manufacturing are


among the great strengths of German automaker
BMW Group. So the company's announcement in
late 2001 was extraordinary: BMW had turned to an
outsider, Magna Steyr, manufacturer of power trains
and other automotive systems, for much of the
engineering and all of the production of the X3, a
"sports activity vehicle" that BMW expects to launch in
2004. Magna will construct a plant in Graz, Austria,
where it will turn out 300 X3s a day.

In essence, BMW has found a partner to take over a


function that was considered the very core of what
BMW is as a company. This was possible through the
integration of its so-called "customer-oriented sales and
production system" into the production process of an
outside company. Thus all customer-relevant aspects of a BMW can be delivered
to the consumer.

That BMW would turn over such a vital link in its supply chain
to another company is dramatic evidence that supply chain
management, long regarded as necessary drudgery, has
become a strategic opportunity. Not only can it give
companies new options for reducing costs and improving
28

asset utilization, but it can also drive growth and improve customer satisfaction.

Global markets, the proliferation of products with shorter lifecycles, and rising
customer expectations have combined to create new opportunities that require
more sophisticated, complex and global supply chains. And at many companies,
some of the most creative minds are working on reconfiguring the supply chain, a
critical exercise that demands the attention of executives all the way up to the
CEO.

Fundamental to this creative thinking is that less is more when it comes to


keeping the critical links of the supply chain in-house. A host of activities, from
sourcing and procurement to manufacturing, logistics and service management,
can now be provided more effectively, flexibly and efficiently through specialized
third-party providers. Like BMW, other astute companies are calling on outsiders
to become essential links in that 40 percent to 70 percent of the organization that
comprise the end-to-end supply chain.

The Art of Partnering Executives who will deal best with overhauling their
traditional supply chain operations are those who are comfortable with increased
specialization. Each product group within the organization could end up with its
own supply line, creating a series of links weaving inside and outside of the
company. Winning companies will be the ones that can visualize their supply
chains as complex, sophisticated, evolving, frequently mutating networks of
partners. The art of partnering will largely determine which companies succeed.

Consider how some cutting-edge companies have led the way in forging new
supply chain models:

Another example is Microsoft. It has created a new game console, the Xbox,
which competes head-to-head with the Sony PlayStation. But the giant software
creator is not making the new product itself. Instead, it has partnered with
contract manufacturer Flextronics, which collaborated on the Xbox design and
handles the product's manufacturing.
29

How do senior executives apply this type of revolutionary thinking to their own
companies? We begin with the premise that every company will benefit from
fundamentally rethinking its supply chain link by link and reconstructing it from
scratch—but without any factories, distribution centers or warehouses that it
owns or has relationships with. Leadership needs to ask: What would the ideal
supply chain—the one that would deliver additional revenues, slash costs and
generate substantially greater efficiencies—look like?

The answers will vary, of course, from industry to industry, company to company
and even year to year. But as executives go through this tough-minded exercise,
they should keep several principles in mind.

Let Go of the Past


Historically most supply chains in the United States have been do-it-yourself
operations. Typical corporate practice has been to control product and service
flows to customers by owning the means of production and distribution, including
factories, warehouses and trucks. As a result, as recently as 10 years ago, only
10 percent to 15 percent of US supply chain assets were owned and operated by
outsiders.

On the other hand, in Europe the fragmented nature of the market fostered a
stronger tradition of subcontracting, particularly for logistics and transportation
(which were especially affected by country-specific tariff and tax structures, and
by customs and other government regulations). However, there were few
outsourcing alternatives from which to choose.

In both the United States and Europe, supply chains were considered cost
centers. In fact, that's the way many executives continue to think of them. This
leads managers into the efficiency trap, the delusion that the only way you can
improve performance is to shave a little more off your costs. Companies can go
into a death spiral trying to economize themselves into prosperity by trimming
here and there to fix a link that may not be worth the effort.

Leadership needs to assess whether the organization is best positioned to make


money from its assets or to get more, for less, from somewhere else. Although
reconfiguring your operations—which ultimately will affect significant numbers of
people and involve well-established investments—is no easy task, your
competition could be making plans already with a partner that's the best in the
business.

At times, the rigorous, unsentimental evaluation of the supply chain will lead to
the conclusion that a particularly strong link should be turned into a profit center.
For example, Cat Logistics, a subsidiary of Caterpillar that distributes its engines,
30

power trains and other spare parts to remote places around the world, provides
the same service for Land Rover and other companies too.

Walk a Mile in Your Customer's Shoes


Sound familiar? Nonetheless, it's worth revisiting in the context of the supply
chain. Stand at the end of the chain and look back at it from your customer's
perspective. Are you reaching the customer in every way you can? Do your
distribution channels support one another as fully as they can? Are you targeting
new services that add value for your customers?

For example, buyers of GE refrigerators, dishwashers, air conditioners and other


appliances traditionally purchase them at big retail outlets that warehouse and
deliver the goods to customers. But in 2000 GE agreed to partner with The Home
Depot, which would display—but not warehouse or deliver—the appliances. After
a customer orders a refrigerator at a Home Depot, GE ships it directly to the
customer's home. The resulting inventory savings are enormous. Moreover,
because the giant retailer doesn't have to stock the appliances, it can display a
far greater variety of GE models.

Unpredictability is the norm in the cement business, with half of all orders from
construction sites rescheduled or canceled. But one cement company turned this
to its advantage. Embracing information technology such as GPS locators and
satellite communications, the company cut its fleet of trucks by one-third while
guaranteeing a delivery window of 20 minutes (down from three hours)—a
unique service for which customers are happy to pay a premium.

Team with the Best


Until recently, there were limited options for companies looking to hand off
important supply chain functions. However, there is an emerging sector of the
economy that provides contract services for everything from design and logistics
support to repair management and procurement.

One category of companies that barely existed a decade ago is known as


electronic manufacturing services. Flextronics, the partner Microsoft turned to for
its Xbox project, has manufacturing operations in 28 countries. The company
produces cell phones for Ericsson, routers for Cisco Systems, printers for
Hewlett-Packard Company and PDAs for Palm. (As of mid-April 2002, with 11
percent of the electronic services market, Flextronics was number two in the
sector, behind Solectron, which had a 17 percent share.)

Picking the best partner from the multitude now available can require you to
stretch your imagination and perhaps make an unexpected choice. Rather than
compete head-to-head in the unforgiving online retail environment, Toys "R" Us
31

and Amazon.com inked an arrangement in August 2000 that capitalizes on each


company's strengths. Toys "R" Us focuses on merchandising while Amazon.com
draws on its Internet expertise to provide website development, customer service
and order fulfillment capabilities. It took only a matter of months and minimal
upfront costs for the partnership to be up and running in time for that year's
lucrative holiday season.

A perhaps more painful dilemma: Choosing the right partner can sometimes
mean acknowledging that the best option is your direct competitor. Nestlé, the
giant food and beverages conglomerate, competes with Ocean Spray
Cranberries in the fruit juice business. Nonetheless, the two companies have
formed a strategic alliance along part of their supply chains. Nestlé will eventually
move the manufacturing of Libby's Juicy Juice and Kern's/Libby's Nectars to
Ocean Spray plants. The goal is to reduce purchasing and distribution costs for
both companies.

The number of possible partnerships across the supply chain is seemingly


endless, ranging from the simple and short-lived to the complex and long-term.
To deal with the complexities of forming multiple, overlapping and continuously
evolving partnerships, some companies might want to create a C-level position
like chief risk officer or chief relationship officer to oversee their formation. After
all, some of these relationships will be crucial to business, acting as the eyes and
ears or arms and legs to customers and suppliers around the world.

Allow Technology to Set You Free


One of the reasons executives like to hold on to all the links of the supply chain is
that it is reassuring to be able to shout instructions down a corridor and get an
immediate response. Asia, for example, is a long way off—or used to be. The
Internet, mobile devices and attendant software have made it possible for
companies to stay in constant touch with their partners in real time, no matter
how widely scattered around the globe.

A second reason is that executives are reluctant to share


information that traditionally has been considered sensitive
and proprietary. But recent improvements in Internet security
software, secure networks and other technologies have eased
concerns for some. For others, it will require a more
fundamental culture shift, driven from the top, to unlock the
benefits of exchanging information across supply chain
partners.

Consider some examples of companies leveraging technology and information to


improve supply chain responsiveness and efficiency. In the fast-moving high-tech
32

industry, data communications hardware and software maker Adaptec relies on


the Internet for its collaborative design processes, which it uses to link its
California-based designers with suppliers in Hong Kong, Japan and Taipei. This
process has cut design-to-delivery cycles by more than 50 percent and saved
$10 million in inventory costs.

Zara's innovative use of technology—equipping all of its store managers with


handheld devices—allows managers to provide real-time feedback to the
designers about what customers are buying. The garment maker introduces an
astonishing 12,000 new designs a year while aggressively managing inventory
obsolescence.

In the days following the September 11 terrorist attacks, Dell Computer


Corporation relied on its Web-enabled supplier network to adapt quickly to supply
chain disruptions. The company increased production at its factories in Europe
and Asia and filled orders from these facilities. In addition, Dell was able to see
its pending orders and fulfill the most important first. At the same time, customer
service representatives could determine which computer configurations could still
be assembled quickly, and were able to steer new customers accordingly.

Think Differently About the Supply Chain


Today CEOs have market opportunities their predecessors could only dream
about. Supply chain operations are no longer a given—an inherited operating
model with few alternatives for improvement. Companies have many more tools,
practices and capabilities available to respond to market opportunities. By
assembling best-in-class partners and leveraging leading-edge technologies, an
innovative idea can go from drawing board to market launch in months.

As an increasing number of world-class companies reevaluate their supply


chains, breaking them apart and picking partners with which to reconfigure them,
the question inevitably arises: Are there dangers in reconstructing a familiar
supply chain that appears to have functioned well for decades? Certainly.

When you team with a partner, you run some risk of losing proprietary
information, failing because of misunderstandings and cultural mismatches
between partners, or eliminating an internal link that should not have been cast
aside. But the much greater risk emerges when a company neglects to
reevaluate its supply chain, link by link, as a strategic opportunity—while the
competition moves ahead with innovative partnerships. Increasingly, the ability to
sense and respond rapidly to the market through flexible, high-performing supply
chains will be a competitive weapon for any organization looking to change the
game and lead the market.
33

McDonalds India Supply Chain: Enhanced reading

Prof. G. pherwani SCMLD july-dec 2009

Supply Chain is one of the critical factors for the smooth functioning of any business. And
when we are talking about fast food business with McDonald’s as the subject of the study it
can be expected a Supply Chain model of one of the highest precisions. It is this unmatched
Supply Chain Structure, which not just ensures on time delivery of raw materials and supplies
to McDonalds but also enables it to cut down on its cost and maximize profitability along with
maintaining highest quality standards of its products. The level of commitment of McDonalds
can be gauged from the fact that even before it set up its first restaurant in the country it
infused Rs 400 Crore to set up its delivery mechanism. McDonald’s initiative to set up an
efficient supply chain and deploy state-of-art technology changed the entire Indian fast food
industry and raised the standards of performance to international levels.

As already mentioned, McDonalds had been working on its supply chain even before it opened
its first joint in the country. McDonalds, an international brand which was trying to make
inroads into the country, developed its Indian partners in such a manner that they stayed with
the company from the beginning. The success of McDonalds India was achieved by sourcing all
its required products from within the country. To ensure this, McDonalds developed local
businesses, which can supply it highest quality products. Today, McDonalds India works with
38 different suppliers on a long-term basis and several other stand alone restaurants for its
various other requirements. McDonald’s distribution centers in India came in the following
order: Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004, and the latest one in
Kolkata (2007). McDonald's entered its first distribution partnership agreement with Radha
Krishna Foodland, a part of the Radha Krishna Group engaged in food-related service
businesses. The association goes back to July 1993, when it studied the nuances of
McDonald's operations and requirements for the Indian market. As distribution centers, the
company was responsible for procurement, the quality inspection program, storage, inventory
management, deliveries to the restaurants and data collection, recording and reporting. Value-
added services like shredding of lettuce, re-packing of promotional items continued since then
at the centers playing a vital role in maintaining the integrity of the products throughout the
entire 'cold chain'.

Cold Chain was one of the unique concepts of McDonalds supply chain in India, on which it had
spent more than six years to get the system into place. This system brought about a veritable
revolution, immensely benefiting the farmers at one end and enabling customers at retail
counters get the highest quality food products, absolutely fresh and at great value. Through
its unique cold chain, McDonalds has been able to both cut down on its operational wastage,
as well as maintain the freshness and nutritional value of raw and processed food products.
This has involved procurement, warehousing, transportation and retailing of perishable food
products, all under controlled temperatures. The following list of suppliers, who build up the
major supply chain of McDonalds, reveal how this ‘Cold Chain’ works and contributes towards
the efficiency of McDonalds.
34

Dynamix Dairy Industries (Supplier of Cheese):

Dynamix has brought immense benefits to farmers in Baramati, Maharashtra by setting up a


network of milk collection centers equipped with bulk coolers. Easy accessibility has enabled
farmers augment their income by finding a new market for surplus milk. The factory has:

• Fully automatic international standard processing facility.


• Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose,
casein & whey protein and humanized baby food.
• Stringent quality control measures and continuous Research & Development

From farm two degrees Celsius in 90 minutes is the first step to quality. For example, the Rs
262-crore Dynamix Dairy Industries, located in Baramati in Pune district of Maharashtra,
manufactures cheese slices for McDonald’s at 10 metric tonnes per month. Dynamix has
helped set up 15 bulk cooling centers throughout the district from which it purchases milk.
Each cooling center, which is equipped with modern measuring and testing equipment and a
large cooling tank, is not more than a few kilometers away from local dairy farms. A farmer
can deliver milk even twice a day on his bicycle and get a printed receipt on the spot, which
also lists the quality of the milk supplied by him as per fat content, color and solids content. If
the milk is sub-standard or adulterated, it is rejected on the spot. A batch of milk can vary
from one liter to 10 liters, or more. Each batch is mixed in one large stainless steel cooler and
chilled immediately to two degrees Celsius to stop bacterial growth and preserve freshness.
From this point onwards, until just before the burger is actually served in a McDonald’s
restaurant hundreds of kilometers away, the temperature is never allowed to increase. When
the refrigerated milk arrives at the Dynamix plant at Baramati, the milk in every single tanker
is thoroughly tested and rejected if found sub-standard, adulterated or contaminated. The
sophisticated testing lab can check fat content with an accuracy of 0.1 per cent. It can even
detect minute traces of pesticides or antibiotics administered to cows. This instant feedback
and the rejection of the entire tanker-load forces farmers to follow the best practices in terms
of animal husbandry, use proper feeds, cut down on the indiscriminate use of pesticides and
animal medicines and completely stop even the slightest attempts at adulteration.

Trikaya Agriculture (Supplier of Iceberg Lettuce):

Implementation of advanced agricultural practices has enabled Trikaya to successfully grow


specialty crops like iceberg lettuce, special herbs and many oriental vegetables. Farm
infrastructure features:

• A specialized nursery with a team of agricultural experts.


• Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant.
• Pre-cooling room and a large cold room for post harvest handling.

• Refrigerated truck for transportation.


35

Trikaya Agriculture, a major supplier of iceberg lettuce to McDonald's India, is one such
enterprise that is an intrinsic part of the cold chain. Exposure to better agricultural
management practices and sharing of advanced agricultural technology by McDonald's has
made Trikaya Agriculture extremely conscious of delivering its products with utmost care and
quality. Initially lettuce could only be grown during the winter months but with McDonald's
expertise in the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, is now able to
grow this crop all the year round. McDonald's has provided assistance in the selection of high
quality seeds, exposed the farms to advanced drip-irrigation technology, and helped develop a
refrigerated transportation system allowing a small agri-business in Maharashtra to provide
fresh, high-quality lettuce to McDonald's urban restaurant locations thousands of kilometers
away. Post harvest facilities at Trikaya include a cold chain consisting of a pre-cooling room to
remove field heat, a large cold room and a refrigerated van for transportation where the
temperature and the relative humidity of the crop is maintained between 1º C and 4º C and
95% respectively. Vegetables are moved into the pre-cooling room within half an hour of
harvesting. The pre-cooling room ensures rapid vacuum cooling to 2º C within 90 minutes.
The pack house, pre-cooling and cold room are located at the farms itself, ensuring no delay
between harvesting, pre-cooling, packaging and cold storage. With this cold chain
infrastructure in place, Trikaya Agriculture has also a plan to export this high value product to
other international markets, especially to McDonald's Middle East and Asia Pacific operations.
McDonald's expertise in packaging, handling and long-distance transportation has helped
Trikaya to do trial shipments to the Gulf successfully. In addition to export, McDonald's
assistance has enabled Trikaya Agriculture to supply this crop to a number of star-rated
hotels, clubs, flight kitchens and offshore catering companies all over India.

Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable range of
products including Fruit Pies)

A joint venture with OSI Industries Inc., USA, McDonald's India Pvt. Ltd. and Vista Processed
Foods Pvt. Ltd., produces a range of frozen chicken and vegetable foods. A world-class
infrastructure at their plant at Taloja, Maharashtra, has:

• Separate processing lines for chicken and vegetable foods.


• Capability to produce frozen foods at temperature as low as -35 Degree Cel. to retain
total freshness.
• International standards, procedures and support services.

Vista Processed Foods Pvt. Ltd., McDonald's suppliers for the chicken and vegetable range of
products, is another important player in this cold chain. Technical and financial support
extended by OSI Industries Inc., USA and McDonald’s India Private Limited have enabled Vista
to set up world-class infrastructure and support services. This includes hi-tech refrigeration
plants for manufacture of frozen food at temperatures as low as - 35° C. This is vital to ensure
that the frozen food retains it freshness for a long time and the 'cold chain' is maintained. The
frozen product is immediately moved to cold storage rooms. With continued assistance from
its international partners, Vista has installed hi-tech equipment for both the chicken and
vegetable processing lines, which reflect the latest food processing technology (de-boning,
36

blending, forming, coating, frying and freezing). For the vegetable range, the latest vegetable
mixers and blenders are in operation. Also, keeping cultural sensitivities in mind, both
processing lines are absolutely segregated and utmost care is taken to ensure that the
vegetable products do not mix with the non-vegetarian products. Now, at Vista, a very wide
range of frozen and nutritious chicken and vegetable products is available. Ongoing R&D, both
locally and in the parent companies, work towards innovation in taste, nutritional value and
convenience. These products, besides being supplied to McDonald's, are also offered to
institutions like star-rated hotels, hospitals, project sites, caterers, corporate canteens,
schools and colleges, restaurants, food service establishments and coffee shops. Today,
production of better quality frozen foods that are both nutritious and fresh has made Vista
Processed Foods Pvt. Ltd. a name to reckon within the industry.

Radhakrishna Foodland (Distribution Centers for Delhi and Mumbai)

An integral part of the Radhakrishna Group, Foodland specializes in handling large volumes,
providing the entire range of services including procurement, quality inspection, storage,
inventory management, deliveries, data collection, recording and reporting. Salient strengths
are :

• A one-stop shop for all distribution management services.


• Dry and cold storage facility to store and transport perishable products at
temperatures up to -22 Degree Cel.

• Effective process control for minimum distribution cost.

McDonald's local supply networks through Radhakrishna Foodland, which operates distribution
centers (DCs) for McDonald's restaurants in Mumbai and Delhi. The DCs have focused all their
resources to meet McDonald's expectation of 'Cold, Clean, and On-Time Delivery' and plays a
very vital role in maintaining the integrity of the products throughout the entire 'cold chain'.
Ranging from liquid products coming from Punjab to lettuce from Pune, the DC receives items
from different parts of the country. These items are stored in rooms with different
temperature zones and are finally dispatched to the McDonald's restaurants on the basis of
their requirements. The company has both cold and dry storage facilities with capability to
store products up to -22º C as well as delivery trucks to transport products at temperatures
ranging from room temperature to frozen state.

Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts)

Amrit Food, an ISO 9000 company, manufactures widely popular brands –

Gagan Milk and Nandan Ghee at its factory at Ghaziabad, Uttar Pradesh.

The factory has:

• State-of-the-art fully automatic machinery requiring no human contact with product,


for total hygiene.
37

• Installed capacity of 6000 ltrs/hr for producing homogenized UHT (Ultra High
Temperature) processed milk and milk products.
• Strict quality control supported by a fully equipped quality control laboratory.

All suppliers adhere to Indian government regulations on food, health and hygiene while
continuously maintaining McDonald's recognized standards. As the ingredients move from
farms to processing plants to the restaurant, McDonald's Quality Inspection Program (QIP)
carries out quality checks at over 20 different points in the Cold Chain system. Setting up of
the Cold Chain has also enabled it to cut down on operational wastage

Hazard Analysis Critical Control Point (HACCP) is a systematic approach to food safety that
emphasizes prevention within its suppliers' facility and restaurants rather than detection
through inspection of illness or presence of microbiological data. Based on HACCP guidelines,
control points and critical control points for all McDonald's major food processing plants and
restaurants in India have been identified. The limits have been established for those followed
by monitoring, recording and correcting any deviations. The HACCP verification is done at least
twice in a year and certified.

The relationship between McDonald's and its Indian suppliers is mutually beneficial. As
McDonald's expands in India, the supplier gets the opportunity to expand his business, have
access to the latest in food technology, exposure to advanced agricultural practices and the
ability to grow or to export. There are many cases of local suppliers operating out of small
towns who have benefited from their association with McDonald's India.
38

LOGISTICS AT Wal-Mart

Many people wonder how Wal-Mart is able to charge such low prices and continue to
make a profit. There are several factors in their business model that contribute to
this ability, but a big one is their ability to adapt to an ever-changing global
marketplace. Some criticize Wal-Mart's efforts to deliver to their customers a quality
product at low prices, but in reality, Wal-Mart has been able to deliver low prices by
being efficient. This efficiency is present in several areas but one of the most
important places is how they are able to manufacture products all over the world and
get them to retail outlets, which are also all over the world. This ability requires a
flawless logistical system that allows product to be shipped anywhere at a moments
notice.
39

Wholesaling g.pherwani
Wholesaling consists of the sale of goods/merchandise to retailers, to industrial,
commercial, institutional, or other professional business users or to other wholesalers
and related subordinated services.

According to the United Nations Statistics Division, Wholesale is the resale (sale without
transformation) of new and used goods to retailers, to industrial, commercial, institutional
or professional users, or to other wholesalers, or involves acting as an agent or broker in
buying merchandise for, or selling merchandise, to such persons or companies.
Wholesalers frequently physically assemble sort and grade goods in large lots, break
bulk, repack and redistribute in smaller lots. Examples include: pharmaceuticals storage;
refrigeration; delivery and installation of goods; engaged sales promotion for customers
and label design

Cash and carry wholesale represents a type of operation within the wholesale sector. Its
main features are summarized best by the following definitions:

• Cash and carry is a form of trade in which goods are sold from a wholesale
warehouse operated either on a self-service basis, or on the basis of samples (with
the customer selecting from specimen articles using a manual or computerized
ordering system but not serving himself) or a combination of the two. Customers
(retailers, professional users, caterers, institutional buyers, etc.) settle the invoice
on the spot and in cash, and carry the goods away themselves.

• Though wholesalers buy primarily from manufacturers and sell mostly to


retailers, industrial users and other wholesalers, they also perform many value
added functions, including selling and promoting, buying and assortment
building, bulk-breaking, warehousing, transporting, financing, risk-bearing,
supplying market information, and providing management services. (OECD -
Organization for Economic Cooperation and Development).

• There are significant differences between "classical" sales at the wholesale stage
and the cash and carry wholesaler: These differences are based in particular on
the fact that customers of the cash and carry wholesaler arrange the transport of
the goods themselves and pay the goods in cash and not on credit. (EU
Commission Decision (Kesko/Tuko) of November 20, 1996 (97/277/EC)).

In a retail context, the term has a similar meaning: customers pay cash for the goods they
purchase (the retailer does not offer credit accounts) and carry them away themselves (the
retailer does not offer delivery service).
40

Historic meaning
The policy of cash and carry established at the onset of World War II in 1939 revised
the Neutrality Acts that were established by US President Roosevelt in order to instill a
sense of neutrality between the United States and the war that was raging in Europe. The
economic situation in the US was rebounding at this time (after the great depression) but
there was still a need for industrial manufacturing jobs. The Cash and Carry program
helped to solve this issue and in turn the US benefited through the sale of war supplies to
their allies. This also helped in making sure that the US didn't give away all its supplies
and rations.

This program was also beneficial for the British and French who were not faring well in
response to Germany's militarism and were in need of war materials. Any allied ship that
could make the risky trip across the North Atlantic to US coastal ports could get war
materials for cash.

Despite its success, this policy soon left European allies (primarily Britain) bankrupt and
this forced US leaders to revise the plan. The revised plan is known as the Lend-Lease
program, in which the European allies no longer had to pay cash or arrange their own
transportation. Instead, the United States would provide this for them and later payment
was expected.

In keeping with the Monroe doctrine the US didn't actively participate in the war until
both Japan and Germany declared war on them too, after which they switched from allied
assistance to active engagement

Multi-national

• Auchan
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• Barnes & Noble (Books, Music, Videos, Magazines)


• Best Buy (Music, Videos, Electronics, Computer Software, Appliances)
• Borders (Books, Music, Videos)
• Carrefour
• Cora
• Costco (merged with Price Club) (Groceries, General Merchandise)
• Hipercor
• Home Depot (Hardware)
• IKEA (Furniture, House wares)
• Kmart (owned by Sears) (Groceries, General Merchandise)
o Big Kmart (Groceries, General Merchandise)
o Super Kmart (Groceries, General Merchandise)
o Sears Grand (Groceries, General Merchandise)
o Sears Essentials (Groceries, General Merchandise)
• OBI
• Office 1
• Office Depot (Office Supplies)
• Pet Smart (Pet Supplies)
• Price Smart
• Real (owned by METRO AG)
• Staples, Inc. (Office Supplies, Office Equipment)
• Target (General Merchandise)
• Toys "R" Us (Toys)
• Wal-Mart (Groceries, General Merchandise)
o Wal-Mart Supercenter (Groceries, General Merchandise)
o Sam's Club (Groceries, General Merchandise)
• The Warehouse Group
o Red Sheds (New Zealand)
o Yellow Sheds (Australia)

India

• Star India Bazaar (owned by the Tata Group)


• Big Bazaar (owned by the Pantaloon Retail)
• max hyper market (owned by the landmark group)
• Reliance Retail
• Giant
• Vishal Mega mart
• Citi Mart
• Bharati-Wal_mart
• Metro Cash & Carry, Hyderabad
• A warehouse is a commercial building for storage of goods. Warehouses are used
by manufacturers, importers, exporters, wholesalers, transport businesses,
customs, etc. They are usually large plain buildings in industrial areas of cities
and towns. They come equipped with loading docks to load and unload trucks; or
sometimes are loaded directly from railways, airports, or seaports. They also often
42

have cranes and forklifts for moving goods, which are usually placed on ISO
standard pallets.
• Some warehouses are completely automated, with no workers working inside.
The pallets and product are moved with a system of automated conveyors and
automated storage and retrieval machines coordinated by programmable logic
controllers and computers running logistics automation software. These systems
are often installed in refrigerated warehouses where temperatures are kept very
cold to keep the product from spoiling, and also where land is expensive, as
automated storage systems can use vertical space efficiently. These high-bay
storage areas are often more than 10 meters high, with some over 20 meters high.
• The direction and tracking of materials in the warehouse is coordinated by the
WMS, or Warehouse Management System, a database driven computer program.
The WMS is used by logistics personnel to improve the efficiency of the
warehouse by directing putaways and to maintain accurate inventory by recording
warehouse transactions.
• Traditional warehousing has been declining since the last decades of the 20th
century with the gradual introduction of Just In Time (JIT) techniques designed to
improve the return on investment of a business by reducing in-process inventory.
The JIT system promotes the delivery of product directly from the factory to the
retail merchant or from parts manufacturers directly to a large scale factory such
as an automobile assembly plant, without the use of warehouses. However, with
the gradual implementation of offshore outsourcing and off shoring in about the
same time period, the distance between the manufacturer and the retailer (or the
parts manufacturer and the industrial plant) grew considerably in many domains,
necessitating at least one warehouse per country or per region in any typical
supply chain for a given range of products.
• Recent developments in marketing have also led to the development of
warehouse-style retail stores with extremely high ceilings where decorative
shelving is replaced by tall heavy duty industrial racks, with the items ready for
sale being placed in the bottom parts of the racks and the crated or palletized and
wrapped inventory items being usually placed in the top parts. In this way the
same building is used both as a retail store and a warehouse.
• Drop shipping is a supply chain management technique in which the retailer does
not keep goods in stock, but instead transfers customer orders and shipment
details to wholesalers, who then ship the goods directly to the customer. The
retailers make their profit on the difference between the wholesale and retail
price.

• Procedure
• Some drop shipping retailers may keep "show" items on display in stores, so that
customers can inspect an item similar to those that they can purchase. Other
retailers may provide only a catalogue or website.
• Retailers that drop ship merchandise from wholesalers may take measures to hide
this fact to avoid any stigma, or to keep the wholesale source from becoming
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widely known. This can be effected by "blind shipping" (shipping merchandise


without a return address), or "private label shipping" (having merchandise
shipped from the wholesaler with a return address customized to the retailer). A
customized packing slip may also be included by the wholesaler, indicating the
retailer's company name, logo, and/or contact information.

• Small business
• Drop shipping can occur when a small retailer who typically sells in small
quantities to the general public receives a single large order for a product. Rather
than route the shipment through the retail store, the retailer may arrange for the
goods to be shipped directly to the customer.

Sam's Club

Type Subsidiary of Wal-Mart

Founded 1983 (Midwest City, Oklahoma)

Headquarters Bentonville, Arkansas

Industry Retail (Warehouse Club)

Products Produce, meat, seafood, fresh baked


goods, flowers, clothing, books,
software, home electronics, clothing
jewelry, art, optical and furniture

Website http://www.samsclub.com

Sam’s Club
History
44

The first Sam's Club opened in April 1983 in Midwest City, Oklahoma in the United
States

Sam's Club is named after the founder of Wal-Mart, Sam Walton. To purchase items
from Sam's Club, one must purchase a membership. Many Sam's Club customers are
small businesses that wish to offer customers a limited selection of food without the
expense of having it delivered.

In 1993, Wal-Mart acquired PACE Membership Warehouse and converted many (but not
all) PACE locations into Sam's Clubs.

Membership is required to purchase at Sam's Club; however, a onetime day pass may be
obtained from Sam's Club.com or many Wal-Mart newspaper ads. A 10% surcharge is
added to the prices for non-members. No membership (with no surcharge) is required for
Optical, Pharmacy, or Cafe (as available per club), or to purchase alcohol.

The latest flagship store opening as of September 28, 2006 was in Bentonville, Arkansas.
It is the second largest Sam's Club store; its largest is located in Utica, Michigan, with
over 145,000 sq. ft. of retail space.

Sam's Club ranks second in sales volume among warehouse clubs, behind Costco.

After Costco's announcement on its change of return policy for consumer electronics
(now within 90 days) beginning on February 26, 2007, Sam's Club finds itself now to be
tied with Nordstrom for having best, most liberal return/refund policy in the retail
business.

In 2006, Wal-Mart acquired The Central American Retail Holding Company (CARHO),
which operates "ClubCo" stores in Latin America. These stores are very similar to Sam's.

Design

A Sam's Club store in Maplewood, MO, a suburb of St. Louis.


45

Like other warehouse clubs, most merchandise sold at Sam's Club is sold in bulk and
directly off pallets. Clubs are arranged much like a warehouse, with merchandise stocked
in warehouse-style steel bins. There are currently 551 Sam's Clubs in the United States.
Each club averages 128,000 square feet (3 acres) (12,000 m²) (1.2 ha). The Sam's Club
division of Wal-Mart Stores, Inc. had total sales revenue of USD$37.1 billion for fiscal
year ending January 31, 2005. There are also clubs operated internationally under the
International Division of Wal-Mart Stores in Brazil, Canada, China, Mexico, and Puerto
Rico. Their current primary competitor is Costco. Sam's Club markets items under the
private labels Member's Mark, Bakers & Chefs, and Sam's Club.

Payment Options
Until recently, Sam's Club only accepted cash, PIN-based debit cards, the Wal-Mart
Credit Card, Sam's Club Credit Card, or Discover Card (Sam's Club and Wal-Mart both
also offer a Discover Card). Despite several tests over the years, Sam's Club did not
accept Visa or MasterCard because of high processing fees. Likewise, Sam's does not
accept American Express, likely due to the fact that rival Costco has an exclusive
acceptance agreement with American Express. However, on November 9th, 2006, Sam's
Club began accepting MasterCard credit and signature debit cards. Sam's Club also
allows members to pay by using Visa signature debit cards (no PIN necessary); however,
Sam's Club has accepted these cards for quite some time. It is not known if rival Costco
will follow suit.

Sam's Club Database


• Sam's Club, a division of Wal-Mart Stores, Inc., is a warehouse club that
specializes in selling to small businesses. A membership-based store, Sam's
Club offers goods and services for consumers and business owners as well
as affordable luxury merchandise. Sam's Club keeps prices low by selling
merchandise in bulk and at very low profit margins.
• The Sam's Club Database contains retail sales information gathered from
sales at Sam's Club stores.
• The process used to gather this information begins with a Sam's Club
member gathering all of the items they intend to purchase during the
current visit to Sam's Club. The member then proceeds to a register to
check out. A Sam's Club associate scans the member's Sam's Club card, at
which point a visit number (visit_nbr) is generated and stored in the store
visits table. The associate proceeds by scanning each item with a barcode
reader. When all of the items have been scanned, summary information
about each individual type of product (i.e. 6 packages of soap) purchased
during that visit is recorded in the item scan table. When payment is
tendered for items purchased on that visit, summary information for the
total order (transaction time & date, amount spent, number of unique
items purchased, etc) is recorded in the store visits table. Other tables are
used to store information about stores, products, and members.

prof. g. pherwani 2
46

Membership Club Strategy Mix

Location:
Prices:
Isolated store or
Very Low
secondary site

Atmosphere/ Services:
Merchandise: Very low
Moderate width and
poor depth of
assortment; Promotion:
low continuity Little;
some direct mail

prof. g. pherwani
14-8

• to establish the JV company Bharti Wal-


Mart Pvt Ltd, for wholesale cash-and-
carry and back-end supply chain
• Wal-Mart –bharti management operations. The second
agreement pertains to technology
• Wal-Mart venture for wholesale transfer and training for Bharti's front
trading-Jobs factor end retail operations.
• NEW DELHI: World's biggest retailer The JV company would set up 8-15 cash-
Wal-Mart is set to enter India by end- and-carry, or wholesale stores over
seven years, which would sell groceries,
2008 in a equal (50:50) joint venture consumer appliances and fruits and
with Sunil Bharti-promoted Bharti vegetables.
Enterprises for wholesale cash-and- "The wholesale cash-and-carry business
carry business. will cater not only to the organized
retailers but also to small kirana stores,
fruit and vegetable resellers, restaurants
and retailers across India," Bharti
Enterprises MD Rajan Mittal said here
on Monday, adding that stores will be
opened in Tier II and Tier III towns
which are largely unserved.

prof. g. pherwani 14
47

METRO Cash & Carry • METRO Cash & Carry is the


international leader in self-
service wholesale operating
across Europe and in some
countries of Asia and Northern
Type Private Africa. It is the largest sales
division of the German trade
Founded 1964 and retail giant METRO AG.
• METRO Cash & Carry is different
Headquarters Düsseldorf, Germany
from large retail chains such as
Key people Frans W.H. Muller, CEO Billa and Carrefour in that its
stores are primarily targeted
Industry Wholesale towards professional customers
Products Cash & Carry Stores rather than end consumers. The
cash-and-carry concept is based
Revenue ▲ €29.9 billion (2006) around self-service and bulk
buying.
Employees 100.000 (2006)
Website www.metro-cc.com
48

• Spread over an area of 7 acre,


the Rs 67 crore B2B distribution
centre in Hyderabad occupies a
selling space of 100,000 sq ft
including a 20,000 sq ft
temperature-controlled space
to handle perishables, such as
vegetables, fruits, dairy, meat
and fish. The centre stocks a
range of 18,000 products, 98%
of which are sourced locally.
Hyderabad centre is slated to
achieve an annual turnover of
Rs 300 crore. The centre has
already registered about 75,000
small and medium retailers,
traders and other institutional
businesses as its customers.

Metro Cash & Carry wholesale outlet spread in


an area of 1,00,000 square feet
The self-service wholesale Cash & Carry launched its first distribution centre in Andhra
Pradesh at Moosapet in Hyderabad .

Wholesaling

Mfrs. Retailers
Supply information advise assortment
About mkt./product negotiate
Order
Negotiate wholesaler promotion
Risk taking sales forecast info.
Own title finance

Break bulk handle protection


storage security
transport
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Wholesaling defined

• It includes all activities of channel members that sell


products to retailers and organization customers [B-2-
B and not B-2-C]-thye are dealing with business
customers only.
• Retailers buy for resale
• It excludes manufacturers and farmers, who are
engaged in production & retailers who are selling
• Wholesale transactions are usually larger than retail
ones.
• They cover a larger trade area than retail.
• They are more efficient in performing tasks of selling
on a large scale.

Wholesaling Intermediaries
• Includes not only wholesalers who
assume title to the goods they
handle, but also agents and brokers,
who conduct wholesaling activities
without taking title of the goods.

14-3
50

• Functions of Wholesaling
Intermediaries
– Creating Utility
• Time utility
• Place utility
• Ownership/possession utility
– Providing Services
• Wholesalers commonly provide marketing
services that reflect the basic marketing
functions of buying, selling, storing,
transporting, providing market information,
financing, and risk taking

14-4

• Lowering Costs by Limiting Contacts


– Intermediaries that represent multiple
suppliers cut buying and selling costs and
reduce transaction time
– Firms can increase transaction efficiency by
only having to contact one or two
intermediaries, rather than hundreds of
individual suppliers

14-5
51

14-6

They perform 9 tasks:


1. Selling and promoting-sales force helps reach
many small business customers at lower costs-have
more contacts-buyers trust them more than a distant
manufacturer.
2. Buying and assortment building-able to select
items-build needed assortment-save retailers
considerable work.
3. Bulk breaking-achieve savings by buying in bulk
and breaking into smaller units.
4. Warehousing-hold inventories-reduce stock costs &
obsolescence risks for both ends.
5. Transportation-provide quicker deliveries due to
proximity

6.Financing-grant credit to retailers which manufacturer


cant provide-finance suppliers by ordering early and
paying timely.
7.Risk bearing-absorb risks by taking title, bearing the
cost of theft damage spoilage and obsolescence.
8.Market information-provide information to suppliers
and customers regarding competitors, new product
development price levels and market activities.
9.Management services and counseling-help improve
retailer operations by training sales clerks, helping
52

• McKesson is a leading health care service provider in


pharmaceutical and medical-surgical supply
management, information solutions, pharmacy
automation and sales and market service to the
healthcare industry. It has unmatched depth, breadth
and reach delivering unique cost saving and quality
improvement solutions pharmacies, hospitals,
physicians, extended care sites, payer sites and
manufacturers.
• It maintains a strong presence on the Net through its
website www.mackesson.com offering access to
information about every connected thing including
healthcare software and order tracking. McKesson
Medical Imaging Group located in
prof. pherwani 7
53

Numbers
• Orders per month- 1,090,000
• Hospitals- 9,700
• Pharmacists-35,000
• Chain drug stores 15,600
• Warehouses 54[130 earlier], due to logistics
• Customers per month: 17,000
• Average order size; $23,000
• Average shipments: 2 per week,[ 3/day]
• Mis-picks cost: $82 to correct.
prof. pherwani 11

• Biggest cost in pharmaceutical distribution is


variable labor costs associated with pick& place
activity, besides fixed asset cost. This is
corrected by Six-Sigma approach.
• Wal-Mart learning is they haven't allowed us to
grow our costs and accuracy-they don’t give
price increases and are very demanding-and
taught us to be highly efficient.
• A strong culture around process improvement
and six-sigma teams can drive defects out of
the process continuously-millions of doses per
day we deliver. Even small changes mean
enhancement.
IT isn't the driver it is the response. 16
prof. pherwani
54

• McKesson build relationships around the


country’s medical fraternity.
• This field is not scalable so operational
variability has to be reduced.
• Distance between the best and the worst has to
be reduced.

prof. pherwani 17
55

Trends
• Wholesaling is changing with the times. In the last
century wholesalers dominated not only Indian market
but also US markets. Small producers and small
retailers need their services. In less developed
economies they still dominate commerce.
• Today many bypass wholesalers-large retailers take
control of their functions. E-commerce is making
easier for producers and consumers to connect
without any middle man. B2B sites are wholesale sites
in disguise-hidden in the channel and giving new
values.
• Progressive wholesalers are more concerned with
their customers and channel members. They are using
technology and value chains bringing them closer in
their relationship.

• Manufacturers have always the option of


bypassing wholesalers or replacing inefficient
ones. Their major complaints against them
are:
1. don’t aggressively promote the mfrs’ product
line
2. act more like order takers
3. don’t carry enough inventory
4. fail to fulfill customers’ orders fast enough
5. don’t supply manufacturer with enough
market-customer-competitive information
6. don’t attract high caliber managers and bring
down their own costs
7. Charge too much for their services.
inventory
56

Functions:
• Wholesalers sell to different type of
organizational customers.
• Wholesale activities are variations of basic
marketing functions-gathering and providing
information-buying and selling-grading and
storing-transporting-financing and risk taking.
• They are members of the channel-
• they add value by doing jobs for their customers
and their suppliers.

Inventory control
57
58
59

Inventory control is the delicate balance of the costs versus profits


associated with having stock on hand.

Inventory control means keeping the overall costs associated with having inventory as
low as possible without creating problems. This is also sometimes called stock control. It
is an important part of any business that must have a stock of products or items on hand.
Correctly managing inventory control is a delicate balance at all times between having
too much and too little in order to maximize profits. The costs associated with holding
stock, running out of stock, and placing orders must all be looked at and compared in
order to find the right formula for a particular business.

It is impossible to have an unlimited supply on hand, for a number of different reasons.


Many businesses simply don’t have enough money to keep excessively large inventories.
There are costs associated with purchasing the items as well as storing them, and having
too many products leads to further losses when they don’t move off of the shelves.

At the same time, there are issues with inventory control when there isn’t enough stock
on hand. One common problem is running out of inventory, which is caused by trying to
60

reduce inventory costs too much. This is something that no business wants to have
happen, but it happens to virtually all of them at some point. Even the largest stores run
out of certain products from time to time when they sell or use more than they expected.
This can cause financial losses when inventory is not available for customers to purchase.
Part of inventory control is trying to minimize shortages so these are rare occurrences.
Most businesses expect they will have shortages on occasion and they have calculated
that the small loss is worth the money saved by not having an overstock.

Another important element of inventory control is called reorder point. Businesses need
to think ahead and calculate the best time for reordering products. Doing so too soon may
cause financial difficulties or running out of space. On the other hand, waiting to long to
reorder will result in a shortage and running out of inventory before the next shipment
arrives. When figuring out a reorder point, it’s necessary to calculate how long it will
take the shipment to arrive and the amount of demand for a particular item. The overhead
costs, fees, and shipping expenses of ordering large versus small quantities should also be
looked at.

Inventory control is an ongoing process that is rarely, if ever, executed perfectly.


Experience, expertise, and practice help people to make the best decisions regarding
stock, but there are always unknown circumstances and variables. Stores can make good
estimates about how many of a specific product they will sell, but they get things wrong
from time to time. This is unavoidable. Inventory control can break a business if it is
executed poorly, because either expenses will be too high or customers will get tired of
dealing with shortages and find another place to spend their money
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