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• Understand the key elements of supply

chain management (SCM)
• Optimizing supply chain through careful
selection of right inventory , warehousing
and transportation method
• Understand how we classify and analyze
inventory
• Understanding Location and layout of a
good warehouse

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 Also referred to as the logistics network
or value chain
 Suppliers, manufacturers, warehouses,
distribution centers and retail outlets –
“facilities” Suppliers Manufacturers Warehouses & Customers
Distribution Centers

and the

 Raw materials
Work-in-process (WIP) inventory
Transportation

Transportation
Costs Costs
Material Costs Transportation
Manufacturing Costs Inventory Costs
Costs

 Finished products

that flow between the facilities

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 Suppliers Manufacturers Warehouses & Customers
Distribution Centers

Transportation Transportation
Costs Costs
Material Costs Transportation
Manufacturing Costs Inventory Costs Costs
4
Plan
Plan Source
Source Make
Make Deliver
Deliver Buy
Buy

Suppliers Manufacturers Warehouses & Customers

Distribution Centers

Transportation Transportation
Material Costs Costs Costs Transportation
Manufacturing Costs Inventory Costs Costs

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Plan Source Make Deliver Buy

 A set of approaches used to efficiently integrate

 Suppliers
 Manufacturers
 Warehouses
 Distribution centers
 So that the product is produced and distributed
 In the right quantities
 To the right locations
 And at the right time
 System-wide costs are minimized and
 Service level requirements are satisfied

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 Making
Moving

Buying

Selling Ware
housing
 Dealing with uncertain environments – matching
supply and demand
 Boeing announced a $2.6 billion write-off in 1997 due
to “raw materials shortages, internal and supplier
parts shortages and productivity inefficiencies”
 U.S Surgical Corporation announced a $22 million
loss in 1993 due to “larger than anticipated
inventories on the shelves of hospitals”
 IBM sold out its supply of its new Aptiva PC in 1994
costing it millions in potential revenue
 Hewlett-Packard and Dell found it difficult to obtain
important components for its PC’s from Taiwanese
suppliers in 1999 due to a massive earthquake
 U.S. firms spent $898 billion (10% of GDP) on
supply-chain related activities in 1998

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• INVENTORY MANAGEMENT
• WAREHOUSING
• TRANSPORTATION

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1. The stock of material lying with you for which payments
are made but which are yet to be delivered to the
customers and paid for by them.

2. Material stocked to meet the expected demand in the

market.

3. An idle resource which locks the capital.

Excess
Shortage
Why inventories are necessary
. To satisfy the customer demands without time lag.
. To cover time required for procurement of material.
. To cater to fluctuations in demand.
. Seasonal demand of products.
. Production constraints of suppliers.
. To retain supplier goodwill.

Excess
Shortage
Inventory Exercise
• WORK OUT INVENTORY NORMS BASED ON SERVICE
FREQUENCY, SALES AND DEMAND VARIABILITY & TRANSIT
TIME VARIABILITY

• Consider sales qty. – 300 CLD’S per month, Demand

variability – 20 %, Supply variability of + / - 2 Days & Service
frequency of 1 / week
Costs
Opportunity cost curve.

Total costs

Inventory + Service costs.

Low Service levels High

Interpretation:
I At low service levels, costs due to lost opportunities are very high.
•
When service levels are raised, inventory + service costs increase
•
marginally but costs due to lost opportunities come down
drastically.
Enlarged
• view of portion marked
at “A” is shown in the next graph
for further explanation.
 ENLARGED VIEW OF PORTION “A”

Zone of Zone of Zone of

Improvement Indifference Perfection.

Explanation:

1. In ‘zone of improvement ’, as service level goes up by increasing

stocks and incurring in extra expenditure for giving better service,
the gains obtained due to better sales outweigh the costs incurred.
2. In ‘zone of indifference’, the gains and costs are more or less
balanced.
3. In ‘zone of perfection’, as service levels are raised to near to 100%,
the costs outweigh the gains but in modern competitive
environment, this may become a necessity for survival
Scientific Replenishment
System
The Use of Safety Stock

Inventory on
Hand

Time

Stock out
Inventory on
Hand

Safety Stock Stock out

is avoided

Time
ABC Analysis

• Based on principle of management by exception.

• Unit value is not a consideration. Analysis is based on
total consumption value of items in predetermined time
span.
• Criticality/importance of item is not a consideration
• All the items are divided in three categories.
• Decisions are based on 80 : 20 rule.
ABC Analysis Exercise

•Classifying inventory
according to some measure
of importance and
allocating control efforts High
A
accordingly. Annual
value B
of items
–A - very important C
Low
–B - mod. important Fe Many
w Number of Items
–C - least important
DECISION PARAMETERS FOR ABC ANALYSIS

• ADEQUACY OF STOCKS

• FREQUENCY OF STOCK CHECKING

• LOCATION IN WAREHOUSE
FSN Analysis
Based on speed of movement of material.
1. Some materials have regular and high volume demand and move
‘Fast’ (F),
2. some material have intermittent and unpredictable demand and
hence move ‘Slow’ (S)
3. and a few items have practically no takers and hence keep on lying in
stores for long period of time and categorized as ‘Non moving’ (N).

FAST MOVING SLOW MOVING NON MOVING

ELEMENTS OF SCM

• INVENTORY MANAGEMENT
• WAREHOUSING
• TRANSPORTATION
 ELEMENTS OF
WAREHOUSING

• LOCATION
• LAYOUT
• IDENTIFICATION
• MATERIAL HANDLING
Layout principles
• Ease of receipts, storage and issues.
• Uninterrupted movement of material,
men and equipment.
• Optimum utilization of space.
• Ease of locating the material.
• Safety. & Security.
• Better supervision.
• Flexibility
• Building. : Preferably single storied,
enough height, proper lighting and
ventilation, protection against hazards
like fire and lightening.
1. Tagging.
2. Labeling.
3. Writing, painting,
engraving, stamping,
etching, color coding on
the part/case/box.
4. Bar coding.
Features of a good warehouse
1. Place for everything and everything in its place.
2. FMFO – First Manufactured and First Out principle.
3. Maintenance of prompt and correct records.
4. Fast and courteous service to customers.
5. Minimum damages to the material.
6. Protection against pilferage.
7. Regular verification and inspection of material.
8. Regular inventory taking and reconciliation.
9. Maintaining inventory within specified norms.
 ELEMENTS OF SCM

• INVENTORY MANAGEMENT
• WAREHOUSING
• TRANSPORTATION
Logistics Management

'Logistics is the process of strategically managing

the procurement, movement and storage of
materials (and related information flows) through
the organisation and its marketing channels
Objectives of Transport Management

1. Cost Optimization
2. Improved service
3. Transportation/logistics as a competitive
differentiator.
4. Time to market
 CARRIER
SELECTION

CUSTOMERS PER
OUTSOURCING VEHICLE TYPE VEHICLE & TRIPS
Vs. OWN VEHICLE ( SIZE ) PER VEHICLE
( ROUTING )
Carrier Selection and Routing

• The practical meaning of the 4 C’s of selecting transportation

services

1. Competition
2. Cost
3. Comparison
4. Compromise

Sources Destinations
Your responsibility is to assist in defining

Right Product in the

Right Quantity from the
Right Source to the
Right Destination in the
Right Condition at the
Right Time for the
Right Cost.
Transport
Costs
Fixed cost Variable cost

Vehicle cost ( Depreciation ) Labour cost ( Laoding &

License fee Unloading )
Insurance cost Fuel, Consumables & Oil cost
Driver salary
Interest cost
Road tax
Administration Cost
Carrier makes investment to maximize return on assets.
For this he has to consider following costs –

1. Vehicle-Related Cost : This is fixed cost in short term

incurred for purchasing or leasing the carrier.

2. Fixed Operating Cost : This includes any cost associated

with terminals, Road Tax, and labor.

3. Trip-Related Cost : This includes the price of labor and fuel

incurred for each trip independent of the quantity transported
and depends on the length and duration of the trip.

4. Quantity Related cost : This includes loading / Unloading

cost and part of fuel cost that varies with the quantity being
transported.

5. Overhead cost : This includes, planning & scheduling cost, IT

Routing & Scheduling In Transportation

This refers to the selection of customers to be visited by

the particular vehicle and the sequence in which they will
be visited.

For the companies to be successful, they have to do the routing

and scheduling in such a way that they reduce the cost of
transportation at the same time make the deliveries fast and
meet the promised level of responsiveness to the customers.

To achieve this, the objective is to minimize cost by

Decreasing the number of vehicles,

Reducing total distance traveled,
Reducing total travel time &
Reducing service failures ( delays )
Routing & Scheduling In Transportation
The objective of the supplier is to

• Pick the items needed and to load them on trucks for delivery
• Decide which vehicle will deliver to which customers & the
route that each truck will take.
• Ensure that no vehicle is overloaded at the same time try to
load all the vehicles fully.
• To do this, the technique that can be used is Savings Matrix
Method.
Identif yTheSavingsMa
 Assign Customers to Vehicles or Routes
Select the route with highest savings and combine the 2 routes
if the total load is less than the permitted load. Keep combining
this way to get the route plan.
Sequence Customers within Routes
The goal here is to minimize the distance each vehicle must
travel. The procedure for this is as follows:

Farthest Insert : Given, a vehicle trip for each customer,

evaluate the minimum increase in length if this customer is
inserted at a suitable point in the trip and insert the customer
with the largest minimum increase to obtain the new trip.

Nearest Insert : Given, a vehicle trip for each customer,

evaluate the minimum increase in length if this customer is
inserted at a suitable point in the trip and insert the customer
with the smallest minimum increase to obtain the new trip.