Selected Aspects

of
Supply Chain Management

Indranil Biswas
Operations Management Group
Office: Chintan, Room No. 211, Tel. 6663
Email: indranil@iiml.ac.in
What is e-Commerce?
E-commerce covers outward-facing processes that touch customers, suppliers and external partners, including
sales, marketing, order taking, delivery, customer service, purchasing of raw materials and supplies for
production and procurement of indirect operating-expense items, such as office supplies.
Types of e-Commerce:
B2B – The process where buying and selling of goods and services between businesses is known as Business to
Business. Example: Oracle, Alibaba, Qualcomm etc.
B2C – The process whereby the goods are sold by business to customer. Example: Intel, Dell etc.
C2C – The commercial transaction between customer to customer. Example: OLX, Quickr etc.
C2B – The commercial transaction between customer to business.
What is e-Business?
E-business includes e-commerce but also covers internal processes such as production, inventory management,
product development, risk management, finance, knowledge management and human resources.
Types of e-Business:
Pure-Play : The business which is having an electronic existence only.
Brick and Click: The business model, in which the business exists both in online i.e. electronic and offline i.e.
physical mode.

How the business strategies would be different?

E-Commerce Strategy: involves new business models and the potential to gain new revenue to new competitors.
E-Business Strategy: It is more complex, more focused on internal processes, and aimed at cost savings and
improvements in efficiency, productivity.
 All those fundas were good! Why do we need them?
[From SCM perspective,] why does e-Commerce/ e-Business models make sense/ good to have?
1. Tackling Bullwhip Effect >> What effect does it have on inventory holding?
2. Removal of Information Asymmetry >> Why do we need this?

[From SCM perspective,] what is the basis of competition among e-Commerce businesses in
India (given that now we have quite a few of them)?
1. Lead Time >> How can that be controlled?
2. Last Mile Delivery >> What are we talking about?
What is a typical process flow diagram
of e-Commerce company? Also describe their
payment method.
 TYPICAL E-COMMERCE SUPPLY CHAIN
E-COMMERCE MARKETPLACE

Purchase Order Relay Online orders

orders based
on demand Products Products
E-COMMERCE COMPANY
Forecasts
WAREHOUSE

Last mile
Products Delivery
VENDORS/SUPPLIERS CUSTOMERS

REGIONAL SEGREGATION
HUBS

Direct Seller to customer in case of pure

marketplace
 TYPICAL FMCG SUPPLY CHAIN

CORP
HEAD
OFFICE
RAW MATERIAL
SUPPLIERS Supplier POs
Demand Forecasts
Raw Materials CENTRAL MANUFACTURING
FACILITY CUSTOMER
Products
RAW MATERIAL Supplier POs
Products
SUPPLIERS DISTRIBUTION CENTER Products

Products

WHOLESELLERS RETAILERS

Products
Issues with e-Commerce Supply Chains in India
Amazon:
The company took the lead among online retailers in India to introduce same-day and next-day deliveries.
To reach its customers faster, Amazon is now running a pilot for last-mile delivery by partnering with neighborhood mom-
and-pop stores.
Amazon also has two fulfillment centers in the country — one on the outskirts of Mumbai, and the other in Bangalore, each
about 150,000 square feet. These two centers stock products across several categories from sellers using “fulfillment by
Amazon” – a service in which Amazon takes complete care of packing, shipping and delivery of the sellers’ products .
Remember: A business model is complete only when the company posts cash profit and becomes self-
sustaining.
Flipkart:
Flipkart (in particular) and other e-commerce companies are surviving on private equity money.

Flipkart India did business of Rs 3,035.8 crore and reported a loss of Rs 719.5 crore for the year ended March 2014. In FY13,
these entities had posted a revenue of Rs 1,195.9 crore and loss of Rs 344.6 crore!!!

None of them are profitable and nowhere close to being profitable in the near future (over years the total combined loss across
all e-Commerce companies in India is estimated to be around 5000 Crores!!!).

Why should I take up such a job in finals? This guy is crazy!

As a manager, your challenge is to find the solution so that the business model might become “complete” and
“self-sustainable”
Product & App Development Life Cycle – Are they same or different?

Note: This is also known as Product

Engineering
Rural e-Commerce – The Case of Taobao
Alibaba, has pioneered rural e-commerce through its rural arm, Taobao
Claimed to have created 280,000 rural jobs in 2014 alone.
The Chinese government has picked 55 poor counties for grants to develop industries using e-commerce.
Taobao villages have risen from 20 in 2013 to 211 in 2014, and the trend continues. These villages now cover 70,000
rural producers.
What do they do? How does this model work?
In Rural e-Commerce a village is to be transformed as a cluster of rural e-tailers where at least 10 per cent of village
households engage in e-commerce or at least 100 online shops have been opened by villagers.
The villagers have access to the cheapest rural labour, giving them the potential to compete, provided they overcome
logistical disadvantages.
Villages can use the e-commerce route to overcome their logistical disadvantages. Encouraging the clustering of rural
units has helped create the minimum trade volume needed to attract trucking and financing services.
Traditional e-Commerce company/ VC can serve the purpose of a financing arm (In the case of Taobao the financial
arm is Alibaba).
Observe: None of this requires government subsidies. But government investment in rural roads, electrification and
broadband are necessary external factors.
Alibaba has shown that in effect Taobao villages transform villages into towns through business.
The first Taobao village, Dongfeng, became a centre for low-cost furniture production by over 1,000 households. With
access to cheap local timber and labour, they were able to quote competitive e-prices.
Best of Luck!!!
Question: How would you evaluate a manufacturing plant?
Answer: Following list contains all the metrics those are employed for evaluating the performance
of a manufacturing plant. Every organization does not necessarily employ all of them. Either a
suitable subset or the complete set is used, depending on the requirement of the company and the
kind of industry where the particular firm is situated.
A. Improving Customer Experience & Responsiveness
1. On-Time Delivery to Commit – This metric is the percentage of time that manufacturing
delivers a completed product on the schedule that was committed to customers.
2. Manufacturing Cycle Time – It measures the speed or time it takes for manufacturing to
produce a given product from the time the order is released to production, to finished goods.
3. Time to Make Changeovers – It measures the speed or time it takes to switch a manufacturing
line or plant from making one product over to making a different product.
B. Improving Quality
4. Yield – Indicates a percentage of products that are manufactured correctly and to specifications
the first time through the manufacturing process without scrap or rework.
5. Customer Rejects/Return Material Authorizations/Returns – A measure of how many times
customers reject products or request returns of products based on receipt of a bad or out of
specification product.
6. Supplier’s Quality Incoming – A measure of the percentage of good quality materials coming
into the manufacturing process from a given supplier.
C. Improving Efficiency
7. Throughput – Measures how much product is being produced on a machine, line, unit, or plant
over a specified period of time.
8. Capacity Utilization – Indicates how much of the total manufacturing output capacity is being
utilized at a given point in time.
9. Overall Equipment Effectiveness (OEE) – This multi-dimensional metric is a multiplier of
Availability x Performance x Quality, and it can be used to indicate the overall effectiveness of a
piece of production equipment, or an entire production line.
10. Schedule or Production Attainment – A measure of what percentage of time a target level
of production is attained within a specified schedule of time.
D. Reducing Inventory
11. WIP Inventory/Turns – A commonly used ratio calculation to measure the efficient use of
inventory materials. It is calculated by dividing the cost of goods sold by the average inventory
used to produce those goods.
E. Ensuring Compliance
12. Reportable Health and Safety Incidents – A measure of the number of health and safety
incidents that were either actual incidents or near misses that were recorded as occurring over a
period of time.
13. Reportable Environmental Incidents – A measure of the number of health and safety
incidents that were recorded as occurring over a period of time.
14. Number of Non-Compliance Events / Year – A measure of the number of times a plant or
facility operated outside the guidelines of normal regulatory compliance rules over a one-year
period. These non-compliances need to be fully documented as to the specific non-compliance
time, reasons, and resolutions.
F. Reducing Maintenance
15. Percentage Planned vs. Emergency Maintenance Work Orders – This ratio metric is an
indicator of how often scheduled maintenance takes place, versus more disruptive/un-planned
maintenance.
16. Downtime in Proportion to Operating Time – This ratio of downtime to operating time is a
direct indicator of asset availability for production.
G. Increasing Flexibility & Innovation
17. Rate of New Product Introduction – Indicates how rapidly new products can be introduced
to the marketplace and typically includes a combination of design, development and manufacturing
ramp up times.
18. Engineering Change Order Cycle Time – A measure of how rapidly design changes or
modifications to existing products can be implemented all the way through documentation
processes and volume production.
H. Reducing Costs & Increasing Profitability
19. Total Manufacturing Cost per Unit Excluding Materials – This is a measure of all
potentially controllable manufacturing costs that go into the production of a given manufactured
unit, item or volume.
20. Manufacturing Cost as a Percentage of Revenue – A ratio of total manufacturing costs to
the overall revenues produced by a manufacturing plant or business unit.
21. Net Operating Profit – Measures the financial profitability for all investors/shareholders/debt
holders, either before or after taxes, for a manufacturing plant or business unit.
22. Productivity in Revenue per Employee – This is a measure of how much revenue is generated
by a plant, business unit or company, divided by the number of employees.
23. Average Unit Contribution Margin – This metric is calculated as a ratio of the profit margin
that is generated by a manufacturing plant or business unit, divided into a given unit or volume of
production.
24. Return on Assets/Return on Net Assets - A measure of financial performance calculated by
dividing the net income from a manufacturing plant or business unit by the value of fixed assets
and working capital deployed.
25. Energy Cost per Unit – A measure of the cost of energy (electricity, steam, oil, gas, etc.)
required to produce a specific unit or volume of production.
26. Cash-to-Cash Cycle Time – This metric is the duration between the purchase of a
manufacturing plant or business unit’s inventory, and the collection of payments/accounts
receivable for the sale of products that utilize that inventory – typically measured in days.
27. EBITDA – This metric acronym stands for Earnings Before Interest, Taxes, Depreciation, and
Amortization. It is a calculation of a business unit or company's earnings, prior to having any
interest payments, tax, depreciation, and amortization subtracted for any final accounting of
income and expenses. EBITDA is typically used as top-level indication of the current operational
profitability of a business.
28. Customer Fill Rate/On-Time delivery/Perfect Order Percentage - This metric is the
percentage of times that customers receive the entirety of their ordered manufactured goods, to the
correct specifications, and delivered at the expected time.
Bibliography:
Davidson, M. (Oct 09, 2013) 28 Manufacturing Metrics that Actually Matter (The Ones We Rely
On), Retrieved from: http://blog.lnsresearch.com/blog/bid/188295/28-Manufacturing-Metrics-
that-Actually-Matter-The-Ones-We-Rely-On
 An Overview of
Supply Chain in FMCG Sector

- Siva
09677193966

‘Chain to Excellence’
Session
What is a Supply Chain?

All stages involved, directly or indirectly, in fulfilling a

customer request.

Sourcing Manufacturing Warehousing Distributor

Planning (Forecasting):
-Demand for products and services is usually uncertain

Forecasting is used for…

Short Range Forecast (0-1 yr)
• Production and operations planning
• SCM (Sourcing, Inventory, Resources)
Medium Term Forecast (1-3 yr)
• Finance and accounting (budgets and cost controls)
Long Term Forecast (>3 yr)
• Strategic planning
• Marketing (future sales, new products)
• Capacity Planning
 Planning @ Nestle

Factor in Promotional activities, Trend, Seasonality, etc.

 Top Down Planning at HO

- Disaggregated Planning
- Based on Company Financial Targets

 Bottom Up Planning at Branches

- Aggregate Planning
- Based on Sales Push
Sourcing:

- Set of business processes required to purchase goods & services

Sourcing Processes involved:

 Supplier scoring and assessment

 Supplier selection and contract negotiation
 Design Collaborations
 Procurement
 Sourcing planning and analysis
Supplier scoring and assessment:

- Supplier performance should be compared on the basis of the

supplier’s impact on total cost .
Total cost is influenced not just by purchase price, but also by late or partial order
delivery, poor quality, supplier flexibility, viability, etc.

Supplier Selection- Auctions and Negotiations :

-Supplier selection can be performed through competitive bids, reverse

auctions, and direct negotiations

Procurement:

-The process in which the supplier sends product in response to orders

placed by the buyer (Direct and Indirect Materials)
Manufacturing:

Production Planning – Past vs. Future

- In-house (OEM) vs. 3P (CM)

Parameters considered:
 Technology
 Capacity
 Quality
 Govt Regulations
 Flexibility
 Reliability

Manufacturing facility layout strategies

– Process focus (high volume)

– Product focus (low volume)
– Fixed-position
 Warehousing

- A Warehouse is nothing but a storehouse

- General Strategy adopted across industry is FIFO

- Dedicated vs Random Storage Approach

KPIs in Warehousing:

-Space utilization
-Order fulfillment/rush orders
-Order picking and assembly
-Cross-docking, consolidation and break bulk, etc.

- Factors to be considered while setting a warehouse

- Hub & Spoke concept in Warehouses

- Impact of GST on current warehouses system

 Distribution

- Total Delivered Cost (TDC) is the primary concern

- Route Optimization

- Truck Utilization (optimal mix)

- 1PL to 4PL Strategy

- Hub & Spoke Model

- Clustering Algorithm

- Milkrun Strategy

- Relation between Inventory & Distribution Planning (DRP) across

companies
Inventory:

-The most fundamental role that inventory plays is that of facilitating the
balancing of demand and supply
- Excess Stock built to handle any Uncertainties

Pipeline Stock – Inventory stored to compensate Stock in Transit

E.g. The Warehouse holds extra 5 days of inventory if the Transit time between Plant
and WH is 5 days

Cycle Stock – Inventory to satisfy gap in replenishments

E.g. The Warehouse holds extra 10 days of inventory if its replenished only thrice a
month

Safety Stock – Inventory to capture other Variabilities in overall chain like Demand
Uncertainties, Supply Uncertainties, Transit delay, Service Level etc.

E.g. The Warehouse holds extra 6 days of inventory if its

Forecasting Accuracy - 80% , Service Level – 95%

Supply Accuracy - 90%, Avg Transit Delay – 1 day

 Inventory Classifications

By Process:

RM inventory, WIP inventory, Finished Goods Inventory

By Importance:

ABC Classification - assign relative priority to the right category.

E.g. A Class items are the high value items. Hence the inventory level is maintained at
optimum levels for A category and any excess inventory can have huge adverse impact
in terms of overall value.

By Cycle Time:

FSN Classification – Fast Moving, Slow Moving and Non Moving Inventory

By Nuisance Value:

VED Classification – Vital, Essential and Desirable Inventory

Others: SDE, XYZ ….

https://www.facebook.com/nitie.c2x

http://c2xnitie.wordpress.com/
Supply Chain Management deals
with the management of materials,
information, and financial flows in
a network consisting of suppliers,
manufacturers, distributors, and
customers
This is best understood through a
simplified SCOR** Model
**SCOR stands for Supply Chain Operations Reference. The model presented in the following
slide is a simplified model. Interested candidates are advised to look up the detailed model.
 PLAN SUPPLY CHAIN

PLAN SOURCE PLAN MAKE PLAN DELIVER PLAN RETURNS

CUSTOMERS
SUPPLIERS

SOURCE MAKE DELIVER

RETURN SOURCE RETURN DELIVER

ENABLE
⊸ Purchasing/Procurement ⊸ Order Processing
▫ What to Buy ⊸ Transportation
▫ Who to Buy From ▫ Inbound vs Outbound
⊸ Inventory Control ▫ Mode of transport (Rail,
▫ How much to stock where air, third Party)
▫ Replenishment plan ⊸ Customer Service
⊸ Warehousing ⊸ Geographic vs Product Line
▫ Storage, Mixing specific
▫ Pick, Pack and Ship
▫ Warehouse layout ⊸ Planning
(Ergonomics) ▫ Facility Location
▫ Network Design
⊸ Material Handling ▫ Demand Planning
▫ Movement Equipment
▫ Packaging
▫ Storage Layout
Objective(s), Decision variables and Constraints
 PURCHASING

WAREHOUSING

INVENTORY MANAGEMENT

MATERIAL HANDLING

ORDER PROCESSING

TRANSPORTATION
Objective: Deliver at Lowest Total
Cost
CUSTOMER SERVICE
Variables:
• What carrier to select
• What is the Delivery window
• What is the delivery frequency
• What to stock where?
Constraint: Deliver within negotiated
time frame
Hence it can be argued that Supply Chain
Management is about Delivering at lowest total
cost in the least possible time. This time is often
referred to as Turn Around Time.

It is important to note that the objective is

reducing the “total supply chain Cost” and not
individual cost of the links. For example if
investment in material handling reduces inventory
management costs such that the total supply
chain cost reduces, then the investment in
question must be favoured even though it is not
optimal for the material handling function.
⊸Supply chain processes fall into one of two
categories depending on the timing of their
execution relative to customer demand
▫Pull: execution is initiated in response to a
customer order (reactive). Ex: E-Commerce,
Make to Order
▫Push: execution is initiated in anticipation of
customer orders (speculative). Example:
FMCG, Apparels, etc.
 E-COMMERCE MARKETPLACE

Purchase Order Relay Online orders

orders based on
demand Products
Products
Forecasts E-COMMERCE COMPANY WAREHOUSE

Last mile
Products Delivery
VENDORS/SUPPLIERS CUSTOMERS

REGIONAL SEGREGATION HUBS

Direct Seller to customer in case of pure marketplace

 Customer
Finished Customer Store
Component Goods DC DC

Raw Material
Manufacturing Component
Supplier DC
Customer
Store

Customer Customer
Final DC Store
Plant
Assembly Warehouse

Customer
Store
Forecasts
Finished
Goods DC Customer
DC
Customer
Store

Real Time Demand

 Customers

External
Supplier of
Customers
new Service
Parts
Usable
Inventory
Technician Customers
Distribution
Deployment
Central Spares Warehouse Center
Center
External
Repair Customers
Services Defective
Inventory

Customers

Internal
Repair Depot
 Manufacturer

Retailer

Customers

Product Flow

Information Flow

16
 Factories

Retailer In-Transit Merge by

Carrier

Customers

Product Flow

Information Flow

17
 Factories

Warehouse Storage by
Distributor/Retailer

Customers

Product Flow
Information Flow

18
 Factories

Distributor/Retailer
Warehouse

Customers

Product Flow

Information Flow

19
 Factories

Retailer Cross Dock DC

Pickup Sites

Customers

Customer Flow
Product Flow
Information Flow
20
Determines the nature of material procurement, transportation of
materials, manufacture of product or creation of service, distribution of
product

Consistency and support between supply chain strategy, competitive

strategy, and other functional strategies is important
 Responsive
Efficient Supply Chains (Agile) Supply
Chains
An efficient Supply chain focuses on minimising costs throughout the
supply chain by holding the optimal amount of inventory and by achieving
manufacturing as well as logistics Economies of Scale. This strategy
typically applies to supply chains with very predictable demand patterns

On the other hand a responsive supply chain applies to those supply

chains that grapple with volatile demand or are susceptible to disruptions
(e.g. Natural calamities). Supply chains become responsive by having
excess spare capacity in terms of production, inventory and by identifying
alternate forms of transportation and sourcing. The objective is to fulfill
an order despite disruptions or demand spikes.
 Efficient Responsive
Primary goal Lowest cost Quick response
Product design strategy Min product cost Modularity to allow
postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time strategy Reduce but not at Aggressively reduce
expense of greater cost even if costs are
significant
Supplier selection Cost and low quality Speed, flexibility,
strategy quality
Transportation strategy Greater reliance on low Greater reliance on
cost modes responsive (fast) modes
In a nutshell, a firm’s optimal strategy (the ideal mix of efficiency
and agility) depends upon what Total supply chain cost is
acceptable to her.

Supply chain costs are affected by network structure:

▫Inventories (decision about safety inventory: How much to maintain where?)
▫Transportation (Mode and frequency of Transport)
▫Facilities and handling (Number of facilities and capex for handling
equipment, storage, etc. Fixed costs increase with number of facilities)
▫Information (IT infrastructure and the depth of information sharing.
Information sharing increases supply chain coordination thereby reducing
inventory and decreasing demand variability upstream. But building IT infra has
significant costs associated with it. This investment is a tradeoff in itself)
Value chain III
Sridhar Vishwanath
 Factors to determine before selecting level of intermediation
Quality considerations Fitment with overall firm
• Specifications of the commodity and its strategy
availability
Regulatory Compliances
• Control over Food Safety and
Sustainability norms Costs (Resources + Time)
• Audit needs of the buyer and • Search and Selection of Suppliers
certifications needed • Environment monitoring
(suppliers/potential
Savings Potential suppliers/competition)
• Savings Potential=[New System • Handling and Processing Cost
Cost(E2E)-Current System (System costs such as Plant
Cost(E2E)]*Volume *Probability of handling/Technological changes needed
Success(H/M/L) for 1 year /Manufacturing(competency & Make or
Buy analysis including waste handling and
• For multi-year projects, NPV should be byproduct sales)
positive Negotiations and Dispute settlement
Strategy Fit & Resource Logistics (Buying point to Delivery)
Rejections handling
Competency
Talent acquisition to retirement
Prof. Sridhar Vishwanath 2
Selection of commodities

3
 End to End Value Chain Example

Source: http://unctad.org/en/PublicationsLibrary/sucmisc2017d11_en.pdf

4
Source: UNIDO (2009). “Agro-Value Chain Analysis and Development”. The UNIDO Approach. A Staff Working Paper
Environmental Analysis in VCA

Source: Approaches and methods of value chain analyses in agricultural sector of central Asian countries by Mgr. Kairat Itibaev
For Strategic Analysis @ Firm Level

Technology Product
Manufacturing Marketing Distribution Service
Development Design

• Source • Function • Integration • Prices • Channels • Warranty

• Sophistication • Physical • Raw • Advertisin • Integration Speed
• Patents characteris Materials g/ • Inventory • Captive/
• Product/ tics • Capacity Promotion Independe
Process choices
• Warehousin
• Aesthetics • Location • Sales g nt
• Quality • Procuremen Force • Transport • Prices
t • Package
• Parts • Brand
production
• Assembly
Steps to identify Distinctive Capabilities:
1) Identify the capabilities at each major activity
2) Identify the resources that each capability requires
3) Appraise in terms of their importance and relative strength. Source: Barney, Hesterly(2016)
Key steps in VCA-I
• Value chain selection
• Mapping the value chain
• Analysing value chain activities and performance
• Identifying value chain performance constraints and
development opportunities
• Defining commercial/development interventions in terms of
short, medium and long term

7
Key steps in VCA-II

Source: UNIDO (2009). “Agro-Value Chain Analysis and Development”. The UNIDO Approach. A Staff Working Paper 8
End of Document

Prof. Sridhar Vishwanath 9