Supply chain management case study

Supply chain management- A Case Study on SCM Drivers

1. Supply Chain Management Supply Chain Management- Case Study

2. What is a Supply Chain? A supply chain is the system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform raw materials and components into a finished product that is delivered to the end customer.  Supply chain comprises of : Suppliers, manufacturers, warehouses, distribution centers and retail outlets – “facilities” Raw materials Work-in-process (WIP) inventory Finished products that flow between the facilities

3. Example Of A Supply Chain Say we get an order from a European retailer to produce 10,000 garments. For this customer we might decide to buy yarn from a Korean producer, but have it woven and dyed in Taiwan. So, we pick the yarn and ship it to Taiwan. The Japanese have the best zippers … so we go to YKK, a big Japanese zipper manufacturer, and we order the right zippers from their Chinese plants. …the best place to make the garments is Thailand. So, we ship everything there. …the customer needs quick delivery; we may divide the order across five factories in Thailand. Effectively, we are customizing the value chain to best meet the customer’s needs. (Interview of Victor Fung of Li & Fung in HBR, Sept-Oct 1998.) In the interview example, it can be seen that Li & Fung has created a supply chain for the purpose of meeting a customer’s needs. In general, this case is more the exception than the rule, but serves to illustrate some of the pieces of a supply chain.

4. A Supply Chain Example…

5. Supply Chain Management Supply chain management deals with linking the organizations within the supply chain in order to meet demand across the chain as efficiently as possible. D e m a n d

6. Why is supply chain management so important? To gain efficiencies from procurement, distribution and logistics To make outsourcing more efficient To reduce transportation costs of inventories To meet competitive pressures from shorter development times, more new products, and demand for more customization To meet the challenge of globalization and longer supply chains To meet the new challenges from e-commerce To manage the complexities of supply chains To manage the inventories needed across the supply chain

7. Supply Chain Drivers

8. Supply chain strategy & Drivers Responsiveness Efficiency

9. WHAT -Raw materials, work in process, finished goods, and supplies required for creation of a company's goods and services. The number of units and/or value of the stock of goods held by a company. WHY- Exists because of mismatch in demand and supply and to support a firm’s competitive strategy. IMPACT – On material flow time. Inventory

10. Role in competitive strategy If responsiveness is a strategic competitive priority –locate larger amount of inventory closer to customers. If cost is more important , inventory can be reduced to gain efficiency .

11. Inventory Drivers Why Do we need Drivers for Inventory ??? Inventory drivers are consequences of certain supply & demand characteristics like : Product desirability Responsiveness Supplying complete & accurate information Customer collaboration Getting visibility as much as we can from our customers Defining drivers brings to light optimism to ………..

12. Demand Variation/ forecast accuracy/demand planning Supply Planning Demand & Supply synchronization Service levels capacity Lot sizes/order sizes Lead times Speculation Customer service level segmentation Network Design Data Accuracy Inventory Drivers ……..

13. Transportation moves the product between different locations in a supply chain Transportation is prominent in a company's competitive strategy Faster transportation makes supply chain more responsive TRANSPORTATION

14. Role in the competitive strategy If company targets a customer who demands a very high level of responsiveness and that customer is willing to pay for this responsiveness, then company can make transportation as one driver to make supply chain more responsive. Opposite holds true as well. If the customers are concerned only with money not responsiveness then company can lower the cost of product. Both depend on company’s competitive strategy. The fundamental trade-off for transportation is cost (efficiency) versus speed (responsiveness). A transportation cost analysis must consider the effects of speed on inventory required. Use of fast modes of transport raises responsiveness and transportation cost but lowers inventory holding cost.

15. FACILITIES Facilities include all locations in the supply chain to store, assemble, or fabricate inventory. Two major types of Facilities are: Manufacture/Repair Sites Storage (warehouse, distribution) Sites

16. Role in Competitive Strategy Facilities are a key driver of supply chain performance. Factors such as location, capacity, manufacture/repair methodology, and warehousing methodology also affect supply chain performance by way of the facilities component. The fundamental trade off that managers face when making facilities decisions is between the cost of the number, location and type of facility & the level of responsiveness they provide to the company’s customers.

17. Facilities Driver

18. INFORMATION It consists of data and analysis concerning facilities, inventory and transportation. It is the biggest driver of performance. Presents management with the opportunity to make supply chain more responsive and efficient.

19. Role in competitive strategy Impact of IT in Supply Chain Management. Helps in taking key decisions which help in reducing cost and improving responsiveness. Deeply affects every part of supply chain. Serves as a connection between different stages of supply chain. Also crucial to daily operations of each stage in a supply chain.

20. Improves Responsiveness and efficiency. Improves performance of other drivers. Accurate information can help a firm improve efficiency by decreasing inventory and transportation costs. Improves responsiveness by matching supply and demand. Trade Off: Responsiveness VS efficiency

21. CASE STUDY People think we got big by putting big stores in small towns. Really, we got big by replacing inventory with information." Sam Walton, Founder of Wal-Mart

22. BACKGROUND Sam Walton founded the company in 1962 Walmart is the largest grocery retailer in U.S. In 2009, it generated 51% of its US$258 billion sales in the U.S. from grocery business. First store opened in Rogers, Arkansas Bentonville, Arkansas(U.S.) It is headquartered in The company employs 2.2 million associates worldwide and serves 200 million customers each week at more than 10,000 stores in 27 countries.

23. Traditional Supply Chain Model

24. Walmart’s simplified Supply Chain

25. Facili t ies There are 140 Walmart distribution centres within US. Walmart’s distribution centers by Facility type: Regional General Merchandise Distribution Centers Import/Redistribution Centers Fashion Distribution Centers Full line Grocery and perishables Food Distribution Centers Speciality Distribution Centers

26. Transportation Involves fast and responsive transportation system. More than 7000 company owned trucks services the distribution centers. Shipping of goods to stores within 2 days. Use idea of Back-Hauling

27. Inve n tory Walmart set up its own satellite communication system in 1983. Allows the management to monitor each and every activity at any point of day. Allows stores to manage their own stock. The order management and store replenishment of goods are entirely executed with the help of computers through the Point- of-Sales (POS) system.

28. Pricing Walmart practices every day low pricing (EDLP) for its products. Customer demand stays steady and does not fluctuate with price variations. Cross Docking Finished goods are directly picked up from the manufacturing site of supplier, sorted out and directly supplied to the customers. Reduces handling and storage of finished goods System shifted from “supply chain” to “demand chain”

29. Infor m ation Use of bar codes and RFID to label different products, shelves and bins in the center. Use of handheld computer (Magic Wand) Use of computers to track movement of goods and stock levels. Order management and store replenishment of goods is entirely executed with the help of computers through Point of Sale (POS) system. Use of centralized Inventory database

30. Case Study: Tata Nano

31. The secret of designing the Tata Nano is a concept called Target Pricing or Target Costing. Once the features and functions are finalized target costs are assigned to each and every component/system – transmission system, instruments, engine, body, interiors, electri cal systems. The sub-teams then design the components/systems within the target cost. They look at every bolt and nut and keep driving cost out of the components/ system. Tata Nano

32. Cost and waste is driven out of supply chains by reducing inventory, eliminating waiting times and delays, increasing utilization of warehouse and trucks, optimizing location of warehouses and plants, drawing up the optimum transportation network, utilizing backhauls etc. Reducing inventory reduces the working capital cost , reduces warehousing costs and obsolescence costs. To reduce inventory, demand fluctuation will have to be reduced, reliability of inventory replenishment will have to increased, Inventory Record Accuracy will have to be above ~95% and supply chain length will have to be reduced. Reducing supply chain times reduces inventory and increases responsiveness. To eliminate waiting times and delays the complete supply chain process will have to be mapped. For this a lead time map is used. Delays like waiting for loading or unloading and waiting for documents can be minimized. Transit times can be reduced [ not by fast and rash driving ] but by using AC cabins and double-drivers. Also, backhauls are a way to reduce costs. Tata Nano

33. Truck utilization can be improved by using truck optimization softwares. Similarly, warehouse space can be utilized more efficiently by increasing storage height- by increasing the rack heights or having a mezzanine. On a strategic level, Supply Chain Network Design - locating plants, contract manufacturers, Distribution Centres and warehouses- is important because 70% of the cost of a supply chain is fixed at the design stage. So while Tata Nano has created a breakthrough in car manufacture by reducing the cost of a car significantly, it has led me to think about doing a Tata Nano with my supply chain. Tata Nano

34. Concl u sion Lower product costs Reduced inventory carrying costs Improved in-store variety and selection Highly competitive pricing for the consumer

35. Supply Chain Success Story (Case study)- L&T Construction Ltd L&T's ECC Division ECC handled turnkey industrial and infrastructure projects in civil, mechanical, electrical, and instrumentation engineering and it also offered turnkey construction services. Headquartered in Chennai and with more than 50 years of experience and expertise, ECC commanded a leadership position in the industry... The Engineering Construction and Contracts (ECC) division is the construction division of Larsen & Toubro Ltd., (L&T). With project sites located in all parts of India, ECC expanded its operations to countries like the UAE, Bangladesh, Sri Lanka, Malaysia, and South Africa. Given its large geographical spread of operations and the large number of participants involved in the supply chain (in India alone, it had approximately 6000 suppliers, spread over 350 locations), the effective management of the supply chain system turned out to be a challenging task for ECC. The absence of any established IT solution for the construction industry made the situation still more complex.

36. In order to handle the challenge of implementing an effective supply chain management (SCM) system in the company, L&T ECC opted for a web-based SCM solution. It not only made the task of tracking the vendors easier but also reduced the time spent on negotiations with them since the vendors could post their bids online through ECC's website. In order to keep track of its operations at different locations, ECC came up with the idea of connectingall its project sites with its headquarters in Chennai throughthe Internet and launchedits in-house information solution, Enterprise Information Portal (EIP). EIP not only helped ECC keep track of its activities at different locations but also allowed it to leverage on its huge purchasing power. It also helped in reducing project costs and increasing the return on capital employed (ROCE). Company sources claimed that EIP was of great help in bringing together the different phases of the construction cycle - design, development, tendering/bidding, budgets, planning/scheduling, etc.

37. By collaborating and bringing together different stakeholders on a single platform, EIP is fast emerging as a powerful ERP solution." - K.V. Rangaswami, Executive Vice-President (L&T ECC Division), M a r c h ' 200 3 Supply Chain Management Strategy in ECC ECC structured itself into seven regions in order to handle the complexity in terms of stage of completion, size of project, and the geo-political situation. Each region catered to the demand of specialized construction services in that region and had its own materials department. The materials department of ECC got itself ISO-9002 certified, indicating thelevel of importance it gave to the managementof its suppliers. ECC adopteda sound and efficient Supply Chain Management Strategy in order to keep the supply chain costs to the minimum. Its quality policies emphasized minimum landed costs, transparent practices, and optimum inventory levels.

38. The Challenges The constant challenge that ECC faced was in integratingand collaborating its supply chain participants. The root cause of this challenge was the construction industry itself. The project sites being spread out at various locations and the large supplier base made it difficult for ECC to minimize its supply chain cost. Supply Chain Management Solution In order to handle the complex challenge of implementingan effective supply chain management (SCM) system in the company, L&T ECC opted to implement a web-based SCM solution built on Microsoft technologies - SQL Server 2000 and Windows 2000 Server in early 2000. The system worked on an on-line-order-off-line-delivery strategy. The company couldnow streamlineits entire vendor network. ECC also arrangeda proper training program for its vendors in order to familiarize them with the functioning of the system... https://www.lntecc.com

39. • Service Benefits o Personal Service, Family service • Other job related Benefits o Flexible work schedule, Cafeteria Benefits