INRODUCTION
In today’s economy we must make an attempt to shed the flab and be lean & trim. In the present
era of increased competition companies are forced to think about the options of cost reduction
and improving the customer focus. In other words this has stimulated the search of efficiency and
effectiveness in the business processes. Although it seems to be simple, the supply chain and the
logistics constitute around 10% of the whole GDP of the world. Studies reveal that logistics &
distribution cost is next to material cost in the cost hierarchy.
Traditionally logistics and transportation is considered as a function, which enables the company
to transport its goods, by cheap and effective modes of transport. By the emergence of the
concept of Supply Chain Management the entire business process of logistics has been redefined.
The Logistics - one of the essential components of supply chain management encompasses
distribution, transportation and inventory management. Logistics is the art of moving material,
people and information from one location to another in an effective and timely manner. It commands
functions of "store" and "move". Through logistics the right product or right service is delivered at
the right time to the right customer.
The concept of Supply Chain Management has received significant attention globally.
To analyze an SCM framework a three-tier framework consisting of
1) Supply Chain Structure,
2) Supply Chain Business Processes and
3) Supply Chain Management Components.
(refer Figure 2) provide the theoretical and functional basis for this paper in their articles.
The services rendered by "carriers", the ubiquitous transporter’s of components in the Bethora-Goa are
analyzed using this network.
In this paper the new unique system of distributing "top end shied & “Bottom end shield” to various
vendors are benchmarked for the distribution networks. Top end shields and bottom end shields are the aluminum die
cast motor covers of any ceiling fan. In Crompton Greaves fan division at Bethora there are 23varieties of top end shield
&bottom end shields that are to be machined and then powder coated in 17 different colors assembled along
with 350 other components which have 59 runner variants and a item muster of over 10000 items which must be
assembled into ceiling fans as per customer requirement or as per standard finished good list bar coded and then
transported to 23 branches all over India and also to export customers all over the globe. The milk run for these
component originates in the die casting section and runs through the machining vendors and then to the powder coating
vendors and finally to the feeder section of the Crompton Greaves feeder facility and finally to the shop floor where about
4.57 fans are produced per minute in each of the four production lines which have been precisely balanced for manpower,
& capacity utilization using “Maynard Operation Sequence Technique”. Any slippage in planning & coordination will
lead to idle shop floor and inability to meet customer requirement or low service level.
In this paper we identify various SCM elements in the logistics and then identify how these SCM
elements can be benchmarked for the various managerial purposes.
The “Carriers” Ubiquitous transporters.
In bethora there are around 8 vendors that work Just like a well-oiled Olympic relay team to
process top end shields & bottom end shields for fans. They collect, sort, process, and transport
the components to the respective destinations. They do this with absolutely bare minimum
documentation* and yet rarely has it happened that a run has been stopped on the shop floor at Crompton Greaves.
Material is moved in metal container called pallets. The components originate in the die casting
department and are sent to vendors for machining and then powder coating. The effectiveness of the
process can be ascertained by knowing that there is an occurrence of no mistakes.
In house outgoing Process:
Die casting of components is a 3 shift operation. The logistics is carried out between 8 am to 5 pm.
The die cast components are moved to the dispatch section in pallets on non motorized hand pallet trucks.
Stage 1 sorting takes place here. The components are sorted and arranged in a count free manner in the pallet. The security
guard cross checks the stack of components & permits the loading of the pallet in the waiting vehicle by signing the
“ materials requisition format”. A forklift loads the pallet in the vehicle which speeds up the entire process of dispatch.
The loaded vehicle moves towards the parking bay situated just before the exit point and the “carrier” moves
to the store window with “materials requisition format”. An annexure is prepared based on the security guard
attested quantity and is duly authorized. The carrier proceeds with these documents and moves the vehicle to
the main exit gate. The documentations are cross checked as per norm and the vehicle is let out to proceed to
the machining vendor. This entire cycle takes a mean time of 32 minutes whereas the bench mark time taken
initially was 45 minutes.
fig 1a & fig:1b
SUPPLY CHAIN STRUCTURE
1.0 Supply Chain Structure
Supply Chain Structure is a network, which consists of various members of the network and the links between the members. To
identify the supply chain structure three structural aspects should be considered: 1) The members 2) the structural
dimension and 3) types of process links across the supply chain.
1.1 Member Identification Of The Supply Chain Of vendors
The members of the supply chain are identified as primary and supporting members. Primary members include the
business units, which actually perform operations and/or managerial activities in the business activities in the business
process designed to produce a specific output for a particular customer or market. Supporting members are business units,
which simply provide resources, knowledge, utilities or assets for the primary members of the supply chain.
1.1a Primary Members
The analysis of the Supply Chain of components entirely focuses on the network flow of components- from despatch to
the respective vendors. The primary members of the distribution supply chain are identified as follows (refer Figure 3):
• Collection of the components
• Sorting done by the dispatch section reporting to QUALIY Assurance.
• Transportation using the various modes of transport like rickshaws, geeps, tempos &trucks
• Delivery to the vendors.
The components are picked up from the dispatch section. The collection time depends on a) the vendor process chain
required to cater to both upstream & down stream processes that are required to satisfy customer need that is picked up
from the SSR (DOMESTIC+EXPORT). b). The process time at all process points in the vendor base .c) requirement
priority d) the schedule of production plan in house.
e) Availability of other components that are required to form kit in stores.
f) Distance of the requirement from the factory.
g) Availability in die casting section
h) Availability of raw materials & dies in the die casting section.
• The components carry only A symbol (not name) of the processing vendor in colour code apart from an alphanumeric number .
Channel /net work design : figure 4.a.1.
fig:4a2 :
figure 4.a.3
A minimum number close to 12000components are transported on a day from the die casting to the respective vendors.
The charge for this service is just Rs0.25 per component. The components carry only
• An alphanumeric number to identify it to the die
Each component has an alpha numeric number.
After the components are unloaded at the machining vendor they are sorted according to the machine
head between 10.15 am and 10:45 a.m. They are loaded in crates after machining operation. And moved to the
dispatch bay of the vendor and then picked up by the leg 2 carrier who delivers them to the powder coating
vendor .At the powder coater factor they are resorted for color and model.
The network design of the distribution system is given in the figure 4a1 ,4a2 &4a3. Channel/Network design
gives the forward distribution network from source to destination, while the Reverse Channel/Network gives
the backward distribution network from the destination to source.
1.1b Supporting Members
The supporting members in this supply chain are identified as the rickshaw, tempo drivers and the vendors with their own
means of supporting their logistics needs. .
The precise timing and the frequency of the system aid the vendors to be exact in maintaining the schedule.
1.2 The Structural Dimension
There are three structural dimensions for describing, analyzing and managing the supply chain: 1) horizontal structure,
2) Vertical structure and 3) horizontal position. The vertical structure indicates the number of suppliers within each tier
and the horizontal structure indicates the number of suppliers across the supply chain. The horizontal positioning
describes the location and the relation between the point-of-origin and the end user.
1.2a The Horizontal Structure
The service rendered by the carriers has two tiers of suppliers and three tiers of customers. Here the component is treated
as a product for consideration. (Refer Figure 5) The tier 1 suppliers are the die casting setup that supplies the raw material
components. The components are collected by the carriers and the focal organization of the supply chain includes the
sorting and transportation. The distribution part is the first tier of consumers followed by the powder coater who are the
tier 2 consumer and finally end consumers.
• Powder coater implies 4 separate powder coaters involved in the special process of finishing.
• End consumer refers to the feeder section of Crompton Greaves assembly facility.
1.2b The Vertical Structure
The vertical structure of the carriers is the wide clientele of their service. There are about 12000 components transported
by them in a day. There may be an addition or deduction as per the seasonality or the time in the month. This accumulates
to a change of around one thousand to three thousand five hundred components day. The tier 1 consumers of the
components include the machining vendors who deliver the components to their respective production work heads.
Their plan of action is to machine the components & keep track of the powder coater destined to which each component
is assigned. This is attained by the superb cognitive memory structure. Refer figure 6 on the next page.
Sorting refers to the activity of assigning item type to certain pallet and arranging in a way that it is in line with the
schedule at the production facility of Crompton Greaves which will pull the requirement from the powder coater who will
in turn pull in from the machining vendor who will synchronize with the carrier who in turn will be the recipient of the
components from tier 1 supplier (die casting section).
1.3 Types of Business Process Links
In this supply chain concept of vendors the level of integration is situational and varies from process to process. Since
there is no written agenda behind the boundaries of action of the process and its constraints it can’t be strictly demarcated.
But the business process links are well managed, even if there are some discrepancies, which can be avoided by further
refining run this system. The focus is to identify the number of process links, which are to be managed effectively. The
character of these links and the contextual setting affect the amount and the type of the relationships optimal for a focal
Organization. The emphasis is given for the closer relationships and partnerships that are implemented with key suppliers
or customers in the case of large corporations. As companies focus on fewer suppliers, the vertical structure becomes
narrower. Managing all the relationships, as partnerships would be time consuming for the organization.
Supply Chain with many tier 1 customers or suppliers require much of the company’s resources and the limit the number
of process links that can be integrated and closely managed. Different types of business process links can be identified:
1) managed process links, 2) monitored process links, 3) not managed process links and 4) non-member process links.
1.3a Managed Process Links
The process integration with the focal organization and the suppliers are decided by the managed process links. The
carrier service forms the managed process link of the distribution system. The bottleneck constraints for this process link
are 1) Weather, 2) Delay in loading of components on to the carriers due to unavailability of forklift truck. 3) material
produced but child items not in SAP hence documents not being able to be processed immediately 4) Traffic congestion
Outside die casting shop due to poor traffic handling by security guards 5) distribution not clearly informed by buyer to
die casting .6) festivals 7) unavailability security guards. Here the system of carriers can be compared with
“Service to order” and “just in time” philosophy.
. The logistics service is rendered for Crompton Greaves as & when required.
NO plan for the extra additional run in advance. There is an approximate variation of around 1000 to 3500 components
every day. The space allocation for its carriage is not pre-planned, as the exact variation is not known for them. The just
in time philosophy reduces the unnecessary burden of the large carriers and reduces wastage of space.
1.3b Monitored Process Links
Monitored process links are not as critical as the managed process links. Here they include 1) Material Handling
Considerations, 2) Packaging& palletisation and 3) Flexibility. Though these factors don’t contribute directly for the
process, they have a significant role in this system. The component is handled under the consideration that small impact
won’t create significant damage to it. There is a secondary packaging provided for each of the components is the hood of
the vehicle it is placed in. There is a buffer provided for this type of activities in case of transportation delays.
1.3c Not Managed Process Links
These are the process links, which are not in direct relation with the distribution of components. They include the quality
check at out going stage & advance count by security or the count free system of material moving system. It also includes
the collection activity by the end customer who rejects the powder-coated component that is fully processed. These
activities are not in the direct control of the materials management executives and hence are non-managed process links.
The quality and the customer satisfaction of the distribution service are affected by these secondary links.
1.3d Non-Member Process Links
They are defined as the competitors for the existing system of distribution. Since the distribution network and the service
of the carrier’s don’t have any competitors the non-member process links is irrelevant at this context.
2.0 Supply Chain of Business Processes
Identification and the management of the constituent processes are the prerequisites for the successful SCM. When we
emphasize on the constituent processes we have to define the same. They are defined as the activities designed for action
with a focus on the end-customers and on the dynamic management of product flows, information flows, cash flows, and
the flow of knowledge or ideas.
Considering the supply chain management we have eight key inter-firm processes:
Customer relationship management;
Customer service management;
Demand management;
Order fulfillment;
Manufacturing flow management
Procurement;
Product development & Commercialization;
Returns;
2.1Customer relationship management
It identifies key customer target markets and develops and implements programs with key customers. Key customer target
markets for the carriers are the end users of the cycle. They include the stores, production and logistics. The time of
delivery of the components is between 8.am to 5 pm. to the end customers. Once the material is fed on to lines the
empty crates of plastic are collected and shipped back to tier 2 consumers (powder coating vendors).. The service levels
for this level is maintained constant even if there are minor changes in service levels for the level 1 customers as they can
adjust accordingly and serve the end customers
2.2Customer Service Management
Customer Service Management provides the single source of customer information, real time information system with
current order, production and distribution information. In the case of carriers this information is real time. They plan for
their day-to-day collection on the basis of the information they already have. Though in each vendor set up there is a
chance of variation of 5 to 7 product changes/colour changes their system can accommodate that change in the
transported volume.
2.3Demand Management
Demand management balances customer requirements with supply capabilities. Though the distribution system is capable
of handling the major variation of the demand, always there are precautions for the additional supply. They arrange for
more number of runs for the handling of such situations from the nearer zones of action. The seasonal variation in the
quantity of components carried is also accommodated by the size of the vehicles.
2.4Order Fulfillment
The first priority of any service is to provide timely and accurate delivery with a high degree of order fulfillment. For the
end customers the order fulfillment is 100%. Around 8 carriers deliver 12000 components everyday for 320 days a year
and take the empty crates & pallets back. They make one mistake in 12 months. This means there is 0.26error on every
million transactions. This is thus a six sigma performance for the percentage of correctness.
2.5 Manufacturing Flow Management
It includes the customer-based service with flexible distribution systems, also in this case with the right flexibility of the
timings. In case of the carriers this issue arises when a vendor is temporarily unable to process the components. They
collect the details of the change in advance and respond for the change as and when needed.
2.6 Procurement
Procurement focuses on the management of the relationship with the suppliers. Here the components are procured from
the tier 1 supplier that is die-casting. The supplier relationships are maintained by the setting up of the base near the
factory. Here each carrier is entitled to collect components as per scheduled production of the linking tier 2 supplier and
customers.. He takes care of the procurement issues. The “pick and pack” concept is used where the secondary packing
of the component is done by the carrier. The details the is identified by the color coding system on the
component i.e. each machining vendor has its color code similarly the powder coating vendor has its alphabetical
identification.
2.7 Product Development and Commercialization
Since the component doesn’t focus on the product development it doesn’t need any significant mention here. Some of the
vendors having other business interests use the sides of carriers for small levels of promotion. This could fetch some
additional mileage for their other products. One machining vendor has added ice cream production and distribution to his
business portfolio and uses the sides of the vehicle for small levels of communication to the consumers by advertising on
the sides of the vehicle.
2.8 Returns
The cheaper and the effective distribution attract a lot of vendors especially in other component groups for the fan
manufacture to adopt this “carrier” philosophy. Exact timing and the quality of service rendered by them have contributed
for the success of this distribution system. As a result of implementation of this model a vendor with
manufacturing facility in Hyderabad has set up a godown in Goa to cater to requirement of plastic components a
and decorative add-on and has implemented this model for runs between his production facility godown &
feeder section of Bethora.
BENCHMARKING
Benchmarking “carrier” Distribution System, for other vendor –factory logistics especially in engineering industry.
The challenges for vendor –factory logistics can be analyzed on the basis of costs, efficiency, inventory levels and the
service levels.
Improving supply chain efficiency and effective-ness are the ongoing challenges for any industry.
3.0 Issues under consideration for vendor –factory logistics include:
• Rising logistics costs.
• Increased responsiveness of the vendor –factory logistics Supply Chain. Their supply chain has become more
demand-driven, with order-to-delivery cycles dropping
• Decreasing Inventory Levels.
• Focus on “Perfect Order” Service Metrics. Components of the “perfect order” are – order completeness, on-time
delivery, damage-free orders and invoice accuracy. They are viewed by buyers as important customer service
metrics.
• Low Accuracy in forecasting the demand and supply requirements.
Emerging supply chain challenges for most companies
1. Improving on-shelf Availability of Products: On-shelf availability is becoming a critical issue for
manufacturers.
2. Synchronizing Data: The current system for exchanging data to produce inefficiencies in supply chain
including order errors, invoice discrepancies, delays in item introductions and out-of- stocks
3. Increasing the Flexibility of Ordering and delivering: Most end customers say they are looking
for increased flexibility in ordering and delivering. With the shortening of order-to-delivery cycles,
manufacturers will continue to face additional pressure on their supply chains and resources
4. Improving Internal Cross-Functional Collaboration: Collaboration with external partners is hampered by
manufacturers’ own ability to collaborate internally – especially between the Logistics, quality assurance,
manufacturing and Sales/Marketing functions.
Customer teams are helping companies to improve the alignment and integration between different functions. These teams
are cross functional by design and seek to balance cost and service tradeoffs by collaborating internally and externally.
Why Measure the Performance of Logistics?
Measuring and monitoring logistics costs helps companies improve profitability by assessing the value of various business
transactions with customers and suppliers. Measuring the performance of the logistics operations is a key step toward
reducing costly inefficiencies and maximizing opportunities for growth.
Logistics measurement is also critical from a cost-savings standpoint. For an average company, logistics costs represent
more than 10 percent of net sales. Measuring and monitoring these costs helps to achieve the following goals:
• Improving profitability by reducing operating and administrative costs
• Improving profitability by carefully assessing the value of company activities with customers and suppliers.
• Increasing revenue growth by providing the level of customer service that keeps current customers satisfied while
attracting new ones.
• Identifying differentiating product and service offerings that will improve customer service as well as revenue
opportunities.
• Determining whether or not significant operational improvements are necessary.
3.1Logistics Costs
As end customers push more responsibility down the supply chain to manufacturers and the demand for shorter order-to-
delivery cycles increases, logistics costs for manufacturers continue to rise. The decrease in logistics expenses was
primarily accomplished through:
• Big loading bay equipped with forklift
• More direct-from-plant delivery or o/o transactions
• Moving processing centers closer to customers
• Increasing order and shipment sizes
The Largest Logistics Costs are in Product Distribution and Material Processing and Conversion. Other functions
companies included in their logistics management were Customer Service, Planning, Forecasting and scheduling and
Information Processing.
The possible reasons for the significant increase in logistics costs include:
• A more dynamic supply chain, with decreased response time to end customer’s required delivery appointments.
• Higher service level expectations from retailers in terms of on-time delivery and order completeness
• Conflicting incentives and insufficient and inaccurate information between trading partners, resulting in a number
of operational inefficiencies.
• Increased array of customized supply chain services offered by manufacturers.
In the case of “carrier” the logistic costs essentially include the cost of transportation by road. Though they have a
dynamic supply chain system in force which serves the entire network of customers, they are able satisfy the higher level
of service at nominal rates.
This is achieved by the Cost-cutting initiatives projected as follows:
• Collection and transportation of components in standard large sized crates & pallets that enable the carriers
to reduce the effort and rates of transport. Though they are low cost crates they are the best means of carrying
the components.
• Implementing low cost information exchange by simple and robust coding systems specific to the
Components enable positive recall.
• Transportation of the components Direct-from-die-casting to destined vendor eliminates the use of
Intermediate warehouses and hence the corresponding warehousing costs.
In some cases the transportation is done by the third party, & hence avoid maintaining redundant
during the periods of low demand.
3.2 Supply Chain Responsiveness
The growing need for a more responsive supply chain has also contributed to increased logistics costs. In many cases, the
retailers have stepped up demand for more frequent and on-time deliveries. Some end customers have even implemented
late delivery charges and other supply chain penalties for manufacturers.
In recent years, the order-to-delivery cycle has dropped drastically. The order-to-delivery cycle is defined as the elapsed
time from receipt of customer order to delivery of product to the customer’s designated location. Although the order-to-
delivery cycle is shortening and the supply chain is becoming increasingly responsive
Considering vendor to factory logistics, some possible root causes for the drop in on-time delivery include:
• Congestion at customer’s factory affecting receiving turnaround.
• Over-scheduling at receiving point on certain days due to lack of visibility on inbound loads and resulting impact
on dock operations.
• Space shortages at factory requiring use of outside warehousing
Considering the distribution of the components, the following methods they practice rate their supply chain
responsiveness at its best.
• The three level of the sorting they follow, i.e., one from the originating minor sector(die casting) to the major
Sector (collection), the next from the major sector (sorting sector) to the destined minor sector(machining vendor)
and the last at the minor sector (powder coater) based at the destination makes them to avoid the use of
warehousing and hence the related complexity.
• The collection and sorting system have been implemented, enable them to optimize the scheduling of
distribution.
In the sorting method they use only the required color &type of components meant for the destinations in the
final sort sector are transported to that sector. This reduces the effort and time in sorting and hence avoids the
redundancy.
3.3 Inventory Levels
Considering logistics scenario, the inventory location in various aspects plays an important role in determining the profits
in the balance sheets. The prime concerns in this issue include the storage of
• goods at plant warehouse
• goods at distribution center
• goods at overflow facility
Most of the companies are tackling this issue by implementing customer-focused logistics policies. They are essentially
focusing on the change of their logistics network.
The prime considerations include bigger and better shipping points for the company and making the shipments directly
from the plant. This would cut down the storage costs and the inventory holding costs drastically. They are also going for
service-to-order profiles for the transport. Custom made solutions are made, based on the customer requirements
Current strategies employed for the distribution include:
• A “centralized” distribution center location strategy, with distribution centers farther away from customers
or
• Move distribution centers closer to customers and implementing a “decentralized” strategy.
Considering the distribution strategies followed, they follow decentralized collection and distribution; and semi-
centralized sorting at pre-defined major sectors. These major sectors are selected based on the volume of the components
dealt in that particular vendor. This has helped to move the distribution centers closer to the end customers thus
improving the customer service quality as the response time is lowered. Since in the network tier 1 customers are closer
to the end consumer, even if there is a delay in the supply of the components to them, they are able to exactly identify the
time lag and adjust the final distribution process so that they can deliver the components within the appointment time.
This effect can be identified as an adaptive feedback with real time information system which the companies involved in
the logistics of components that can easily benchmark for their distribution processes.
3.4 Perfect Order Components
Perfect Order components in the distribution and logistic industry are based on the bottlenecks for the customer service
which are identified from the key indicators in the logistic industry like the Damages/returns, On-time delivery, Order
completeness, Order cycle time and the Transaction costs. These factors essentially determine the efficiency and
effectiveness of the delivery made.
In the network the Perfect Order components are identified and are incorporated into their process to meet their perfect
service requirements and demands.
• By providing the primary and secondary packaging facility; and also by the bulk transportation the risk of
damages and returns are minimized.
• Unwanted storage is avoided and hence the components are promptly delivered at their best quality to the end customer.
• The network focus on the direct delivery instead of storing at intermediate point reduces the time delays within
the distribution network.
• The customized focus of the network where the component are able to identify the originating dies and the end
customers, provide a competitive advantage in the accurate end-to-end distribution of the components.
• The low cycle time for the whole distribution for the components enables them to avoid the deterioration of the
quality of the components . The inherent knowledge of the loading patterns & systems and
transportation network help them to achieve the current 6-sigma level of service performance.
Productivity figures before model implementation.
Productivity figures after model implementation.
OPPORTUNITIES & PIFALLS
Opportunities
Opportunity 1: supply chain management design
According to this product designs should be evaluated not only on functionality and performance, but also on the resulting cost and service implications that they would have throughout the products supply chain.
Opportunity 2: Integrated Databases all through the supply chain
Effective Operational control of the supply chain requires centralized co-ordination of key data from the many entities. Key data would include order forecast, inventory status at alllocations, backlogs, production plans, supplier delivery schedules and pipeline inventory. The databases should be linked for easy retrieval of accurate information quickly from any point. Advancement in information technology has enabled the integration of databases between companies. The trend towards stronger vendor - vendee relationships certainly supports the need for database integration between different companies in an expanded supply chain.
Opportunity 3: Integrated Control and Planning Support Systems
Production planning and inventory control decisions at one site in supply chain affect decisions at other sites. The decisions taken on multiple sites should not be made independently; a system approach should be taken.
Opportunity 4: Institute Supply Chain Performance Measurement
There is a need for performance metrics, these should take the supply chain perspective and consider inventory measures across the supply chain and total response time instead of individual sites lead times. Instead of each entity being responsible for its own set of metrics, all entities should take ownership of the supply chain metrics. All the sites should be held accountable for the overall performance and customer service levels. Operations managers should measure performance regularly and frequently. Manufacturers should understand the needs of stakeholders that affect or are affected by the supply chain. This kind of understanding results in better targets and updating efficiencies, and exposing opportunities outside the supply chain.
Pitfalls
Pitfall 1: No Supply Chain Metrics
The supply chain's overall performance depends on the performance of all the vendors, and generally each vendor has its own management teams each with its own objectives and mission. The objectives of vendors may have little to do with supply chains overall objectives and worse they may conflict. The result is that vendors in order to meet their goals may result in inefficiencies in this supply chain. It is seen that many companies are facing this kind of problem, as they do not have performance measure or a metric system for the entire supply chain. Metrics of any kind then used must be for customer satisfaction.
Pitfall 2: Inadequate definition of Customer service factor
A performance of supply chain must ultimately be measured by its responsiveness to customers. There are different definitions of responsiveness. Most companies measure the average line item fill rate (percentage of item request shipped prior to customer due dates).
A customer order usually consists of multiple line items; for example, a fan dealer/branch may order base model, decorative, sub economy model in one order. As dealers /branches replenish their stock, these items therefore can be transported individually without hampering business depending upon their availability. In these cases line items fill rate is good indicator of customer service. In some other cases customers can demand a single shipment of all items, example customers who need spare parts to carry out a repair job, in these circumstances it is important to measure the till rate in terms of comp1eted orders.
Pitfall 3: Inaccurate Information and Poor Coordination
When customers/branches place orders, they want to know when their products will arrive. They may also want updated order delivery status, especially when the order is late. Proper attention should be paid to provide customers with timely and accurate updates on the status of late orders. The consequence dissatisfaction, confusion and loss of goodwill will be inevitable otherwise.
Most companies claim standard response times to customers, although these may not resemble actual response times. And most companies quote delivery dates, but too often companies cannot systematically retrieve the information they need to set the delivery date: it takes them too long to deliver the quote, let alone the product especially in non-trade business.
Companies should track deliver performance and keep customers appraised of their order status. For fulfillment of this the company requires accurate information at all the nodes.
The databases at different operating vendors that describe system environment, inventory backlog status, future production plans, and so on, are usually not linked. This sometimes happens even on a single site. Consequently, retrieving this information can be a tedious, lengthy manual process.
Delays in information retrieval and transmission make it impossible to quote accurate delivery dates to customers, as discussed in pitfall 3. They also discourage /prohibit short production planning cycles, leading to gross forecast errors and inventory and backorder accumulation. are even more difficult and tedious.
If customer orders consist of multiple items that are supplied by different divisions, and if customers demand receipt of all items at the same time, the company will use a merging center. The products will be delivered to the customers as soon as they all arrive. Obviously, tight co-ordination among the supplying divisions is important. It is useful to give the divisions a target date. Unfortunately, generating a target date can take a long time and arbitrarily generated target dates are often ignored. Lack of co-ordination results in excessive delays, and ultimately, poor customer service. At the same time inventory builds up at the merging center.
Another consequence of poor co-ordination is that some divisions habitually expedite deliveries, which is unnecessary and costly. These products sit in the warehouse for weeks until last product comes in. It is ironic when the latest division uses the slowest mode of if customer orders consist of multiple items that are supplied by different divisions, and if customers demand receipt of all items at the same time, the company will use a merging center. The products will be delivered to the customers as soon as they all arrive. Obviously, tight co-ordination among the supplying divisions is important. It is useful to give the divisions a target date. Unfortunately, generating a target date can take a long time and arbitrarily generated target dates are often ignored. Lack of co-ordination results in excessive delays, and ultimately, poor customer service At the same time inventory builds up at the merging center.
Pitfall 4: Ignoring the Impact of Uncertainties
There are many sources of uncertainties in a supply chain: supplier lead time and delivery performance, quality supplier lead time and delivery performance, quality of incoming materials, manufacturing process time (including machine downtimes, process yields, and reworks), transit times and demand. To reduce the impact of these uncertainties, supply their sources and the magnitude of their impact. More and more companies are concerned with quality control and keep good statistics on incoming material quality and imperfections in the manufacturing process. The emphasis on just in time manufacturing has led to increased monitoring of supplier delivery performance. Little is known, however, about transit times specifically the lead-time from distribution to customers. Many companies only track their delivery or delivery performance by tracing an order from placement date to delivery date.
Some companies respond well to uncertainties, but they fail to work on ways to eliminate them. A classic example is that of purchasing managers who routinely modify their inventory stocking policies for purchased parts to avoid stock outs during manufacturing but do nothing to improve their suppliers delivery performance, one of the root causes of the problem.
Pitfall 5: Simple Inventory Stocking Policies
This is a dynamic process; the uncertainties are constantly changing Some suppliers become more reliable in both delivery and quality, others become less re1iable. Demand for some items becomes predictable as products mature; demand for others becomes unpredictable. Inventory needs for some components stabilize as multiple products use common parts. Inventory stocking policies should be periodically adjusted to reflect such changes. Companies commonly use a generic stocking policy that is all. A stock keeping unit (SKUs) has three weeks of safety stocks, B SKUs have four weeks and so on. Simple analysis reveals that the company could reduce forty percent of its inventory investment while maintaining the same level of customer service just by linking stocking policies of the uncertainties that require inventory in the first place.
If customer orders consist of multiple items that are supplied by different divisions, and if customers demand receipt of all items at the same time, the company will use a merging center. The products will be delivered to the customers as soon as they all arrive. Obviously, tight co-ordination among the supplying divisions is important. It is useful to give the divisions a target date. Unfortunately, generating a target date can take a long time, and arbitrarily generated target dates are often ignored. Lack of co-ordination results in excessive delays, and ultimately, poor customer service. At the same time inventory builds up at the merging center.
Another consequence of poor co-ordination is that some divisions habitually expedite deliveries, which is unnecessary and costly. A manufacturer found that most of its divisions use air-freight to deliver their products to the merging center, each believing that it is the division holding up the order. These products sit in the merging center for weeks until last product comes in. It is ironic when the latest division uses the slowest mode of transportation.
Pitfall 6: Incomplete Delivery Methods Analysis
Changing the mode of transportation can significantly affect inventory investment and service performance. However, transportation decisions are often based on economic considerations that do not take into account these important operational factors, which leads to reducing overall costs. These savings would come from inventory reduction in the transportation pipeline and shorter delivery lead times to the distribution centers. The distribution centers would need less safety stocks to provide the same level of customer service.
Sometimes manufacturers in order to reduce transportation cost through single filled container/large trucks, had to increase their delivery lead times which demands for higher safety stock level increasing inventory holding cost which generally offsets the savings from 'economical' container deliveries.
Pitfall 7: Organizational Barriers
Usually entities of a supply chain belong to different departments within a company, each department having its own performance measures and evaluation responsibilities. Organizational Barriers that may inhibit co-ordinated inventory control to include differences in objectives and performance metrics, disagreements on inventory ownership's, and unwillingness to commit resources to help someone else.
Pitfall 8: Incomplete Supply Chain
Going beyond the internal supply chain by including external suppliers and customers often exposes new opportunities for improving internal operations. Manufacturers commonly view their immediate "Customers such as retailers or other manufacturers as the end of the supply chain. Manufacturers with the hierarchy of distribution centers concentrate on inventory cost and service only upto the major distribution centers. Manufacturers often have service targets in the form of fill rate, the fraction of customer demands met without delay, but good service to dealers does not necessarily translate into good service to customers, manufacturers who do not consider the entire supply chain will have operational inefficiencies. Using fill rates as service targets is problematic; customers have their own inventory control systems. For them, an 85%service factor, with highly variant delays for the remaining 15% would probably be worse than a 0% off the shelf fill rate with a reliable re-supply time of one week. Understandhng the dealers' inventory control systems is the only way for the manufacturer to accurately set internal service targets.
Another benefit for incorporating customer into the supply chain comes from sharing information. By knowing the customer’s inventory levels, the manufacturer can respond accordingly. Similarly customer’s who have access to the manufacturers' inventory status can respond to market changes more promptly.
Customer’s inventory control system determines to a large extent, their re-order patterns, i.e. frequency, size and composition. Hence, understanding their inventory control system would also improve the distribution networks ability to forecast demand.
Conclusions
In this paper the understanding of the extensive supply chain framework has been increased by applying the framework in
a case environment.
The critical points considered for this case are Chain of Business Processes: customer relationship management,
Customer Service Management, Demand Management, Order Fulfillment, Procurement and Returns.
These points have been analyzed by studying the service network of the carriers of bethora whose salient features include
Transportation Strategy, inventory Strategy and Location Strategy.
Following the framework analysis a benchmarking study was done on the logistics of vendor-factory to identify critical
areas the where improvements could be made. The benchmarking study focused on parameters like logistics costs,
responsiveness of the Supply Chain, Inventory Levels, Perfect Order components of the logistics network. The
Benchmarking study has provided us with information on the critical aspects of a logistics network of a company. The
study has highlighted the significance of an efficient logistic network on the operational and strategic frontiers of an
organization.
To increase the usefulness of this framework for both academic and managerial purposes further development may
be needed as per the supply chain.
Organizations are undergoing a change and the performance measures of achieving goals objectives are rapidly becoming
things of the past, there is only on criteria today that is ‘Customer Satisfaction' this has created an atmosphere where,
organizations are not competing with one another but the competition is between the supply chains.
We have seen that supply chains are very complex and many companies are vulnerable to the pitfalls described above. By
listing out these, I hope that more supply chain managers will be able to avoid them and will make use of the abundant
opportunities that are open to them.
