Supply Chain

SUPPLY CHAIN MANAGEMENT

ACKNOWLEDGEMENT It is a great pleasure in presenting this project as a part of our curriculum. We would like to thank people who helped us making our project a success. First of all we would like to thank Prof. Vinay for giving us an opportunity to work on this project and for his immense help and coordination, who gave us encouragement and guidance during our project period. We would also like to thank our institution (BMA) for giving us an opportunity to work on this project.

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Introduction: Until the dawn of 20th century business as well as distribution channel used the traditional delivery process for the experience and expertise dating back to the industrial revolution era. But the introduction of information technology brought up a new dimension to the whole delivery process. Information technology has given business connectivity a new way of order relationship called Supply Chain Management. Supply Chain Management is a process where in firms collaborates with each other in the bid of leveraging their strategic positioning and to increase their operating efficiency (Bowersox, Closs, 2008). Marketing, distributing, Planning, manufacturing and purchasing was considered independently as not a part of supply chain during the outset of industrial revolution. Each of the processes had their own set of goals and objectives and they operated independently. Marketing considered high customer service and maximization of profitable sale as their objective; Manufacturing had higher and efficient output at the lower costs as their objective etc. Thus there was a need of mechanism wherein all independent functions could be integrated together (Ganeshan, Harrison, 1995). Supply chain management can be viewed as a decision making process between strategy and operation. It’s also seen as a mechanism that lies in-between this completely vertically integrated individual firms where the whole operation takes place with the mix of coordination and effective management. Thus supply chain is like a relay team within each team is more competitive and there needs to coordinate between the entire team for achieving results. . SAURABH SANJID

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Executive summary: The competitive and global nature of today’s business environment dictates that this direction and transformation takes place in a way that is efficient and effective as possible. Continuing emphases on time, cost and quality improvements have sharpened the need to coordinate and cooperate with trading partners around the world to achieve results that allow customers to be successful. Thus Supply chain management focuses on the integration of activities across several companies to manage the flow of products, services, people, equipment, facilities and other resources. The report covers the literature behind Supply chain and Supply chain management. The various objectives and analysis of Supply chain management are covered in the report. There are many elements which form a backbone of Supply chain management. Efforts are been made to explore these dimensions with the help of retail giant “Wal-mart”. The report also covers the evolution of Wal-mart with Supply chain management technology at its behest. Efforts are been made to understand different processes that Wal-mart uses in its Supply chain management.

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Literature Review: The movement of a product or a service from supplier to customer takes place with the help of organizations, people, technology and resources. According to Terry.Harrison “a supply chain is a network of facilities and distribution options that perform the functions of procurement of materials, transformation of materials into intermediate and finished products and the distribution of the finished products to customers”. Supply chain finds its place in both services as well and manufacturing industry. Supply chain can also be explained as the association of the retailers, distributors, transporters and suppliers who come together and share the process of sale, delivery and production of a particular product or service. Supply chain management is an efficient way of managing the above mentioned activities. According to Jessie Chinami Supply chain management can be defined as “an oversight of materials, information and finances as they move in a process from supplier to manufacturer to wholesaler to retailer and finally to the consumer”. The basic aim of supply chain management is coordinating and integrating the flow which takes place within and among companies. The basic three types of supply chain management flows are: ➢ The product flow ➢ The information flow ➢ The finances flow The product flow deals with the goods and services that are subjected to movement from a supplier to a customer and vice-versa. The information flow manages the upgrading as well as

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management relating to the status of the delivery process while the financial flow manages all the finances related to the delivery process.

A schematic diagram of the Supply chain management process is as shown. The various processes in Supply chain management are: ➢ Supply chain strategy ➢ Logistics ➢ Product lifecycle management ➢ Procurement ➢ Asset management ➢ Enterprise applications ➢ Supply chain planning

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The decisions associated with supply chain management cover both the long-term and shortterm. Strategic decisions deal with corporate policies, and look at overall design and supply chain structure. Operational decisions are those dealing with every day activities and problems of an organization. These decisions must take into account the strategic decisions already in place. Therefore, an organization must structure the supply chain through long-term analysis and at the same time focus on the day-to-day activities. Furthermore, market demands, customer service, transport considerations, and pricing constraints all must be understood in order to structure the supply chain effectively. These are all factors, which change constantly and sometimes unexpectedly, and an organization must realize this fact and be prepared to structure the supply chain accordingly. Structuring the supply chain requires an understanding of the demand patterns, service level requirements, distance considerations, cost elements and other related factors. It is easy to see that these factors are highly variable in nature and this variability needs to be considered during the supply chain analysis process. Moreover, the interplay of these complex considerations could have a significant bearing on the outcome of the supply chain analysis process. There are six key elements to a supply chain: ➢ Production ➢ Supply ➢ Inventory ➢ Location ➢ Transportation, and ➢ Information SAURABH SANJID

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The following describes each of the elements: 1. Production Strategic decisions regarding production focus on what customers want and the market demands. This first stage in developing supply chain agility takes into consideration what and how many products to produce, and what, if any, parts or components should be produced at which plants or outsourced to capable suppliers. These strategic decisions regarding production must also focus on capacity, quality and volume of goods, keeping in mind that customer demand and satisfaction must be met. Operational decisions, on the other hand, focus on scheduling workloads, maintenance of equipment and meeting immediate client/market demands. Quality control and workload balancing are issues which need to be considered when making these decisions.

2. Supply Next, an organization must determine what their facility or facilities are able to produce, both economically and efficiently, while keeping the quality high. But most companies cannot provide excellent performance with the manufacture of all components. Outsourcing is an excellent alternative to be considered for those products and components that cannot be produced effectively by an organization’s facilities. Companies must carefully select suppliers for raw materials. When choosing a supplier, focus should be on developing velocity, quality and flexibility while at the same time reducing costs or maintaining low cost levels. In short, strategic SAURABH SANJID

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decisions should be made to determine the core capabilities of a facility and outsourcing partnerships should grow from these decisions. 3. Inventory Further strategic decisions focus on inventory and how much product should be in-house. A delicate balance exists between too much inventory, which can cost anywhere between 20 and 40 percent of their value, and not enough inventory to meet market demands. This is a critical issue in effective supply chain management. Operational inventory decisions revolved around optimal levels of stock at each location to ensure customer satisfaction as the market demands fluctuate. Control policies must be looked at to determine correct levels of supplies at order and reorder points. These levels are critical to the day to day operation of organizations and to keep customer satisfaction levels high. 4. Location Location decisions depend on market demands and determination of customer satisfaction. Strategic decisions must focus on the placement of production plants, distribution and stocking facilities, and placing them in prime locations to the market served. Once customer markets are determined, long-term commitment must be made to locate production and stocking facilities as close to the consumer as is practical. In industries where components are lightweight and market driven, facilities should be located close to the end-user. In heavier industries, careful consideration must be made to determine where plants should be located so as to be close to the raw material source. Decisions concerning location should also take into consideration tax and tariff issues, especially in inter-state and worldwide distribution.

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5. Transportation Strategic transportation decisions are closely related to inventory decisions as well as meeting customer demands. Using air transport obviously gets the product out quicker and to the customer expediently, but the costs are high as opposed to shipping by boat or rail. Using sea or rail often time’s means having higher levels of inventory in-house to meet quick demands by the customer. It is wise to keep in mind that since 30% of the cost of a product is encompassed by transportation, using the correct transport mode is a critical strategic decision. Above all, customer service levels must be met, and this often times determines the mode of transport used. Often times this may be an operational decision, but strategically, an organization must have transport modes in place to ensure a smooth distribution of goods. 6. Information Effective supply chain management requires obtaining information from the point of end-use, and linking information resources throughout the chain for speed of exchange. Overwhelming paper flow and disparate computer systems are unacceptable in today's competitive world. Fostering innovation requires good organization of information. Linking computers through networks and the internet, and streamlining the information flow, consolidates knowledge and facilitates velocity of products. Account management software, product configurations, enterprise resource planning systems, and global communications are key components of effective supply chain management strategy. Supply chain’s continuous endeavor would be to match supply and demand. In this process to capitalize on efficiency execution of any strategy in supply chain would be vital. Minor deviation could lead to costly repercussions (Richmond, 0000). SAURABH SANJID

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The world’s largest retailer Wal-Mart was founded by Sam Walton in the year 1962. He opened his first store in Rogers, Ark. On 31st October 1969, the company was incorporated as Wal-Mart Stores. Key success factor was the guidance of Sam. Presently they are operating in fifteen countries with more than 8,000 stores with 2.1 million employees(, 2009). Major features of Wal-Mart stores are its store area, cleanliness and its shelves which is filled with varieties of quality items that includes health care products, family apparels, electronic items, automotive products, hardware items, jewelry etc. Wal-Mart is giving more emphasis for customer needs and tried to reduce cost through the effective usage of supply chain management system. In the year 2009, Fortune Magazine ranked Wal-Mart as first among other retailers in its survey. Sales were about 401 billion U.S dollars in the FY 2009. Sam Walton claims that Wal-Mart’s vision had always been to increase sales through lowering the costs through organized distribution system with the help of the Information Technology. It is said that Wal-Mart’s extreme success could be attributed to its effective supply chain management (Chandran, 2003). Wal-Mart’s efficiency in supply chain management was due to two key factors namely automated distribution centre and the computerized inventory system. This brought in minimizing a lot of time the later not only reduced the checking out time but also recorded the transaction which is much needed to know envisage demand. Demand forecast is a constant issue which could be a threat when not handled properly. This is due to the fact that demand prediction is always inaccurate. Aggregation would be a remedy for this unpredictable demand. Inventory management is one of the important things that have gained importance these days.

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Wal-Mart’s focus has always been to sell goods at a lower price to the customers. They ensured direct purchase form the companies bypassing the intermediaries. This by passing is one of the ways to reduce cost. Wal-Mart preferred small vendors to the big players however the vendor who provides the best price qualifies and gets the deal. This applies to the giants like P& G as well. Their practice these days had been choosing few vendors and they literally negotiate the best price the one that comes up with the best price qualifies. This does not blindly mean that they have been ruthless. Wal-Mart also work with the vendors for improving its supply chain efficiency. Wal-Mart with its power distribution system made quite innovative changes like reducing paper work, reduced its lead time drastically, used bar codes to bill which recorded inventory levels and the access to the stock levels served as the valuable data for management. The movements of products are systematic and strategically aliened in a way that it reduces the most valuable time and cost and results in efficiency. Wal-Mart had a very effective rather responsive and flexible distribution system to transport goods from docks to stores. It educated the drives with the ethics and code of conduct which pictures their supply chain responsibility. Cross docking is one lethal weapon that was used by Wal-Mart in their SCM. Cross Docking: Cross Docking is a method of handling goods. This happens when vendor and the company work together. This is the method of supplying the product in the right time and the said quantity. This cut down a lot of time. This also changed Wal-Mart’s way of looking things. This transitioned Wal-Mart from being a centralized management to almost decentralized system took a major turn in focus of pull strategy than a pull strategy. Cross-docking is one of the techniques used by SAURABH SANJID

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Wal-Mart. It means there is no unnecessary storage or little storage in between the loading and unloading of goods so that customer can enjoy the quality of the goods by first hand. Wal-Mart have logistics infrastructure which is very fast transportation system wherein the distribution centers are being serviced. Wal-Mart assured that their drivers are capable of doing their jobs accordingly and do not cause unnecessary delays that can hamper the efficiency of the distribution operations. To deliver it on time, the coordinators give information to the driver the expected time of arrival or delivery of the goods. Point Of Sale: Information sharing is one of the most important things when it comes to SCM. P&G with its Pampers requested Wal-Mart to share its point of sale so that it could predict its demand more or less and work on the information to bring in efficiency. When Wal-Mart shared this information P&G could plan in advance and it with its efficient supply chain management could supply pampers to Wal-Mart on time. Wal-Mart did not want to dedicate lot of space to pamper in its warehouse of shop store either. Instead the supply was taken care by P& G. This led the initiation of working with the vendors and coming out with huge efficiency by maintaining lower inventory and satisfying demand without stock outs. Thus point of sale sharing would be a key element for any company for its further scope of improvement and also when there is further scope of improvement there is a role for Supply chain management.

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Information Technology and Wal-Mart: As the goods flow from the company to the customers, information flows from customers to the company. This is a very valuable source for SCM. Wal-Mart recognized this and invested heavily in Information Technology. In 1983 Wal-Mart set up its own Satellite Communication System. This helped them manage a lot of things better with the information that they received. This helped to manage inventory, study the demand and also networked suppliers through computers. Retail link has emerged into an internet based Supply chain management system by 1990’s. Supply chain management that had evolved was expected to cover Collaborative planning, Forecasting and replacement (CPFR). CPFR was considered insufficient and discarded at its outset. But Wal-Mart worked closely with its key suppliers and retail chains to start a internet based system to determine a product-wise demand system. The only stumble block WalMart had was the initial investment and time constraints. Wal-Mart differed from its competitor giants by their avid use of technological advancements in a bid to improve their Supply chain management. By 2002 Wal-Mart introduced Web based EDI where all the transactions between business partners were routed through the internet. Web based EDI that Wal-mart implemented was also security free. In July 2003 Wal-Mart started using RFID (Radio frequency Identification). This introduction meant a shift from tried and tested bar code technology with RFID technology. Use of RFID has avoided the physical scanning of the bar codes thus signifying the technology advances of Supply chain management.

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Key discussion and analysis: Supply chain management is now an imperative part of any organizations strategic plans. Supply chain management’s ability to adapt quickly to customers demands, uncertainty in demands, and globalization in market place, creating longer supply chains and shorter product life cycle & advanced technology has created a pool for its success apart from providing a dimension for long term-relationships. Supply chain management though a new introduction in business is fast catching up with the evolution of material management and purchasing. Companies have also overlooked their strategic role which revolved around raw material and finished goods inventory to working in tandem with suppliers and customers. Better and efficient technological advancements have reduced the gap between suppliers and customers despite their existence in the global market. (Ryerson, 2007) Supply chain management is designed to improve customer service, balance costs and service, uniform costing and provide a competitive advantage to organizations in supply chain. Suppliers expect manufacturers to obligate themselves to purchase large quantities so as to imprint long production runs and lower production runs and lower production costs. On the other hand if customer demand is fewer manufacturers restores to inventory. Supply chain management brings on integration between different blocks of process and is displayed as one whole lot. (Guyer, 2001) The last 20 years have seen considerable improvements in the accounting of Supply chain management. Wal-Mart as discussed in the literature review reflects how Supply chain management has catapulted them to the top. Wal-Mart’s key to success is its legendary use of

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Supply chain management with technology apart from traditional elements like Inventory, Logistics management etc. The benefits reaped by Wal-Mart through Supply chain management are: ➢ Strengthened relationship with the customers, vendors and employees ➢ Each and every small opportunity was sensed in pursuit of bringing a efficient SCM ➢ Helped to capitalize on cost cutting resulting in efficiency ➢ Saving on cost was passed on to customers that added value ➢ Saved a huge amount in transportation cost ➢ Provided higher discounts to customer ➢ Resulted in higher sales volume and revenues ➢ Arriving at a rational and Supply chain management Apart from this Wal-Mart’s ability to order inventory on demand enabled them to meet customer demand. Wal-Mart observed that today’s fads and fashions were the obsolete inventories for days to come. Thus Wal-Mart’s SCM not only increased efficiency but also increased customer service that resulted in customer satisfaction. This brought in reducing stocks and increased its responsiveness in distribution through the bar codes and radio frequency technologies. It cut cost by cross docking which resulted in decreasing space in warehouses and manual labor cost to a huge extent.(Guyer, 2001)

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Conclusion: Supply chain management is here to stay and we are at the beginning of the spectrum. We still have a long way to go and miles to conquer before the entire industry, all players and all participants become supply chain enabled and get necessary tools to make informed decisions. Companies have a lot to gain from Supply chain management implementations. Individual companies will definitely gain tremendously but the benefits will move beyond the four walls of the company and everybody will gain. This will obviously have direct repercussions on the organization and thus add to their locked-in working capital. Supply chain management principles primarily focus on three things. Its tells that the company can compress its lead times and raise quality and accuracy at every stage, service will improve thus getting rid of costs out of business. Secondly organizations should take a process view rather than a functional view of the operation Third working across functional boundaries to integrate business processes in the future. Thus change in the supply chain can be focused on improving the characteristics of supply in the context of the goals that have been set for changing the service objectives.

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Bibliography Guyer, P. (2001). The future of supply chain management. Logic tools . Ryerson. (2007). Fundamentals of supply chain management. Mc-graw - Hill pvt Ltd. Walmart. (2009). Retrieved August 1, 2009, from Wal-Mart Stores Inc. - About Us.: http://walmartstores.com/AboutUs/ ➢ David Bowersox , David Gloss (2008). Supply chain management Mcgraw-hill ➢ Ram Ganeshan, Terry P. Harison (1995) Introduction to supply chain management ➢ Sussan Happek (2005) Supply chain strategy, The importance of aligning your strategy

➢ Ortmeyer, K.Gwendolyn, and Lattin M.James,”A Theoretical Rational for Every Day Low Pricing by by grocery retailers,” Stanford graduation school of business, 1991. ➢ ”Distribution and retailing in china-revolution and competition”, ww.albert.org.nov 12, 1996. ➢ Rowatt,chriatinem,”cross docking: the move from supply to demand”, www.dmg.co.uk,august 1998. ➢ Hulet.d.william,”global warming and wal-mart, why global warming is a municipal government conbcern”, www.elements.nb.ca,sep 1998.

➢ Cross docking delivers for retail”, www.spscommerce.com,1999. ➢ ”cross docking and cross docking network design”,www.tli.isye.gatech.edu,1998-1999. SAURABH SANJID

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➢ Harrington liisa,”digital age warehousing,”penton media, www.industryweek.com,july,1999. ➢ ”Distribution strategies, supply chain analysis at Volkswagen of America,”www.eng.auburn.edu, 2000. ➢ O’brien, p.kevin,”value chin report-warehouse management system add value,”www.industryweek.com, www.iwvaluechain.com,feb 10, 2000. ➢ Weiscott, n.mania,”warehouse evolution: high tech developers get industry cooking”, plants, sites and parks magazine,www.bizsitess.com,feb/march,2000. ➢ Colosina, Robert and medwyk, Nicholas,”wholesale distribution, managing complex supply chain requirements in the foodservice industry,”wholesaledistribution.services.ibm.com, april21, 2001. ➢ Daudelin, alexandre,”supply chain management the wal-mart way”, supply chain and logistics journal, www.infochain.org.april21,2001. ➢ ”Wal-mart.com: the physical giant goes virtual,” red herring magazine, www.redherring.com,may 7, 2001 ➢ Hutten, staffen and Nyberg, anna,”voluntary retail chains and the threats and opportunities of European integration,”www.snee.org, May 15, 2001. ➢ ”It’s not only the retail side, wal-mart distribution”, www.wal-martwatch.com,jan 6, 2002. ➢ ”Stauffer V wal-mart stores, Inc., wwww.oalj.gov, June 14, 2002. ○

Coyle, j.john, bardi, j.eddward, Langley, c.john,”the management of business logistics: A supply chain prospective,”www.house.gov, June 25, 2002.

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○ ”Thrify wal-mart partners for flat rate rental plan,” auto rental news, www.autorentalnews.com,july 29, 2002. ○

“Trans-loading, cross docking,”www.commoditylogistics.com, October 23, 2002.

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