SCM

Role of Intermediaries
• Greater efficiency in making goods available
to target markets.
• Intermediaries provide
– Contacts
– Experience
– Specialization
– Scale of operation
• Match supply and demand.

Functions of a Distribution Channel
• Information:Gathering and distributing market research and
intelligence - important for marketing planning
• PromotionDeveloping and spreading communications about offers
• ContactFinding and communicating with prospective buyers
• MatchingAdjusting the offer to fit a buyer's needs, including
grading, assembling and packaging
• NegotiationReaching agreement on price and other terms of the
offer
• Physical distributionTransporting and storing goods
• FinancingAcquiring and using funds to cover the costs of the
distribution channel
• Risk takingAssuming some commercial risks by operating the
channel (e.g. holding stock)
(ISPE CHUNA MANA PFIR)

Meaning:
Supply chain:
Network of organizations and business process for procuring
materials, transforming raw materials into the finished products and
distributing the finished products to the customers.
Supply chain management :
Integration of suppliers , distributors and customer logistics into
one cohesive process.
Supply chain management process:
information system that automate the flow information between a
firm and its suppliers in order to optimize the planning , sourcing ,
manufacturing and delivering of products and services.

INTRODUCTION
• Supply Chain Management (SCM), the management of
the flow of goods and services, involves the movement
and storage of raw materials, of work-in-process
inventory, and of finished goods from point of origin to
point of consumption.
• Supply Chain Management flows can be divided into
three main flows:
Product
Flow
FinanceFlow
Information
Flow

Supplier
Management
Schedule /
Resources
Conversion
Stock
Deployment Delivery
Customer
Management
Leads to Business Process Integration
Material Flow Flow
Information Flow
It is the strategic management of activities involved in the
acquisition & conversion of materials to finished products
delivered to customer

SUPPLY CHAIN DRIVERS
• Why sudden interest?
– Demanding customers
– Shrinking product life cycles
– Growing retailer power in some cases
– Emergence of specialized logistics providers
– Globalization
– Information technology

SCM objectives: SCM outcomes:
What?
Establish policies , objectives and
operating footprints.
How much?
Deploy resources to match supply
with demand .
When ? Where?
Schedule , monitor , control
and adjust production.
Do:
Build and transport.
Objectives.
Supply policies(service levels).
Network design.
Demand forecast
Production ,procurement &logistic plan
Inventory target.
Work center scheduling
Order/inventory tracking
Order cycle
Material movement.
Strategic
Tactical
Operational
Execution

upstream
downstream
eg. of supply chain.
supplier
supplier
supplier
supplier
supplier
supplier
manufacturer distributer retailer customer

Supply Chain Management - Introduction
• Supply chains and vertical integration
– For any organization vertical integration involves either taking on more
of the supplier activities (backward) and/or taking on more of the
distribution activities (forward)
– Eg. backward vertical integration would be a ricebran oil
manufacturer decides to start rice milling rather than buying rice bran
from a rice mills / supplier
– Eg. forward vertical integration would be a rice bran oil manufacturer
decides to start marketing their rice bran oil directly to market /
stockists.
– In supply chains, some of the supplying and some of the distribution
might be performed by the manufacturer.
E.g: Tasty Treat/ Karmiq/Premia / Select
Eg. Raymonds getting into garments / Tea Estates getting into tea selling
Could be Honda getting into scooter tyre mfg, Kilosksrs getting into
refrigerators / Yarn manufacturing getting into Fabric & garment unit

Supply Chain Elements
Strategic
Tactical
Operational
Production /Distribution planning
Resource Allocation
Medium Term Planning(Qtrly/Monthly)
•Supply Chain Design
• Resource Acquisition Long Term
•Long Planning (Yrly/ Qtrly)
•Shipment Scheduling
•Resource Scheduling
•Short term Planning ( weekly/Daily)

Supply Chain Management - Introduction
• Strategic, tactical and operating issues
– Strategic - long term and dealing with supply chain design
• Determining the number, location and capacity of facilities
• Make or buy decisions
• Forming strategic alliances
– Tactical - intermediate term
• Determining inventory levels
• Quality-related decisions
• Logistics decisions
– Operating - near term
• Production planning and control decisions
• Goods and service delivery scheduling
• Some make or buy decisions

Supply Chain Management - Benefits
• Key issues in supply chain management include
– Distribution network configuration
• How many warehouses do we need?
• Where should these warehouses be located?
• What should the production levels be at each of plants?
• What should the transportation flows be between plants and
warehouses?
– Inventory control
• Why are we holding inventory? Uncertainty in customer demand?
Uncertainty in the supply process? Some other reason?
• If the problem is uncertainty, how can we reduce it?
• How good is our forecasting method?

– Distribution strategies
• Direct shipping to customers?
• Classical distribution in which inventory is held in warehouses and then
shipped as needed?
• Cross-docking in which transshipment points are used to take stock from
suppliers’ deliveries and immediately distribute to point of usage?
– Supply chain integration and strategic partnering
• Should information be shared with supply chain partners?
• What information should be shared?
• With what partners should information be shared?
• What are the benefits to be gained?

– Product design
• Should products be redesigned to reduce logistics costs?
• Should products be redesigned to reduce lead times?
• Would delayed differentiation be helpful?
– Information technology and decision-support systems
• What data should be shared (transferred)
• How should the data be analyzed and used?
• What infrastructure is needed between supply chain members?
• Should e-commerce play a role?
– Customer value
• How is customer value created by the supply chain?
• What determines customer value? How do we measure it?
• How is information technology used to enhance customer value in the
supply chain?

What is the value chain?
 Porter’s definition includes all activities to
design, produce, market, deliver, and support the
product/service.
 The value chain is concentrating on the activities
starting with raw materials till the conversion into
final goods or services.
 Two categories:
Primary Activities (operations, distribution, sales)
Support Activities (R&D, Human Resources)

TYPES OF VALUE CHAIN:
• Value Chain is categorized into types based on
the type of organizations.
• Manufacturing based.
• Service based.
• Both manufacturing and service based.

VALUE CHAIN SYSTEM
 the series of activities and process as well as the
supply of raw materials or needed inputs involved in
producing a product or delivering a service.
Backward
channel Forward channel
Business
Organization
Rawmaterials
Supply Chain Distribution chain
C
U
S
T
O
M
E
R
S
Value chain system

What is value chain Analysis?
• Used to identify sources of competitive advantage
• Specifically:
– Opportunities to secure cost advantages
– Opportunities to create product/service
differentiation
• Includes the value-creating activities of all industry
participants
Eg.a) 5 ltr pouch/jar b)Handwash bottle to pouch c)
Beverages
Eg.a) ID fresh b) Indulekha c)Emirates

Porter’sValueChain Model
• Introduced by Michael E. Porter in his influential book
“Competitive Advantage” in 1985.
• Can be used by companies to examine all of their activities
in the process of converting inputs to outputs.
• How value chain activities are carried out determines costs
and affects profits.
• The value that's created and captured by a company is
the profit margin (Value Created and Captured – Cost
of Creating thatValue = Margin).
• The activities conducted can be divided into primary
activities and support activities.

TYPES OF FIRM ACTIVITIES
• Primary activities:
• Those that are involved in the
creation, sale and transfer of
products (including after-sales
service)
 Inbound logistics
 Operations
 Outbound logistics
 Sales and marketing
 Service and support
• Support Activities:
Those that merely support the
primary activities
 Human resources
(general and admin.)
 Tech. development
 Procurement

Value Chain Model
from Michael E. Porter’s Competitive Advantage
Firm Infrastructure (General Management)
Human Resource Management
Technology Development
Procurement
Inbound
Logistics
Operation Outbound
s Logistics
Sales & Service and
Marketing Support
PRIMARY ACTIVITIES
SUPPORT
ACTIVITIES

PRIMARY ACTIVITIES
1.INBOUND LOGISTICS
- CONCERNED WITH RECEIVING, STORING, DISTRIBUTING INPUTS (e.g.
HANDLING OF RAW MATERIALS, WAREHOUSING, INVENTORY
CONTROL)
2. OPERATIONS
- COMPRISE THE TRANSFORMATION OF THE INPUTS INTO THE FINAL
PRODUCT FORM (E.G. PRODUCTION, ASSEMBLY, AND PACKAGING)
3. OUTBOUND LOGISTICS
-INVOLVE THE COLLECTING, STORING, AND DISTRIBUTING THE PRODUCT
TO THE BUYERS (e.g. PROCESSING OF ORDERS, WAREHOUSING OF
FINISHED GOODS, AND DELIVERY)
Involve the purchase of materials, the processing of
materials into products, and delivery of products to
customers.

PRIMARY ACTIVITIES
4. MARKETING AND SALES
-Identification of customer needs and generation of sales.
(e.g. ADVERTISING, PROMOTION, DISTRIBUTION)
5. SERVICE
-INVOLVES HOW TO MAINTAIN THE VALUE OF THE PRODUCT
AFTER IT IS PURCHASED.(e.g. INSTALLATION, REPAIR,
MAINTENANCE, AND TRAINING)

Value Chain Model
from Michael E. Porter’s Competitive Advantage
Firm Infrastructure (General Management)
Human Resource Management
Technology Development
Procurem ent
Inbound
Logistics
Ops. Outbound
Logistics
Sales &
Marketing
Service and
Support
PRIMARY ACTIVITIES
SUPPORT
ACTIVITIES

SUPPORT ACTIVITIES
1.FIRM INFRASTRUCTURE
The activities such as Organization structure, control system, company
culture are categorized under firm infrastructure.
2.HUMAN RESOURCE MANAGEMENT
Involved in recruiting, hiring, training, development and compensation.
3.TECHNOLOGY DEVELOPMENT
These activities are intended to improve the product and the process, can
occur in many parts of the firm.
4.PROCUREMENT
Concerned with the tasks of purchasing inputs such as raw
materials, equipment, and even labor.
Support primary activities & can play a role in each primary activity.
It may also support each other within support activities.
Those that merely support the primary activities

USES OF VALUE CHAIN ANALYSIS:
• The sources of the competitive advantage of a firm can be
seen from its discrete activities and how they interact with
one another.
• The value chain is a tool for systematically examining the
activities of a firm and how they interact with one another
and affect each other’s cost and performance.
• A firm gains a competitive advantage by performing these
activities better or at lower cost than competitors.
• Helps you to stay out of the “No Profit Zone”
• Presents opportunities for integration
• Aligns spending with value processes

IMPORTANCE OF VALUE CHAIN
Backward channel
 Composed of the companies or organization providing
raw materials or other forms of inputs for the company
to undertake its value creation process.
 Suppliers of the business concern
Forward channel
 Distribution side of the business or parties involved
beyond the production and storage line.
 This group includes organizations acting as distributors,
dealers, agents, indentors, importers, transport/delivery
firms and other organizations closing in to the ultimate
users

VALUE CHAIN IN THE E-COMMERCE ERA
 Allows the so called seamless chain scenario or
one that electronically connects various
organization either in the supply or distribution
chain side thereby ensuring timely information
sharing and efficient logistical operations both at
the supply and distribution aspects of the business.
 Expediency and efficiency both in the backward
and forward channel of the business

CUSTOMER-ORIENTED VALUE CHAIN
 It takes the form of a circular model to emphasize
the philosophy that the customer – and not the
business organization itself- is the focus to which all
the other activities are directed to.
 Central to this kind of value chain model is that
there exists an information system directly
connecting the various functional unit thereby
allowing a scheme somehow assuring that
customer’s needs and wants are addressed by all
functional units and in a way, competitiveness is
assured.

Supply Chain Management
• How can you assess how well your supply chain is
performing?
– The SCOR model - Supply Chain Operations Reference Model - can be
used to assess performance
– SCOR model metrics include:
• On-time delivery performance
• Lead time for order fulfillment
• Fill rate - proportion of demand met from on-hand inventory
• Supply chain management cost
• Warranty cost as a percentage of revenue
• Total inventory days of supply
• Net asset turns

SCM - Inventory Management Issues
• Manufacturers would like to produce in large lot sizes
because it is more cost effective to do so. The problem,
however, is that producing in large lots does not allow for
flexibility in terms of product mix.
• Retailers find benefits in ordering large lots such as quantity
discounts and more than enough safety stock.
• The downside is that ordering/producing large lots can result
in large inventories of products that are currently not in
demand while being out of stock for items that are in
demand.

• Ordering/producing in large lots can also increase the safety
stock of suppliers and its corresponding carrying cost. It can
also create what’s called the bullwhip effect.
• The bullwhip effect is the phenomenon of orders and
inventories getting progressively larger (more variable)
moving backwards through the supply chain.

10-35
Bullwhip Effect
Occurs when slight demand variability is magnified as information moves
back upstream

The Bullwhip Phenomenon
• Volatility amplification along the network
• Increase in demand variability as we move upstream
away from the market
• Mainly because of lack of communication and
coordination
• Delays in information and material flows
Bullwhip effect occurs because of various reasons:
• Order Batching - Accumulate orders
• Shortage gaming- Ask for more than what is needed
• Demand forecast updating

• Some of the causes of variability that leads to the bullwhip
effect includes:
– Demand forecasting Many firms use the min-max inventory policy.
This means that when the inventory level falls to the reorder point
(min) an order is placed to bring the level back to the max , or the
order-up-to-level. As more data are observed, estimates of the mean
and standard deviation of customer demand are updated. This leads
to changes in the safety stock and order-up-to level, and hence, the
order quantity. This leads to variability.
– Lead time As lead time increases, safety stocks are increased, and
order quantities are increased. More variability.

– Batch ordering. Many firms use batch ordering such as with a min-
max inventory policy. Their suppliers then see a large order followed
by periods of no orders followed by another large order. This pattern
is repeated such that suppliers see a highly variable pattern of orders.
– Price fluctuation. If prices to retailers fluctuate, then they may try to
stock up when prices are lower, again leading to variability.
– Inflated orders. When retailers expect that a product will be in short
supply, they will tend to inflate orders to insure that they will have
ample supply to meet customer demand. When the shortage period
comes to an end, the retailer goes back to the smaller orders, thus
causing more variability.

• Techniques for improving inventory management include:
– Cross-docking. This involves unloading goods arriving from a supplier
and immediately loading these goods onto outbound trucks bound for
various retailer locations. This eliminates storage at the retailer’s
inbound warehouse, cuts the lead time, and has been used very
successfully by WalMart and among others.
– Delayed differentiation. This involves adding differentiating features
to standard products late in the process. For Eg. Pringle decided to
make all of their wool sweaters in undyed yarn and then dye the
sweaters when they had more accurate demand data.
– Direct shipping. This allows a firm to ship directly to customers rather
than through retailers. This approach eliminates steps in the supply
chain and reduces lead time. Reducing one or more steps in the
supply chain is known as disintermediation. Companies such as
Zodiac , Cipla use this approach.

SCM - Strategic Partnering
• Strategic partnering (SP) is when two or more firms that have
complementary products or services join such that each may
realize a strategic benefit. Types of strategic partnering
include:
– Quick response,
– Continuous replenishment,
– Advanced continuous replenishment, and
– Vendor managed inventory (VMI)
Eg. Hero :HUL-Glaxo , Indian Post-Kotak Mahindra /Tata: Jaguar/
Maruti-Suzuki/Bajaj:Kawasaki

• Requirements for an effective SP include:
– Advanced information systems,
– Top management commitment, and
– Mutual trust
• Steps in SP implementation include:
– Contractual negotiations
• Ownership
• Credit terms
• Ordering decisions
• Performance measures
• Third party logistics (3PL) involves the use of an outside
company to perform part or all of a firm’s materials
management and product distribution function.
– Eg. Mcdonalds.

• Advantages of SP include:
– Fully utilize system knowledge
– Decrease required inventory levels
– Improve service levels
– Decrease work duplication
– Improve forecasts
• Disadvantages of SP include:
– Expensive technology is required
– Must develop supplier/retailer trust
– Supplier responsibility increases
– Expenses at the supplier also often increase

Measuring Supply Chain Performance
• Key performance indicators
– inventory turnover
• cost of annual sales per inventory unit
– inventory days of supply
• total value of all items being held in inventory
– fulfillment rate
• fraction of orders filled by a distribution center within a
specific time period

Measures of Supply Chain
Performance
• Process Control
– used to monitor and control any process in supply
chain
• Supply Chain Operations Reference (SCOR)
– establish targets to achieve “best in class”
performance

SCOR Model Processes
Plan
Develop a course
of action that best
meets sourcing,
production and
delivery
requirements
Source
Procure goods
and services to
meet planned
or actual
demand
Make
Transform
product to
finished state to
meet planned
or actual
demand
Deliver
Provide products
to meet demand,
including order
management,
transportation
and distribution
Return
Return
products,
post-delivery
customer
support

Number of days to achieve an unplanned
20% change in orders without a cost
penalty
Production
flexibility
Number of days for supply chain to
respond to an unplanned significant change
in demand without a cost penalty
Supply chain
response time
Supply Chain
Flexibility
Number of days from order receipt to
customer delivery
Order fulfillment
lead time
Supply Chain
Responsiveness
Percentage of orders delivered on time and
in full, perfectly matched with order with no
errors
Perfect order
fulfillment
Percentage of orders shipped within24
hours of order receipt
Fulill rate
Percentage of orders delivered on time and
in full to the customer
Delivery
performance
Supply Chain
Delivery
Reliability
DefinitionPerformance
Metric
Performance
Attribute
SCOR: Customer Facing

DefinitionPerformance
Metric
Performance
Attribute
SCOR: Internal Facing
Revenue divided by total assets including
working capital and fixed assets
Asset turns
Number of days that cash is tied up as
inventory
Inventory days
of supply
Number of days that cash is tied up as
working capital
Cash-to-cash
cycle time
Supply Chain
Asset
Management
Efficiency
Direct and indirect costs associated with
returns including defective, planned
maintenance and excess inventory
Warranty/return
s processing
cost
Direct material cost subtracted from revenue
and divided by the number of employees,
similar to sales per employee
Value-added
productivity
Direct cost of material and labor to produce a
product or service
Cost of goods
sold
Direct and indirect cost to plan, source and
deliver products and services
Supply chain
management
cost
Supply Chain
Cost

ISSUE CONSIDERATIONS
Network Planning •Warehouse locations and capacities
• Plant locations and production levels
• Transportation flows between facilities to minimize cost and
time
Inventory Control • How should inventory be managed?
• Why does inventory fluctuate and what strategies
minimize this?
Supply Contracts • Impact of volume discount and revenue sharing
• Pricing strategies to reduce order-shipment variability
Distribution Strategies • Selection of distribution strategies (e.g., direct ship vs.
cross-docking)
• How many cross-dock points are needed?
• Cost/Benefits of different strategies
Integration and Strategic Partnering • How can integration with partners be achieved?
• What level of integration is best?
• What information and processes can be shared?
• What partnerships should be implemented and in which
situations?
Outsourcing & Procurement Strategies • What are our core supply chain capabilities and which
are not?
SCM-Key Issues

SCM-Operations Model
Strategy When To Choose Benefits
Make to Stock standardized products, relatively
predictable demand eg. fmcg
Low manufacturing costs;
meet customer demands
quickly
Make to Order customized products, many variations
Eg. Furniture, jewellery
Customization; reduced
inventory; improved service
levels
Configure to Order many variations on finished product;
infrequent demand
Eg. apparel
Low inventory levels; wide
range of product offerings;
simplified planning
Engineer to Order complex products, unique customer
specifications
Industrial equipments
Enables response to specific
customer requirements

Inventory
• Where do we hold inventory?
– Suppliers and manufacturers
– warehouses and distribution centers
– retailers
• Types of Inventory
– WIP
– raw materials
– finished goods
• Why do we hold inventory?
– Economies of scale
– Uncertainty in supply and demand
– Lead Time, Capacity limitations

Functions of Inventory
• To meet anticipated demand
• To smooth production requirements
• To decouple operations
• To protect against stock-outs
• To take advantage of order cycles
• To help hedge against price increases
• To take advantage of quantity discounts

Objectives of Inventory Control
• To meet unforeseen future demand due to variation
in forecast figures and actual figures.
• To average out demand fluctuations due to seasonal
or cyclic variations.
• To meet the customer requirement timely,
effectively, efficiently, smoothly and satisfactorily.
• To smoothen the production process.
• To facilitate intermittent production of several
products on the same facility.
• To gain economy of production or purchase in lots.

• To reduce loss due to changes in prices of inventory
items.
• To meet the time lag for transportation of goods.
• To meet the technological constraints of
production/process.
• To balance various costs of inventory such as order
cost or set up cost and inventory carrying cost.
• To balance the stock out cost/opportunity cost due
to loss of sales against the costs of inventory.
• To minimize losses due to deterioration,
obsolescence, damage, pilferage etc.

Importance of Inventory
 One of the most expensive assets
of many companies representing as
much as 50% of total invested
capital
 Operations managers must balance
inventory investment and customer
service.

Factors Affecting Inventory
Control
• Type of product
• Type of manufacture
• Volume of production

Benefits of Inventory Control
• Ensures an adequate supply of materials
• Minimizes inventory costs
• Facilitates purchasing economies
• Eliminates duplication in ordering
• Better utilization of available stocks
• Provides a check against the loss of materials
• Facilitates cost accounting activities
• Enables management in cost comparison
• Locates & disposes inactive & obsolete store items
• Consistent & reliable basis for financial statements

Requirements for purchase systems
• procurement involves sourcing items:
– At the right price.
– Delivered at the right time.
– Of the right quality.
– Of the right quantity.
– From the right source.

Points to remember while purchasing
•Proper specification
•Invite quotations from reputed firms
•Comparison of offers based on basic price, freight & insurance, taxes and levies
•Quantity & payment discounts
•Payment terms
•Delivery period, guarantee
•Vendor reputation
(reliability, technical capabilities, Convenience, Availability, after-sales service,
sales assistance)
•Short listing for better negotiation terms
•Seek order acknowledgement

Objectives of Purchasing
Obtain goods and services:
 of the required quantity and quality
 at the lowest possible cost
at the best possible service and
delivery
while maintaining and developing
suppliers

CPFR
• By the mid 1990s, Retail Link had emerged
into an Internet-enabled SCM system whose
functions were not confined to inventory
management alone, but also covered
collaborative planning, forecasting and
replenishment (CPFR).

CPFR: Hard to implement
• Though CPFR was a promising supply chain initiative
aimed at a mutually beneficial collaboration between
Wal-Mart and its suppliers, its actual implementation
required huge investments in time and money.
• A few suppliers with whom Wal-Mart tried to
implement CPFR complained that a significant
amount of time had to be spent on developing
forecasts and analyzing sales data.

RFID Technology
(Radio Frequency Identification)
• In efforts to implement new technologies to reduce
costs and increase the efficiency, in July 2003, Wal-
Mart asked its top 100 suppliers to be RFID
compliant by January, 2005.
• Wal-Mart planned to replace bar-code technology
with RFID technology.
• The company believed that this replacement would
reduce its supply chain management costs and
enhance efficiency.

RFID Technology
• Because of the implementation of RFID, employees
were no longer required to physically scan the bar
codes of goods entering the stores and distribution
centers, saving labor cost and time.
• Wal-Mart expected that RFID would reduce the
instances of stock-outs at the stores.

RFID Technology
• Although Wal-Mart was optimistic about the benefits
of RFID, analysts felt that it would impose a heavy
burden on its suppliers.
• To make themselves RFID compliant, the suppliers
needed to incur an estimated $20 Million.
• Of this, an estimated %50 would be spent on
integrating the system and making modifications in
the supply chain software.

Demand Management
• Demand Management is based on “forecast”
and plans.
• In DM, forecasts of the quantities and timing
of customer demand are developed &
• What is actually planned to deliver to
customers each period is the output of the
process.

Demand Management is
• The process of ensuring that market demand and the
company’s capabilities are in synchronization.
• Recognizing all demands for products and services to
support the marketplace.
• Doing what is required to help make the demand happen
• Prioritizing demand when supply is lacking.
• Planning and using resources for profitable business
results

Demand Management Components
• Goal Customer Service Levels
• New Product Introductions
• Distribution Resource Planning
• Customer Order Entry and Promising
• Sales And Marketing Plans
• Inventory Targets
• Product Commitments
• Interplant Shipments
• Demand Forecasting At Item And Aggregate Levels

Four phases of Demand Management

BENEFITS OF DEMAND MANAGEMENT…
• Control over product availability
• Confidence of Sales Force in ability to deliver
product.
• Smoother product introductions.
• Improved ability to respond to change.
• A single game plan, based on the same set of
numbers
Streamline: Make (an organization or system) more efficient and effective
by employing faster or simpler working methods
Priority: a thing that is regarded as more important than another

BENEFITS OF DEMAND MANAGEMENT…
• With the Demand Management, organizations can
streamline approval processes, while ensuring that
Information Technologies (IT) priorities are aligned with
the broader business objectives and that approved
initiatives will deliver maximum business value.
Streamline: Make (an organization or system) more efficient and effective by
employing faster or simpler working methods
Priority: a thing that is regarded as more important than another

What is the Nature of Demand Relative
to Supply?
Extent of demand fluctuations over time
Extent to which
supply is
constrained
Wide Narrow
Peak demand can
usually be met
without a major
delay
1
Electricity
Natural gas
Telephone
Hospital maternity unit
Police and fire
emergencies
2
Insurance
Legal services
Banking
Laundry and dry cleaning
Peak demand
regularly exceeds
capacity
4
Accounting and tax
preparation
Passenger transportation
Hotels and motels
Restaurants
Theaters
3
Services similar to those in
2 but which have
insufficient capacity for
their base level of business

ABC ANALYSIS
(ABC = Always Better Control)
This is based on cost criteria.
It helps to exercise selective control when confronted
with large number of items it rationalizes the number of
orders, number of items & reduce the inventory.
About 10 % of materials consume 70 % of resources

‘A’ ITEMS
Small in number, but consume large amount
of resources
Must have:
•Tight control
•Rigid estimate of requirements
•Strict & closer watch
•Low safety stocks
•Managed by top management

‘B’ ITEM
Intermediate
Must have:
•Moderate control
•Purchase based on rigid requirements
•Reasonably strict watch & control
•Moderate safety stocks
•Managed by middle level management

Spend Analysis
Spend Analysis
Spend Analysis is the process of collecting,
cleansing, classifying and analysing
expenditure data with the purpose of
decreasing procurement costs, improving
efficiency, and monitoring controls and
compliance.

Analysing Spend
• 12 triliion $ is total spend through global 2000 companies in 2014.
• Enterprises are loosing $260 billion per year due to inability to
organise & analyse spend data.
• To date only 40% of global companies have good visibility on their
spending.
• 60 % of firms that analyse spend still rely on paper & spread sheets.

Spending Clarity Starts With
Asking Right Questions
• How can I get more detailed information on suppliers
• How much I am spending with suppliers at corporate family level?
• How diverse is my supply base?How can I locate more diverse
suppliers?
• Where are the greatest risk in my supply chain?

Stay Ahead Of Curve
Advantage:Get a sense of potential interuption before it can impact
Bottom Line: Through Stock out
Top Line: Through idling manufacturing line
Brand:Through damage to quality & product availability
Results:
Source from Financial stable suppliers
Get advance notice to reduce risk & protect supply chain continuty
Deliver consistent ,objective treatment of suppliers

Spend Strategy
Three Step Process to Spend Strategy
1) Identify Spends By Category/ Sub Category:Determine which
spends are procurement influenced vs Non procurement influence
2) Align Sub categories into Segmentation Quadrant
Important factors are Y-axis & X-axis
3)Develop Sub categories strategies to Source
key elements that must be understood & will drive sourcing strategy

Spend Analysis Benefits
• Baseline for strategic sourcing initiatives
• Enabler for process improvement
• Measurement device for cost reduction programs
• Comprehensive spend visibility across direct and
indirect commodities and services
• Significant cost-savings opportunities through
supplier and commodity consolidation
• Enhanced compliance through effective spend and
supplier monitoring

Cost per unit weight
Analysis
Cost per unit weight is performed to compare the similar parts. The inherent
assumption is that these parts are similar, and their cost/unit weight shouldbe
similar. This helps to identify the outliers which contributes to differentcosts.
Part Price
History
Analysis
Plot the trend of a part’s price over 2 years and identify opportunities tore-
negotiate lower price in cases of unjustified price increases in thepast.
Pricing
Brackets/
EOQ Analysis
Analysis identifies the optimum bracket quantity for cost reduction within the
available brackets. Can only be done on parts that have contracts thatinclude
pricing brackets.
Indexed
Pricing
Analysis
This type of analysis helps identify the relationship between material prices
and part cost and helps us identify opportunities for index-based pricingand
re-negotiation.
Currency
Opportunity
Analysis
The analysis identifies the cost reduction opportunity by switching prices
between currencies. The assumption is that the manufacturer should be paid
in the currency of manufacturingcountry.
Common Types ofAnalysis

Freight
Analysis
Analysis identifies a way to obtain visibility into freight costs associatedwith
procuring parts from suppliers. It helps in selecting a best approach to
optimize freight costs.
VAT/GST
Analysis
VAT/GSTis a tax that is assessed at each phase of the process where value
is added to components or services by different suppliers. It is usually
recovered when a supplier sells his product to the next supplier in thechain.
Leakage can sometimes occur when trying to recover the VAT from foreign
governments.
Warranty
Cost
Recovery
Warranty cost incurred due to defective supplier parts. This could include
both labor and part cost.
Payment
Terms
Analysis
Analysis identifies deviation to standard payment terms. The intent is to
negotiate with the suppliers to pay them on Standard Terms so that werealize
savings from holding the cash (Cost of Money)
Part
Family
Analysis
Analysis identifies the optimum way of categorizing parts into a family and
then identifying potential parts for cost reduction which do not belong to the
part family due to different processes or alternate processes that could be
used. It also helps in identifying cost outliers within the same family ofparts
Common Types ofAnalysis

Suppliers Selection/Evaluation
• In today’s competitive environment, progressive
firms must be able to produce quality products at
reasonable prices. Product quality is a direct result of
the production workforce and the suppliers.
• Buying firms select suppliers based on their
capabilities, and not purely on the competitive
process. The current trend in sourcing is to reduce
the supplier base.
• In order to select suppliers who continually
outperform the competition, suppliers must be
carefully analyzed and evaluated.

8-5
Make Versus Buy
• The use of outsourcing has quickly become a competitive
weapon for an increasing number of businesses.
• It is no easy task for management to decide to make ,lease or buy
•
component parts and services.
The decision to outsource has led to a need for strategic
partnerships.

The Make or Buy Decision
• When a firm has answered the make-or-buy question
with a decision to buy , the question then becomes
to whom to “delegate” this responsibility.
• Thus, the firm must select a supplier or suppliers for
the part (s) in question.
• The buying firm must be highly skilled at
(1) specifying product attributes,
(2) forecasting expected requirements,
(3) ensuring the right quality at a reasonable price.

Strategic Selection
• Each business unit and department should have a
clear understanding of the strategy of the whole firm
and have a departmental strategy that complements
and aids the overall strategy execution of the firm.
• Purchasing, logistics, inventory management, and
production control are all linked tightly together
under the materials management umbrella.

Supplier Relationship Management (SRM)
Buyer and supplier relationships have become
increasingly important for a number of reasons.
1. There is a trend toward specialization away from
manufacturing an entire product and to more contract
manufacturing and purchasing.
2. In some market segments, it is estimated that 80 percent
or more of total product revenue often passes directly to
suppliers as payment for labor, materials, and equipment.
3. This significant transfer of value downstream
emphasizes the importance and significance of supply
chain relationship management.
4. For any buying organization to stay competitive in
today’s aggressive market sectors, it is essential that
they maintain strong relationships with their best
contract manufacturers and suppliers.

5. Buying firms experience a great deal of pressure from
customers and competitors to keep their edge and
stay in business by reducing costs, improving product,
improving service quality and enacting continuous
improvement.
6. With the decreasing number of suppliers used by
buying firms, it is more important than ever to
maintain strong buyer-supplier relationships.
Supplier Relationship Management (SRM)

Four Pure Supply Management Relationships
• One model that explains supply chain relationship
management includes four behavioral dimensions—
the four Cs:
1. counterproductive (lose-lose)
2. competitive (win-lose),
3. cooperative (win-win),
4. collaborative (win-win) relationships.

Counterproductive Relationships
• Counterproductive relationships are those in which
each organization (buying and supplying) is so
focused on getting what is best for it that each puts
the other at a disadvantage.
• This type of relationship is undesirable because:
– it does not promote a positive rapport between buying
and supplying firms involved and
– neither organization achieves its goals.
• Counterproductive buyer-supplier relationships
are not recommended.

Transactional Relationships
•
Transactional or competitive relationships are
those relationships in which both buying and
supplying firms strive to get the very best
arrangement possible in their negotiations and fail
to see the benefits of both organizations obtaining
their goals and objectives.
• In transactional relationships, the buying and
supplying firms will stop at nothing to make sure that
they come out on top and do not care about the
other organization’s well-being.
It does not matter if the relationship is not strong
enough to last because by definition, transactional
suppliers can be easily replaced at any time.

Cooperative Relationships
• Cooperative relationships recognize the potential
value of both organizations getting what they want
and maximize the potential of having a long-term
relationship.
• Although it is a strong relationship, a cooperative
alliance lacks the teamwork that is needed between
the various buying and supplying firms in order to
optimize the benefits for all of the members of the
supply chain.
• Cooperative relationships are commonly found within
a buying organization’s preferred/tier- two service
providers and suppliers list

Collaborative Relationships
• Collaboration or collaborative relationships,
usually found with the buying firm’s strategic/tier-
one suppliers, include the team component that is
missing in a cooperative relationship.
• In collaboration, the two organizations truly realize
the benefits of working together to optimize
outcomes for both organizations.
• The two firms work together to develop a strategy to
deliver a high-quality product or service on time and
under budget.

Three Categories of Suppliers
1. Strategic suppliers are those that are most
important to the buying firm. They supply the
buying firm with essential materials and
capabilities that are not easily replaced.
2. Preferred suppliers are those that are important
to the buying firm, but alternative suppliers could
be found with some effort.
3. Transactional suppliers are those that can be
easily replaced in a short time.

Benefits Of SRM
• Eliminates waste & barriers to effective service.
• Contracts set out what has been agreed between
buyer & seller in terms of what will be delivered &
for what price.
• In practice waste can be created due to
inefficiencies in how the processes systems & ways
of working of two sides come together.
• SRM programme can identify these sources of
waste & eliminate them creating lower costs &
improved service.

Benefits Of SRM
• Builds mutual dependency
• If both side value benefits they get from the
relationship they created by SRM programme then
they acquire an expectation that the relationship
will be long lasting.
• It means in times of scarcity your organisation is
unlikely to be affected by any need for the supplier
to rate their output.

Benefits Of SRM
• Encourages Investment
• If critical & strategic supplies in SRM programme
see that it creates value for them & that business
relations value for them & business relationship is
likely to be a long one then they are more likely to
make more investments that increase their capacity
& capability to deliver what you need.

Benefits Of SRM
• Motivate Suppliers to go the extra mile.
• Arms length & adversarial supplier relationship in
which every problem seem If critical & strategic
supplies in which every problem is seen to belong
to the supplier create disillusionment & disinterest
for them & result in a lack of motivation.
• SRM programme create a shared responsibility &
this fairness translates into motivated suppliers
who go out of their way to help you.

Tech Assessment
Needs Analysis
Demos/Due Diligence
Bid Evaluation/Finalists
RFP
Vendor Selection
Contract Negotiation

Category Explanation
FUNCTIONALITY
 The current features and benefits of the system and the ability of these features to
allow the client employees to do their jobs better
 The users’ perception of future systems migration and the impact it will have on the
client
 The ability of the system to support the sales and service goals set by the client
VENDOR
STRENGTH
 The ability of the vendor to support and enable the strategic goals of theclient
 The ability of the vendor to deliver promised systems and programs on timeand
with consistent high quality
 The track record of the vendor in supporting other utilities
 The perception of client management that the vendor understands the client andits
unique strategy and will proactively aid in its realization
 The financial strength of the vendor and the ability to continually invest in system
upgrades and enhancements
PRICE
 The base unit prices that will be charged
 The structure of price increases over five years in various growth scenarios
 The additional products and services that are included as part of the baseprice
 The value the client will receive in products and services for the money paid

Criteria for Supplier Evaluation
• There are two main categories of supplier evaluations:
process-based evaluations and performance-based
evaluations.
• The process-based evaluation is an assessment of the
supplier’s production or service process.
• Performance- based evaluations are based on objective
measures of performance.
• Typically, the buyer will conduct an audit at the
supplier’s site to assess the level of capability in the
supplier’s systems.
• In addition, large buying organizations increasingly are
demanding that their suppliers become certified
through third-party organizations, such as ISO 9001-
2008 certification or Malcolm Baldrige National Quality
Awards.

Three Common Supplier Performance
Based Evaluation Systems
• The three general types of supplier evaluation
systems in use today are:
– the categorical method,
– the cost-ratio method, and
– the linear averaging method.
• In general, the guiding factors in determining which
system is best are ease of implementation and
overall reliability of the system.
• It must be pointed out the interpretation of the
results from any of these three systems is a matter of
the buyer’s judgment.

Categorical Method
• The categorical method involves categorizing each supplier’s
performance in specific areas defined by a list of relevant
performance variables.
• The buyer develops a list of performance factors for each
supplier and keeps track of each area by assigning a “grade” in
simple terms, such as “good,” “neutral,” and “unsatisfactory.”
• At frequent meetings between the buying organization and
the supplier, the buyer will then inform the supplier of its
performance.

Cost-Ratio Method
• The cost-ratio method evaluates supplier performance by using
standard cost analysis.
• The total cost of each purchase is calculated as its selling price
plus the buyer’s internal operating costs associated with the
quality, delivery, and service elements of the purchase.
• Calculations involve a four-step approach
• A hybrid of the cost-ratio method is the “total cost-of-
ownership rating,” developed by the director of corporate
purchasing of Sun Microsystems.

Cost-Ratio Method
• It includes five performance factors: quality (maximum of 30
points), delivery (25), technology (20), price (15), and service
(10). A perfect supplier would receive a score of 100.
• This is calculated by deducting the amount of points received
(100 if perfect) from 100, dividing by 100, and adding 1.
• The idea is to give a simple numeric rating to the so-called
hidden cost of ownership—the additional product-lifetime
cost to Sun.
• A score of 1.20, for instance, means that for every dollar Sun
spends with that supplier, it spends another 20 cents on
everything from line downtime to added service costs.

Linear Averaging
• The linear averaging method is probably the most
commonly used evaluation method.
• Specific quantitative performance factors are used to
evaluate supplier performance.
• The most commonly used factors in goods purchases
are quality, service (delivery), and price, although
any one of the factors named may be given more
weight than the others.

Linear Averaging Method
1. The first step is to assign appropriate weights to each
performance factor, such that the total weights of each
factor add up to 100.
• For example, quality might be assigned a weight of 50, service
a weight of 35, and price a weight of 15.
• The assignment of these weights is a matter of judgment and
top management preferences.
• The weights are subsequently used as multipliers for individual
ratings on each of the three performance factors.

Single versus Multiple Sources
• Much debate has taken place concerning the
number of suppliers a firm should use.
One side of the debate is the multiple-sources side.
This involves the use of two or more suppliers.
The other side of the debate is the single-source
policy, in which only one supplier is used to supply a
particular part.

Advantages of Multiple Sourcing
• The main arguments for multiple sourcing are
competition and assured supply.
– It is commonly believed that competition between suppliers
for a similar part will drive costs lower as suppliers compete
against each other for more of the OEM’s business.
• This sense of competition is in the very root of
American thought as competition is the basis for
capitalism and is the backbone of Western economic
theory.
• Multiple sources also can guarantee an undisrupted
supply of parts.
– If something should go wrong with one supplier, such as a strike
or a major breakdown or natural disaster, the other supplier (s)
can pick up the slack to deliver all the needed parts without a
disruption.

Advantages of Single Sourcing
• The major arguments in favor of single sourcing are
that with the certainty of large volumes that the
supplier can enjoy lower costs per unit and increased
cooperation and communication to produce win-win
relationships between buyer and seller.
• Naming a certain supplier as the single source and
providing it with a long-term contract (three to five
years) greatly reduces the uncertainty that the
supplier will lose business to another competitor.

Advantages of Single Sourcing
• With this contract guarantee, the supplier is more willing
to invest in new equipment, or change its
business/operating methods to accommodate the buyer.
• Single sources should be able to provide lower costs per
unit compared to multiple sources by reducing the
duplication of operations in areas such as setup.
• Spreading fixed costs across a larger volume should also
result in an accelerated learning curve.

Cross-Sourcing
• Cross-sourcing works this way. If supplier A can produce
parts 1, 2, 3, 4, and 5 and so can supplier B, the
advantages of both single and multiple sourcing can be
achieved if supplier A produces all of parts 1, 3, and 5
and supplier B produces all of 2 and 4. If anything would
happen to supplier A, supplier B can pick up the slack as
it has the capability to produce 1, 3, and 5 as well.
• In sum, neither supplier suffers because overall volume
remains the same. The reverse also can be done if a
buyer wants to increase competition among the
suppliers.

Supplier Reduction
• Regardless of one’s final analysis of the single/multiple
debate, it is recommended to reduce the supply base.
• If the perceived benefits outweigh the risks, and after careful
analysis of both short-term and long-term needs, a single
source may be appropriate.
• However, for operations that would be financially damaged
when a supply stoppage occurs, then the use or development
of a second source is wise.
• Assume that it is desirable to reduce the number of suppliers.
The question now is which one (s)? The grade and hurdle
methods are used to guide the supplier reduction analysis.

Grade
• “Grade” methods are those that are based on a score or grade
given to the supplier by the buyer for some attribute.
• The most common attributes are quality, price, and
delivery.
• The supplier’s performances in the past are kept on record and
the suppliers receive a “report card” as to how well they are
doing compared to other suppliers.
• Many additional attributes an be added to the most common
three such as frequency of delivery, but the method remains
the same—for each attribute and purchase transaction, the
supplier is given a grade.

Key Performance Indicators
Dickson’s Supplier evaluation criteria
Weber’s Supplier evaluation criteria

Key Performance Criteria Dickson’s Supplier
evaluation criteria
Average
importance
Slight
importance
Delivery
Performance History
Warranties and claim policies
Production facilities
Net Price
Technical capability
Financial position
Procedural compliance
Communication system
Reputation and position in the industry
Desire to do business
Management and organization
Operating controls
Repair services
Attitude
Impression
Packaging ability
Labor relations record
Geographical location
Amount of past business
Training aid
Reciprocal arrangements
1. Quality
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
Evaluation
Extreme
importance
Considerable
importance
Rank Criteria

Key Performance Criteria
1. Net Price
2. Delivery
Extreme
Importance
Weber’s supplier evaluation criteria
3. Quality
4. Production facilities & cap.
5. Geographical location
6. Technical capabilities
7. Management & organization
8. Reputation & industry position
9. Financial Position
10. Performance History
Rank Criteria Evaluation

Approaches to Evaluate Suppliers
Total Cost of Ownership (TCO) Models
Very complicated approach
Requires from the buyer to indicate which are
the imperative costs
It entail more than price in a purchasing
situation
Focuses on the costs related to the chain and
created by the suppliers
The approach can be practiced in every kind
of purchase, depending on the type of
product or service

3.3 Approaches to Evaluate Suppliers
Mathematical programming Models
Select a variety of suppliers by analyzing
mostly multi criteria.
Utilizes a mixed program integer that can
reduce the number of items not received,
delivery and unit price
Hyper LINDO is an integer linear program
solve
Data envelop analysis is also known
mathematical programming method

Statistical Models
The least used model for suppliers’
evaluation
Emphasizes on uncertainty and its time
consuming
It of great importance to employ it as
assessment of buyer-supplier relationship
to dictate their performance

Approaches to Evaluate Suppliers
Artificial Intelligence (AI) based Models
It’s a computer system that provides data
information from historical data
Employs Neural Network method
Can cope with difficult and uncertain
situations
AI models are difficult to use

Payment
s (A/P)
 Dual control of master record
 Simultaneous updating of subsidiary ledger and general ledger
(minimize reconciliation activities)
 Instant access to details of account balances per Vendor
 Drill down facility down to the original document
 Full audit trail
 Manual or automatic processing of payment transactions
 Check information on payment transactions

Reorder Points
 EOQ answers the “how much” question
 The reorder point tells “when” to order
Reorder Point =
Lead time for a
new order in days
Demand
per day
= d x L
d =
D
Number of working days in a year

Reorder Point Curve
Q*
ROP
(units)
Inventorylevel(units)
Time (days)
Lead time = L
Slope = units/day = d
Resupply takes place as order arrives

Reorder Point Eg.
Demand = 8,000 iPods per year
250 working day year
Lead time for orders is 3 working days
Reorder Point = d x L
d =
D
Number of working days in a year
= 8,000/250 = 32 units
= 32 units per day x 3 days = 96 units

Order Quantity Model
 Used when inventory builds up
over a period of time after an
order is placed
 Used when units are produced
and sold simultaneously

Production Order Quantity Model
Q = Number of pieces per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand/usage rate
D = Annual demand
Q2 =
2DS
H[1 - (d/p)]
Q* =
2DS
H[1 - (d/p)]p
Setup cost = (D/Q)S
Holding cost = HQ [1 - (d/p)]1
2
(D/Q)S = HQ [ 1 - (d/p)]1
2

Production Order Quantity Eg.
D = 1,000 units p = 8 units per day
S = Re.10 d = 4 units per day
H = Re. 0.50 per unit per year
Q* =
2DS
H[1 - (d/p)]
= 282.8 or 283 units
Q* = = 80,0002(1,000)(10)
0.50[1 - (4/8)]

Quantity Discount Models
 Reduced prices are often available when
larger quantities are purchased
 Trade-off is between reduced product cost
and increased holding cost
Total cost = Setup cost + Holding cost + Product cost
TC = S + H + PD
D
Q
Q
2

Quantity Discount Models
Discount
Number Discount Quantity Discount (%)
Discount
Price (P)
1 0 to 999 no discount Re. 5.00
2 1,000 to 1,999 4 Re. 4.80
3 2,000 and over 5 Re. 4.75
A typical quantity discount schedule

Quantity Discount Example
Calculate Q* for every discount Q* =
2DS
IP
Q1* = = 700 units/order
2(5,000)(49)
(.2)(5.00)
2(5,000)(49)
(.2)(4.80)
2(5,000)(49)
(.2)(4.75)

Quantity Discount Eg.
Calculate Q* for every discount Q* =
2DS
IP
2(5,000)(49)
(.2)(5.00)
2(5,000)(49)
(.2)(4.80)
2(5,000)(49)
(.2)(4.75)
1,000 — adjusted
2,000 — adjusted

Quantity Discount Example
Discount
Number
Unit
Price
Order
Quantit
y
Annual
Product
Cost
Annual
Ordering
Cost
Annual
Holding
Cost Total
1 R.5.00 700 R.25,000 R.350 R.350 R.25,700
2 R.4.80 1,000 R.24,000 R. 245 R.480 R.24,725
3 R.4.75 2,000 R.23.750 R.122.50 R.950 R.24,822.50
Choose the price and quantity that gives the lowest
total cost
Buy 1,000 units at Re 4.80 per unit

Importance of demand
forecasting
Crucial tosupplier, manufacturerorretailer
Businessdecisions
Planning for future finishedgoods
accurate demand forecasts lead to efficientoperations
and high levels of customerservice
Improve quality & effectiveness ofproduct

Levels of Demand Forecasting
1) Micro Level- Demand forecasting by
individuals business firm for forecasting the
demand for its product.
2) Industrial Level- Demand estimate for the product
of the industry
3) Macro Level- Aggregate demand forecasting for
industrial outputat the national level- it is based on
the national income/ aggregate expenditure of the
company.

Factors determining demand
forecasting
 Time factor
 Level of forecasting
 General or Specificforecasting
 Problems & methods of forecasting
 Classification of goods
 Knowledge of different marketconditions
 Otherfactors

Qualitative Forecasting approach
I. Judgmental approach
 Surveys
 Consensus methods
 Delphi method
II. Experimental approach
 Test marketing
 Customer buyingdatabase
 Customerpanels

Advantages & Disadvantages of
Qualitative Forecasting
Advantages :-
o Ability to predictchanges
o Flexibility
o Ambiguity
Disadvantages :-
o Accurate forecast is notpossible
o Judgmental approach
o False/ inadequate information

Quantitative Forecasting Approach
Relationshipapproach
Econometric models
Life cyclemodels
Input-outputmodels
Time seriesapproach
Static models
Adaptive models

WHAT IS A CROSS
FUNCTIONAL TEAM?
A cross-functional team is defined as a group of peoplewith
different expertise and backgrounds working toward
common goals. The team may include representatives from
operations, engineering, R&D, marketing, supply base,
quality and team members from outside the organization
such as customers, or suppliers could be involved as well.

● Improved speed of delivery
● Reduction in cycle times
● Increase in speed of feedback
● Improved product stability
● Risk reduction
Key Benefits
● More Accurate estimates
● Avoiding the “last mile”
● Mainline dev puts product managers in charge
● Better release planning
● True agility
● Expand team skillsets
● Reduce the “bus factor”
Other Benefits

MAIN CHALLENGES FOR
GLOBAL TEAMS
• Team meetings - Arranging a common time
• Clarity on expectations and deliverables and how do they align
• Language barriers
• Understanding and empathy towards cultural differences

POTENTIAL PITFALLS AND
ROADBLOACKS AND HOW
TO AVOID THEM• Avoid gaps on communication
 Rules of engagement during kick off meeting
 Be able to organize your meetings so you can reach the entire team with
the same message
 Have agreement between the team
 Rephrasing as necessary to understand each other until is clear
• Align the goals of all the team members
 Understand the goals of each team member
 Clarify expectations and deliverables and how do they align
• Gain cultural competence to avoid surprises
 Start with an open attitude and self awareness
 Share experiences and ask others to share

CONCLUSI
ONS
• The creation of a strong plan based on the business needs is the
foundation of success
• Lead with example and gain trust from your team
• Cultural differences should not be seen as a barrier to achieve
your goals. Know your team and create a strong MOS
• Cultural competence is the outcome of a continuous learning
process; you will always learn more from each of your global
projects
• Teamwork is the answer to your most difficult problems

•Barcodesprovideasimpleandinexpensivemethodofencoding
text informationthat iseasilyreadbyinexpensiveelectronic
readers.
• Barcodingalsoallowsdata to becollectedrapidlyandwith
extreme accuracy.
•Barcodescanbethoughtofasaprintedtype oftheMorse code
with narrowbars(andspaces)representingdots, andwide
bars representingdashes.
• Dueto thedesignofmostbarcodeit doesnotmakeanydifference
Barcode Basics

 Universal product code (UPC): The Universal Product
Code (UPC) is a barcode symbology (i.e., a specific type of
barcode), thatis widely used in Canada and the U.S for
tracking trade items in stores.
 European article number (EAN): An EAN-13 barcode
(original European Article Number) is a bar coding standard
which is a superset of the original 12-digit Universal Product
Code(UPC) system developed in the United States.
A UPC barcode is also an EAN-13 barcode with the first digit
set to zero.

ADVANTAGES OF BARCODE
Fast-selling items can be identified quickly.
Build-up of unwanted stock of slow-selling
items can be stopped.
Repositioning of item in a store can be
monitored.
Packing by manufacturers.
A relational database is created like order
number, items packed, quantity packed, final
destination, etc.

DISADVANTAGES OF BARCODE
• data is coded in the barcode. This can be an
additional cost.
• A scanner system is required eachtime
to see the details encoded.
• Complete system setup is needed to
encode and decode data.
• A slight defect in barcode can cause
decoding problems.

APPLICATIONS OF BARCODE
Bar Code is essentially used for 100% accurate &
speedy data entry.
The major applications are –
Retail.
Manufacturing.
Quantity & Quality control.
Packing.
Ware housing.
Service industry such as Courier Industry, Hospital
and Library Management.
Export Industry.

Definition
Import:-
The term import is derived from the
conceptual meaning as to bring in the goods
and services into the port of a country.
The buyer of such goods and services is
referred to an "importer"
Export:-
This term export is derived from the
conceptual meaning as to ship the goods and
services out of the port of a country.
The seller of such goods and services is
referred to as an "exporter"

Reduce dependence on existing markets
Exploit international trade technology
Extend sales potential of existing
products
Maintain cost competitiveness in your
domestic market
Advantages of Import

Disadvantages Of Import
Importation of items from other
countries can increase the risk of
getting them which is no more
common in the warm weather.
 it leads to excessive competition
It also increases risks of other
diseases from which the country is
exporting the goods.

Advantages Of Export
Exporting is one way of increasing
your sales potential
Increasing sale& profits
Reducing risk and balancing growth
Sell Excess Production Capacity.
Gain New Knowledge and Experience

Disadvantages Of Export
tation
Extra Costs
Financial Risk
Export Licenses and Documen
Market Information

EXIM Bank
Export-Import Bank of India is the premier export finance institution of
the country, established in 1982 under the Export-Import Bank of
India Act 1981 Government of India launched the institution with a
mandate, not just to enhance exports from India, but to integrate the
country’s foreign trade and investment with the overall economic
growth. like other Export Credit Agencies in the world, Exim Bank of
India has, over the period, evolved into an institution that plays a major
role in partnering Indian industries, particularly the Small and Medium
Enterprises, in their globalisation efforts, through a wide range of
products and services offered at all stages of the business cycle,
starting from import of technology and export product development to
export production, export marketing, pre-shipment and post-
shipment and overseas investment.

EXIM Bank
Exim Bank of India has been the prime mover in encouraging project exports
from India.
The Bank extends lines of credit to overseas financial institutions, foreign
governments and their agencies, enabling them to finance imports of goods and
services from India on deferred credit terms.
The Bank provides financial assistance by way of term loans in Indian
rupees/foreign currencies for setting up new production facility,
expansion/modernization/upgradation of existing facilities and for acquisition of
production equipment/technology. Such facilities Such facilities particularly help
export oriented Small and Medium Enterprises for creation of export capabilities
and enhancement of international competitiveness.
The Bank has launched the Rural Initiatives Programme with the objective of
linking Indian rural industry to the global market. The programme is intended to
benefit rural poor through creation of export capability in rural enterprises.

ECGC
The Export Credit Guarantee Corporation of India Limited(ECGC) is a
company wholly owned by the Government of India based in
Mumbai, Maharashtra. It provides export credit insurance support to Indian
exporters and is controlled by the Ministry of Commerce. Government of
India had initially set up Export Risks Insurance Corporation (ERIC) in July
1957.

ECGC
• What does ECGC do?
 Provides a range of credit risk insurance covers to exporters
against loss in export of goods and services.
 Offers guarantees to banks and financial institutions to enable exporters to
obtain better facilities from them.
 Provides Overseas Investment Insurance to Indian c investing in
joint ventures abroad in the form of equity
Information on different countries with its own credit
Assists the exporters in recovering bad debts
ompanies
or loan.
rating

OriginTerms
EXW
• Ex-Works, named place where shipment is available to the buyer, not
loaded.
• The sellerwill notcontract forany transportation.
•This term thus represents the minimum obligation for the seller, and the
buyer has to bear all costs and risks involved in taking the goods from the
seller’spremises.
International Carriage NOT Paid bySeller
FCA
•Free Carrier, unloaded at the seller's dock OR a named place where
shipment is available to the international carrier or agent, not loaded. This
term can be used for any mode of transport.

FAS
•Free Alongside Ship, named ocean port of shipment. The seller delivers
when the goods are placed alongside the vessel at the named port of
shipment.
• The FAS term requires the seller toclear thegoods forexport.
FOB
•Free On Board vessel, named ocean port of shipment. The seller delivers
when the goods pass the ship’s rail at the named port of shipment.
•This term is used for ocean shipments only where it is important that the
goods pass the ship'srail.

International Carriage Paid by theSeller
CFR
• Cost and Freight, named ocean port ofdestination.
•The seller delivers when the goods pass the ship’s rail in the port of
shipment.
•The seller must pay the costs and freight necessary to bring the goods to
the named port ofdestination
•But the risk of loss of or any damage to the goods, as well as any additional
costs due to events occurring after the time of delivery, are transferred from
theseller tothe buyer.
CIF
• Cost, Insurance and Freight, named ocean port ofdestination.
•The seller delivers when the goods pass the ship’s rail in the port of
shipment.
•The seller must pay the costs and freight necessary to bring the goods to
the named port of destination BUT the risk of loss or damage to the goods,
as well as any additional costs due to the events occurring after the time of
delivery, are transferred from the seller tothe buyer.

•Seller also has to procure marine insurance against the buyer’s risk of loss
of ordamage tothegoodsduring thecarriage.
•Under the CIF term the seller is required to obtain insurance only on
minimumcover.
• Buyerto make his ownextra insurancearrangements.
• This term is used forocean shipments.
CPT
•Carriage Paid To, named place or port of destination. This term is used
forairorocean consignments.
•The seller delivers the goods to the carrier nominated by him but the
seller must in addition pay the cost of carriage necessary to bring the
goods to the nameddestination.
• This means that the buyer bears all risks and any other costs occurring
afterthegoods have been sodelivered.

CIP
• Carriageand Insurance Paid To, named place orportof destination.
•The seller delivers the goods to the carrier nominated by him but the seller
must in addition pay the cost of carriage necessary to bring the goods to the
nameddestination.
• The buyer bears all risks and any additional costs occurring after the
goods have been sodelivered.
•The seller also has to procure insurance against the buyer’s risk of loss of or
damage tothegoodsduring carriage.
• This term is used forairorocean consignments.

place of destination, by land, not
Arrival At StatedDestination
DAF
• Delivered At Frontier, named
unloaded.
•The seller delivers when the goods are placed at the disposal of the
buyer on the means of transport not unloaded, cleared for export, but
not cleared for import at the named point and place at the frontier, but
before thecustoms borderof theadjoining country.
•The term “frontier” may be used for any frontier including that of the
country of export.
• This term is used forany modeof transportation butdelivered by land.

DES
• Delivered Ex-Ship, named port of destination, notunloaded.
• The seller delivers when the goods are placed at the disposal of the buyer
on board the ship not cleared for import at the named port of destination.
•The seller has to bear all the costs and risks involved in bringing the goods
to the named port of destination beforedischarging.
• This term is used for ocean shipmentsonly.
DEQ
• Delivered Ex-Quay, named port of destination, unloaded, notcleared.
•The seller delivers when the goods are placed at the disposal of the buyer
not cleared for import on the quay (wharf) at the named port of
destination.
•The seller has to bear costs and risks involved in bringing the goods to the
named port of destination and discharging thegoods on thequay (wharf).
•The DEQ term requires the buyer to clear the goods for import and to pay
for all formalities, duties, taxes and othercharges upon import.
• This term is used for ocean shipmentsonly.

DDU
• Delivered Duty Unpaid, named place of destination, not unloaded, not
cleared.
•Duty has to be borne by the buyer as well as any costs and risks caused
by his failure toclearthegoods for import in time.
• This term is used forany modeof transportation.
DDP - Delivered Duty Paid, named place of destination, not unloaded,
cleared. This term is used forany modeof transportation.

Import means bring (goods or services)
into a country from abroad for sale.
The buyer of such goods and services
is referred to an importer who is based in
the country of import whereas the
overseas based seller is referred to as an
exporter.
Thus an import is any good
(e.g.garments) orservice brought in from one
country to another country in a legitimate
fashion, typically for use in trade

Documents Required For IMOPRT of an
Item:-
1. Bill of Lading / Airway bill :
Bill of lading under sea shipment or Airway bill
under air shipment is carrier’s document required to be
submitted with customs for import customs clearance
purpose. Bill of lading or Airway bill issued by carrier provides
the details of cargo with terms of delivery.
2. Invoice:
Invoice is required for import customs clearance for
value appraisal by concerned customs official. Assessable
value is calculated on the basis of terms of delivery of goods
mentioned in commercial invoice. The concerned officer
verifies the value mentioned in commercial invoice matches
with the actual market value of same goods. This method of
inspection by officer of customs prevents fraudulent activities
of importer or exporter by over invoicing or under invoicing.

3. Bill of Entry:
Bill of entry is one of the major import document for import
customs clearance. As explained previously, Bill of Entry is the legal
document to be filed by CHA or Importer duly signed. Bill of Entry is
one of the indicators of ‘total outward remittance of country’
regulated by Reserve Bank and Customs department. Bill of entry
must be filed within thirty days of arrival of goods at a customs
location.
4. Import License
Import license may be required as one of the documents for
import customs clearance procedures and formalities under specific
products. This license may be mandatory for importing specific
goods as per guide lines provided by government. Import of such
specific products may have been being regulated by government
time to time. So government insist an import license as one of the
documents required for import customs clearance to bring those
materials from foreign countries.

5. Insurance certificate
Insurance certificate is a supporting document
against importer’s declaration on terms of delivery.
Insurance certificate under import shipment helps
customs authorities to verify, whether selling price
includes insurance or not. This is required to find
assessable value which determines import duty amount.
6. Purchase order/Letter of Credit
A purchase order reflects almost all terms and
conditions of sale contract which enables the customs
official to confirm on value assessment. If an import
consignment is under letter of credit basis, the importer
can submit a copy of Letter of Credit along with the
documents for import clearance.

7. Industrial License if any
An industrial license copy may be required under specific
goods importing. If Importer claims any import benefit as per
guidelines of government, such Industrial License can be
produced to avail the benefit. In such case, Industrial license
copy can be submitted with customs authorities as one of the
import clearance documents.
8. DEEC/DEPB /ECGC or any other documents for duty benefits
If importer avails any duty exemptions against imported
goods under different schemes like DEEC/DEPB/ECGC etc.,
such license is produced along with other import clearance
documents.
.

9. Central excise document if any
If importer avails any central excise benefit under
imported goods, the documents pertaining to the same need
to be produced along with other import customs clearance
documents
10. GATT/DGFT declaration.
As per the guidelines of Government of India, every
importer needs to file GATT declaration and DGFT declaration
along with other import customs clearance documents with
customs. GATT declaration has to be filed by Importer as per
the terms of General Agreement on Tariff and Trade.

Anti Dumping Duty on dumped
articles
•
•
•
•
•
Often, large manufacturer from abroad may export goods at
very low prices compared to prices in his domestic market.
Such dumping may be with intention to cripple domestic
industry or to dispose of their excess stock. This is called
'dumping'.
In order to avoid such dumping, Central Government can
impose, under section 9A of Customs Tariff Act, anti-dumping
duty up to margin of dumping on such articles, if the goods are
being sold at less than its normal value.
Levy of such anti-dumping duty is permissible as per WTO
agreement.
Anti dumping action can be taken only when there is an Indian
industry producing 'like articles'.

Safeguard
Duty
•
•
•
Central Government is empowered to impose 'safeguard duty'
on specified imported goods if Central Government is satisfied
that the goods are being imported in large quantities and under
such conditions that they are causing or threatening to cause
serious injury to domestic industry.
Such duty is permissible under WTO agreement.
Safeguard duty is a step in providing a need-based protection
to domestic industry for a limited period, with ultimate
objective of restoring free and fair competition

National Calamity Contingent Duty
•
•
•
A National Calamity Contingent Duty (NCCD) of customs has
been imposed vide section 129 of Finance Act, 2001.
This duty is imposed on pan masala , chewing tobacco and
cigarettes. It varies from 10% to 45%. - NCCD of customs of
1% was imposed on motor cars, multi utility vehicles and two
wheelers and NCCD of Rs 50 per ton was imposed on domestic
crude oil
-section 134 of Finance Act.
There are different rates of duty for different goods there are
different rates of duty for goods imported from certain countries
in terms of bilateral or other agreement with such countries
which are called preferential rate of duties the duty may be
percentage of the value of the goods or at specified rate.

PURCHASINGPRINCIPLES
5R’s OF BUYING
RIGHTSOURCE RIGHTTIME RIGHTQUALITY RIGHT QUANTITYRIGHTPRICE

1. RightQuality:- Rightqualitydoesnot
meanthebestquality.Anyqualitythatis
suitableforthepurposeisknownas
rightquality.
2. RightQuantity:- Purchaseorganisation
isalsoresponsibletomaintainregular
flowof materialsforproductionactivity.
Forthisrightquantityof materialsisto
bepurchased.Excesspurchaseshould
beavoidedbecauseCapitalis
unnecessarily blocked.

(3)RightTime– Righttimemeanstheminimum level.
Thislevel indicates thestockhas reachedtominimum
andnowtheordermust beplaced.Atthislevel,
purchasedepartment willnotdelayinplacingorder.
If thegoodsarearrangedearlierthanthe required
time,itwillcauseover-stockand blockingof money
On the otherhand,delayindeliverymeans lossof
production.
(4)RightSource:- Therightsourceisthat
supplierwhocansupplythematerialof the
rightquality,intherightquantity,at therighttime
andattheagreedorright price.
Thesuppliershouldhavesufficient financial
resourcesandmanpowerto handlethe
order.

Right source aspects requires decisions as to what
items should be purchased directly from the
manufacturers,which itemsfrom dealers & whichitems
fromopenmarket.
Asfaraspossible, thefirmshouldbelocated nearthe
buyers plant.This will avoid delivery delay and high
transportationcost.
(5)RightPrice:- Rightpricedoesnotmeansthelowestpricebuttheprice
whichminimisetheoverallcost.

WHAT IS
SUBCONTRACTING?
Subcontracting refers to the process of entering a contractual
agreement with an outside person or company to perform a
certain amount of work.
The outside person or company in this arrangement is known
as a subcontractor.
Many small businesses hire subcontractors to assist with a
wide variety of functions.
Example:
A small business may use an outside firm to prepare itspayroll.

SUBCONTRACTING
IS ALSO KNOWN
AS OUTSOURCING
Outsource means to
send part of a
company’s work to
outside providers to
simplify or reduce cost.

ADVANTAGES &
DISADVANTAGES
Advantages:
Cost Saving
Increased Efficiency
Continuity & Risk Management
Disadvantages:
Loss of Managerial Control
Quality Problems
Hidden Costs

EXAMPLES
Subcontracting is probably most prevalent in the construction
industry, where builders often subcontract plumbing, electrical
work, drywall, painting, and other tasks.
In some cases, a general contractor may only be used as the
construction manager or supervisor. In that
case, subcontracting accounts for all of the physical work done
on the premises. The general contractor's only responsibility is
to approve the contracts, keep the project within budget, and
inspect the work.

TYPES OF TENDER
Restricted Tender
This involves the opportunity being advertised in the relevant
places and media.
Organisations will then submit an expression of interest and fill
in a pre qualification questionnaire.
Successful organisations will go onto select list and be given
an invitation to tender with the tender documents.
Tender documents are completed and submitted.
From the submitted tender documents scoring takes place and
the successful organisation is awarded the contract.

TYPES OF TENDER
Negotiated Tender
It can only be used in a limited number of carefully defined
cases (e.g. large capital projects where a range of solutions to
deliver are possible).
An opportunity is advertised (the specification is not
established at the start of the process) and organisations can
submit an expression of interest and fill in a pre qualification
questionnaire.
Successful bidders are invited to negotiate with the procuring
body, which is called the dialogue phase.
Once dialogue has generated solutions to the agreed
requirements, final tenders are submitted based on each
bidders individual solution.
Scoring then takes place and the successful organisation is
awarded the contract.

PROCESS
Invitation
Pre/Post
Qualification
Questionnaire
Bid Bond
Site Visit Tender Box
Receipt of Tenders
Withdrawal of Offer
Tender Offerings Evaluation
Recommendations
Letter of Award
Conditions of Award

ADVANTAGES &
DISADVANTAGES
Advantages:
Competitive
Lower Cost
Transparent Process
Disadvantages:
Low Price usually Detriment of Quality
Time consuming

E-Tendering
Sending requests for information and prices to
suppliers and
receiving the responses of suppliers using
Tender
Preparation
Tender
Publishing
Bidder
Response
Bid
Evaluation
Contract
Award
Indent
ToTender
Request
e-Tendering Solution
An e-Tendering solution primarily facilitates the
‘Tendering Process’
and may cover from Indenting of Requirements to

E-Tendering
Benefits to Buyers
 Cost Reduction
 New Supplier Discovery
 Close Monitoring of Activities/ Vendor Performance
 Rich MIS and Analytics
 Standardized formats and Uniform tendering practices
Benefits to Suppliers
 Increased visibility/ Less artificial barriers
 Increased business opportunities,
 Greater degree of transparency
 Cycle time reduction in participation and award of
Contract
 Supplier Enablement and Ease of Participation

Itcan also be called as “7r’s “
Buying the material at the rightprice.
Buying material of rightquality.
In the rightquantity
At the righttime
From the rightsource
At the rightplace.
With the right mode oftransport.

5” s of JIT
• Sort (seiri) – Distinguishing between necessary and unnecessary things, and getting
rid of what you do not need.
Classify all equipment and materials by frequency of use to help decide if it should
be removed – place ‘Red Tag’ on items to be removed
• Straighten (seiton) – Practice of orderly storage so the right item can be picked
efficiently (without waste) at the right time, easy to access for everyone.
Identify and allocate a place for all the materials needed for your work
• Shine (seiso) – Create a clean worksite without garbage, dirt and dust, so problems
can be more easily identified (leaks, spills, excess, damage, etc)-
Identify root causes of dirtiness, and correct process
• Standardize (seiketsu) – Setting up standards for a neat, clean, workplace-Make it
easy for everyone to identify the state of normal or abnormal conditions
place photos on the walls, to provide visual reminder
• Sustain (shitsuke) – Implementing behaviors and habits to maintain the established
standards over the long term, and making the workplace organization the key to managing
the process for success
Every one sticks to the rules and makes it a habit

ADVANTAGES OF JIT
• High quality
• Flexibility
• Reduced setup times
• Reduced need for indirectlabor
• Lesswaste
• Low warehouse cost
• Synchronization between production scheduling andwork
hour

DISADVANTAGES OF JIT
• Time consuming
• No spare product to meet un
expected order
• Supply Shock: If products do
notreach on time
• High risk factor

Importance of Transportation:
 Without well-developed transportation
systems, logistics could not bring its advantages into full
play.
 A good transport system in logistics activities could
provide better logistics efficiency, reduce operation
cost, and promote service quality.
 A well-operated logistics system could increase both the
competitiveness of the government and enterprises.
 Transport system is the most important economic
activity among the components of business logistics
systems

Rail
• Most commonly used for heavy and bulky
loads over long land journeys
• They are almost invariably public carriers
rather than private carriers
• The rail service is not nationalised, it is
allowed a monopoly

Rail Transport:
Advantages of Rail transport:
 It is a convenient mode of transport for travelling long
distances.
 It is relatively faster than road transport.
 It is suitable for carrying heavy goods in large quantities over
long distances.
 Its operation is less affected by adverse weathers conditions
like rain, floods, fog, etc.
Limitations of Railway transport:
 It is relatively expensive for carrying goods and passengers
over short distances.
 It is not available in remote parts of the country.
 It provides service according to fixed time schedule and is not
flexible for loading or unloading of goods at any place.
 It involves heavy losses of life as well as goods in case of
accident.

Road
• The most widely used mode of transport and
is used at least somewhere in almost all
supply chains.
• Road transport can normally carry loads up to,
say, 20–30 tonnes

RoadTransport
 Advantages
 It is a relatively cheaper mode of transport as compared to
other modes.
 Perishable goods can be transported at a faster speed by road
carriers over a short distance.
 It is a flexible mode of transport as loading and unloading is
possible at any destination. It provides door-to-door service.
 It helps people to travel and carry goods from one place to
another, in places which are not connected by other means of
transport like hilly areas.
 Limitations of Road transport
 Due to limited carrying capacity road transport is not
economical for long distance transportation of goods.
 Transportation of heavy goods or goods in bulk by road
involves high cost.

Water
• Most supply chains use shipping to cross the
oceans,over 90% of world trade is moved by
sea (UK, Australia,USA..)

Water Transport
 Advantages:
 It is a relatively economical mode of transport for bulky and heavy
goods.
 It is a safe mode of transport with respect to occurrence of accidents.
 The cost of maintaining and constructing routes is very low most of
them are naturally made.
 It promotes international trade.
 Disadvantages:
 The depth and navigability of rivers and canals vary and thus, affect
operations of different transport vessels.
 It is a slow moving mode of transport and therefore not suitable for
transport of perishable goods.
 It is adversely affected by weather conditions.
 Sea transport requires large investment on ships and their
maintenance.

Basically three types of water
transport;
* Rivers and Canals →
← * Coastal Shipping
* Ocean Transport →

Air
• Passengers account for
most airline business,
with eight billion
passenger kilometres
flown a year in the UK.

Air Transport:
 Advantages:
 It is the fastest mode of transport.
 It is very useful in transporting goods and passengers to the
area, which are not accessible by any other means.
 It is the most convenient mode of transport during natural
calamities.
 It provides vital support to the national security and defence
 Disadvantages:
 It is relatively more expensive mode of transport.
 It is not suitable for transporting heavy and bulky
goods.
 It is affected by adverse weather conditions.
 It is not suitable for short distance travel.
 In case of accidents, it results in heavy losses of
goods, property and life.

Pipeline
• The main uses of pipelines are oil and gas
together with the utilities of water and
sewage.
• They can also be used for a few other types of
product such as pulverised coal in oil.

Advantage of Pipeline
• Moving large quantities over
long distances.
• Cheapest way of moving
liquids For ex; oil and gas
• Local networks can add
flexibility by delivering to a
wide range of locations

Disadvantage of Pipeline
• Being slow
• Inflexible
• Only carrying large volumes
of certain types of fluid
• Huge initial investment of
building dedicated pipelines

Outsourcing Benefits and Risks
Benefits
• Economies of scale
– Aggregation of multiple orders reduces costs, both in
purchasing and in manufacturing
• Risk pooling
– Demand uncertainty transferred to the suppliers
– Suppliers reduce uncertainty through the risk-pooling
effect
• Reduce capital investment
– Capital investment transferred to suppliers.
– Suppliers’ higher investment shared between customers.

Outsourcing Benefits
• Focus on core competency
– Buyer can focus on its core strength
– Allows buyer to differentiate from its competitors
• Increased flexibility
– The ability to better react to changes in customer demand
– The ability to use the supplier’s technical knowledge to
accelerate product development cycle time
– The ability to gain access to new technologies and
innovation.
– Critical in certain industries:
• High tech where technologies change very frequently
• Fashion where products have a short life cycle

Outsourcing Risks
Loss of Competitive Knowledge
• Outsourcing critical components to suppliers may
open up opportunities for competitors
• Outsourcing implies that companies lose their ability
to introduce new designs based on their own agenda
rather than the supplier’s agenda
• Outsourcing the manufacturing of various
components to different suppliers may prevent the
development of new insights, innovations, and
solutions that typically require cross-functional
teamwork

Kraljic’s Supply Matrix
• Firm’s supply strategy should depend on two
dimensions
– profit impact
• Volume purchased/ percentage of total purchased cost/
impact on product quality or business growth
– supply risk
• Availability/number of suppliers/competitive demand/
make-or-buy opportunities/ storage risks/ substitution
opportunities

FIGURE : Kraljic’s supply matrix

• Top right quadrant:
– Strategic items where supply risk and impact on profit are
high
– Highest impact on customer experience
– Price is a large portion of the system cost
– Typically have a single supplier
– Focus on long-term partnerships with suppliers
• Bottom right quadrant
– Items with high impact on profit
– Low supply risk (leverage items)
– Many suppliers
– Small percentage of cost savings will have a large impact
on bottom line
– Focus on cost reduction by competition between
suppliers

• Top left quadrant:
– High supply risk but low profit impact items.
– Bottleneck components
– Do not contribute a large portion of the product cost
– Suppliers have power position
– Ensure continuous supply, even possibly at a premium cost
– Focus on long-term contracts or by carrying stock (or
both)
• Bottom left quadrant:
– Non-critical items
– Simplify and automate the procurement process as much
as possible
– Use a decentralized procurement policy with no formal
requisition and approval process

Fisher’s Functional vs. Innovative
Products
Functional Products Innovative Products
Product clockspeed Slow Fast
Demand Characteristics Predictable Unpredictable
Profit Margin Low High
Product Variety Low High
Average forecast error at the
time production is committed
Low High
Average stockout rate Low High

The Value Analysis
Value analysis is based on the application of a systematic
work plan that may be divided into various steps:
• orientation/preparation
• Information
• Analysis
• Innovation/creativity,
• Evaluation and implementation and monitoring.
The application of value analysis only needs to make use of
basic techniques such as matrixes, pareto chart, pert and
gantt diagrams, etc.

SIX “ WHATs OF VALUE ANALYSIS
“
1) What is it ?
2) What does it do ?
3) What does it cost ?
4) What is it worth ?
5) What else will do the job
?
6) What does that cost ?

BENEFITS TO BE ACHIEVED BYVA
• Better purchasing techniques
• Better suppliers & manufacturing
methods
• Lower operating costs
• Standardisation & re-evaluation
• Substitution & packaging
• Better material handling
• Better inventory control
• Lower maintenance & overhead cost

APPLICATION OF VALUE ANALYSIS
1.Capital goods – plant, equipment, machinery, tools, etc.
2.Raw and semi-processed material, including fuel.
3.Materials handling and transportation costs.
4.Purchased parts, components, sub-assemblies, etc.
5.Maintenance, repairs, and operational items.
6.Finishing items such as paints, oils, varnishes, etc.
7.Packing materials and packaging.
8.Printing and Stationery items.
9.Miscellaneous items of regular consumptions.
10.Power, water supply, air, steam & other utilities
services.

GLOBAL SOURCING
the process of
identifying, developing,
and utilizing the best
source ofsupply for the
enterprise, regardless of
location

COMMON REASONSFOR
GLOBAL SOURCING
Reducing overall coststructure
Availability of a new technology and capacity
Establishing alternative sources ofsupply
Access to new designs or specialized intellectual
capital
Government incentives
Superior quality

Global Sourcing Issues
A third problem companies face in global sourcing is
communication. Many times there are delays and confusion
in translations.
Sending documents via couriers or the postal service is often
time consuming and creates problems of obsolescence, more
confusion, and late or even lost deliveries.
There has been an increase in the use of the Internet to
eliminate the time delay and confusion.
Global sourcing is the trend of the future.
Supply management is becoming very important to the
survival of both American and offshore firms.
In certain industries, using foreign suppliers can reduce total
costs.
Firms in the apparel and electronics industries that do not use
global sourcing could find themselves out of business when
competing with firms that source globally.
Global sourcing is by no way expanded to completely replace
domestic sources; however, it is a way to meet a competitor’s
challenge and achieve better value for goods all over the
world.

Advantages and disadvantages of global sourcing
▲Some advantages of global sourcing:
Low cost;
Learning how to do business in a potential market;
Tapping into skills or resources unavailable domestically;
Developing alternate supplier/vendor sources to stimulate competition;
Increasing total supply capacity.
▲Some disadvantages of global sourcing:
Hidden costs associated with different cultures and time zones,
Exposure to financial and political risks in countries with emerging economies,
Increased risk of the loss of intellectual property
Increased monitoring costs relative to domestic supply.
For manufactured goods, some key disadvantages include long lead times, the risk of
port shutdowns interrupting supply, and the difficulty of monitoring product quality.

Global Risk IssuesSome of these issues are distance, communication, time value of
money, quality issues, pipeline problems, staffing issues, and
competition.
1. Distance. The distance between the buying and selling firm is
significant in terms of time zones and physical location. Internet
capabilities usually provide a partial solution.
However, face-to-face contact is preferred for some sensitive issues. Some
cos. buyer visits each supplier on a routine basis.
Trips offshore are more expensive and time consuming.
2. Communication. Communication can be described as the glue that holds
together a sourcing relationship.
Without effective communication, global transactions between buying and
selling firms would be futile. In addition to being absolutely necessary for
the completion of the transaction, communication may also reduce or
eliminate uncertainty within the relationship.
3. Time value of money. Since most offshore deals require the use of a “letter of
credit,” the buying firm loses the use of funds when the letter is established.
Incase shipments arrive two weeks after the L/C is established. For a Rs.50
lakhs purchase, the buying firm bears a (.05 × 50 lakhs ) opportunity cost.
4. Quality issues. The buying firm must spend the necessary time to correctly
specify and articulate quality expectations. Then evaluation makes sure that
the sample is from a legitimate production run. Prototypes/lab samples should
not be analyzed.

Global Risk Issues
5. Pipeline inventory. Pipeline inventory issues will always occur when a third
party (the shipper) is involved. The problems become pronounced when
offshore sourcing is used.
6. Staffing. If a buying firm is to be effective with an offshore sourcing strategy,
it must either hire experts or develop specialists that are assigned to
offshore suppliers.
Ideally, these individuals must have experience in purchase management,
quality control, and basic a/c. This cost also must be considered in the
evaluation process.
7. The impact of increased competition. The above direct and indirect costs tend
to add unexpected costs to purchased items. However, the significant benefits
associated with offshore sourcing enable the buying firm to gain leverage over
domestic suppliers. Domestic firms are well aware that some firms are
considering offshore firms in their long-term strategies.

Negotiation is a process in which explicit
proposalsare put forward for discussionin
order to reach
agreement on anexchange or on the
realization of a common interest where
conflicting interests are present.
Negotiation
when negotiating a purchase agreement,
there are general attributes in dealing with
various offshore suppliers.

Countertrade
• Countertrade is the exchange of goods for goods in full or
partial payment of a sales transaction. Progressive companies
must participate in countertrade or risk of losing market
share.
• Counter trade appears to be flourishing in the current
climate, largely because of the recent changes that have
occurred in the international arms market since the end of
the Cold War.
• These changes have affected both the volume of the trade
and also the means through which it is financed. There are
number of countertrade arrangements. Some of the more
popular forms of counter trade are given

Some of the more popular
forms of counter trade are:
compensation practices required as
a condition of purchase of goods
and services.
–
– Offsets would include specific
forms such as co-production,
licensed production, sub-
contractor production, and
overseas investment or
technology transfer.
Offsets can be direct or indirect.
Examples of direct offsets
include the manufacture of
German designed satellite
/naval patrol vessels in India
South Korean.
1. Offsets are commercial 2. Indirect offsets occur where products
or services transferred in an offset
arrangement are unrelated to the
specific products referred to in the
export agreement.
– In many developing countries
where the industrial base and
infrastructure are poorly
developed, offsets are more
likely to be of an indirect nature.
– As an example, selling military
aircraft to a developing country
and making arrangements to
provide aerospace education for
some of the citizens of the
developing country.

3. Coproduction:
This form of agreement involves
the purchaser being given a
share in the manufacture of a
foreign designed product.
• Coproduction is encouraged
by recipients because of the
employment and technology
transfer implications. An example
would be the coproduction of the
British Harrier aircraft by
McDonnell Douglas in the United
States.
• Tier I suppliers gain commercial
advantages under this form of
arrangement when there is a high
degree of technology transfer.
4. Licensed production: Licensed
production is when the recipient
obtains a share of the production
work for its own order.

5. Sub-contractor production:
In this case a prime
contractor substitutes an
existing supplier with one
located in the buying
country.
– As an example, Boeing
placed sub-contracts
with several British firms
in order to sell the E-3
AWACS aircraft to the
United Kingdom.
– In some cases this led to
the elimination of US
sub-contractors from
Boeing's network of
suppliers.
6. Technology transfer:
Technology transfers occur
as a result of an offset are
research and development
agreements conducted in
the buying country.
– Technology transfer can
also be commitments for
foreign direct
investment made by the
selling firm to establish
or expand a subsidiary
or joint venture in the
buying country.

7. Barter: The non monetary
exchange of goods-for-goods. As
an example the so called oil for
food program between Iran and
India was designed as a barter
program.
– However, some of the actual
deals involved illegal cash
transactions between some
individuals of Nation and the
Iranian officials.
– Another example is a deal
between the UK and Saudi
Arabia which included the
purchase of military aircraft
with associated training and
support, civil aircraft,
helicopters, naval ships and
construction projects is a classic
case of barter.
–
–
8. Counter-purchase: The seller
exchanges products for
Compensatory amounts of
commodities.
– In the context of developing
Countries this normally involves
primary commodities.
– They established programs that sell
its products in exchange for grain.
– The grain is then traded through an
intermediary for dollars and not in
the heavily devalued peso.
It is not as simple as that, the car
companies has to negotiate with
the intermediaries and the
purchaser over not only the
quantity of grain, but also its
quality, availability and optimum
market price on the day of the sale.

Distributive Negotiation
 Parties compete over the distribution of a fixed sum of
value. The key question in a distributed negotiation is,
“Who will claim the most value?” A gain by one side
is made at the expanse of other.
 The Seller’s goal is to negotiate as high a price as
possible; the Buyer’s goal is to negotiate as low a price
as possible.
 Thus, the deal is confined: there are not much
opportunities for creativity or for enlarging the scope of
the negotiation.

Integrative Negotiation
 In Integrative Negotiation, parties cooperate to achieve
maximize benefits by integrating their interests into an
agreement. This is also known as a win-win negotiation.
 The key questions is: “How can the resource best be
utilized?”
 Integrative negotiations tend to occur in following
situations:
 – Structuring of complex long-term Strategic
Relationships or other collaborations.
 – When the deal involves many financial and non-
financial terms.
 In an integrative negotiaition there are many items &
issues to be negotoiated & the goal of each side is to
create as much value as possible for itself & partner.

DISTRIBUTIVE VERSUS INTEGRATIVE
NEGOTIATIONS
Characteristic Distributive Integrative
Outcome Win-lose Win-win
Motivation Individual gain
Joint and individual
gain
Interests Opposed
Different but not
always Opposite
Relationship Short-term Longer or Short-term
Issues involved Single Multiple
Ability to make
trade-offs
Not Flexible Flexible
Solution Not Creative i
Creative

NEGOTIATING BEHAVIOUR
Gavin Kennedy describes 3 types of
behaviour that we can display and encounter
when in a negotiating situation.
RED BLUE PURPLE

RED Behaviour
 Manipulation
 Aggressive
 Intimidation
 Exploitation
 Always seeking the best for you
 No concern for person you are negotiating with
 Taking
People behave in this manner when they fear exploitation by the other
party, but by behaving this way to protect themselves, they provoke the
behaviour they are trying to avoid.

BLUE Behavior
 cooperation
 Trusting
 Pacifying
 Relational
 Giving
Kennedy talks of a ‘behavioural dilemma’, do you cooperate (blue) or
defect (red)?
Can you trust the other person? And to what extent? Trusting someone
involves risk, on the one hand being too trusting is naïve and on the other,
not trusting at all can create deceitful behaviour.
The answer is to merge blue and red behaviour into purple.

PURPLE Behaviour
are
 Give me some of what I want (red)
 I’ll give you some of what you want (blue)
 Deal with people as they are not how you think they
 Good intentions
 Two way exchange
 Purple behaviour incites purple behaviour
 Tit for tat strategies
 Open
 People know where they stand
 Determination to solve problems by both sets of criteria of the
merits of the case and/or the terms of a negotiated exchange
To the red behaviourist the message is loud and clear, ‘You will get nothing
from me unless and until I get something from you’.

SKILLS FOR EFFECTIVE
NEGOTIATION
 Ability to lead and control members of own team or group
 Previous negotiating experience
 Personal sense of security
 Open-mindedness (tolerance of other viewpoints)
 Competitiveness (desire to compete and win)
 Skill in communicating and co-ordinating various objectives within own organisation
 Debating ability (skill in parrying questions and answers across the table)
 Willingness to risk being disliked
 Ability to act out skilfully a variety of negotiating roles or postures
 Status or rank in organisation
 Tolerance to ambiguity and uncertainty
 Skill in communicating by signs, gestures and silence (non-verbal language)
 Compromising and trusting temperament
 Attractive personality and sense of humour (degree to which people enjoy being with
the person)
 Willingness to take somewhat above-average business or career risks
 Willingness to employ force, threat or bluff
 Learn to flinch.
 Maintain your walk away power
 Have a Purple attitude

P’s OF NEGOTIATION
Like P’s of Marketing, essentials of negotiation are called as P’s of
negotiation. They are as follows:
Purpose : aim is required otherwise it will result in wastage of money,
manpower & time.
Plan : main agenda on which negotiation is to be carried on.
Pace : main points should be covered in discussions, also proper breaks must
be introduced to maintain interest of peoples involved.
Personalities : negotiator initiating negotiation must have convincing power, effective
communication skills, can influence people & process of negotiation.

FACTORS AFFECTING NEGOTIATION
 PLACE: Familiarity with surrounding helps in
boosting confidence.
TIME: Time should be adequate for smooth
exchange of ideas & securing agreement before it is to
late .
 ATTITUDE: Attitude of both parties should be
positive, i . e, willingness to make an agreement or deal.
 SUBJECTIVE FACTORS: Like relation of two
parties involved, status difference, information &
expertise.

Price Analysis Techniques
Historical Price
Comparison with
previous prices for
same or similar items
Parametric
Uses relationships
between technical and
cost with known
historical values
Compare offered price
to catalog price of
same or similar items
Price List
Competition
Comparison of
proposed prices
received in response to
a RFQ or RFP
Issue RFI, conduct FGD,
attend trade
associations review
catalog
Market Research
Analysis of other
pricing information
from the bidder
Other Price from
the Bidder

Activity Based Costing – Objectives
• TheprimaryobjectiveofABC istoassigncosts that
reflect / mirror the physical dynamics of the
business
• Provides ways of assigning the costs of indirect
support resources to activities, business processes,
customers,products.
• Itrecognisesthatmanyorganisationalresources are
required not for physical production of units of
product but to provide a broad array of support
activities.

Activity Based Costing– Benefits and
Limitations
 Moreaccurateandinformativeproductcosts
leadtobetterpricingdecisions.
 Theactivitiesdrivingcostsaremore
accuratelymeasured.
 Managersgaineasieraccesstotherelevant
costs.
An ABC system is very expensive
to develop and implement, and
very time-consuming to maintain.
Benefits
Limitations

1. ABC system provides accurate costing of products/services.
2. Management has better understanding overheads cost.
3. The system utilizes unit cost rather than total cost unlike
absorption costing system.
4. ABC system integrates well with Six Sigma and other
continuous improvement programs.
5. The in-depth study of overheads cost under ABC system
makes all wastages visible to management and all non-
value added activities known to them. Thus, better controls
can be exercised on them.
6. It supports performance management and scorecards.
7. The system enables costing of processes, supply chains,
and value streams.
8. ABC system helps in benchmarking other products.

1. Implementing ABC system requires a big budget initially.
2. After implementation, the maintenance of the system is costly. Data
concerning numerous activity measures must be collected , checked, and
entered into the system on regular basis.
3. ABC system produces numbers such as product margins that are different
from the profits produced by traditional costing system. Management may
be double minded as they are used to work with traditional costing system,
as a requirement for external reporting.
4. ABC system generated data can be misinterpreted and must be used
with care when used in making decisions. Costs assigned to products,
customers and other cost objects are only potentially relevant.
5. Reports generated by ABC system do not conform to Generally
Accepted Accounting Principles (GAAP). Consequently, an organization
involved in ABC should have two cost systems - one for internal use and
one for preparing external reports.

Procurement Conduct
manifestation of organization culture
Selection of Suppliers
no personal bias
Supplier’s Practice
understanding supplier’s supply chain

How to establish ethical procurement practices?
Purchasing code of conduct
Integrate ethical purchasing to existing management
Rewards and performance reviews
Top management support in establishing ethical code
Business environment and culture of source country
Training to employees and staff
Proper communication to all levels
Ethical audits – surprise visits to factories, warehouses

Purchasing Ethics-7 Sensitive Situations
• A purchasing team member accepted a gift - perhaps even a low-
value item like a pen - from a supplier.
• A purchasing team member has a personal or financial relationship
with a supplier or an employee of a supplier.
• A purchasing team member owns a supplier's stock.
• A purchasing team member mixes business and entertainment with
a supplier, for example discussing business over a meal or a round
of golf.
• In a competitive bidding situation, the purchasing team provided
certain information to one supplier that was not provided to other
suppliers.
• The purchasing team did not provide transparency for a supplier
selection, including failing to internally share selection criteria,
proposal details, and the rationale for the decision.
• The supplier selection criteria used was different than the criteria
noted in the RFP/tender.

Copyright
Automatically granted to
artists, musicians authors
Only protects original
work
Lasts lifetime of artist
Artist may have to prove
the date of
creation
Fee of charge
Offers exclusive rights for
protecting original
creative work
( cartoons,music,drama)
,authorship.

COPYRIGHTS
It is a bundle of rights given by law to creator literary, dramatic, musical
artistic works & producers of cinematograph films & sound recordings.
Copyright act came into existence in 1957,it is amended six times since
then & most recent amendment was in the year 2012.
Features Of Copyright Act:
i)Types Of Work Protected:Rights of reproduction of
work,communication of workto public, adaptation & transaction of
work.(dramatic,musical,literary,Music,Artistic)
ii)Duration Of Copyright:Varies with type of work & duration is lifetime
of Author + sixty years fr.
iii)Ownership Of Copyright: Author is considered as 1st owner under
act-1957.However work made in course of authors employment ,ap
prenticeship ,the employer is considered 1st owner of copyright.
iv)Assignment Of Copyright:To be in writing& specify work, period,
territory.In absence of period it is 5 years ,presumed to be India & shall
revert to Author after 5 years.

Patents
Protect how things work,
how its made and what
from
Apply to UK Intellectual
Property Office
Lasts 20 years
Can sell the rights of the
patent
Costs £200

Patents
A set of exclusive rights granted by sovereign state to an
inventor or assignee for a limited period of time in exchange
for detailed public disclosure of an invention.
Patent act came into existence in 1970 was amended in
(1999,2002,2005,2006)-After a gap it was amended in
2012,2013,2014 & Ministry of Commerce & Industry through
draft in 2015 with several features.
Patent Duration: In India patent terms is for a period of 20
years from date of filing application.However,under PCT term
begins from intl. filing date.
Geographic Indications(GI)-Darjeeling tea became 1st GI
tagged product in India in July-2012

Features Of Indian Patent Law
i) Object: To encourage scientific research,new technology &
industrial progress.
ii)Inventive: Patent is granted only for an invention which
must have novelty & utility. It is essential that it must be
inventors own discovery.
iii)Useful:As per courts view patentable invention aprt from
being new invention need to be useful.
iv)Improvement:For product to be patentable it needs to
have something more than mere workshop improvement &
need to satisfy invention test.It needs to produce new result
or new product or cheaper product than before.
v)Guiding Test:a)Manner of manufacture was publicly
known,used/practiced in the country before patent date
b)Discovery must not be the obvious or natural suggestion of
what is previously known.

Infringement Of Patent(Unethical Practes)
Patent confers exclusive right on the patentee to make
distribute or sell invention in India. This exclusive right is for
20 years. After 20 years invention becomes a public domain.
In case of product patent ,rights of patentees are infringed by
anyone who makes or supplies product commercially.
What can amount to Infringement: i)Colorable imitation of
invention ii) Immaterial variable in invention iii) Mechanical
equivalents iv)Taking essential features of invention.
Action Of Infringement: Patentee to institute suit for
infringement in any court inferior to district court having
jurisdiction to The relief may be awarded in such suit i)
Interim injunction /Damages or account of profits/Permanent
injunction.
Period Of Limitation: For instituting a suit for patent
infringement is 3 years from date of infringement.

Ethical Issues In Patent
• Evergreening of patent not allowed: Mere workshop improvement
is not recognised. It’s a meaningful improvement
• Allows compulsory Licensing: Allows patented products available
to public in developing & undersdveloped countries
• Allows both Product & process patent: Prior to 2006 only process
was allowed to be patented.
• System of pre & post grant opposition: Introduced in 2005. Ensures
only deserving patents are granted. Objection can be granted.
• Data Exclusivity: Indian patent act doesn’t provide for for data
exclusivity. Companies spend time ,money on research on new
products. For patents they need to provide data for getting patent.
Thus through this company gets sureity that authorities shall not
share such data for certain period.

Trademarks
What is a trademark?
A trade mark is a sign which
can distinguish goods and
services from those of
competitors.
It can be for example words,
logos or a combination of
both
The Windows sound, and the
Nokia ring tone
Signifies to name ,word,logo
,phrase,image
Design,symbol etc or
combination of all.
Used for distingushing those
characteristics or attributes
which helps in identifying any
specific brand ,individual.

Trademarks
Means a mark capable of being represented graphically&
which is capable of distinguishing the goods or services of one
person from those of others & may include shape of goods
their ,packaging & combination of colors.
Objectives Of TM: i)Mode of acquisition of such rights
ii)Method of transfer of those rights to others iii) Precise
nature of rights which person can acquire in respect to TM
Functions Of Trade Mark:i)Identifies product of its origin ii)
Reflects quality of product iii) Help promotes products incase
design is unique iv)Help maintain good brand image.
Application is submitted to registrar in writing for registration.
Duration:Registration of TM shall be period of 10 years but
may be renewed from time to time.

Difference between TM & R
• Trademark (™) = is the
symbol used to represent
an unregistered trademark.
A trademark is a mark
established by use as
representing a company or
product.
• The owner of the trademark
can receive protection
through the Lanham act but
not as much protection as a
registered
trademark. (USPTO)
• Registered Trademark (®)
has been registered and
validated by a patent and
trademark office.
Some countries, like the
U.S., require the use of the
® symbol as a prerequite for
obtaining damages. Other
countries don't have this
requirement.

Infringement Of Registered TM
i) A person who not being registered proprietor or a person
uses in trade a mark which is similar to the TM in relation to
goods. ii)Likely to cause confusion on part of public or which
is likely to have an association with TM iii) Identical with
similar to registered trade mark iv) Registered TM is infringed
by advtg. Of such advtg. a)Takes unfair advantage of &
contrary to honest practices in commercial/industrial matters
b)Detrimental to its distinctive character c) Against reputation
of TM.
Right against Infringement: i) Subject to any agreemnt
between parties ,a register user may institute proceedings for
infringement in his own name if he is registered proprietor.

SCM

More Related Content

What's hot (20)

Similar to SCM (20)

More from Sudhir Upadhyay (20)

Recently uploaded (20)

SCM