09-05-2024

OSCM MOD 4

Supply Chain Drivers and Metrics

The major drivers of Supply chain performance consist of three logistical drivers & three
cross-functional drivers.
Logistical drivers:
o Facilities
o Inventory
o Transportation
Cross-functional drivers:
o Information
o Sourcing
o Pricing
Company’s supply chain achieves a balance between responsiveness & efficiency that best
meets the needs of its customers.

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Facility
• Facilities are crucial: They are the physical locations where products are
transformed or stored within the supply chain network.
• Two main types: Production sites handle the creation or assembly of
products, while storage sites hold raw materials, work-in-progress, or
finished goods.
• Strategic decisions: The location, size, and capabilities of facilities
significantly impact the supply chain's performance in terms of efficiency
and responsiveness.
• Examples: The contrasting strategies of Amazon (increased warehouses for
faster delivery) and Blockbuster (reduced stores for lower costs) highlight
this point.

Inventory
• Inventory definition: It refers to all the raw materials, unfinished products
(work-in-process), and finished goods within a supply chain. It's listed as an
asset on a company's balance sheet.
• Inventory strategy's impact: Decisions about inventory levels can
significantly affect a supply chain's ability to deliver quickly
(responsiveness) and efficiently manage costs.
• Examples:
• W.W. Grainger prioritizes responsiveness by holding high inventory, even though it
impacts efficiency. This works because their products have a long shelf life.
• Zara demonstrates responsiveness with low inventory by focusing on faster
production and shorter lead times. This strategy reduces costs associated with
holding large amounts of stock, especially in a fast-changing industry like fashion.

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Transportation
• Transportation's role: It involves moving inventory across different stages in the
supply chain.
• Variety of options: There are various transportation modes (air, water, road, etc.)
and routes that can be combined to achieve specific goals.
• Companies often face a trade-off between responsiveness and cost when selecting
transportation options. Opting for faster modes of transportation, such as FedEx for
expedited shipping, can enhance supply chain responsiveness by reducing delivery
times. However, this choice typically comes with higher transportation costs, which
can impact overall supply chain efficiency.
• McMaster-Carr and W.W. Grainger have adopted a different approach by structuring
their supply chains to provide next-day service to most customers using ground
transportation. By leveraging ground shipping, they can offer rapid delivery while
keeping transportation costs relatively low compared to express services like FedEx.
This strategy allows them to achieve a high level of responsiveness at a lower cost,
enhancing customer satisfaction while maintaining operational efficiency.

Information
• Information as the core: It encompasses data and analysis related to various
aspects of the supply chain, including facilities, inventory, transportation, costs,
and customer behavior.
• Impact on performance: Information is arguably the most significant driver of
supply chain performance because it influences all other factors.
• Benefits of effective information: Timely and accurate information empowers
businesses to optimize their supply chains for responsiveness (meeting customer
demands quickly) and efficiency (cost-effectiveness).
• Seven-Eleven Japan provides a notable example of how information can be
utilized to achieve high levels of responsiveness and efficiency. Through
sophisticated information systems, Seven-Eleven Japan can closely monitor
customer demand patterns, adjust inventory levels accordingly, and streamline
production and replenishment processes. This enables the company to meet
customer needs promptly while simultaneously reducing production and
replenishment costs through economies of scale and better inventory management.

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Sourcing
• Sourcing definition: It refers to selecting who will perform a specific supply chain
activity, be it production, storage, transportation, or information management.
• Strategic impact: Sourcing decisions determine which functions a company
handles internally and which are outsourced to external partners.
• Impact on performance: Sourcing strategies can significantly affect how
responsive (meeting customer demands quickly) and efficient (cost-effective) a
supply chain is.
• For instance, when Motorola outsourced a significant portion of its production to
contract manufacturers in China, it experienced improvements in efficiency due to
lower production costs. However, this decision led to decreased responsiveness
because of the longer distances involved in transportation. To mitigate the loss in
responsiveness, Motorola resorted to air freight to expedite the delivery of some cell
phones from China, despite the increased transportation costs.

Pricing
• Pricing's role: It determines the monetary value a company assigns to
its products or services within the supply chain.
• Impact on buyer behavior: Pricing strategies influence how customers
behave, ultimately affecting the overall supply chain performance.
• Example: A transportation company offering variable charges based on
lead time caters to both efficiency-seeking customers (who order early
for lower costs) and responsiveness-seeking ones (willing to pay more
for faster delivery). This "differential pricing" strategy provides
flexibility for customers with different priorities.

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Facilities

• Role in the supply chain

❖The “where” of the supply chain
❖Manufacturing or storage (warehouses)

• Role in the competitive strategy

❖Economies of scale (efficiency priority)
❖Larger number of smaller facilities (responsiveness priority)

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Factories can be built to accommodate one of two approaches to manufacturing:

1. Product Focus: A factory that takes a product focus performs the range of different
operations required to make a given product line from fabrication of different product
parts to assembly of these parts.

2. Functional focus: A functional focus approach concentrates on performing just a few

operations such as only making a select group of parts or doing only assembly.

Facilities are a key driver of supply chain performance in terms of

responsiveness and efficiency. For example, companies can gain economies of
scale when a product is manufactured or stored in only one location; this
centralization increases efficiency. The cost reduction, however, comes at the
expense of responsiveness, as many of a company’s customers may be located
far from the production facility.

The opposite is also true. Locating facilities close to customers increases the
number of facilities needed and consequently reduces efficiency. If the customer
demands and is willing to pay for the responsiveness that having numerous
facilities adds, however, then this facilities decision helps meet the company’s
competitive strategy goals

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Both Toyota and Honda use facilities decisions to be more responsive to

their customers. These companies have an end goal of opening
manufacturing facilities in every major market that they enter. While there
are other benefits to opening local facilities, such as protection from
currency fluctuation and trade barriers, the increase in responsiveness
plays a large role in Toyota’s and Honda’s decision to place facilities in
their local markets.

The flexibility of Honda facilities to assemble both SUVs and cars in the
same plant allowed the company to keep costs down in the downturn of
2008. While competitors’ SUV production facilities were idle, Honda
facilities maintained a high level of utilization.

A company can take following steps to make their

facilities more responsive:
Localization of Manufacturing Facilities:
Prioritize establishing manufacturing facilities in key markets to respond quickly to regional
demand fluctuations and reduce transportation lead times. This allows the manufacturer to be
closer to customers and adapt production to local market preferences.
Flexibility in Production Processes:
Invest in flexible production processes that allow the manufacturer to produce a variety of
products or product variants in the same facility. This flexibility enables quick adjustments to
changing market demands and helps maintain high utilization rates even during fluctuations in
product demand.
Strategic Location Selection:
Select facility locations strategically, taking into account factors such as proximity to key
markets, availability of skilled labor, infrastructure, and access to transportation networks.
Strategic location decisions can enhance responsiveness and reduce lead times in serving
customers.

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Investment in Technology and Automation:

Implement advanced manufacturing technologies and automation solutions to improve
production efficiency, reduce setup times, and increase flexibility. This allows the
manufacturer to quickly adapt to changes in production requirements and respond
promptly to customer demands.
Collaboration with Suppliers:
Foster collaborative relationships with suppliers to ensure timely availability of raw
materials, components, and parts. Close collaboration with suppliers can help minimize
supply chain disruptions and enhance overall supply chain responsiveness.
High Level of Utilization:
Ensure high utilization rates of manufacturing facilities by optimizing production
output and minimizing idle capacity. This involves efficient resource allocation,
effective production scheduling, and proactive management of production levels to
meet demand fluctuations.

INVENTORY

Inventory encompasses all the raw materials, work in process, and finished goods within
a supply chain. Changing inventory policies can dramatically alter the supply chain’s
efficiency & responsiveness.

• Role in competitive strategy

✓Form, location, and quantity of inventory allow a supply chain to range from being very low
cost to very responsive
✓Objective is to have right form, location, and quantity of inventory that provides the right level
of responsiveness at the lowest possible cost

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Amazon attempts to provide a wide variety of books (among other products) to

its customers. Best-selling books are stocked in many regional warehouses
close to customers for high responsiveness. Slower moving books are stocked
at fewer warehouses to lower the cost of inventory at the expense of some
responsiveness.

Some of the slowest moving books are not held in inventory but are obtained
from the publisher/distributor or printed on demand when requested by a
customer. Amazon changes the form, location, and quantity of inventory it
holds by the level of sales of a book to provide the right balance of
responsiveness and efficiency.

Components of Inventory Decisions

• Cycle inventory
✓ Average amount of inventory used to satisfy demand between shipments
✓ Function of lot size decisions

• Safety inventory
✓ Costs of carrying too much inventory versus cost of losing sales
✓ Inventory held in case demand exceeds expectations

• Seasonal inventory
✓ Inventory built up to counter predictable variability in demand
✓ Cost of carrying additional inventory versus cost of flexible production

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Transportation

• Role in the supply chain

❑Moves the product between stages in the supply chain

❑Impact on responsiveness and efficiency
❑Faster transportation allows greater responsiveness but lower efficiency

• Role in the competitive strategy

➢Allows a firm to adjust the location of its facilities and inventory to find the right balance
between responsiveness and efficiency

The type of transportation a company uses also affects the inventory and
facility locations in the supply chain. Dell, for example, flies some components
from Asia because doing so allows the company to lower the level of inventory
it holds. Clearly, such a practice also increases responsiveness but decreases
transportation efficiency because it is more costly than transporting parts by
ship.

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➢Transportation allows a firm to adjust the location of its facilities and

inventory to find the right balance between responsiveness and efficiency. A
firm selling high-value items such as pacemakers may use rapid transportation
to be responsive while centralizing its facilities and inventory to lower cost.

➢In contrast, a firm selling low-value, high-demand items like light bulbs may
carry a fair amount of inventory close to the customer but then use low-cost
transportation like sea, rail, and full trucks to replenish this inventory from
plants located in low-cost countries.

Components of transportation decisions

➢Design of transportation network

Modes, locations, and routes

❑Direct or with intermediate consolidation points
❑One or multiple supply or demand points in a single run

➢ Choice of transportation mode

Air, truck, rail, sea, and pipeline

❑Different speed, size of shipments, cost of shipping, and flexibility

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Supply chain efficiency through transportation

Optimize Transportation Routes: Utilize route optimization software to identify the

most efficient transportation routes for moving components from suppliers to
manufacturing plants and finished vehicles to dealerships. By minimizing travel
distance, reducing fuel consumption, and decreasing transit times, the company can
improve overall transportation efficiency.
Consolidate Shipments: Collaborate with logistics partners and carriers to
consolidate shipments whenever possible. By combining multiple smaller shipments
into larger, full truckloads or container loads, the company can reduce transportation
costs, optimize vehicle utilization, and minimize empty miles.
Implement Intermodal Transportation: Utilize multiple modes of transportation,
such as road, rail, sea, and air, in an integrated manner to optimize the transportation
network. Intermodal transportation offers flexibility, scalability, and cost-
effectiveness, especially for long-distance shipments or international logistics.

Deploy Real-Time Tracking: Implement IoT sensors and GPS tracking

devices on vehicles and shipments to monitor their location, status, and
condition in real-time. This visibility enables proactive management of
transportation operations, timely interventions in case of delays or
disruptions, and improved customer service.

Collaborate with Carriers: Collaborate closely with transportation carriers

to negotiate favorable rates, service levels, and terms. By building strong
relationships with carriers and fostering a spirit of partnership, the company
can ensure reliable, cost-effective transportation services that meet its
specific needs and requirements.

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Supply chain responsiveness through transportation:

Utilize Expedited Shipping: Opt for expedited shipping services, such as air freight
or express delivery, for critical components or urgent shipments. While this option
may come at a higher cost, it ensures rapid transportation and minimizes lead times,
allowing the company to respond quickly to changes in demand or unexpected
disruptions.
Implement Dynamic Routing: Implement dynamic routing systems that can
quickly adapt to changing conditions and prioritize shipments based on urgency. By
continuously monitoring factors like traffic congestion, weather conditions, and
customer priorities, the company can optimize transportation routes in real-time to
minimize delays and ensure timely deliveries.
Maintain Safety Stock: Maintain safety stock levels of critical components or
finished products at strategic locations, such as regional distribution centers or
forward stocking locations. This ensures that there are buffer stocks readily available
to fulfill urgent orders or address unforeseen demand spikes without delay.

Utilize Cross-Docking: Implement cross-docking facilities to streamline the

flow of goods through the supply chain. Cross-docking involves transferring
incoming shipments directly from inbound transportation vehicles to outbound
vehicles with minimal storage time. This reduces handling and storage costs,
shortens lead times, and improves responsiveness by accelerating order
fulfillment.

Leverage Dedicated Transportation: Partner with dedicated transportation

providers or establish dedicated transportation fleets to ensure immediate
availability and rapid deployment of transportation resources when needed.
Dedicated transportation options offer flexibility, reliability, and
responsiveness, allowing the company to meet tight delivery deadlines and
respond promptly to customer requests.

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Enable Real-Time Tracking and Visibility: Implement advanced tracking and visibility
solutions, such as IoT sensors and GPS tracking devices, to monitor the movement of
goods in real-time. By providing stakeholders with up-to-date information on shipment
status, location, and estimated arrival times, the company can proactively manage
exceptions, communicate effectively with customers, and mitigate potential disruptions.

Establish Collaborative Relationships: Foster collaborative relationships with

transportation partners, suppliers, and other stakeholders to enhance communication,
coordination, and agility in the supply chain. By working closely with partners and
sharing information transparently, the company can anticipate challenges, identify
opportunities for improvement, and implement joint solutions to enhance responsiveness
and customer satisfaction.

Information

• Rolein the supply chain

➢Improve the utilization of supply chain assets and the coordination of supply chain
flows to increase responsiveness and reduce cost
➢Information is a key driver that can be used to provide higher responsiveness while
simultaneously improving efficiency.

• Role in the competitive strategy

➢Right information can help a supply chain better meet customer needs at lower cost
➢Improves visibility of transactions and coordination of decisions across the supply
chain
➢Share the minimum amount of information required to achieve coordination

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Andersen Windows, a major manufacturer of residential wood windows located in Bayport,

Minnesota, has invested in an information system that enables the company to bring customized
products to the market rapidly. This system, called “Window of Knowledge,” allows distributors
and customers to design windows to custom-fit their needs. Users can select from a library of more
than 50,000 components that can be combined in any number of ways.

The system immediately gives the customer price quotes and automatically sends the order to the
factory if the customer decides to buy. This information investment not only gives the customer a
much wider variety of products, it also allows Andersen to be much more responsive to the
customer, as it gets the customer’s order to the factory as soon as the order is placed.

SOURCING

Role in the supply Chain

▪ Set of business processes required to purchase goods and services

▪ Will tasks be performed by a source internal to the company, or a third

party

▪ Globalization creates many more sourcing options with both

considerable opportunity and potential risk

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Sourcing from low-cost countries allows a company like IKEA to provide

the basic modules for the furniture it sells at low cost. Sourcing some of its
PCs sold at Wal-Mart from China has allowed Dell to lower their cost.

Meanwhile, Dell continues to produce in-house those machines for which

responsiveness is required. As supply chains have globalized, many more
sourcing options now offer both considerable opportunity and potential
risks. Thus, sourcing decisions have a significant impact on supply chain
performance.

Role in the competitive strategy

Sourcing decisions are crucial because they affect the level of efficiency
and responsiveness in a supply chain

• Outsource to responsive third parties if it is too expensive to develop

their own
• Keep responsive process in-house to maintain control

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Cisco has outsourced almost all of its manufacturing. It does, however, have a
sourcing strategy that varies by product type. For low-end products such as
routers for home networks, Cisco aims for efficiency. These routers are
produced and packed in China and shipped in bulk for sale in the United
States.
Cisco aims for the lowest cost manufacturing location and economies of scale
in transportation because the targeted market segment values low cost. For
high-end products, in contrast, Cisco outsources to contract manufacturers in
the United States. These manufacturers are not low cost, but they are
responsive and can serve the rapidly evolving needs of the high-end market.

Components of Sourcing Decisions

• In-house or outsource
Perform a task in-house or outsource it to a third party

• Supplier selection
Number of suppliers, evaluation and selection criteria, direct negotiations or
auction

• Procurement
The supplier sends product in response to customer orders

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OVERALL TRADE-OFF: INCREASE THE SUPPLY CHAIN SURPLUS

Sourcing decisions should be made to increase the size of the total surplus to
be shared across the supply chain. The total surplus is affected by the impact
of sourcing on sales, service, production costs, inventory costs, transportation
costs, and information costs.

Outsourcing to a third party is meaningful if the third party raises the supply
chain surplus more than the firm can on its own. In contrast, a firm should
keep a supply chain function in-house if the third party cannot increase the
supply chain surplus or if the risk associated with outsourcing is significant

Pricing

Role in the Supply Chain

▪ Pricing determines the amount to charge customers for goods and services

▪ Affects the supply chain level of responsiveness required and the demand
profile the supply chain attempts to serve

▪ Pricing strategies can be used to match demand and supply

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Role in the Competitive Strategy

❑Firms can utilize optimal pricing strategies to improve efficiency and

responsiveness

❑Pricing strategies vary to meet different customer responsiveness

requirements

Example
Pricing is a significant attribute through which a firm executes its competitive strategy. For example, Costco, a
membership-based wholesaler in the United States, has a policy that prices are kept steady but low. Customers
expect low prices but are comfortable with a lower level of product availability. The steady prices also ensure
that demand stays relatively stable. Costco serves a well-defined segment, and it can thus design an appropriate
supply chain. The Costco supply chain aims to be efficient, at the expense of some responsiveness.

In contrast, some manufacturing and transportation firms use pricing that varies with the response time desired
by the customer. Through their pricing, these firms are targeting a broader set of customers, some of whom need
responsiveness while others need efficiency. In this case, it becomes important for these firms to structure a
supply chain that can meet the two divergent needs. Amazon uses a menu of shipping options and prices to
identify customers who value responsiveness and those who value low cost.

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Components of Pricing Decisions

• Pricing and economies of scale

The provider of the activity must decide how to price it appropriately to reflect
these economies of scale
• Everyday low pricing versus high-low pricing
Different pricing strategies lead to different demand profiles that the supply
chain must serve
• Fixed price versus menu pricing
If marginal supply chain costs or the value to the customer vary significantly
along some attribute, it is often effective to have a pricing menu
Can lead to customer behavior that has a negative impact on profits

Supply chain network

• The supply chain network consists of suppliers, manufacturing centres,
warehouses, distribution centres, and retail outlets, as well as raw materials,
work-in-process inventory, and finished products that flow between the
facilities.
• It is the collection of physical locations, transportation vehicles and supporting
systems through which the products and services the firm markets are managed
and ultimately delivered.
• The many systems which can be utilised to manage and improve a supply chain
network include order management systems, warehouse management system,
transportation management systems, strategic logistics modelling, inventory
management systems, replenishment systems, supply chain visibility,
optimisation tools and more.

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Factors Influencing Supply Chain Network Design

At the highest level, performance of a distribution network should be evaluated

along two dimensions:

• Customer needs that are met (influence the company’s revenues)

• Cost of meeting customer needs (decide the profitability of the delivery

network)

Elements of customer service influenced by network structure are:

• Response time: the time between when a customer places an order and receives
delivery.
• Product variety: the number of different products/configurations that a
customer desires from the distribution network.
• Product availability: the probability of having a product in stock when a
customer order arrives.
• Customer experience: includes the ease with which the customer can place and
receive their order.
• Order visibility: the ability of the customer to track their order from placement
to delivery.
• Returnability: the ease with which a customer can return unsatisfactory
merchandise and the ability of the network to handle such returns.

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DESIGN OPTIONS FOR A DISTRIBUTION NETWORK

1. Manufacturer storage with direct shipping

2. Manufacturer storage with direct shipping and in-transit merge

3. Distributor storage with carrier delivery

4. Distributor storage with last-mile delivery

5. Manufacturer/distributor storage with customer pickup

6. Retail storage with customer pickup

Manufacturer storage with direct shipping

In this option, product is shipped directly from the manufacturer to the

end customer, bypassing the retailer (who takes the order and initiates the
delivery request). This option is also referred to as drop-shipping.

The retailer carries no inventory. Information flows from the customer,

via the retailer, to the manufacturer, and product is shipped directly from
the manufacturer to customers.

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Manufacturer storage with direct shipping

Cost Factors:
• Inventory: Drop-shipping offers significant advantages in inventory costs. Retailers hold
minimal to no inventory, freeing up capital and reducing storage needs. Manufacturers
benefit from aggregating demand across retailers, potentially lowering overall inventory
levels. However, this benefit relies on flexible allocation of inventory, not dedicated
allocations to specific retailers.
• Transportation: Drop-shipping typically incurs higher transportation costs. Products
are shipped from the manufacturer's central location directly to the customer, often using
less efficient package carriers compared to bulk shipments to retailers. Additionally,
customer orders with multiple manufacturers may involve multiple shipments, further
increasing costs.
• Facilities and Handling: Facilities costs are generally lower with drop-shipping.
Retailers don't require storage space, and there may be some handling cost savings by
eliminating transfers between manufacturer and retailer. However, manufacturers need
efficient single-unit picking and fulfillment capabilities to avoid negating handling cost
savings.
• Information: Drop-shipping necessitates a robust information infrastructure. Retailers
and manufacturers need real-time inventory visibility and order tracking to ensure accurate
information for customers. This can require significant investment.

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Service Factors:
• Response Time: Drop-shipping often leads to slower response times. Orders must be relayed
between retailer and manufacturer, and shipping distances can be longer. Customers may experience
longer wait times compared to traditional models.
• Product Variety: A key advantage is the potential for a wider product variety. Manufacturers can
offer all their products to customers, unrestricted by retailer shelf space limitations. Companies like
W.W. Grainger showcase this benefit by offering a vast selection of slow-moving industrial supplies.
• Product Availability: Similar to variety, drop-shipping can offer high product availability. By
aggregating demand, manufacturers can ensure sufficient stock levels to fulfill orders.
• Customer Experience: The impact on customer experience can be mixed. While wider variety and
potentially high availability are positives, slower response times and potentially multiple shipments for
complex orders can be negatives.
• Time to Market: Drop-shipping can potentially reduce time to market for new products. Retailers
don't need to invest in inventory upfront, allowing for quicker introduction of new offerings.
• Order Visibility: Strong information infrastructure is crucial for good order visibility. Customers
expect real-time tracking regardless of where the order originates. Investments are needed to ensure
transparency.
• Returnability: Drop-shipping can potentially complicate returns. The process may involve multiple
parties (retailer and manufacturer), potentially leading to a less customer-friendly return experience.

Manufacturer storage with direct shipping and in-transit merge

Unlike pure drop-shipping, under which each product in the order is sent directly
from its manufacturer to the end customer, in-transit merge combines pieces of
the order coming from different locations so that the customer gets a single
delivery.
In-transit merge has been used by Dell and can be used by companies
implementing drop-shipping. When a customer orders a PC from Dell along
with a Sony monitor, the package carrier picks up the PC from the Dell factory
and the monitor from the Sony factory; it then merges the two at a hub before
making a single delivery to the customer.

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Manufacturer storage with direct shipping and in-transit merge

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Distributor Storage with Carrier Delivery

Under this option, inventory is not held by manufacturers at the factories
but is held by distributors/retailers in intermediate warehouses, and
package carriers are used to transport products from the intermediate
location to the final customer.
Amazon and industrial distributors such as W.W. Grainger and McMaster-
Carr have used this approach combined with drop-shipping from a
manufacturer (or distributor).
From an inventory perspective, distributor storage makes sense for
products with somewhat higher demand. This is seen in the operations of
both Amazon and W.W. Grainger. They stock only the slow- to fast-
moving items at their warehouses, with very slow-moving items stocked
farther upstream.

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Distributor Storage with Last-Mile Delivery

Last-mile delivery refers to the distributor/retailer delivering the product

to the customer’s home instead of using a package carrier. Webvan,
Peapod, and Albertsons have used last-mile delivery in the grocery
industry. Amazon has launched “local express delivery” to provide
same-day delivery to customers.
The automotive spare parts industry is one in which distributor storage
with last-mile delivery is the dominant model.

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Manufacturer or Distributor Storage with Customer Pickup

In this approach, inventory is stored at the manufacturer or distributor warehouse,

but customers place their orders online or on the phone and then travel to
designated pickup points to collect their merchandise.

Orders are shipped from the storage site to the pickup points as needed.

Examples include 7dream.com and Otoriyose-bin, operated by Seven-Eleven

Japan, which allow customers to pick up online orders at a designated store.

A business-to-business (B2B) example is W.W. Grainger, whose customers can

pick up their orders at one of the W.W. Grainger retail outlets. Some items are
stored at the pickup location, whereas others may come from a central location.

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Retail Storage with Customer Pickup

In this option, often viewed as the most traditional type of supply chain,
inventory is stored locally at retail stores. Customers walk into the retail
store or place an order online or by phone and pick it up at the retail
store.
BOPIS (buy online, pickup in-store)

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Role of IT in Supply Chain

• The role of Information Technology (IT) in supply chain management is crucial for
enhancing organizational performance in several ways:
Improved Visibility and Transparency:
▪ IT systems enable real-time tracking and monitoring of inventory, orders, and shipments across
the supply chain. This visibility enhances transparency, allowing organizations to identify
bottlenecks, track the movement of goods, and optimize inventory levels more effectively.
Efficient Communication and Collaboration:
▪ IT facilitates seamless communication and collaboration among supply chain partners, including
suppliers, manufacturers, distributors, and retailers. Through electronic data interchange (EDI),
email, collaboration platforms, and other communication tools, organizations can share
information, coordinate activities, and respond promptly to changes in demand or supply.
Enhanced Planning and Forecasting:
▪ IT systems enable data-driven planning and forecasting by aggregating and analyzing large
volumes of historical and real-time data. Advanced analytics and forecasting algorithms help
organizations predict demand, optimize inventory levels, and develop more accurate production
schedules, reducing the risk of stockouts or excess inventory.

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Streamlined Operations and Automation:

▪ IT automates routine tasks and processes within the supply chain, such as order processing,
inventory management, and logistics. Automation reduces manual errors, speeds up
operations, and frees up resources for more strategic activities, leading to increased efficiency
and productivity.
Optimized Logistics and Transportation:
▪ IT enables organizations to optimize logistics and transportation activities through route
optimization, load planning, and real-time tracking of shipments. Transportation management
systems (TMS) and warehouse management systems (WMS) provide visibility into the
movement of goods, helping organizations reduce transportation costs, improve delivery
times, and enhance customer satisfaction.
Risk Management and Resilience:
▪ IT systems help organizations identify and mitigate risks within the supply chain, such as
disruptions in supply, demand fluctuations, or geopolitical uncertainties. By collecting and
analyzing data from multiple sources, organizations can proactively manage risks, develop
contingency plans, and build resilience into their supply chain operations.
Customer Relationship Management (CRM):
▪ IT supports customer relationship management by capturing and analyzing customer data,
preferences, and feedback. This enables organizations to personalize products and services,
tailor marketing campaigns, and deliver exceptional customer experiences, ultimately driving
customer loyalty and retention.

Techniques commonly used in each aspect:

1. Improved Visibility and Transparency:
Techniques: Real-time tracking systems, RFID (Radio-Frequency Identification), GPS (Global Positioning System),
barcoding, IoT sensors, supply chain visibility platforms, Blockchain.
2. Efficient Communication and Collaboration:
Techniques: Electronic Data Interchange (EDI), email communication, collaborative platforms (e.g., Slack, Microsoft
Teams), video conferencing, cloud-based document sharing and collaboration tools.
3. Enhanced Planning and Forecasting:
Techniques: Data analytics, statistical modeling, demand forecasting algorithms, machine learning, predictive analytics, big
data analytics, ERP (Enterprise Resource Planning) systems.
4. Streamlined Operations and Automation:
Techniques: Robotic Process Automation (RPA), workflow automation, AI-driven process automation, Warehouse
Management Systems (WMS), Transportation Management Systems (TMS), automated order processing systems.
5. Optimized Logistics and Transportation:
Techniques: Route optimization algorithms, load planning software, GPS fleet tracking systems, Transportation
Management Systems (TMS), Warehouse Management Systems (WMS), real-time shipment tracking.
6. Risk Management and Resilience:
Techniques: Risk analytics, scenario planning, supply chain modeling, supply chain mapping, supplier risk assessment tools,
business continuity planning software, supply chain visibility platforms.
7. Customer Relationship Management (CRM):
Techniques: Customer data analytics, CRM software (e.g., Salesforce, HubSpot), customer segmentation analysis, sentiment
analysis, personalized marketing automation, customer feedback and sentiment monitoring tools.

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I4.0 and Supply Chain

• Digital technologies like - the Internet of Things (IoT), cloud
computing, and blockchain , digital twin, 3D manufacturing - are
transforming traditional supply chain operations. These digital
technologies are revolutionizing traditional supply chain operations by
enhancing visibility, efficiency, traceability, agility, and innovation.
• Organizations that embrace IoT, cloud computing, blockchain, big data
analytics, digital twins, and 3D manufacturing can gain a competitive
edge, drive growth, and deliver value to customers in today's dynamic
business environment.

Internet of Things (IoT):

A logistics company integrates IoT sensors into their fleet of trucks to monitor various
parameters like location, speed, fuel levels, and vehicle health in real-time. This data is
transmitted to a centralized system, allowing the company to optimize routes, schedule
maintenance proactively, and ensure timely deliveries. By leveraging IoT, the company
enhances visibility and efficiency in their transportation operations.
Cloud Computing:
A multinational retailer utilizes cloud-based inventory management software to
synchronize inventory data across its global network of warehouses and stores. This
centralized system provides real-time visibility into stock levels, demand forecasts, and
order fulfillment processes. As a result, the retailer can optimize inventory levels, reduce
stockouts, and improve customer satisfaction by ensuring the right products are
available at the right locations and times.

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Blockchain:
A pharmaceutical company implements blockchain technology to track the provenance
and authenticity of its products throughout the supply chain. Each batch of medicine is
assigned a unique digital identifier recorded on the blockchain. As the product moves
from manufacturer to distributor to retailer, every transaction is securely recorded,
ensuring transparency and traceability. This helps combat counterfeit drugs, streamline
regulatory compliance, and enhance patient safety.
Big Data Analytics:
An e-commerce giant analyzes vast amounts of customer data, including browsing
history, purchase behavior, and demographic information, using big data analytics. By
leveraging predictive analytics algorithms, the company can anticipate consumer trends,
personalize product recommendations, and optimize pricing strategies. This enhances
customer engagement, increases sales, and drives competitive advantage in the crowded
e-commerce market.

Digital Twin:
An aerospace manufacturer creates digital twins of its aircraft components and
production facilities. These virtual replicas enable engineers to simulate and optimize
manufacturing processes, test different design configurations, and predict maintenance
needs. By integrating real-time data from IoT sensors into the digital twins, the
manufacturer can monitor equipment performance, identify potential issues, and
improve operational efficiency, ultimately reducing costs and enhancing product quality.
3D Manufacturing:
An automotive company adopts 3D printing technology to produce spare parts on-
demand, reducing lead times and inventory costs. Instead of maintaining large
warehouses stocked with various components, the company can digitally store CAD
(Computer-Aided Design) files and manufacture parts as needed using additive
manufacturing techniques. This agile approach enables the company to respond quickly
to changing customer demands, minimize supply chain disruptions, and achieve cost
savings in the production process.

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Sustainable SCM (TBL 3P’s)

1.Environmental (Planet) Dimension:
Reducing Environmental Impact: Sustainable supply chain management focuses on minimizing the
environmental footprint of supply chain activities, such as sourcing raw materials, manufacturing,
transportation, and waste management. Companies strive to reduce energy consumption, greenhouse gas
emissions, water usage, and waste generation throughout the supply chain.
Examples: Implementing green procurement practices to source environmentally friendly materials,
optimizing transportation routes to minimize carbon emissions, and adopting eco-friendly packaging
solutions to reduce waste.
2.Social (People) Dimension:
Promoting Social Responsibility: Sustainable supply chain management emphasizes ethical labor practices,
human rights, and community engagement throughout the supply chain. Companies prioritize fair wages,
safe working conditions, and respect for human rights in their operations and those of their suppliers.
Examples: Conducting audits to ensure supplier compliance with labor standards, providing training and
capacity-building programs for workers in the supply chain, and engaging with local communities to address
social issues and contribute to their development.
3.Economic(Profit) Dimension:
Ensuring Economic Viability: Sustainable supply chain management recognizes the importance of
economic sustainability by balancing environmental and social objectives with financial performance.
Companies seek to optimize costs, enhance efficiency, and create long-term value for stakeholders while
pursuing sustainable practices.
Examples: Implementing lean manufacturing principles to reduce waste and improve efficiency,
collaborating with suppliers to identify cost-saving opportunities, and investing in innovation and technology
to drive productivity and competitiveness.

Global Supply Chain and Sustainability

Supplier Collaboration for Sustainable Sourcing: This involves working closely with suppliers to
ensure that the raw materials used in production are sourced responsibly, with minimal environmental
and social impact.
Example: A multinational clothing retailer collaborates with its cotton suppliers to promote
sustainable farming practices. Together, they implement techniques such as organic farming, water
conservation, and fair labor practices, ensuring that the cotton used in their garments is responsibly
sourced.
Green Transportation and Logistics Optimization: This entails optimizing transportation and
logistics operations to minimize carbon emissions and environmental impact.
Example: A global food and beverage company optimizes its transportation routes to reduce carbon
emissions. By consolidating shipments, utilizing more fuel-efficient vehicles, and implementing route
optimization software, the company minimizes the environmental impact of its logistics operations.
Circular Economy Initiatives: This involves designing products and systems that promote reuse,
recycling, and resource efficiency, thereby reducing waste and environmental impact.
Example: An electronics manufacturer designs smartphones with modular components that can be
easily upgraded or repaired. This approach extends the product's lifecycle, reduces electronic waste,
and encourages customers to participate in a circular economy by returning old devices for
refurbishment or recycling.

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Supply Chain Transparency and Ethical Sourcing: This refers to providing visibility into the entire
supply chain, from raw material sourcing to production, to ensure ethical and sustainable practices are
followed.
Example: A chocolate manufacturer implements a traceability system to track the origin of its cocoa
beans. Through blockchain technology, consumers can scan a QR code on the packaging to access
detailed information about the cocoa farmers, farming practices, and certifications, ensuring transparency
and promoting ethical sourcing.
Renewable Energy Adoption: This involves transitioning to renewable energy sources such as solar,
wind, and hydro power to reduce reliance on fossil fuels and lower greenhouse gas emissions.
Example: A global automotive company invests in renewable energy sources to power its manufacturing
facilities. By installing solar panels, wind turbines, and other renewable energy systems, the company
reduces its reliance on fossil fuels, lowers greenhouse gas emissions, and contributes to the transition to a
low-carbon economy.
Employee Training and Stakeholder Engagement: This entails educating employees, suppliers, and
other stakeholders about sustainability practices and engaging them in efforts to improve sustainability
performance.
Example: A pharmaceutical company provides training programs for its employees and suppliers on
sustainability practices. Through workshops, webinars, and certification courses, participants learn about
topics such as waste reduction, energy efficiency, and ethical sourcing, empowering them to integrate
sustainability into their daily operations. Additionally, the company engages with local communities,
NGOs, and government agencies to address sustainability challenges collectively.

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