Operational Management

SUPPLY CHAIN
DISTRIBUTION

Batch: 12, Section: C

Group Members:
QASIM ZAMAN SP09-MBA-111
ZOHAIB WAHEED SP09-MBA-156
USMAN JAMIL SP09-MBA-147
AHMED SHAUKAT SP09-MBA-009
FATIMA ASGHAR SP09-MBA-033
GULSHAN SHEHZADI SP09-MBA-036
AYESHA KHAN SP09-MBA-

PRESENTED TO:
Sir Tahir Aziz Khan
MS DEPARTMENT
CIIT LAHORE
 Abstract:

Supply Chain plays a role of a backbone due to the reason that all the information flow depends
on supply chain management. Supply chain management starts form the selection of supplier and
this process ends till the final customer gets the desired product. In this whole process, supplier,
manufacturer, logistics, distribution channels all are covered. Learning organizations have made
separate supply chain management departments. We have selected Ali Akbar Group which is a
leading organization regarding their products related to agricultural sector. They have multiple
products but we have selected a pesticide named “Mirage”. The reason of selecting this product
is that they have a very diversified product line, so our area of emphasis is Mirage. We see the
supply chain management of Mirage. We have tried to see the working of this organization and
the problems faced by them, then we have given recommendations on the basis of our knowledge
and literature that we have studied.
 Literature review

Supply Chain Scheduling: Batching and Delivery Author(s):

Nicholas G. Hall and Chris N. Potts Source: Operations Research,
Vol. 51, No. 4 (Jul. - Aug., 2003), pp. 566-584 Published by:
INFORMS
Among the most important and active topics in manufacturing research over the last
10 years has been supply chain management. A supply chain represents all the
stages at which value is added to a manufactured product, including the supply of raw
materials and intermediate components, finished goods manufacture, packaging,
transportation, warehousing, and logistics. Whereas much of the supply chain
management literature focuses on inventory control or lot-sizing issues, this paper
considers a number of issues that are important to scheduling in supply chains.
Central to this literature is the idea of coordination between different parts of a supply
chain. Where decision makers at different stages of a supply chain make decisions
that are poorly coordinated, substantial inefficiencies can result. This paper considers
the coordination of scheduling, batching, and delivery decisions, both at a single
stage and between different stages of a supply chain, to eliminate those
inefficiencies.
The objective is to minimize the overall scheduling and delivery cost, using several
classical scheduling objectives. This is achieved by scheduling the jobs and forming
them into batches, each of which is delivered to the next downstream stage as a
single shipment. For each problem, we either derive an efficient dynamic
programming algorithm that minimizes the total cost of the supplier or that of the
manufacturer, or we demonstrate that this problem is intractable. The total system
cost minimization problem of a supplier and manufacturer who make cooperative
decisions is also considered. We demonstrated that cooperation between a supplier
and a manufacturer have reduce the total system cost by at least 20%, or 25%, or by
up to 100%, depending upon the scheduling objective. Finally, we identify incentives
and mechanisms for this cooperation, thereby demonstrating that our work has
practical implications for improving the efficiency of supply chains.
Order Assignment and Scheduling in a Supply
Chain
Zhi-Long Chen
Guruprasad Pundoor
Department of Decision and Information Technologies, Robert H. Smith School of
Business, University of Maryland, College Park, Maryland.

We consider the supply chain of a manufacturer who produces time-sensitive products

that have a large variety, a short life cycle, and are sold in a very short selling season.
The supply chain consists of multiple overseas plants and a domestic distribution
center (DC). Retail orders are first processed at the plants and then shipped from the
plants to the DC for distribution to domestic retailers. Due to variations in productivity
and labor costs at different plants, the processing time and cost of an order are
dependent on the plant to which it is assigned. We study the following static and
deterministic order assignment and scheduling problem faced by the manufacturer
before every selling season: Given a set of orders, determine which orders are to be
assigned to each plant, find a schedule for processing the assigned orders at each
plant, and find a schedule for shipping the completed orders from each plant to the
DC, such that a certain performance measure is optimized. We consider four different
performance measures, all of which take into account both delivery lead time and the
total production and distribution cost. A problem corresponding to each performance
measure is studied separately. We analyze the computational complexity of various
cases of the problems by either proving that a problem is intractable or providing an
efficient exact algorithm for the problem. We analyze the worst-case and asymptotic
performance of the heuristics and also computationally evaluate their performance
using randomly generated test instances. Our results show that the heuristics are
capable of generating near-optimal solutions quickly.
Integrated Scheduling of Production and
Distribution Operations
Source
Management Science archive
Volume 51 , Issue 4 (April 2005) table of contents
Year of Publication: 2005

Authors
Zhi-Long Chen
George L. Vairaktarakis

Publisher
INFORMS Institute for Operations Research and the Management Sciences (INFORMS), Linthicum,
Maryland, USA

Motivated by applications in the computer and food catering service industries, we study an
integrated scheduling model of production and distribution operations. In this model, a set of
jobs (i.e., customer orders) are first processed in a processing facility (e.g., manufacturing
plant or service center) and then delivered to the customers directly without intermediate
inventory. The problem is to find a joint schedule of production and distribution such that an
objective function that takes into account both customer service level and total distribution
cost is optimized. Customer service level is measured by a function of the times when the
jobs are delivered to the customers. We study two classes of problems under this integrated
scheduling model. In the first class of problems, customer service is measured by the average
time when the jobs are delivered to the customers; in the second class, customer service is
measured by the maximum time when the jobs are delivered to the customers. Two machine
configurations in the processing facility--single machine and parallel machine--are considered.
For each of the problems studied, we provide an efficient exact algorithm, or a proof of
intractability accompanied by a heuristic algorithm with worst-case and asymptotic
performance analysis. Computational experiments demonstrate that the heuristics developed
are capable of generating near-optimal solutions. We also investigate the possible benefit of
using the proposed integrated model relative to a sequential model where production and
distribution operations are scheduled sequentially and separately. Computational tests show
that in many cases a significant benefit can be achieved by integration.
Teaching the Costs of Uncoordinated Supply
Chains
By Charles L. Munson, Jianli Hu and Meir J. Rosenblatt © 2003

Supply-chain management has become a prominent area for teaching and research.
Academics and managers realize that communication and coordination among
members of a supply chain enhance its effectiveness, creating financial benefits to be
shared by the members. We have collected numerical examples covering (1) location
decisions, (2) centralized warehousing, (3) lot sizing with deterministic demand, (4)
demand forecasting, (5) pricing, and (6) lot sizing with stochastic demand in a
newsvendor environment. The examples are suitable for classroom use, and they
illuminate the rewards supply-chain members can obtain by eliminating naturally
occurring supply-chain inefficiencies and the costs of not doing so.

Closed-Loop Supply Chain Models with Product

Remanufacturing
By R. Canan Savaskan, Shantanu Bhattacharya and Luk N. van
Wassenhove © 2004

The importance of remanufacturing used products into new ones has been widely
recognized in the literature and in practice. In this paper, we address the problem of
choosing the appropriate reverse channel structure for the collection of used products
from customers. Specifically, we consider a manufacturer who has three options for
collecting such products: (1) she can collect them herself directly from the customers,
(2) she can provide suitable incentives to an existing retailer (who already has a
distribution channel) to induce the collection, or (3) she can subcontract the collection
activity to a third party. Based on our observations in the industry, we model the
three options described above as decentralized decision-making systems with the
manufacturer being the Stackelberg leader. When considering decentralized
channels, we find that ceteris paribus, the agent, who is closer to the customer (i.e.,
the retailer), is the most effective undertaker of product collection activity for the
manufacturer. In addition, we show that simple coordination mechanisms can be
designed such that the collection effort of the retailer and the supply chain profits are
attained at the same level as in a centrally coordinated system.
The Importance of Distribution:
Most producers use intermediaries to bring their products to market. They try to
develop a distribution channel (marketing channel) to do this. A distribution
channel is a set of interdependent organizations that help make a product available
for use or consumption by the consumer or business user. Channel intermediaries
are firms or individuals such as wholesalers, agents, brokers, or retailers who help
move a product from the producer to the consumer or business user.

A company’s channel decisions directly affect every other marketing decision. Place
decisions, for example, affect pricing. Marketers that distribute products through
mass merchandisers such as Wal-Mart will have different pricing objectives and
strategies than will those that sell to specialty stores. Distribution decisions can
sometimes give a product a distinct position in the market. The choice of retailers and
other intermediaries is strongly tied to the product itself. Manufacturers select mass
merchandisers to sell mid-price-range products while they distribute top-of-the-line
products through high-end department and specialty stores. The firm’s sales force
and communications decisions depend on how much persuasion, training, motivation,
and support its channel partners need. Whether a company develops or acquires
certain new products may depend on how well those products fit the capabilities of its
channel members.

Some companies pay too little attention to their distribution channels. Others, such as
FedEx, Dell Computers have used imaginative distribution systems to gain a
competitive advantage.

Channels
Channels are made up of a coordinated group of individuals or firms that perform
functions that add utility to a product or service.

A number of alternate 'channels' of distribution may be available:

• Selling direct, such as via mail order, Internet and telephone sales
• Agent, who typically sells direct on behalf of the producer
• Distributor (also called wholesaler), who sells to retailers
• Retailer (also called dealer or reseller), who sells to end customers
• Advertisement typically used for consumption goods
Channel members

Distribution channels can have a number of levels. Kotler defined the simplest level,
that of direct contact with no intermediaries involved, as the 'zero-level' channel.

The next level, the 'one-level' channel, features just one intermediary; in consumer
goods a retailer, for industrial goods a distributor. In small markets (such as small
countries) it is practical to reach the whole market using just one- and zero-level
channels.

In large markets (such as larger countries) a second level, a wholesaler for example,
is now mainly used to extend distribution to the large number of small, neighborhood
retailers.

Wholesaling is all activities involved in selling products to those buying for resale or
business use. Wholesaling intermediaries are firms that handle the flow of
products from the manufacturer to the retailer or business user.

Wholesaling intermediaries add value by performing one or more of the following

channel functions:

• Selling and Promoting

• Buying and Assortment Building
• Bulk-Breaking
• Warehousing
• Transportation
• Financing
• Risk Bearing
• Market Information – giving information to suppliers and customers about
competitors, new products, and price developments.
• Management Services and Advice – helping retailers train their sales clerks,
improving store layouts and displays.
Independent Intermediaries

Independent intermediaries do business with many different manufacturers and many

different customers. Because they are not owned or controlled by any manufacturer,
they make it possible for many manufacturers to serve customers throughout the
world.

Merchant Wholesalers

Merchant wholesalers are independent intermediaries that buy goods from

manufacturers and sell to retailers and other B2B customers. Because merchant
wholesalers take title to the goods, they assume certain risks and can suffer losses if
products get damaged, become out-of-date or obsolete, are stolen, or just don’t sell.
At the same time, because they own the products, they are free to develop their own
marketing strategies including setting prices.

Merchandise Agents or Brokers

Merchandise agents or brokers are a second major type of independent intermediary.

Agents and brokers provide services in exchange for commissions. They may or may
not take possession of the product, but they never take title; that is, they do not
accept legal ownership of the product.

Manufacturer-Owned Intermediaries

Manufacturer-owned intermediaries are set up by manufacturers in order to have

separate business units that perform all of the functions of independent
intermediaries, while at the same time maintaining complete control over the
channel. Manufacturer-owned intermediaries include sales branches, sales offices,
and manufacturers’ showrooms.

Developing and Managing a Distribution Strategy

 • A distribution strategy defines how you are going to create and satisfy demand
for your products.

• A distribution strategy defines how you are going to move products from point
of creation to points of consumption in an efficient and cost-effective manner.

• But first and foremost, a distribution strategy must be in sync with how
customers want to shop and buy.

• The customer’s access to high-quality information via the internet, combined

with their heightened price sensitivity, has created a customer that is more
sophisticated, better informed and often times, more adversarial than
customers of the past.

• This new breed of customer no longer plays by the rules of traditional

distribution channels. Despite this fact, manufacturers and distributors continue
to support outdated distribution strategies that actually make it hard for
customers to shop for and purchase their products.

For product-focused companies, establishing the most appropriate distribution

strategies is a major key to success. Unfortunately, many of these companies often
fail to establish or maintain the most effective distribution strategies. Problems that
have been identified include:

• Unwillingness to establish different distribution channels for different products

Fear of utilizing multiple channels, due to concerns about erosion of distributor
loyalty.
• Failure to periodically re-visit and update distribution strategies.
• Lack of creativity and resistance to change.
• To be fair, there can be sound reasons for these perceived weaknesses. More
typically, however, lack of understanding of the ultimate customers and their
preferences, or a failure to acknowledge the importance of a distribution
strategy and invest sufficient resources in understanding it.

Distribution Intensity
Distribution intensity refers to the number of intermediaries through which a
manufacturer distributes its goods.

Intensive Distribution

An intensive distribution strategy seeks to distribute a product through all available

channels in an area. Usually, an intensive distribution strategy suits items with wide
appeal across broad groups of consumers.

Selective Distribution

Selective distribution is distribution of a product through only a limited number of

channels. This arrangement helps to control price cutting. By limiting the number of
retailers, marketers can reduce total marketing costs while establishing strong
working relationships within the channel. Producers can choose only those
wholesalers and retailers that have a good credit rating, provide good market
coverage, serve customers well, and cooperate effectively.

Exclusive Distribution

Exclusive distribution is distribution of a product through one wholesaler or retailer in

a specific geographical area. The automobile industry provides a good example of
exclusive distribution. Exclusive distribution is typically used with products that are
high priced, that have considerable service requirements, and when there are a
limited number of buyers in any single geographic area.

Introduction of Ali Akbar

Pakistan, being an agricultural country, has great potential to strengthen Agro based
industry. To produce high yield, inputs such as seeds, fertilizers and chemicals play an
important role. The market for agricultural inputs is very large i.e. over Rs. 100 billion
per annum.
To obtain better yield, every farmer needs certain consultancy services regarding the
crop he wants to grow, keeping in view the condition of land and climate. Technical
guidance helps farmers in deciding what crops to grow and how to grow and inputs to
use at what time. ALI AKBAR is a one stop solution to all the farmers needs.

CORPORATE INFORMATION

CHEMICALS
Ali Akbar Enterprises
Pak China Chemicals
Pak China Manufacturing
Dada Jee Corporation

SEEDS
Ali Akbar Seeds

POLYMERS
Pak China Polymer

Pak China Chemicals

The formulation plant is equipped with process control instrumentation. All the
machinery and equipment is of explosion prove grade. The packaging units are
completely automatic and formulation area has designed
to meet OSHA (Occupational Safety and Health
Administration) requirements for occupational health and
safety. The plant has a finished product storage facility of
1,600,000 liters at one time. The storage areas are well
ventilated and equipped with fire detection.

Quality Assurance Program

Their quality assurance program is based on ISO 9001-2000 quality management
system. The quality loop starts with supplier evaluation and selection. It includes all
stages from receiving, in process management of raw materials to finished products.
The final stage consists of quality assurance and final analysis at the point of use
through a network of testing laboratories.
This plant is designed to formulate and pack 240,000 liters of liquid pesticides per
day, The plant can formulate and pack wide range of agrochemicals including
insecticides and herbicides.

OUR PRODUCT OF STUDY REGARDING

DISTRIBUTION
 “MIRAGE”

Area of interest/Problems with Ali Akbar group:

In the vast field of supply chain management research is undertaken for several
aspects. Our main emphasis is on the logistics and distribution of Ali Akbar group. This
case study is limited according to knowledge and problems.
1. Logistics

Logistics:
Company used two ways of logistics:
 Inbound.
 Outbound.
Target market is divided in 11 zones. Ali Akbar group is using 3rd party Logistics
services of FDM (Friends Distribution Management)

FDM
Engaged in retail distribution since 1985, Friends Distribution
Management (FDM) is considered as one of Pakistan’s largest
Retail Sales and Distribution Company.
FDM is powered with an efficient distribution system, able to penetrate into around
100,000 shops, to occupy the most conspicuous positions on shop shelves and to
constantly provide re-supplies to these above mentioned 100’000 outlets.
Some Clients of FDM
Kolson
Ahmed Foods
Sunkist
Nestle
Ali Akbar

Source of logistics:
Each zone has their own distribution ship channel. They are using 3rd party vehicles as
well as their own vehicles. Goods are transferred from one destination to another by
minitrucks.
Demand order:
Demand of product is identified by the Marketing department then the production
orders are placed, and then products are delivered according to priority because they
are dealing their business throughout Pakistan and as it is known that in Karachi need
of pesticides arises before as compared to Punjab.

Sometimes problems arise regarding delivery of products due to shortage of fuel,

strikes, country’s situation but they have contingent plans. Their strategy regarding
this type of uncertainty is that they have three backup plans as Plan A, Plan B and
Plan C.
They have properly maintained the database through a software named “ACPAC”
which is used by the entire organization and the distributors. This database is updated
on daily bases all the activities have their own departments and heads. Through this
software flow of information from distributor and retailers end to organization is
monitor.

Inventory:
Volume wise customers are dialed. Lead time is 3-5 days. Ali Akbar use JIT(Just in
Time) inventory system. Their main suppliers are from CHINA. They are using
different suppliers whose raw material is used in production. They have done their
inventory planning till 2011 through “ACPAC”. The products have some specific shelf
life so the products which are near to expire they are taken back and then recycled. If
the demand of product is more then forecasted, they make a contract with third party
and do their pending work in extra shifts.
 FINDINGS:
1. Maintaining database.
2. Have their own R & D.
3. Using 3rd party logistics (outsourcing). FDM
4. Compliance to the applicable regularity requirement.
5. Meeting customer requirement.
6. Meeting customer expectations.
7. Recycling their expired products. (Reverse Logistics)
8. Promoting continuous quality improvement initiatives.
9. Uncertainty in supply, demand and internal processes.
10. Ali Akbar group of Industries spend a significant amount of time meeting
vendors and understanding their cost structures by making the process
transparent.
11. The retailer is certain that Ali Akbar Group is doing their best to cut down the
cost.
12. The quality of the products is so maintained that the company has the complete
database of the expiry dates. If the products are not sold out one month before
the arrival of expiry date, the quality control department collects all the
products from the distributors and retailers, and then recycles and reprocesses
them in order to increase the quality and expiry date.
 Major Problems

1. They are using software named “Acpack” on the basis of this software, Ali Akbar
Group forecasts their level of inventory to be maintained which is based
upon the analysis of past seasonal sales. In actual the level of physical
inventory is different from the level of inventory predicted by the software.
Due to this issue they have to face problems which ultimately increases their
acquisition cost, storage cost. As a result of this the delivery of products are
not made on time.

2. In Ali Akbar Group the information about demand arises from the marketing
department which is directly linked with the supply chain management. We
have observed that the demand of the product is not timely placed. The
orders are placed on priority basis. There is an element of biasness on the
company’s end that they deliver the products on order quantity basis.

3. Another problem which Ali Akbar Group is facing is that they are mostly
dependent on the third party for the logistics. Although they have their own
logistics but they are low in number. This leads to higher freight rates and
imposes more threat to the company in case if the logistics service providers
go on strike.

4. The delivery of products sometimes gets delayed due to the inefficiency of the
logistics service providers.
 Recommendations

Solution 1:
Discrepancies between the recorded inventory in the IT system and actual inventory
in the supply chain have been re-ported as a growing issue in industry. The sources of
the inventory inaccuracy can be from theft, misplacement, obsolescence, transaction
errors, and others. In this sense, the information distortion due to inventory
inaccuracy propagates to and accumulates in the upstream stages. RFID technology
is proposed as an efficient remedy for inventory inaccuracy. It enables the supply
chain access to accurate inventory information in a timely manner and it also
prevents the inventory error. However, the cost issue has been a major barrier for
RFID being widely adapted. This paper presents a study of the impacts of RFID
implementation with intention to determine the extent of additional savings from
reducing information distortion.

Solution 2:
We examine the trade-offs between demand information and inventory in a
distribution channel. While better demand information has a positive direct effect for
the manufacturer in improving the efficiency of holding inventory in a channel and
distributing it. We observe that their strategy regarding delivery of products can also
have the strategic effect of increasing retail prices and limiting the extraction of retail
profits. Thus even if the information system is perfectly reliable, the manufacturer
might not always want to institute an information enabled channel over a channel
with inventory.

Solution 3
How should we plan and execute logistics in supply chains that aim to meet today's
requirements, and how can we support such planning and execution using IT? Today's
requirements in supply chains include inter-organizational collaboration and more
responsive and tailored supply to meet specific demand. Inter-organizational systems
may support planning going from supporting information exchange and henceforth
enable synchronized planning within the organizations towards the capability to do
network planning based on available information throughout the network
Solution 4
Logistics managers are required to constantly monitor and regulate these logistic
operations to correct them, as they have always been a target of optimization efforts.
The most primitive linear programming solutions found application in transportation
planning and warehouse design. In the recent past a new class of technology was
commercialized to focus on optimizing manufacturing and supply chain operations.
Identified as APOs (Advanced Planning and Optimization) these packages are
employed to optimize material flows through manufacturing operations, as well as
optimal planning of transportation operations. Many third-party logistics companies
use these technologies to plan and manage customer logistics. Lastly, a new class of
business optimizers has materialized recently. These are known as Enterprise Profit
Optimizers. Their main function is to optimize the tradeoff between profits and other
strategic goals. The ability to optimize and do it quickly will help companies to
improve productivity and returns on investments.

In review of the material we have studied and the data that we have collected from
the organization we suggest the need for a decentralized supply chain model which
allows:
a) A generalized network structure.
b) Simplicity of computation.
1. Separate the input (buying) and selling department.
2. Properly manage physical distribution, material management and information
management are highly complex processes so critically analyze and handle
them.
3. Planning of order taking and order processing should be done.
4. Proactive approaches regarding inventory system should be adopted.
5. Reduce or eliminate unnecessary inventory.
6. Improve their planning/ Trim cost.
7. Develop active rather than reactive operations.
8. Gain greater market leverage over ocean, air, and surface transport service
providers and receive purchasing discounts through aggregating its shipment
base with those of the providers’ other clients.
9. Achieve greater flexibility in meeting the needs of customer through access to
more diverse channels to the customer.
 Conclusion
The success of a product in today's global marketplace depends on capabilities of
firms in the product's supply chain after studying and analyzing the supply chain
management and the practices are implied by the Ali Akbar Group we have reached
to the conclusion that the organization should maintain its database regarding the
inventory and the demand patterns. The organization should also redesign its
operations and the processing as their lead time is very low so that they may have a
proper control over the demand. This will avoid the wastage of the products.
 References
Websites:
Literature Review
http://or.journal.informs.org/cgi/content/abstract/51/4/566
http://portal.acm.org/citation.cfm?id=1246577
http://www.jstor.org/pss/20110356
http://www.jstor.org/stable/20141252
http://www.jstor.org/stable/30046061

Generic Data
http://www.aliakbargroup.com
http://friendsdistribution.com/home
http://www.wikipedia.com

Books:
Operations Management for Competitive Advantage 11th Edition