Supply Chain Management:

Overview

S K Bishwal
OBJECTIVE OF THIS COURSE
• Define the terms & concepts

• Identify factors that contributes to effective SCM

• How SCM can affect corporate performance

PARTNERSHIP

RETAILER CUSTOMER
BASIC SUPPLY CHAIN

SUPPLIER FACTORY CUSTOMER

SUPPLY CHAIN
• “A set of 3 or more entities {involved in producing value
(product/services) in the hands of the ultimate customer} directly
linked by one or more of the upstream and downstream flows of
products, services, funds and information from a source to a
customer”.
 SUPPLY CHAIN

RM Supplier

Component
Supplier

RM MANUFACTURER DISTRIBUTER RETAILER CUSTOMER

Supplier

Component
Supplier

RM
Supplier
ULTIMATE SUPPLY CHAIN

3PL SERVICE PROVIDER

SUPPLIER SUPPLIER
STAGE1 STAGE2 FACTORY C&F DISTRIBUTER WHOLE SELLER RETAILER

MARKET
FINANCIERS RESEARCH
ULTIMATE SUPPLY CHAIN

3PL SERVICE PROVIDER

SUPPLIER SUPPLIER
STAGE1 STAGE2 FACTORY C&F DISTRIBUTER WHOLE SELLER ↔ RETAILER CUSTOMER

MARKET
FINANCIERS RESEARCH
TRADITIONAL OPERATIONS
CUSTOMER
• Role
• Customer Value :
- Price
- Responsiveness :
- Quality
- Availability
ULTIMATE SUPPLY CHAIN

3PL SERVICE PROVIDER

SUPPLIER SUPPLIER
STAGE1 STAGE2 FACTORY C&F DISTRIBUTER WHOLE SELLER ↔ RETAILER CUSTOMER

MARKET
FINANCIERS RESEARCH
 SUPPLY CHAIN
• Agri sector

• FMCG
SUPPLY CHAIN
• Supply chains exists

• How it is managed is important

TRADITIONAL SCM
• Member relationship
• Objectives of each member
• Is it optimal ?
LOGISTICS
• “Logistics is that part of the supply chain process that plans,
implements and controls the efficient flow and storage of goods,
services, and related information from the point of origin to the point
of consumption in order to meet customer’s requirement”
- Council of Logistics Management 1998
Logistics Management
Integrated Logistics Management

Source: Center for Supply Chain Research, Penn State University.

17
 SCM
WHY & HOW SCM
SUPPLY CHAIN PROFIT

SUPPLY CHAIN PROFIT = 𝑇𝑂𝑇𝐴𝐿 𝑅𝐸𝑉𝐸𝑁𝑈𝐸 −(𝐶𝑠+𝐶𝑚+𝐶𝑑+𝐶𝑟)

CURRENT SUPPLY CHAIN PROFI= 𝑅𝑠 −𝐶𝑠 + 𝑅𝑚−𝐶𝑚 + 𝑅𝑑 −𝐶𝑑 +(𝑅𝑟−𝐶𝑟)

What’s New?
•Global competition
•Shorter product life cycle
•New, low-cost distribution channels
•More powerful well-informed customers
•Technology
CREATING VALUE

“ Historically, what goes on between companies ( in a supply chain ) is

aimed at how the pie will be divided among them. Nobody is focused
on how to make the pie bigger. The purpose of SCM is for companies
to work together to increase the size of the pie.”
RETAILER
DEMAND =( 360000-60000*p)

RETAILER
COST 4

PRICE 5

DEMAND 60000

PROFIT 60000
MANUFACTURER

DEMAND =( 360000-60000*p)

COST 2

PRICE 4

DEMAND 60000

PROFIT 120000
 DEMAND =( 360000-60000*p)

MANUFACTURER RETAILER SC

COST 2 3.25

PRICE 3.25 4

DEMAND 120000 120000

PROFIT 150000 90000 240000

WHY SCM
• “Looking across the supply chain is a win-win for all players in the
system . Typically, there is a lot of non-value added, a lot redundancy,
a lot of costs that do not necessarily need to be there. So when we
focused on the right things, we reduced costs for everyone in the
supply chain.”
SCOPE
• Compaq estimates it lost $.5 billion to $1 billion in sales in 1995
because laptops were not available when and where needed
• Laura Ashley turns its inventory 10 times a year, five times faster than
3 years ago

• Estimated that the grocery industry could save $30 billion (10% of
operating cost) by using effective logistics and supply chain strategies
• A typical box of cereal spends 104 days from factory to sale
• A typical car spends 15 days from factory to dealership
SUPPLY CHAIN MANAGEMENT
Supply Chain Management encompasses every effort
involved in producing and delivering a final product
or service, from the supplier’s supplier to the
customer’s customer. Supply Chain Management
includes managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry and
order management, distribution across all channels,
and delivery to the customer.
The Supply Chain Council, U.S.A.
SUPPLY CHAIN MANAGEMENT
• “The systemic strategic coordination of the traditional business
functions within a particular company and across businesses within
the supply chain, for the purpose of improving the long-term
performance of the individual companies and the supply chain as a
whole”
SUPPLY CHAIN MANAGEMENT
• Flow of Materials & products

• Management Philosophy

• Management Process

• Global Optimization
SCM AS A PHILOSOPHY
• View the channel as a whole to manage the flow from first supplier to
the ultimate customer
• Synchronize & converge intrafirm & interfirm operational strategies &
capabilities in to a unified whole
• Customer focus ( Ultimate customer) “to create unique &
individualized sources of customer value”
• Collaborative management
WHY NOT A MONOLITH
• Globalization
• Economies of scale
• Increased performance-based competition
• Rapidly changing technology
• Economic conditions
SCM AS A MANAGEMENT PROCESS
• Process of managing
- Relationships
- Materials flow
- Flow of funds
- Information flow
• Delivers
- Enhanced customer service
- Economic value
MANAGEMENT ACTIVITIES
• Integrated behavior
• Sharing information
• Sharing risks & rewards
• Cooperation : Similar coordinated activities
• Same goal & same focus of serving customers
• Integration of processes
• Build & maintain long term relationships
SUPPLY CHAIN ORIENTATION
• “Recognition by a company of the systemic and strategic implications
of the activities and processes involved in managing the various flows
in a supply chain.”
SUPPLY CHAIN ORIENTATION
• A management philosophy.
- Whole chain as a single entity

• Recognition of implications of processes/activities .

• Each member affects performance of the chain
Willingness to address

Trust
Commitment
Interdependence
Organizational compatibility

Key Processes
Top management support
Leadership
SUPPLY CHAIN INTEGRATION
STAGE 1
• Fragmented operations within the company
• Inventory at every stage
• Independent (incompatible) control systems
• Functional segregation
TRADITIONAL MANAGEMENT
SUPPLY CHAIN INTEGRATION
STAGE 2
• Focus on internal integration
• Shift to Overall cost reduction from department wise performance
• Buffer inventory
• Internal trade offs
• Reactive customer service
SUPPLY CHAIN INTEGRATION
STAGE 3
• Complete internal integration
• Full visibility from purchasing to distribution
• Extended use of information management
SUPPLY CHAIN INTEGRATION
STAGE 4
• Extend scope of integration outside the company

• Include suppliers & customers

SCM ANTECEDENTS & CONSEQUENCES

Supply Chain Orientation Supply Chain Management Consequences

Systemic View Three or more companies with SCO Improved customer Value
Strategic view Information sharing Improved profitability
Shared risks & rewards Differential advantage
Cooperation
Antecedents Similar customer service goals & focus
Integration of key processes
Willingness to address Long term relationships
Trust Interfunctional coordination
Commitment
Interdependence
Organizational compatability
Key Processes
Top management support
Leader
SUMMARY
• Components in supply chain must have SC orientation
• Members in a supply chain represent sequential value adding steps to
serve the ultimate customer
• Think of supply chain as a single value system .
SCOPE
• Functional : Traditional functions to be included or excluded

• Organizational : Inter company relationship

FUNCTIONAL SCOPE
• All traditional functions
• Logistics
• Manufacturing
• Marketing
• Product Development
•R&D
• Information Gathering
ORGANIZATIONAL SCOPE
• All the member companies in SC work as one entity.
• Share information, risks, rewards
• Network is the new organization structure
- A confederation
- Guided from a hub
-Development & management of alliance
- Technology & finance
- Core competencies, Strategies, Information &
customer
• Competition is Supply chain vs. SC
 SCM
DRIVERS & DECISION PHASES
DRIVERS OF PERFORMANCE
• Facilities :
• Inventory :
• Transportation

• Information
DRIVERS
Competitive Strategy

Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross Functional Drivers

FACILITIES
• Manufacturing

• Storage
FACILITIES
• “Where”
• Flexibility / Dedicated
• Location( Centralized vs. Near the customer)
• Capacity
• Operation methodology
• Warehousing methodology :
-SKU
-Job lot storage
- Cross-docking
INVENTORY
• Mismatch between supply & demand
• Enables economies of scale
• Ensures responsiveness
• Material Flow time (T)
• Throughput : Rate of Sale (D)
• Inventory I = T * D
TRANSPORTATION
• Affects Inventory
• Affects Location
• Mode : Air, Road, Rail, Ship, Pipeline,
e-transfer .

• Route / Network
• In house / Outsource
TRANSPORT SERVICE PROVIDERS
• TRUCKERS

• RAILWAYS,

• SHIPPING,

• AIR CARGO / AIR FREIGHT COMPANIES,

• MULTI MODAL TRANSPORT PROVIDERS,

• CONTAINERS

• PACKAGE COURIERS
 TRANSPORTATION
• Speed

• Reliability

• Flexibility

• Cost
RELATIVE MERITS
RAIL ROAD WATER AIR PIPELINE

Door Sometimes Always Sometimes No Sometimes

Cost Low High Very low Very high Very low

Speed Slow Fast Very slow Very fast Slow

Reliability Medium Medium Low Very high Very high

Packaging needs High High High High None

Flexibility Low High Low Very low Very low

ROAD TRANSPORT

• LARGEST PROVIDER OF TRANSPORTATION OF GOODS TODAY.

• HIGHLY FRAGMENTED INDUSTRY

• POOR ROAD CONDITIONS

• LOW SERVICE LEVELS

• INTENSE COMPETITION

• HIGH OPERATING COSTS

• FALLING MARGINS
EMERGING TRENDS
.

• NATIONAL HIGHWAY DEVELOPMENT PROGRAMMES (NHDP)

• A. GOLDEN QUADRILATERAL PROJECT BETWEEN 4 METROS,

• B. NORTH - SOUTH

• EAST - WEST CORRIDORS ,

EMERGING TRENDS
•

• SHIFT TOWARDS MHCV ‘S FROM LCV’S - HEAVY DUTY VOLVO,

• CONSOLIDATION

• TRACING / TRACKING FACILITIES

• VALUE ADDED SERVICES

• 3 PL SERVICES

• KEY PLAYERS
RAIL TRANSPORT

GOVT.MONOPOLY
2ND LARGEST NETWORK IN THE WORLD
EXTENSIVE NETWORK
BUILT- IN INEFFICIENCIES
MINIMUM BULK LOT REQD.
NEED FOR SUPPORT FACILITIES - EQUIPMENTS, LOADING/UNLOADING, DELIVERY
USEFUL FOR BULK
 TIME INSENSITIVE CARGO
RAIL TRANSPORT EMERGING TRENDS
• CHANGE IN APPROACH - e.g. INTRODUCTION OF NEW FREIGHT
TRAINS
• EMERGENCE OF MULTI MODAL FACILITIES e.g. CONCOR EXPERIENCE
• LINKAGE WITH INDUSTRIES ETC.
• FREIGHT CORRIDOR
AIR TRANSPORT

• AIR CARGO
• EXPRESS
• COURIER
• DOCUMENTS

• LOW SHARE IN INDIA’S LOGISTICS SCENE, STILL LIMITED IN SCOPE

• FACTORS FOR GROWTH ARE :

• REDUCTION OF FARES AS COSTS DECLINE

• IMPROVEMENT IN SERVICE OFFERINGS / NEW ROUTES / INCREASED FREQUENCIES
• INCREASE IN GLOBALISATION AND TRADE
• INFRASTRUCTURE AND FACILITIES AT INDIAN AIRPORTS
 SHIPPING

GLOBALLY, SHIPPING MOVES 95% OF INTERNATIONAL TRADE

• INDIA’S SHARE IS MINISCULE

• INDIA HAS DIVERSIFIED MERCHANT FLEET OF

• TANKERS
• BULK CARRIERS
• CONTAINER SHIPS
• SPECIFIED MULTIPURPOSE VESSELS & OFFSHORE SUPPLY VESSELS
SHIPPING : INDUSTRY TRENDS

• FALLING FREIGHT RATES

• GROWTH IN CONTAINER TRAFFIC
• FEEDER SERVICES FROM HUB POINTS
• SCOPE OF COASTAL AND INLAND SHIPPING IN INDIA
• MULTIMODAL LOGISTICS
• BETTER SERVICE DEMANDS
PORTS IN INDIA

• - ABOUT 12 MAJOR PORTS

• - LOW EFFICIENCY
• - HIGH TURN AROUND TIME
• - HIGH COST STRUCTURE
• - CUSTOMS BOTTLENECKS
• - POOR INFRASTRUCTURE
PORTS : EMERGING TRENDS

• - NEW PORTS .

• - IMPROVED FACILITIES

• - PRIVATE PARTICIPATION
INFORMATION
• Main factor for performance of other 3 drivers
• Push / Pull
• Coordination & information sharing
• Forecasting & aggregate planning
• Pricing : Demand & availability
• Revenue Management : differential pricing
ENABLING TECHNOLOGIES
• EDI

• Internet

• ERP

• SCM
DECISION PHASES

• Strategy
• Planning
• Operations
Strategic decision :Supply Chain Design
• Decisions about the structure of the supply chain and
what processes each stage will perform
• Strategic supply chain decisions
• Locations and capacities of facilities
• Products to be made or stored at various locations
• Modes of transportation
• Information systems
• Supply chain design must support strategic objectives
• Supply chain design decisions are long-term and
expensive to reverse – must take into account market
uncertainty
Supply Chain Planning
• Definition of a set of policies that govern short-term operations
• Fixed by the supply configuration from previous phase
• Starts with a forecast of demand in the coming year
Supply Chain Planning
• Planning decisions:
• Which markets will be supplied from which locations
• Planned buildup of inventories
• Subcontracting, backup locations
• Inventory policies
• Timing and size of market promotions
• Must consider in planning decisions demand uncertainty, exchange
rates, competition over the time horizon
Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and operating
policies are determined
• Goal is to implement the operating policies as
effectively as possible
• Allocate orders to inventory or production, set order
due dates, generate pick lists at a warehouse, allocate
an order to a particular shipment, set delivery
schedules, place replenishment orders
• Much less uncertainty (short time horizon)
Supply Chain
Management:
PROCESSES
S K Bishwal
Process Cycles of Supply Chains
Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
Customer order cycle

• Customer arrival
• Customer order entry
• Customer order fulfillment
• Customer order receiving
Replenishment cycle

• Retail order trigger

• Retail order entry
• Retail order fulfillment
• Retail order receiving
Manufacturing cycle

• Order arrival from the distributor,

retailer, or customer
• Production scheduling
• Manufacturing and shipping
• Receiving at the distributor,
retailer, or customer
Push/Pull View of
Supply Chains

• Pull processes: execution is

initiated in response to a
customer order
• Push processes: execution is
initiated in anticipation of
customer orders
MACRO PROCESSES
• Customer Relations Management

• Internal Supply Chain Management

• Supplier Relationship Management

CRM
• Market

• Sell

• Call centre

• Order Management
ISCM
• Strategic Planning
• Demand Planning
• Production planning & Scheduling
• Supply Planning
• Field Service
SRM
• Source
• Negotiation
• Purchase
• Design Collaboration
• Supply collaboration
SUPPLY CHAIN
MANAGEMENT
SUPPLY CHAIN STRATEGIES & DESIGN
Strategy
Corporate Mission
Assessment Distinctive
of Universal Corporate/Business/ Competencies
Business Competitive Strategy or
Conditions Weaknesses
Competitive Priorities

Supply Chain Strategy

COMPETITIVE STRATEGY
• Set of customer needs a firm seeks to satisfy through its products and
services in order to gain competitive advantage

- A set of needs not addressed by the competitors

- Customer segmentation

• Competitive strategy targets one or more customer segments to satisfy

their unfulfilled needs.
COMPETETIVE PRIORITIES
• Low cost
• Delivery speed
• Performance / Quality
• Services
• Varities / Flexibility
DRIVERS
Competitive Strategy

Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross Functional Drivers

SUPPLY CHAIN STRATEGY
• Broad structure of the chain
• Product development strategy
• Supplier strategy
• Operations strategy
• Marketing and sales strategy
• Logistics strategy
• Information flow
• All functional strategies must support one another and the
competitive strategy
Supply Chain Strategies
• Product development strategy specifies the portfolio of
new products that the company will try to develop
• Marketing and sales strategy specifies how the market
will be segmented and product positioned, priced, and
promoted
STRTEGIC FIT
• The competitive strategy & functional strategies must be aligned

• Consistency and support between

- Competitive strategy,
- Supply chain strategy,
-Other Functional strategies

• The design of the supply chain & role of each member must support the supply chain
strategy.
SUPPLY CHAIN DESIGN
• Broad structure of the chain
• Members to be integrated
• Roll of each member in the chain
Achieving Strategic Fit
1. The design of the overall supply chain and the
role of each stage must be aligned to support
the supply chain strategy.
2. Each functional strategy must support other
functional strategies and help a firm reach its
competitive strategy goal.
3. The different functions in a member company
must appropriately structure their processes
and resources to be able to execute these
strategies successfully.
STRTEGIC FIT
• Lack of strategic fit due to
- Supply chain design
- Processes & resources do not support a fit
- Conflict in goals(Target different priorities)
ACHIEVE STRATEGIC FIT
• Understanding the customer needs & supply uncertainty

• Understanding the supply chain capabilities

• Achieving strategic fit

 CUSTOMER NEEDS

• Needs of the customer segment being served varies in the following

attributes
• Quantity of product needed in each lot
• Response time customers will tolerate
• Variety of products needed
• Service level required
• Price of the product
• Desired rate of innovation in the product
 DEMAND UNCERTAINTY

• Overall attribute of customer demand

• Demand uncertainty: uncertainty of customer demand for a product
• Implied demand uncertainty: resulting uncertainty for the supply
chain given the portion of the demand the supply chain must handle
and the attributes that the customer desires
IMPLIED DEMAND UNCERTAINTY
Customer Need
Range of quantity increases
Lead time decreases
Variety of products required
increases
Number of channels increases
Rate of innovation increases
Required service level increases
Implied demand uncertainty
increases because
Greater variance in demand
Less time to react to orders
Demand per product becomes
more disaggregated
Total customer demand is now
disaggregated over more channels
New products tend to have more
uncertain demand
Handle unusual surges in demand
LOW IMPLIED DEMAND UNCERTAINITY
• Accurate demand forecast
• Low stock outs
• Low obsolete inventory
• Low margin
HIGH IMPLIED DEMAND UNCERTAINITY

• Inaccurate demand forecast

• High stock out

• High cost of obsolescence

• High margin
Supply Uncertainty
Supply Source Capability Causes Supply Uncertainty to...
Frequent breakdowns Increase
Unpredictable and low yields Increase
Poor quality Increase
Limited supply capacity Increase
Inflexible supply capacity Increase
Evolving production process Increase
IMPLIED DEMAND UNCERTAINTY SPECTRUM
Predictable Predictable supply and uncertain Highly uncertain
supply and demand or uncertain supply and supply and demand
demand predictable demand or somewhat
uncertain supply and demand

Salt at a An existing A new

supermarket automobile communication
model device
STRATEGIC FIT

The first step in achieving strategic fit

between competitive and supply
chain strategies is to understand
customers demand & supply
uncertainty. Uncertainty from the
customer and the supply can be
combined and mapped on the implied
uncertainty spectrum.
STRATEGIC FIT

The second step in achieving strategic

fit between competitive and supply
chain strategies is to understand the
supply chain and map it on the
efficiency responsiveness spectrum.
SUPPLY CHAIN CAPABILITIES
• The supply chain is expected to meet demand in this environment
• Efficient Supply chain
• Responsive supply chain

• Supply chain responsiveness -- ability to

• respond to wide ranges of quantities demanded
• meet short lead times
• handle a large variety of products
• build highly innovative products
• meet a very high service level
• Handle supply uncertainty
RESPONSIVENESS SPECTRUM

Highly Somewhat Somewhat Highly

efficient efficient responsive responsive

Integrated Standardized Most Dell/

steel mill - apparel automotive Seasonal
No production garments
variety/flexi
bility
SUPPLY CHAIN CAPABILITIES
• Supply chain efficiency is the inverse to the cost
of making and delivering the product to the
customer
• Responsiveness comes at a cost
• The cost-responsiveness efficient frontier curve
shows the lowest possible cost for a given level
of responsiveness
Efficient and Responsive Supply Chains
Efficient Supply Chains Responsive Supply Chains

Primary goal Supply demand at the lowest cost Respond quickly to demand

Create modularity to allow

Product design Maximize performance at a minimum
postponement of product
strategy product cost
differentiation
Lower margins because price is a Higher margins because price is not a
Pricing strategy
prime customer driver prime customer driver
Manufacturing Maintain capacity flexibility to buffer
Lower costs through high utilization
strategy against demand/supply uncertainty
Maintain buffer inventory to deal
Inventory strategy Minimize inventory to lower cost
with demand/supply uncertainty

Lead-time Reduce, but not at the expense of Reduce aggressively, even if the costs
strategy costs are significant

Select based on speed, flexibility,

Supplier strategy Select based on cost and quality
reliability, and quality
COST-RESPONSIVENESS
Responsiveness

High

Low
Efficiency
High Low
STRATEGIC FIT
• High implied uncertainty - High responsiveness

• Low implied uncertainty - Efficiency

• No right supply chain strategy independent of competitive strategy

• Right supply chain strategy for a given competitive strategy
SALT
• Stable customer demand
• No variety, no innovation
• Low implied uncertainty
• No supply uncertainty
• Efficient supply chain
DELL
• Customized PC : variety
• Delivery within days
• Innovation
• High demand uncertainty
• Supply uncertainty for new components

• Responsive supply chain

 STRATEGIC FIT
Responsive
supply chain

Responsiveness
spectrum

Efficient supply
chain

Certain Implied Uncertain

demand uncertainty demand
spectrum
Roles and Allocations
STRATEGIC FIT

Match supply chain responsiveness

with the implied uncertainty from
demand and supply. The supply chain
design and all functional strategies
within the firm must also support the
supply chain’s level of
responsiveness.
Changes Over Product Life Cycle
• Beginning stages
1. Demand is very uncertain, and supply may be unpredictable
2. Margins are often not very high, and time is crucial to gaining sales
3. Product availability is crucial to capturing the market
4. Cost is often a secondary consideration
Changes Over Product Life Cycle
• Maturity Stage
• Demand has become more certain, and
supply is predictable
1. Margins are lower as a result of an increase in
competitive pressure
2. Price becomes a significant factor in customer
choice
Expanding Strategic Scope
• Intraoperation Scope: Minimize Local Cost View
• Each stage of the supply chain devises strategy independently
• Intrafunctional Scope: Minimizing Total Functional Cost
• Firms align all operations within a function
• Interfunctional Scope: Maximize Company Profit
• Functional strategies are developed to align with one another and the
competitive strategy
Expanding Strategic Scope
• Intercompany Scope: Maximize Supply Chain Surplus
• Supplier and customer work together and share information to reduce total
cost and increase supply chain surplus
AGILE SUPPLY CHAIN
• Agile intercompany scope – a firm’s ability to achieve strategic fit
when partnering with supply chain stages that change over time
SUPPLY CHAIN
MANAGEMENT
NETWORK DESIGN
 Distribution
in the Supply Chain
• Distribution: Move and store a product from the supplier stage to
the customer stage
• Distribution directly affects cost and the customer experience and
therefore drives profitability
• Choice of distribution network can achieve supply chain objectives
from low cost to high responsiveness
FACTORS TO BE CONSIDERED FOR NET
WORRK DESIGN

• Customer needs to be met : Service Factor

• Cost of meeting customer needs : Cost Factor

OBJECTIVE (SERVICE FACTOR)
• Product availability
• Response time
• Product variety
• Customer experience
• Order visibility
• Returnability
OBJECTIVE (COST FACTOR)
• Facilities

• Inventory

• Transportation

• Information
Response Time vs Number of Facilities
Inventory Costs vs Number of Facilities
Transportation Costs vs Number of
Facilities
Facilities Costs and Number of Facilities
 Total Costs Vs
Number of Facilities
Total Costs
Total Costs

Facilities
Inventory
Transportation

Number of Facilities
 Total Costs and Response Time Vs
Number of Facilities
Response Time

Total Logistics Costs

Number of Facilities
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
TYPES OF NETWORK
Manufacturer Storage & direct shipping

FACTORY CUSTOMER
 Manufacturer Storage & direct shipping

• No distributor/retailer
• Customer to pass on information
• Inventory centralized
• High level of product availability
• High value, low & unpredictable demand items
• Store components & customize
• Out bound transportation cost increases
TYPES OF NETWORK
Manufacturer Storage & direct shipping
• Low inventory cost
• Higher transportation cost
• Because of aggregation low cost of facility
• Response time is high
• Large no of varieties can be handled
• Cost of product return high
MERGE IN-TRANSIT

FACTORY CUSTOMER
MERGE

FACTORY CUSTOMER

FACTORY CUSTOMER
MERGE IN-TRANSIT
• Extra cost of merge centre facility
• Transport cost is slightly less
• Better customer experience since all items are received together
• Higher investment in information technology
STORAGE AT DISTRIBUTOR

FACTORY CUSTOMER

FACTORY DISTRIBUTOR
CUSTOMER

FACTORY
CUSTOMER
STORAGE AT DISTRIBUTOR
• High inventory
• Suitable for products having high demand
• Less transportation cost due economy of scale
• Higher facilities cost
• Less investment in information
• Better response time
• Better customer experience
• Better visibility of orders
• Easier returnability
RETAIL STORAGE
• High inventory cost
• Low transportation cost
• Higher cost of facilities
• Fast response time
• Low product variety
• Good customer experience
• Easier returnability
• Order visibility is not an issue
HYBRID NETWORK
• Tailored to match product characteristic & customer preference
• Fast moving & emergency items – Retail (local storage)
• Slower moving items stored at central docking centers
• Very slowmoving items are stored at the manufacturer
CONVENTIONAL NETWORK

Conventional Network
Materials Customer
Vendor Finished Customer
DC Store
DC Goods DC DC

Customer
Component Store
Vendor Manufacturing
DC Plant Customer Customer
Warehouse DC Store
Components
DC Customer
Vendor Store
DC Finished
Customer
Goods DC
Final DC Customer
Assembly Store
NETWORK DESIGN
• No of facilities (warehouses, factories)
• Location
• Size
• Storage : Allocating space for products
• Sourcing
• Allocating customers
• Revisit design decisions after market changes, mergers, or factor cost
changes
SUPPLY CHAIN NETWORK
OBJECTIVE FUNCTION
• Maximize the overall profitability of the supply chain network while
providing customers with the appropriate responsiveness
Network Design Model
• Several products are produced at several plants.
• Each plant has a known production capacity.
• There is a known demand for each product at each customer zone.
• The demand is satisfied by shipping the products via regional
distribution centers.
• There may be an upper bound on total throughput at each
distribution center.
Location Model
• There may be an upper bound on the distance between a distribution
center and a market area served by it
• A set of potential location sites for the new facilities to be identified
• Costs:
• Set-up costs (Facilities)
• Transportation cost is proportional to the distance
• Storage and handling costs
• Production/supply costs
Data for Network Design

1. A listing of all products

2. Location of customers, stocking points and sources
3. Demand for each product by customer location
4. Transportation rates
5. Warehousing costs
6. Shipment sizes by product
7. Order patterns by frequency, size, season, content
8. Order processing costs
9. Customer service goals
DATA AGGREGATION
• Customer : Clustering
• Products :
- Product type
- Distribution pattern :
: Same source & customers
: Weight & volume
CUSTOMER AGGREGATION
• Use at least 300 aggregated points
• Make sure each zone has an equal amount of total demand
• Place the aggregated point at the center of the zone

• In this case, the error is typically no more than 1%

Product Aggregation
• Place all SKU’s into a source-group
• A source group is a group of SKU’s all sourced from the same place(s)
• Within each of the source-groups, aggregate the SKU’s by similar
logistics characteristics
• Weight
• Volume
• Holding Cost
SOLUTION TECHNIQUES
• Mapping
• CG Method
• Mathematical modeling
- For optimal solution
- Heuristic
• Simulation
Network Design Tools

• Mapping
• Mapping enables visualization
• Mapping the solutions allows to better understand different scenarios
• Color coding, sizing, and utilization indicators allow for further analysis
CG Location Method
xn , yn : coordinate location of either a market or supply
source n
Fn : cost of shipping one unit for one km between the
facility and either market or supply source n
Dn : quantity to be shipped between facility and Market
or supply source n

(x, y) is the location selected for the facility, the

distance dn between the facility at location (x, y) and
the supply source or market n is given by

( ) ( )
2 2
d n = x – xn + y – y n
OBJECTIVE

• Minimize
k

Total transportation cost TC = å d n Dn Fn

n=1
Gravity Location Model
1. For each supply source or market n, evaluate dn
2. Obtain a new location (x’, y’) for the facility, where
k k
Dn Fn xn Dn Fn yn
å d å d
x¢ = n=1
k
n
and y¢ = n=1
k
n

Dn Fn Dn Fn
å d å d
n=1 n n=1 n
LP MODEL
Minimize total cost = Xij * Cij + Yjk * Cjk

Ij jk

Subject to Xij => 0

Yjk => 0

Xij <= BOL for existing factories and unlimited for new factories

Yjk <= Demand in Customer k

Xij = Yjk

i k

Unit cost of distribution

from factory i to depot j = Cij
Unit cost of distribution
from depot j to
customer k Cjk

Quantity from factory i

to depot j = Xij

Quantity from depot j

to customer k = Yjk
OBJECTIVE FUNCTION
Optimize total cost = Xij * Mci

Unit cost of
manufacturing in
Factory i = MCi = MCAi + MCRMi + MCVi
 FMCG
Supply Chain
Analysis

Presentation by: Group 2

Shalini Mohapatra (UM19178)

Sharang Maheshwari (UM19179)
Shashank Thakur (UM19180)
Shashank Shekhar (UM19181)
Shivajee Didwania (UM19182)
Shivam Arora (UM19183)
 Characteristics

• Consumer buying behaviour drives distribution

decisions
• Very large number of consumers who are
dispersed geographically
• High purchase frequency
• Low Value/Volume ratio
• Short shelf life of goods

Implications

• The key performance metrics are:

1. Availability
2. Visibility
• Large number of outlets but low transaction ticket
size
• The distribution channel is multi-layered with many
intermediaries
• High cost of last mile distribution
Channels Manufacturing
Facility

Mother Godown

Carriage & Forward Agency

Distributor Super Stockist

Retailer Wholesaler
Re-distributor

End Customer Retailer

 Supply chain objectives of FMCG companies

 Influenced by global competitors,

influential customers demanding
complex and varied services at less
cost, increasing implications of
mergers and acquisitions and
stockholders requiring a constant
increase in returns.
 Expanding width of distribution
 Offering broad product line
 Reducing lead time
 Reducing transportation and
inventory cost
Process
In most of the organisations, supply chain management covers the processes of demand management,
manufacturing planning and scheduling, inventory management, order processing and fulfilment,
warehousing, transportation, distribution management, import/export management, product
development, promotions planning, and customer service.

a) Procurement
b) Inventory
c) Production
d) Planning
e) Order Processing & Distribution
f) Depot Management
 Medium High
Transportation Demand

Level of Interaction Required

Management

High
Product Development
Distribution

For the Process

An analysis maps the various supply chain Order
processes on a two dimensional matrix – primary Processing/Fulfilment Management
focus of process (enter-prise v/s inter-prise) and Customer Service
level of interaction of the process (high v/s low) Low Medium
Import–Export

Low
Management Inventory
Promotions Planning Management
Warehousing Manufacturing
Enterprise Interprise
Primary Focus of the Process

Figure 2: Supply Chain Process Matrix

Enter-prise covers processes which have a greater focus internal to the enterprise (e.g. Product Development, Manufacturing) while inter-
prise covers processes having greater focus external to the enterprise i.e. oriented towards external stakeholders (e.g. demand management,
customer service, distribution management).
Processes that relate to enterprise supply chain with low level of interaction with other processes come out as "less critical" whereas the
ones that involve inter-enterprise interface or integration with high level of interaction with other processes as "highly critical".
 Supply Chain Costs in FMCG Sector

Five major supply chain cost drivers:

1) Investment cost
2) Transportation cost
3) Procurement cost
4) Production cost
5) Inventory cost

 FMCG has higher volume and vast

network characteristics, ranks highest in
cost of materials and logistics activities
 Transportation cost (inbound &
outbound) accounts for 6.7% of total
supply chain cost
Time-to-market
Average number of days the inventory remains in the
supply chain, from supplier’s supplier to customer’s
customer.
On an average, FMCG companies carry a total of:
 26 days of inventory as raw material
 4.4 days WIP
 13.25 days of finished goods
 Inventory turnover of 24.7 for finished goods
 Role of Information Technology

Digital Transformation in the Supply Chain – especially for manufacturers – can enable transparency and insight in
the “upstream” (raw materials, sourcing) and “downstream” (distribution, logistics, delivery, service) of your
company’s supply chain, all the way to – and through – customer receipt, acceptance, and use, in many cases.

Why is that so important?

1. Increased transparency (and knowledge) reduces the need for excessive inventories, lead times, and the working
capital associated with them.

2. Increased collaboration (where, when, and how it makes strategic sense for your business) drives increased
value, revenues, and customer satisfaction by allowing supply chain partners to contribute their unique value to
customers’ needs.

3. Effective tracking – from order through delivery – frees your customer service and sales people to focus on value-
adding insights and services beyond what customers can do for themselves.
The FMCG Supply chain
 Challenges of the FMCG Supply chain
FMCG sector is the 4th largest sector in the Indian economy with Household and Personal Care accounting for 50 per cent
of FMCG sales in India. It is expected to grow at a CAGR of 20.6 per cent and is expected to reach US$ 103.7 billion by 2020
from US$ 49 billion in 2016.

Demand Forecasting & Management:
 Uncertainty arising out of demand
volatility necessitates inventory and
complex forecasting to fulfil demand to
the required level of customer
satisfaction.
 The more factors that predictions of
future demand can take into account
the more accurate these predictions
can be.
 Hence, supply chains are moving
towards co-operative forecasting
systems.
 This implies that all components of the
supply chain share and use the same
forecasting tool leading to a decrease in
the Bullwhip Effect
Fulfillment of General Trade outlets
 Challenge of fulfilment of thousands of
outlets across the city where all the
possible products are trying to reach
out.
 Another reason is also a greater
sensitivity towards the fill rates at these
outlets given the increased competition
across eCom, Modern Trade etc.
 Eg: A very large FMCG company in India
services more than 50000 outlets every
week in a large city. On a daily basis,
almost 10000-12000 outlets would be
serviced.
Seasonality in Demand:
 A seasonal pattern is one that repeats
at fixed intervals. This pattern could be
observed daily, weekly, monthly or
yearly.
 About 33.7% indicated seasonality of
demand in their businesses with end of
calendar year (Oct-Dec) as the most
common season
 sectoral analysis shows that during
seasons sales are accounted as high as
50% of total sales.
 Challenges of the FMCG Supply chain
Inventory Management
 Increasing number of backorders
 Increasing cancelled orders
 Increasing numbers of returns
 High customer turnover rate
 Large number of obsolete items
 Periodic lack of storage space
Dealing with Counterfeit Goods
 Studies show counterfeits accounted
for losses worth more than Rs 300
billion for the FMCG sector every year.
 It is found that counterfeit products of
well known brands raked in sales
equivalent to over 50 percent of the
original products across the industry.
 To prevent such losses, the FMCG
companies have to exercise greater
control over their distribution channels.
Warehouse & Distribution
 Deliveries need to happen constantly,
with the flexibility to adapt to seasonal
fluctuations (peaks can be as high as
400% annually) and shorter life spans
(driven by both perishability and
changes in customer taste).
 Has to be catered with better supply
chain efficiency by streamlining
processes and maintaining economies
of scale to meet price expectations
 Hence adopting the advancements
industrial automation like ASRS, AGVS,
voice picking and mobile device-driven
fulfilment solutions
 Payback on technological investments
within warehouses is typically around 7
years
Transportation
 Driver shortages resulted in an
increased focus on utilization of
transport resources to try and combine
efficiencies of scale for larger vehicles
travelling long distances
 Smaller vehicles aren’t capable of
undertaking multiple customer
deliveries within congested urban
environments
 Minimizing empty space within a
vehicle and reducing travel distances
are two ways to boost utilization and
decrease transport associated costs.
Changes in Value Creation Model
Changes in Value Creation Model
What the Future Beholds
• Planning
• Big Data and Advanced analytics
• Predictive analytics for demand planning
• ML models which drops forecasting errors by 30-50 %
• Heavily automated and fully integrated demand and supply planning
• Dynamic safety stocks
• Dynamic Prices
• Profit Maximization
• Minimization of inventories
• Physical Flow
• Autonomous and smart vehicles
• Better connectivity, additive manufacturing and easy to use interfaces
• Performance Management
• Real-time dashboards to monitor performances
• Automatically trigger self-heal measures
• Order management
• Reduce Costs
• Improved reliability
• Better customer experience
• Collaboration
• Non-competitive relationships
• Accomplish supply-chain tasks together
• Supply Chain Strategy
• Optimal value for the customer
• Reduction in inventory costs
• 30% lower operational costs
• 75% lower lost sales
References
• https://www.directivegroup.com/ideas/tools/news/blog/role-of-technology-in-supply-chain-
management/
• https://www.linkedin.com/pulse/peculiarities-fmcg-supply-chain-general-trade-gt-ravikant-
parvataneni
• https://knowledge-leader.colliers.com/danny_green/the-challenges-faced-by-fmcg-supply-chain-
users/
• https://www.researchgate.net/publication/287813236_Supply_Chain_Management_in_Indian_F
MCG_Sector
• https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-new-model-
for-consumer-goods
• https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/supply-chain-4-0-
in-consumer-goods#
THANK YOU
TOPIC-
“A comparison of pre- and post-pandemic
scenario of supply chain with respect to the
FMCG industry.”

Supply Chain Management

Group-3
UM1918 Shivangi Mishra UM1918 Shivika Marwah
4 8
UM1918 Shivani Kedia UM1918 Shlok Singh Swanni
5 9
UM1918 Shivani Talim UM1919 Shmidi Kalpita
7 0
Introduction • Share of premium portfolio to
increase significantly Our
Focus
• ~600 cities (tier 2,3,4) would be
4.5X times their size today and
• India’s FMCG market is estimated to would account for ~45% of
be USD 185bn. 34% of this market, consumption by 2025
• FOOD
i.e. USD 65bn is estimated for • 150-190 million consumers would be digitally
INDUSTRY
India’s branded FMCG market, influenced in FMCG
(Packaged
growing at the rate of 12%. FMCG • Traditional models of GTM would need a
Food)
industry today is witnessing a rethink

transformational change • E-commerce would grow and account for

• Includes
>10% in some categories
breakfast,
• Share of consumption of Volume growth in FMCG is less vulnerable to
snacks and
affluent/elite households set to economic cycles. Contribution of volume growth
Ready to Eat
double to 48% by 2025 to overall category depends on the degree of
food
penetration.
categories.
Route to Market
Raw Materials
MT
Distributor E-commerce
s Super
Distributor
s
GT Canteen
Distributor Store
s Department

C&FAs

Plant
Distribution Centre
Distributors Point of Sale Customers
• Bakery
• Chemist
• High End Grocers
• Low End Grocers
• Stand Alone Store
• Kiosk
• Wholesales
• E-commerce
3rd Party website
Packaging
Route to Market
MT Super
Raw Materials Distributor E-commerce
Distributor
s s
GT
Distributor Canteen
s Store
Department

C&FAs

Plant Distributors Point• ofBakery

Sale
Distribution Centre •
• Chemist
High End Grocers
Customers
• Low End Grocers
• Stand Alone Store
• Kiosk
• Wholesales
• E-commerce
website

Traceabilit
y
Distributio
3rdParty n Forecast
Packaging Replenishment System
-Reorder Point
-Periodic
-Top Off
Route to Market
MT Super
Raw Materials Distributor E-commerce
Distributor
s s
GT
Distributor Canteen
s Store
Department

C&FAs

Plant Distributors Point of Sale

Distribution Centre •
• Bakery
Chemist Customers
• High End Grocers
• Low End Grocers
• Stand Alone Store
• Kiosk
• Wholesales
• E-commerce website

The push-pull boundary

3rd Party
Packaging
Route to Market
MT Super
Raw Materials Distributor E-commerce
Distributor
s s
GT
Distributor Canteen
s Store
Department

C&FAs

Plant Distributors Point of Sale

Distribution Centre •
• Bakery
Chemist Customers
• High End Grocers
• Low End Grocers
• Stand Alone Store
• Kiosk
• Wholesales
• E-commerce website

Shift in the push-pull boundary

3rd Party
Packaging Boundary shifting towards left Lower Inventory Higher Efficiency
As retailers have the option to return unsold items Since distributors are stock keeping Stock is produced based on primary sales i.e. whatever the
as well as demand more products, thereby and selling themselves. distributor forecast and demands, who in turns forecasts
creating a “pull” according to the retailer’s demands.
Route to Market
Raw Materials
MT
Distributor E-commerce
s Super
Distributor
s
GT Canteen
Distributor Store
s Department

C&FAs

Plant
Distribution Centre
Distributors Point of Sale Customers
• Bakery
• Chemist
• High End Grocers
• Low End Grocers
• Stand Alone Store
• Kiosk
• Wholesales
• E-commerce
3rd Party website
Packaging
Plants C&FAs
•
•
There are 3 production plants in the country
Raw materials are imported from Malaysia Advantage 1
• Transported through Cargo to nearby Indian Port in Andhra Pradesh
• Packaging is done by third party
They act as intermediaries to carry
Maharashtra products from company warehouse to
• Locally sourced raw materials constitute about
90%
distributors
• The production line here manufactures the
products which uses these raw materials.
Advantage 2
Andhra Pradesh
Save cost and increases efficiency
• This plant connects to the port which
imports the raw materials from Malaysia
• The import of raw materials make up to
10%
• Thus, this plant has the product line of
which requires these import materials.

C&FAs are divided into 4 zones which is

Haryana
further sub-divided into mother hubs.
• This is another plant which manufactures
other product which Is different from the These then connect the regions and the
other two plants.
• Locally sourced raw materials are used in
the production process
distributors.
 Post COVID-19 Scenario for Plants and C&FA

01 02 03 04 05

Increased Optimizing the Secure Logistics Monitoring Delivering to the

domestic and
local sourcing
• Less dependency on
foreign goods as they can
be risky
• Domestic suppliers must
ensure that their portfolios
and capabilities meet the
operators expectations
plants and C&FA
to ensure
employee safety
• Supplying PPE kits and
work from home facilities
• Assess the impact of
operations and available
resource capacity
capacity and
flexible
transportation
• Estimating capacity and
accelerating wherever
possible
• Being flexible on the
transportation mode when
required
• Leverage direct to
consumer communication
channel
Inventory and Last Mile
flow of goods
• Review the location of
• Improving visibility over all
C&FA and compute risks
inflow and outflow of
by geography
goods
• Analysis of warehouse
• Investing in a technology
and front end processing
driven dashboard to
capacity
provide real time
• Identify potential stress
information
hotspots that needs to be
• Ensure smooth material
fixed
handling along with
• Optimal flow planning
adequate manpower
under constrained
availability
resources
Route to Market
Raw Materials
MT
Distributor E-commerce
s Super
Distributor
s
GT Canteen
Distributor Store
s Department

C&FAs

Plant
Distribution Centre
Distributors Point of Sale Customers
• Bakery
• Chemist
• High End Grocers
• Low End Grocers
• Stand Alone Store
• Kiosk
• Wholesales
• E-commerce
3rd Party website
Packaging
General Trade Distributor “Perfect Store” equivalent concept

• Who are they? • What?

 Select a specific no of “profitable’ stores from the pool
 Distributors based out of main towns with a  Set standard KPIs
population of 2lakh or more.
 Assign a reward incentive system
 They cater to organized and big-format
 Test-Analyze-Restrategize
stores, which have specific visibility
Special
programs. visibility
programs run
through
hangers, eye-
level shelves,
dedicates
racks

• Why?

• Contribution?  To align the retail stores with marketing goals

20%-30% of the total revenue.  To involve the GT stores more with the brands
 To get more information about the end customers
 Post COVID-19 Scenario for General Trade
Distributor
1. Fluctuating Demand: Distributors have experienced uncertain demand order patterns
from consumer market.
2. Increase in Credit Cycle: Owing to the difficult situation, distributors have received an
increased credit period from suppliers.
3. Change in Operating Models: Supply Chain has seen the following models picking up
trend during the pandemic:
● BOPIS
● Order via WhatsApp
● SAMT chain popups in Tier 1
1. Distributor-Retailer Conflict
2. Revoking of Promotional Schemes
3. Mandatory Safety Compliances

Overall Impact for Retailer

1. Increase in Operational Costs: Adopting to new approaches to fulfill customer demand
has led to an overall increase in costs.
Route to Market
Raw Materials
Modern
Trade E-commerce
Distributor Super
Distributor
s
GT Canteen
Distributor Store
s Department

C&FAs

Plant
Distribution Centre
Distributors Point of Sale Customers
• Bakery
• Chemist
• High End Grocers
• Low End Grocers
• Stand Alone Store
• Kiosk
• Wholesales
3rd Party • E-commerce website
Packaging
Modern Trade Super Distributor Canteen Store
Distributor Department

• Who are they? • Who are they?

Distributors who cater to Canteen Stores operated by the

hypermarkets and Central Government for the

• Who are they? defense personnel and their
supermarkets.  Distributors who cater to semi-urban and
e.g.- D-Mart, Spencer’s families.
rural areas.
 They are based out of District
Headquarters
• Contribution?
 Do not serve in their local areas. Nearly 5% of the total revenue.

• Contribution?
 They cater to SDL(Super Dealers)- Sell products in rural areas and have a
• Contribution? turnover of 10lakh-20lakh INR.
25%-30% of the total revenue.
 SDLs are offered an additional margin as they provide market penetration
 Follow manual data techniques.
POST COVID-19 SCENARIO AND SHIFT IN MT(Modern Trade,
SD(Super Distributor & CSD( Canteen Store Department)
Increased focus on different options
for delivery
Most of the modern trade outlets
which were not having the option for
home delivery have started including
that option. Some like Reliance Fresh
have also gone online(JioMart) during
the pandemic. .
Last Mile Delivery
Distributors and Super Stockists have
listed themselves online on websites
like Dunzo which offer last mile
delivery.
Movement to Distributor
Management system
Companies have move to the use of
distributor management system to keep
their distributors updated and have all
the invoices and claim settlements
managed online, so that minimum
contact takes place.
Unprecedented growth in unusual
categories.
Increased focus on hygiene resulted in
growth in the sale of branded sweets,
which wasn’t there before. Distributors
were not prepared for it. Hence
systems of forecast have been changed
in these categories to factor in the
consumer behavior.
Change in Auditing Process
Initially some companies used to
audit major distributors through their
ASMs. But after the pandemic they
have shifted the entire audit process
to have it handled by the external
auditors..
Canteen Store Department
Due to the sudden shutdown of
CSDs, a huge amount of unsaleable
goods was accumulated which
resulted in huge losses. Ways to
avoid these losses by avoiding
overstocking is being considered now.
Route to Market
Raw Materials
Modern
Trade E-commerce
Distributor Super
Distributor
s
GT Canteen
Distributor Store
s Department

C&FAs

Plant
Distribution Centre
Distributors Point of Sale Customers
• Bakery
• Chemist
• High End Grocers
• Low End Grocers
• Stand Alone Store
• Kiosk
• Wholesales
3rd Party • E-commerce website
Packaging
E-commerce
Distribution
Centre
(company)

Direct to e-
commerce
websites e-distributors

Company sends products

directly to the e-tailers’
Company sends product
warehouse .
to an e-distributor ( e.g.-
Cloudtail), who further
send products to e-tailers’
like Amazon and Flipkart

• Contribution?
Nearly 10% of the total revenue.
 Post-Covid Scenario in E-commerce
Growth of E-commerce
Promoting all kinds of small businesses, the
partnership in e-commerce activities by small
producers, manufactures, retailers and consumers
have increased. E-commerce boosts in enhancing
business to consumer (B2C) deliveries also
efficient in Business to Business (B2B) deliveries to
distributors and retailers directly.
Direct to home
More than a dozen consumer goods companies
including Hindustan Unilever, ITC, Mondelez,
Procter & Gamble, Dabur and Colgate have started
selling products directly to consumers by setting-
up operations in-house
Digital Transformation
Companies have been focused on a digital
transformation journey to enhance consumer
engagement, drive sales through e-commerce
and build data analytics capabilities for faster
and efficient decision-making across the value
chain. Last Mile Delivery
Importance given to last mile delivery models and
2
partnering with established players who can offer
digital ordering and/or last mile delivery
capabilities like Dunzo, Delhivery, Scootsy and
Swiggy for sales, by listing brand stores on their
portals and even reaching out to resident welfare
associations (RWAs) through their sales staff.
Shift in Concept
FMCG companies have set up storefronts and are
servicing orders from exclusive brand stores and
directly from distribution centres, to get items to
the doorstep by tying up with food-service
aggregators, logistics partners, launching a direct
to consumer portal, tele-caller facility for direct
reach to the top retail outlets and introducing a
retailer and consumer-ordering app, among
others.
THANK YOU
Supply Chain of the
Pharmaceutical
Industry

Group 10

UM19235- Rujhan Chopra

UM19236- Rutvi Thakkar
UM19237- Ryan Sen
UM19238- Shreya Annareddy
UM19239- Shubham Patil
UM19240- Shubham Sharma
UM19242- Shubhangi Vaid
 Raw material Suppliers
The Indian Pharmaceutical Industry : An Overview
Annual revenue of US$38 billion, expected to increase to
Manufacturer
US$100 billion by 2025
Finished Goods Warehouses / Central
Warehouses
3rd largest in the world by volume and 11th by value
Regional Distributors /
Warehouses Super Stockists
3,000 pharma companies and 10,500 manufacturing facilities
Hospitals / Clinics / Retailers

Produces drugs at around a third of the US costs and half of the

European costs Patients

Indian pharma companies supply around 20 per cent of the worlds’

generics and 62 per cent of its vaccines For domestic business
• Hub and Spoke Model with a
In terms of domestic & Top 500 companies which supply to master warehouse and several
international revenues, each international markets feeder units across the country
company has a different that supply to distributors &
business model stockists
Central Warehouse • Properties are leased out by
In-house Outsourced to a
warehousing third-party service
landlords and operations are
provider handled by CFAs
 Growth of Indian Pharma companies will depend upon
 Physical Capacity
 People and organization Capacity Key Performance Indicators
 Process Capabilities

 Supply chain costs depend heavily on the type of product. Specialized

cold chain requirements for vaccines and other complex formulations
Supply
can significantly increase supply chain cost. Inventory Customer
Chain
Levels Service
 Because of long manufacturing lead times and regulatory
Costs
requirements, pharma companies usually maintain higher stock levels
than other industries

 Industry is still in the early stages of maturity. Sustainable growth will

require covering significant ground
 Distribution and Supply Chain
• After a drug is launched, a completely different set of objectives, drivers, and constraints become dominant.
• The Pharmaceutical Supply Chain includes multiple government agencies, hospitals, clinics, drug manufacturers, drug
distributors, pharmacy chains, retailers, research organizations, and the FDA.
• India is a geographically diverse country with extreme climates that make distribution a critical function.
• Before 1990 pharma companies used a different distribution system in which they established their own depots and warehouses
which have now been replaced by CFAs
• Most companies keep 1-3 CFAs in each Indian State. On an average a company works with 25-30 CFAs
• A distributor can handle the stocks of multiple companies simultaneously. Usually the number ranges between 5-15 depending
upon the area, and may even go up to 35-50 different manufacturers.

According to Indian Retail Druggists and Chemists Association:

• In 1978 there were roughly 10,000 distributors and 125,000
pharmacies in India
• Today the number stands at 65,000 distributors and 550,000
pharmacies in India
• Despite the rapid increase in the number of stockists and
pharmacies there has not been a proportionate increase in the
volume of prescriptions distributed
• Thus the efficiency of the current system has clearly not been
demonstrated
• Further its estimated that more that 3/5th of Indians do not
have access to modern medicine
 Pricing and Margins
National Pharmaceutical Pricing Authority (NPPA)
• It was as an independent Regulator for pricing of drugs and to ensure availability and accessibility of medicines at
affordable prices.
• Prices for scheduled drugs are controlled while non-scheduled are not
• The latest Drug Price Control Order was released in 2013 which had a list of 384 drugs
• The margins mentioned below do not include other trade offers
• The company has to comply with the terms of various associations formed by the retailers and distributors
• Cipla tried to bypass the supply chain and provided home service for its products which was met with a strong
resistance from the lobby
• Traders stopped stocking Cipla’s products which led to Cipla withdrawing from the scheme

Levels Margins (as a percentage of Retail Price)

Clearing and Forwarding agents
Stockist or distributor or wholesaler
Retailers
1-10% on the total turnover + other
expenses
8%on scheduled drugs
10%on nonscheduled drugs
16% on scheduled drugs
20% on nonscheduled drugs
 Challenges

05 Temperature control

04 Reverse Logistics

03 Fragmentation

02 Human resource
dependency

Warehouse and order

01 Management
 Case Examples
Supply Chain improvement
De-Risking Supply Chain
• Internalization and backward
integration of intermediaries, APIs
• On boarding suppliers, buyers,
doctors to digital platform – Vikreta
Connect
• Increase in supply chain security
through advances in serialization
Supply Chain Excellence Sustainable Supply Chain
• 465 Critical and 6000 Non-critical
• Ensured 95% OTIF by integrating
vendors have been identified -Supply
supply chain with R&D, technical
Chain Management Sustainability
support, manufacturing
Policy and Supplier Code of
Conduct14 –Policy covering its
• Using Global supply Chain process
supplier and business partners
but also investing in local
manufacturing of APIs
• 360- degree review to asses vendor
performance and potential
• Implementation of Serialization and
tampered-evident packaging
• Alternate Vendor Development (AVD)
strategy
• Practices to reduce carbon emission
adopted

1990s
Onset of Digitization
• Digitization of products
• Computer integrated manufacturing
systems
• First online business models
Key Drivers
New Technologies
Future of Pharma Industry
2000s
Disruptive Digital
Technologies
• Digital solutions
• Few automated processes
• Digitized customer interface
Connected Capabilities
2012+ 2020+
Industry 4.0 Digital Ecosystem
• Digitized products and services • Flexible and integrated value chain
network
• Digitization in operations in value
chain • Virtual customer interface
• New business models • Industry collaboration as key driver
• Data analysis and action as core • Based on Intelligent Machines
competency • Intelligent Mobility
Data Analytics Internet of Things Intelligent Algorithm
 Digital Ecosystem would Solve Historical Challenges

Linear Supply Chain Industry 4.0 Digital Ecosystem

Low efficiency ✗ ✓ ✓
Long lead times ✗ ~ ✓
Poor partner co-ordination ✗ ~ ✓
Unclear product history ✗ ✓ ✓
Low forecast accuracy ✗ ∼ ✓
Human errors ✗ ✗ ✓
Decision making bottlenecks ✗ ✗ ✓
Internet silos ✗ ✓ ✓

✓- Solved || ~ - Partially Solved || ✗ - Not solved

References

• https://blogs.deloitte.co.uk/health/2020/03/the-indian-pharmaceutical-industry-the-pharmacy-of-the-world.html
• https://www.indiaoppi.com/wp-content/uploads/2019/12/Indias-Pharma-Supply-Chain-Does-the-Industry-Have-What-It-Takes-to-Win.pdf
• https://economictimes.indiatimes.com/prime/pharma-and-healthcare/a-hot-opportunity-third-party-players-rush-to-tap-spurt-in-demand-
for-pharma-cold-chain-logistics/primearticleshow/79005980.cms
• https://www.drreddys.com/media/884823/annualreport2020forwebsite.pdf
• https://www.lupin.com/pdf/annual-report/2020/lupin-annual-report-2019-20.pdf
• https://www.cipla.com/sites/default/files/2020-08/CIpla-AR-2019-20.pdf
• https://hbr.org/webinar/2017/12/pharmas-future-supply-chain
• https://health.economictimes.indiatimes.com/news/pharma/new-age-technologies-like-ai-can-mitigate-the-supply-chain-management-
risk-vishal-sharma/76137552
• https://www.pharmamanufacturing.com/articles/2019/6-pharma-supply-chain-innovations-that-are-worth-the-investment/
Thank You