MODULE: 4

Forecasting System Design

Syllabus

Customer Service Management and Measurements – CRM – Manufacturing Logistics – Pricing

Strategies – SCM Relationships – Third Party Logistics and Fourth Party Logistics – SCM
Network Design and Facilities Development – SCM Planning and Development Strategies –
Supply Chain Uncertainties – Supply Chain Vulnerabilities.

Introduction

Customer

In sales, commerce, and economics, a customer (sometimes known as a client, buyer,

or purchaser) is the recipient of a good, service, product or an idea obtained from
a seller, vendor, or supplier via a financial transaction or exchange for money or some other
valuable consideration. A customer is defined as,” an individual or business that purchases
another company's goods or services”. They are important because they drive revenues; without
them, businesses cannot continue to exist.

Customer service

Customer service is the support you offer your customers — both before and after they buy and
use your products or services — that helps them have an easy and enjoyable experience with
you. Offering amazing customer service is important if you want to retain customers and grow
your business. Today’s customer service goes far beyond the traditional telephone support agent.
It’s available via email, web, text message, and social media. Many companies also provide self-
service support, so customers can find their own answers at any time day or night. Customer
support is more than just providing answers; it’s an important part of the promise your brand
makes to its customers. 

Why is customer service important to the success of your business?

Customer service is critical to competing effectively.

In the past, people chose which companies they did business with based on price, or the product
or service offered, but today the overall experience is often the driver. 
“89% of companies now expect to compete mostly on the basis of customer experience.”

— GARTNER RESEARCH

Customer service management

Customer service management is a term that refers to practices, strategies, and technologies that
companies use to manage and analyze customer interactions and data throughout the customer
lifecycle, with the goal of improving business relationships with customers, assisting in customer
retention, and driving sales growth. It is sometimes considered as a database technology
supported by the process of collecting, processing and utilizing information about the company’s
customers.

If you want to improve the quality of customer service management, it is definitely worth
introducing solutions that automate customer service management. Another important point is
listening to the agents who are on the front line when dealing with customers. Better
management makes them work better too. You should also listen to customers whose feedback is
extremely important, because customer service is about them.

Customer Service Characteristics (Components)

A high quality customer service can be provided by incorporating these characteristics −

1. being prompt 

Whatever service or product you have promised the customer, be punctual in its fulfilment.
Changes or cancellations later in the day can be harmful to you and your organization’s
reputation.

2. Knowing your P’s and Q’s 

You must be polite to your customer all the time. Besides the opening and closing greetings, dot
your conversation with please, sir, thank you or sorry liberally. Display your best behavior to
every customer.

3. being professional 

Show empathy for your customer’s problems while respecting them. Never make them feel
degraded because they have a problem they cannot solve by themselves.
4. Listening attentively 

Never interrupt the customer when he is explaining his requirement. Make a note of salient
points and request for clarifications later.

5. Asking right questions 

If you have listened to the customer requirements attentively and you have thorough knowledge
of your product or service, you should be able to ask the right questions that will help you in
meeting customer needs.

6. Taking responsibility 

You should feel personally responsible for solving the customer’s queries. Never assume that
you are just a representative of the team.

7. Expertise

Ensure your staff is properly trained and has developed an expertise on your products and
services are the first step in creating a great customer experience.  When a customer has a
question your staff should be prepared with an appropriate and accurate answer that allows your
customer to make an educated purchase decision.  This will help you to avoid dissatisfied
customers and returns.
8. Body Language
Body language is one of the keys to ensure you communication comes across as sincere.  It also
displays confidence in your product or service without saying a word.  Alternately, having poor
body language can reflect a lack of enthusiasm or energy, which negatively impacts the customer
experience.

7 R’s of Supply Chain Management 

The management of goods and services from point of manufacture to the point of consumption
refers to Supply Chain Management. It involves effectual planning, design, execution, control,
and monitoring of supply chain activities.  Effective supply chain management facilitates
optimization of resources, proper flow of materials, information and capital thereby reducing
operational cost and avoiding delays. Organizations rely on its supply chain team for the entire
process of logistics.

The role of supply chain manages is integral in every industry. In order to become a supply
chain manager, the candidates should know how to take care of all the supply chain activities.
The main aim of SCM deals with taking care of 7 R’s these are as follows:
1. Right Product

The basic constituent of supply activities are the products that are transported from the
manufacturer to the consumers. Supply chain managers should know what kind of product
needs to be manufactured, handled and transported. The best strategy is to choose a product that
is in demand and that can guarantee profits. Having right knowledge and using the right product
will facilitate in effectively managing the time and resources.

2. Right Place

Next important factor is that the right product should be sent to the right place. The supply chain
managers should ensure that they have efficient and experienced delivery staff so that the
product is delivered to the right place. The managers can develop a strong delivery system with
location tracking so that both the customers and the providers can track the exact location of the
product and get it delivered to the right place.

3. Right Price

Pricing is essential for the businesses as it is the factor that decides whether it has incurred profit
or loss. The supply chain manager should research market trends and set competitive prices for
the goods and services. Furthermore, there should be a system that keeps a record of the prices
and updates it regularly so that the products are sold at the right price.

4. Right Customer

Customers are the core component of supply chain processes. The managers must have
knowledge about their target market. If the products are sold in the right market then the
company gains more leads and they get the right customers that can stay with them life-long.

5. Right Condition

The quality of deliverables is of utmost importance. It is the duty of the supply team to ensure
that the goods are stored properly and delivered to the customers in the right condition.

6. Right Time

Time is a crucial factor in logistics. Customer’s satisfaction and long-term relationship are only
possible if the products are delivered to the customers at the right time. It is the task of managers
to develop a tracking system and coordinate with the delivery team to get the items delivered
before the deadline.
7. Right Quantity

Sending right amount of products is also important in logistics. It is the task of the supply chain
managers to find the right quantity of deliverables and to coordinate with the manufacturing and
delivery team to get the right quantity of products delivered to the customers.

CRM (Customer Relationship Management)

Customer relationship management (CRM) is the combination of practices, strategies and
technologies that companies use to manage and analyze customer interactions and data
throughout the customer lifecycle. The goal is to improve customer service relationships and
assist in customer retention and drive sales growth. CRM systems compile customer data across
different channels, or points of contact, between the customer and the company, which could
include the company's website, telephone, live chat, direct mail, marketing materials and social
networks. CRM systems can also give customer-facing staff members detailed information on
customers' personal information, purchase history, buying preferences and concerns.

Objectives of CRM
CRM, the technology, along with human resources of the company, enables the company to
analyze the behavior of customers and their value. The main areas of focus are as the name
suggests: customer, relationship, and the management of relationship and the main objectives
to implement CRM in the business strategy are:

1. Improve Customer Satisfaction 

CRM helps in customer satisfaction as the satisfied customers remain loyal to the business and
spread good word-of-mouth. This can be accomplished by fostering customer engagement via
social networking sites, surveys, interactive blogs, and various mobile platforms.

2. Expand the Customer Base 

CRM not only manages the existing customers but also creates knowledge for prospective
customers who are yet to convert. It helps creating and managing a huge customer base that
fosters profits continuity, even for a seasonal business.

3. Enhance Business Sales 

CRM methods can be used to close more deals, increase sales, improve forecast accuracy, and
suggestion selling. CRM helps to create new sales opportunities and thus helps in increasing
business revenue.
4. Improve Workforce Productivity 

A CRM system can create organized manners of working for sales and sales management staff of
a business. The sales staff can view customer’s contact information, follow up via email or social
media, manage tasks, and track the salesperson’s performance. The salespersons can address the
customer inquiries speedily and resolve their problems.

Benefits
The following are the benefits of adopting CRM processes:

 Develop better communication channels

 Collect customer related data

 Create detailed profiles of individual customers

 Increased customer satisfaction

 Access to customer account history, order information, and customer information at all
touch points

 Identify new selling opportunities

 Increased market share and profit margin

 Increased revenues

 More effective reach and marketing

 Improved customer service and support

 Improved response time to customer requests for information

 Enhanced customer loyalty

 Improved ability to meet customer requirements

 Improved quality communication and networking

 Reduced costs of buying and using product and services

 Better stand against global competition

Components of Customer Relationship Management
Here are some of the important ingredients of CRM −

 Analytics − Analytics is the process of studying, handling, and representing data in

various graphical formats such as charts, tables, trends, etc., in order to observe market
trends.

 Business Reporting − Business Reporting includes accurate reports of sales, customer

care, and marketing.

 Customer Service − Customer Service involves collecting and sending the following
customer-related information to the concerned department −

o Personal information such as name, address, age

o Previous purchase patterns.

o Requirements and preferences.

o Complaints and suggestions.

 Human Resource Management − Human Resource Management involves employing

and placing the most eligible human resource at a required place in the business.

 Lead Management − Lead Management involves keeping a track of the sales leads and
distribution, managing the campaigns, designing customized forms, finalizing the mailing
lists, and studying the purchase patterns of the customers.

 Marketing − Marketing involves forming and implementing sales strategies by studying

existing and potential customers in order to sell the product.

 Sales Force Automation − Sales Force Automation includes forecasting, recording sales,
processing, and keeping a track of the potential interactions.

 Workflow Automation − Workflow Automation involves streamlining and scheduling

various processes that run in parallel. It reduces costs and time, and prevents assigning
the same task to multiple employees.

 Overall, each of the discussed components of Customer Relationship Management is very

essential to improve the work structure as well as the market response to the business and their
products.
SCM –Pricing and Revenue
Pricing is a factor that gears up profits in supply chain through an appropriate match of supply
and demand. Revenue management can be defined as the application of pricing to increase the
profit produced from a limited supply of supply chain assets.

Ideas from revenue management recommend that a company should first use pricing to maintain
balance between the supply and demand and should think of further investing or eliminating
assets only after the balance is maintained.

The assets in supply chain are present in two forms, namely capacity and Inventory

Capacity assets in the supply chain are present for manufacturing, shipment, and storage while
inventory assets are present within the supply chain and are carried to develop and improvise
product availability.

Thus, we can further define revenue management as the application of differential pricing on the
basis of customer segment, time of use and product or capacity availability to increment supply
chain surplus.

Revenue management plays a major role in supply chain and has a share of credit in the
profitability of supply chain when one or more of the following conditions exist −

 The product value differs in different market segments.

 The product is highly perishable or product tends to be defective.

 Demand has seasonal and other peaks.

 The product is sold both in bulk and the spot market.

The strategy of revenue management has been successfully applied in many streams that we
often tend to use but it is never noticed. For example, the finest real life application of revenue
management can be seen in the airline, railway, hotel and resort, cruise ship, healthcare, printing
and publishing.

1. Pricing & Revenue Management in Multiple customer segments

In the concept of revenue management, we need to take care of two fundamental issues. The first
one is how to distinguish between two segments and design their pricing to make one segment
pay more than the other. Secondly, how to control the demand so that the lower price segment
does not use the complete asset that is available.

To gain completely from revenue management, the manufacturer needs to minimize the volume
of capacity devoted to lower price segment even if enough demand is available from the lower
price segment to utilize the complete volume. Here, the general trade-off is in between placing
an order from a lower price or waiting for a high price to arrive later on.

An important point to note here is the application of differential pricing that increments the level of
asset availability for the high price segment. A different approach that is applicable for differential
pricing is to build multiple versions of product that focus on different segments. We can understand this
concept with the help of a real life application of managing revenue for multiple customer segments,
that is, the airlines.

2. Pricing & Revenue Management for Perishable Assets

Any asset that loses its value in due course of time is considered as a perishable item, for
example, all fruits, vegetables and pharmaceuticals. We can also include computers, cell phones,
fashion apparels, etc.; whatever loses its value after the launch of new model is considered as
perishable.

We use two approaches for perishable assets in the revenue management. These approaches are
−

 Fluctuate cost over time to maximize expected revenue.

 Overbook sales of the assets to cope or deal with cancellations.

The first approach is highly recommended for goods like fashion apparels that have a precise
date across which they lose a lot of their value; for example, apparel designed for particular
season doesn’t have much value in the end of the season. The manufacturer should try using
effective pricing strategy and predict the effect of rate on customer demand to increase total
profit. Here the general trade-off is to demand high price initially and allow the remaining
products to be sold later at lower price. The alternate method may be charging lower price
initially, selling more products early in the season and then leaving fewer products to be sold at a
discount.

The second approach is very fruitful here. There are occurrences where the clients are able to
cancel placed orders and the value of asset lowers significantly after the deadline.

3. Pricing & Revenue Management for Seasonal Demands

One of the major applications of revenue management can be seen in the seasonal demand. Here
we see a demand shift from the peak to the off-peak duration; hence a better balance can be
maintained between supply and demand. It also generates higher overall profit.
The commonly used effective and efficient revenue management approach to cope with seasonal
demand is to demand higher price during peak time duration and a lower price during off-peak
time duration. This approach leads to transferring demand from peak to off-peak period.

Companies offer discounts and other value-added services to motivate and allure customers to
move their demand to off-peak period. The best suited example is Amazon.com. Amazon has a
peak period in December, as it brings short-term volume that is expensive and reduces the profit
margin. It tempts customers through various discounts and free shipping for orders that are
placed in the month of November.

This approach of reducing and increasing the price according to the demand of customers in the
peak season generates a higher profit for various companies just like it does for Amazon.com.

4. Pricing & Revenue Management for Bulk and Spot Demands

When we talk about managing revenue for bulk and spot demand, the basic trade-off is
somewhat congruent to that of revenue management for multiple customer segments.
The company has to make a decision regarding the quantity of asset to be booked for spot
market, which is higher price. The booked quantity will depend upon the differences in order
between the spot market and the bulk sale, along with the distribution of demand from the spot
market.

There is a similar situation for the client who tends to make the buying decision for production,
warehousing and transportation assets. Here the basic tradeoff is between signing on long-term
bulk agreement with a fixed, lower price that can be wasted if not used and buying in the spot
market with higher price that can never be wasted. The basic decision to be made here is the size
of the bulk contract.

The amount of bulk purchase increases if either the spot market price increases or the bulk price
decreases.
We can now conclude that revenue management is nothing but application of differential
pricing on the basis of customer segments, time of use, and product or capacity availability to
increase supply chain profit. It comprises marketing, finance, and operation functions to
maximize the net profit earned.
Factors Influencing Pricing –
2 Important Factors:

1. Internal Factors
2. External Factors

A business organization should consider all the factors that affect the pricing decisions.
These factors are as follows:

1. Internal Factors:

Internal factors are those factors that are within the control of the firm.

These are as follows:

i. Business Objectives:

Pricing is one of the factors that help a company in achieving its various business objectives.
Fulfillment of objectives such as stability in prices, maximization of profits, survival in
competition etc., is affected due to pricing policies. Hence, all these factors should be considered
while fixing the price of a product.

ii. Costs:

Price needs to cover the cost of production and distribution of a product. It also should include a
margin of profit for the manufacturer. Thus, the cost of production should be considered before
fixing the price of a product.

iii. Marketing-Mix:

Price is one of the four factors of marketing mix. The marketing mix in totality should be an
effective mix of Product, Price, Promotion and Place. It must be ensured that the price of the
product is such that the marketing mix is not adversely affected. Sometimes, high prices are
charged to show the quality of a product and sometimes low prices are charged to make a new
product popular.

iv. Product Differentiation:

Product differentiation on the basis of innovative features is often used to distinguish a product
from that of its competitors. This also lets the manufacturer devise its own pricing policy distinct
from that of its competitors.

v. Organizational Factors:

Price fixing is an important responsibility of top management and the sales department has to
implement the policy. Hence, in order to ensure that an effective pricing policy is formed, there
should be proper co-ordination and agreement between the top executives and the head of the
sales department.
2. External Factors:

External factors are those factors that are beyond the control of the firm.

These are as follows:

i. Demand:

In a customer oriented market, the customer is always influenced by the price of the product. The
price of a product is the prime consideration for a customer. At the same time, the customer is
also willing to pay more if the product satisfies his wants. Hence, while fixing the price of a
product, customers demand for the product should be taken into consideration.

ii. Competition:

The consumer is always looking out for a product that satisfies his wants at the most competitive
prices. Most of the times, a consumer evaluates options before buying a product. Hence, the
producer has to ensure that his product and pricing does not vary a lot from the competitors. In
case, he wishes to quote a higher price, the producer will have to get into product differentiation
and offer something new and fresh to the consumer.

iii. Government Policy:

Prices of a product are also influenced by Government policies. Prices for goods like petrol, gas,
electricity etc., are fixed by the government and hence, the consumer has to pay the price that has
already been fixed by the government.

iv. Distribution Channels:

There are a number of middlemen that form part of the product distribution chain. The charges
paid to these middlemen are already included in the ‘Maximum Retail Price’ (MRP) of a
product. Hence, larger the chain of distribution, higher is the price of that product.

v. Buyers’ Behaviour:

A motive is nothing but the feelings, thoughts, emotions and instincts that compel a consumer to
buy a product. Buying motive of a consumer plays a very important role in deciding the price for
a product. Buyers may be ready to spend money on luxury items. However, they may not be
willing to spend much on necessities. Hence, buying motives of the customer should be taken
into consideration while fixing the price of a product.
Manufacturing Logistics
Manufacturing Logistics refers to all planning, coordination and service functions required to
carry out manufacturing activities. It can be referred to as Production Logistics or Industrial
Manufacturing Logistics. It provides great support to the manufacturers in the processes of
production and transportation of their products. Industrial Manufacturing Logistics includes the
planning, management, and control of the materials and information flow related to those
products for the companies in the manufacturing industry.

The Services Provided in Manufacturing Logistics:

 Creating the plans of the production process

 Distribution and stocking of materials

 Quality control of the materials

 Supporting the manufacturing process

 Making the products ready for the production stage

 Packing

 Transfer of products to other stations during production

 Order management

 Supply management

 Active information transfer about the process

 Optimization of the supply chain

 Value-Added Services

 Customer service support

1PL, 2PL, 3PL, 4PL, 5PL (Logistics providers)

1PL - First-Party Logistics

An enterprise that sends goods or products from one location to another is a 1PL. For example, a
local farm that transports eggs directly to a grocery store for sale is a 1PL. First party logistics
involves just two parties. There is the manufacturer or distributor that ships the goods (you), and
then there is the retailer or customer that receives the goods (your customer). There are no other
middlemen involved in the whole process.

2PL - Second-Party Logistics

An enterprise that owns assets such as vehicles or planes to transport products from one location
to another is a 2PL. That same local farm might hire a 2PL to transport their eggs from the farm
to the grocery store.

3PL - Third-Party Logistics

Third-party logistics companies provide any number of services having to do with the logistics of
the supply chain. This includes transportation, warehousing, picking and packing, inventory
forecasting, order fulfillment, packaging and freight forwarding.In a 3PL model, an enterprise
maintains management oversight, but outsources operations of transportation and logistics to a
provider who may subcontract out some or all of the execution. Additional services may be
performed such as crating, boxing and packaging to add value to the supply chain. In our farm-
to-grocery store example, a 3PL may be responsible for packing the eggs in cartons in addition to
moving the eggs from the farm to the grocery store.

Advantages of 3PL

1. Higher Operational Efficiency

The first major advantage that businesses can gain by using services offered by the 3PL
providers is increased operational efficiency. 3PL providers have specialized tools and IT
platforms that make it easier to perform various tasks in the supply chain and distribution
network including pick and pack, as well as tracking and security of packages.

2. Reduced Operating Expenses

Large and international companies cannot have dedicated logistics teams worldwide. In the
US, Walmart is the only major retailer that has its own fleet of trucks for inbound and outbound
logistics. However, having a dedicated fleet globally, in all the markets where the company
operates will add to its operating expenses significantly. Despite its own fleet of trucks, Walmart
depends on various 3PL providers due to its expansive size of business. 

A large number of other businesses too including retail and automobile businesses use the
services of 3Pl providers to control their operating expenses. BMW has partnered with DHL for
its supply chain operations. DHL supports BMW’s operations throughout its supply chain and
distribution network from pre-production to the final delivery. Many more such companies
around the world avail of 3PL services in order to reduce their operating expenses. For a
company to own the entire logistics functions and develop special technologies would prove
highly costly. On the other hand, 3PL providers that have achieved economies of scale can easily
offer such technologies and services at much lower costs than the company would have to spend
if it wanted to own the entire logistics infrastructure.
3. Higher flexibility in supply chain and distribution

Today’s complex nature of business and hyper-competitive industry environment requires

businesses to focus on developing competitive strengths and adapt fast to the ever-changing
industry environment. Global companies have expansive supply chain and distribution networks
but there is a lot of complexity involved in the management of the networks. The use of services
offered by 3PL providers allows the companies to operate more flexibly and respond faster to the
changing customer demands and preferences. 

Throughout the world, 3PL providers can offer cheaper and better routes for distribution than the
companies can themselves manage. It reduces the operating costs of the companies and also helps them
manage their variable costs more efficiently.

4. Low Capital Commitment

In many cases, what companies do in order to avoid higher costs related to supply and
distribution, they just use 3PL services providers. In this way, they do not have to invest in
purchasing warehouse space or establishing a large transportation network. This lowers the
amount of capital needed for doing business. This arrangement proves to be particularly
beneficial in the cases where there are very high variations in the capacity utilization of a
company’s warehouses. In such situations, if the company wants to own all the warehousing
space it needs, the result will be sharper growth in expenses due to over-purchasing of
warehousing capacity and lower profitability. Therefore, to avoid heavy capital expenditure
companies outsource warehousing operations fully or partially to third-party logistics providers.

Disadvantages of 3PL

1. Lower Control

One main disadvantage of using 3PL providers is that the company stands to lose some of the
control that it exercised over its supply chain and distribution networks. As the third-party
logistics provider assumes these responsibilities, it communicates and interacts with the firm’s
customers and suppliers which gives rise to additional risks. While some 3PLs use cobranding to
mitigate these risks, usually it is insufficient to mitigate the risks completely. As a part of this
arrangement, companies have to necessarily sacrifice some of their control over their supply
chains and distribution networks.

2. Information Technology Related Complexities

There are several IT-related complications also involved in the use of 3PL services for supply
chain and distribution operations.  As supply chains have evolved the use of Information
Technology for managing supply chain operations has also increased. However, increased use of
IT has also brought some complexities since it is inherently a complex area. First of all, to
achieve a higher degree of synchronization between the operations of the company and the 3PL
provider, their IT services must be interoperable. If the level of interoperability between the IT
systems of the two is low, the level of benefits to be derived from this arrangement will also be
lower. However, with time the 3PL service providers have updated the technologies they used
for managing client interactions and deliveries a lot.

3. Complexities related to reverse logistics

There are several complexities related to reverse logistics when a company uses 3PLs to manage supply
chain and logistics.  There are some problems with 3PLs handling reverse logistics for a company.
Moreover, for the e-commerce companies, the costs of handling returns are higher than the brick and
mortar stores. During certain periods the level of goods being returned can be higher than normal and
that can lead to delay in processing returns, apart from slowing down warehouse operations. In turn, it
can lead to higher customer dissatisfaction

4PL - Fourth-Party Logistics

In a 4PL model, an enterprise outsources management of logistics activities as well as the

execution across the supply chain. The 4PL provider typically offers more strategic insight and
management over the enterprise's supply chain. A manufacturer will use a 4PL to essentially
outsource its entire logistics operations. In this case, the 4PL may manage the communication
with the farmer r to produce more eggs as the grocery store's inventory decreases.
Advantages of 4PL

1. Managing the Entire Logistics Process

A 4PL partner is much more involved with the business's operations than a second party or third
party (2PL or 3PL).  They will manage the inventory at warehouses, the fulfillment transport, the
technology solutions at the back end, and so on. Thus, the 4PL partner is almost like an in-house
team. It is responsible for controlling all resources, capabilities, and technology of an
organization’s supply chain.

2.  Provides Strategic Insights into the Logistics Process

Managing supply chain has become really complex. Company may have to assemble raw
materials and manufactured goods from different corners of the world. Customers expect fast
delivery and a great experience, whether be it in stores or online. And businesses are expected to
bear the costs of next-day deliveries, returns, and delays. Thus, supply chain management has
become a liability for most businesses. In contrast, a properly managed and optimized logistics
process has become a competitive advantage. An effective 4PL offers the strategic vision to plan
and operate the supply chain network that efficiently manages the logistics across all platforms.

3. Provides Global Visibility to all elements of the Supply Chain

The modern, complicated supply chain process also means that businesses need to oversee many
issues. Companies that provide global deliveries typically work with two dozen or three dozen
delivery partners specializing in different geographic areas. Coordinating with so many parties in
different time zones, speaking different languages, and with their own separate tracking tools can
be a nightmare. It's a highly disjointed and disconnected process.

The 4PL is the intermediary that readies, coordinates, and manages all the different partners in
the logistics process. It makes sure all the partners work together and integrate enterprise
resource planning and IT. The 4PL also provides a single view of all local delivery partners,
inventory, warehouses, fulfillment capacity, and delivery status. This can empower your business
to have a global view of your logistics operations at all times.

4. Provides the Option of Demand-Driven Logistics

Logistics in the e-commerce era is complicated. A sale can happen across many channels, such
as websites, offline stores, resellers, retailers, and so on. You may need to ensure all warehouses
and fulfillment centers across the supply chain have enough stock to ensure timely delivery. You
may also need to plan in advance how you're going to move the products before the customer
even makes the purchase. If they have too much inventory and less demand, then it leads to
wasted costs. If you don't have the right inventory at the right place, you won't be able to deliver
on time. Thus, modern logistics requires accurate demand prediction.

Many 4PL providers these days have this capability. They can conduct a detailed analysis of
historical demand data to predict future expected demand. They can build intelligent shipping
processes to allocate inventory and meet customer demand, regardless of the location of the
inventory. These demand-driven strategies can help your business successfully forecast when
and where to move goods. An effective 4PL provider can also continuously optimize scheduling
and other capacities.

Dis-advantages of 4PL

 Proves costly for Small and Midsize Businesses (SMBs)

 Minimal control over logistics and fulfillment processes
 Lack of data collection and reporting
 Giving up significant control over transportation and logistics operations
 Potential biases not based on performance, outcomes or efficiency
 Difficult transition if removing 4PL provider
 Increased costs

5PL - Fifth-Party Logistics

A 5PL provider supplies innovative logistics solutions and develops an optimum supply chain
network. 5PL providers seek to gain efficiencies and increased value from the beginning of the
supply chain to the end through the use of technology like robotics, automation, Radio
Frequency Identification (RFID) devices etc. A fifth-party logistics, also known as 5PL, is
a system where an organisation (a client) outsources all its supply chains to a logistics service
provider. The 5PL company engages in planning, organising and implementing the client's
logistics solutions.

As we progress through the spectrum of logistics models from 1PL to 5PL, it's clear that more
and more of the logistics function are in the hands of the provider rather than the enterprise itself.
The most common models now are 3PL and 4PL and we'll look at how each one can help solve
supply chain challenges.

Key Responsibilities of a 5PL Partner

A 5PL partner has three key areas of responsibility:

1. Understand the logistics requirements

A 5PL partner constantly gathers the logistics requirements across the whole supply chain. These
requirements may come directly from the firm and its future targets. However, a 5PL partner also
analyzes the current operations and refines these requirements. The aim is to continuously
optimize and improve the logistics process.

2. Plan the logistics process

Using these requirements and targets, a 5PL partner plans the entire logistics operations. It
collaborates closely with the firm to break down the logistic requirements into a detailed
roadmap. A 5PL firm will usually have more expertise and experience in managing complicated
supply chains than its clients. Thus, it brings this additional value to the table to ensure a robust
logistics plan.

3. Execute and manage the entire logistics solutions

A 5PL partner then goes further and executes this plan as well. It will source and manage other
logistics service providers such as 3PLs, warehouses, truckers, carriers, airlines, etc. A 5PL
partner acts as the intermediary between the client and the providers that the client works with. If
there are any issues, the 5PL partner is responsible for quickly putting out the fire. It will even
set the terms of the contract with these logistics providers and look for the best deals.
Supply Chain Network Design

Supply Chain Network Design (SNDC) also known as 'strategic supply chain planning' is the
process for building and modelling the supply chain to understand the costs and time to bring
goods and services to market within an organisations available resources. It covers all the
movements and storage of raw materials, work-in-process inventory and finished goods from the
point-of-origin to the point-of-consumption. It covers the planning, implementation and control
of supply chain operations.

Advantages of Supply Chain Network Design

 Reduction in supply chain costs

 Increase in revenue
 Risk mitigation
 A supply chain that can support projected company growth
 Increased sustainability

 Improve customer service and satisfaction.

 Balance the costs and service.
 Help a company achieve competitive advantage.

Supply Chain Network in Simple and basic terms Involves determining following process
design:

Procurement

o Where are your suppliers

o How will you procure raw materials and components

Manufacturing

o Where will you locate the factories for manufacturing/assembly

o Manufacturing Methodology

Finished Good
 o Where will you hold inventories, Number of Warehouses, Location of warehouses
etc.
o How will you distribute to markets - Transportation and Distribution logistics

All above decisions are influenced and driven by Key Driver which is the Customer
Fulfillment.

Key factors that affect the supply chain network modeling

 Government Policies of the Country where plants are to be located.

 Political climate
 Local culture, availability of skilled / unskilled human resources, industrial
relations environment, infrastructural support, energy availability etc.
 Taxation policies, Incentives, Subsidies etc across proposed plant location as well
as tax structures in different market locations.
 Technology infrastructure status.
 Foreign investment policy, Foreign Exchange and repatriation Policy and
regulations.

Supply Chain Network designs not only provide an operating framework of the entire business to
guide the managements, they also examine the structure from strategic view point taking into
account external influences, interdependencies of all processes and critically evaluate
opportunities to maximize profitability.

Designing supply chain network: process

So how does it work? Here is a proven process for designing a supply chain network
that best meets your business objectives.
1) Clearly define your objectives. 

No logistics manager is likely to improve all aspects of their logistics and distribution

network all at once. The most critical step of designing supply chain networks is to identify your
primary objectives. A partial list of critical decisions you might consider is:

 What level of customer service does my market demand?

 What modes of transportation should be used to balance cost vs customer service
objectives?
 Which warehouses should supply products to which customers?
  How many warehouses do I need and where should they be located?
 Where should inventory be stored and how much inventory should I be carrying of each
product?
 Which manufacturing plants should be making product for which customers/warehouses?
 What routes should I be using to get product from source to destination?
 Are there opportunities for pooling resources that have been overlooked?

Identify your objectives as those decisions that are most important to the bottom line and those
that you can do something about.

2) Gather supporting data

In order to make intelligent decisions, you need solid data to support those decisions. This step is
usually the most time consuming part of the process. The good news is that the data is available
and reusable. Most likely it exists in your new ERP or legacy system. Typical data elements
include: demand by product and container type, transportation rates, transportation lead times,
warehousing costs (both fixed and variable costs), and inventory costs. If your objectives include
determining the manufacturing source of products, you will also need data like manufacturing
and raw material costs.

3) Model your supply chain network

Today’s technology can help you make better decisions as there are many vendors
offering supply chain network optimization tools. Alternatively, you can cost efficiently
configure your own. Choose wisely, as all software is not created equal. Make sure the software
you select fully addresses the decisions you need to make and can represent your unique business
and logistics network. Typical model components include capacity limitations, customer service
requirements, lead times by mode, operating capabilities and the cost of different options.

4) Analyze your supply chain network 

There is no silver bullet. Using supply chain optimization tools to make better decisions for your
business requires good old-fashioned analysis, such as Profit Point’s Strategic Network Analysis
Program (SNAP). Relying on people to leverage the benefits of technology is the path to success.
A good supply chain analyst will be both an expert about your business and an expert with the
supporting technology. They will need to review many “what if” scenarios with business
management to finalize the supply chain network design.

5) Implement and refine

The supply chain network analysis and design process is not a static process. Successful ideas are
implemented and cost savings are realized. And then things change: a large new customer is
added at a new location, more production capacity is added, demand takes a nosedive, or raw
material prices swing dramatically. Thus, like all good planning processes, the supply chain
network analysis and design process must be ongoing. This process should be revisited regularly
(annually/quarterly,) and/or when big things happen within the business.

Factors Influencing Network Design Decisions in the Supply Chain

1. Strategic Factors
A firm’s competitive strategy has a significant impact on network design decisions within the supply
chain. Firms that focus on cost leadership tends to find the lowest cost location for their manufacturing
facilities, even if that means locating far from the markets they serve. Global supply chain networks can
best support their strategic objectives with facilities in different countries playing different roles.

2. Technological Factors
Characteristics of available production technologies have a significant impact on network design
decisions. If production technology displays significant economies of scale, a few high-capacity locations
are most effective. This is the case in the manufacture of computer chips, for which factories require a
large investment and the output is relatively inexpensive to transport. As a result, most semiconductor
companies build a few high-capacity facilities.

In contrast, if facilities have lower fixed costs, many local facilities are preferred because this helps lower
transportation costs. For example, bottling plants for Coca-Cola do not have a high fixed cost. To reduce
transportation costs, Coca-Cola sets up many bottling plants all over the world, each serving its local
market.
3. Macro-economic Factors
Macroeconomic factors include taxes, tariffs, exchange rates, and shipping costs that are not internal to an
individual firm. As global trade has increased, macroeconomic factors have had a significant influence on
the success or failure of supply chain networks. Thus, it is imperative that firms take these factors into
account when making network design decisions. Tariffs and tax incentives Tariffs refer to any duties
that must be paid when products and/or equipment are moved across international, state, or city
boundaries. Tariffs have a strong influence on location decisions within a supply chain. If a country has
high tariffs, companies either do not serve the local market or set up manufacturing plants within the
country to save on duties. High tariffs lead to more production locations within a supply chain network,
with each location having a lower allocated capacity.

4. Infrastructure Factors

The availability of good infrastructure is an important prerequisite to locating a facility in a given

area. Poor infrastructure adds to the cost of doing business from a given location. Key
infrastructure elements to be considered during network design include availability of sites and
labor, proximity to transportation terminals, rail service, proximity to airports and seaports,
highway access, congestion, and local utilities.

5. Competitive Factors

Companies must consider competitors’ strategy, size, and location when designing their supply chain
networks. A fundamental decision firms make is whether to locate their facilities close to or far from
competitors. The form of competition and factors such as raw material or labor availability influence this
decision.

6. Customer Response Time and Local Presence

Firms that target customers who value a short response time must locate close to them. Customers are
unlikely to come to a convenience store if they have to travel a long distance to get there. It is thus best
for a convenience store chain to have many stores distributed in an area so most people have a
convenience store close to them. In contrast, customers shop for larger quantity of goods at supermarkets
and are willing to travel longer distances to get to one. Thus, supermarket chains tend to have stores that
are larger than convenience stores and not as densely distributed. Most towns have fewer supermarkets
than convenience stores.
7. Logistics and Facility Costs
Logistics and facility costs incurred within a supply chain change as the number of facilities, their
location, and capacity allocation change. Companies must consider inventory, transportation, and facility
costs when designing their supply chain networks.

Planning and developing strategies in supply chain

Planning in supply chain management

Planning is the foundational element in the supply chain. Companies would fail to survive
without the proper development and execution of strategy. Planning involves phases of decision
to answer questions such as;

– How and when to source the product?

– What manufacturing strategy is best to convert the material to a final product?
– What mode of transportation to use in moving inventories?
– How to optimally design a distribution network
– How supply chain risks are managed?
– How costs are reduced without compromising quality?
– What information system support is needed to facilitate information sharing?

The above questions create a set of policies and procedures to manage the flow of materials,
information, and money.

Levels of planning

The best way to rationally understand the overall supply chain management is to look at its
planning phases. These planning levels give you a logical understanding of supply chain
management processes. The three levels are;
1. Strategic planning 

Oftentimes it is called supply chain design or strategy. It is the high level of planning that
requires long term decision-making (planning horizon usually 3 to 10 years). It influences the
creation of policies and procedures for procurement, manufacturing, and logistics to meet a long-
term plan of the company. It lays the foundation for the processes necessary for the entire supply
chain to work effectively and efficiently. The decisions at this level are carefully selected as their
impact to the business is substantial, that is why it is a critical component of supply chain
management. Examples of decisions made at this level include;

– How many distribution facilities are needed and where?

– Increase revenue by 10%
– Mergers and acquisitions to expand market share
– Supply chain configuration

2. Tactical planning 

Strategic plan needs to be broken down to deliverables, so it is workable and achievable. That is
where tactical planning comes to play. Unlike strategic planning, decisions at the tactical level
usually span from 6 months to a year. At this stage, the goal is to maximize efficiency within
short-term operations given the limitations initiated in the strategic planning. In simple terms,
short-term objectives must create value to support the strategic direction of the organization.
Examples of tactical decisions include;

– Quarterly or semi-annual forecast

– Policies to reduce inventory
– Supplier selection
– Production schedules at product family level

3. Operational planning 

These are the day-to-day or weekly activities needed to carry out tactical goals. During this level,
activity control policies are implemented to ensure daily activities are optimized and create
value. This is the most apparent processes we see in the daily operations of the business.
Examples of tasks done at this level include;

– Taking customer order

– Production schedules at end item level
– Weekly inventory cycle count
– Generate packing list

Supply Chain Planning strategies and methods

Supply Chain Planning strategies and methods include include:

1. Demand Planning

One of the very first steps involved in supply chain planning is demand planning. Knowing what
the demand for your products will be can be a challenging feat in and of itself as there is growing
demand volatility in the market. However, this is necessary as demand will tell you how much
material, resource capacity, labor resources, etc required for production.

2. Lean Principles 

Successful supply chain planning provides an opportunity for your organization to employ
some lean scheduling principles. Lean manufacturing looks to reduce waste in all areas of the
company with the goal to only produce what is required when it is needed. Supply chain
planning can help this as it coordinates multiple departments and increases visibility between
them so you can be assured that you have just the right amount of materials you need for
production. Just-In-time supply management allows for a decrease in inventory costs as the
fulfillment of orders and overhead costs will be eradicated.

3. Increased Visibility 

One of the main challenges in supply chain planning is ensuring that there is sufficient visibility
in every department to prevent waste and miscalculations. Planet Together’s Advanced Planning
and Scheduling software aims to increase visibility within your manufacturing operations by
displaying the impact of changes made to the production plan as new orders are added or
expedited. This keeps everyone on the same page.

4. Standardisation 

Implementing standard processes in supply chain planning will further reduce the errors and
inefficiencies that can arise. Obtaining an ERP system that enables growth will help the supply
chain in the short and long run by increasing revenue. Along with an ERP system, an Advanced
Planning and Scheduling system can go beyond the planning element by coordinating demand,
forecasts, inventory data, resource and labor capacity, and material availability to create an
optimized production schedule. 

Managing Uncertainty in Supply Chain

One of the most important and emerging phenomenon in supply chain management is managing
uncertainty that is believed to become one of the winning featured for any firm. Accuracy in
predicting uncertainties and the ability and preparedness a firm displays in managing them will
decide the competitive advantage of organizations in future. Like all other management areas
inventory and supply chain decisions also need accounting for uncertainties. The modern
research and analysis has proved that the main objective of supply chain is to identify and
manage uncertainties because failing which can lead to an inefficient manufacturing, supply and
sale activity.

Following five essential requirements for an effective system:

 The managing system should have an objective and corresponding performance
indicators to manage the supply chain in the right direction.
 To estimate future system states one has to have information on the environment and
current supply chain state.
 There should be enough information processing capacities to process information on the
environment and supply chain state.
 In order to direct the managed system in the right direction one should be able to estimate
the impact of alternative actions. This requires a model of the system, presenting the
relationships between available redesign variables and performance indicators.
  There should be enough potential control actions.

Making supply chain design decisions under uncertainty in practice.

Managers to consider the following ideas to help them make better network design decisions
under uncertainty.

1. Combine strategic planning and financial planning during network design

In most organizations financial planning and strategic planning are performed independently
strategic planning tries to prepare for future uncertainties but often without rigorous quantitative
analysis whereas financial planning performs quantitative analysis but assumes a predictable or
well defined future. Decision makers should design supply chain networks considering a
portfolio strategic options-build excess capacity, build flexible capacity, sign long term contracts,
purchase from the spot market, and so forth. The various options should be evaluated in the
context of future uncertainty.

2. Use multiple metrics to evaluate supply chain networks

As one metric can give only part of the picture, it is beneficial to examine network design
decisions using multiple metrics such as firm’s profits, supply chain profits, customer service
levels, and response times. Good decisions perform well along most relevant metrics.

3. Use financial analysis as an input to decision making, not as the decision making

Financial analysis is a great tool in the decision making process, as it often produces an answer
and an abundance of quantitative data to back up that answer.However,financial methodologies
alone do not provide a complete picture of the alternatives, and other non- quantifiable inputs
should also be considered.

4. Use estimates along with sensitivity analysis

Many o the inputs into financial analysis are difficult, if not impossible, to obtain accurately.
This can cause financial analysis to be a long and drawn-out process. One of the best ways to
speed the process along and arrive at a good decision is to use estimates of inputs when it
appears that finding a very accurate input would take an inordinate amount of time. Using
estimates is fine, when the estimates are backed up by sensitivity analysis. It is almost always
easier to come up with a range for an input than it is come up with a single point. By performing
sensitivity analysis on the input’s range, managers can often show that no matter where the true
input lies within the range, the decisions remain the same. When this is not the case, they have
highlighted a key variable to making the decision and it likely deserves more attention to arrive
at a more accurate answer. In summary, to make supply chain design decisions effectively,
managers need to make estimates of inputs and then test all recommendations with sensitivity
analysis.

Supply chain vulnerability

Supply chain vulnerability can be defined as 'an exposure to serious disturbance, arising from
risks within the supply chain as well as risks external to the supply chain'. Most of the risks that
could disrupt your operations fall into four broad categories: economic, environmental, political
and ethical. Yet modern supply chains are also vulnerable. Transportation delays, theft, natural
disasters, inclement weather, cyber attacks, and unexpected quality issues can disrupt cargo
flows, creating short-term costs and delivery challenges.