IExplain supply chain Integration.

In well-managed chains, material, information and finance flow seamlessly across departmental and
organizational boundaries and it is the end customer pull and not internal compulsions that govern these
In stage 1, the firm is structured on a functional basis and each function or department operates as a
silo. In other words, each function is myopic in nature, focusing attention on the narrowly defined local
performance measures. Even within manufacturing, there are a number of departments with their respective
buffers of inventory.

In stage 2, the internal operations are integrated at the organizational level and there is seamless flow of
material and information across all departments and the firm functions as one integrated entity. However, wastage
stillexists at firm boundaries where it interacts with the external members of the chain. These firms have many
buffers and the wastage at organizational boundaries result in information and material flow distortions across the
chain

In stage 3, the firm manages to integrate itself with suppliers as well as customers and works as an
integrated chain. Supply chain integration involves a conscious effort on the part of the firm to move from
stage I to stage 2andsubsequently to stage 3.. To make this possible, organizations have to make corresponding
changes in the structure, processes and performance measures. Most firms have by and large understood the need
for internal integration while very few have realized the need for external integration. Payoffs through intermal
integration can be likened to the tip of an iceberg. The benefits of external integration though not immediately
visible, are immense.
Stage 1: Islands within an organization
Material Customer
Sourcing Manufacturing Distnbution service
flow

Stage 2 Iternal integration

Material Customer
Sourcing Manufacturing Distnbution service
flow

Stage 3 External integration

Matenal Intemal suppy End customer
Suppliers chain
Customers service
flow
 BULLWHIP EFFECT
DEMAND vOLATILITY AND INFORMATION DISTORTIONS ACROSS
SUPPLY CHAIN:

Demand volatility refers to any variation in product demand that hits suddenly or
unexpectedly.
An increase in demand variability as one moves up in the chain is referred to as
Consumer sale at retailer Retailer's order to wholesaler

the bullwhip effect.

Wholesaler's order to manufacturer Manufacturer's order with supplier

BHARGAV ANANTH, KSIT

BULLWHIP EFFECT

Five prominent causes for the bullwhip effect:

Forecast Updating:Each member of the chain updates forecast based on
orders received at his end and not based on the demand raised by the
end customer.

" Order Batching:

Price Fluctuations: Discounts or price promotions result in forward
buying.
BHARGAVI ANANTH, KSIr

BULLWHIP EFFECT
Five promínent causes for the bullwhip effect:
Shortage gaming: Customers order more than they need during a period
of short supply, hoping that the partial shipments they receive will be
sufficient.
Long Lead Time:
Eg: Proctor and Gamble and WalMart
 AGILE SUPPLY CHAIN
Distinguishing Attributes Lean Supply Agile Supply

Typical products Commodities Fashion goods

Market place demand Predictable Volatile

Product variety Low High

Product life cycle Long Short

Customer drivers Cost Availability

Profit margin Low High

Dominant cost Physical cost Marketability cost

Stock-out penalties Long-term contractual Immediate and volatile

Purchasing policy Buy materials Assign capacity

Information enrichment Highly desirable Obligatory

KEY COMPONENTS AGILE SUPPLY CHAIN

Shared information on Co-managed inventory

real demand Virtual "Collaborative product
"Collaborative planning design
End-to-end visibilily "SynchronousS suply

Market
Agile Process
Sensitive Supply Alignment
Chain

Daly PO.S feedback Leverage partners' capabilises

Ca erTerging trends
to consumers
Focus on core competencies
Network Act as network orchestrator
Based

BHARGAV ANANTH, KSIT

KEY COMPONENTS AGILE SUPPLY CHAIN

" Virtual integration is characterized by informal and flexible
Market sensitivity means that the supply chain's internal measures, whatever it
may be, are sourced directly from and linked closely with the external market
that the supply chain is operated in.
" The agile supply chain willrequire higher level of integration between internal
operational processes, such as sales, forecasting, production planning, sourcing,
and delivery.

BHARGAVI ANANTH, KSIT

KEY COMPONENTS AGILE SUPPLY CH AIN

" Dynamic network is preferred by the agile supply chain and it has aset of very
different characterizes. In the dynamic network, the ties between suppliers and
buyers, and amongst the suppliers themselves, are much looser than that of a
stable network. Short term contracts or virtualrelations are more often the cases.
BUILDING PARTNERSHIPAND TRUST IN SUPPY CHAIN
Historically, supply chain relationships have been based either on
power or on trust.
" Japanese firms have traditionally focused on trust-based relationships
while American firms have focused on contract-based relationships.

BHARGAVI ANANTH, KsIT

STEPS IN BUILDINGSUCCESSFUL RELATIONS IPS

" Design relationship with cooperation and trust.
Manage and nurture relationships: It is possible however that actual payoffs
may not be on the lines of what one had expected at the design stage. One party
may end up committing more resources than planned for. It is important that
the initial contract be designed with sufficient flexibility to facilitate such
changes.
Redesign relationship with change in environment.

BHARGAVI ANANTH, KSIT

EFFECT OF INTERDEPENDENCE ON RELATIO SHIPS

Eg: Relationship between a company like HUL and its dealers.
Relationship between Foodworld and supplier of an unbranded item.
Relationship between FoodWorld and HUL.
Partner High level of
H
relatively interdependence
powertul
Effective
Hostage relationship
Organization's
dependence
Low level of Organization
L
interdepence relatively powerful
W
Apathy Drunk with power

BPARGAVI ANANTH, KSIT Low High

Partner's dependence
 6 Explain Supply chain Mapping

Before a firm sets out to restructure its supply chain, it has to find a method to successfully
capture and evaluate the existing supply chain processes. The method used to capture current supply
chain processes is termed supply chain mapping.
As can be seen in Figure 10.1, existing supply chain processes can be characterized on the basis
of the following dimensions:
Shape of the value-addion curve
Point of diEYHjereniat2on
Customer entry point in the supply chain

Point of differentiation
Order placed
by customer

Figure 10.1
Supply
chain
mappin
Shape of value-addition curve
existäng
positRo
n.

Time

Restructuring of the supply chain process involves altering the supply chain on at least one the three
dimensions. It may also involve altering more than one dimension of the supply chain process. We initially

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take one dimension at a time and later on discuss a specific innovation, which involves altering two
dimensions in the process.

Value-addition Curve
The supply chain encompasses all the activities/processes associated with the transformation of goods from
the raw material stage to the final stage when the goods and services reach the end customer. A typical
supply chain starts with some input material and information, which are transformed into the end product
and delivered to the customer. This transformation involves a number of activities, with each activity
taking time, incurring cost and adding value. One can debate on whether all activities add value or if
there some activities that are non-value-added activities. At this stage, we assume that the firm has
removed all non-value- added activities from the supply chain processes. On the x-axis we have the
total time in a chain or the average flow time in the chain and on the y-axis we have the total cost
(cumula- tive) in the chain.
To map this value-addition curve, we work backward from the time at which goods and services are
delivered to the end customer and trace back all activities that were carried out to make the finished
goods and service available. We map all the activities on two dimensions: time and cost. So the value
addition curve essentially captures the way we add cost over a period of time in supply chain
processes. For example, a truck manufacturer receives engine castings from a casting supplier, which
then wait till the machining operation is scheduled in the machine shop. After that operation the
machined castings go to the intermediate store and later on are taken to the engine assembly stage.
Then, the engine is mounted on a chassis in the truck assembly line and the finished truck is
dispatched to the dealer. The finished truck will be available at dealer's warehouse till the end customer
picks it up. In this simplified version of the process, apart from the conversion and transportation
activities, the material in different forms waits at several stages: raw material store, intermediate store,
finished good store and dealer warehouse. If we map all the operations (value-added and non-value
added activities), we will get a curve as shown in Figure 10.1. Obviously, since the y axis is
capturing cumulative costs, the value-addition curve is increasing with time.
 customer Entry Point in the Supply Chain
The point at which a customer places an order is shown as a dotted line in Figure 10.1. In several
industries customers expect material off the shelf in the neighborhood retail store. In such acase, the
customer entry point is at the end of chain and is the same as the delivery time. But in several
industries it is not uncommon for customers to give some amount of delivery lead time and in such a
case obviously the customer entry point will be ahead of the delivery time. This is similar to build-to
order configure-to-order supply chain situations. Essentially, the customer entry point captures the
order to delivery lead time. This dimension is important because all the operations before the customer
order has to be done based on forecast, whereas after the customer order one will be working with
actual orders. In other words, before the customer entry point all the activities are carried out based
on forecast while subsequent activities are done based on order. As discussed in the chapter on demand
forecasting, however good the forecasting process, as per the first law of forecasting, a fore- cast is
always wrong. So if bulk of the activities can be carried out based on order rather than forecast one
does not have to worry bout the likely forecast error that is inherent in any forecasting exercise.

Point of Differentiation
The concept of the point of differentiation is valid for any organization that is offering a
variety of end products to customers. Products are made in a supply chain consisting of multiple

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stages. As the product moves in the chain, progressively, the product assumes an identity that is closer
to the end product. The point of differentiation is a stage where the product gets identified as a
specific variant of the end product. We will illustrate the concept using a toothpaste manufacturing firm.
Let us assume that the firm offers variety only in pack sizes. In such a firm, the packing stage is a
point of differentiation. At a packing station the same basic material, that is, toothpaste, is packed in
sizes of varying dimensions. So till the packing station one has been working with the generic
material, but at the packing station the firm has to make an irreversible decision in terms of committing
the generic material to a specific product variant. Similarly, at a garment manufacturing firm, at the
stitching stage the firm is committing the fabric to different sizes and styles of garment. In automobile
manufacturing firms like Tata, where usually large variety is offered in terms of colours, the painting
stage becomes the point of differentiation because at that stage the firm makes an irreversible decision
about the colour of the car.

In reality, a firm may have multiple points of differentiation. For example, in the case of the
garment manufacturer, the fabric dyeing and stitching stages represent two main points of differentiation.
At the fabric dyeing stage, the garment firm makes an irreversible decision about colour, and at stitching
stage the firm makes an ireversible decision about the style of the garment. Though it is not uncommon to
have multiple points of differentiation in a firm, in our conceptual discussion we will focus on the main point
of differentiation where significant variety explosion takes place in the firm.
Forecasting at the variant level is quite difficult compared to forecasting at the aggregate level. So it is
easier to forecast in terms of tons of toothpastes or number of cars or number of garments. But trying to
forecast at specific pack size level for toothpastes, specific colour level for automobiles and specific style
level for a garment is significantly more difficult.

Before the point of differentiation, one has to forecast at the aggregate level, whereas after the point
of differentiation one has to work at the variant level. So the point of differentiation determines the point
at which a firm is forced to forecast at the variant level. Further, the longer the time period for which
you have to forecast, the higher the forecast error. So if the stage of supply chain at which the point of
differentiation takes place is in the early stage of the supply chain one will have to forecast for a
longer horizon at the variant level.
11 Explain future of IT in supply chain

At the macro level SCM is driven by supplier Rela>1onship management (SRM), Internal supply chain
management (ISCM) and customer relaionship management (CRM)
The relative focus on improved analysis to support decision making will coni inue to grow. The
following important trends willimpact IT the supply chain.
1. The growth in soJI}ware as a service (Saas)
2. Increased availability of real-Iime data
3. Increased use of mobile technology

SoHIâware as a service as so ware that is owned, delivered, and managed remotely. Salesforce.com is
one of the best-known pure Saas Supply chain sol)Iâware providers. TradiaâBional enterprise sol)âware vendo
such as SAP, Oracle, and MicrosoJI are increasing he availatbility of their soRJIware using the SaaS model.
The availability of real-2ime informaBon has explored in most supply chains the opportunity is to
design systems that enable rapid insight bases on real-i4time data. Signit9*Rcant opportunity exists to devise
soHIg ware that will use real-I2 1ime informalâ Fion to help frontline supply chain sta8 makes smart and f
decisions that are revisited frequently.

The increased use of mobile technology coupled with real-1me informal Sion oRJR0ers some supE
chains an opportunity to beBgIger match demand to supply using ditgi)erenASial pricing. Businesses can impron
profitability by oRJRering deals when business is slow at specil)c locaons. Consumers benefyit from
deal when and where they want it. Such an approach is likely to be applicable in many supply chain selaêngs.