SCM Challenges

7/31/2019 SCM Challenges

1/20

Dr. A. K. Dey 1

A. K. Dey

Birla Institute of Management Technology


2/20

Dr. A. K. Dey 2

Two levels of decisionsDesign decisions

Operations decisions

Design decisions

Which activities should be carried by nodal firm and whichshould be outsourced?

How to select entities/partners to perform outsourcedactivities and what should be the nature of relationship?

Decisions pertaining the capacity and locations of various

facilities.


3/20

Operations decisionsDemand forecasting

Procurement planning & control

Production planning & control

Distribution planning & controlInventory management

Transportation management

Customer order processing

Relationship management

Dr. A. K. Dey 3


4/20

Demanding customers Intensive competition

Higher level of product proliferation

Shorter PLCsHigher disposable income

Declining brand loyalty

Cross category competition

Crossover behaviour of consumers:splurgers and Bargain hunters

Dr. A. K. Dey 4


5/20

Five major trends have made SCM a criticalsuccess factor in most industries:

Proliferation in product lines: More variety &More SKUs

Shorter PLCs

High level of outsourcing

Shift in power structure in the chain

Globalization of manufacturing

Dr. A. K. Dey 5


6/20

More varieties and more SKUsLarge number of substitute products

Forecasting becomes challenge

Supply chain starts with better forecasting!

Dr. A. K. Dey 6


7/20

Products getting outdated fastCompetition driving down the useful life of a

product

Window of opportunity to recoup investments is

shortening Efficient firms like Dell with just seven days of

inventory as compared to industry average of 35days need to worry about product obsolescence

Competitors of Dell with higher level; ofinventory will end up writing off huge amount ofinventory as obsolete

Dr. A. K. Dey 7


8/20

Firms increasingly focus on core activities andoutsource the rest

This trend is irreversible

Higher level of outsourcing make SupplyChain vulnerable

Forcing firms to develop different types ofcapabilities within the organization

Dr. A. K. Dey 8


9/20

Same retail space is being chased byIncreasing number of products

Increasing number of competitors

Shelf space in retail has not increased at the

same pace as product variety

Retailers are asking manufacturers to bemore responsive to their demands

Discount retailers like Wal*Mart have beenasking manufacturers to replenish the stockon daily basis depending on the actual salesdata from their point of sales system

Dr. A. K. Dey 9


10/20

Supply chains have become very longGoods & services have to travel through

differentLands

Using different modes of transport

Complying with various rules and regulations

Managing supply chains have become verycomplex

Dr. A. K. Dey 10


11/20

Common issuesTaxation structure drives location decisions

Poor state of logistics infrastructure

For other issues: Context of FMCG sector

Managing product availabilityWorking with smaller packs

Entry of national players in traditional fresh products sector

Complex tax structure

Counterfeit goods

Opportunistic games played by distribution channelEmergence of 3PL and 4PL

Emergence of modern retail

Reservations for Small Scale Sector

Dr. A. K. Dey 11


12/20

Customer service issues should drive this decision Pharma firms located at Baddi, HP: reason tax

benefits

Air conditioning and diesel power generating firms

at Silvassa Special Economic Zones attract many firms

To avoid multiple tax, firms keep stocks in eachstate

Various taxes: delivery by road gets unusuallydelayed

VAT & GST may bring relief

Dr. A. K. Dey 12


13/20

Both transportation & warehousingdominated by unorganized sector

Over 90% trucks in the country belong toowners who have less than 5 trucks each

Unorganized trucking industry results inunreliable lead time and high transit damages

Dr. A. K. Dey 13


14/20

Innovative solutions are required to overcomeComplex distribution structure

Large number of customers at the bottom ofpyramid

Poor infrastructureComplex tax structure

Innovative SCM implemented byAMUL

Mother DiaryITC

Shakti Project of HUL

Dabbawalah (Tiffin Carriers) of MUMBAI

Dr. A. K. Dey 14


15/20

Managing product availability in complexdistribution set upOrder fill rate; Line fill rate & Cycle Service Level

Small pack sizesLarge Rural population & Economically weaker

section

Problem: Increased per unit transportation &packing cost

Companies have to find innovative ways to balancemarket penetration & logistics costs

Dr. A. K. Dey 15


16/20

Entry of national players in traditional freshproduct sectorFresh products were marketed by local players

National players work with centralized plants

Can manage quality

Enjoy Economies of scale

ITC Flour & Nestle Yoghurt

Have to establish decentralized network of

manufacturing plants fixed cost may riseDealing with complex tax structureMultiple stocking points

Delays, tax avoidance tricks

Dr. A. K. Dey 16


17/20

Dealing with counterfeit goodsMore popular brand; more counterfeits

Rules are not strictly implemented

Detection is costly

Legal expenses

Opportunistic games played by distributionchannelTry to grab significant portion of promotion budget

Divert goods from one market to another violatingthe norms set by company- poaching

Dr. A. K. Dey 17


18/20

Emergence of 3PL and 4PLGood for the industry

Customer will benefit

Expertise will increase

Emergence of modern retailExtract higher discount because more demand

In India share of retail sale is very low

Still they demand high margin

Manufacturer wishes to bypass distributors likelihood of

channel conflict Impact of higher discounts on overall distribution system

Threat of private labels

Dr. A. K. Dey 18


19/20

Reservation for the small scale sectorMany items are reserved for the small scale sector

Big FMCG firms have to source material/productsfrom small scale sector

Risk of Quality & uncertain deliveryMaking the sourcing process complex.

Dr. A. K. Dey 19


20/20

Thanks

Dr. A. K. Dey

ProfessorSupply Chain & Operations Management

Birla Institute of Management Technology

India

Dr. A. K. Dey 20

Documents

SCM Challenges