Supply Chain Management:

Q1 .Explain the different modes of transportation.

Solution: Following are the different modes of transportation.

Air transportation

Surface transportation

Water transportation

Intermodal transportation

Air transportation: Air transportation is the most efficient mode of transportation. A fixed-wing
aircraft, typically airplane, is a heavier-than-air flight vehicle, in which the special geometry of
the wing generates lift. A gyroplane is both a fixed-wing and rotary-wing. Fixed-wing aircraft
range from small trainers and recreational aircraft to large airliners and military cargo aircraft.
For short distances or in inaccessible places, helicopters can be practical
Air transport is the second fastest method of transport, after space travel. Commercial jets reach
speeds of up to 955 kilometers per hour (593 mph) and a considerably higher ground speed if
there is a jet stream tailwind, while piston-powered general aviation aircraft may reach up to 555
kilometers per hour (345 mph). This celerity comes with higher cost and energy
use and aviation's impacts to the environment and particularly the global climate require
consideration when comparing modes of transportation. The Intergovernmental Panel on
Climate Change (IPCC) estimates a commercial jet's flight to have some 2-4 times the effect on
the climate than if the same CO2emissions were made at ground level, because of different
atmospheric chemistry and radioactive forcing effects at the higher altitude. U.S. airlines alone
burned about 16.2 billion gallons of fuel during the twelve months between October 2013 and
September 2014. WHO estimates that globally as many as 500,000 people at a time are on
planes. The global trend has been for increasing numbers of people to travel by air, and
individually to do so with increasing frequency and over longer distances, a dilemma that has the
attention of climate scientists and other researchers, the press, and the World Wide Web.

Surface transportation:

It is another basic mode of transportation where road is medium means of transportation. Again
this mode is divided into truck, rail and pipeline.
Truck: Trucks are commonly used transportation within the state or between the states.
Road infrastructures are large consumers of space with the lowest level of physical
constraints among transportation modes. However, physiographical constraints are
significant in road construction with substantial additional costs to overcome features
such as rivers or rugged terrain. While historically road transportation was developed to
support non-motorized forms of transportation (walking, domestication of animals and
cycling at the end of the 19th century), it is motorization that has shaped the most its
development since the beginning of the 20th century. Road transportation has an average
operational flexibility as vehicles can serve several purposes but are rarely able to move
outside roads. Road transport systems have high maintenance costs, both for the vehicles
and infrastructures. They are mainly linked to light industries where rapid movements of
freight in small batches are the norm. Yet, with containerization, road transportation has
become a crucial link in freight distribution.

Rail transportation: Railways are composed of a traced path on which wheeled vehicles
are bound. In light of more recent technological developments, rail transportation also
includes monorails and maglev. They have an average level of physical constrains linked
to the types of locomotives and a low gradient is required, particularly for freight. Heavy
industries are traditionally linked with rail transport systems, although containerization
has improved the flexibility of rail transportation by linking it with road and maritime
modes. Rail is by far the land transportation mode offering the highest capacity with a
23,000 tons fully loaded coal unit train being the heaviest load ever carried. Gauges,
however, vary around the world, often challenging the integration of rail systems.

Pipelines: Pipeline routes are practically unlimited as they can be laid on land or under
water. The longest gas pipeline links Alberta to Sarnia (Canada), which is 2,911 km in
length. The longest oil pipeline is the Transiberian, extending over 9,344 km from the
Russian arctic oilfields in eastern Siberia to Western Europe. Physical constraints are low
and include the landscape and pergelisol in arctic or subarctic environments. Pipeline
construction costs vary according to the diameter and increase proportionally with the

distance and with the viscosity of fluids (from gas, low viscosity, to oil, high viscosity).
The Trans Alaskan pipeline, which is 1,300 km long, was built under difficult conditions
and has to be above ground for most of its path. Pipeline terminals are very important
since they correspond to refineries and harbors.
Water transportation: Water transport is the process of transport that a watercraft, such as
a barge, boat, ship or sailboat, makes over a body of water, such as a sea, ocean, lake, canal
or river. If a boat or other vessel can successfully pass through a waterway it is known as a
navigable waterway. The need for buoyancy unites watercraft, and makes the hull a dominant
aspect of its construction, maintenance and appearance. When a boat is floating on the water
the hull of the boat is pushing aside water where the hull now is, this is known as
displacement.
Intermodal transportation:
It is a combined mode of least two or three modes of transportation. For example the
manufacturer uses shipping mode to transport goods from one country to another, and uses road
transport to deliver goods to the customer.
It is most important mode of transportation as it has become the essential in situations where
only one mode is not sufficient. When there are more than three modes of transportation
involved then it is called as multimodal transportation.
It is proved from experts that by using intermodal transportation, which involves ships and trains
is beneficial to environment because it reduces carbon dioxide to the environment.
Hence intermodal transportation is most timely, efficient, cost effective and environmental
friendly mode of transportation.
Q2. What is risk pooling? Why is it important in supply chain management? List the four
main types of risk pooling
Solution: Risk pool is the word used in risk management, mostly in insurance companies. Under
this system, insurance companies come together to form a pool, which can provide protection to
insurance companies against catastrophic risks such as floods, earthquake, etc.
Risk pooling is an important concept in supply chain management. It involves the use of
centralized inventory to gain benefits when demand is higher than the average at some retailers
and lower than the average of others. The idea behind the risk poling is to redesign the supply

chain, production process or the product. This is done either to reduce the uncertainty so that the
firm is in better position to mitigate the consequences of uncertainty.
Following are the four types of risk pooling.
Location Pooling
Product Pooling
Lead time pooling and
Capacity pooling

Location Pooling: It is used to decrease the inventory while holding service constant, or
to increase service while holding inventory constant, or is used to combine inventory
reduction and service increase. Location pooling is used to broaden the product line,
since it reduces the demand uncertainty which is measured with the co-efficient of
variation.

Product pooling ; Product pooling is a process of keeping the products separate, but
forcing one or more of the coefficients to be same or similar.Product pooling has always
been used as a measure to deal with the risks involved in marketing the agricultural
goods. This type of pooling also generates potential benefits through the provision of
market power. There is an increase in the interest in product differentiation and the
development of value chains which is a means to increase returns of the formers. Product
pooling is must effective, if the coefficient of variation of the Universal prodect is lower
then the coefficient of variation (COV) of the individual products. This method is widely
used for stocking food and associated products. For example, different kinds of rice could
be stocked together at a common location and then supplied to customers, based on the
demand.

Lead time pooling: Lead time pooling risk by dividing the replacement orders among the
multiple suppliers is a sourcing policy which has been in demand of the academic
researchers for more than 20 years. It has many advantages over the other pooling types.
Lead time pooling is a way to reduce the safety stock which has to meet the service
targets or the expected number of backorders for a prescribed level of safety. It also
reduces the cycle stock. In this type of polling, the incremental ordering cost of the
second and subsequent orders may be relatively small in a variety of settings. This type of
polling is further divided into two more types. They are;

o Delayed differentiation
o Consolidated distribution

Capacity pooling: There are several recent trends motivating the companies to merge the
capacities which were dedicated to certain customers. The focus on modularization in
manufacturing system helps to redesign the parts which were produced at r=the same
manufacturing capacity and therefore the separate production process for parts merged
later.

Q3 Explain the different types of purchases in portfolio analysis.

Solution: Portfolio analysis differentiates the purchase into four categories. They are as follows.
Routine commodity
Bottleneck
Leverage
Strategic purchase
Routine commodity: Routine commodity includes many standard items with low price.
For example stationary, food items, fuel, etc. These commodities are readily available in
the market and different suppliers offer these commodities to the lowest possible price.
The routine commodities have many purchases and hence they use the misappropriate
amount of administration. Therefore the focus of purchase is to minimize the overhead
cost by standardization, consolidation of purchase and standardize the product.
For example, Ananaya pharmaceutical Limited found its research and development were
using 50 different Bunsen burners. It simplified some purchasing process using electronic
tool. (EDI, Automatic ordering system, online catalogue, purchasing cards and so on)
Bottleneck:

Bottleneck occurs when single supplier is the only source of providing

materials required by the company and stringent specification and no other suppliers can
provide the same material. For example consider a company producing scanners, which has
the strict specification of using the scanners. This company purchases the component from
the specific suppliers even though it is very costly. The suppliers who sell these items have a
dominant position and they certainly exploit the purchasers. A company can control this by
changing the specifications thereby allowing the new suppliers to partner with, moving to
standard products or scanning the market for additional suppliers.

Leverage: Leverage occurs when there is medium to high expenditure. In this kind of
purchase, many suppliers are involved in limiting the supply risk. The items purchased are of
industry standards that are used by every department in any organization. This type of
purchase involves combining requirements of each department, negotiating the deal with a
few suppliers and ensuring significant business over an extended period. Here, the suppliers
gain more efficient operations with lower unit costs and overheads. In turn, suppliers must
provide a high level of services that include managing on-site stocks, delivering the items
within the specified time and flexibly responding to changing conditions. Today, suppliers
use e-auctions for such items.
Strategic: Strategic purchasing occurs when there are unique and expensive items that are
very important for a companys success. For example, certain chemicals, cutting edge
technology, aero engines etc., are some of the critical items that very few specialized
suppliers sell. With such small number of suppliers in the market, the purchasing activity
tends to develop long term relationship between a company and a supplier. This in turn
develops the suppliers capabilities and thus provides benefits to both the purchasing
organization and suppliers.
Q4. Describe the reasons for bullwhip effect and explain the methods to decrease
bullwhip effect.
Solution: The main reasons of bullwhip effect are:

Demand forecasting

Lead time

Batch Ordering

Price fluctuation

Inflated offers

Demand forecasting: It is a process of estimating the future demand of products or services.

The decision makers in the supply chain are responsible for creating demand forecast. The
upstream member in the supply chain needs to readjust the demand forecast according to the
order placed by the downstream member. The order thus placed by the downstream member.
The order thus placed by downstream and upstream members finally reaches the
manufacturer. However, the orders that reach the manufacturer are an exaggerated demand

and not the actual product demand. As a result, variability occurs in product scheduling,
capacity planning and inventory management of the manufacturer and hence the bullwhip
effect.
Lead time: Lead time is defined as the time interval from when a customer places an order
to the time the customer receives the order. Variability increases with an increase in lead
time. A longer lead time results in small change in the estimated of demand variability. This
implies a considerable change in the safety stock and reorder level, leading to a change in the
order level.
Batch ordering: Retailers use batch ordering intermittently to place a large order. The
wholesalers then dont receive any order from the retailers for a longer duration of time
interval. Therefore, the wholesalers find the distorted and variable patterns in the orders
placed.
Price fluctuation: One of the most important reasons for bullwhip effect is price fluctuation.
In order to increase the customer demand for the product, the distributors often introduce
various offers like coupons and rebates. This varies the demand of the product.
Inflated orders: Most of the retailer place inflated orders when there is a shortage of
product. This inflated order magnifies the bullwhip effect. Retailers and distributers place
inflated order when they expect the product to be short supply in near future.
Methods to decrease bullwhip effect

Reducing uncertainty

Reducing variability

Lead time reduction

Strategic partnership

Reducing uncertainty: We can effectively reduce bullwhip by reducing uncertainty. We can do

this by centralizing the demand information. Centralizing the demand information makes the
demand of the customer as well as the retailer visible to all partners to supply chain.
Reducing variability: We can diminish the bullwhip effect by reducing variability in the
customer demand process. Frequent fluctuations in the product price leads to an increase or
decrease in the demand and results in variability in supply chain. It is possible to obtain reduce
the variability of customer demand with the help of Every Day Low Price strategy (EDLP).

Lead-time reduction: We can reduce the variation in supply chain by decreasing the lead time.
Variability increases with the increase in the lead time. The longer the lead time, the larger is the
variability. Therefore, by reducing the lead time, we can reduce the effect of bullwhip.
Strategic partnership: We can eliminate the bullwhip effect by using many strategic
partnerships. Information sharing in strategic partnership reduces the variability in supply chain.
The strategic partnership can eliminate the bullwhip effect by changing the manner in which the
information shared and inventory is managed in supply chain.
Q5. Explain the concept 3PL? What are the advantages and disadvantages of using 3PL?
Solution: Third-party logistics (3PL) is the use of on external company to perform few or all of a
companys logistics management and product distribution function. 3PLis a true strategic
alliance because it involves complex relationships that are not included in a traditional logisticssupplier relationship.
3PL companies provide a wide range of supply chain services that include;

Import and export management

Freight forwarding

Customs and freight consolidation

Transporting

Public and contract warehousing

Order fulfillment

Distribution

Advantages and disadvantages of 3PL

A firm can gain the following competitive advantages by using 3PL:
Focus on core strengths- 3PL allows a company to focus on its core competencies. It enables a
company to use its limited resources for its core functions.
Provide technological flexibility- The 3PL provides constantly update their IT skills and
equipment depending on the changes in requirements and development in technology.
Provide other flexibility: 3PL also provides greater flexibility in the operations of the company.
A company can achieve flexibility in geographic location by using different 3PLs can provide
regional warehouse in different areas. A company can achieve flexibility in service offering,
resources and workforce size through the use of 3PLs

Saving on investment: An organization can save on capital investment required for logistics
assets like land, vehicles and warehouse by using 3PL.
Following are the disadvantages of 3PL.
Cost: Outsourcing logistical function to a 3PL may increase the cost of operations. Hence, a
company needs to ascertain the potential benefits by doing the cost benefit analysis of a 3PL
arrangement.
Just in time (JIT) issues: JIT is a business model in which raw materials are delivered before
the actual usage. This model hence entails frequent shipment of goods. If the 3PL company is not
familiar with the JIT process, then a lot of issues may be developed.
Loss of control: A company can lose most of the control over the logistics functions. A company
may not be able to confirm shipping dates all the time to its customer if it uses 3PL.
Damage to goods: If the 3PL company does not handle freight properly, then it may get damage.
The insurance company will provide compensation only after the thorough investigation. The
company will also need to provide a new shipment to client.
High exit barrier: Generally, 3PL contracts are for long term, and have penalty clauses for early
termination.
Q6. Explain the framework and impacts of integrating IT with SCM?
Solution:
Framework for IT integrated Supply chain Management
Knowledge and IT management: It includes IT training and education, investment in capital
knowledge, e-training, e-learning, multimedia, cross functional training, group wares.
E-commerce: It provides access to alternative markets, networking, opportunities, advancement
in technology, reduced costs, faster processes, open communication, CRM, e-work, and the
ability to compete in the international market.
Infrastructure: It deals with the internet connectivity, IT investment, ERP, EDI, e-commerce
platform, XML, WAN,MAN, LAN, intranet, extranet, training and education.
Virtual enterprise: It includes partnerships based on competences, integrated network of firms,
virtual teaming, manufacturing, logistics, ERP system, e-commerce that includes B2B, B2A and
B2C.

Implementation of IT: It requires support from top management, cross functional project teams
with IT skills, reengineering of business process, QFD, CE, LCA, project management,
measuring performance and metrics.
Strategic planning of IT: It requires participation of top management for framing long term
business goals, competition in business market, introducing virtual enterprises, attain mergers
and acquisitions, creating new markets and integrated system.
Impacts of integrating IT with Supply Chain Management.
We know that IT infrastructure is the physical hardware that enables the interconnection of
computers and users. It includes the media of transmission (telephone cables, cable television
lines, and satellites), rooters, repeaters and aggregators. It also includes the software that
manages the transmission and reception of signals. We can also define IT infrastructure as the
technology that supports the flow and processing of information. IT infrastructure is an important
factor that determines the efficiency of the systems implemented. A companys IT infrastructure
acts as the foundation for all the collection of data, business transactions, access to systems and
communications.
The impact of IT infrastructure in supply chain management is:

Improvement in service level with the reduction of store/shelf stock out rate through a
database specially designed to track orders when inventory levels are low.

Better utilization of store and warehouse space.

Faster location of items at the store and in backroom.

Increase in sales due to reduced stock out level, particularly with promotional and
advertised items.