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Abstract: The distribution function in a supply chain is an important internal service function for any firm, and has been increasingly recognized as playing a strategic role in achieving competitive advantage. Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Supply Chain spans all movement and storage of raw materials, workin-process, inventory and finished goods from the point of origin to the point of consumption. A companys supply chain comprises geographically dispersed facilities where raw materials intermediate products or finished products are acquired, transformed, stored or sold and transportation links which connect facilities along which products flow. The major decision is to design or configure the supply chain network so as to minimize annual system-wide costs including production and purchasing costs, inventory carrying costs, facility costs and transportation costs subject to a variety of customer service levels required.
Key Words: Supply Chain, Supply Chain Management, Supply Chain Network, Network Configuration.
1.0 INTRODUCTION
Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize systemwide costs while satisfying service level requirements. By artificially separating supply chains from their management, it becomes evident that supply chain management is in essence an infrastructure of knowledge and information that facilitates the integrated operations of supply chains. Problems addressed by SCM are distribution network configuration, distribution strategy, information, trade offs in logistical activities, inventory management and cash flow. Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in the global market and networked economy. In Peter Drucker's (1998) new management paradigms, this concept of business relationships extends beyond traditional
enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies.
A firm's supply chain consists of three major parts: internal functions, upstream suppliers, and downstream customers. The internal functions include all the different processes (procurement, production, and distribution) that are used to transform raw materials to finished product. The coordination and scheduling of these processes is essential. The management of the upstream supplier network ensures that the right material is received at the right time and to the right location. The focus is on selecting a few good suppliers and maintaining a good relationship with them. The management of the downstream customer network ensures that customers receive the products they want in a timely manner. The focus is on the distribution channels that the firm employs to send the product to the end customer. Throughout the supply chain, the emphasis is on reducing inventory, hence reducing cost. The ultimate goal is customer satisfaction through delivering a quality product at a good price and in a timely fashion. The companys goal is to add value to its products as they pass through its supply chain and transport them to geographically dispersed markets in the required quantities, with correct specifications, at the required time and at a competitive cost. The facilities in the supply chain comprise of plants which are manufacturing facilities where physical product transformation takes place and distribution centers which are facilities where products are received, stored, inventoried, picked from inventory and dispatched, but not physically transformed A supply chain is often represented as a network similar to the one in figure 1.a. The flow of information or raw materials from suppliers to the manufacturer refers to upstream suppliers and manufacturer to customers denotes downstream customers. The nodes represent facilities which are connected by links that represent direct transportation connections permitted by the company in managing its supply chain. The network shown in figure 1.a has four levels of facilities. Products flow own from vendors/suppliers to manufacturing plants, manufacturers to distribution centres and from distribution centres to customers. In general, a supply chain network may have an arbitrary number of levels.
production/ purchase order response time or through the maintenance of an inventory in the proximity of the customer. Temporal-based decisions also affect the location of facilities. Network Configuration cannot be limited to the forward movement of goods from suppliers to customers. Firms must take back from downstream locations items such as packaging materials, leased equipments, damaged goods for repair or replacement etc. This reverse network often overlays the forward network and must be integrated into it. 3.2 THE STRATEGIC IMPORTANCE OF SUPPLY CHAIN NETWORK DESIGN All business operate in a dynamic environment in which characteristics of customer demand, technology, competition, markets and suppliers are constantly changing. Because of the rate at which change is occurring, there is hardly any existing supply chain network which can be truly current or up to date. An analysis of the existing network can provide new opportunities to reduce cost and/or improve customer service. The types of change that may suggest a need to reevaluate and/or redesign a firms supply chain network are as follows:
(iv)
Cost pressures: in the present competitive market, a major priority for many firms is to figure out new and innovative ways to reduce cost of their business processes including those related to logistics. In such cases, a reevaluation of the supply chain network and the functioning of the supply chain can help to discover new sources of such savings.
(vi)
Corporate organizational change: any major corporate organizational change such as downsizing, calls for the review of logistics network design of the organization. In such instances, the strategic functioning of the firms logistical network must be either maintained or enhanced through the process of organizational change.
The alternatives developed in step 3 and 4 should be evaluated for consistency with the design criteria. The types that are needed to the firms supply chain network should be confirmed in the context of overall supply chain positioning. Step 6: Develop an Implementation Plan The final critical step is to develop an effective implementation plan. This plan should serve as a useful road map for changing the current supply chain network to the desired one. Since the reengineering process involves significant change, the firm should commit the resources necessary to assure a smooth, timely implementation.
technologies is not flexible, and product requirements vary from country to country, a firm has to set up local facilities to serve local markets in each country.
(iii)Macro economical factors: these include tariffs, taxes, exchange rate risks
and other economic factors, which are external to the firm. Tariffs refer to the duties that must be paid when a product is moved across boundaries of city, state or country. If a country charges high tariffs, then firms prefer to setup manufacturing plants in that country to avoid tariff such as custom duties imposed by the importing country. Tax incentives are tax rebates given by certain counties, states or cities to encourage firms to locate their tariffs in specific areas. Exchange rate risks occur due to fluctuations in exchange rates. Suitably designed supply chain networks help to take advantage of exchange rate fluctuations and increase profits. The flexibility in the production capacity of the firm also helps to counter fluctuations in demand across different countries.
(iv)
Political factors: firms prefer to locate their facilities in countries which have stable government and where commercial laws and other legal systems are clear and well designed. This makes it easier for the firms to invest in those countries.
(vi)
Competitive factors: firms must take into consideration competitors strategy, capacity and location when designing their supply chain networks.
(vii)
Logistics and facility costs: Logistics and facility costs incurred in the supply chain depend on the number of facilities, their location and capacity. The firm must consider inventory, transportation and facility costs
while designing its supply chain network. Operating costs include fixed costs and variable costs, which also are considered.
(iv)
Quality of life: the quality of life of a particular region or area affects the well being of employees and the quality of work they are expected to do.
(v) Taxes and industrial development incentives: state and local taxes which
apply to businesses and individuals as well as rebates or incentives are one of the location determinants.
(vi)
Supplier networks: for a manufacturing firm, the availability and cost of raw materials and component parts as well as cost of transporting these materials to the proposed plant site could be quite significant.
(vii)
Land costs and utilities: depending on the type of facility under consideration, the issues related to cost of land and availability of needed utilities may become critical to location decisions.
(viii)
certain region and/or local area for the location of a logistics facility.
Phase 4: Choosing the Precise Locations for Facilities and Allocating Capacity to Each Facility. From the set of alternative sites identified for facility locations, the exact or precise location for each facility is selected and required capacity is allocated to it. The network is designed to maximize the total profits taking into consideration the expected profit margins and demand in each market. Also the various logistics and facility costs should be considered.
Clearly, these network-design based methods add value to the firm in that they lay down the manufacturing and distribution strategies far into the future. It is imperative that firms at one time or another make such integrated decisions, encompassing production, location, inventory, and transportation, and such models are therefore indispensable .They are often difficult to solve to optimality. Furthermore, most of the models in this category are largely deterministic and static in nature. Additionally, those that consider stochastic elements are very restrictive in nature. In sum, there does not seem to yet be a comprehensive model that is representative of the true nature of material flows in the supply chain.
The Hub and Spoke model of Logistics is unique in its ability to deliver efficiencies and in its propensity to build in inefficiencies. Addressing these inefficiencies enables logistics service providers to gain the competitive advantage that should ideally accrue on using the hub and spoke model for logistics. The Context Let us consider the case of a logistics service provider in India handling several thousand MT of load per day across India following a Hub & Spoke Model for Distribution consisting of Hubs and Depots.
depot
depot
Hub2
Hub1
Hub4
depot depot
Hub3
Fig 2 Supply Chain Network The operations staff picks material from customer and brings it to operating unit, where the load is consolidated and sent to the attached hub in the evening. Material reaches hub from different operating units, and is segregated and sent to different hubs the same night. The delivery hub receives the material and sends it to operating unit for delivery by the operations staff. . 6.2.1 Challenges to Improving Efficiencies in a Hub and Spoke Model The hub and spoke model needs to address a unique set of challenges effectively in order for it to deliver efficiencies. These include: Internal Factors High load imbalance between different hubs An optimal network design which helped optimize cost and service level High waiting time at hubs due to process inefficiencies Load Seasonality Choice of Optimal modal mix Optimal choice of vehicle type to be used Further connectivity from Hub to depots was critical in deciding a feasible route option The prevailing vendor rates varied between hubs Lack of a route optimization tools: - Led to a mix of centralized and de-centralized mechanisms of designing new routes -Routes were designed based on individual hub requirements instead of an objective mechanism to evaluate possible alternate routes
External factors Different statutory requirements in different states such as Transit pass etc. No-entry restrictions prevailing in some key cities High waiting time at inter-state check posts Lack of adequate road infrastructure resulting in varying speed of vehicles in different sectors Objective To achieve cost and service delivery efficiencies through the design of an optimal routing model, given the high degree of complexity in distribution and high service level commitments to bemet. These can be broken down to the following metrics: Cost Optimization Metrics - Reduce cost per km per kg - Reduced Cost - Reduce load imbalance Service Delivery Metrics - Ensure less number of touch points between locations
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