Week -7 LAQ’s

1. Discuss the supply chain strategies.

A supply chain strategy explains how a company will bring goods into the
business and get them out to customers as effectively as possible. Considering every
phase in the supply chain, such as sourcing goods, logistics and delivery, the strategy
optimizes operations to reduce costs and maximize profits.
A good supply chain strategy is about fulfilling demand, driving customer value,
improving responsiveness, facilitating financial success and building a good network.
The primary goals of efficient supply chain
management should be faster delivery,
higher efficiency and accelerated cash
flow. A robust supply chain management
strategy can also reduce risk and lower the
impact of disruption in the supply chain.
Processes and systems to help respond to
issues will aid with faster recovery and
enable you to build or maintain your
competitive advantage.
1) Adapt Supply Chain to
Customer’s Needs
Both business people and supply chain
professionals are trained to focus on
customer’s needs. In order to understand
customer better, we divide customers into
different groups and we call it
“segmentation”. The most primitive way
to segment customer is ABC analysis that
groups customer based on sales volume or
profitability. Segmentation can also be
done by product, industry and trade
channel. Back then, Anderson et al
suggested that customer be segmented
based on service needs, namely, “sales and
merchandising needs” and “order
fulfillment needs”. I totally agree that we
should focus on customer’s needs but this
doesn’t seem to be enough these days. The
reason is that your customers may not
know what they need until your competitors offer something different. For example,
in 2011 Amazon initiated a program called Amazon Prime (free 2-day shipping and
discounted 1-day shipping). Today, people are still discussing if this program makes
sense. But one thing for sure, customer turns to Amazon more and more. The morale
of this story is that you should “anticipate” customer’s needs as well.
2) Customize Logistics Network
When you segment customer based on service needs, you may have to tailor different
logistics networks to serve different segment. However, this principle doesn’t hold true
for all situations. For example, if you were contract manufacturer in China, you might
already have different logistics networks for different customers. Each customer in US
or EU might already control source of raw materials, ask you to provide dedicated
production lines, nominate 3pl companies and air/sea carriers. So, logistics network
design is kind of initiative driven mainly by customer.
3) Align Demand Planning Across Supply Chain
Supply chain practitioners are taught to share demand data with trading partners so
nobody has to keep unnecessary stock. In general, this principle holds true. But in
reality, only Walmart is actively sharing demand data to trading partners.
4) Differentiate Products Close to Customer
The is something that Dell is very famous for, keeping components and assemble them
only after customer places the order in order to increase product variety. This principle
is still true, but, there is another principle that you should consider.

“Standardization” is in the opposite polarity of “Differentiation”. For example, some

cosmetics manufacturers formulate products and choose packaging and labelling that
comply with regulations of multiple countries in Asia. So they only make one SKU that
can be sold in 15 countries instead of 1 SKU/Country. By standardizing product
appropriately, they can drive cost down drastically due to economy of scale. So
standardization is something that you should also consider.
5) Outsource Strategically
This is the principle that stands the test of time. In short, don’t ever outsource your
core competency. More information about outsourcing can be found from the
infographic named “7 Pitfalls of Outsourcing and How to Avoid Them”.
6) Develop IT that Support Multi-Level Decision Making
If you search Google for the term “critical success factor erp”, you’ll find lots of
information about how to implement Enterprise Resource Planning (ERP)
successfully. My opinion is that IT project shouldn’t be done in isolation, business
process reengineering is something that you have to do before IT project. This will
equip you with full understanding about process deficiencies then you can determine
what kind of technology that you really need.
7) Adopt Both Service and Financial Metrics
Anderson et al suggested that activity based costing (ABC) be implemented so you can
determine customer’s profitability. However, there is the interesting twist about ABC
concept. In 1987, Robert Kaplan and W Bruns defined the activity based costing
concept in his book “Accounting and Management: A Field Study Perspective”.
However, in 2003 Robert Kaplan said that it’s difficult to maintain ABC costing model
to reflect changes in activities, processes, products and customers. Then, he
introduced the refined concept called Time Driven Activity Based Costing.
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2. Following table summarizes the supply chain performance of three different
vendors. Evaluate and rate the vendors based on weightage of 25%, 20%, 50% and 5%
for the criteria of quality, delivery, price and response to the suggestions respectively.

Supplier performance Vendor 1 Vendor 2 Vendor 3

criteria

Quantity supplied 600 500 550

Quantity accepted 580 495 525

Item price (Rs.) 14.8 15 14.5

Delivery promised (in weeks) 4 4 4

Actual delivery (in weeks) 4.2 3.5 4

Response to suggestions (%) 90 95 100

SOLUTION

CRITERIA TARGET VENDOR 1 VENDOR 2 VENDOR 3

QUALITY 25% 24.15% 24.75% 23.86%
DELIVERY 20% 21% 17.5% 20%
PRICE 50% 49.3% 50% 48.3%
RESPONSE TO 5% 4.5% 4.75% 5%
SUGGESTIONS
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3. Name the types of vertical integration in the supply chain

management with suitable examples.
Vertical Integration: Vertical integration is a strategy that allows a company to
streamline its operations by taking direct ownership of various stages of its
production process rather than relying on external contractors or suppliers. A
company may achieve vertical integration by acquiring or establishing its own
suppliers, manufacturers, distributors, or retail locations rather than outsourcing
them. However, vertical integration may be considered risky potential disadvantages
due to the significant initial capital investment required.
How It Works
Vertical integration occurs when a company attempts to broaden its footprint across
the supply chain or manufacturing process. Instead of sticking to a single point along
the process, a company engages in vertical integration to become more self-reliant on
other aspects of the process. For example, a manufacturing may want to directly source
its own raw materials or sell directly to consumers. Netflix, Inc. is a prime example of
vertical integration. The company started as a DVD rental business before moving into
online streaming of films and movies licensed from major studios. Then, Netflix
executives realized they could improve their margins by producing some of their own
original content like the hit shows Grace & Frankie and Stranger Things. It also
produced some bombs, like 2016's The Get Down, which reportedly cost the company
$120 million. Today, Netflix uses its distribution model to promote its original content
alongside programming licensed from studios. Instead of simply relying on the content
of others, Netflix performed vertical integration to become more engaged in the
entertainment development process earlier.
Types of Vertical Integration
There are a number of ways that a company can achieve vertical integration. Two of
the most common are backward and forward integration.
Backward Integration
A company that chooses backward integration moves the ownership control of its
products to a point earlier in the supply chain or the production process. This form of
vertical integration is aptly named as a company often strives to acquire a raw material
distributor or provider towards the beginning of a supply chain. The companies
towards the start of the supply chain are often specialized in their distinct step in the
process (i.e. a wood distributor to a furniture manufacturer). In an attempt to
streamline processes, the furniture manufacturer would try to bring the wood sourcing
in-house.
Amazon.com, Inc. started as an online retailer of books that it purchased from
established publishers. It still does that, but it also has become a publisher. The
company eventually branched out into thousands of branded products. Then, it
introduced its own private label, Amazon Basics, to sell many of them directly to
consumers.
Forward Integration
A company that decides on forward integration expands by gaining control of the
distribution process and sale of its finished products. A clothing manufacturer can sell
its finished products to a middleman, who then sells them in smaller batches to
individual retailers. If the clothing manufacturer were to experience forward vertical
integration, the manufacturer would join a retailer and be able to open its own stores.
The company would aim to bring in more money per product, assuming it can operate
its retail arm efficiently.
Forward integration is a less common form for vertical integration because it is often
more difficult for companies to acquire other companies further along the supply
chain. For example, the largest retailers at the end of the supply chain often have the
greatest cashflow and purchasing power. Instead of these retailers being acquired, they
often have the capital on hand to be the acquirer (an example of backward integration).
Balanced Integration
A balanced integration is a vertical integration approach in which a company aims to
merge with companies both before it and after it along the supply chain. A company
must be "the middleman" and manufacture a good to engage in a balanced integration,
as it must both source a raw material as well as work with retailers to delivery the final
product. Consider the supply chain process for Coca-Cola where raw materials are
sourced, the beverage is concocted, and bottled drinks are distributed for sale. Should
Coca-Cola choose to merge with both its raw material providers as well as retailers who
will sell the product, Coca-Cola is engaging in balanced integration. Though most
costly and most risky due to the diversified nature of business operations, balanced
integration also poses the greatest upside as a company is more likely to have greater
(if not full) control over the entire supply chain process.
Examples of Vertical Integration
The fossil fuel industry is a case study in vertical integration. British Petroleum,
ExxonMobil, and Shell all have exploration divisions that seek new sources of oil and
subsidiaries that are devoted to extracting and refining it. Their transportation
divisions transport the finished product. Their retail divisions operate the gas stations
that deliver their product. The merger of Live Nation and Ticketmaster in 2010 created
a vertically integrated entertainment company that manages and represents artists,
produces shows, and sells event tickets. The combined entity manages and owns
concert venues, while also selling tickets to the events at those venues. This is an
example of forward integration from the perspective of Ticketmaster, and backward
integration from the perspective of Live Nation.
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4. What do you mean by bullwhip effect?

The Bullwhip Effect
The bullwhip effect refers to a scenario in which small changes in demand at the retail
end of the supply chain become amplified when moving up the supply chain from the
retail end to the manufacturing end. This happens when a retailer changes how much
of a good it orders from wholesalers based on a small change in real or predicted
demand for that good. Due to not having full information on the demand shift, the
wholesaler will increase its orders from the manufacturer by an even larger extent, and
the manufacturer, being even more removed will change its production by a still larger
amount. The term is derived from a scientific concept in which movements of a whip
become similarly amplified from the origin (the hand cracking the whip) to the
endpoint (the tail of the whip). The danger of the bullwhip effect is that it amplifies
inefficiencies in a supply chain as each step up the supply chain estimates demand
more and more incorrectly. This can lead to excessive investment in inventory, lost
revenue, declines in customer service, delayed schedules, and even layoffs or
bankruptcies.

UNDERSTANDING THE BULLWHIP EFFECT

The bullwhip effect typically travels from the retail level up the supply chain to
the manufacturing level. If a retailer uses immediate sales data to anticipate a strong
increase in demand for a product, the retailer will pass a request for additional product
to its distributor. The distributor, in
turn, will communicate this request
to the maker of the product. This
alone is an aspect of supply chain
operations and is not necessarily
reflective of a bullwhip effect.
The bullwhip effect generally distorts
this process in one of two ways. First
is when the original order change by
retailers is due to an inaccurate
demand forecast. The size of this
error tends to grow as it progresses further up the supply chain to the manufacturer.
The second is when a retailer has the correct information about demand, but it leads
to incorrect conclusions about information as to the reason and details of the retailer's
order change are lost, leading to incorrect assessments by wholesalers, which are then
magnified further up the chain.
EXAMPLE OF THE BULLWHIP EFFECT
For instance, imagine a retailer selling hot chocolate that typically sells 100 cups a day
in the winter. On a particularly cold day in that area, that retailer sells 120 cups instead.
Mistaking the immediate increase in sales for a broader trend, the retailer requests
ingredients for 150 cups from the distributor. The distributor sees the increase and
expands its purchase order with the manufacturer to anticipate increased requests
from other retailers as well. The manufacturer increases its manufacturing run in
anticipation of greater product requests in the future.
At each stage above, demand forecasts have been increasingly distorted. If the retailer
sees a return to normal hot chocolate sales when the weather returns to normal, it will
suddenly find itself with more supplies than needed. The distributor and manufacturer
will have even more excess inventory.
Another reason for the lack of information is that larger logistics operations at the
wholesale level take longer to change, meaning that the conditions that caused a
change in demand at the retail level may have passed by the time a wholesaler has
reacted. As changing manufacturing output takes longer still and information from
retailers is even more delayed in getting to manufacturers, the difficulty of reacting
correctly to changes in demand increases even more so.
Even if the retailer had accurately assessed demand, for example, due to the start of a
local hot chocolate festival, the bullwhip effect can still occur. The distributor, not
being fully aware of local conditions, may assume this is due to a broad increase in the
demand for hot chocolate, rather than specific conditions for that retailer. The
manufacturer, being even more removed from the situation, would be even less likely
to understand and correctly react to the change in demand.
IMPACTS OF THE BULLWHIP EFFECT
In the example above, the manufacturer may be stuck with a significant surplus of
product. This can lead to disruptions to the supply chain and to that manufacturer's
business—increased costs associated with storage, transportation, spoilage, losses of
revenue, delays to shipments, and more. The distributor and the retailer in this
example may also see similar problems.

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5. Bring out the vendor identification sources.

Every organisation maintains a list of vendors, trade group-wise whom they
approach for their need of materials. This list is under constant review. Unsatisfactory
suppliers are eliminated and new suppliers are added to enhance competition. Also
new suppliers have to be found for newer materials required on ever expanding
business. When most buyers plan on identifying a new supplier, they are usually
tempted to focus on the best price. However, concentrating only on low costs can hurt
you in the long term. That's because shaving a few cents off the price of a product is no
help if the quality is below standard, and the component or material does not arrive
when you need it.
Instead of solely focusing on cost, focus on quality by incorporating these 13 tips into
your sourcing strategy:
 1. Check Certifications
Many buyers have minimal requirements when it comes to supplier quality
certifications. However, suppliers do not always make it easy to view and verify their
certifications. Discover suppliers that are certified to your quality standards, including
ISO, QS and more.
2. Evaluate The Geo-Political Climate
While some overseas resources can provide rock bottom prices, tenuous labor
relations or political upheaval can leave you without your required product. Take the
time to thoroughly analyze the potential for unrest in the areas you will rely on for your
supply chain success.
3. Finding Reputable Suppliers
Product discovery tools are great places to find new, quality suppliers. Engineers,
procurement professionals, and designers are easily able to source on the platform for
the products and services they need meanwhile, manufacturers and distributors can
promote their businesses and win more contracts. We don't want to toot our own
industrial horn, but if you're not a quality supplier, we won't create a supplier listing.
AKA, if a supplier's business can't provide sourcing professionals quality service.
4. Gauge Financial Stability
According to an informal Thomasnet survey, nearly half (50 percent) of all buyers have
worked with a supplier that unexpectedly went out of business. Don't be caught off
guard — read 3 financial risks in the manufacturing industry.
5. Assess Weather-Related Risk
We have all seen hurricanes, tornados, snow, rain, and drought impact communities
worldwide. However, the news rarely covers the impact these events have on the
supply chain. You do not have the luxury of overlooking this. As you select potential
suppliers, identify the weather-related events that are typical to the region, and
evaluate how they could dictate your ability to maintain business as usual.
6. Align Manufacturing and Shipping Locations To Your Needs
Depending on your manufacturing requirements, you should determine your need for
a multi-location supplier or a single warehouse. Obviously, shipping capabilities and
associated costs will differ by the number of locations a supplier has to offer. You may
be able to negotiate a better price from a smaller business with a single location or
string multiple suppliers together to meet your needs.
7. Carefully Review Product Information
Detailed product descriptions and related info will help you determine if they have the
right products for your application. Suppose a supplier has taken the time to provide
easily accessible product specs, charts, graphs, and CAD Drawings. In that case, it
shows that they value your time and are willing to be as helpful as possible to win and
maintain your business.
 8. Ask For Accessible Inventory Information
Having visibility into your supplier's inventory can be advantageous. It is an indication
of their commitment to you as a customer and their ability to provide what you need
when you need it.
9. Know Their Scalability
Determine how flexible the supplier is when it comes to providing small quantity and
high volume orders. If you are looking for smaller quantities or prototypes to start, you
will most likely find suppliers that focus on that volume. If you grow to require
extremely large shipments of the product over time, you could quickly outgrow your
original supplier selection. Knowing what the growth pattern is for the product you are
sourcing before selecting a supplier will allow you to partner with a supplier that can
painlessly scale to meet your changing needs.
10. Check Their Commitment To Customer Service
Expect the best and plan for the worst. Evaluate the customer service provided by each
potential supplier. If you are working in 24-hour lights out manufacturing capacity
that could require a call to the supplier at any time of day or night, work this into your
research. A deeper understanding of the contract language about their return policy
should be uncovered as well. You do not want to be stuck holding the bag.
11. Get Lead Time and Delivery Statistics
Delivery performance is key to industrial buyers. Ask for their lead time projections
compared to on-time delivery rates. If these cannot be provided, then it is a good sign
that they are not tracked or are not very good. Either reason is cause for concern.
12. Read Into The Payment Terms
Identify the suppliers that are willing to work with your payment requirements. As the
long term need and delivery timelines can dictate PO or Net 30 billing options, don’t
be afraid to ask for what you need to run your business appropriately.
13. Contact References
Testimonials, testimonials, testimonials! A vote of approval from another business
that the supplier is working with can speak volumes about their true abilities. While
NDAs can cause difficulties in this area, a supplier should always have a ready list of
happy customers or testimonials — even better if they have those testimonials on their
website.
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6. List the criteria for vendor rating.

Vendor rating is when the suppliers are provided with a status or a title based on
several factors. Factors could be credibility, delivery time, price, quality of the goods
supplied, and a set of such mixed variables. The ratings are based on the vendor’s
performance. Therefore, they can have several levels: good, average best, or the firm’s
decisions.
CRITERIA FOR VENDOR RATING
Quality
The quality of the products or goods vendor supplies is the main factor. The vendor
can maintain good quality by improving production and having quality planning in the
supply chain. Quality factor consists following things.

• The supplier should follow the terms and conditions mentioned in the
purchase order.
• The vendor’s products or services must meet the specifications mentioned in
the proposal and purchase order request.
• The product failure rate should be within the appropriate limit.
• The vendor should do proper repair or rework.
• He should provide an adequate time duration for replacement.
Price
A company always wants to get the materials at less expense to reduce its
manufacturing cost to increase its profit. Hence the vendor needs to set a competitive
price for his products. It includes the following things.

• Stable price: The price of the product or service must be stable over time.
• Accurate price: There should not be much difference between the purchase
order and invoice prices.
• Prior notice about price changes: He should inform about price changes in
advance.
• Billing: He must provide easily readable and understandable bills.
Delivery
The supplier has to develop the ability to deliver the goods on a scheduled date. This
factor consists following things.

• Lead time: Lead time is between the actual delivery day and order placement
day. The shortest lead time helps to get a good impression of the supplier. The
vendor should deliver products on or before the promised date.
• Quantity: He must deliver the correct amount of products as mentioned in the
contract.
• Packing and documentation: Packing of the products must be suitable,
studied, and undamaged. The vendor should provide proper documents along
with the delivered products.
• Emergency delivery: The vendor must be able to deliver products in case of
emergency requirements.
Service
It is one of the crucial criteria for the supplier. He has to provide good service by
providing an updated catalog, pricing, technical information, etc.

• The vendor must have the ability to handle complaints effectively.

• The vendor should provide technical support for installation, maintenance,
and repair.
• Emergency support: The supplier should support in the emergency condition
of product failure or repair.
• Resolve the problems: The supplier should find the solution for the problem
on time.
The supplier rating system is a by-product of the just-in-time approach.

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