Supply Chain Management

Module-02
Role of Transportation in a Supply Chain
• Transportation is a critical component of supply chain management as it ensures
the efficient movement of goods from suppliers to manufacturers, distribution
centers, retailers, and ultimately to customers. It impacts cost, delivery speed,
reliability, and overall supply chain performance.
Key Roles of Transportation in Supply Chain:
1.Facilitates Movement of Goods: Ensures timely delivery of raw materials and
finished products.
2.Affects Cost Efficiency: Transportation costs contribute significantly to total
logistics expenses.
3.Influences Customer Satisfaction: Faster and more reliable deliveries improve
service levels.
4.Enhances Market Reach: Efficient transportation allows companies to expand
into new markets.
5.Supports Inventory Management: A well-planned transportation system reduces
the need for excessive inventory storage.
 Characteristics of Transportation Modes and Carrier Selection
Transportation Modes & Their Characteristics

Mode Speed Cost Capacity Reliability Best For

Retail, E-commerce,
Road (Truck) Medium Medium Medium High
FMCG

Rail Slow Low High Medium Heavy cargo, Bulk goods

Express shipping,
Air Fast High Low Very High
Perishable goods
Water International trade, Large
Very Slow Low Very High Low
(Shipping) containers

Pipeline Steady Low High High Oil, Gas, Chemicals

2. Carrier Selection Criteria
• Choosing the right carrier is crucial for optimizing supply chain efficiency. Key
factors include:
1.Cost Efficiency: Selecting the most cost-effective carrier for the required
service level.
2.Transit Time: Speed of delivery based on urgency.
3.Reliability & Service Quality: On-time delivery, safety, and damage rates.
4.Capacity & Scalability: Ability to handle large or fluctuating shipment
volumes.
5.Geographic Coverage: Availability of transportation networks in required
locations.
6.Technology & Tracking: Real-time tracking and integration with supply chain
systems.
Transportation Infrastructure
• Transportation infrastructure refers to the physical and technological
framework that supports the movement of goods and people.
1. Key Components of Transportation Infrastructure
• Roads & Highways: Essential for last-mile and short-distance transportation.
• Rail Networks: Ideal for bulk and long-distance inland transport.
• Airports & Cargo Terminals: Facilitate international and express deliveries.
• Seaports & Inland Waterways: Handle global trade and large shipments.
• Pipelines: Transport liquid and gas commodities efficiently.
• Logistics Hubs & Warehouses: Serve as distribution points for shipments.
Concepts of Transportation Economy and Pricing
Factors Influencing Transportation Costs
1. Distance: Longer distances lead to higher costs.
2. Weight & Volume: Heavier and bulkier goods require more resources to
transport.
3. Mode of Transport: Airfreight is expensive, while rail and sea transport are
cost-effective.
4. Fuel Prices: Directly affect transportation costs.
5. Demand & Supply: Seasonal fluctuations impact pricing (e.g., holiday
shipping surcharges).
6. Infrastructure & Regulations: Toll fees, customs duties, and tariffs add to
costs.
2. Pricing Strategies in Transportation
• Flat Rate Pricing: Fixed cost regardless of distance (common in courier
services).
• Weight-Based Pricing: Charges based on cargo weight (used in air and rail
freight).
• Distance-Based Pricing: Cost increases with distance traveled.
• Freight Class Pricing: Categorizes goods based on size, weight, and handling
requirements.
• Dynamic Pricing: Adjusts based on market conditions (e.g., Uber Freight
charges higher rates during peak demand).
Various Transportation Strategies • Uses AI-driven route optimization and local
1. Just-in-Time (JIT) Transportation delivery hubs.
• Ensures minimum inventory storage, reducing • Example: Amazon Prime offers same-day and one-
holding costs. day delivery through optimized last-mile logistics.
• Requires precise delivery schedules to avoid 4. Reverse Logistics
stockouts. • Manages returns, recycling, and waste disposal
• Example: Toyota’s JIT model minimizes efficiently.
warehouse storage needs by receiving parts only • Important for e-commerce and manufacturing
when needed. industries.
2. Multimodal Transportation • Example: Flipkart’s return policy integrates
• Uses multiple modes (e.g., road + rail + sea) for reverse logistics, ensuring cost-effective product
optimal cost and speed. pickups.
• Enhances flexibility and efficiency in international 5. Green & Sustainable Transportation
logistics. • Reduces carbon emissions and fuel consumption.
• Example: Apple uses ocean freight for bulk • Uses electric vehicles, alternative fuels, and
shipments and air transport for urgent stock carbon offset programs.
replenishment. • Example: Tesla’s electric truck fleet (Tesla Semi)
3. Last-Mile Delivery Optimization promotes sustainable transportation for freight
• Focuses on quick, cost-effective final delivery to delivery.
Examples of Various Transportation Strategies in Supply Chain Management
1. Just-in-Time (JIT) Transportation
✔ Example: Toyota
• Toyota pioneered JIT logistics, where parts arrive exactly when needed for
production.
• This reduces inventory holding costs but requires highly reliable
transportation.
✔ Example: McDonald's
• McDonald's receives fresh ingredients daily at its outlets instead of storing bulk
inventory, ensuring freshness and cost control.
2. Multimodal & Intermodal Transportation
✔ Example: Apple
• Apple ships products from China via ocean freight to distribution centers in the U.S. and
Europe.
• From ports, goods are transported by rail or truck for delivery to retail stores.
✔ Example: IKEA
• Uses a combination of sea, rail, and road transport to move products from factories to
stores worldwide.
3. Last-Mile Delivery Optimization
✔ Example: Amazon Prime
• Amazon uses automated fulfillment centers and local warehouses to enable same-day
and next-day delivery.
• Drones and electric delivery vans are being tested for faster last-mile shipping.
✔ Example: Domino’s Pizza
• Uses real-time GPS tracking and AI-powered route optimization to deliver pizzas
4. Reverse Logistics & Return Management
✔ Example: Zara
• Zara recycles unsold clothing and returns defective items to suppliers for reuse.
✔ Example: Apple’s Trade-In Program
• Apple allows customers to return old devices for recycling or resale, reducing e-waste.
5. Cross-Docking
✔ Example: Walmart
• Walmart moves products directly from suppliers to retail stores without storing them in
warehouses, reducing costs and improving efficiency.
✔ Example: Procter & Gamble (P&G)
• Uses cross-docking to quickly transfer goods between transportation modes, minimizing handling
time.
8. Green & Sustainable Transportation
✔ Example: Tesla Semi Trucks
• Tesla is developing electric trucks to reduce fuel consumption in freight transportation.
✔ Example: Amazon’s Electric Fleet
• Amazon has invested in 100,000 electric delivery vans to reduce carbon emissions
6. Freight Consolidation
✔ Example: FedEx & UPS
• Consolidate multiple small shipments into full-truckload (FTL) or less-than-
truckload (LTL) shipments to optimize delivery costs.
✔ Example: DHL
• Uses freight consolidation hubs to merge smaller shipments and lower
transportation expenses.
Role of Sourcing in Supply Chain Management
Introduction
• Sourcing refers to the process of identifying, evaluating, and selecting suppliers to procure
goods and services. It is a critical function in supply chain management that impacts cost,
quality, efficiency, and business success. Effective sourcing ensures that companies obtain the
right materials at the right cost and time, reducing risks and improving profitability.
Importance of Sourcing in Supply Chain
1. Cost Efficiency
• Sourcing helps in reducing procurement and operational costs. By selecting cost-effective
suppliers, businesses can lower expenses and improve profit margins.
Example: Apple sources components for iPhones from various countries to minimize costs
while maintaining quality, such as sourcing processors from Taiwan (TSMC) and displays
from South Korea (Samsung).
2. Quality Assurance
• Ensuring high-quality raw materials and components is vital for product performance and
customer satisfaction.
Example: Toyota follows a strict supplier quality control system (Toyota Production System)
to ensure its cars meet high safety and performance standards.
3. Supplier Reliability
• Reliable suppliers help maintain consistent production schedules and avoid delays.
Example: Amazon relies on multiple suppliers and warehouses globally to ensure quick
deliveries through its Fulfillment by Amazon (FBA) service.
4. Risk Management
• Sourcing strategies help businesses mitigate risks like supply shortages, price fluctuations, and
geopolitical issues.
Example: Amid the COVID-19 pandemic, many automobile companies like Ford and General
Motors faced chip shortages. Companies that had dual sourcing (multiple suppliers for the
same component) managed risks better.
5. Sustainability & Compliance
• Ethical sourcing ensures environmental protection and fair labor practices.
Example: Unilever focuses on sustainable palm oil sourcing, ensuring its supply chain does
not contribute to deforestation.
6. Competitive Advantage
• Strategic sourcing provides access to better resources, innovative materials, and cost benefits.
Example: Zara, a fast-fashion brand, sources raw materials and manufactures products closer
to its key markets, reducing lead times and gaining a competitive edge over rivals.
Sourcing Grid Matrix and Guidelines
• The Sourcing Grid Matrix helps businesses classify their procurement based
on two key factors:
Supply Risk – Availability of suppliers and market conditions.
Financial Impact – The cost implications of sourcing decisions.
Guidelines for Effective Sourcing:
✔ Understand Market Dynamics: Study supplier markets and pricing trends.
Example: Coca-Cola monitors global sugar prices and adjusts procurement strategies
accordingly.
✔ Supplier Evaluation: Assess suppliers based on cost, quality, and delivery.
Example: Boeing rigorously evaluates aircraft parts suppliers for compliance with
aviation standards.
✔ Contract Negotiation: Secure favorable pricing, lead times, and service terms.
Example: Walmart negotiates bulk purchase contracts with suppliers to get lower
prices.
✔ Technology Integration: Use digital procurement tools for efficiency.
Example: Companies use SAP Ariba for cloud-based procurement and supplier
management.
✔ Sustainability Focus: Prioritize suppliers that meet environmental and ethical
standards.
Example: Starbucks ensures its coffee beans are ethically sourced from fair-trade
Purchasing Procedures and Commonly Deployed Example: Automakers like Tesla inspect battery
Practices shipments for defects before installation.
• The purchasing process involves several steps: Invoice Processing & Payment
Need Identification • Completing financial transactions post-delivery.
• Defining what goods or services are required. Example: Walmart follows a net 90-day payment cycle
Example: A car manufacturer identifies the need for for its suppliers.
lithium-ion batteries for its electric vehicles. • Commonly Deployed Practices:
Supplier Selection • Just-in-Time (JIT) Purchasing – Ordering only when
• Evaluating and choosing the right vendors. needed to reduce inventory costs.
Example: Apple selects TSMC as its exclusive chip Example: Toyota’s JIT system helps minimize storage
supplier due to superior technology. costs by receiving parts only when required.
Price Negotiation • E-Procurement – Using digital tools to streamline
sourcing and purchasing.
• Agreeing on pricing, payment terms, and delivery Example: Alibaba allows businesses to source bulk
schedules. products online efficiently.
Example: McDonald's negotiates lower prices for
potatoes due to bulk purchasing for its French fries. • Supplier Relationship Management (SRM) – Building
long-term partnerships with key suppliers.
Purchase Order (PO) Creation Example: Intel and Dell have a strategic supplier
• Issuing formal orders to suppliers. partnership for consistent semiconductor supply.
Example: Amazon's warehouses generate automated • Global Sourcing – Procuring materials from international
purchase orders based on inventory levels. markets for cost savings.
Goods Receipt & Inspection Example: Nike outsources manufacturing to Vietnam,
• Ensuring quality compliance upon delivery. China, and Indonesia to reduce costs.
Strategic Sourcing
• Strategic sourcing aligns purchasing decisions with business goals and long-term
value creation rather than just focusing on cost-cutting.
Key Aspects of Strategic Sourcing with Examples:
✔ Total Cost of Ownership (TCO): Evaluating costs over a product’s lifecycle.
Example: Airlines source fuel-efficient aircraft to reduce long-term fuel expenses.
✔ Supplier Collaboration: Engaging suppliers in product development.
Example: Tesla works closely with Panasonic to develop high-performance EV
batteries.
✔ Risk Management Strategies: Identifying and mitigating supply chain
vulnerabilities.
Example: Apple diversifies chip production across multiple regions to reduce
dependency on a single supplier.
✔ Sustainability and Ethics: Ensuring compliance with labor laws and
environmental standards.
Example: IKEA sources sustainable wood to reduce environmental impact.
Supply Chain Tactical Planning
Introduction
• Supply chain tactical planning bridges the gap between strategic planning
(long-term) and operational planning (short-term). It focuses on medium-
term decision-making (typically covering a 3-18 month period) to ensure
efficient operations, cost optimization, and customer satisfaction. Tactical
planning includes demand planning, forecasting, aggregate planning, and
collaborative planning to balance supply and demand.
1. Demand Planning and Forecasting
What is Demand Planning?
• Demand planning involves predicting future customer demand to ensure that inventory, production, and supply chain
operations align with expected needs. It reduces stockouts, minimizes excess inventory, and improves overall supply
chain efficiency.
What is Demand Forecasting?
• Demand forecasting uses historical data, market trends, and analytics to predict future demand. It enables
businesses to plan for production, procurement, and inventory management.
Types of Demand Forecasting:
• Qualitative Forecasting – Based on expert opinions, surveys, and market research.
Example: A new iPhone launch relies on expert insights and customer surveys to estimate demand.
• Quantitative Forecasting – Uses historical sales data and statistical models.
Example: Amazon predicts book sales using past purchasing patterns and AI-driven analytics.
• Time-Series Forecasting – Examines past demand patterns to predict future trends.
Example: Retailers like Walmart use seasonal trends to forecast sales of winter clothing.
• Causal Forecasting – Identifies factors that impact demand, like pricing, promotions, or economic conditions.
Example: Car manufacturers forecast demand based on fuel prices and government incentives for electric vehicles.
Importance of Demand Planning & Forecasting:
• ✔ Reduces excess inventory costs and minimizes stockouts.
✔ Improves customer service levels by ensuring product availability.
✔ Helps in budgeting, procurement, and production scheduling.
✔ Supports businesses in adapting to market trends and uncertainties.
2. Importance of Aggregate Planning Processes
What is Aggregate Planning?
• Aggregate planning is a medium-term process that determines optimal levels of production, workforce, and inventory to
meet anticipated demand while minimizing costs.
Steps in Aggregate Planning:
• Demand Forecasting: Estimate sales for the planning period.
Capacity Planning: Assess available resources (machines, labor, materials).
Production Planning: Decide on production rates, workforce levels, and inventory policies.
Cost-Benefit Analysis: Optimize between production cost, labor cost, and inventory holding cost.
Implementation & Monitoring: Adjust the plan based on real-time demand fluctuations.
Strategies for Aggregate Planning:
• ✔ Chase Strategy – Adjusting workforce and production levels based on demand.
Example: A toy manufacturer increases production before the holiday season and scales down afterward.
• ✔ Level Strategy – Maintaining constant production levels and using inventory to meet fluctuations.
Example: A beer company produces a consistent quantity throughout the year and stocks up for peak summer demand.
• ✔ Hybrid Strategy – A combination of chase and level strategies.
Example: An electronics firm may use overtime labor and subcontracting during peak demand while keeping base
production levels stable.
Importance of Aggregate Planning:
• ✔ Optimizes resource utilization and reduces waste.
✔ Balances supply and demand efficiently.
✔ Improves cost efficiency by minimizing overtime, subcontracting, and storage costs.
✔ Enhances customer satisfaction by ensuring timely delivery.
3. Evolution of CPFR and ECR
Collaborative Planning, Forecasting, and Replenishment (CPFR)
• CPFR is a collaborative approach where businesses and suppliers share forecasting data,
inventory levels, and sales insights to optimize supply chain operations.
Evolution of CPFR:
Initially, businesses relied on independent forecasting, leading to inefficiencies.
• In the 1990s, Walmart and Procter & Gamble pioneered CPFR by sharing sales data to
optimize inventory levels.
With AI, cloud computing, and real-time data analytics, CPFR has evolved into a fully
automated process.
• Example of CPFR:
Walmart & P&G – By sharing real-time sales data, Walmart ensures that P&G replenishes
inventory automatically, reducing stockouts and improving efficiency.
✔ Benefits of CPFR:
✔ Reduces stockouts & overstocking by aligning supply with demand.
✔ Improves forecast accuracy through shared data.
✔ Enhances supplier-buyer relationships.
Efficient Consumer Response (ECR)
• ECR is a supply chain strategy in retail and FMCG (Fast-Moving Consumer
Goods) industries aimed at improving efficiency in product replenishment,
promotions, and category management.
• Evolution of ECR:
Initially, retailers and suppliers worked independently, causing inefficiencies.
In the 1980s and 1990s, the retail sector introduced ECR to optimize inventory
levels.
Today, AI and IoT-driven automation have improved ECR, enabling real-time
tracking and automated restocking.
Example of ECR:
McDonald’s – Uses real-time sales data to manage inventory, ensuring optimal
stock levels for ingredients without wastage.
✔ Benefits of ECR:
✔ Reduces lead times for inventory replenishment.
✔ Enhances supply chain transparency.
✔ Improves customer satisfaction by preventing stockouts.
4. Scope of Various Planning Initiatives
Planning Initiative Scope Example

Sales and Operations Aligns supply chain operations with Coca-Cola aligns production with seasonal
Planning (S&OP) business goals. demand.

Materials Requirement Plans material procurement based on Car manufacturers use MRP to order auto
Planning (MRP) production schedules. parts.

Determines required production Airlines adjust flight schedules based on

Capacity Planning
capacity to meet demand. passenger forecasts.

Ensures the right stock levels across Amazon uses AI-driven inventory
Inventory Optimization
locations. placement strategies.

Defines production schedules for Tesla plans battery production based on EV

Production Planning
efficiency. demand.

Logistics & Distribution Optimizes transportation and FedEx plans delivery routes using AI to
Planning warehouse networks. reduce fuel costs.