GLOBAL SUPPLY
CHAIN
MANAGEMENT
Prepared by: Jatinderpreet Kaur Batth
SCM- Meaning
■ Supply chain management (SCM) is the broad range of activities required to plan,
control and execute a product's flow, from acquiring raw materials and production
through distribution to the final customer, in the most streamlined and cost-effective
way possible.
■ Supply Chain management consists of firms collaborating to leverage strategic
positioning and to improve operating efficiency.
■ A supply chain strategy is a channel arrangement based on acknowledged dependency
and collaboration.
Supply Chain
SCM-Definition
■ “ The supply chain is the network of organizations that are involved through upstream
and downstream linkages in the different processes and activities that produce value in
the form of products and services in the hands of ultimate consumers.”
- T,Davis(1993)
SCM and Logistics
■ The terms supply chain management and logistics are often confused or used
synonymously. However, logistics is a component of supply chain management. It
focuses on moving a product or material in the most efficient way so it arrives at the
right place at the right time. It manages activities such as packaging, transportation,
distribution, warehousing and delivery.
■ In contrast, SCM involves a more expansive range of activities, such as
strategic sourcing of raw materials, procuring the best prices on goods and materials,
and coordinating supply chain visibility efforts across the supply chain network of
partners, to name just a few.
■ Logistics is work required to move and position inventory throughout a supply chain.
■ Logistics is a process that creates value by timing and positioning inventory.
■ Logistics is the combination of a firm’s order management, inventory, transportation,
warehousing, materials handling, and packaging as integrated throughout a facility
network.
SCM-Benefits
■ Raises profits
■ Boosts collaboration
■ Enables to better manage demand
■ Enables to carry the right amount of inventory
SCM
■ Four critical flows:
– Information flow
– Product flow
– Value flow
– Financial flow
Logistics Management- Components
Inventory
Warehousing
Transportation Material Handling
Order Packaging Packaging
Integrated Logistics
Management
Customer Order Processing
■ Filling up the order form
■ Deciding the specifications of the product
■ Deciding the quality check list of the product
■ Deciding the delivery schedule
■ Deciding the location of delivery
Inventory Control
■ On hand inventory analysis
■ Getting the material of right quality, quantity and at right time
■ Communicating the quantity, quality and timing of material with the supply points
Packaging
■ Packaging requirement for the material ( Refrigeration, Fragile, moisture proof etc.)
■ Primary packaging
■ Secondary packaging
■ Cost of packaging
Warehousing
■ Location of the warehouse
■ Inventory level at the warehouse
■ Storage requirement of the product
Transportation
■ Mode of transportation
■ Speed of transportation
■ Cost of transportation
■ Urgency of the product to customers
Transportation
■ Transportation is the operational area of logistics that geographically positions
inventory.
■ Transportation provides two basic functions:
– Product Movement
– Product Storage
Transportation(1)
■ Product Movement
– Basic value provided by transportation is to move materials, components, or
finished goods to specified destinations.
– Inventory captive in transportation system is referred to as in-transit inventory.
– Transportation costs account for about 60% of total logistics costs and include
driver labour, vehicle operation, capital invested in equipment, administration,
product loss and damage during transit etc.
Transportation (2)
■ Product Storage
– While a product is in a transportation vehicle, it is being stored.
– Transportation vehicle could be used as a temporary storage facility if the cost of
unloading, warehousing, and reloading the product exceed the temporary cost of
using the transportation vehicle for storage.
Transport Principles
■ Economy of Scale: The cost per unit of weight decreases as the size of shipment
increases. Larger capacity transportation vehicles such as rail and water vehicles are less
costly per unit of weight.
– Fixed costs associated with transporting a load are allocated over the increased
weight
■ Economy of Distance: The cost per unit of distance decreases as distance increases.
– It is also called tapering principle
– Fixed costs are spread over more miles, resulting in lower per mile charges
Role of transportation in SCM (1)
■ Organizations can build global supply chains that leverage low-cost sourcing
opportunities and allow them to compete in new markets.
■ Transportation service availability is critical to demand fulfilment in the supply chain
and avoid customer service failures.
■ Transportation efficiency promotes the competitiveness of a supply chain:
– Higher-quality, lower priced materials and realise economies of scale
Role of transportation in SCM (2)
■ Helps to achieve “Seven Rs of Logistics”
– Getting the right product to the right customer, in the right quantity, in the right
condition, at the right time , at the right place and at the right cost.
■ Transportation service availability, capacity, and costs influence decisions regarding the
number and location of supply chain facilities.
■ Transportation capabilities must align with the company’s goals.
■ To attain supply chain efficiency, trade-offs should be made between transportation and
related activities (eg. Inventory management).
Transport Participants
■ Shipper or Consignor
■ Consignee
■ Carriers
■ Agents
Modes of Transport
■ Railways
– Capability to transfer large shipments over long distance economically.
– Railway operations incur high fixed costs because of expensive equipment, track
maintenance, switching yards and terminals.
– Typically used by bulk and heavy manufacturing industries i.e. for automobiles,
coal, farm products etc.
– Any type of freight- liquid or gas, slurry or solid- in very large quantities.
Railways (1)
■ Manifest Trains:
– Contain a mixture of equipment and freight for multiple customers.
– Travel through multiple rail yards where railcars may be added to or removed
from the train.
– Time consuming due to assembling and disassembling of freight.
Railways (2)
■ Unit Trains:
– Carry a single commodity from the origin to a single destination.
– Eliminate time- consuming rail yard classification activities.
– Faster delivery of freight.
Railways (3)
■ Intermodal Trains:
– Special type of unit trains that move intermodal containers and trailers.
– Move products from ports and other high-volume origin points to major market
areas where the containers are offloaded and given to trucking companies for final
customer delivery.
2) Roadways(1)
■ Most widely used mode of transportation in the domestic supply chain.
■ Low fixed cost but high variable cost.
■ Variable costs include taxes, licensing charges, wages etc.
■ Suitable for small shipments moving short distances.
■ Highly flexible mode of transportation.
Roadways(2): Type of for-hire carriers
■ Truckload Carriers (TL):
– Handle single large shipments per trailer exceeding 15,000 pounds
– Pick up the load at the origin and deliver it directly to destination
■ Less-than-truckload carriers (LTL):
– Move multiple shipments ranging from 150 pounds up to 15,000 pounds in each
trailer.
– Shipments are sorted and consolidated moving to a particular market area.
Roadways(3): Type of for-hire carriers
■ Small package carriers:
– Handle shipments up to 150 pounds and move multiple shipments on a single van
or truck.
Airways(1)
■ Increase in demand for air cargo transportation due to growth of global supply chains
and initiatives to reduce inventory and order cycle time.
■ Used for small quantities of high-value, low weight semi-finished and finished goods.
■ High speed of transportation
■ Limited by lift capacity and aircraft availability
■ Fixed cost of air transport is second lowest after roadways and include purchase of
aircrafts, specialised handling systems and cargo containers.
■ Air freight variable cost is extremely high and include fuel, maintenance, and inflight
and ground crews labour costs.
Airways (2) : Carrier types
■ Combination carriers:
– Move freight and passengers on the same trip, with the cargo loaded in the belly of
the aircraft.
■ Air cargo carriers:
– Focus exclusively on the movement of letters, envelopes, packages and freight.
– Integrated carriers: Provide door-to-door service
– Non-integrated carriers: Provide air-only service from airport to airport.
Waterways (1)
■ Shipment of extremely large shipments.
■ Major facilitator of international trade.
■ Moderate fixed cost.
■ Two carrier types:
– Liner services: Employ a wide variety of ships which operate on fixed-routes and
scheduled time.
– Charter services: Lease ships to customers on a voyage or time basis and follow
routes of the customer’s option.
Pipelines
■ Pipelines have the highest fixed cost and lowest variable cost among transport modes.
■ High fixed costs result from the right –of-way, construction and requirements for
control stations, and pumping capacity.
■ Only products in the form of gas, liquid , or slurry can be handled.
■ Products include crude oil, petroleum-based fuels, natural gas, propane etc.
Pipelines(2)
■ For-hire carriers move different products through their system at the same time,
separated by a batching plug that maintains the integrity of individual products.
■ Private carriers include petroleum and natural gas companies that use pipelines to move
products to and from their refineries, processing plants, and storage facilities.
■ Types of Pipelines:
– Gathering lines
– Trunk lines
– Refined product pipelines
Pipelines (3)
■ Gathering lines:
– Very small pipelines, usually 2 to 8 inches in diameter.
– Move oil from both onshore and offshore oil wells to trunk lines
■ Trunk lines:
– Usually 8 to 24 inches in diameter
– Bring crude oil from extraction points to refineries
■ Refined product pipelines:
– Carry products from refineries to large fuel terminals which have storage tanks
– Size varies from 8 to 42 inches in diameter
Modal Selection
■ Accessibility:
– Whether a particular mode can physically perform the transport service required.
– Mode’s ability to reach origin and destination facilities.
– Motor carriage is more accessible to sellers and buyers
– Air, rail and waterways face accessibility limitations.
– Airways: Number & location of airports
Modal Selection (2)
■ Transit Time:
– Total time taken in moving goods from point of origin to the destination (i.e. door
to door).
– Includes time required for pickup activities, terminal handling and customer
delivery.
– Airways is the fastest mode of transport for long distances.
– Waterways is the slowest mode of transport
Modal Selection (3)
■ Reliability
– It is consistency of the transit time provided by a transportation mode.
– Modal reliability is affected by factors such as equipment and labour availability,
weather, traffic congestion, number of terminal stops involved, port congestion
issues, security requirements and border crossings.
– Motor carriers and air carriers are considered most reliable modes.
Modal Selection (4)
■ Product Safety
– Delivery of goods in right condition i.e. without any defects and right quantity.
– Proper precautions are taken to protect products from loss due to external theft,
leakage, misplacement by adopting proper freight-handling techniques.
– Air transportation and roadways are considered best for ensuring product security.
Modal Selection (5)
■ Cost
– Rate for moving freight from origin to destination plus any additional fees paid.
– Factors considered for developing freight rates: weight of the shipment, distance
from origin to the destination, nature and value of the product, and the speed
required.
– Waterways and railways are considered as low cost transportation methods.
Modal Selection (6)
■ Product size
■ Product fragility
■ Temperature-sensitive goods
■ Perishable goods
■ Product value: Transportation is a major cost in low-value products but a minor cost in
high-value products.
Comparison of Modal capabilities
MODE STRENGTHS LIMITATIONS PRIMARY PRODUCT EXAMPLE
ROLE CHARACTE
RISTICS
Roadways • Accessible • Limited Move smaller • High value • Food
• Fast Capacity shipments in • Low • Clothing
customer • High cost local, regional volume • Electronics
service and national • Furniture
markets
Railways • High • Accessibility Move large • Low value • Coal
Capacity • High damage shipments of • Raw • Grains
• Low cost rate domestic materials • Chemicals
freight long • High
distances volume
Comparison of Modal capabilities
Mode Strengths Limitations Primary role Product Example
characteristics
Airways • Speed • Low Move urgent • High value Pharmaceuti
• Freight accessibility shipments of • Finished cals
protection • High cost domestic freight goods Computers
• Low and smaller • Low volume
capacity shipments of
international freight
Waterways • High • Slow • Move large • Low value • Ores/
Capacity • Accessibility domestic • Raw materials minerals
• Low cost shipments via • Bulk • Farm
rivers and canals commodities products
• Move large • Containerized
shipments of finished goods
international
freight via
oceans
Comparison of Modal capabilities
Mode Strengths Limitations Primary role Product Example
characteristics
Pipeline • In-transit • Slow Move large • Low value • Crude oil
storage • Limited volumes of • Liquid • Petroleum
• Efficiency network freight long Commodities • Gasoline
• Low cost distances • Natural gas
Multimodal Transportation
■ Multimodal/Intermodal transportation refers journeys that involve two or more different
modes of transport.
■ Intermodal transportation combines two or more modes to take advantage of the
inherent economies of each and thus provide an integrated service at lower total cost.
■ Multimodalism is all about coordination:
– Coordination of different modes of transport
– Coordination of documentation
– Coordination between buyer and seller
1) Piggyback
■ Most widely used intermodal transportation system
■ Coordination between railways and roadways
■ Also called ‘trailer-on-flat-car’ (TOFC) or ‘Container-in-flat-car’ (COFC).
■ Containers are typically 8 feet wide, 8 feet high, and 20 to 40 feet long and do not have
highway wheels.
■ Trailer are of similar height and width but can be as long as 53 feet and have highway feet.
■ Picking up goods in a container by truck, delivering it to rail, removing the truck container
and loading it on a flat car of rail for long distance transportation, and at the destination,
container is detached from rail, reattached to truck which makes the final delivery.
2) Fishyback
■ Involves the coordination of road and water modes of transportation
■ Picking up goods in a container by truck, delivering it to port, removing the truck
container and loading it on a ship for long distance transportation, and at the destination,
container is unloaded from ship, reloaded to truck which makes the final delivery.
3) Birdyback
■ Coordination between airways and roadways
Containerization
■ Container is a large rectangular box into which a firm places commodities to be
shipped.
■ After initial loading, the commodities themselves are not re-handled until they are
unloaded at their final destination.
■ Land bridge: Move containers in a combination of water and rail transport. The
containers first move by waterways and then through railways and then again
waterways till the final destination. The rail movement provides the intermodal bridge
between the two water moves and results in overall shorter transit time.
Benefits of containerization
■ Simplified transport and flow of goods
■ Easier and faster handling
■ Faster deliveries
■ Reduced loss due to damage, pilferage and misplacement
■ Reduced packaging cost
■ Improved transport encourages trade
Transportation Economics and Pricing
■ It is concerned with factors that drive cost.
■ Helps in development of effective logistics strategy.
Transportation
economics and
pricing
Economic
Costing
drivers
1) Economic Drivers
1) Distance: It has a major influence on transportation cost as it directly contributes to
variable expenses such as labour, fuel and maintenance.The transport cost per mile
decreases as distance increases.
2) Weight: The transport cost per unit of weight decreases as load size increases. This
occurs because the fixed costs of pickup, delivery, and administration are spread over
incremental weight.
1) Economic Drivers
3) Density:
– Density is a combination of weight and volume
– Transportation costs are quoted rupees per unit of weight or tonne.
– High density products allow relatively fixed costs to be spread over additional
weight.
– Transportation costs per unit of weight decreases with the increase in the product
density.
– Logistics manager should increase the product density so as to better utilise the
capacity of vehicle.
1) Economic Drivers
4) Stowability: It refers to how product dimensions fit into transportation equipment.
– Odd package sizes and shapes may not fit well in transportation equipment,
resulting in wasted capacity.
– Items having rectangular shapes are much easier to stow than odd-shaped items.
5) Handling: Special handling equipment may be required to load and unload shipments.
– If more sophisticated and specific handling equipments are required then
transportation costs go up.
Economic Drivers
6) Liability:
– It includes product characteristics that can result in damage.
– Costs are affected by quantum of risk covered by carrier during the transit of
goods from the origin to destination, mode of claim settlement in the case of any
damage, and the quality of protective packaging by the shipper.
7) Market Factors:
– Availability of transport
– Emergency of freight movement
– Possibility of getting back-haul load
2) Costing
■ It is criteria used to allocate cost.
■ Cost allocation is primarily a carrier’s concern
1) Variable cost:
– Transport rates must at least cover variable cost.
– Direct cost associated with movement of each load
– Measured as cost per mile or per unit of weight
– Include labour, fuel and maintenance costs
2) Costing
2) Fixed Cost
– Includes costs which are not directly influenced by shipment volume
– For transportation firms , fixed costs include vehicles, terminals, rights of way,
information systems and support equipment.
– Fixed costs must be covered by contribution above variable costs
3) Joint Cost
When a shipper elects to haul a truckload from point A to point B, there is an implicit
decision to incur a joint cost for the back-haul from point B to A.
