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INTERNAL TEST # 1
Supply Chain Management – 12MBA41
Course: MBA Semester IV
Faculty: Ravi urs
Date: 10/02/2014
Time Allowed: 90 Minutes
Max. Marks: 50 (Fifty Marks)
Time: 8.30 AM – 10 AM
Note: Answer all the Questions.
1 (a) Define tailored transportation
Tailored transportation is an option of suitable combination of previous options that reduces the cost and
improves responsiveness of the supply chain
Here the transportation uses a combination of cross-docking, milk runs, and TL and LTL carriers, along with
package carriers
The goal is to use the appropriate option in each situation
(b) Explain the factors influencing distribution network design.
 Performance of a distribution network should be evaluated along
two dimensions:
1. Customer needs that are met
2. Cost of meeting customer needs

A firm must evaluate the impact on customer service and cost as it
compares different distribution network options

The customers needs that are met influence the company's
revenues, which along with cost decide the profitability of the
delivering network
The following are the components that are influenced by the structure of
the distribution network
o Response time - is the amount of time it takes for a customer
to receive an order
o Product variety - is the number of different
product/configurations that are offered by the distribution
network
o Product availability - is the probability of having a product in
stock when a customer order arrives
(3 marks)
(7 marks)
o Customer experience - includes the ease with which
customers can place and receive orders as well as the extent
to which this experience is customized
o Time to market - is the time it takes to bring a new product to
the market
o Order visibility - is the ability of customers to track their
orders from placement to delivery
o Returnability - is the ease with which a customer can return
unsatisfactory merchandise and the ability of the network to
handle such returns
o Firms that target customers who can tolerate a long response
time require only a few locations that may be far from the
customer. These firms focus on increasing the capacity of
these locations
o Firms that target customers who value short response time
need to locate facilities close to them. These firms must have
many facilities each with low capacity
Changing the distribution network design affects the following supply
chain costs:
Inventories
o As the number of facilities in a supply chain increases, the inventory
and resulting inventory costs also increase
o To decrease inventory costs, firms try to consolidate and limit the
number of facilities.
Transportation
o Outbound transportation costs per unit are higher than inbound
costs because inbound lot sizes are typically larger
o Increasing the number of warehouse locations decreases the
average outbound distance to the customer and makes outbound
transportation distance a smaller fraction of the total distance
travelled by the product
o As long as inbound transportation economies of scale are
maintained, increasing the number of facilities decreases total
transportation cost
o If the number of facilities is increased to a point where the inbound
size are small and result in significant loss of economies of scale in
inbound transportation, increasing the number of facilities increases
the total transportation cost
Facilities and handling
o Facility costs decreases as the number of facilities is reduced,
because a consolidation of facilities allows a firm to exploit
economies of scale
o Total logistics costs are the sum of the inventory, transportation,
and facility costs
o As the number of facilities increases, total logistics costs first
decreases and then increase
Information
o The more the need for information interchange with the players in
supply chain, the more the cost of information infrastructure
(c) What are the two different ways to view the processes performed in a supply? Discuss with diagrams and
examples

A supply chain is a sequence of processes and flows that take place
within and between different stages to fill a customer need for a
product

There are two different ways to view the processes performed in a
supply chain
a) Cycle view
b) Push/pull view
Cycle view

In this view the supply chain processes are divided into a series of
(10 marks)
cycles

The cycles are performed at the interface between two successive
stages of a supply chain

Given the five stages of a supply chain, there will be four process
cycles:
o Customer order cycle
o Replenishment cycle
o Manufacturing cycle
o Procurement cycle
Each cycle consists of six sub-processes:
1. Each cycle starts with the supplier marketing the product to
customers
2. A buyer then places an order
3. The order is received by the supplier
4. The supplier supplies the order
5. The order is received by the buyer
6. The buyer may return some of the products or other recycled
material to the supplier or a third party

Within each cycle, the goal of the buyer is to ensure product
availability and to achieve economies of scale in ordering

The supplier attempts to forecast customer orders and reduce the
cost of receiving the order

The supplier then works to fulfill order on time and improve
efficiency and accuracy of the order fulfillment process

The buyer works to reduce the cost of the receiving process

Reverse flow are managed to reduce cost and meet environment
objectives
Differences between cycles:

In customer order cycle, demand is external to the supply chain and
thus uncertain

In other cycles, though demand is uncertain, it can be projected
based on policies followed at that stage

The second difference across cycles relates to the scale of order

As we move from the customer to the supplier, the number of
individual orders decline and the size of each order increases

Thirdly, the sharing of information and operating policies across
supply chain becomes more important as we move from customer
to supplier
Uses of cycle view:

It is useful when considering operational decisions because it
clearly specifies the role of each member of the supply chain

Because of the detailed process description it forces a supply chain
designer to consider the infrastructure requirement to support the
processes

It is useful for setting up information systems to support supply
chain management operations
Push/Pull View of Supply Chain Processes

In pull process, execution is initiated in response to a customer
order

In push process, execution is initiated in anticipation of customer
demands

At the time of execution of the pull process customer demand is
known with certainty

At the time of execution of the push process customer demand is
not known and must be forecast

Pull processes are known as reactive processes as they react to the
customer demand

Push processes are known as speculative processes as they
respond to speculated (or forecasted) demand

Pull processes operate in certain environment

Push processes operate in uncertain environment
Uses of Pull/Push Process view
It is very useful in designing the supply chain
2 (a) Define 3PL and 4PL
A third-party logistics (3PL) provider performs one or more of the logistics
activities relating to the flow of product, information, and funds that could
be performed by the firm itself. Traditionally 3PLs focused on specific
functions such as transportation, warehousing and information technology
in the supply chain.
(3 marks)
A fourth-player logistics (4PL), as defined by Accenture, is "an integrator
that assembles the resources, capabilities and technology of its own organization
and other organizations to design, build and run comprehensive supply chain
solutions." 4PL targets management of the entire process. A 4PL is also known
as a general contractor who managers 3PLs, truckers, forwarders, custom
brokers and others
(b) Explain the objectives and importance of supply chain management.
 The objective of every supply chain should be to maximize the
overall value generated
Value: It is the difference between what the final product is worth to the
customer and the costs the supply chain incurs in filling the customer's
request

It is also called supply chain profitability or supply chain surplus

It is the total profit to be shared across all supply chain stages and
(7 marks)
intermediaries

Higher the supply chain profitability, the more successful is the
supply chain
Source of revenues and cost:

The only source of revenue is the customer

All flow of information, products and funds between players in a
supply chain generate cost

The key to supply chain success is the appropriate management of
these flows
Supply Chain Management involves the management of supply chain assets and
product, information and fund flows to maximize total supply chain profitability
Importance of supply chain management

Supply chain has to role to play in the execution of the competitive
strategy of an organization. If an organization has quick
responsiveness as its competitive strategy, then the supply chain
has to be designed to provide the responsiveness. If the competitive
strategy is based on low cost, then the supply chain has to be
designed for low cost operations.

Supply chain management is directly responsible for the profitability
of an organization

Innovation in supply chain activities can increase the
competitiveness of an organization

Superior design, planning and operation of supply chain is crucial
for success of an organization
o E.g. ITC, HUL, Wal-Mart and Dell are companies who
depend on their superior supply chain for their success
o Fiat started their own supply chain (distributors) after their JV
with Tata's failed
Organizations like Volkswagen are increasing their number of distributors for
better success
(c) Discuss the various options available for distribution network along with performance characteristics, in
short.
(10 marks)
1. Manufacturer storage with direct shipping
In this option, product is shipped directly from the manufacturer to the
end customer, bypassing the retailer. The retailer takes the order and
initiates the delivery request. This option is also referred to as dropshipping. The retailer carriers no inventories. Information flows from the
customer, via the retailer, to the manufacturer. It is most suitable for
high-value, low-demand items with unpredictable demand where
customers are willing to wait for delivery and accept several shipments.
It is also suitable when it allows manufacturer to postpone
customization, thus reducing inventories. It is ideal for direct sellers that
are able to build-to-order
Advantages
It enables centralization of inventory at the manufacturer, thus
lowering the inventory cost
A manufacturer can aggregate demand across all retailers that it
supplies
This option is able to provide a high level of product availability with
lower levels of inventory
It reduces the handling costs
This option allows a high level of product variety to be available to
the customer
Disadvantages
Transportation costs are high because the average outbound
distance to the end customer is large, and package carriers are
used to ship the products
It increases the cost of information infrastructure
Response time tend to be long, as the shipping distance are
generally longer from the manufacturer's centralized site
Handling returns will also be costly as it involves multiple
manufacturers
2. Manufacturer storage with direct shipping and in-transit merge
This option combines pieces of the order coming from different
locations so that the customer gets a single delivery
It has been used by direct sellers such as Dell or any company
using drop shipping
It is best implemented if there are no more than four or five sourcing
locations
Advantages
It enables centralization of inventory at the manufacturer, thus
lowering the inventory cost
A manufacturer can aggregate demand across all retailers that it
supplies
It provides an opportunity for the manufacturer to postpone
customization until after a customer has placed the order
Transportation costs are lower than drop-shipping because of the
merge that takes place at the carrier hub before delivery to
customer
It simplifies receiving for the customer and also reduces cost of
receiving
Customer experience is likely to be better than with drop-shipping
because the customer receives only one delivery for an order
Disadvantage
Coordination needed for merging of the different shipments
Overall supply chain facility and handling costs are somewhat
higher than drop-shipping
A very sophisticated information infrastructure is needed to allow intransit merge. The investment is higher than drop-shipping
Response time will be higher than drop-shipping because of the
need to perform the merge
3. Distributor Storage with Carrier Delivery
In this model the inventory is held with the distributors/retailers in
intermediate warehouses, and package carriers are used to transport
products to the final customer
It is suitable for products with medium-to-higher demand
This model is not suitable for extremely slow-moving products
Advantages
Postponement of orders can be implemented with distributor
storage, where distributors can have some assembly capability
Distributor storage requires less inventory compared to a retail
network
Transportation costs are lower for distributor storage compared to
manufacturer storage
The information infrastructure needed in this model is significantly
less
There is no need for coordination between the manufacturer and
customer
Disadvantages
This model requires higher inventory
Facility costs (of warehouses) are somewhat higher
Time to market under distributor storage is somewhat higher than
under manufacturer storage
4. Distributor Storage with Last-Mile Delivery
Last-mile delivery refers to the distributor/retailer delivering the product
to the customer's home instead of using a package carrier
The distributor warehouse has to be much closer to the customer
It is suitable for relatively fast-moving items for which some level of
aggregation is beneficial
It may be justifiable if customer orders are large enough to provide
some economies of scale
Advantages
Facility costs are less compared to network of retail stores
Response times are faster than using package carriers
The cost of providing product availability is higher than every option
other than retail stores
The customer experience is very good, particularly for heavy, hardto-carry items
Time to market is higher than even the distributor storage with
package carrier
Returnability is best in this model because truck making delivery
can also pickup rejected items
Disadvantages
This model requires higher levels of inventory than the other options
(expect for retail store)
It has a lower level of aggregation
Transportation costs are highest for last-mile delivery
5. Manufacturer or Distributor Storage with Customer Pickup
In this model, inventory is stored at the manufacturer or distributor
warehouse but customers place their orders online or on the phone and
then travel to designated pickup points to collect their merchandise
Orders are shipped from the storage site to the pickup points as
needed
Advantages
Inventory costs in this model can be kept low, with either
manufacturer or distributor storage to exploit aggregation
Transportation cost is lower than for any solution using package
carrier
Sometimes the customer considers this option as being more
convenient as it does not require the customer to be at home at the
time of delivery
Returns can potentially be handled at the pickup site. This makes it
easy for customers as they have a physical location to bring the
product to.
Disadvantages
Facility costs are higher if new pickup sites have to be built.
Processing costs at the pickup site are high
A significant information structure is needed to provide visibility of
the order
There is some loss of customer experience as the customer must
pick his own orders
6. Retail Storage with customer Pickup
It is the most traditional type of supply chain
Inventory is stored locally in retail stores
Customers walk into the retail store or place an order online or by
phone and pick it up at the retail store
It is best suited for fast-moving items or items for which customers
value rapid response
Advantages
Transportation cost is much lower than with other models
A minimum information infrastructure is needed
Very good response time can be achieved
Returns can be handled at the pickup site
Disadvantages
Local inventory increases inventory costs because of the lack of
aggregation
Facility costs are higher
Product variety stored locally is lower than under other models
It is more expensive than all other models to provide product
availability
Time to market is the highest
3
Case Study - (Compulsory)
Answer the following questions based on case study interview given below:
1. What were the main reasons for Airtel to outsource? What functions were outsourced?
The reasons for Airtel to outsource are:
a. It wanted to cut down the cost
b. It wanted to focus on its core business of handling customers
c. It wanted to optimally use its resources
(5 marks)
(5 marks)
d. It found that a third party would be able to understand some of the operations
better and thus be more efficient than what Airtel would be at doing that function
The functions that were outsources were Information Technology related functions, managing the
infrastructure like towers and other processes like billing, collections, etc.
2. What care is taken by Airtel to ensure success of their outsourcing?
Airtel is making sure about the success of its outsourcing operations through:
1. Having clarity on the deliverables from the vendors
2. Making sure the vendors are aware and are committed to the deliverables
3. Constant monitoring of the performance by vendors
4. Paying more to the vendors when they perform well
5. Penalizing the vendors when the performance is below expectations