SC JOHNSON – Live Project
“Understanding the Implications of Customer Service
over Cost and Vice Versa and Improving the overall
Supply Chain.”
Submitted to: Ankur Singh
Submitted by: Sundeep Mehra
FORE School of Management
1. Transportation optimization:
Scenario: Customer orders 1000 pieces of All Out refills per week generally. But sometimes he asks for 100
pieces in the middle of the week or in a week sometimes which leads to losses due to high freight cost.
Whereas break even is at 308 units. Margin assumed 15%. Freight cost is assumed to be full truck load cost
2000(Constant and freight damages as 2%. P.F.B the image of assumed scenario.
Units
For x Units-Cost Margin for 100 units SP
Freight Cost (x units) product loss in transit % cost of transit loss
Net profit
If Cost per Unit
1000
50000
7500 57500
2000
20
1000
4500
50
100
5000
750
5750
2000
2
100
-1350
50
308
15400
2310 17710
2000
6.16
308
2
50
Proposed Solution: During the contractual agreement process with the 3rd Party Logistics it is imperative to
state a clause that the damages, if any, will be borne by the 3PL Service providers. Keeping in mind the
requirements of the buyer with the ultimate aim of having a win-win scenario, discuss and calculate a
minimum order quantity per month with ‘x’ quantity per week. In above scenario assume 308*4=1232 approx
units or 500*4 = 2000 per month minimum.
Proposition outcome: company will gain profit as the minimum quantity has to be asked for. Assume the
minimum order of 2000 per month. Even if the customer asks for 50/100 pieces in the 1st week. He anyhow
will be left with 1500 units to be ordered in the remaining 3 weeks which is above the break even of 308 units.
Therefore, the Net effect will be profit. The per-month minimum order quantity can be negotiated as above
the break even Quantity. Customer may go +/- x quantity variation in order to give him some leverage and
maintain relations.
Solution 2: In small order quantity orders of All-Out refill packs. We may fix that the customer has to buy the
combo packs (All out-Machine and Refill) or buy All-Out Machines separately with refill packs instead of Just
Refills, in small orders.
We may even go for an agreement that in orders less than ‘x’ quantity say 150 units, transportation charges
will be shared with customer in some % basis based on the customer or dealer relations with the company.
2. Warehousing Optimization:
Solution 1: Instead of owning the warehouses we can outsource them. An option of Contract and Public
warehouses based on needs may be exercised. Contract warehouses can be chosen on terms like Risk Sharing.
Based on past data of demand of certain area warehouses can be stocked with appropriate quantities bases on
past trend and forecasts and warehouses to be located along the ‘Milk Run’ of in a manner that in a single Run,
Items are transferred to other children depots and to the customer who fall in line with the route.
Milk Run
Contract
Warehouse
in Rural
(Low Cost)
Owned
Warehouse
in Tier 2 city
outskirts
Factory
Owned
Warehouse
in Tier 3 city
outskirts
Contract
Warehouse
in Rural
(Low Cost)
Company’s arms length reach
Expansion of Company’s arms length reach
Bidding system can be used for these contractual ware housing
Proposed Solution 2: Further more if budget allows ‘Virtual Warehousing’ can be used, which allows
businesses to access information from multiple sources throughout the production system. Here,
Certain Quantity of Stock Storage can be ‘Pushed’ to the Customer. Which can be filled on weekly/
bimonthly/ monthly basis.
Some Ideas: Or if the distributors in an area can come to a consensus for collaborating for a joint
depot where company can supply with the stock and the respective distributor/Customer can collect
it.
If Not, then using IT and mobile technology, device can be attached at the Customer’s stock houses
as to get to know of the current stock levels of the customer in real time and plan accordingly.
3. Process Optimization:
Scenario: Excess Time consumption in processes and more cost incurred and bottlenecks.
Solution: ERP Systems Production Planning module can be implemented to check for the optimum
utilization of machines, planning according to customer wise production advice and forecasts and
automatic generation of job orders including daily plans.
Using the past data and trend analysis process bleeding can be caught using control charts and
control impact matrix. These can be linked to ERP systems to come to an appropriate solution based
on needs.
The IT solution suggested in warehousing, can also streamline the whole process as real time
knowledge of customers stock will help plan better. Mobile Apps can be developed so that the
distributor can inform well in advance about his inventory levels.
4. Network Optimization:
Proposed solution:
Demand forecasting: select the no. of warehouses and child depots required in a specific location
based on no. of Customers in each state, demand levels in each area and customer tolerance. By
customer tolerance I mean the tolerance level in case of increase in lead time, terms and conditions
of the customer.
Benchmarking with respect to other companies, compare the location of their warehouses and their
customers.
P.F.B the assumed scenario of ware houses of which southern and eastern warehouses emerge as
loss making at 400 units transfer per week to a location centrally located in India, assuming
Maharashtra and dates are assumed to be same i.e. same date of order and shipment.
Units
For x
Units-Cost
Margin for
100 units
SP
Net
profit
If Cost per
Unit
23000
Freight Cost
+ warehouse
cost
1000
400
20000
3000
1600
50
400
20000
3000
23000
5000
-2400
50
400
20000
3000
23000
3000
-400
50
400
20000
3000
23000
2000
600
50
Warehouse
location- North
Warehouse
location- South
Warehouse
location- East
Warehouse
location- west
In the above Scenario demand is assumed to be constant. Freight charges are different in each state
but excessive in Southern and Eastern state because of which losses are incurred. Instead of hub
and spoke model using multiple HUBs at each north south east and west based on % of demand
trends will do. Then having multiple child depots (owned or contracted) at such distances the Cross
Docking can be done. This will be a combined network and transport optimization.
Red Dots are hub ware houses while black ones are
depots which can further have child depots. The
arrangement of depots is such that Milk Run and
Cross Docking becomes possible.
Each major warehouse should have 3-4 depots which
further should have 3-4 child depots(owned or
contract basis)
The route shown is also the route around Golden
Quadrilateral and North-South, East-West highway
corridors which generally carry freight fast, easily
with many options of transporters.
Child depots should be such that
between 2 depots 2-3 child depots
lie. As then there will be a critical
path which will reduce the transport
cost.
5. Inventory Management and Packaging Standardization:
•
Proposed Justification: Follow a pull strategy or made to order. As aforementioned, using IT
technology at customer factory/warehouses or Simple Mobile apps which inform about the
current stock levels or when stock level reaches a point when replenishment would be
required in few days. Also Logistical packing and packaging techniques can be used such as
standard Pallet system , Unitization which can be easily kept , transported and stored. Well
designed packaging system high density of storage. There are vertically stacked trays for
holding the products and the trays are locked together with the help of support posts. The
system is strong enough to withstand the vibrations.
6. Few Ideas:
Shifting a part of Manufacturing to SEZ areas such as Noida SEZ for multi
product.
SEZ require atleast 10-15% of value addition to be done in SEZ before exporting the product outside
India or even within the country. Atleast 15% duty drawback option can be gained with addition to
Tax exemptions for 10 years. Overall cost to company while supplying product order to customer
should go down by atleast 15-20%. If a part of company’s Manufacturing can be shifted to these
locations including packaging then it would account for more than 10-20% of value addition and
overall cost benefit of 20% minimum can be achieved.
Freight charges to be shared based on Order Quantity:
Example:
Order Quantity
0-50
50-150
150 – 300
>300
Transportation Charges
To be Borne by Customer
50% Charges to be borne by company rest by
Customer
80% Charges to be borne by Company rest by
Customer
100% To be borne by Company
Improving the Information flow which is generally backwards in a supply
chain.
This will help to increase the efficiency as a whole help predicting the demand forecast with ease.
This can be done by implementing IT solutions like ERP Mobile tech. etc.
“Thank You Sir” for providing with the opportunity to work on a live project with your company. It
was indeed an extensive learning experience for us, specially understanding the practicality of Supply
Chain dynamics.