Solved Question Papers- Mona l3l7

T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Q1. Explain Supply Chain Management (SCM) and explain the benefits of SCM to organization?(8) OR Discuss the importance of Supply Chain Management with respect to Customer Relationship Management.(5) Answer:

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm. Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such an integration can be achieved.

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Meaning Of Supply Chain Management :

Supply chain management is a set of approaches used to efficiently integrate suppliers, manufacturers, warehouses, and customers so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time in order to minimize system wide costs while satisfying service-level requirements. The following diagram depicts how the Supply Chain activities are carried out : Diagram 1:

Definition : CSCMP’s Definition of Supply Chain Management “Supply chain management encomes the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers,

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.”

“Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers.” The following are five basic components of SCM. 1. Plan—This is the strategic portion of SCM. Companies need a strategy for managing all the resources that go toward meeting customer demand for their product or service. A big piece of SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers. 2. Source—Next, companies must choose suppliers to deliver the goods and services they need to create their product. Therefore, supply chain managers must develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And then, SCM managers can put together processes for managing their goods and services inventory, including receiving and ing shipments, transferring them to the manufacturing facilities and authorizing supplier payments. 3. Make—This is the manufacturing step. Supply chain managers schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chain—one where companies are able to measure quality levels, production output and worker productivity. 4. Deliver—This is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments. 5. Return—This can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and ing customers who have problems with delivered products..

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

THE SUPPLY CHAIN MANAGEMENT MODEL Benefits Of Supply Chain Management 1. 2. 3. 4.

Make informed decisions

20082009Batc h

custome

marketin

FINANCE ING

operations

Increase effectiveness of sales, marketing and customer management Retain customers

Integrate demand planning with sales, manufacturing and logistics planners by working together with marketing

5. Improve security and compliance with safe cargo requirements and other regulations 6. Drive cost and performance gains in nearly every part of your organization 7. Position your company with a low cost structure and high speed to drive profitable growth — on a global level. Get the benefits of true end-to-end visibility — across suppliers, partners and customers

ECONOMICS

S

SUPPLY

By Prof Mona Marwaha Email id : [email protected]

Tier1

GOODS Page 4

SERVIC

T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Benefits to the Customers The benefits to the customers will get by dealing with a well managed vendor due to an effective Supply Chain Organization are as follows : Natural benefits will come due to consideration of the problems of the supplier and effective management. •

Improved customer service through fewer shortages.

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Improved product cost.

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Quick response due to change in demand.

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Better delivery performance.

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Optimal purchase cost due to possibility of long term purchase contracts.

Note : The following diagrams can be used for effective presentation for reference to the above question :

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Diagram 2: Management of flow of materials, information, and funds across the entire supply chain.

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Ques : Write short note on Value Chain Concept .(5 marks) Answer : A value chain is a chain of activities. Products through all activities of the chain in order and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The " activities" include: istrative infrastructure management, human resource management, information technology, and procurement. The costs and value drivers are identified for each value activity. The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. The simpler concept of value streams, a cross-functional process which was developed over the next decade,[1] had some success in the early 1990s[2]. By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

The value-chain concept has been extended beyond individual organizations. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter this larger interconnected system of value chains the "value system." A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on).

Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to by the intermediaries creating new business models, or in other ways create improvements in its value system.

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Ques : Explain what you mean by Integrated Supply Chain. (10 marks) Answer: The supply chain is a network of suppliers, factories, warehouses, distribution centres and retailers through which raw materials are acquired, transformed and delivered to the customer. Supply chain management is the strategic, tactical and operational level decision making that optimises By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

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supply chain performance. The strategic level defines the supply chain network, i.e., selection of suppliers, transportation routes, manufacturing facilities, production levels, warehouses, etc. The tactical level plans and schedules the supply chain to meet actual demand. The operational level executes plans. Tactical and operational level decision making functions are distributed across the supply chain. In order to optimise performance, supply chain functions must operate in an integrated manner. But the dynamics of the enterprise and the market make this difficult; materials do not arrive ontime, production facilities fail, workers are ill, customers change or cancel orders, etc. causing deviations from plan. In some cases, these events may be dealt with locally, i.e., they lie within the scope of a function. In other cases, the problem cannot be "locally contained"; modifications across many functions are required. Consequently, the supply chain management system must coordinate the revision of plans/schedules across supply chain functions. The Integrated Supply Chain Management (ISCM) project addresses coordination problems at the tactical and operational levels. It is composed of a set of cooperating, intelligent agents, each per-forming one or more supply chain functions, and coodinating their decisions with other agents -this is called a Logistical Execution System (LES).

Ques: Write a short note on Distribution Requirement Planning.(DRP) (5 marks) Answer :

DRP provides the basis for integrating supply chain inventory information and physical distribution activities with the Manufacturing Planning and Control system. By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

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•

Managing the flow of materials between firms, warehouses, distribution centers.

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DRP helps manage these material flows. Just like MRP did in Manufacturing.

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Links firms in the supply chain by providing planning records that carry demand information from receiving points to supply points and vice versa.

Purpose of DRP •

DRP enables the firm to capture data, including local demand conditions, for modifying the forecast and to report current inventory positions.

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DRP provides data for managing the distribution facility and the database for consistent communications with the customers and the rest of the company.

DRP a Ques : Write a short note on Inventory Carrying Cost.(5 marks) OR Explain Inventory Carrying cost in detail.(8 marks) OR By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Explain Inventory Carrying Cost and Ordering Costs.(8 marks) Answer:

RELEVANT INVENTORY COSTS

Relevant Inventory Costs

Item Costs Direct cost for getting an item. Purchase cost for outside orders, manufacturing cost for internal orders.

Holding Costs

Ordering Costs

Shortage Costs

Costs associated with carrying items in inventory. Storage and other related costs.

Fixed costs associated with placing an order (either a purchase cost for outside orders, or a setup cost for

Costs associated with not having enough inventory to meet demand.

Ordering costs: Any time inventory items are ordered, there is a fixed cost associated with placing that order. When items are ordered from an outside source of supply, that cost reflects the cost of the clerical work to prepare, release, monitor, and receive the order. This cost is considered to be constant regardless of the size of the order. When items are to be manufactured internally, the order cost reflects the setup costs necessary to prepare the equipment for the manufacture of that order. Once again, this cost is constant regardless of how many items are eventually manufactured in the batch. If one

Increases, the size of the orders for a particular inventory item, fewer of those orders will have to be placed during the course of the year, hence the total annual cost of placing orders will decline. By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Holding costs (also called carrying costs): Any items that are held in inventory will incur a cost for their storage. This cost will be comprised of a variety of components. One obvious cost would be the cost of the storage facility (warehouse space charges and utility charges, cost of material handlers and material handling equipment in the warehouse). In addition to that, there are some other, more subtle expenses that add to the holding cost. These include such things as insurance on the held inventory; taxes on the held inventory; damage to, theft of, deterioration of, or obsolescence of the held items. The order size decision impacts the average level of inventory that must be carried. If smaller quantities are ordered, on average there will be fewer units being held in inventory, resulting in lower annual inventory holding costs. If larger quantities are ordered, on average there will be more units being held in inventory, resulting in higher annual inventory holding costs.

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Ques : Explain Economic Order Quantity (EOQ) with Diagram.(6 marks) OR Explain the Mathematical formula for EOQ stating its Limitations.(8 marks) OR Derive a Mathematical expression for EOQ (Economic Order Quantity) for production rate model.(8 marks)

Answer: The EOQ model is a technique for determining the best answers to the how much and when questions. It is based on the premise that there is an optimal order size that will yield the lowest possible value of the total inventory cost. There are several assumptions regarding the behavior of the inventory item that are central to the development of the model

EOQ assumptions:

1. Demand for the item is known and constant. 2. Lead time is known and constant. (Lead time is the amount of time that elapses between when the order is placed and when it is received.) 3. The cost of all units ordered is the same, regardless of the quantity ordered (no quantity discounts). 4. Ordering costs are known and constant (the cost to place an order is always the same, regardless of the quantity ordered). 5. When an order is received, all the items ordered arrive at once (instantaneous replenishment). 6. Since there is certainty with respect to the demand rate and the lead time, orders can be timed to arrive just when we would have run out. Consequently the model assumes that there will be no shortages. Based on the above assumptions, there are only two costs that will vary with changes in the order quantity, (1) the total annual ordering cost and (2) the total By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

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annual holding cost. Shortage cost can be ignored because of assumption 6. Furthermore, since the cost per unit of all items ordered is the same, the total annual item cost will be a constant and will not be affected by the order quantity.

EOQ symbols:

D=

annual demand (units per year)

S = cost per order (dollars per order) H = holding cost per unit per year (dollars to carry one unit in inventory for one year) Q = order quantity

We saw on the previous page that the only costs that need to be considered for the EOQ model are the total annual ordering costs and the total annual holding costs. These can be quantified as follows:

Annual Ordering Cost

The annual cost of ordering is simply the number of orders placed per year times the cost of placing an order. The number of orders placed per year is a function of the order size. Bigger orders means fewer orders per year, while smaller orders means more orders per year. In general, the number of orders placed per year will be the total annual demand divided by the size of the orders. In short,

Total Annual Ordering Cost = (D/Q)S

Annual Holding Cost

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

The annual cost of holding inventory is a bit trickier. If there was a constant level of inventory in the warehouse throughout the year, we could simply multiply that constant inventory level by the cost to carry a unit in inventory for a year. Unfortunately the inventory level is not constant throughout the year, but is instead constantly changing. It is at its maximum value (which is the order quantity, Q) when a new batch arrives, then steadily declines to zero. Just when that inventory is depleted, a new order is received, thereby immediately sending the inventory level back to its maximum value (Q). This pattern continues throughout, with the inventory level fluctuating between Q and zero. To get a handle on the holding cost we are incurring, we can use the average inventory level throughout the year (which is Q/2). The cost of carrying those fluctuating inventory levels is equivalent to the cost that would be incurred if we had maintained that average inventory level continuously and steadily throughout the year. That cost would have been equal to the average inventory level times the cost to carry a unit in inventory for a year. In short,

Total Annual Holding Cost = (Q/2)H

Total Annual Cost

The total annual relevant inventory cost would be the sum of the annual ordering cost and annual holding cost, or

TC = (D/Q)S + (Q/2)H

This is the annual inventory cost associated with any order size, Q. At this point we are not interested in any old Q value. We want to find the optimal Q (the EOQ, which is the order size that results in the lowest annual cost). This can be found using a little calculus (take a derivative of the total cost equation with respect to Q, set this equal to zero, then solve for Q). For those whose calculus is a little rusty, there is another option. The unique characteristics of the ordering cost line and the holding cost line on a graph are such that the optimal order size will occur where the annual ordering cost is equal to the annual holding cost. By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

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EOQ occurs when:

(D/Q)S = (Q/2)H

a little algebra clean-up on this equation yields the following:

Q2 = (2DS)/H

and finally

Q = √2DS/H

(this optimal value for Q is what we call the EOQ)

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

EOQ ILLUSTRATION

Annual demand (D) = 10,000 units per year Ordering cost (S) = $75 per order Holding cost (H) = $6 per unit per year Lead time = 5 days The company operates 250 days per year (hence, daily demand = 10,000/250 = 40 units per day)

Results of computations:

EOQ = 500 units

Number of orders placed per year = 20

Average inventory level = 250 units

Annual ordering cost = $1500

Annual holding cost = $1500 By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

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Total annual inventory cost = $3000

Time between the placement of orders = 12.5 days

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Ques : Write on Importance of Safety Stock / Buffer Stock.(4 marks) OR What is the importance of Safety Stock / Buffer Stock.(6 marks) OR What is safety stock / buffer stock? Why is it necessary?( 4 marks) OR What is the importance of Safety Stock / Buffer Stock.Establish its relationship with Consumption Rate and Reorder –Level.(6 marks) Answer: Safety stock is a term used to describe a level of stock that is maintained below the cycle stock to buffer against stock outs. Safety Stock or Buffer Stock exists to counter uncertainties in supply and demand. Safety stock is defined as extra units of inventory carried as protection against possible stock outs. By having an adequate amount of safety stock on hand, a company can meet a sales demand which exceeds their sales forecast without altering their production plan. It is held when an organization cannot accurately predict demand and/or lead time for the product. For example, if a manufacturing company were to continually run out of inventory, they would need to keep some extra inventory on hand so they could attempt to meet demand while they were producing more inventories. Safety stock can be utilized as a tool for a new company to judge how accurate their forecast is in the first few years, especially when used strategically with a materials requirements planning worksheet. With a material requirements planning (MRP) worksheet a company can judge how much they will need to produce to meet their forecasted sales demand without relying on safety stock. However, a common strategy is to try and reduce the level of safety stock to help keep inventory costs low. This can be extremely important for companies with a smaller financial cushion or those trying to run on lean manufacturing, which is aimed towards eliminating wastes throughout the production process.

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

The amount of safety stock an organization chooses to keep on hand can dramatically affect their business. Too much safety stock can result in high holding costs of inventory. In addition, products which are stored for too long a time can spoil, expire, or break during the warehousing process. Too little safety stock can result in lost sales and, thus, a higher rate of customer turnover. As a result, finding the right balance between too much and too little safety stock is essential. Reasons to have Safety Stock

Safety Stocks enable organizations to satisfy customer demand in the event of these possibilities: • • • • • • •

Supplier may deliver their product late or not at all The warehouse may be on strike A number of items at the warehouse may be of poor quality and replacements are still on order A competitor may be sold out on a product, which is increasing the demand for your products Random demand (in reality, random events occur) Machinery Breakdown Unexpected increase in demand

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Ques :Write a short note on Types of Inventory.(6 marks) Answer:

TYPES OF INVENTORY Raw materials: The purchased items or extracted materials that are transformed into components or products. Components: Parts or subassemblies used in building the final product. Work-in-process (WIP): Any item that is in some stage of completion in the manufacturing process. Finished goods: Completed products that will be delivered to customers. Distribution inventory: Finished goods and spare parts that are at various points in the distribution system. Maintenance, repair, and operational (MRO) inventory (often called supplies): Items that are used in manufacturing but do not become part of the finished product.

INDEPENDENT VS. DEPENDENT DEMAND INVENTORY Some inventory items can be classified as independent demand items, and some can be classified as dependent demand items. While we need to make the timing and sizing decisions for all inventory items, we must be careful in the manner in which we make those decisions for these two types of items.

Independent demand inventory item: Inventory item whose demand is not related to (or dependent upon) some higher level item. Demand for such items is usually thought of as forecasted demand. Independent demand inventory items are usually thought of as finished products. By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

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Dependent demand inventory item: Inventory item whose demand is related to (or dependent upon) some higher level item. Demand for such items is usually thought of as derived demand. Dependent demand inventory items are usually thought of as the materials, parts, components, and assemblies that make up the finished product.

Ques : Explain Briefly types of warehouses?(4 marks) Or State and explain the purpose of Warehousing .Give an of different types of warehouses.(8 marks) Or Explain the types of warehouses.(10 marks) Answer:

1.1 What is Public warehousing? 

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Warehouse is owned and operated by a third party Charges in particular for type of services used Mainly for short-term usage

1.2 What is Private warehousing? 

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Also known as proprietary warehousing Operated as a division within a company On-site* and off-site** warehousing Substantial corporate fixed investment in land, building, and equipment

1.3 What is Contract warehousing? 

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A variation of public warehousing A long-term contract and/or services Warehouse is owned and operated by a third party Customized services/space over a long term

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management  

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A trade-off between location flexibility for assured space over the contract period and a lower price that is usually lower than warehousing rates  for either an entire building or for a defined, fixed portion of square-foot or cubic-foot space 

*On-site can be either at a central location or dispersed throughout manufacturing facilities **Off-site warehouses are satellite facilities located close to marketing areas to store excess on-site inventory and to serve as distribution centre for finished goods.

2. Advantages and Disadvantages of Public Warehousing 2.1 The advantages are:

a) Zero capital investment in Warehousing: A major advantage is there is no capital investment (eg. Leasing of bldg, material handling equipment and startup cost of operations hiring and training personnel) from the to do one’s own warehousing. The cost of public warehousing is a variable cost component.

b) Provides Capability to Expand Market: For companies that are expanding, public warehousing provides economical and practical means to reach out to new markets.

c) Adjusts for seasonality:

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

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If firm’s operations has seasonality, then having public w/h allows the to rent as much of w/h space during peak season, since there is no commitment of $$ as compared to public w/h. Moreover, there is this distinct advantage of allowing storage costs to vary directly with volume.

d) Reduced Risk (Low opportunity cost): Since there is no commitment of funds in public w/h, the firm can switch to another facility in a short period of time, often within 30 days. Moreover, if there is another attractive location, which may have a lower rent, the firm can easily switch warehouse….

e) Permit freight to move at lower rates: This is a major advantage to justify perhaps half of all public warehousing today. It is possible since they handle the requirements of a number of firms; their volume allows them to pay consolidated freight rates but not the much higher freight costs that result from shipping small quantities at rates.

f) Gain Access to Special Features and Services: Most can offer specialized services (eg. Broken-case handling, packaging services for manufacturer products for shipping, breakbulk services, freight consolidation services). They are resulted from the consolidation of small shipments with those of noncompetitors who use the same public warehouse. Most public warehouses have special features, which makes them unique. By Prof Mona Marwaha Email id : [email protected]

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It can range from design, when the warehouse first sets up for business, or it can evolve into the specialty. Some examples of special features are: 

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Temperature-controlled, cool and cold storage

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Crane capabilities

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Ultraclean segregated area

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Guard service around the clock

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Attractive facilities and amenities

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Dedicated docking areas for special customers

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Special staff functions like customer service, inventory ordering, etc

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Office space to rent for customer’s sales, ing, etc

g) Greater flexibility: Owing a long-term lease on a warehouse is a huge liability and there is a huge opportunity cost on changing the warehouse if business conditions make it necessary for the change. Thus, public w/h is better since there is only a short-term contract, and thus, short-term commitments.

h) Tax advantages: Since it doesn’t own property, it is not subjected to taxes, which is quite substantial.

i) Specific knowledge of costs for storage and handling: When a company uses a public w/h, it knows how much exactly is spent on storage and handling costs since the monthly bill displays all necessary information. This allows the to forecast costs for each different levels of activity. On the other hand, firms that operate their facilities often find it difficult to determine the fixed and variable cost exactly. By Prof Mona Marwaha Email id : [email protected]

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2.2 Its Disadvantages to the can be:

a) Communication problem: There is a potential problem of incompatible computer terminals and systems. They may not have another terminal just to suit the needs of just one customer. Thus, the lack of standardization in contractual agreements makes communication regarding contractual obligations difficult.

b) Lack of specialized services: Spaces or specialized services needed may not always be available in a specific location. Most public warehouse facilities provide local services which may not be useful for the big MNC who requires more specialized services.

c) Space may not be available: Public warehousing space may not be available when ans where a firms wants it. Shortage of space can happen in some places especially during peak season, and this may affect the firm adversely.

3. Advantages and Disadvantages of Private Warehousing

3.1 The advantages are:

a) Degree of control: From inventory control, optimum space utilization, maintenance and equipment, internal material flow, handling routines, supervision, and associated cost control, the firm has a direct control and clear visibility for the product until the customer takes possession or delivery. Thus, this will allow the firm to integrate the warehousing function more easily into its total logistics system.

By Prof Mona Marwaha Email id : [email protected]

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b) Flexibility: With more control, there is greater flexibility of deg and operating the w/h to suit the needs of its customers and the characteristics of the products. This means that companies who have specialized handling for its products will not find public warehousing viable. In addition, the w/h can also be modified through expansion or renovation to facilitate product changes, which is not possible on a public warehouse.

c) Less costly in the Long term: Operating cost can be 15 to 25% lower if the company achieves sufficient throughout or utilization. This is possible if the firm achieves at least 75% utilization, if not, it would be best to use public warehousing.

d) Better use of Human resources: There is greater care in handling and storage when the firm’s own workforce operate the warehouse. This means that the company can utilize the expertise of its technical specialists.

e) Tax benefits: There are depreciation allowances on buildings and equipment reduce tax payable.

f) Intangible benefits: When a firm distributes its products through a private w/h, it gives the customer a sense of permanence and continuity of business operations. The customer perceives the company as a stable, dependable, and lasting supplier of products. By Prof Mona Marwaha Email id : [email protected]

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3.2 Its Disadvantages to the are:

a) Lack of flexibility: The major drawback is it is too costly, because of its fixed size and costs. This means that in the short run, the private facility cannot expand or contract to meet increases or decreases in demand. Thus, when demand is low, the firm still assumed the fixed costs as well as the lower productivity linked to unused warehouse space. However, the disadvantages can be minimized if the firm is able to rent out part of its space. Moreover, it loses flexibility in its strategic location options. They can’t change quickly to rapid changes in market size, location and preferences, and this may mean that they will lose an excellent business opportunity.

b) High opportunity cost (high risk) ROI on other investments may be greater if funds are channeled into other profitgenerating opportunities. Besides, there is also a potential probability of not being able to sell the w/h in the later period due to its customized design.

c) Low Rate of return: Since the rate of return is about the same as the firm’s other investments, most companies find it advantageous to use a combination of public and private warehousing. It is best to use private warehousing to handle the basic inventory levels required for the least cost logistics in markets where the volume justifies By Prof Mona Marwaha Email id : [email protected]

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ownership. On the other hand, any extra volume can be stored in the public warehouse during peak periods where private warehouse is full.

d) High start-up cost: Firms have to generate enough capital to build or buy a warehouse. A warehouse is often a long, risky investment. Moreover, there is cost of hiring and training of employees, and the purchase of material handling equipment. The high cost involved may force the company to seriously consider public warehousing as a better option.

By Prof Mona Marwaha Email id : [email protected]

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4. Comparison of the 3 warehousing modes To select the type of warehousing for your company, it is important to understand the cost structure. The following table offers an excellent comparison on the warehousing modes.

Public Warehouse Cost

Private (Company)

“Pure” Public

Contract

Component

Warehouse

Warehouse

Warehouse

Capital Cost



Not applicable

Based on contracted



Building cost

(depn) 



responsibilities for

Facilities &

land, buildings, and

eqm 



facilities Matl-handling

eqm 



(Un)loading

docks/rails

Expenses





Safety eqm

Per unit cost based

As stated in the





Insurance,

on the type of

contract

taxes, 



services used

Maintenance/

repairs 







Utilities

Salaries/wages 

Rates/ Fees



Employee

benefits Not applicable

Time based: Storage

Time and/or

charges

transaction based, as

Transaction-based:

By Prof Mona Marwaha Email id : [email protected]

stated in the contract

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Handling charges; in/out special handling fees, documentation, special services, etc

Risks

The company

Defined and bear in

Risks are assigned

assumed all risks

accordance with the

and assumed as

standard and

stated in the lease

conditions of the

and/or contract

warehouse agreement

Table showing a Comparison of warehousing modes (capital cost, expenses, risks)

By Prof Mona Marwaha Email id : [email protected]

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Ques : Explain the 3 C’s of Competitive advantage.(10 marks) (5 marks) Answer : 3Cs-CUSTOMER, COMPETITION, CHANGE:

3 Cs are the new matters, which is driving the organization. These are the Customer, Competition and Change. The organizations keeping these on their cards are going to decide their future.

In 21st century, the companies having flexibility to attain these factors will come up and sustain. We loot at these factors one by one.

Customer

Before the period from 1960 to 1970, the manufacturers were in position to sell any thing, which they produced. After 1980 in all the fields the picture has changed. The customer, consumer or the industries decide the demand.

What they want? When they want? At what place they want the delivery? And also when he will pay? He has become wiser and decides the configuration of the matter that he will purchase.

The organizations are picking need~ of the customers. If an organization looses a customer for any reason, they have to get ready to loose yet another.

By Prof Mona Marwaha Email id : [email protected]

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The customers have their choice. They do not behave alike. Customer, consumers, companies demand products and services designed for their unique and particular needs.

There is no such notion as the customer to whom the seller is dealing at a movement and who has the capacity to instruct their personal taste. The mass market has broken down into small and single customer. Customers expect that they be treated individually. They expect products that are made to their needs, delivery schedules and the place, at their payment , which are convenient to them.

Such expectations have increased to a great extent after the effect of globalization and entry of Japanese companies, who entered the markets with lower prices as well as products with higher quality standards. Further they came with higher levels of service standards.

Customer is aware that he can demand and get more. Technology of higher sophistication, easily available database allows service providers to display their basic information easily available on the net services to increase competitiveness.

When in a company consumer call for service the call is automatically routed to the same service representative with whom consumer spoke last time. This creates sense of personal relationship and intimacy.

Incredible consolidation of customers in the same market like automobile business has greatly changed the of seller-customer relationships in the similar way of restaurants. What holds true for industrial customers is also true for normal consumer. When the industrial customer gets services in better way, the normal consumer expects and gets in the similar style.

This is happening because customers now have easy access to enormously big data. The information rich world made possible by new communications technologies does not even required the consumer to have computer at home. Daily newspapers around the country spread the data electronically and it on to the By Prof Mona Marwaha Email id : [email protected]

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readers with greater amount of analysis. Often the buyer has more information than the supplier's marketing person. This makes the negotiations tougher. A customer lost today can lead to lose yet another tomorrow this is not a picture of success for the supplier.

Competition:

The second 'C' stands for competition. In the - sellers market before 1980 it was easy for manufacturer to get an order on his table and provide the product at his will and wish.

Now the scene has changed.

Few buyers have many suppliers of good quality products. This competitive base has not only reduced the prices of the product but improve the quality, and service levels. When the Japanese, Germans, French, Taiwanese have entered in the globalized market, they are free to compete with each other. Only the best will survive with a highest quality, lowest price and the best service. There after these factors become the standard for all competitors. Adequate is not good enough.

If a company cannot stand shoulder to shoulder with the world's best it has to be out of scene soon.

Newly started company coming up with better products with higher-level service can beat the regular companies. The brand may not be considered by the new generation of consumer. The competition can put the regular companies away when a new comer's products give good results.

Technology changes the nature of competition in ways companies don't expect. The logistics management gives upper hand to the sellers to get better edge over the competitors by providing products as per the needs of consumer.

By Prof Mona Marwaha Email id : [email protected]

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Change: We saw that customers and competition have changed. The change has become both pervasive and persistent in the business environment. Only constant is change.

The pace of change has accelerated with the globalization of economy.

The rapidity of technological change promotes innovation products have got now the short life.

For example Premier Automobile started the company in 1945 with a model (Fiat Car), which lived for about 50 years and died down with the same model. It was ok that time. In today's atmosphere in India itself we see number of automobile companies come up with new models of car every two to three years of better quality standards.

Today companies must move fast, or they won't be moving at all. Moreover they have to be looking in many directions at a time. They must not only provide products to the market but constantly collect data regarding future needs of customers, their likings, the entry of new competitors etc. the changes that will put a company out of business are, those that happen outside the light of its current expectations, and that is the source of most change in today's business environment. These three C's have created a new world for business and it is becoming increasingly clear that organizations designed to operate in one environment can not be fixed to work well in another.

By Prof Mona Marwaha Email id : [email protected]

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Ques : Explain' Competitive advantage = product excellence x process excellence'. Answer : COMPETITIVE ADVANTAGE

A central theme of this book is that effective logistics management can provide a major source of competitive advantage; in other words, a position of enduring superiority over competitors in of customer preference may be achieved through logistics.

Competitive Advantage and the Three Cs

Customers

Needs seeking benefits at acceptable price

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management Valu

Valu

Assets and Utilizations

Assets and Utilizations Company

20082009Batc h

Cost

Competitor

The bases for success in the marketplace are numerous, but a simple model is based around the triangular linkage of the company, formed by its customers and its competitors-the "Three Cs." The Three Cs in question are the customer, the competition, and the company.

Figure illustrates the three-way relationship. The source of competitive advantage is initially found in the ability of the organization to differentiate itself, in the eyes of the customer, from its competition and also by operating at a lower cost and, hence, at greater profit.

Seeking a sustainable and defensible competitive advantage has become the concern of every manager who is alert to the realities of the marketplace.[ns no longer acceptable to assume that good products will sell themselves; neither is it advisable to imagine that success today will carry forward into tomorrow.

Let us consider the basis of success in any competitive context. At its most elemental, commercial success derives either from a cost advantage or a value advantage or, ideally, both. It is as simple as that-the most profitable competitor in any industry sector tends to be the lowest cost producer or the supplier providing a By Prof Mona Marwaha Email id : [email protected]

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product with the greatest perceived differentiated values. To be successful in the automobile industry, for example, you either have to be a Nissan (i.e., a cost advantage) or a BMW (i.e., a value advantage).

Put very simply, successful companies either have a productivity advantage or they have a "value" advantage or a combination of the two: The productivity advantage gives a lower cost profile, and the value advantage gives the product or offering a differential "plus" over competitive offerings.

Let us briefly examine these two vectors of strategic direction

Productivity Advantage

In many industries there will typically be one competitor who will be the low cost producer, and, more often than not, that competitor will have the greatest sales volume in the sector. There is substantial evidence to suggest that "big is beautiful" when it comes to cost advantage. This is partly due to economies of scale that enable fixed costs to be spread over a greater volume but more particularly to the impact of the" experience curve.

The experience curve is a phenomenon that has its roots in the earlier notion of the learning curve. Researchers discovered during the last war that it was possible to identify and predict improvements in the rate of output of workers as they became more skilled in the processes and tasks on which they were working. Subsequent work by Bruce Henderson, founder of the Boston Consulting Group, extended this concept by demonstrating that all costs, not just production costs, would decline at a given rate as volume increased. In fact to be precise, the relationship that the experience curve describes IS between real unit costs and cumulative volume. Further, it is generally recognized that this cost decline applies only to "value added," that is, costs other than those used for supplies.

Traditionally, it has been suggested that the main route to cost reduction was by gaining greater sales volume, and there can be no doubt about the close linkage between relative market share and relative costs. However, it must also be recognized that logistics management can provide a multitude of ways to increase By Prof Mona Marwaha Email id : [email protected]

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efficiency and productivity and, hence, contribute significantly to reduced unit cost. How this can be achieved will be one of the key themes of this note.

Value Advantage

It has long been an axiom in marketing that "customers don't buy products, they buy benefits." Put another way, the product is purchased not for itself but for the promise of what it will deliver. These benefits may be intangible; that is, they relate not to specific product features but rather to such things as image or reputation. Alternatively, the delivered offering may be seen to outperform its rivals in some functional aspect.

Unless the product or service we offer can be distinguished in some way from its competitors, there is a strong likelihood that the marketplace will view it as a "commodity," and so the sale will tend to go to the cheapest supplier. Hence, the importance of seeking to add additional values to our offering to mark it out from the competition.

What are the means by which such value differentiation may be gained? Essentially, the development of a strategy based on added values will normally require a more segmented approach to the market. When a company scrutinizes markets closely it frequently finds that there are distinct value segments. In other words, different groups of customers within the total market attach different importance to different benefits. The importance of such benefit segmentation lies in the fact that often there are substantial opportunities for creating differentiated appeals for specific segments.

For example, look at the automobile. A model such as the Ford Escort is not only positioned in the middle range of American cars, but within that broad category specific versions are aimed at defined segments. Thus, we find a basic, two-door model, and also four-door and station wagon models. Each of these models presents a whole variety of options, all of which seek to satisfy the needs of quite different benefit segments. Adding value through differentiation is a pO"Ye1rful means of achieving a defensible advantage in the market.

By Prof Mona Marwaha Email id : [email protected]

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Equally powerful as a means of adding value is service. Increasingly we are finding that markets are becoming more service sensitive, and this, of course, poses particular challenges for logistics management. There is a trend in many markets toward a decline in the strength of the "brand" and a consequent move toward" commodity" market status. Quite simply, this means it is becoming progressively more difficult to compete purely on the basis of brand or corporate image.

High

Service Leader

Cost & Service Leader

Value advanta ge Commodit y Market Leader

Cost Leader

Low

Low

High Productivity

Additionally, there is an increasing convergence of technology within product categories, which means that it is no longer possible to compete effectively on the basis of product differences. Thus, the need arises to seek differentiation through means other than technology (A number of companies have responded to this by focusing on service as a means of gaining a competitive edge. Service in this By Prof Mona Marwaha Email id : [email protected]

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context relates to the process of developing relationships with customers through the provision of an augmented offer.

This augmentation can take many forms including delivery service, after-sales services, financial packages, technical , and so forth.

In practice what we find is that the successful companies will often seek to achieve a position based on both a productivity advantage and a value advantage. A useful way of examining the available options is to present them as a simple matrix (see Figure).

Let us consider these options in turn.

For companies who find themselves in the bottom left-hand comer of our matrix (Figure 1-2), the world is an uncomfortable place. Their products are indistinguishable from their competitors' offerings, and they have no cost advantage. These are typical commodity market situations, and ultimately the only strategy is either to move to the right on the matrix, that is, to cost leadership, or upward into a "niche." Many times the cost leadership route is simply not available. This is often the case in a mature market where substantial market share gains are difficult to achieve. New technology may sometimes provide a window of opportunity for cost reduction, but in such situations, the same technology is often available to competitors.

Cost leadership, if it is to form the basis of a viable long-term marketing strategy, should essentially be gained early in the market life cycle. This is why market share is considered to be so important in many industries. The experience curve concept, briefly described earlier, demonstrates the value of early market share gains-the higher your share relative to your competitors, the lower your costs should be. This cost advantage can be used strategically to assume a position of price leader and, if appropriate, to make it impossible for higher cost competitors to survive. Alternatively, price may be maintained, enabling above-average profit to be earned that is potentially available to further develop the position of the product in the market.

By Prof Mona Marwaha Email id : [email protected]

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The other way out of the commodity quadrant of our matrix is to seek a niche or segment where it is possible to meet the needs of the customers through offering additional values. Sometimes it may not be through tangible product features that this value added is generated, but, as we have noted, opportunities may often exist for adding value through service. For example, a steel stockholder who finds himself in the commodity quadrant may seek to move up to the niche quadrant by offering daily deliveries from stock, by providing additional finishing services for his basic products, or by focusing on the provision of a range of special steels for specific segments. What does seem to be an established rule is that there is no middle ground between cost leadership and niche marketing. Being caught in the middle, as neither a cost leader nor a niche-based provider of added values, is generally undesirable.

Finally, perhaps the most defensible position in the matrix is the top right-hand corner, Companies who occupy that position have products that are distinctive in the values they offer and are also cost competitive. Many Japanese products, particularly in consumer markets, arguably have achieved this position. Clearly it is a position of some strength, occupying high ground That is extremely difficult for competitors to attack. There is a clear strategic challenge to logistics: to seek out strategies that will take the business away from the commodity end of the market toward a securer position of strength based on differentiation and cost advantage.

Ques : How logistic information system can help achieve competitive advantage?(8 marks) Answer : GAINING COMPETITIVE ADVANTAGE THROUGH LOGISTICS

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Of the many changes that have taken place in management thinking over the last 10 years or so, perhaps the most significant has been the emphasis placed on the search for strategies that will provide superior value in the eyes of the customer. To a large extent the credit for this must go to Michael Porter, the Harvard Business School professor, who, through his research and writing,34 has alerted managers and strategists to the central importance of competitive relativities in achieving success in the marketplace.

One concept in particular that Michael Porter has brought to a wider audience is the "value chain”

Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in deg, producing, marketing, delivering, and ing its product. Each of these activities can contribute to a firm's relative cost position and create a basis for differentiation. The value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors.

Value chain activities can be categorized into two types: primary -activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) and activities (infrastructure, human resource management, technology development and procurement). These activities are integrating functions that cut across the various primary activities within the firm. Competitive advantage grows out of the way in which firms organize and perform these discrete activities within the value chain. To gain competitive advantage over its rivals, a firm must promote value to its customers by performing activities more efficiently than its competitors or by performing activities in a unique way that creates greater buyer value.

Logistics management, it can be argued, has the potential to assist the organization in the achievement of both a cost/productivity advantage and a value advantage/In the first instance there are a number of important ways in which productivity can be enhanced through logistics. While these possibilities for leverage will be discussed By Prof Mona Marwaha Email id : [email protected]

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in detail later in the book, suffice it to say that the opportunities for better capacity utilization, inventory reduction, and closer integration with suppliers at a planning level are considerable. Equally, the prospects for gaining a value advantage in the marketplace through superior customer service should not be underestimated. It will be argued later that the way we service the customer has become a vital means of differentiation.

To summarize, those organizations that will be the leaders in the markets of the future will be those that have sought and achieved the twin peaks of excellence: They have gained both cost leadership and service leadership.

By Prof Mona Marwaha Email id : [email protected]

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Ques : State objectives and explain activities of Material Handling system.(8 marks) Answer : Introduction:  The art and science of moving, packaging, and storing of substances in any form.  A properly installed material handling system can reduce costs and labor, increase safety, increase productivity, reduce waste, increase capacity, and improve service. Depending on the industry, material handling can for 30 to 70 percent of the cost of manufacturing, so inefficiencies should be eliminated.

Objectives Of Material Handling  The first is movement of product into, through, and out of warehouses, efficient movement inside a facility helps control costs and improve customer service.  Time is the second element parts and raw materials must be available when needed at production stations, loading docks, and terminals.  The third element is quantity, goods must be moved in the right quantity between the production stations as well as to the customer.  The last element is space, the material handeling system should effectively use the available space in the warehouse, terminal, or plant.

By Prof Mona Marwaha Email id : [email protected]

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Ques Explain the different functions of Packaging.(6 marks) Answer:  Packaging can not only help prevent theft and damage but also help promote goods.  Packaging may also interest production, since production employees often package the goods.  Packaging is not as costly as transportation, 10 percent of integrated logistics cost can be attributed to packaging.  The size. Shape and type of packaging material influence the type and amount of material handling equipment as well as how goods are stored in warehouses.  The interface of packaging with integrated logistics is no more evident than with transportation .packaging varies by mode of transportation. Oceangoing package protection requires moisture proof containers that add to the overall cost of the product.

Functions Of Packaging

1. Packaging should contain the goods to prevent shifting 2. It should protect the good from damage during handling, storing and transporting. 3. Packaging should apportion goods. This refers to reducing production output to a size and shape desired by the consumer. 4. Utilization, this allows packages to be consolidated into larger packages and finally unitized into a single unit for shipping 5. Packaging should be convenient, allowing customers to use the product with ease.

By Prof Mona Marwaha Email id : [email protected]

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6. Packaging should also communicate. Communication allows information to be conveyed to the consumer.

Ques : Explain what are the different Channels of Distribution.(5 marks) Answer:  The channel of distribution for integrated logistics is called logistics channel, where the channel of distribution for marketing is called the transaction channel. The marketing channel deals with the management of the people who work in that channel. 

It is primarily concerned with the transfer of ownership of the product or service through the channel.



A formal definition of marketing distribution channel is :

A set of interdependent organizations --middleman --involved in the process of making a product or service available for consumption by the consumer.

 The integrated logistics channel focuses on the physical flow of product through the channel ; that is ,transportation ,inventory, facility stricture, material handling , communication & information. Each plays a role to ensure the seven R’s : right product in right quantity in right condition at the right place at right time at right cost is available to right consumer. Reasons to have Channels of Distribution  Why would producers of goods choose to use intermediaries in the distribution of the product to the customer?

By Prof Mona Marwaha Email id : [email protected]

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 By doing so ,the producer gives up control over activities associated with the flow and sale of goods.  Channels of distribution develop primarily because intermediaries reduce the number of channel transactions ,making the marketing process more effective and efficient.

 In the above figure without a distributor the three manufactures with three customers have nine transaction s  With the distributor the total s would be six .  Intermediaries offer s, expertise , specialization that may otherwise be unavailable to the firm using them.  Efficient intermediaries can also reduce transportation , inventory order processing & customer service costs.

Functions performed by Channels of Distribution By Prof Mona Marwaha Email id : [email protected]

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Information : Gather & disseminate research& other information about the individuals & environment forces in the marketing & integrated logistics environment needed to plan & aid change activites.

 Promotion : Develop & spread communications about the offer.  : Find & communicate with possible customers.  Matching : Shape & fit the offer to the customers needs . This needs can be producing allocating , assembling & packing.  Negotiation : Reach agreement on price & other so that ownership can be transferred .  Physical Distribution : Transport & warehouse goods.  Financing : acquire and use monies to pay for cost of channel work. Risk Taking : Assumes risks of performing the channel work

By Prof Mona Marwaha Email id : [email protected]

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Ques : Explain ABC analysis and VED analysis for classifying inventory.(8 marks) Answer : ABC anaylysis is a system in inventory management to minimise the cost of inventorries incorporated n which r stored for long time ,these are classified into ABC groups whreas A stand for the most expensive inventories which are purchased on customers demands so that it can b processed n thn given to them on priority basis , these items are carefully selected B is classified for those goods which are less expensive thn A items n which can b stored for some time bfoe it is processed c goes for those items which r cheap n also can b abuntenly used . these r items where its loss wont cost much to the company

OR

Activity Based Costing analysis, it also is a way of dividing a Pareto Chart into three regions (A, B and C) which contain 80%, 15% and 5%, respectively, of the problems

The Pareto Chart, at its simplest, is a Bar Chart in which the bars are sorted into size order, with the highest bar on the left. By Prof Mona Marwaha Email id : [email protected]

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Where there are many items with small values, they may be lumped together into an 'other' category and put on the right. Typically, the chart is used to highlight problems or things requiring work. The ideal chart is 'spiky', with a high left bar, as this clearly shows the best thing on which to work. Note that the height of the bars implies priority. Usually the bars are a count of defects or problems. They may be weighted, for example by cost, to improve the prioritization effect.

VED Analysis means....

Vital, Essential and Desirable Analysis... It is the Analysis for monitoring and control of stores and spares inventory by classifying them into 3 categories viz., Vital, Essential and Desirable. The mechanics of VED analysis are similar to those of ABC Analysis. VED Classification While in ABC, classification inventories are classified on the basis of their By Prof Mona Marwaha Email id : [email protected]

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consumption value and in HML analysis the unit value is the basis, criticality of inventories is the basis for vital, essential and desirable categorization. The VED analysis is done to determine the criticality of an item and its effect on production and other services. It is specially used for classification of spare parts. If a part is vital it is given ‘V’ classification, if it is essential, then it is given ‘E’ classification and if it is not so essential, the part is given ‘D’ classification. For ‘V’ items, a large stock of inventory is generally maintained, while for ‘D’ items, minimum stock is enough. Ques : Explain the use of Computers in Purchasing and Material Management.(8 marks) Answer: USE OF COMPUTERS IN MATERIAL MGT

 Computers are a part and parcel of everyday life of individuals , business , government .  Computers with high speed , accuracy ,and reliability . Due to this advantage offered by computers , they are ideally suitable for material mgt where huge amount of data is required to be processed everyday .  Computers are efficiently use for the following functions related to material mgt :1. Material Pricing Research . 2. Forecasting . 3. Inventory & control . 4. Purchasing . 5. Value Analysis . 6. Cotification . 7. Standardization . 8. Stores ing . 9. Material Requirement & Budgeting .

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 A management information system is suitable for material mgt functions that exits data from Production , Design , Finance , Quality control , Maintenance , Marketing and certain outside agencies like Vendors .  With the up-to-date data , accurate and detailed information about the status of each item , each production schedule , each purchase order & each vendor , modern techniques like Just-In-Time (JIT) etc. can be adapted .  The system helps in planning , co-ordination , follow-up and control aspect of material functioning .  Computers are very useful in application of operation research techniques such as Linear Programming , Transportation Assignment , Depression Analysis , Stimulation etc. dealing with aspect like Forecasting , Warehousing , Inventory control etc .  MRP-I & MRP-II , ERP are the latest examples of computers in material mgt . ROLE OF COMPUTERS :-

 It provides the item list with description and code no .  It co-relates between the purchase orders and the pending orders .  It provides with receipts recorded from delivery challan or invoice of the supplier .  It provides with details like Rise , Sales Tax , Octroi , Transport Cost etc .  It tells us about the minimum and maximum level re-order quantities .  It helps in classification of inventory .  Provides Verification Reports .  Provides list of Bills Due for Payment .  Calculate Performance Ratios .

LATEST TRENDS IN COMPUTER APPLICATION

1.

LAN [ Local Area Network ] :-

By Prof Mona Marwaha Email id : [email protected]

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 In this network , several computers are connected to each other at various points and control mainframe computer , all the information which is stored at any point is available .  It is useful for operation within building or locality or city . 2.

WAN [ Wide Area Network ] :-

 By this network operations can be carried out on all India basis .  The information which is necessary for inventory control and decision making in other areas can be obtained in no time . 3. GLOBAL WAN : It is applicable for Global applications and suitable for Multi-Nationals . 4.

E-MAIL : Very high speed correspondent medium eliminates paper work and helps in fast decision making .

Ques : Explain Right Product,Right Place and Right Price.(8 marks) Answer: RIGHT PRICE

•

Price refered to the time ,effort and money a customer expends to get a product or services.

•

From point of selling firm price is the amount of money a firm receives for its products and services .The price should cover fixed costs ,variables cost and some margin of profit.

•

EG. Transportation charge may be embedded in the price of product. when that is the case the seller lowers transportation costs per unit by moving more in each shipment.

RIGHT PRODUCT

•

Product is the sum of the attributes that the customer buys.

By Prof Mona Marwaha Email id : [email protected]

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•

Packaging protects product attributes meaning that the product is delivered as it was manufactured.

•

Packaging can also be one of the attributes in a purchase decision.

•

Receiving the damage or incorrect order may annoy both industrial buyer and consumer.

•

Therefore protective packaging is vital in transporting the products to the customer.

RIGHT PLACE •

Place or outbound logistics is final marketing interface.

•

This involves choosing a channel of distribution, choosing the type and number of middleman , and deciding where to locate warehouses to ensure availability of product.

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Ques : Explain the concept of JIT (8 marks ) Answer : BENEFITS OF JIT PURCHASING

JIT PURCHASER BENEFTS

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JIT PURCHASING works best when buyers have consistent,resonable production schedules, give larger orders to fewer suppliers,use long term contracts,and select responsive suppliers that can meet the buyer’s requirements. istrative efficiency is derived from fewer contracts, lower expediting expenditures, fewer suppliers, better and more accurate communication and more accurate ing.

JIT SUPPLIER BENEFITS By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

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20082009Batc h

SUPPLIERS also benefits from JIT purchasing. Better training and more predictable scheduling may lead to reduced labor turnover. Capacity requirements and production schedules become more consistent. also reducing turnover. istrative efficiency improvements come from better communication and steadier, more predictable outbound movements of finished goods.

JIT PURCHASING RISKS •

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JIT purchasing also carries risks. A supplier may fail to meet contract , for example. Since JIT purchasing normally involves long term contracts, the manufacturer may have difficulty finding a new supplier. Delivery failures lead to plant shutdowns, quality problems cause the manufacturer to make a substandard product, and finding another supplier means paying higher prices for supplies. that the risk can never be entirely removed from any system.

JIT PURCHASING CONTRACTS

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JIT PURCHASING involves two contracts they are as follows. VOLUME CONTRACT - It combines purchasing requirements over time. SYSTEM CONTRACT - It arranges for a given volume over a specified Time at a specified price.

Characteristics of JIT PURCHASING

• QUALITY 1. The purchaser imposes minimal product specification. 2. The materials supplier is assisted by the purchaser to meet quality requirements. By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

3. The quality assurances departments of the seller and buyer work closely together. 4. Process control charts, not sampling inspection, are advised. 1. TRANSPORTATION 2. The purchasing manager schedules and controls as much of the transportation activity as possible. • 1. 2. 3. 4. 5. 6.

SUPPLIERS A few suppliers located as close as possible are used. Attempts are made to cluster remote suppliers. Repeat business with suppliers is preferred. There is consistent monitoring/evaluation of suppliers. Bidding of materials is minimized. Suppliers are encouraged to create JIT purchasing with their suppliers.

QUANTITIES

1. Frequently, steady delivery of small lots in exact quantities that demands reduced supplier production lot sizes. 2. Long-term purchasing contracts are commonplace. 3. Shortages and overages are discouraged.

Ques : Explain the Purchasing process in detail.(8 marks) Answer : Purchasing Process •

Individual purchasing and item will appear to be done differently

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Certain set of activities are followed which are general and common while purchasing

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There are total five steps to be followed

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

Step 1 : •

All departments needs to buy something or the other

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A form called as “purchase requisition is filled up by the requisition department head and forwards to the purchasing dept.

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The purchase requisition contains the

 Name of requestor  The planned use of the item  The specification of the item The purchase requisition and the purchase order may be through a computer system by an electronic form or it may be through the EDI between the purchasing department and th

Step 2 : •

Important to purchase the raw material

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Can be purchase through newspaper, advertising, word-of-mouth

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

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Suppliers are asked to send proposals and bidders are invited

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Suppliers are requested to provide samples, demonstration and customer references for further investigation

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For critical items of purchasing, more than one suppliers are evaluated and then shortlisted

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Further orders are supplied to selected supplier only

Step 3 : •

Once supplier is identified orders must be identified

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Detailed order is being prepared with expected date of purchase

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Contracts are signed

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Purchasing department are then responsible to ensure that the orders are filled completely and correctly, contracts are made

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Goods meet the standards

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Supply performs satisfactorily

Step 4 : •

Purchasing department ensures the correct goods delivery

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It is of correct quantity and at right place

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They keep track of monitoring the supplier performance and the overall quantity and service provided by the supplier

Step 5 :

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Supplier performance is evaluated in 2 stages

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The purchasing department may supplier to avoid future problems

By Prof Mona Marwaha Email id : [email protected]

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T.Y B.Sc(IT) Semester VI Total Supply Chain Management

20082009Batc h

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In the second stage the origin summarize the accumulated experience with the supplier through many transactions and many purchases

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The end of the evaluation period such as bringing the suppliers together online to share more timely and accurate information

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Applying the bar code technology in receiving the inbound shipments and generating orders

By Prof Mona Marwaha Email id : [email protected]

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