1

Supply Chain Management (SCM)

By: Dr. Nelly Karma
 Nelly G. Karma

CPT (Certified Teaching & Training Field

Professional Trainer)-
IAPPD- UK Soft skills (Communication & Presentation Skills, Core Values & Corporate
Etiquette, Negotiation Skills, Stress & Time Management, and Team
PhD, Business Building)
Administration
Supply Chain Management
MBA, International
Management Report Writing Techniques

Strategic Planning
Working Experience
Leadership and Change Management
6 Years in teaching/
training field Developing Strategic Management and Leadership Skills

Edexcel University Strategic Change Management

Internal Verifier
Conflict Resolution Techniques
15 Years in Business
Field
By: Dr. Nelly Karma
3
The Purchasing Function

By: Dr. Nelly Karma

4 Purchasing and Procurement

By: Dr. Nelly Karma

5 Procurement Vs. Purchasing

 Because purchasing is a process within the overarching procurement process,

both procurement and purchasing are often used interchangeably.

 Procurement deals with the sourcing activities, negotiation and strategic

selection of goods and services that are usually of importance to an organization.

 Purchasing is the process of how goods and services are ordered. Purchasing can
usually be described as the transactional function of procurement for goods or
services.

By: Dr. Nelly Karma

6
Purchasing & Procurement

By: Dr. Nelly Karma

7 What do We Purchase

Goods:
Services:

• Raw Material
• Finished Goods • Consulting
• Production Parts Services
• Maintenance, • Utilities
Repair and • Workers health,
operational care benefits
Supplies

By: Dr. Nelly Karma

8 Mission of Purchasing

Develop purchasing plan for each major product

or service that are consistent with operating
strategies
Lowest total cost
Fast and on time deliveries
High quality products and services
flexibility
By: Dr. Nelly Karma
9 Objectives of Purchasing Management

Maintain database of available and qualified suppliers

Select and/ or develop suppliers to supply each material

Negotiate contracts with all parties involved

Act as interface between company and suppliers

By: Dr. Nelly Karma

10 Skills of Purchasing Professional- Group Discussion:

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11

 Judgment and Decision Making

 Detail Spotting
 Prioritizing
 Persistence
 Flexibility and Adaptability
 Relationship Building
 Negotiation
 Integrity
By: Dr. Nelly Karma
12 Purchasing
Centralized vs. Decentralized

Purchasing Organizations dependent on many factors, such as

market conditions & types of materials required

 Centralized Purchasing : purchasing department located at the

firm’s corporate office makes all the purchasing decisions.

 Decentralized Purchasing : individual, local purchasing

departments, such as plant level, make their own purchasing
decisions.
By: Dr. Nelly Karma
13 Advantages of Centralization

Concentrated volume.
Leveraging purchase volume (Economies of Scale).
Avoid duplication.
Buyer Specialization.
Lower transportation costs.
Ease of Supervision.
Common supply base.
By: Dr. Nelly Karma
14 Advantages of Decentralization

Closer knowledge of requirements.

Local sourcing.

Less bureaucracy.

By: Dr. Nelly Karma

 Purchasing Process
15

By: Dr. Nelly Karma

16
Purchasing Process
 Step 1-Material Requisition/Purchase Requisition
Stating product, quantity, and delivery date. May originate as a
planned order release from the MRP system. Traveling requisition
used for recurring orders.
 Step 2-The Request for Quotation (RFQ)
Buyer identifies suppliers & issues a request for quotation (RFQ) for
routine items or a Request for Proposal (RFP)for more demanding
products. Supplier Development is used to develop supplier
capabilities.
 Step 3-The Purchase Order (PO)
Is the buyer’s offer & becomes a binding contract when accepted by
supplier. When initiated by the supplier on their own terms, the
document is a sales order Uniform Commercial Code (UCC)governs
transactions in the U.S., except Louisiana.

By: Dr. Nelly Karma

17
Evolution on the Purchasing Strategies

By: Dr. Nelly Karma

18
Changing Trends in Procurement

By: Dr. Nelly Karma

19
Changing Trends in Procurement

By: Dr. Nelly Karma

20
Procurement Process

By: Dr. Nelly Karma

21
Procurement Process

By: Dr. Nelly Karma

22
Procurement Process

By: Dr. Nelly Karma

23 Procurement Process

By: Dr. Nelly Karma

24
Procurement Process

By: Dr. Nelly Karma

 Purchasing Consideration
25

By: Dr. Nelly Karma

26 Importance of Item and Service Purchased

Products and services purchased by a company are not all

the same.
Some are more important than others and require greater
procurement attention.
The quadrant technique enables the supply chain
manager to assess the relative importance of each item
based on the degree of perceived value and risk.

By: Dr. Nelly Karma

27 Item Procurement Importance Matrix

By: Dr. Nelly Karma

28 Procurement Skills
Which key procurement skills are most important ?

Relationship Management.
Negotiation.
Mutuality.
Professionalism.
Analytical skills.
Achievement.
By: Dr. Nelly Karma
29

International Sourcing

By: Dr. Nelly Karma

30 Group Discussion

What can go wrong when buying from overseas and what can you do about it
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31
 1. Time differences.
 "feet on the street": an in-country representative or

 2. Language barriers.
 discussions with written confirmation
 Use templates, so information is always presented in a consistent way.

 3. Quality expectations.
 conduct quality inspections before the packaging leaves the country of origin.
 Train suppliers in how to comply with your quality

By: Dr. Nelly Karma

32
 4. Compliance issues.
 Make sure suppliers understand both the standards and your expectations
 Regular audits of major suppliers are a must.

 5. Production scheduling.
 Understanding lead
 identifying alternatives

 6. Logistics.
 Make sure your supplier has a Plan B in case of loss, delay, or damage
 Earning security certifications from customs authorities at origin and
destination to reduce the likelihood of time-consuming cargo inspections.
By: Dr. Nelly Karma
33
Selecting Suppliers (Qualification)

By: Dr. Nelly Karma

 Overview of Vendor Selection Criteria
34

By: Dr. Nelly Karma

35 Practice your Understanding!

By: Dr. Nelly Karma

36 How to reduce cost associated with keeping items in
warehouse (Carrying or Holding Cost)
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By: Dr. Nelly Karma

37 Beware of minimum order quantities
 Minimum order quantities (MOQs) are there to help suppliers and manufacturers
enjoy economies of scale - but they can be a source of stress it’s a lot harder for
small businesses to do the same, leaving them with three options:
 Accept the offer and get stuck with too much stock
 Give up on their lovely products
 Try to compromise

 Obviously, the third option is your best bet. When trying to reach a compromise,
you have to get creative in figuring out ways around the MOQ. You can try
offering a higher price to compensate for the difference in economies of scale . If
you can stick to your ideal amount… you’ll save so much on carrying costs!

By: Dr. Nelly Karma

38 Overstocking - don’t give into temptation
 Your suppliers could be really strict about sticking to their MOQ, and you find
yourself reluctantly spending money that could be put towards growing your
business. After all, purchasing an extra 20% to enjoy a 10% discount sounds like
you’re enjoying a great deal… right?

 Wrong. You may think you’re saving money by ordering more - after all, if you’re
going to have to reorder at some point, you might as well enjoy better prices. But
the amount you think you’ve saved by ordering enough for a price quantity break
probably won’t even cover the increase in carrying costs.

 And every item that sits unused in your storage facility is taking up space that
could be used for carrying faster-moving items, or experimenting with a new
product line.
By: Dr. Nelly Karma
39 Say goodbye to dead stock
 Do you remember that product you thought was going to be a hot
seller, but it was a total flop? Yes, that one, the cartons sitting at the
back of your warehouse. These could also be the fate of products
you’ve overstocked because of MOQs… and promptly forgotten
about as the season pass.

If you’re looking to get rid of your dead stock, you can:

• Bundle it with complementary popular items and sell the combination at a
significant discount.
• Return it to your supplier if their return policy allows for it - but do
remember, there’s a high chance they’ll charge you a restocking fee and
refund you in store credit.
• Donate it if your country gives you tax deductions for the market value of
By: Dr. Nelly Karma
donations to charities.
40 Reduce your supplier lead time
 Think of what you could do if only you could get your supplier to reduce their
lead time. So instead of taking 10 days for a new shipment to reach you, they’ll
be able to do it in seven days.


If you’re wondering how to get your supplier to agree (and not increase shipping
costs), we’ve got some suggestions…

 Assuming you’ve been working with that supplier for a while, having a good
working relationship is definitely a step in the right direction. And do remember
to highlight that if they can reduce the lead time, you’ll definitely be making
more frequent orders.

By: Dr. Nelly Karma

41 Try switching to a vendor managed inventory
 Do you occasionally ask your supplier for an emergency shipment because your
stock is selling out too quickly? Or do you sometimes sigh and think it would be
nice if you could get your suppliers to manage their products within your store
for you?

 Well, transiting to a vendor managed inventory (VMI) can make these hopes a
reality! It means you’ll leave your suppliers to manage their own products within
your inventory. You won’t have to purchase any more suboptimal quantities,
since it’s now your supplier’s job to ensure you’re always in stock.

 And your suppliers will thank you too! They’ll have a better idea of how to adjust
their output to match customer demand - meaning you won’t need to ask favors
to expedite shipping or face dreaded out-of-stock situations.
By: Dr. Nelly Karma
 Get an inventory management software solution
42
 You totally knew this one was coming, but let’s chat about what an
inventory management software solution can do for your business.

 Did you know 78% of SMBs don’t use inventory management

software yet? But of the 22% that do, they’re really in favor of it,
because it gives them huge savings of a precious resource - time. Of
the 22% using it, 16% say they’ve saved a day or more, 39% saved 5
hours or more, and 37% saved less than 5 hours, all by automating
inventory management.

By: Dr. Nelly Karma

  So how does using inventory management software save time?
43

 You get to enjoy real-time updates on stock movements across all sales channels - no
more spending hours manually updating your inventory every day.
 Say goodbye to spending hours collating monthly/yearly reports on sales and stocks
with inventory management software collating these into an easily understandable
format.
 Good inventory management software will let you easily integrate with a whole range
of add-ons! You’ll be able to integrate your inventory management with multiple sales
channels, accounting, shipping, and fulfillment apps… and save time, human
resources, and money.

 If you’re part of the majority that doesn’t use a cloud-based inventory

management software solution, it’s time to consider joining the movement. After
all, most of your peers have enjoyed a significant decrease in time spent
managing inventory… so why not join them and give it a shot?

By: Dr. Nelly Karma

44 Know your reorder point

 If you know your re- order point you’ll know when’s the right time
to place orders for new shipments. That means you won’t be
spending more on storing excess items, or risk the shortage costs
that come with disappointed customers.

 There’s lots of ways to decide what’s the best way to determine

your reorder point - ranging from forecasting software, to relying
on information from previous months, to formulas.

By: Dr. Nelly Karma

45 What are the main expenses incurred when the item is
needed but not available (Stock Out)?
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By: Dr. Nelly Karma

46 Out of Stock
 Running out of stock is one of the leading reasons for loss of
revenue.
 In business, there’s one phrase you never want to say:

 “We’re out of stock.”

 But we’ve all said it.

 And every time we say it, we tell ourselves we won’t say it again.
By: Dr. Nelly Karma

 Until we do.
47 What Does “Out of Stock” Mean?

 Being “out of stock,” or OOS means that the inventory for a

particular product is completely depleted.

 Out of stocks typically occur when a business owner doesn’t order

enough inventory to satisfy customer demand.

 But not being able to sell when a customer wants to buy is only one
major problem of stock outs.

By: Dr. Nelly Karma

48 What Are the Effects of a Stock out?

 There are many negative effects of going out of stock. Here are a
few:

 Lost sales
 Lost customers
 Negative customer reviews
 Damaged brand and reputation
 Slow or declining business growth

By: Dr. Nelly Karma

49 Causes of Stock out Situations
 Inaccurate Data
 Inefficient Product Ordering
 If inefficient product ordering is caused by inaccurate data, then what causes
inaccurate data?
 Excel inventory management, or manual spreadsheets in general
 In a study of errors in 25 sample spreadsheets, Stephen Powell from the Tuck
Business School at Dartmouth College found that 15 workbooks contained a total of
117 errors.
 While 40% of those errors had little impact on the businesses studied, 7 errors caused
massive losses of $4 million to $110 million, according to the researchers’ estimates.
 One of our customers, Urban Couture, cited manual spreadsheets as the main
problem in their business – causing stock outs and other issues.

By: Dr. Nelly Karma

50 How to reduce stock out scenarios?

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By: Dr. Nelly Karma

51 5 Out of Stock Solutions
 Track every product you store.
 Monitor Forecast Demand
 Use a Reliable Order Point Formula
 (Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock =
Reorder Point
 Order Safety Stock Inventory
 Safety stock inventory is a small, surplus amount of inventory you keep on
hand to guard against variability in market demand and lead times.
 Use a good (On Line) Inventory System

By: Dr. Nelly Karma

52 What are the advantages of local procurement?

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By: Dr. Nelly Karma

53 Solution
 Encouragement to local suppliers
 Contributing to the growth of the nations' economy.
 Transfer of some of the procurement & freight forwarding risks to
the suppliers.
 Eliminating or minimizing issues related to quality & delivery.
 Supplier has the opportunity to reduce costs
 Supplier can suggest methods for improvements to customer.

By: Dr. Nelly Karma

54 What are the disadvantages of local procurement?

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By: Dr. Nelly Karma

55 Solution
 Close supplier/staff connections can lead to issues with ethical supplier selection
 Undesirable local publicity can arise when contracts need to be terminated
 Possible resistance to change
 Supplier may come to depend too much on the buyer leading to complacency
 Local suppliers that are small businesses may be less efficient with restricted
economies of scale
 Policy issues around encouraging competition and positive discrimination of local
suppliers

By: Dr. Nelly Karma

56 Supply Chains and
Supply Chain Management

By: Dr. Nelly Karma

57 Supply Chains

The connected chain of

Supply Chain all of the business
entities, both internal
and external to the
company, that perform or
support the logistics
function

By: Dr. Nelly Karma

58 Supply Chains

A management system that

coordinates and integrates
Supply Chain all of the activities
performed by supply chain
Management members into a seamless
process, from the source to
the point of consumption,
resulting in enhanced
customer and economic
value

By: Dr. Nelly Karma

 Supply Chain Managers
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The philosophy behind supply chain

management is that by visualizing the entire
supply chain, supply chain managers can
maximize strengths and efficiencies at each
level of the process to create a highly
competitive, customer-driven supply system
that is able to respond immediately to
changes in supply and demand.

By: Dr. Nelly Karma

60
Supply Chain Management

Communicator of customer demand

from point of sale to supplier

Physical flow process that engineers the

movement of goods

By: Dr. Nelly Karma

 Benefits of Supply
61 Chain Management

Supply chain oriented companies

commonly report:
• Lower inventory, transportation,
warehousing, and packaging costs
• Greater supply chain flexibility
• Improved customer service
• Higher revenues
• Increased performance and profitability

By: Dr. Nelly Karma

62 Supply Chain Integration

Discuss the concept of

supply chain integration
and explain why each
of the six types of
integration is important

By: Dr. Nelly Karma

 Key Processes of
63 Supply Chain Management

Identify the eight key processes

of excellent supply chain
management and discuss
how each of these processes
impacts the end customer

By: Dr. Nelly Karma

64
Purchasing and Negotiation Skills
Supply Chain Expert

By: Dr. Nelly Karma

65 International Commercial Terms (INCOTERMS)

A set of rules for the interpretation of trade terms, in a

contract of sale.

Published and regularly updated (latest edition 2010) by

the International Chamber of Commerce to help parties
to avoid misunderstandings, with all the waste of time
and money that this entails.

By: Dr. Nelly Karma

66 International Commercial Terms (INCOTERMS)

To determine the seller's and buyer's respective

obligations concerning responsibilities and charges for the
transportation of goods from the seller's premises to the
buyer's place.
To avoid any misunderstanding in the following questions
:
1.“Who is responsible for what ? “
2.“Who is going to pay for what ?”
By: Dr. Nelly Karma
67 International Commercial Terms (INCOTERMS)
An INCOTERM is a 3 Letter Word Followed by a Name
of Place...

 Applying only to the purchase contract in some very

distinct respects.
 Dealing with a number of identified obligations imposed
on the parties.
 There are 11 INCOTERMS and each one fits a specific
situation and specific means of transport.

By: Dr. Nelly Karma

68

By: Dr. Nelly Karma

69 Ex Works (….named place)

Risks are transferred from the supplier to the buyer, when

the goods have been placed at the disposal of the buyer
at the supplier’s premises or another named place not
cleared for export and not loaded on any collecting
vehicle.

The buyer bears all risks and costs involved in taking the
goods from the supplier's premises and thereafter.

By: Dr. Nelly Karma

70 FAS : Free Alongside Ship
(…named port)

For maritime and inland waterway only.

Risks are transferred to the buyer when
the goods have been placed alongside
vessel nominated by the buyer at the
named port of shipment.
The supplier also clears the goods for
export.
By: Dr. Nelly Karma
71 FCA : Free Carrier (… named place )

For any mode of carrier.

Supplier delivers goods, cleared for export, to the carrier
named by the buyer at the specified place (Risk).
If delivery occurs at the seller's premises, the supplier is
responsible for loading.
If delivery occurs elsewhere, the supplier must load the
conveyance (carrier) but is not responsible for unloading.

By: Dr. Nelly Karma

72 Only for Sea Freight: FOB : Free On Board
(…named port of shipment )

Risks are transferred as the goods pass the

ship’s rail at port of shipment.

The supplier clears the goods for export.

By: Dr. Nelly Karma

73 Only for Sea Freight : CFR : Cost and Freight
(…named port of shipment)

Same transfer of risks.

Supplier delivers when the goods pass the ship's rail at
the port of export.
The supplier pays cost and freight for bringing the goods
to the foreign port and clears the goods for export.

By: Dr. Nelly Karma

74 Only for Sea Freight : CIF :
Cost , Insurance and Freight (named…)
Same transfer of risks as for FOB and CFR.
Supplier delivers when the goods pass the ship's
rail at the port of export.
The supplier pays cost and freight for bringing
the goods to the foreign port, obtains insurance
against the buyer's risk of loss or damage, and
clears the goods for export.

By: Dr. Nelly Karma

 All Means of Transport...CPT :
75
Carriage paid to(…named place of destination)

Risks transferred as indicated in FCA.

Supplier delivers goods to carrier it
nominates and pays costs of bringing
goods to the named destination.
The supplier also clears the goods for
export.

By: Dr. Nelly Karma

76 All Means of Transport...CIP :
Carriage, Insurance paid to (…named place of destination)
Risks transferred as indicated in FCA.
Supplier delivers the goods to a carrier it nominates but
also pays the cost of bringing the goods to the named
destination.
 The supplier also obtains insurance against the buyer's
risk of loss or damage during carriage and clears the
goods for export.

By: Dr. Nelly Karma

77 DAT : Delivered At Terminal
(…named Terminal or Place of Destination)
May be used for any mode of transport.
The seller must clear the goods for export and is
responsible for delivery to the named terminal at port or
place of destination.
The seller must make the goods available to the buyer
unloaded on the arriving means of transport.
The terminal can be of any sort, a sea, road, air, or rails
terminal, a warehouse, a quay, or container yard.

By: Dr. Nelly Karma

78 Delivered At Place-DAP

 All modes of transport.

 The seller clears the goods for export and delivers the goods to the
“named place of destination”.
 In DAP the seller makes the goods available to the buyer on the arriving
means of transport at the named place of destination, not unloaded.
 In DAP, the named place of destination is domestic to the buyer and is
often the buyer’s place of business.
 In DAP, the seller is not responsible for import customs formalities, duties,
fees, or taxes.

By: Dr. Nelly Karma

79 When the Supplier is Responsible all the Way…DDP :
Delivered Duty Paid (…named place..)
May be used for any mode of transport.
The seller must deliver the goods to the buyer,
cleared for import, and not unloaded at the
named place of destination.
The seller pays all import customs formalities,
duties, fees, VAT (value added tax), and other
taxes.

By: Dr. Nelly Karma

 Incoterms 2010
80

By: Dr. Nelly Karma

81

By: Dr. Nelly Karma

82

 42-Negotiation-course-difficult-questions-answered-by-buyers-Procurement-training-
YouTube.mp4

By: Dr. Nelly Karma

83 Contracts & Frameworks

There are two types of contracts:

1. Purchase Order (PO)  One page contract which

contain the main elements of the deal.

2. Multi Pages Contracts  Assigned by two parties

(supplier & buyer) & contains the same components of
PO.
By: Dr. Nelly Karma
84 Local Procurement

By: Dr. Nelly Karma

85 Rationale for local purchasing

 Advocates often suggest local purchasing as a form of moral

purchasing.

 Local purchasing is often claimed to be better for the environment

and better for working conditions.

 Others contend (with empirical evidence) that local purchasing and

contracting enhances local job creation and wealth while
strengthening community cohesiveness.
By: Dr. Nelly Karma
86 Some major risk in procurement.

 Failure to secure ongoing supply critical to the organization.

 Insufficient lead-time.
 Misrepresentation of facts by potential suppliers.
 Selection of inappropriate procurement strategy.
 Use of inappropriate evaluation criteria
 Unethical practice
 Breach of confidentiality
 External factors like: Natural calamity, unstable government etc.
By: Dr. Nelly Karma
87 How to Identify Procurement Risk

 Risk mitigation strategies lie at the heart of corporate governance.

 What is the contribution to these mitigation strategies from the

procurement and supply chain management function?

 It is rare to find robust methodologies in place that will, in a

structured way, identify the potential risks that exists in contracts
with third parties.

By: Dr. Nelly Karma

88 Contractual Risk

This area is one such key area. There are organizations

who have not reviewed their contractual terms and
conditions for many years.

There are others who trade on the suppliers’ terms, or

worse still, trade without formal written contracts in
place.

By: Dr. Nelly Karma

89 Price Risk

 Price management risk is another vulnerability.

 Risk can exist when the basis of contract prices are not understood
because the supplier’s cost drivers were neither requested nor
negotiated. Some contracts have automatic year-on-year escalation
where the price is linked to an index, such as the Retail Price Index.

By: Dr. Nelly Karma

90 Capital Risk

 Intellectual capital risk exists because of a failure to invest in

developing human capital and failing to require the procurement
and supply chain team to engage in continuous professional
development.

 This is particularly important with the increasing demand to deploy

a long-term strategy of developing relationships with strategic
suppliers.

By: Dr. Nelly Karma

91 How to control procurement Risk
 1. Ensure the risk of procurement fraud is acknowledged on your
company risk register, and there is a risk owner who has overall
responsibility in the organization.

 2. Ensure all staff who are able to make or are involved in financial
decisions are trained how to identify procurement risk factors

 3. Ensure a three-way match is carried out. So, do the amounts

documented on the requisition, purchase order and invoice all
align? Don’t forget the delivery note and also check against the
contract schedule.
By: Dr. Nelly Karma
92
…
 4. Staff members often move to other departments within an
organization. If a staff member moves departments, remove all of
their current permissions and authorities and add the permissions
applicable to their new role.

 5. Ensure the procurement process is followed and is enforced. Has

an order been placed before the procurement paperwork has been
raised? If so, why?

By: Dr. Nelly Karma

93 Negotiation In Procurement

By: Dr. Nelly Karma

 Why we Negotiate
94

 Everything you want is owned by someone else

 Ultimately, it will take a lot of negotiation to get what you want

under the best terms and conditions

By: Dr. Nelly Karma

95 What is Negotiation

By: Dr. Nelly Karma

96
Learning the Techniques

By: Dr. Nelly Karma

97 What we learnt first about Negotiation

 Effective communication can help you to get what you want

 Is becoming emotional the best style tough?

By: Dr. Nelly Karma

98 Error in Negotiation

By: Dr. Nelly Karma

99 Bargaining Vs. Negotiating

By: Dr. Nelly Karma

 Bargaining
100

By: Dr. Nelly Karma

101 Buyer's Duties
Know the market of their commodities
Understand the Laws, Tax System(s), Contracts…etc.
Process purchase requisition and quotations requests
Make supplier(s) selection
Negotiate prices and conditions of sale
Place and follow up on purchase orders
Maintain ethical behavior

By: Dr. Nelly Karma

102 Negotiation Skills Video Link

42-Negotiation-Techniques-YouTube.mp4

By: Dr. Nelly Karma

103

Forecasting Methods
By: Dr. Nelly Karma
 Supply chain management is the

Forecasting…
process by which a company ensures it
104 has just enough supply to meet
demand.

Forecasting is an uncertain process. It is not possible to

predict consistently what the future will be

Management generally hopes to forecast demand with as

much accuracy as possible, which is becoming
increasingly difficult to do.

 An overestimation of demand leads to bloated inventory

and high costs. Underestimating demand means many
valued customers won't get the products they want.
By: Dr. Nelly Karma
 High
105
Inventory

 If your business overestimates demand, it ends up with more

inventory than it needs. This can increase:
 Your labor and storage costs
 If workers have to move this inventory to another storage facility to make
way for new inventory.
 Sell With discount which reduces company’s profit
 In case of expiration or contamination

By: Dr. Nelly Karma

106 Shortage of Inventory
Suppose you suddenly find yourself inundated with large
orders. This is a nice problem to have – if you have
enough inventory to meet demand.

It's not so nice if you didn't forecast how much supply you
would need and end up with an inventory shortage. In
such a case, some customers might take their business
elsewhere.

By: Dr. Nelly Karma

107 Forecasting Methods
 Qualitative methods: These types of forecasting methods are
based on judgments, opinions, intuition, emotions, or personal
experiences and are subjective in nature. They do not rely on any
rigorous mathematical computations.

 Quantitative methods: These types of forecasting methods are

based on mathematical (quantitative) models, and are objective in
nature. They rely heavily on mathematical computations.

By: Dr. Nelly Karma

108
Qualitative Methods

By: Dr. Nelly Karma

109 Qualitative Forecasting Methods
 The qualitative (or judgmental) approach can be useful in
formulating short-term forecasts and can also supplement the
projections based on the use of any of the quantitative methods.

 Four of the better-known qualitative forecasting methods are

executive opinions, the Delphi method, sales-force polling, and
consumer surveys

By: Dr. Nelly Karma

1. Executive Opinions
110
 The subjective views of executives or experts from sales, production, finance,
purchasing, and administration are averaged to generate a forecast about future
sales. Usually this method is used in conjunction with some quantitative
method, such as trend extrapolation. The management team modifies the
resulting forecast, based on their expectations.

The advantage of this approach: The forecasting is done quickly and

easily, without need of elaborate statistics.

The disadvantage: This, however, is that of group-think. This is a set of

problems inherent to those who meet as a group.
By: Dr. Nelly Karma
2. Delphi Method
111
 This is a group technique in which a panel of experts is questioned individually
about their perceptions of future events. The experts do not meet as a group, in
order to reduce the possibility that consensus is reached because of dominant
personality factors.

 Advantages: This type of method is useful and quite effective for long-range
forecasting. The technique is done by questionnaire format and eliminates the
disadvantages of group think.

 Disadvantages: Low reliability is cited as the main disadvantage of the Delphi

method, as well as lack of consensus from the returns.

By: Dr. Nelly Karma

3. Sales Force Polling
112
 Some companies use as a forecast source salespeople who have continual contacts with
customers.

The advantages of this forecast are:

 It is simple to use and understand.
 It uses the specialized knowledge of those closest to the action.
 It can place responsibility for attaining the forecast in the hands of those who most affect the
actual results.
 The information can be broken down easily by territory, product, customer, or salesperson.

The disadvantages include: salespeople’s being overly optimistic or pessimistic regarding their
predictions and inaccuracies due to broader economic events that are largely beyond their control.

By: Dr. Nelly Karma

113 4. Consumer Surveys
 Some companies conduct their own market surveys regarding
specific consumer purchases.

 Surveys may consist of telephone contacts, personal interviews, or

questionnaires as a means of obtaining data.

 Extensive statistical analysis usually is applied to survey results in

order to test hypotheses regarding consumer behavior.

By: Dr. Nelly Karma

114 Demand & Supply Chain

By: Dr. Nelly Karma

115 The Bullwhip Effect
The Bullwhip Effect (or Whiplash Effect) is an observed
phenomenon in forecast-driven distribution channels.

The concept has its roots in JForrester's Industrial

Dynamics(1961) and thus it is also known as the Forrester
Effect.

By: Dr. Nelly Karma

 Bullwhip effects
116

The bullwhip effect refers to erratic

shifts in orders up and down the
supply chain because of poor
demand forecasting or variation of
order size.

By: Dr. Nelly Karma

117 Bullwhip

Although the bullwhip effect is a common problem

for supply chain management understanding the
causes of the bullwhip effect can help managers
find strategies to alleviate the effect.

By: Dr. Nelly Karma

118
What contributes to the bullwhip effect?
 Disorganization between each supply chain link; with ordering larger or
smaller amounts of a product than is needed due to an over or under reaction
to the supply chain beforehand.

 Lack of communication between each link in the supply chain makes it

difficult for processes to run smoothly.

 Free return policies customers may intentionally overstate demands due to

shortages and then cancel when the supply becomes adequate again

By: Dr. Nelly Karma

 What
119
contributes to the bullwhip effect?
 Order batching companies may not immediately place an order with their supplier; often accumulating the
demand first.

 Price variations – special discounts and other cost changes can upset regular buying patterns; buyers want to
take advantage on discounts offered during a short time period, this can cause uneven production and
distorted demand information.

 Demand information relying on past demand information to estimate current demand information of a
product does not take into account any fluctuations that may occur in demand over a period of time.

By: Dr. Nelly Karma

120

Example
The actual demand for a product and its materials start at the customer, however
often the actual demand for a product gets distorted going down the supply
chain. Let’s say that an actual demand from a customer is 8 units, the retailer
may then order 10 units from the distributor; an extra 2 units are to ensure they
don’t run out of floor stock.

By: Dr. Nelly Karma

121 Example

The supplier then orders 20 units from the manufacturer; allowing them to buy in
bulk so they have enough stock to guarantee timely shipment of goods to the
retailer. The manufacturer then receives the order and then orders from their
supplier in bulk; ordering 40 units to ensure economy of scale in production to
meet demand. Now 40 units have been produced for a demand of only 8 units;
meaning the retailer will have to increase demand by dropping prices or finding
more customers by marketing and advertising.

By: Dr. Nelly Karma

122

How to Reduce the Bullwhip Effect

 Improve the flow of information along the supply chain. Improving communication and
forecasting end-user needs greatly assists in reducing the bullwhip effect, In addition, look to
day-to-day operations along the supply chain to observe trends and better predict customer
demands.

 Reduce delays in the supply chain. small businesses use computer aided ordering to better
track products along the supply chain. Cutting order to delivery time also greatly decreases
fluctuations along with Lessing inventory levels and operating costs.

By: Dr. Nelly Karma

123 How to Reduce the Bullwhip Effect
 Pay closer attention to point of sale purchases made by customers. Using your point of sale system to
create reports that track customer preferences and ordering behavior. This helps to identify future trends
as well as bettering communication along the supply chain.

 Reduce your order sizes. In the retail industry, this refers to the economic order quantity ,meaning the
purchaser of goods from a supplier gets a better price for ordering more of a particular product. While this
provides a discounted price, it unnecessarily increases inventory levels.

By: Dr. Nelly Karma

124 How to Reduce the Bullwhip Effect
Maintain price consistency. Another useful method for
reducing the bullwhip effect is to maintain prices during
market fluctuations to have an immediate impact on
customer purchases.

Establish long-term contracts with suppliers, Many

successful companies have made their supply chain an
integral part of their core business processes.
By: Dr. Nelly Karma
125 Supply Chain Dynamics

By: Dr. Nelly Karma

126
What we need to happen in Supply Chain

By: Dr. Nelly Karma

127
What actually Happen

By: Dr. Nelly Karma

128 Demand Management

 Defined as “focused efforts to estimate and manage customers’

demand, with the intention of using this information to shape
operating decisions.”

 Recent practice has been just the opposite, with the manufacturer
determining the what, where, when, and how many of the sale.

By: Dr. Nelly Karma

129 Demand Management Objectives

 Gathering and analyzing knowledge about consumers, their problems, and

their unmet needs.

 Identifying partners to perform the functions needed in the demand chain.

 Moving the functions that need to be done to the channel member that can
perform them most effectively and efficiently.

By: Dr. Nelly Karma

130 Demand Management Objectives

 Sharing with other supply chain members knowledge about consumers and
customers, available technology, and logistics challenges and opportunities.

 Developing products and services that solve customers’ problems.

 Developing and executing the best logistics, transportation, and distribution

methods to deliver products and services to consumers in the desired format.

By: Dr. Nelly Karma

Forecasting & Planning
131

Need accurate estimated of product volumes to

be handled by the supply chain.

By: Dr. Nelly Karma

 Order Cycle
132

By: Dr. Nelly Karma

133
Definition

By: Dr. Nelly Karma

134
Types of Demand

By: Dr. Nelly Karma

Other Factors affecting Demand
135

By: Dr. Nelly Karma

136
Advantage of Accurate Forecast

By: Dr. Nelly Karma

137 Factors that influence forecast accuracy

By: Dr. Nelly Karma

138

By: Dr. Nelly Karma

139 Quantitative Methods

By: Dr. Nelly Karma

140
Seasonal Forecast

By: Dr. Nelly Karma

141
Calculation Of Seasonal Forecast

By: Dr. Nelly Karma

 Moving Average
142

By: Dr. Nelly Karma

 Moving Average
143

By: Dr. Nelly Karma

144
Weighted Moving Average

By: Dr. Nelly Karma

145 EXAMPLE: Computing a Simple Moving Average

 The Instant Paper Clip Office Supply Company sells and delivers office supplies to
companies, schools, and agencies within a 50-mile radius of its warehouse. The office
supply business is competitive, and the ability to deliver orders promptly is a factor in
getting new customers and keeping old ones. (Offices typically order not when they run
low on supplies, but when they completely run out. As a result, they need their orders
immediately.) The manager of the company wants to be certain enough drivers and
vehicles are available to deliver orders promptly and they have adequate inventory in
stock. Therefore, the manager wants to be able to forecast the number of orders that will
occur during the next month (i.e., to forecast the demand for deliveries). From records of
delivery orders, management has accumulated the following data for the past 10 months,
from which it wants to compute 3- and 5-month moving averages.

By: Dr. Nelly Karma

146 …

Month Orders
January 120
February 90
March 100
April 75
May 110
June 50
July 75
August 130
September 110
October 90

By: Dr. Nelly Karma

147 Requirement

 Moving Average 3 Months

 Moving Average 5 Months

By: Dr. Nelly Karma

148 SOLUTION:

90+110+130

3 110 Orders for November

90+110+130+75+50

5 91 Orders For November

By: Dr. Nelly Karma

149 Disadvantage

 It is basically a "mechanical" method, which reflects historical data in a consistent way.

 However, the moving average method does have the advantage of being easy to use,
quick, and relatively inexpensive. In general, this method can provide a good forecast for
the short run, but it should not be pushed too far into the future.

By: Dr. Nelly Karma

150 Weighted Moving Average

 The moving average method can be adjusted to more closely reflect fluctuations in the
data.

 In the weighted moving average method, weights are assigned to the most recent data

By: Dr. Nelly Karma

151 EXAMPLE: Computing a Weighted Moving Average

 The Instant Paper Clip Company in the previous Example wants to compute a 3-month
weighted moving average with a weight of 50 percent for the October data, a weight of 33
percent for the September data, and a weight of 17 percent for the August data. These
weights reflect the company's desire to have the most recent data influence the forecast
most strongly

By: Dr. Nelly Karma

152 SOLUTION:

 The weighted moving average is computed as

= (0.50)(90)+(0.33)(110)+(0.17)(130)
=103.4 Orders
It must be
rounded up or
down

This forecast is slightly lower than our previously computed 3-month average forecast of 110 orders,
reflecting the lower number of orders in October (the most recent month in the sequence).

By: Dr. Nelly Karma

153

Logistics
&
Warehousing

By: Dr. Nelly Karma

154
Logistics
 The terms Logistics and Supply Chain Management are used
interchangeably these days, but there is a subtle difference that
exists between the two.

 ‘Logistics’ has a military origin, and used to be associated with the

movement of troops and their supplies in the battlefield.

 But like so many other technologies and terminologies, it entered

into the business lexicon gradually and has now become
synonymous.

By: Dr. Nelly Karma

155 …
Logistics is concerned with both materials flow and
information flow. While the materials flow from the
supplier to consumer, the information flows the other
way round.

In simple terms, logistics can be seen as a link between

the manufacturing and marketing operations of a
company.

By: Dr. Nelly Karma

156
…
Logistics cover the following broad functional
areas:

network design,
transportation and
inventory management.

By: Dr. Nelly Karma

157 Inventory Planning

Organizations want to minimize the inventory levels due

to its almost linear relationship with the cost.

Yet if the demand is forecasted accurately, there would

ideally be no need for inventory and the goods will move
seamlessly from warehouses to customers.

By: Dr. Nelly Karma

158 Transportation

 The kind of transportation employed by an organization is a

strategic decision (it usually accounts for around 1/3rd of the total
logistics cost) based on the required level of risk exposure,
customer service profiles, geographic area covered etc.

 Truck shipments take more time for delivery compared to air

transport (customers with relaxed turnaround times); is cheaper
but necessitates maintenance of higher inventory levels.

By: Dr. Nelly Karma

159 Packaging

The end goals differ: can either be done for end

consumers or for logistical considerations.

The packaging will then depend on the end goal; form

factor plays the lead role when packaging goods for the
end consumers, while function plays the lead role in
packaging for logistical operations.

By: Dr. Nelly Karma

160 Warehousing

It is the back-end building for storing goods. Based on the

needs of the organization, it can be in-house or
outsourced.

By: Dr. Nelly Karma

161 Logistics Systems
Part of Supply Chain Management
Part of Integrated Material Management
Concerned with movement and storage of
materials and is divided into two functions:
–Physical supply
–Physical distribution

By: Dr. Nelly Karma

162 Logistics Systems
 Physical Supply
 The movement and storage of goods from suppliers to manufacturing

 Physical Distribution
 The movement and storage of finished goods from the end of
production to the customer
 The particular way that the goods move through warehouses,
wholesalers, and retailers is referred to as the distribution channel

By: Dr. Nelly Karma

 Distribution Channel Separation
163

By: Dr. Nelly Karma

164 Effective management in logistic
 Sharing with other supply chain members knowledge about
consumers and customers, available technology, and logistics
challenges and opportunities.

 Developing products and services that solve customers’ problems.

 Developing and executing the best logistics, transportation, and

distribution methods to deliver products and services to consumers
in the desired format.

 Demand Management Objectives.

By: Dr. Nelly Karma
165 How to Reduce Transportation Fees? Group Discussion

 ___________________________________________________________________
 ___________________________________________________________________
 ___________________________________________________________________
 ___________________________________________________________________
 ___________________________________________________________________
 ___________________________________________________________________
 ___________________________________________________________________
 ___________________________________________________________________
 ___________________________________________________________________

By: Dr. Nelly Karma

166 Fewer Carriers

 In the same way that the purchasing department streamlines

vendors to gain better prices with higher volume, the
transportation manager should adopt the same strategy when it
comes to the number of carriers used.

 By reducing the number of carriers, the amount of work offered to

the remaining carriers will increase. By offering vendors a larger
volume of work, the carrier should be able to offer lower rates
across all routes.

By: Dr. Nelly Karma

167 Consolidating Shipments
If a company uses carriers for its deliveries, the rate it
pays is negotiated by trip based on weight, distance, and
other variables.

One strategy that can be used by transportation

managers is to consolidate shipments so that fewer trips
are made, and the company reaps the benefit of lower
rates based on larger shipments.

By: Dr. Nelly Karma

168 Single Sourcing
 Some companies believe the best negotiated prices can be achieved when they
use a single source for all their transportation. This is fairly common for
purchasing departments to use a single source for a range of products that a
single vendor can provide.

 The same can be achieved for transportation. By offering all transportation out to
bid, via a request for quotation (RFQ), a company can provide carriers with a
detailed explanation of what it requires, which may fall outside of what is
normally provided by a common carrier.

 If it wanted to use a single source, a company would have to thoroughly evaluate

a bidder’s ability to provide the service and whether the carrier has the stability
not fall into bankruptcy within the timeline of the contract. If the winning bidder
fulfills the needs of the company.
By: Dr. Nelly Karma
169 Measure performance.
 Regularly review performance results with management to ensure
continuous improvement.

 Since transportation needs can be highly seasonal, you have the

opportunity to make year-to-year comparisons and ensure that
your transportation strategy is more meaningful versus the prior
period.

 Keep updated with the market status, transportation companies,

recent prices, and competitors practices

By: Dr. Nelly Karma

170

By: Dr. Nelly Karma

171 Seven R’s of Supply Chain Management

 The management of goods and services from point of manufacture

to the point of consumption refers to Supply Chain Management. It
involves effectual planning, design, execution, control, and
monitoring of supply chain activities.

 The role of supply chain manages is integral in every industry. In

order to become a supply chain manager, the candidates should
know how to take care of all the supply chain activities. The main
aim of SCM deals with taking care of 7 R’s these are as follows:

By: Dr. Nelly Karma

172 1. Right Product
 The basic constituent of supply activities are the products that are
transported from the manufacturer to the consumers. Supply chain
managers should know what kind of product needs to be
manufactured, handled and transported.

 The best strategy is to choose a product that is in demand and that

can guarantee profits. Having right knowledge and using the right
product will facilitate in efficaciously managing the time and
resources.

By: Dr. Nelly Karma

173 2. Right Place
Next important factor is that the right product should be
sent to the right place. The supply chain managers should
ensure that they have efficient and experienced delivery
staff so that the product is delivered to the right place.

The managers can develop a robust delivery system with

location tracking so that both the customers and the
providers can track the exact location of the product and
get it delivered to the right place.

By: Dr. Nelly Karma

174 3. Right Price
Pricing is imperative for the businesses as it is the factor
that decides whether it has incurred profit or loss. The
supply chain manager should research market trends and
set competitive prices for the goods and services.

Furthermore, there should be a system that keeps a

record of the prices and updates it regularly so that the
products are sold at the right price.

By: Dr. Nelly Karma

175 4. Right Customer

Customers are the core component of supply chain

processes. The managers must have knowledge about
their target market.

If the products are sold in the right market then the
company gains more leads and they get the right
customers that can stay with them life-long.

By: Dr. Nelly Karma

176 5. Right Condition

The quality of deliverables is of utmost importance. It is

the duty of the supply team to ensure that the goods are
stored properly and delivered to the customers in the
right condition.

By: Dr. Nelly Karma

177 6. Right Time

Time is a crucial factor in logistics. Customer’s satisfaction

and long-term relationship are only possible if the
products are delivered to the customers at the right time.

It is the task of managers to develop a tracking system

and coordinate with the delivery team to get the items
delivered before the deadline.

By: Dr. Nelly Karma

178 7. Right Quantity

Sending right amount of products is also important in

logistics. It is the task of the supply chain managers to
find the right quantity of deliverables and to coordinate
with the manufacturing and delivery team to get the right
quantity of products delivered to the customers.

By: Dr. Nelly Karma

179 …
Critical aspect of using the framework is to look at all
dimensions together because they have far reaching &
often sublime linkages which can determine the
outcomes of transformation initiatives.

These connect the lower most level of activity done by a

clerk to the Cost, Revenue and Profitability picture
managed by CEO.

By: Dr. Nelly Karma

180 Why Essential?
It is an essential activity in the logistics function,
supporting the economic utilities of place and time.

Place utility
Means that customers have product available where they
demand it.
Time utility
Suggests that customers have access to product when they
demand it.

By: Dr. Nelly Karma

181

 By working in close collaboration with inventory planners,

transportation professionals seek to ensure that the business has
product available

 Where and when customers seek it.

 Transportation is sometimes to blame for a company’s inability to

properly serve customers. Late deliveries can be the source of
service problems and complaints

By: Dr. Nelly Karma

182 …
 Products might also incur damage while in transit, or warehouse
workers might load the wrong items at a shipping location. Such
over, short, or damaged(called OS&D) shipments can frustrate
customers, too, leading to dissatisfaction and the decision to buy
from a competitor for future purchases.

 However, when a company performs on time with complete and

undamaged deliveries consistently.

 When a company instils confidence in service performance, it can

make customers more reluctant to succumb to competitors’ bids to
steal business away through clever promotions and reduced prices.
By: Dr. Nelly Karma
183 …
Most businesses manage both inbound and outbound
logistics . Inbound logistics involves the procurement of
materials and goods from supplier locations. Outbound
logistics involves the distribution of materials and goods
to customer locations.

Therefore, transportation is necessary on the inbound

and outbound sides of the business.

By: Dr. Nelly Karma

184 Transportation and Logistics
 Logistics is defined as “that part of supply chain management that
plans, implements, and controls the efficient, effective forward and
reverse flow and storage of goods, services and related information
from the point of origin to the point of consumption in order to
meet customers’ requirements.”

 Transportation is represented in this expression through the word

flow. Transportation provides the flow of inventory from points of
origin in the supply chain to destinations, or points of use and
consumption.

By: Dr. Nelly Karma

185 Warehousing

By: Dr. Nelly Karma

 Warehouse / Logistics
186

 The warehouse is where the supply chain holds or stores goods.

 Functions of warehousing include:

 Transportation consolidation.
 Product mixing.
 Cross-docking.
 Service.
 Protection against contingencies.
 Smoothing.

By: Dr. Nelly Karma

187

WAREHOUSING MANAGEMENT
Gaurav Narkhede | Josue Servalis | Mike Macas | Praneetha Boda
By: Dr. Nelly Karma
188 WHAT IS WAREHOUSE MANAGEMENT?

 Warehouse management is the act of organizing and controlling everything within your
warehouse – and making sure it all runs in the most optimal way possible.
 This includes:
 • Arranging the warehouse and its inventory.
 • Having and maintaining the appropriate equipment.
 • Managing new stock coming into the facility.
 • Picking, packing and shipping orders.
 • Tracking and improving overall warehouse performance.
 • Most high growth retailers would use automation tools (like some form of ......Warehouse
Management System) to control this part of their supply chain.

By: Dr. Nelly Karma

189 WAREHOUSE MANAGEMENT STATISTICS

By: Dr. Nelly Karma

190 ARRANGING YOUR WAREHOUSE
 Probably the most important first step in optimizing your warehouse operations is making
sure you have everything in there arranged in the most efficient way.
 Here’s what you need to think about:
 Planning the layout of your warehouse is centered on balancing two things:
 Providing enough storage space for your inventory; While still having enough working space for
staff to move around and complete their tasks.

 And this generally requires (although it depends on individual business requirements)

having a space designed to house the following areas:

By: Dr. Nelly Karma

191 HOW TO ARRANGE INVENTORY IN THE WAREHOUSE

 So at this point we have a warehouse that’s laid out and labelled in the most optimal way
for your business. But this now raises the question: How do you determine the exact
location each product should be stored?

 The answer: Keep better selling products closer to the packing desk.

By: Dr. Nelly Karma

192 ABC…

 Tools like ABC Analysis tend to be used more in inventory management. But this can
provide some handy information when it comes to this part of warehouse management
too. Divide all on-hand inventory into three groups – A, B and C:

By: Dr. Nelly Karma

193

 You can then decide that ‘C items’ will be placed closest to the packing desk, while ‘A
items’ will be farthest away. Like this:

By: Dr. Nelly Karma

194 Four main picking systems or methods

By: Dr. Nelly Karma

195

By: Dr. Nelly Karma

196

By: Dr. Nelly Karma

197

By: Dr. Nelly Karma

198 MEASURING WAREHOUSE PERFORMANCE
 Tracking performance and working to improve it is essential when it comes to all parts of
supply chain management. And it’s no different when it comes to warehouse
management.

 In general, this is all about two things:

 1. Accuracy of fulfilling customer orders (without damage).
 2. Speed of fulfilling customer orders (without damage).

By: Dr. Nelly Karma

199 SUMMARY

 Warehouse management is a monumentally complex task with a wide variety of plates to

keep spinning. But getting it right can be the difference between retail success or failure.

 It all comes down to:

 • Arranging your layout properly and then organizing your inventory within
 this.
 • Having a well-drilled system in place for staff to repeat time and time again when it comes to
receiving stock and fulfilling orders.
 • Measuring efficiency, then identifying and fixing problem areas.
 • And knowing when it’s time to invest in a digital Warehouse Management System (WMS).

By: Dr. Nelly Karma

200 THE ROLE OF THE WAREHOUSE IN THE LOGISTICS SYSTEM

The warehouse is where the supply chain holds or stores goods.

Functions of warehousing include
 Transportation consolidation
 Product mixing
 Docking
 Service
 Protection against contingencies

By: Dr. Nelly Karma

 OBJECTIVES OF EFFICIENT WAREHOUSE OPERATIONS
• Provide timely customer service.

• Keep track of items so they can be found readily & correctly.

201 • Minimize the total physical effort & thus the cost of moving goods into &
out of storage.

By: Dr. Nelly Karma

• Provide communication links with customers

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VIDEO

Fully automated warehouses

By: Dr. Nelly Karma

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By: Dr. Nelly Karma