Unit – II

Define Sourcing
Sourcing is the "location, acquisition and management of all the vital inputs
required for an organization to operate. This includes raw materials, component
parts, products, labour in all its forms, location and services"
What are the components of sourcing decisions?
In house or outsource
Supplier selection

Procurement
Sourcing related metrics
What is make vs. buy decision?
The primary activity of supply chain consists of inbound and outbound
logistics,
operations, sales and services. The secondary activities of supply chain
include procurement, technology development, and human resource
management. Make vs. buy decision looks at each of these activities and examines
whether they can be done internally or can be outsourced to an external party.
Comparison of efficient and responsive supply chain
EFFICIENT RESPONSIVE
Primary goal Lower cost Quick response
Product design Minimum product Modularity to allow
Pricing
strategystrategy Lower
cost margins Higher margins
postponement
Manufacturing High utilization Capacity flexibility
Inventory
strategy strategy Minimize inventory Buffer inventory
Define Cycle time in SCM?
The total time it would take to satisfy a customer order if all inventory
levels were zero. It is calculated by adding up the longest lead times in each stage
of the cycle.
Define Risk Management in SCM
Supply chain risk management (SCRM) is "the implementation of strategies to
manage both everyday and exceptional risks along the supply chain based on
continuous risk assessment with the objective of reducing vulnerability and ensuring
continuity."
Write short note on SCM Sustainability?
Supply chain sustainability is a holistic perspective of supply chain
processes and technologies that go beyond the focus of delivery, inventory and
traditional views of cost. This emerging philosophy is based on the principle that
socially responsible products and practices are not only good for the environment,
but are important for long-term profitability.
Write short note on supply Chain Strategy
 A supply chain strategy determines the nature of procurement of raw materials,
transportation of materials to and from the company, manufacture of the product or
operation to provide the service, and distribution of the product to the customer, along
with any follow-up service and a specification of whether these processes will be
performed in-house or outsourced.
What is meant by facility Decisions
Location: centralize to gain economies of scale or decentralize to
be more responsive. Other issues are quality of life, cost of workers, cost
of facility, infrastructure, taxes etc.
Capacity: excess capacity allows a company to be more responsive to
changes in the level of demand, but at the expense of efficiency.
Manufacturing methodology
Decisions between a product or functional focus and between flexible or
dedicated capacity.
Define distribution network
A distribution network is the system a company uses to get products from the
manufacturer to the retailer. A fast and reliable distribution network is essential
to a successful business because customers must be able to get products and
services when they want them.
What is Returnability
Returnability can be defined as the ease with which a customer can
return unsatisfactory merchandise and the ability of the network to handle such
returns.
What is Decision Tree
A decision tree is a graphic device used to evaluate decision making under
uncertainty. It is used to evaluate supply chain design decisions given uncertainty in
prices, demand, exchange rates and inflation. A decision model represents our
understanding of an evaluation situation. There are three types of nodes in a decision
tree:
Decision nodes, represented by squares, are variables or actions that the decision
maker controls.
Chance event nodes, represented by circles, are variables or events that cannot
be controlled by the decision maker.
Terminal or end nodes, represented in a decision tree diagram by unconnected
branches, are endpoints where outcome values are attached.
By convention, the tree is drawn chronologically from left to right and
branches out,
like a tree lying on its side. Decision tree analysis language includes colourful
biological analogies. The starting (usually) decision node is called the root, and
the radial lines are called branches (sometimes twigs). The terminal nodes are
sometimes called leaves, and an overly complex tree bears the label, a bushy mess.
The decision trees are commonly used in operations management specifically in
decision analysis to help identify a strategy most likely to reach a goal.
Define Uncertainty
Uncertainty can be defined as the deviation from the expected outcome. It is a
comprehensive term which considers situations which are both positive (chance) and
negative(threats). The uncertainty is primarily affecting the supply chain in four ways:
1. Adding ost;
2. Increasing inventory levels;
3. Increasing lead-times; and
4.Reducing speed to market.
What are the factors influencing network decision
Strategic factors
Technological factors
Macro-economic factors
Political factors
Infrastructure factors
Competitive factors
Customer response time and local presence
Cost of logistics and facilities
Write short note on Optimized network
Optimization models come in a wide variety of complexity and sophistication, with
prices to match. They are typically linear or mixed-integer programs that are capable of
determining an “optimal” distribution network based upon the data, assumptions, and
parameters provided. Changes to any of the assumptions, parameters, or data will cause
the model to yield a different result. Therefore, they are very dependent on the quality of
the data and parameters and the experience of the individual performing the modeling
analysis. An optimization-modeling program is more sophisticated than a Centroid
analysis, but it is limited to evaluating a static range of variables. If a network can be
described by summarized data, or by looking individually at one or more slices in time,
then an optimization model is very effective.
What is drop shipping:
In this type of distribution network product is shipped directly from the
manufacturer to the end customer, bypassing the retailer. Information flows from the
customer via the retailer, to the manufacturer, and product is shipped directly from the
manufacturer to the customer .
What is in-transit merge:
 It combines pieces of order coming from different locations so that the
customer gets a single delivery. Eg dell
Four phases in network design decisions:
Define a supply chain strategy
Define the regional facility configuration
Select a set of desirable potential sites
Location choices
Models for facility location:
Network optimization model: Network optimization solves for the optimal supply
chain network design with the lowest total cost structure given a set of constraints.
Network optimization is typically defined into three segments: Sourcing,
Manufacturing and Distribution optimization.
What is the role of IT in sourcing?
Design collaboration
Source (sourcing software assists in the qualification of suppliers)
Negotiate (negotiation with suppliers)
Buy (the actual procurement of materials from suppliers)
Supply collaboration
What is logistics information system
Logistics information systems are a subset of the firm’s total information system, and
it is
directed to the particular problems of logistics decision
making. There are three distinct elements that make up this
system:
1. the input
2. the database
3. and the output
The Inputs
The inputs are data items needed for planning and operating logistics system obtained
from sources like customers, company records, and published data and company
personnel.
The Database
Management of the database involves selection of the data to be stored and
retrieved,
choice of the methods of analysis and choice of the basic data-processing
procedures. The Outputs
 The outputs of a logistics information system
include:
1. summary reports of cost or performance statistics,
2. status reports of inventories or order progress,
3. exception reports that compare desired performance with actual
performance,
4. Reports that initiate action.
Write short note on sources of uncertainty
There are three distinct sources of
uncertainty
Supply uncertainty caused by variability of supplier performance
Process uncertainty caused by problems in the manufacturing facility
Demand uncertainty caused by irregularity in customer orders.
List the components of inventory
Cycle Inventory
Safety Inventory
Seasonal Inventory
What are the different categories of inventory
(i) Raw Materials:
These are those goods which have been purchased and stored for future productions.
These are the goods which have not yet been committed to production at all.
(ii) Work-in-Progress:
These are the goods which have been committed to production but the finished goods
have not yet been produced. In other words, work-in-progress inventories refer to
‘semi- manufactured products.’
(iii) Finished Goods:
These are the goods after production process is complete. Say, these are final
products of the production process ready for sale. In case of a wholesaler or retailer,
inventories are generally referred to as ‘merchandise inventory’.
What is the objectives of inventory management
There are two main objectives of inventory management:
1. Making Adequate Availability of Inventories:
The main objective of inventory management is to ensure the availability of
inventories as per requirements all the times. This is because both shortage and
surplus of inventories prove costly to the organization.
Minimising Costs and Investments in Inventories:
 Closely related to the above objective is to minimize both costs as well as volume of
investment in inventories in the organization. This is achieved mainly by ensuring
required volume of inventories in the organization all the times.
What is the motive of holding inventory?
There are three major motives behind holding inventories in an enterprise:
a) Transaction Motive: an enterprise maintains inventories to avoid bottlenecks in
its production and sales.
b) Precautionary Motive: Inventories are also held with a motive to have a cushion against
unpredicted business.
c) Speculative Motive: An enterprise may also hold inventories to take the advantages of
price fluctuations. Suppose, if the prices of raw materials are to increase rather steeply,
the enterprise would like to hold more inventories than required at lower prices.
What are the costs of holding inventory?
Material cost: These include costs which are associated with placing of orders to
purchase raw materials and components.
Carrying cost: These include costs involved in holding or carrying inventories like
insurance charges for covering risks, rent for the floor space occupied, wages to
labourers, wastages, obsolescence or deterioration, thefts, pilferages, etc.
What is bull whip effect?
The bullwhip effect is an observed phenomenon in forecast-driven distribution
channels. It refers to a trend of larger and larger swings in inventory in response to
changes in customer demand, as one looks at firms further back in the supply chain for
a product.
What is safety stock?
Safety stocks are maintained as a safeguard against uncertainities of demand and
supply. In countries where transportation and supply uncertainities are large, safety
stock constitutes a significant portion of a firm’s inventory.
What is risk pooling?
Risk pooling suggests that demand variability is reduced if one aggregates
demand across locations because as demand is aggregated across different locations,
it becomes more likely that high demand from one customer will be offset by low
demand from another. This reduction in variability allows a decrease in safety stock
and therefore reduces average inventory.
What is cycle inventory?
Cycle inventory is the average inventory in a supply chain due to either
production or purchases in lot sizes that are larger than those demanded by the
customer.
 An inventory control and management practice that refers to a process of
regularly scheduled
Inventory counts (usually daily) that "cycles" through your inventory. Using
a “volume based” cycle count strategy, users determine how often certain items or
locations are counted using frequency or dollar values segregated into “ABC”
categories. Another method is ‘geographic based” where complete counts are
sequenced to allow for a complete cycle through the facility within a given time frame.
Cycle counting can eliminate the need for wall to wall physical counts and can
maintain a higher level of on-going accuracy.
What is sourcing in SC?
It is the choice of who will perform a particular supply chain activity such as
production, storage, transportation, or the management of information.
Differentiate between Centralized and decentralized warehousing.
In centralized warehousing, a single warehouse serves the whole market, while
in
decentralized warehousing the market is divided into different zones, each of which is
served by a different (smaller) warehouse.
Decentralized warehousing leads to reduced lead times since warehouses are
much closer to customers. On the other hand, centralized warehousing is characterized
by lower facility costs because of larger economies of scale.
Define TL
Truckload shipping is the movement of large amounts of homogeneous cargo,
generally the amount necessary to fill an entire semi-trailer or intermodal container. A
truckload carrier is a trucking company that generally contracts an entire trailer-load
to a single customer. This is as opposed to a less-than truckload (LTL) company that
generally mixes freight from several customers in each trailer. One advantage Full
Truckload (FTL) carriers have over Less than Truckload carriers is that the freight is
never handled en route, whereas an LTL shipment will typically be transported on
several different trailers.
Define LTL
A term common to the shipping industry is LTL or “less than truck load.” That means
that the item being shipped will not take up the entire available space on the truck. FTL
or “full truck load” means that the load will fill up the entire truck. Shippers that
accommodate full truck loads cater to those customers who typically ship in bulk. The large
amount of goods being shipped offsets the cost of a larger truck.
What are the different modes of transportation?
Supply chains use a combination of the following modes of transportation
Air
 Package carriers
Truck
Rail
Water
Pipeline
intermodal
What is intermodal transportation?
Intermodal transportation is the use of more than one mode of transport to move
a
shipment to its destination. A variety of intermodal combinations are possible with the
most common being truck/rail.
What are various considerations when designing a transportation network?
Should transportation be direct or through an intermediate site
Should the intermediate site stock product or only serve as a cross docking
location
Should delivery route supply a single destination or multiple destinations
What is milk run?
Milk run is a route on which a truck either delivers product from a single supplier to
multiple retailers or goes from multiple suppliers to a single buyer location.
What is information in SC?
Information consists of data and analysis concerning facilities, inventory,
transportation, costs, prices and customers throughout the supply chain.
What is the role of transportation in SC?
It is facilities moving inventory from point to point in the supply
chain. Transportation is an important supply chain driver because products are
rarely produced and consumed in the same location. Transportation is a significant
component of the costs incurred by most supply chains.
Define reverse logistics.
Reverse logistics is the process of moving goods from their typical final
destination for the purpose of capturing value, or achieving proper disposal to the
satisfaction of the customer or consumer.
Define Cross-dock.
Cross-docking is a practice in the logistics of unloading materials from an incoming
semi- trailer truck or railroad car and loading these materials directly into outbound
trucks, trailers, or rail cars, with little or no storage in between. This may be done to
change the type of conveyance, to sort material intended for different destinations, or to
combine material from different origins into transport vehicles (or containers) with the
same destination or similar destinations.
List the factors influencing the design of packaging.
The type of product to be packed
The cost of the product
The amount of handling that the product has to go through
Package should facilitate handling
Ability to be reused
Ability to be disposed
Its effect on environment
Differentiate between inbound and outbound logistics.
Inbound logistics: The management of materials from suppliers and vendors into
production processes or storage facilities.
Outbound logistics: The process related to the movement and storage of products from
the end of the production line to the end user
Design options or types of distribution network:
Manufacturer storage with direct shipping
Manufacturer storage with direct shipping and in-transit merge
Distributor storage with package carrier delivery
Distributor storage with last mile delivery
Manufacturer/Distributor storage with customer
pickup Retail storage with customer pickup
What are the elements of customer service/needs?
Response time
Product variety
Product availability
Customer experience
Order visibility
Returnability
Elements of cost of meeting customer needs:
Inventories
Transportation
Facilities and handling
Information
Role of network design in the supply chain:
 Facility role Facility
allocation Capacity
allocation
Market and supply allocation
factors influencing network design decisions:
Strategic factors
Technological
Macroeconomic
Political
Infrastructure
Competitive
Socioeconomic
What is 3PL?
A third party logistics provider that performs one or more of the logistics activities
relating to the flow of product, information and funds that could be performed by the
firm itself.
Eg: UPS & FedEx
Define 4PL?
4PL is an integrator that assembles the resources, capabilities and technology of its
own organization and other organizations to design, build and run comprehensive
supply chain solutions.
What are the risks of using a third party?
The process is broken
Underestimation of the cost of co-ordination
Reduced customer/supplier contact
Loss of internal capacity and growth in third party power
Leakage of sensitive data and information
Ineffective contracts
Trade-off between transportation and inventory costs
The trade-off between transportation and inventory costs is significant when designing a
supply chain network. Two fundamental supply chain decisions involving this trade-off
areChoice of transportation mode Inventory aggregation
Hard infrastructure, also known as tangible or built infrastructure, is the
physical infrastructure of roads, bridges, tunnels, railways, ports, and harbors
Uncertainty in supply chain network design?
Supply chain uncertainty is defined as uncertainties that may occur at any point within a
global supply chain network, leading to positive or negative outcomes. actors may
significantly increase the uncertainty in a supply chain network, but other frequent
parameters of uncertainty are product demand, raw material prices, costs (energy, labor,
production and transportation costs) and lead times

Decision Tree?
Decision tree analysis involves making a tree-shaped diagram to chart out a course of action
or a statistical probability analysis. It is used to break down complex problems or branches.
Each branch of the decision tree could be a possible outcome
Significant factors to be considered during supply chain design decision
Market Structure.
Demand Plotting or Estimation.
Market Segment.
Procurement Cost.
Product /Conversion Costs.
Logistics Costs including Inventory holding costs.
Over heads.
Cost of Sales

Framework of SCM Network Decision

Supply chain risks and Risk mitigation strategy to be considered during Network
design

Types of risk to consider when transporting a shipment between two nodes on the network:
1. The risk that the shipment is delayed
2. The risk that the shipment does not reach its destination because intermediate nodes or
links are disrupted by external forces
3. The risk of hazardous material
MAKING SUPPLY CHAIN DESIGN DECISIONS UNDER UNCERTAINTY IN PRACTICE
Combine strategic planning and financial planning during network design. In most
organizations, financial planning and strategic planning are performed independently.
Strategic planning tries to prepare for future uncertainties but often without rigorous
quantitative analysis, whereas financial planning performs quantitative analysis but
assumes a predictable or well-defined future. This chapter presents methodologies that
allow integration of financial and strategic planning. Decision makers should design
supply chain networks considering a portfolio of strategic options--the option to wait,
build excess capacity, build flexible capacity, sign long-term contracts, purchase from
the spot market, and so forth. The various options should be evaluated in the context of
future uncertainty.
2. Use multiple metrics to evaluate supply chain networks. As one metric can give only
part of the picture, it is beneficial to examine network design decisions using multiple
metrics such as firm profits, supply chain profits, customer service levels, and response
times. Good decisions perform well along most relevant metrics

3. Use financial analysis as an input to decision making, not as the decision-making

process. Financial analysis is a great tool in the decision-making process, as it often
produces an answer and an abundance of quantitative data to back up that answer.
However, financial methodologies alone do not provide a complete picture of the
alternatives, and other nonquantifiable inputs should also be considered.
4. Use estimates along with sensitivity analysis. Many of the inputs into financial analysis
are difficult, if not impossible, to obtain accurately. This can cause financial analysis
to be a long and drawn-out process. One of the best ways to speed the process along
and arrive at a good decision is to use estimates of inputs when it appears that finding
a very accurate input would take an inordinate amount of time. As we discuss in some
of the other practice-oriented sections, using estimates is fine when the estimates are
backed up by sensitivity analysis. It is almost always easier to come up with a range for
an input than it is to come up with a single point. By performing sensitivity analysis on
the input's range, managers can often show that no matter where the true input lies
within the range, the decision remains the same. When this is not the case, they have
highlighted a key variable to making the decision and it likely deserves more attention
to arrive at a more accurate answer. In summary, to make supply chain design decisions
effectively, managers need to make estimates of inputs and then test all recommendations
with sensitivity analysis.

1. Identify uncertainties that influence supply chain performance and network design.
The main financial measurement for evaluating supply chain alternatives is the present
value of the stream of cash flows generated by each alternative. These streams are affected
by uncertainty of demand, price, exchange rates, and other economic factors. These
uncertainties
and any flexibility in the supply chain network must be taken into account when
valuing the cash flows.
· 2. Understand the methodologies used to evaluate supply chain decisions under
uncertainty.
When valuing the streams of cash flows, decision trees are a basic approach to valuing
alternatives under uncertainty. Incorporating a binomial representation of uncertainty
allows the decision tree to value alternatives given uncertainty. When decision trees become
too complex to solve reasonably, simulation can be used to perform financial evaluations on
the decision alternatives.
3. Analyze supply chain network design decisions in an uncertain environment.
The basic steps in analyzing network design decisions involve gathering financial data
on the alternatives, determining what the uncertainties affecting the decision are,
quantifying
the cash flows for each alternative in each time period, quantifying the uncertainties'
impact on the cash flows, and using one of the methodologies to calculate a financial
valuation
for the different alternatives.

Develop a framework for making network design decisions.

The goal of network design is to maximize the supply chain's long-term profitability.
The process starts by defining the supply chain strategy, which must be aligned with the
competitive
strategy of the firm. The supply chain strategy, regional demand, costs, infrastructure,
and the competitive environment are used to define a regional facility configuration.
For regions where facilities are to be located, potentially attractive sites are then selected
based on available infrastructure. The optimal configuration is determined from the
potential
sites using demand, logistics cost, factor costs, and margins in different markets.
4. Use optimization for facility location and capacity allocation decisions.
Gravity location models identify a location that minimizes inbound and outbound
transportation
costs. They are simple to implement but do not account for other important costs.
Network optimization models can include contribution margins, taxes, tariffs, production,
transportation,
and inventory costs and are used to maximize profitability. These models are useful
when locating facilities, allocating capacity to facilities, and allocating markets to facilities

Understand the role of network design decisions in supply chain.

Network design decisions include identifying facility roles, locations, and capacities as
well as allocating markets to be served by different facilities. These decisions define the
physical constraints within which the network must be operated as market conditions
change. Good network design decisions increase supply chain profits, whereas poor network
design hurts profits.

MAKING NETWORK DESIGN DECISIONS IN PRACTICE

Do not underestimate the life span of facilities.
Do not gloss over the cultural implications
Do not ignore quality-of-life issues
Focus on tariffs and tax incentives when locating facilities

Routing in Supply chain

Routing is defined as the process of creating the most cost effective route through minimization of
distance or travel time necessary in order to reach a set of planned stops. Routing is a crucial process of
logistics systems, especially due to the high competition and narrowing margins in the global
market. Route analysis is the operation which aims at minimizing the cost of travel involved in
transporting goods from one location to another

Intermodal transportation?
Intermodal transportation means moving large-sized goods in the same steel-based containers through two
or more modes of transport. It's a typical way of moving goods in modern times. Intermodal transfer may
involve truck, rail, ship, and then truck again
Reverse logistics network
Reverse logistics is a type of supply chain management that moves goods from customers
back to the sellers or manufacturers