Operations and Supply Chain Management

OPMC002
Global Supply Chain: Distribution
• Supply Chain deals with transformation of raw materials to finished goods and
getting it to the customers.
• Goals of Global SC:
• Develop and maintain strategic and operational aspects of global supply chains
• Have knowledge of and leverage the worldwide infrastructure for global supply
chains
• Manage coordination and integration of global supply chains.

• Logistics details the movement of material in the whole supply chain.

• Logistics decisions can be classified as:

(a) Outbound Logistics Decisions
(b) Inbound Logistics Decisions and
(c) Returned Products (Reverse Supply Chain).
The role of logistics function in supply chain are: 
• Transportation
• Warehousing
• Logistics experts 
• 3rd Party Logistics (3PL): Manage one or more logistics
services in upstream, process and/or downstream
chains.
• 4th Party Logistics (4PL):  Logistics specialists playing
the role of contractor to manage all the logistics
related activities across upstream, process and
downstream value chain.
• Reverse Logistics:
Modes of Transportation
• Transportation modes enable the
movement or mobility of physical goods
or passengers.

•  Following are modes of transport: i) Land

(Road, Rail), ii) Water iii) Air iv) Pipeline. 
• The Freight (Physical goods)
transportation mode selection is
dependent on:
• Characteristics (Weight, Size,
Perishability etc.) of Physical goods  
• Distance to be transported
• Modal availability 
 Modes of Transportation
Characteristics of Road Water Railway Air Pipeline
Freight Transport

Infrastructure  Common Public Natural Special Public Natural air way, Special Piping
road Waterways, rails Airports and controlling
Artificial infrastructure,  essential infrastructure 
water-
connecting
canals
Transportation Door-to-Door Port-to-Port Between cargo Between Between output
railways stations Airports and input points
ensuring
continuous flow

Transportation Varying load and Higher Standardized Standardized Continuous flow,

modes capacity vehicles volume, bulky rolling stock  transport means no transportation
and container load of limited mode required
volumes nomenclature
 Modes of Transportation

Characteristics of Road Water Railway Air Pipeline

Freight Transport

Type/Nomenclature Wide, but mostly No limitations Wide, but mostly Wide, but mostly Liquid, gases,
of Freight limited by handling limited by handling limited by handling Granular cargo 
capacities capacities capacities

Schedule Free As per As per train Timetable Continuous

navigation schedule
condition

Stability Dependent on road Dependent on Dependent on Dependent on High

and weather condition weather weather conditions weather conditions
conditions

Safety Higher accident risks Relatively high Relatively-high Relatively-high Higher

Sustainability Large emission Lower emission Medium emission Medium emission Low emissions
volumes volumes volumes volumes
Intermediaries in Global Distribution systems
• Freight Forwarders: The most common
intermediaries, freight forwarder can handle almost
all the logistical aspect of the transactions after
completion of sale. Takes logistic responsibility
from Pick-up point to Shipping lines.
• Non-vessel Operating Common Carriers
(NVCOCCs): Does not own “Ships”- thus known as
non-vessels, but works on the behalf of shipping
company. Have the legal authority to issue House
Bill of lading (HB/L), acknowledging the receipt of
cargo for shipment. 
• Export Management Companies: Independent
private company that acts as an export department
for several non-competing manufacturers and
suppliers.
• The other important intermediaries are- i) Export
Packers, ii) Customs Brokers, iii) Goods Surveyors,
iv) Parts banks, v) Container Leasing companies and
vi) Export Trading Companies. 
 Shipping Methods

• Shipping process is defined as the process of

shipping goods to overseas. The choice of shipping
method is function of:
• Overall Packing size
• Total Cubic measurements
• Total weight to be shipped
• There are three main methods of Shipping:
• Full Container Load (FCL): Used when exporting the
full container products. 
• Less than container Load (LCL): Smaller amount of
cargo i.e. not big enough to fill full container load
• Breakbulk shipping: Used to ship oversized cargos
that will not ship inside the shipping containers
FORECASTING
• Forecasting is the process of estimating a future
event by casting forward past data

• Forecasting is the scientific function to the

operations management, to understand the
customer demand

• Forecasting is a vital function and affects every

significant management decision
 Forecasting

Qualitative
methods Quantitative
methods

Time series Causal/Explanator

Jury of models
Executive
opinion

Smoothing Decomposition
Regression
Sales force
composite

Simple average Additive

Consumer
market survey

Moving Multiplicative
average
Delphi
technique
Exponential
Smoothing
Nominal GD
 Qualitative Methods 

• Jury of Executive opinion- 
Opinions of Higher levels of managers in combination with statistical models are
utilized to group the estimate of demand. 
• Sales Force Composite- 
Each sales  person estimates what sales will be in his/her region. This forecast is
then reviewed to ensure they are realistic and then combined at the district and
national levels to reach an overall forecast.
• Consumer Market Survey-
 Utilizing inputs from potential customers and consumers regarding future
purchase plans. This method is also handy in improving product design, and
planning for new products. 
 Qualitative Methods 

• Delphi Method- 
process intended to achieve consensus forecasts, specifically avoiding direct inter-
personal relations. 
Primarily, three different participants in Delphi methods are- i) Decision makers/ expert
ii) Staff personal/ coordinator, iii) Respondents. 
Procedure followed stepwise is as follows: 
• Posing questions to participants
• Writing brief prediction 
• Co-coordinator collating, and editing the prediction inputs together 
• Requisitioning on the  basis of input responses received. 
• Feedbacks in writing 
• Re-updating of the feedback and synthesizing the consensus
• Nominal Group Discussions: 
Process is similar  to Delphi technique, only difference is – experts are allowed to sit in a
group, discuss, debate and synthesize the consensus. 
 Quantitative Methods
time series model 
smoothing 

•   Assumptions : future is the function of past. 

• The past trends and historical data is utilized to for the forecasting. 
• Some of the basic tools of time series smoothing models are
 i) Simple Average
 ii) Moving Average 
iii) Exponential Smoothing. 
1.     Simple Average 

•  Depends on the detecting the central tendency of demand 

If,  Di – demand of the ith period  

     n- no. of periods  

X=  sum of demands for all the periods number of periods/ 
number of periods

• One of the disadvantage of this method, extreme outliers and values

affect the central tendency, and affect the results.  
 Example,  

Consider the Tata Sky  monthly new connections  in a city are as follows:
January  February   March   April   May   June 

200  250  260 280  270 290

Forecast, the demand for July month 

2.      Moving Average

A moving average forecast uses a  number of recent actual data

values from several of the most recent periods to generate a
forecast. 
Month  Actual Sales  Forecast 

January  200 

February  268 

March  285 

April  280  (200+268+285)/3= 251 

May  -  (268+285+280)/3= 277.66 ≈ 278 

3.     Exponential Smoothing 

•   The pattern of weights of demand follows the exponential

demand.

•  Demand for the most recent period is weighted most heavily

•  The basic exponential smoothing formula for creating a new

or updated forecast (Ft) uses two pieces of information: 

i) actual demand for the most recent period (Dt-1)

 ii) Most recent demand forecast (Ft-1). 
3.     Exponential Smoothing 

Exponential smoothing based demand is forecasted using: 

Ft=αD(t−1)+(1−α)F(t−1)Ft=𝛼D(t−1)+(1−𝛼)F(t−1) -------------------------
(1)
Where, 
F= Forecast
𝛼 = Smoothing coefficient (0≤ 𝛼 ≤ 1) 
D = Demand 
t = is the period 
t-1 = immediate previous period. 
Expanding the exponential form, the equivalent form of equation (1)
becomes, 
Ft=α(1−α)0Dt−1+ α(1−α)1Dt−2+ α(1−α)2Dt−3Ft=𝛼(1−𝛼)0Dt−1+ 𝛼(1−𝛼)
1Dt−2+ 𝛼(1−𝛼)2Dt−3
3.     Exponential Smoothing 

 Example, 
Company develops and launches new product in August 2021. The actual
sales of product in September and October 2021 were 200 and 350 units
respectively. Forecast for month September was 200 units. Considering the
given forecasts and sales values, predict the demand for November
month. (take  α =0.7)

Step 1: Calculation of Forecast for immediate previous month  

F October = αD September + (1- α) F September
F October = (0.7*300) + [(1-0.7) * 200]
F October = 270 units 
Step 2: Calculation of Forecast for the required period  
F November = αD October + (1- α) F October 
F November = (0.7 * 350) + [(1-0.7) *270] 
F November = 326
 Quantitative Methods
time series model 
Decomposition

•   directs the separation of series into the basic components that are likely to
have predictable or more recognizable pattern.
• Four basic types of time series components are-
         a) Trend, b) Cyclical, c) Seasonal, and d) Random. 
• General forms of the time series decomposition model are:
      i) Multiplicative Model (Forecast is done by multiplying time series components) 
      ii) Additive Model (Forecast is done by adding the time series components).
 Quantitative Methods
time series model 
Decomposition

If,    TF = time series forecast

       T= trend component
        S= measure of seasonality
        C= measure of cyclical adjustment
        R= random component 
Then, 
• Multiplicative model,
               TF= T x S x C x R

•  Additive Model, 
                TF = TF= T + S + C + R
 Quantitative Methods
Causal / Regression Model 

• Regression model is a causal forecasting technique output that establishes a

relationship between variables. There is one dependent variable and one or
more explanatory variables.
•  Historical data establishes a functional relationship between the two variables. 
• If there is one explanatory variable it is called simple regression, otherwise, it
becomes multiple regression. 

• If the model takes the shape of a linear equation, we call it simple linear
regression or multiple linear regression models.

•  Normally least square curve fitting technique is used to develop the

models for fitting a line to a set of points.
 Quantitative Methods
Causal / Regression Model 

• The objective in linear regression is to obtain an equation of a straight

line that minimizes the sum of squared vertical deviations of data points
from the line.
•  This least square curve has the equation:
             Y = a + bX

Y- Dependent variable (Predicted)- Normally drawn on Y axis 

X- Explanatory variable - Normally drawn on X axis
a- value of predicted variable (Y) when x = 0 (Y-intercept value of the line)
b- slope of line (Change in Y corresponding to a unit change in X). 
 Quantitative Methods
Causal / Regression Model 

• The coefficients a and b of the regression line are computed using the following two

equations:
 Quantitative Methods
Causal / Regression Model 

Example: 
A firms sales for a product line during the 12 quarters of the past three years were as
follows.
Quarter  Sales  Quarter  Sales 
1  600  7  2600 
2  1550  8  2900 
3  1500  9  3800 
4  1500  10  4500 
5  2400  11  4000 
6  3100  12  4900 
Forecast the sales for the 13, 14, 15 and 16th quarters using a regression equation. 
 Quantitative Methods
Causal / Regression Model 

Y = 400 + 382X 
The forecasts for quarters 13 to 16 are 

Quarter  Forecast 
13  400 + 382(13) = 5366 
14  400 + 382(14) = 5748 
15  400 + 382(15) = 6130 
16  400 + 382(16) = 6512