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Nilanchal Sahu

Assignment

Subject Code No-ML0001

Q-1. Write a brief note on building consumer driven supply chain networks.

Consumer-driven supply is an innovative approach to design supply chain network and

operations.  It means designing single supply chain network into a more commercially
competitive tool to deliver offering in order to win over consumer’s preferences or choice. It
acts as a substitute for the traditional supply chain network designed to deliver goods and
services to the customers which was regarded as a cost centre, where savings were driven
by simplification and automation.

Today’s Consumers and customers are more demanding, there’s more complexity in their
decision making process due to wide range of products, increased brand awareness and
fuelling consumers knowledge through mass advertising, high level of inventory and
shrinking of the world into one single market.

In building consumer oriented supply chain networks, companies must adopt a CRM Tool
known as Efficient Customer Response (ECR). ECR is an initiative which is a blueprint for
building an industry wide solution to counteract competitive deterioration.

Consumer-driven supply is a strategic business tool which demands that profits and supply
functions work in a preserved environment to create value for customers.  This requires
partnership, aligned measures and a much more multi level functional aspects to redesign
the organization structure.

Overall, the focus is on improving fast and accurate information flow up the network and
fast and efficient product flow down it.  Specifically, this means reducing end-to-end supply
network time, driving out non-value-added complexity and inventory, and providing
differentiated service and product solutions.

The term “supply chain” evokes the image of a predefined and fixed series of linkages,
which are serially connected and unidirectional – currently an accurate description in most
cases. The traditional supply chain exists within the “four walls” of an enterprise, where
material and information flow linearly along fixed routes starting with the receipt of raw
material through to shipment of the customer order. Some supply chains have been
extended to share information with trading partners, though these relationships are
generally limited to long-established, trusted customers and suppliers. To address the
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looming competitive, consumer and regulatory pressures, consumer products companies

must transform their linear, internally-focused supply chains into consumer-driven supply

chain networks.

The consumer-driven supply chain network is best thought of as a dynamic construct of

organizations and supply chains that come together, at a given point in time, to provide a
seamless pipeline for products and information from source suppliers through to end
consumers. This union may be temporary – perhaps a single transaction – or an enduring
alliance. It will consist of multiple partners, each with a role to play: from brand owners,
product designers and contract manufacturers, through to co-packers and other service
providers which, when combined, act as a single entity to deliver the overall business value
sought by retail customers and consumers.

The advent of customer centric era took place in the early 1960s, arguably during the heyday
of the producer centric era. During the past decade the business landscape has changed
dramatically. Following points explain the changes.

1. Consumers, not producers, have become the dominant component. Today the production
capacity is greater than product demand for the majority of industries. Prices are
determined by competitive market forces and not set by the producer. The purely internal
focus of the standard cost system is no longer valid.

2. The local optimisation view encouraged by the competitive strategies did not often result
in global improvement. Quite to the contrary, actions take n to improve the cost
performance at one stage actually created more costs elsewhere, creating higher
inventories and other inefficiencies.

3. Factors such s reliability of deliveries, quality of products, speed with which orders can be
filled and variety of products offered are the dominant factors determining a company’s
competitive position.

4. Direct labour cost on which most allocation decisions were made, was no longer the
major cost component.

Supply chain Networks

Q-2. Write short notes on CPFR.Give a real time example of a business setup which
practices the CRPF Strategies.

The Voluntary Interindustry Commerce Standards Association (VICS) has defined CPFR as "a
business practice that combines the intelligence of multiple partners in the planning and
fulfillment of customer demand." According to VICS, since 1998, "’over 300 companies have
implemented the process." In this section we describe CPFR and some successful
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implementations. It is important to understand that successful CPFR can only be built on a

foundation in which the two parties have synchronized their data and established standards
for exchanging information.

Sellers and buyers in a supply chain may collaborate along any or all of the following four
supply chain activities.

1. Strategy and planning: The partners determine the scope of the collaboration and assign
roles, responsibilities, and clear checkpoints. In a joint business plan they then identify
significant events such as promotions, new product introductions, store openings/closings,
and changes in inventory policy that affect demand and supply.

2. Demand and supply management: A collaborative sales forecast projects the partners’
best estimate of consumer demand at the point of sale. This is then converted to a
collaborative order plan that determines future orders and delivery requirements based on
sales forecasts, inventory positions, and replenishment lead times.

3. Execution: As forecasts become firm, they are converted to actual orders The fulfillment
of these orders then involves production, shipping, receiving, and stocking of products.

4. Analysis: The key analysis tasks focus on identifying exceptions and evaluating metrics
that are used to assess performance or identify trends.

A fundamental aspect of successful collaboration is the identification and resolution of

exceptions. Exceptions refer to a gap between forecasts made by the two sides or some
other performance metric that is falling or is likely to fall outside acceptable bounds. These
metrics may include inventories that exceed targets or product availability that falls below
targets. For successful CPFR, it is very important to have a process in place that allows the
two parties to resolve exceptions. Detailed processes for identifying and resolving
exceptions are discussed in the VICS CPFR Voluntary
Guidelines V 2.0 (2002)

One successful CPFR implementation has involved Henkel, a German detergent

manufacturer, and Eroski, a Spanish food retailer. Prior to CPFR Eroski saw frequent stock
outs of Henkel products, especially during
promotions. At the inception of CPFR in December 1999, 70 percent of the sales forecasts
had an average error of over 50 percent and only 5 percent of the forecasts had errors under
20 percent. Within four months of the CPFR implementation however, 70 percent of the
sales forecasts had errors under 20 percent and only 5 percent had errors over 50 percent.
CPFR resulted in a customer service level of 98 percent and an average inventory of only five
days. This was accomplished despite 15 to 20 products being promoted every month.
Another successful implementation involved Johnson & Johnson and Superdrug. a chain in
the United Kingdom.
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It enables companies to have the product in the right place at a right time. Yet still achieve a
major reduction in inventory, lower total value of inventory, increase inventory turns,
improve service and ultimately gain a competitive advantage. The question is, has supply
chain collaboration really been adopted? In some industries, yes for example, collaboration
throughout the supply chain is gaining strong support in the retail industry where
companies, such as Wal-Mart, share specific real time information with their vendors on a
continual basis. The data Wal-mart collects contains a wealth of significant sales and
customer-demand information.

Wal-mart knows how to use such information to keep its stores, merchandisers, distribution
centers and suppliers in synchronization. Modern retailers and manufacturers are becoming
more and more market driven. The Internet revolutionized the value chain by hype around
online retailing and the introduction of Business-to-Business (B2B), e-commerce. One can
visualize that a number of e-marketplaces are becoming mature by introducing new
communication standards and collaborative planning, forecasting and Replenishment
(CPFR) initiatives.

For years, companies have engaged in the traditional behavior of pushing the supply chain
slack downstream. But now the time has come for organizations to work together to take
time and cost out of the entire length of the value chain. The evidence certainly exist that
cost savings and time-to-market gains are there. This really is a win-win situation for
everyone involved. Companies can realize time and cost gains, and reduce obsolescence risk,
by setting up collaborative Supply Chain Management- typically Internet portals that can run
on electronic exchanges and provide shared access to relevant data to all collaborators.

There are secured and collaborative environments that allow all authorized parties to use
common standards and data formats for product identification and work flow. By sharing
and synchronizing supply and demand plans, for example, companies can lower cost
through reduced inventory holdings, maximize profits through enterprise price
optimization, and increase sales through better forecasting, grater customer satisfaction
and the ability to respond both more quickly aPractice of Integrative Supply Chain

Celestica Global Supply Chain links more than nine million square feet of manufacturing
space in more than forty locations around the world and the organization purchases over
300,000 different parts from more than 2,000 vendors. The benefits derived are”

· Accurate inventory availability

· Inventory reduction

· Real-time material tracking

· High inventory turns

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· Lower Operational cost

· Electronic collaboration with vendors/customers

· Quick reaction to sudden demand/supply changes.

· Low transportation cost.

· Full real time visibility

· Order cycle-time reduction

· Improvement of partner relationship management

· Better delivery performance

· Customer satisfaction increase

· Emergency actions reduction.nd more proactively to changes in demand.

Q-3. Write Short notes on :

a. Bullwhip Effect

Supply chain coordination improves if all stages of the chain take actions that together
increase total supply chain profits. Lack of coordination in supply chain leads to degradation
of responsiveness and increases cost. There are various obstacles that lead to this lack of
coordination and exacerbate variability through the supply chain. Supply chain coordination
requires each stage of the supply chain to take into account the impact its actions have on
other stages.

Lack of coordination occurs either because different stages of the supply chain have
objectives that conflict or because information moving between stages is delayed and
distorted. Different stages of a supply chain may have conflicting objectives if each stage has
a different owner. As a result, each stage tries to maximize its won profits, resulting in
actions that often diminish total supply chain profits.

Today, supply chains consist of stages with many different owners. For example, Ford
Motors has thousands of suppliers from Goodyear to Motorola, and each of these suppliers
has many suppliers in turn. Information is distorted as it moves across the supply chain
because complete information is not shared between stages. This distortion is exaggerated
by the fact that supply chains today produce a large amount of product variety. Ford
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produces many different models with several options for each model. The increased variety
makes it difficult for Ford to coordinate information exchange with thousands of suppliers
and dealers. The fundamental challenge today is for supply chains to achieve coordination in
spite of multiple ownership and increased product variety.

Many firms have observed the Bullwhip effect in which information in orders increase as
they move up the supply chain from retailers to wholesalers to manufacturers to suppliers.
Bullwhip effect distorts demand information within the supply chain, with each stage having
a different estimate of what demand looks like. The result is a loss of supply chain
coordination.

Minor changes in demand at the end user or the retail level results in huge variations in the
demand at upstream enterprises in te supply chain. This phenomenon, termed the Bullwhip
effect, owes its origin to the fact that a slight motion of the handle of a bullwhip can make
the tip of the whip thrash widely.

In this context of supply chain, the bullwhip effect manifests itself through increasing
demand variability as you move upstream in the supply chain. That is, small shifts in the level
of customer demand experienced by the retailer are magnified as the demand information is
passed up the supply chain creating increasingly higher variation in the orders received by
upstream suppliers.

The Bullwhip Effect or Whiplash Effect is an observed phenomenon in forecast-driven

distribution channels. The concept has its roots in J Forrester’s Industrial Dynamics (1961)
and thus it is also known as the Forrester Effect. Since the oscillating demand magnification
upstream a supply chain reminds someone of a cracking whip it became famous as the
Bullwhip Effect.

Unexpected changes in demand patterns will continue to escalate further up the supply
chain. Problems tend to escalate in supply chains where communication is minimal between
supply nodes.  In virtually all cases, the inventory levels of the retailer decline, followed in
sequence by a decline in the inventory of the wholesaler, distributor, and factory. As
inventory falls, players tend to increase their orders. Players soon stock out. Backlogs of
unfilled orders grow. Faced with rising orders and large backlogs, players dramatically boost
the orders they place with their supplier. Eventually, the manufactures ships this huge
quantity of beer, and inventory levels surge. In many cases one can observe a second cycle.

The bullwhip effect results in tremendous inefficiencies in supply chain. It results in excessive
inventory investment, poor customer service, lost revenues, misguided capacity plans and
ineffective transportation and production schedules. Many enterprises have gained
significant competitive advantages by understanding the underlying causes of the bullwhip
effect and working with their supply chain partners to reduce it. This, in turn, enables them
to reduce inventories and become more responsive to customer demand.
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It is an exercise that showcases the problems that arise in a company with minimal
communication in the supply chain. It is important for management to understand the
causal factors that create supply chain oscillations. Here are some examples:

· Sporadic sales promotions impact demand patterns, cost and margins

Many companies that conduct sales promotions can see significant effect on their current
inventory and the supply pipeline do not understand the impact, on a quantitative and
qualitative basis, of what their sales promotion policies and practices actually do. After
gaining a complete and accurate understanding of what sales promotions could not able to
do firm can think of “What sales promotion policies and practices should we change?”

A common complaint from the manufacturing side of the business, and a common reason
for severe demand distortions that cause supply chain oscillations, are unforecasted and
“unknown” sales promotions. These unplanned for sales promotion events ripple
throughout the supply chain creating excess costs which border on the incalculable.

· Sales incentive plan contribute to demand distortions

Sales targets, quotas and commission accelerators when applied to an extended quota
period, such as three months, will often cause demand distortion. Management needs to
examine the rationale for sales incentives to be based on shorter-intervals rather than three
months or longer. Typically, shorter measurement periods promote a smoothing of demand
resulting in decreased ordering lumps resulting in a dampening of the “Bullwhip Effect”.

B. · Advantages of CPG system:

>> Provide a Return on Investment (ROI) for the enterprise’s investment based upon
improved sales, lower production costs and fewer returns.

>> Develop an integrated to improve supply chain efficiency and reduce associated costs.

>> Base manufacturing and production planning upon market and customer demand, not
human estimation.

>> Make information accessible to participants in the manufacturing and distribution supply
chain to facilitate planning and distribution.

>> Leverage historical sales information contained within the enterprises distributed
operational systems.

>> Maintain the operational efficiency of the existing legacy applications.

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>> Implement and maintain an infrastructure that optimises the business processes and
supporting software applications, as well as minimizes Total Cost.

>> Annual reduction in network costs.

>> Optimising connectivity with distributors, yields greater revenue.

>> Reduction in inventory costs, including warehousing and logistics.

>> Production planning lead-time reduction.

>> Inventory carrying cost reduction.

>> Reduction in transportation and human resource costs as a result of greater efficiency in
the supply chain

C. Evolution of precision retailing

In order to meet the ever changing market demand, retailers must discover new tools and
techniques to analyze their business trends. Retailers use this tool of precision retailing to
meet the ever chaining and dynamic market trends. Following figure shows that how
retailers have updated themselves with adequate tools to meet the demand

Shoppers today expects more than the required level of satisfaction for the value they pay in
buying a product or service. Their expectations today are something different that of
yesterday. In this ever changing need, retailers have to know the expectations of his
shoppers and formulate strategies accordingly. A shopper expects rock-bottom prices for all
the products that he buys from a retailer. In achieving this, he would visit all the shops at his
disposal, enquiry whole range of products and the prices and they evaluate the alternatives
to arrive at the decision. Nowhere in the prices, would a shopper compromise on the quality
of the products in specialty items. This behavior of the shopper puts an obligation to the
retailer to think again to connect him to shoppers.

In achieving this, a retailer may have to take many decisions related to assortment and
variety for their products. There are number of factors which influence a retailer’s decision.

They are:

· Greater variety

· Point of purchase

· Identification of fast moving products in the shelf

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· Inventory control

· Assortment across channels

· Assortment across stores

· Customized assortments for end users

The above factors help retailer in providing category wise insights about their inventory
levels in terms of which products are selling well in which store with how much of quantity.
This information helps a retailer in correlating the effectiveness of sales with pricing, sales
with promotion etc., with the help of precision retailing, retailer will be moving from general
strategy of what customers want to specific strategies like which items would be a good fit
for each store and each customer.

Through precision retailing, a retailer can achieve number of objectives related to various
aspects of retailing including customer level as well as organizational level. Customer level
objectives are highly influenced by consumer behavior factors which are highly
uncontrollable by retailers. Organizational level objectives are set by retailers which are
influenced by customer level objectives. These organizational level objectives can be termed
as controllable variables which can be easily managed and altered by the retailers.

Precision assortment decisions are based on several criteria. Retailers before planning their
strategies should be able to answer some of the basic issues which are:

· Target customers

· Market trends

· Promotional tools

· Competitors assortment strategies

· Product line strategies

· Shelf capacity in attracting the customers etc.