Operations Compendium

GD-PI Prep Series

Opsession | The Operations Management Club

Management Development Institute, Gurgaon

Table of Contents
What is Operations Management?...............................................................................................03

Production System.......................................................................................................................03

Planning & Forecasting................................................................................................................05

Difference between Supply Chain and Logistics.........................................................................05

Challenges in Supply Chain Management...................................................................................07

MTS, ATO, MTO, ETO ..............................................................................................................10

Lead Time……………………………………………………………………………….……….11

Bottleneck………………………………………………………………………………………..13

Facility Location..………………………………………………………………………………..13

Materials management.................................................................................................................15

Procurement.................................................................................................................................15

Benefits of Inventory Management and Control.........................................................................16

5-M Model of Operations Management......................................................................................17

Pareto Principle............................................................................................................................18

Manufacturing Industry...............................................................................................................19

Banking and Financial Services Industry....................................................................................20

FMCG Industry............................................................................................................................23

Auto Industry...............................................................................................................................24

Retail............................................................................................................................................25

Infrastructure Projects: BOO, BOT, BOOT.................................................................................27

Lean Manufacturing.....................................................................................................................27

Takt Time.....................................................................................................................................29

Just In Time.................................................................................................................................30

Kaizen..........................................................................................................................................30

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Kanban.........................................................................................................................................30

5S.................................................................................................................................................31

Agile Manufacturing...................................................................................................................32

Total Quality Management (TQM).............................................................................................32

Six Sigma....................................................................................................................................33

Project Lifecycle.........................................................................................................................36

Critical Path Method (CPM).......................................................................................................37

Program Evaluation and Review Technique...............................................................................38

Forecasting Techniques...............................................................................................................38

Moving Averages........................................................................................................................38

Exponential Smoothing ..............................................................................................................38

Time Series Analysis...................................................................................................................39

Recent Trends in Operations & Supply Chain………………………………………………….39

How the Internet of Things Could Change the Services Provided by 3PLs……………………42

Supply Chain Trends To Watch Out For In 2018………………………………………………43

Additional Reading

Oracle‘s Modern Supply Chain Experience Ends with Announcement of Office Depot Deal…46

Cluster-Based Freight Corridors Could Drive Sustainable Logistics in Europe……………….46

IBM and Port of Rotterdam Embark on Wave of Digitization………………………………….48

What Effect Do Chinese IPOs Have on Global Supply Chains?................................................50

The Future Belongs to Organizations with Intelligent Operations According to New Research
from HfS………………………………………………………………………………………...51

Implementing Serialization in the Drug Supply Chain………………………………………....53

Tips for Navigating the Global 3PL Marketplace: Harnessing Shipper Expectations………....54

E-Commerce…………………………………………………………………………………….55

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Introduction
What is Operations Management?

Operations Management deals with the design and management of products, processes, services
and supply chains. It considers the acquisition, development, and utilization of resources that
firms need to deliver the goods and services their clients want.

The Purview of OM ranges from strategic to tactical and operational levels

Strategic issues include determining the size and location of manufacturing plants, deciding the
structure of service or telecommunications networks, and designing technology supply chains.

Tactical issues include plant layout and structure, project management methods, and equipment
selection and replacement.

Operational issues include production scheduling and control, inventory management, quality
control and inspection, traffic and materials handling, and equipment maintenance policies.

Production System

Production is defined as „the step-by-step conversion of one form of material into another
form through chemical or mechanical process to create or enhance the utility of the
product to the user‟.

The production system is „that part of an organization, which produces products of an

organization. It is that activity whereby resources, flowing within a defined system, are
combined and transformed in a controlled manner to add value in accordance with the policies
communicated by management‘.

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Classification of Production System

Job Shop Production: Job-shop production are characterized by manufacturing one or few
quantity of products designed and produced as per the specification of customers within prefixed
time and cost. The distinguishing feature of this is low volume and high variety of products. A
job-shop comprises of general-purpose machines arranged into different departments. Each job
demands unique technological requirements, demands processing on machines in a certain
sequence.

Batch Production: Batch Production as a form of manufacturing in which the job passes
through the functional departments in lots or batches and each lot may have a different routing.
It is characterized by the manufacture of limited number of products produced at regular
intervals and stocked awaiting sales.

Mass Production: This production system is justified by very large volume of production. The
machines are arranged in a line or product layout. Product and process standardization exists
and all outputs follow the same path.M0ass-produced goods are standardized by means of
precision-manufactured, interchangeable parts.

Continuous Production: Production facilities are arranged as per the sequence of production
operations from the first operations to the finished product. The items are made to flow through
the sequence of operations through material handling devices such as conveyors, transfer
devices, etc.

Figure 2: Classification of Production Systems

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Planning & Forecasting

Planning is defined as ―The establishment of objectives, and the formulation, evaluation and
selection of the policies, strategies, tactics and action required to achieve them. Planning
comprises long term/strategic planning and short term/operational planning. The latter is usually
for a period of up to one year.

Forecasting is an attempt to estimate the future. It is based on available past data, the
extrapolation of trends and the application of judgment. There are 3 basic models of forecasting:

 Time series analysis and projection

 Qualitative Techniques
 Casual Methods

As an operations manager, material requirement planning or demand estimation needs to be done

on a regular basis. This is to ensure that the company meets the customer‘s requirements within
time. The plans may be short-range plans (less than 3 months) or long-range plans (over 1 year).
Efficient planning will lead to reduction in costs due to sudden variations in demand. Planning
and scheduling is a popular exercise undertaken by companies that manufacture seasonal
products.

Figure 3 : Basic Supply Chain Management

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Figure 4: Supply Chain Channel

Supply chain management is the management of a network of all business processes and
activities involving procurement of raw materials, manufacturing and distribution management
of finished goods. SCM is also called the art of management of providing the Right Product, At
the Right Time, Right Place and at the Right Cost to the Customer.

Difference between Supply Chain and Logistics

Supply Chain

Supply chain management encompasses the planning and management of all activities involved
in sourcing and procurement, conversion, and all logistics management activities. Importantly, it
also includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers. In essence, supply chain
management integrates supply and demand management within and across companies.

Supply chain management is an integrating function with primary responsibility for linking
major business functions and business processes within and across companies into a cohesive
and high-performing business model. It includes all of the logistics management activities noted
above, as well as manufacturing operations, and it drives coordination of processes and activities
with and across marketing, sales, product design, finance, and information technology.

Logistics

Logistics management activities typically include inbound and outbound transportation

management, fleet management, warehousing, materials handling, order fulfillment, logistics
network design, inventory management, supply/demand planning, and management of third
party logistics services providers. To varying degrees, the logistics function also includes
sourcing and procurement, production planning and scheduling, packaging and assembly, and

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customer service. Logistics management is an integrating function, which coordinates and
optimizes all logistics activities, as well as integrates logistics activities with other functions
including marketing, sales manufacturing, finance, and information technology.

Figure 5: Supply Chain Flows

Challenges in Supply Chain Management

1. Globalization of manufacturing operation

With the globalization of manufacturing operations, having a global procurement network that
can support and react to your supply chain needs is important. According to many chief
procurement officers, selecting a strategic supplier that provides manufacturing locations with
consistent global quality and a reliable local service, is a challenge.

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Figure 6: Manufacturing Value Chain

2. Safety and quality products

The pressure on manufacturers to produce high-quality products that are safe is an increasing
challenge. The number of product recall cases is growing each day. It can damage a company‘s
reputation and is expensive to its bottom line. Manufacturers have to meet a lot of standards and
compliance norms.

3. Shorter lead time, less inventory and better throughput

With shorter product life cycles and changing market demands, companies are forced to embark
on a lean journey. It is important to note that the supply strategies in a lean environment support
the operations strategy. The challenge is always to find not just a lean concept, but a working
lean solution.

4. Supplier base consolidation

Consolidation of the supplier base can bring many advantages. It eliminates supply base
variances and overheads, especially in the supply of critical parts. The challenge is to find a
supplier with solutions and experience in supplier-based consolidation processes.

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Figure 7: Supplier Base Consolidation

5. Complexity of supply chains

Serving many different customers with a wide variety of products and services may result in a
complex, global, network of suppliers, factories, warehouses, transporters, customers and others.
The complexity of such a network is hard to unravel and makes it difficult to find where and why
problems occur.

6. Finding and holding on to supply chain talent

Although supply chain management is now a generally accepted and understood function in a
company, it is difficult to find true supply chain talent. Supply chain management covers
multiple disciplines and it can therefore be difficult to find that all-round supply chain person.

7. Customer Preferences

As stated above, global supply chains are complex. Add to that product features that are
constantly changing, and the challenge is even greater. A product is released and customers
rapidly pressure companies to come up with the next big thing. Innovation is important since it
allows companies to stay competitive in the market, but it‘s also a challenge. To enhance a
product, companies have to redesign their supply network and meet market demand in a way
that‘s transparent for customers.

8. Market Growth

Another factor that presents a challenge is the pursuit of new customers. The cost of a
developing a product, from R&D to product introduction, is significant. Therefore, companies

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are trying to expand their distribution to emerging markets in order to grow revenues and
increase market share. Companies all around the world are expected to expand in their home and
foreign markets. The introduction to new markets is difficult due to trading policies, fees, and
government policies.

Customers‘ expectations nowadays are more demanding than ever. As described here, companies
have responded with global networks, product innovation, and market expansions. This means
that companies now rely on supply chain managers to optimize their value chains in order to stay
competitive. As such, it‘s no surprise that these professionals are in high demand. So customers,
rest assured - experts in supply chain management, including our own Grainger Center graduates
- are behind the scenes tackling these complexities each and every day and are eager to delight
the customer experience.

MTS, ATO, MTO, ETO

Make to Stock: Is a traditional production strategy that is used by businesses to match

production and inventory with consumer demand forecasts. Manufacture products for stock
based on demand forecasts, which can be regarded as push-type production. MTS has been
required to prevent opportunity loss due to stock out and minimize excess inventory using
accurate forecasts. Build to stock is frequently considered as an appropriate solution for products
where there are few product lines and long changeover times between costly products.

The main drawback to the make-to-stock (MTS) method is that it relies heavily on the
accuracy of demand forecasts. Inaccurate forecasts will lead to losses stemming from excessive
inventory or stock outs.

Assemble To Order: Companies typically use assemble to order for items they do not want to
stock because they expect to customize them to customer requests or because they want to
minimize the inventory carrying cost.

The supporting functionality includes:

 Ability to customize assembly items when taking a sales order.

 Overview of availability of the assembly item and its components.
 Ability to reserve assembly components immediately to guarantee order fulfillment.
 Function to determine profitability of the customized order by rolling up price and cost.
 Integration to the warehouse to make assembly and shipping easier.
 Ability to assemble to order at the point of making a sales quote or a blanket sales order.

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Make to order: It is a manufacturing process in which manufacturing starts only after a
customer's order is received. Manufacturing after receiving customer's orders means to start a
pull-type supply chain operation because manufacturing is performed when demand is
confirmed, i.e. being pulled by demand. MTO or Built to Order (BTO) is the oldest style of
order fulfillment and is the most appropriate approach used for highly customized or low
volume products.

A BTO system does not mean that all suppliers in the supplier chain should be producing only
when a customer order has been confirmed. Part of the challenge in a BTO supplier network is in
the identification of which suppliers should be BTO and which BTS. The point in the supply
chain when this change occurs is called the ‗decoupling point‘.

Engineer to order: It is a manufacturing process defined by demand driven practices in which

the component is designed, engineered, and built to specifications only after the order has been
received. It is a more dramatic evolution of a Build-To-Order supply chain. This approach is
only appropriate for specific and rare items, such as large construction projects or Formula 1
cars.

Moving forward with an engineered-to-order approach means that there will be a high level of
customer participation in the design and manufacturing process of the product. Typically with
the engineered-to-order approach, production information and specifications are constantly
moving between the ETO Company and the customer.

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Figure 8: MTS and MTO

Because most product data (design specifications, requirement files, engineering changes, etc.) is
often tossed back and forth several times between the ETO Company and the customer, either
party can become confused if the exchange of product information is poorly managed. Because
engineered-to-order products are well-tailored, they are often built from difficult to source parts,
expensive parts and highly engineered components. Acquiring the necessary product components
can be both a time consuming and costly endeavor causing issues before and during production
runs.

Lead Time

A lead time is the period of time between the initiation of any process of production and the
completion of that process. A more conventional definition of Lead Time in the Supply Chain
Management realms is the time from the moment the supplier receives an order to the moment it
ships it in the absence of finished goods or intermediate (Work In Progress) inventory‐‐it is the
time it takes to actually manufacture the order without any inventory other than raw materials or
supply parts.

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Bottleneck

A point of congestion in a system that occurs when workloads arrive at a given point more
quickly than that point can handle them. The inefficiencies brought about by the bottleneck often
create a queue and a longer overall cycle time.

The primary objective of a manager in the operations department is to eliminate the bottleneck
that exists in the process. By removing this inefficiency, the manager can increase profits by
reducing time to produce.

Facility Location

Facility location is the process of determining a geographic site for a firm‘s operations.
Managers of both service and manufacturing organizations must weigh many factors when
assessing the desirability of a particular site, including proximity to customers and suppliers,
labor costs, and transportation costs.

It is appropriate to divide the factors, which influence the plant location or facility location on
the basis of the nature of the organization as:

1. General location factors, which include controllable and uncontrollable factors for all type of
organizations.

2. Specific locational factors specifically required for manufacturing and service organizations.

Figure 9: Factors influencing Plant Location

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Characteristics of Operations and Services

Operations Services
Tangible product Intangible product
Consistent product definition Produced and consumed at same time
Production usually separate from consumption Often unique
Can be inventoried High customer interaction
Low customer interaction Inconsistent product definition
Often knowledge-based
Frequently dispersed

Characteristic Goods Service

Customer contact Low High

Uniformity of input High Low

Labor content Low High

Uniformity of output High Low

Output Tangible Intangible

Measurement of productivity Easy Difficult

Opportunity to correct problems High Low

Inventory Much Little

Evaluation Easier Difficult

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Material Management

Materials management is defined as the function responsible for the coordination of planning,
sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as
to provide a pre-decided service to the customer at a minimum cost.

Figure 11: Scope of materials Management

Procurement

Procurement is defined as the act of obtaining or buying goods and services. The process
includes preparation and processing of a demand as well as the end receipt and approval of
payment. It often involves purchase planning, standards determination, specifications
development, supplier research and selection, value analysis, financing, price negotiation,
making the purchase, supply contract administration, inventory control and stores, and
disposals and other related functions. The process of procurement is often part of a company's
strategy because the ability to purchase certain materials will determine if operations will

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continue. A business will not be able to survive if it's price of procurement is more than the profit
it makes on selling the actual product.

Benefits of Inventory Management and Control

1. Inventory Balance. Good inventory management helps you figure out exactly how much
inventory you need. This makes it easier to prevent product shortages and keep just enough
inventories on hand without having too much.

2. Inventory Turnover. You need to keep a high inventory turnover ratio to ensure your
products aren‘t spoiling, becoming obsolete or sucking up your working capital. Calculate how
many times your inventory sells in a year and see where you can make better use of your
resources.

3. Repeat Customers. Good inventory management leads to what every business owner wants–
repeat customers. You want your hard-earned customers to keep coming back to your business to
meet their needs. One way to do this is to make sure you have what they‘re looking for every
time they come.

4. Accurate Planning. Using smart inventory management, you can stay ahead of the demand
curve, keep the right amount of products on hand and plan ahead for seasonal changes. This goes
back to keeping your customers happy all year long.

5. Warehouse Organization. If you know which products are your top sellers and what
combinations of products your customers often order together, you can optimize your warehouse
setup by putting those products close together and in easily accessible places. This speeds up the
picking, packing and shipping processes.

6. Employee Efficiency. You can empower your employees to help you manage inventory.
Training employees to use barcode scanners, inventory management software and other tools
helps them make better use of their time, and it helps your business make better use of its
resources, both human and technological.

7. Inventory Orders. If you‘ve done a good job keeping track of how much inventory you have
on hand, you can make smarter decisions about when and what to order. Inventory management
software lets you speed up the ordering process. You can simply scan a product barcode and type
in some information to place an order and generate an invoice.

8. Inventory Tracking. If you have multiple locations, then inventory management becomes
even more important because you need to coordinate your supplies at each location depending on
differences in demand and other factors.

9. Time Saving. Inventory management is a great timesaving tool. By keeping track of all the
products you have on hand and on order, you can save yourself the hassle of doing inventory

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recounts to make sure your records are accurate. This once again requires inventory management
software.

10. Cost Cutting. When your inventory is humming along efficiently through your facilities, you
can bet you‘ll save a lot of money. Inventory management helps you avoid wasting money on
slow-moving products so you can put it to better use in other areas of your business.

Order Qualifier & Order Winner

The terms "order winners" and "order qualifiers" were coined by Terry Hill, professor at the
London Business School, and refer to the process of how internal operational capabilities are
converted to criteria that may lead to competitive advantage and market success. The operations
people are responsible for providing the order-winning and order-qualifying criteria—identified
by marketing—that enable products to win orders in the marketplace.

Order qualifiers are those competitive characteristics that a firm must exhibit to be a viable
competitor in the marketplace.

Order winners are those competitive characteristics that cause a firm's customers to choose that
firm's goods and services over those of its competitors. Order winners can be considered to be
competitive advantages for the firm. Order winners usually focus on one rarely more than two)
of the following strategic initiatives: price/cost, quality, delivery speed, delivery reliability,
product design, flexibility, after-market service, and image.

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5-M Model of Operations Management

Production management‘s responsibilities are summarized by the ―five M‘s‖: men, machines,
methods, materials, and money.

Figure 10: 5M model of operations management

“Man” refers to the human element in operating systems. Since the vast majority of
manufacturing personnel work in the physical production of goods, ―people management‖ is one
of the production manager‘s most important responsibilities.

The production manager‘s responsibility for “materials” includes the management of flux —
both physical (raw materials) and information (paperwork), the smoothness of resource
movement and data flow.

The production manager must also choose the “machines and methods” of the company, first
selecting the equipment and technology to be used in the manufacture of the product or service
and then planning and controlling the methods and procedures for their use. The flexibility of the
production process and scheduling are important for Production.

The manager‘s concern for “money” is explained by the importance of financing and asset
utilization to most manufacturing organizations. A manager who allows excessive inventories to
build up or who achieves level production and steady operation by sacrificing good customer
service and timely delivery runs the risk that over investment or high current costs will wipe out
any temporary competitive advantage that might have been obtained.

Productivity

Productivity = Units Produced/ Input Used

Labor Productivity = Units Produced/ Labor Hour Used

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Service Productivity

 Frequently focused on unique individual attributes or desires

 Often an intellectual task performed by professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality
 Typically labour intensive

Pareto Principle

The Pareto principle (also known as the 20‐80 rule, the law of the vital few) states that for many
phenomena 80% of consequences stem from 20% of the causes. Business management thinker
Joseph M. Juran suggested the principle and named it after Italian economist Wilfredo Pareto,
who observed that 80% of income in Italy went to 20% of the population.

The idea has rule‐of‐thumb application in many places like the sizes of human settlements (few
cities, many hamlets/villages), the values of oil reserves in oil fields (a few large fields, many
small fields), and sales figures (20% of the clients responsible for 80% of sales volume) etc.

This Pareto principle can be applied in business. Analysis of a manager‘s work would reveal that

20% of his everyday work produces 80% of the results. So it is important to identify and focus
on those things. Similarly in a company 20 % of the employees produce 80% of the output. So it
becomes necessary to identify and reward the 20%. The principle can be applied to many such
situations in everyday life.

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Figure 11: Pareto Principle

Role of Operations in Different Industries

Manufacturing Industry

Role of operations management can be understood very clearly by the diagram given below:

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Figure 12: Strategic roles of Operations management

In short, Operations in Manufacturing Industry can be grouped as follows:

• Production planning: During production planning, operations managers determine how goods
will be produced, where production will take place, and how manufacturing facilities will be laid
out.

• Production control: Once the production process is under way, operations managers must
continually schedule and monitor the activities that make up that process. They must solicit and
respond to feedback and make adjustments where needed. At this stage, they also oversee the
purchasing of raw materials and the handling of inventories.

• Quality control: Finally, the operations manager is directly involved in efforts to ensure that
goods are produced according to specifications and that quality standards are maintained.

Strategies for Operations Control

Quality Cost
First Pass Yield Average cost of inventory
Quality Costs Manufacturing costs as percentage of sales
Defects per million Procurement cost
Number of suggestions per employee
Delivery Flexibility
Lead time for order fulfillment Number of models

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Procurement time New product development time
On time delivery for suppliers Breadth and depth of product offerings
Schedule adherence Process and manufacturing flexibility
Indirect Measures
Indirect labor to direct labor ratio
Average training time per employee
Number of certified deliveries

Banking and Financial Industries

The operations team is responsible for the processing and settlement of all the financial
transactions made at an investment bank or investment management firm.

The operations division, also known as 'back office', provides support to the client facing
departments, such as trading, corporate finance, and corporate banking - sometimes known as the
'front office'. The front office generates business for the bank, and operations ensure that the
business is administered in an efficient, controlled, risk-free and timely manner. They ensure that
products, services and money change hands how they are supposed to.

Operations professionals are involved in developing new systems in order to maximize

efficiency and profitability for the bank. They also ensure each transaction is cleared, settled and
reconciled according to regulatory and control requirements.

Operations in Insurance/other financial services companies:

Many financial services organizations have found that their attempts to cut costs and improve
efficiency in the wake of the financial crisis have been far less successful than hoped and are
already proving difficult to sustain. There is a particular risk that knee-jerk operational shake-ups
could damage customer service or jettison the talent the business needs to capitalise on an
upturn.

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FMCG Industry

Figure 13: Supply chain for FMCG industry

Food & FMCG Supply Chain in India can be classified as Perishable and Non-Perishable, and
both are distinctly unique from each other. The complexity for Food Supply Chain arises out of
perishable nature of food items, shorter shelf life of products, food safety, regulatory
requirements, etc. The nonperishable FMCG products have shelf life ranging from 3 to 18
months that requires strict monitoring of FEFO so that products reaching the consumers are left
with enough shelf life. Lack of consumer loyalty in this sector makes it all the more important
for this sector to ensure availability of products at the selling locations, else lose sale. It needs
demand driven and responsive supply chain solutions.

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Figure 14: Supply and Demand Chain

Auto Industry

On the canvas of the Indian economy, auto industry occupies a prominent place. Due to its deep
forward and backward linkages with several key segments of the economy, automotive industry
has a strong multiplier effect and is capable of being the driver of economic growth. A sound
transportation system plays an essential role in the country‘s speedy economic and industrial
development.

Many factors play a dominant role and affect decisions made in the automotive world. Consumer
preferences decide the current styles, consistency, and presentation standards of vehicles.
Government trade, safety, and environmental regulations found incentives and requirements for
upgrading and change in design or production.

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Figure 15: Supply chain in an Auto Industry

One of the major issues in a supply chain is ensuring hassle free and suave functioning of
inventory and so the role of inventory as a cushion against uncertainties and unforeseen oddities
has been established for a long time. The figure below represents the uncertainties that are
explored and solved by successful implementation of supply chain.

To reduce the impact of inventory uncertainties, supply chain managers must first understand
their sources, the targeted market size, researched feasibility outcome and the magnitude of their
impact. Surprisingly many supply chains do not document and track these variables, which may
result into over-stock or under-stock, miscalculation of the lead-time and invest in the wrong
resources for performance improvement. Besides these factors SCM covers inventory planning,
replenishment planning, production scheduling, warehouse management, transportation and
logistics management in auto sector

Retail

A retail enterprise may be represented by the structure:

The pentagon is a representation of the front end of a retail enterprise while the triangle inside is
representative of the backend. As is suggested by the picture, it is the backend that gives the
front-end shape and form; in other words the health of the frontend is completely reliant on the
robustness of the backend.

The pentagon is visible to the customers and its efficiency shall drive up the sales. The efficiency
of the triangle on the other hand is responsible for lowering costs. Hence the overall effect of
both shall be an increase in profit.

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Figure 16: Retail Supply chain

Salient features

Place: This consists of three components: size, layout & design, and location. All these factors
are essential in determining the range of merchandise to be displayed in the store. The location is
one of the most important factors that determines the success of any store.

Products: The following attributes are essential for describing the merchandise in a store: range,
assortment and intensity. The range refers to the both within brand and without brand variation
of the merchandise.

Value: The following variables define the value obtained from a retail store: quality and price. It
is essential that a customer is not disappointed in either of these variables. In fact a balance is to
be drawn between both in order to satisfy a customer.

People: The attributes that count in the sales staff of any store are service and knowledge. The
staff has to be trained on both these fronts in order to ensure a memorable experience for
shoppers. The staff in a store is probably the most important factor in determining repeat buying
behavior from customers.

Communications: It is no use having the best layouts or the best range of merchandise unless
this is communicated to the customers. The communication can be promotional or positional. An
example of promotional communication is ‗buy one get one free‘. An example of positioning
communication is ‗buy goods at the cheapest rates‘

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Systems & Processes: The entire retail industry is a systems and process driven one. If both of
these are in place, it ensures a smooth ride for everyone.

Suppliers: The suppliers play a major role in the sense that their frequency of supply has to be
taken into account to ensure no stock outs take place in the store. The lead time of suppliers has
to be considered for calculation of safety stocks etc.

Logistics: The merchandise has to be delivered on time and in perfect condition to the stores
from the warehouse. It is here that the logistics come into play.

Infrastructure Projects: BOO, BOT, BOOT

BOT – It is Build, Operate and Transfer - a company builds a facility, an infrastructure project,
gets to operate it for a while and is paid for that, and finally transfers it back to the public sector
at the end of sometime - determined by when the construction company is believed to have been
paid a satisfactory amount.

BOO - Build, Own, Operate - is maybe the trickiest of these because here there's at least, up
front, no government involvement whatsoever. The private sector builds the project, owns it, and
operates it.

BOOT - Build, Own, Operate and Transfer. So the story here is the constructor builds the
project, they then get to own and operate it for some period of time (like 20 or 25 years) during
which they collect revenues. At the end of the day, the project is handed back over to the
government.

INNOVATIONS IN OPERATIONS MANAGEMENT

LEAN MANUFACTURING:

The term "lean" was coined to describe Toyota's business during the late 1980s by a research
team headed by Jim Womack, Ph.D., at MIT's International Motor Vehicle Program.

Lean is a strategy for remaining competitive by identifying and eliminating wasteful steps in
products and processes.

Following practices are used in this strategy.

 Improvement of equipment reliability

 Quality at the source;
 Continuous flow production

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The basic goal is to get more done with less by: minimizing inventory at all stages of production;
shortening cycle times from raw materials to finished goods; eliminating all sorts of waste.

Seven types of wastes (7 deadly wastes):

1. Unnecessary Transportation: This waste refers to any unnecessary transportation, such as

that commonly associated with the transit of materials or parts. Transportation is not a value add
activity as it does not help transform the product into the customer requirement and can add
further problems through delays, damage or items being lost.

2. Unnecessary Processing: Over processing is typified by carrying out more work on a product
than is required

– this might be using more precision tools than are required through to, in the example of office
activity, bureaucratic approval systems for documents requiring multiple signatories or reviews.
Removing over processing requires careful consideration to ascertain the actual requirement and
ensuring that the process is engineered to meet this without any further burden.

3. Unnecessary Motion: An effective working environment can help reduce motion for a given
process. This may entail providing tools and equipment at point of use or making material
handling processes more efficient. A common tool used to analyze motion is the spaghetti
diagram which can be very effective at highlighting issues.

4. Inventory: Any parts or materials that are not immediately required are considered waste –
Inventory is one of the seven wastes that is most easy to spot in that it is easy to physically see
around the business. Inventory is waste as it ties up resources to manage it for example storage
space, personnel, capital outlay and processing.

5. Waiting Time: It is very common – take looks at your business are parts stacked up waiting
for next part of the assembly process? Are office in-tray‘s piled high with documents waiting to
be processed? A number of causes can result in waiting – often with product batch sizes being a
primary trigger.

6. Defects: Getting it wrong results in waste – whether that‘s manufacturing faulty parts that
require rework or at worst being scrapped or documents that are incorrectly completed which can
result in confusion or mistakes. Defects have a very real impact on the bottom line of your
business and can be one of the key contributors to inefficiency.

7. Overproduction: Producing more of something than is required by the customer is waste –

close attention to batch sizes and change over times can be imperative in not over producing. The
impact of overproducing can be considerable – not only is extra-material consumed but extra
processing and storage requirements add to the problem causing another of the seven wastes –
inventory.

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Essentially, lean is centered on making obvious what adds value by reducing everything else.
Lean manufacturing is a management philosophy derived mostly from the Toyota Production
System (TPS) and identified as "lean" only in the 1990s. TPS is renowned for its focus on
reduction of the original Toyota seven wastes to improve overall customer value.

Figure 17: Lean 7 wastes

Takt Time

Takt time, derived from the German word Taktzeit, translated best as meter, is the average unit
production time needed to meet customer demand. For example, if the customer wants to buy 10
units per week, the average time to build a unit must be 4 hours (or less) if the units are built
during a 40 hour work week. Industrial manufacturing lines must have production cycle times at
least as short as the takt time so that production can meet the customer demand. This production
'cycle time' should be less than or equal to Takt time.

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Just In Time

What is JIT? What does JIT do?

It is a management philosophy Attacks wastes (Time, Inventory )

Elimination of wastes Exposes problems and bottlenecks

Pull all systems through plant Achieves streamlined production

Benefits

 Product cost is greatly reduced due to reduction of manufacturing cycle time, reduction of
waste and inventories and elimination of non-value added operation
 Quality is improved because of continuous quality improvement programs
 Due to fast response to engineering change, alternative designs can be quickly brought on
the shop floor
 Productivity improvement
 Higher production system flexibility
 Administrative and ease and simplicity

Kaizen

The Japanese word "Kaizen" means improvement, improvements without spending much
money, involving everyone from managers to workers, and using much common sense. The
Japanese way encourages small improvements day after day, continuously. The key aspect of
Kaizen is that it is an on-going, never-ending improvement process. It's a soft and gradual
method opposed to more usual western habits to scrap everything and start with new.

Kanban

It is one of the many methods through which JIT is achieved. It is a scheduling system for lean
and just-in-time (JIT) production that helps determine what to produce, when to produce it, and
how much to produce.

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Figure 18: 5W and 1H

Kanban is Japanese for ―visual signal” or “card.‖ Toyota line-workers used a kanban (i.e., an
actual card) to signal steps in their manufacturing process. The system‘s highly visual nature.

5S Methodology

Figure 19: 5S principle

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Modern management in the company is not only the quality management system based on the
ISO series 9000:2000 standards, but pursuit to the continuous improvement, so this is the
philosophy of the Total Quality Management. In the frames of implementation of the Total
Quality Management on the operating level more and more popular becomes the idea of so
called 5S.

The 5S method begins each programme of improvement. It is the tool for helping the analysis of
processes running on the workplace. The 5S is the methodology of creation and maintaining well
organized, clean, high effective and high quality workplace. Its result is the effective
organization of the workplace, reduction of work‘s environment, elimination of losses connected
with failures and breaks, improvement of the quality and safety of work.

The philosophy of the 5S has its roots in Japan. Name 5S is the acronym of five Japanese words
of the following meanings:

 Seiri (sort)
 Seiton (set in order)
 Seiso (shine)
 Seiketsu (standardize)
 Shitsuke (sustain)

Agile Manufacturing

It is a term applied to an organization that has created the processes, tools, and training to enable
it to respond quickly to customer needs and market changes while still controlling costs and
quality. Agile manufacturing is seen as the next step after Lean manufacturing in the evolution of
production methodology.

An enabling factor in becoming an agile manufacturer has been the development of

manufacturing support technology that allows the marketers, the designers and the production
personnel to share a common database of parts and products, to share data on production
capacities and problems — particularly where small initial problems may have larger
downstream effects. It is a general proposition of manufacturing that the cost of correcting
quality issues increases as the problem moves downstream, so that it is cheaper to correct quality
problems at the earliest possible point in the process.

Total Quality Management (TQM)

Total Quality Management (TQM) refers to management methods used to enhance quality and
productivity in business organizations. TQM is a comprehensive management approach that

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works horizontally across an organization, involving all departments and employees and
extending backward and forward to include both suppliers and clients/customers

The basic elements of TQM, as expounded by the American Society for Quality Control are:

1. Policy, planning, and administration

2. Product design and design change control

3. Control of purchased material

4. Production quality control

5. User contact and field performance

6. Corrective action

7. Employee selection, training, and motivation

Six-Sigma

Six-Sigma is a business management strategy, originally developed by Motorola that today

enjoys wide-spread application in many sectors of industry. Six Sigma seeks to identify and
remove the causes of defects and errors in manufacturing and/or service delivery and business
processes. It uses a set of management methods, including statistical methods, and creates a
dedicated infrastructure of people within the organization who are experts in these methods.

Six-Sigma aims to deliver ―Breakthrough Performance Improvement‖ from current levels in

business and customer relevant operational and performance measures.

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Six-Sigma believes that:

• Continuous efforts to achieve stable and predictable process results (i.e. reduce process
variation) are of vital importance to business success.

• Manufacturing and business processes have characteristics that can be measured, analyzed,
improved and controlled.

• Achieving sustained performance and quality improvement requires commitment from the
entire organization, particularly from top-level management.

Features that differentiate Six Sigma apart from previous quality improvement initiatives include
–

• A clear focus on achieving measurable and quantifiable financial returns from any Six Sigma
project.

• An increased emphasis on strong and passionate management leadership and support

• A special organization infrastructure of "Champions," "Master Black Belts," "Black Belts‖,

―Green Belts‖ etc. to lead and implement the Six Sigma approach

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Six-Sigma has two key methodologies: DMAIC and DMADV

DMAIC is used to improve an existing business process;

DMADV is used to create new product or process designs.

DMAIC

The DMAIC project methodology has five phases:

Define the problem, the voice of the customer, and the project goals, specifically.

Measure key aspects of the current process and collect relevant data.

PROJECT MANAGEMENT

Project Management is the discipline of planning, organizing, and managing resources to bring
about the successful completion of specific project goals and objectives. A project is a finite
endeavor (having specific start and completion dates) undertaken to create a unique product or
service which brings about beneficial change or added value.

Key constraints for project completion are time, scope, quality, budget & resources. The
challenge here is to optimize assignment of resources to the tasks to meet the objectives and
goals.

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 Project Planning: Project management requires a commitment of resources and people to an
important undertaking that is not repetitive and involves a relatively short period of time, after
which the management is dissolved. The purpose of project planning is to commit resources to
time, commit Individual work to bigger project, break projects into manageable chunks and
monitor process

 Project Scheduling: It consists of defining and sequencing the activities, estimating the time
required and developing the schedule based on sequencing and time estimates of the activities

 Project Control: It is the process of making sure the project processes toward a successful
completion. It requires that the project be monitored and progress be measured so that any
deviations from the plan. The Key activities include time, cost, quality, performance management and
communication

Project Lifecycle

The Project Life Cycle refers to a logical sequence of activities to accomplish the project‘s goals
or objectives. Project activities are grouped into phases so that the project manager and the core
team can efficiently plan and organize resources for each activity. All projects go through a life
cycle that starts at the initial project inception through project shutdown. There are many types of
project life cycle. Traditionally, project management includes a number of elements: four to five
process groups, and a control system.

Initiation: The initiating processes determine the nature and scope of the project. If this stage is
not performed well, it is unlikely that the project will be successful in meeting the business‘
needs.

Planning or design: After the initiation stage, the project is planned to an appropriate level of
detail. The main purpose is to plan time, cost and resources adequately to estimate the work
needed and to effectively manage risk during project execution.

Production or execution: Executing consists of the processes used to complete the work
defined in the project plan to accomplish the project's requirements. Execution process involves
coordinating people and resources, as well as integrating and performing the activities of the
project in accordance with the project management plan.

Monitoring and controlling: Monitoring and controlling consists of those processes performed
to observe project execution so that potential problems can be identified in a timely manner and
corrective action can be taken, when necessary, to control the execution of the project.

Closing: Closing includes the formal acceptance of the project and the ending thereof.
Administrative activities include the archiving of the files and documenting lessons learned. This
phase consists of Project close and Contract closure.

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GANTT chart:

A Gantt chart is a type of bar chart that illustrates a project schedule. Modern Gantt charts also
show the dependency relationships between activities and current schedule status. An example of
Gantt chart for a software development project is as shown in the following image.

Figure: Gantt Chart

Critical Path Method (CPM)

Critical Path Method or Critical Path Analysis, is mathematically based algorithm for scheduling
a set of project Commonly used with all forms of projects, including construction, software
development, research projects, product development, engineering, and plant maintenance,
among others activities.

Float (slack) - amount of time that a task can be delayed without causing a delay to:

 Subsequent tasks (free float)

 Project completion date (total float)

Critical path is the sequence of activities which add up to the longest overall duration. It is the
shortest time possible to complete the project. Any delay of an activity on the critical path
directly impacts the planned project completion date (there is no float on the critical path). A
project can have several, parallel, near critical paths. An additional parallel path through the
network with the total durations shorter than the critical path is called a sub-critical or non-
critical path.

 Critical activity: activity with zero float

 Resource leveling: iterative process of assigning crews to activities in order to calculate
their duration

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Program Evaluation and Review Technique

The program (or project) evaluation and review technique, commonly abbreviated PERT, is a
statistical tool, used in project management, which was designed to analyze and represent the
tasks involved in completing a given project.

First developed by the United States Navy in the 1950s, it is commonly used in conjunction with
the critical path method (CPM).

Three times are considered for the project

Optimistic time: Time required under optimal conditions

Pessimistic time: Time required under worst conditions

Most likely time: Most probable length of time that will be required

Expected time of completion (E) = (O + (4 X ML) + P) / 6

E = expected time

O = optimistic time

M = most likely time

P = pessimistic time

Forecasting Techniques

Moving Averages

Moving average (rolling average or running average) is a calculation to analyze data points by
creating a series of averages of different subsets of the full data set. A moving average is a trend-
following or lagging indicator because it is based on past data. The two basic and commonly
used MAs are the simple moving average (SMA), which is the simple average of a data sets over
a defined number of time periods, and the exponential moving average (EMA), which gives
bigger weight to more recent data. These averages helps to filter out ―noise‖ from random
fluctuations of values while doing analysis.

Exponential Smoothing

Exponential Smoothing is the technique that can be applied to time series data, either to produce
smoothed data for presentation, or to make forecasts. Exponential smoothing is commonly
applied to financial market and economic data, but it can be used with any discrete set of
repeated measurements.

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The raw data sequence is often represented by {xt} beginning at time t=0, and the output of the
exponential smoothing algorithm is commonly written as {st}, which may be regarded as a best
estimate of what the next value of x will be. When the sequence of observations begins at time t
= 0, the simplest form of exponential smoothing is given by the formulae.

where α is the smoothing factor, and 0 < α < 1.

Time Series Analysis

Time Series is simply a sequence of numbers collected at regular intervals over a period of time.
Time series analysis can be useful to see how a given asset, security or economic variable
changes over time or how it changes compared to other variables over the same time period.
Daily Closing value of BSE, NSE is nothing but time series data.

Recent Trends in Operations & Supply Chain

As 2018 winds down, brands need to reshape their business model. Trends demand not just
improving the customer experience, but enhancing customer expectations to redefine brand
positioning. Forrester‘s 2018 predictions confirm that customers and markets are shifting. With
the transition to digital and transparent, it‘s time for a customer revolution. The future demands
the effective evolution of a new supply management blueprint.

Supply management‘s future does not solely depend upon logistics care and inventory
management. Companies need to rethink supply management strategies, especially when
customers have access to unlimited information and choices. For companies wanting an upper
hand in 2018, they must do something bold, different and innovative.

The following five emerging supply management trends will provide businesses with an edge
over the competition.

1. Response to innovation and change

A brand must demonstrate the ability to incorporate innovation into its existing strategy. A
change or shift in the stereotypical supply chain pattern will benefit them in the long run. Brands
must shed redundant methods and continuously develop evolving strategies by responding to
changing market dynamics.

Grant Marshbank, COO of VSc Solutions, states, ―Supply chain managers are already under
huge pressure to adapt to turbulent economies, labor issues, and expansion into global markets.

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Technology will only deliver the intended positive results if it is implemented with strategy and
operations that adhere to best practice in supply chain management.‖

Most brands have already incorporated the following into their supply management strategies:
live system integration, secure data exchange processes, visibility and traceability among
disparate systems across multiple supply chains and industry verticals.

2. Thinking outside the box with respect to digital strategies

Today, every business is a digital business and the impact of digital strategies on supply chain
management is of particular importance. 2018 will be shaped by the success rate of digital
transformation efforts.

Many companies have realized that going digital is not the only solution for creating benchmark
supply chain management strategies. Brands must get digitally-enhanced to break traditional
supply management chains.

Digital technology will create a significant improvement in business outcomes, so long as

businesses reinvent their supply chain strategy while concurrently reimagining their supply chain
as a digital supply network (DSN) - a combination of talent, information and finance.

In today‘s world, brands are becoming more transparent and digital supply chains are being
showcased for their innovation and successes. When compared with traditional supply chain
management, this new breed is intelligent, scalable and rapid.

Brands must develop a digital strategy that proactively provides them with an edge over their
competitors. Digital supply chains provide companies with the capability for extensive
information availability and enable superior collaboration and communication across digital
platforms, resulting in improved reliability, agility and effectiveness.

3. Positively exploiting artificial intelligence (AI)

AI is used by several companies as part of their supply management strategies. These companies
include Facebook, Google, Apple and Tesla. This trend will continue to be positively-exploited
throughout 2018.

Mark Zuckerberg considers building an AI-powered assistant to help companies deal with supply
chain stress to be an innovative idea. In one of his Facebook posts he wrote, ―You can think of it
kind of like Jarvis in Iron Man,‖ referring to the AI assistant used by Tony Stark, the movie‘s
fictional main character.

Machine vision and robotics have already been put into efficient use for facial recognition in
industrial applications like warehouses and law enforcement systems. And still, the technological
possibilities are immeasurable because they can be applied to other industrial purposes.
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―Some of the most exciting work in machine/computer vision, stems from subtle insight into the
current deficiencies of CAD,‖ writes Peter Gasperini. ―In order to interact with 3D models,
nowadays designers are using clunky peripherals - keyboards, mice and joysticks. Machine
vision systems have developed that completely bypass inefficient mechanisms through gesture
recognition apparatus. Camera arrays are used to track hand and finger positions dynamically.
This system then alters a 3D screen image so that a user can virtually interact with the model,
reaching into the design to toggle switches, press buttons and carry operations.‖

Empowering supply chain leaders and operators with advanced, predictive technologies that
model future scenarios, will place brands in a position to operate their supply chains more
productively. They will also develop a deeper understanding of the various driver interactions on
supply chain performance.

4. Agility and the supply chain lean

Lean supply chain fundamentals are still valuable for most companies because Agile
methodology is an alternative to traditional project management. It is typically used in software
development. As a result, company associates can respond to unpredictable emergencies through
incremental, iterative work cadences - Sprints.

As individualization and complexity grow amongst companies, the Lean concept is no longer a
sole, effective strategy. Supply chain processes must be more agile, flexible and interactive to
ensure high-quality delivery results.

The Agile supply chain management enables brands to cope with unexpected events using
lightning-fast decision-making. Achieving agile leadership skills is a process rather than a 2018
supply chain trend.

5. The webrooming and showrooming balance

The showroom experience is for the ultimate ―deal seekers.‖ Companies in 2018 will want to
offer maximum customer convenience at low prices as part of their marketing strategy. While
most businesses will be inclined to find better deals online, consumers will still want the tactile
experience of their product.

A research study from EE states, ―Around 44% of customers – more than 20 million Brits — visit
a physical store while browsing products online in the hope of finding a better deal‖.

As showrooming arose as a more-effective strategy for online players, in-store retailers fought
back and flipped it on its head. They created a ―webrooming‖ experience for their customers. In-
store players can utilize in-store Wi-Fi, exclusive discounts and ―click & collect‖ online orders.
This has been effective in driving people from their screens and back into stores.

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Brands see showrooming and webrooming to be an upcoming trend combination in 2018. Both
are equally-strong sales models not to be ignored. Regardless of whether customers prefer a
showroom or webroom experience, it is important for a brand to offer omnichannel options (both
offline and online).

These emerging trends will deliver positive results if strategically-implemented within operations
adhering to best practices in supply chain management. Businesses will benefit from the efficient
and effective operations by ensuring that supply chain entities working together is the smarter
way. But the best practices and supply management trends cannot work without support. They
require strong procurement practices integrated within other supply chain processes.

How the Internet of Things Could Change the Services Provided by 3PLs

Creation of Smart Containers: Using the Internet of Things, RFID sensors will provide a
detailed account of all items within any given container and identify times when the
environmental conditions of a given container pose a threat to the products. For example,
sensitive equipment may be damaged by dramatic changes in atmospheric pressure. The sensor
will provide an alert to drivers or other employees working within the shipping company.
However, the IoT will progress to a point where human action for addressing potential problems.
The Industrial Internet of Things will have the ability to recall or redirect a vehicle, and
computerized loading equipment can select the appropriate shipments for removal and
redirection. In another scenario, the IoT can ensure any such sensitive items are placed within an
"indestructible" shipping container, which would eliminate the need for concern over
environmental concerns. However, the end result of any logistics system is to improve efficiency
and drive customer satisfaction through rapid, reliable service.

Smart Vehicles: Most think of trucks as the primary means of transportation; however, the IoT's
impact on shipping includes planes, trains, ocean-carriers, and the eventual use of drones. Smart
vehicles gather data and determine which, if any, factors affect a given product's shipping path.

For example, all US vehicles manufactured after 2004 require the installation of a Tire Pressure
Monitoring System. Since low tire pressure results in poor gas mileage, the parent company
incurs an additional cost of shipping. The use of multiple monitoring systems in vehicles, or
other means of transportation, reduces the chances of vehicle problems impacting services.

Increasing Security and Responsiveness: In close relation to alerting authorities about erratic
drivers, the IIoT will have the ability to reduce shrink associated with unexpected opening of
shipping containers. Furthermore, the Industrial Internet of Things will identify which items have
been moved inappropriately, such as when a corrupt worker tries to steal merchandise. As a
result, the IIoT may lock a driver out of the vehicle, alert authorities, or even initiate other
security protocols, including an electronically controlled door lock. Today, we track things.

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Tomorrow, we rest while the IIoT maximizes vertical integration of systems and prevents
problems before they occur.

Supply Chain Trends To Watch Out For In 2018

Digital disruption caused by cloud computing, mobility, AI and analytics is enabling

breakthrough innovation in the Supply Chain industry. Changing consumer preferences and the
increase in purchasing power, has led to an exponential growth of eCommerce in developed and
developing markets.

On the other hand blurring boundaries between the countries have opened up the market for
cross-border eCommerce thus creating a need for organisation to transform digitally. According
to BCG, global cross-border eCommerce will reach between $250 billion and $350 billion in
2025, up from $80 billion in 2014 with Asia, Europe and North America accounting for 40%,
25% and 20% of the market respectively.

CxOs are mulling over ways to gain 360-degree visibility of the logistics processes, driving
productivity and creating new revenue streams. With companies around the world experimenting
with digital technologies like AI & Blockchain, while doing the pilot with drone deliveries and
self-driving vehicles, Supply Chain and cross-border growth is spurred with technological
progression that is aimed at improving speed of deliveries, enhancing delivery happiness scores
and perfect order scores, at the time of delivery.

Together, blending the study on the technology advancements and the emerging logistics models
FarEye has predicted the way the Supply Chain and Logistics will shape up in 2018.

Rising Demand For Data-Driven Logistics

In the ever-changing logistics business, companies will continue to adopt big-data algorithms,
data-visualisation techniques and smarter analytics to boost process efficiency and shorten the
delivery times. However, the big change in 2018 will be that the companies are expected to use
geography-specific data to anticipate demand of certain products in a region and ship in advance.

Perfect Order Deliveries

Perfect orders are the ultimate measure of customer satisfaction. Perfect orders are the
percentage of orders delivered to the right place, with the right product, at the right time, in the
right condition, in the right package, in the right quantity, with the right documentation, to the
right customer, with the correct invoice. According to a recent survey, only 84% of all orders can
be termed as perfect orders, in order to reduce the losses companies will take the aid of
technology and achieve the perfect order mark.

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Rise Of Elastic Logistics

CxOs plan their operations in order to meet the demand fluctuations. Flexible automation
solutions increase the agility and elasticity of the logistics infrastructure to meet market
fluctuations, cost effectively. With optimal utilization, companies can make their operations
flexible enough to expand and shrink capabilities to align with the demands within the supply
chain model at a given time. 2018 is expected to a year driven by elastic logistics.

Artificial Intelligence and Blockchain

Blockchain and Artificial Intelligence has hit the logistics industry early this year and it is
expected to become automate the Logistics companies for its impenetrable way to store and
share the transactional data and improve credibility with a secure transactions. For example, a
customer‘s identity proof is available digitally through a blockchain based structure, there is no
way it can be fudged by him at the time of delivery. Similarly, the unique blockchain enabled
registration number of every bike can be mapped against the job IDs.

Increased Adoption Of Drones And Smart-Glasses

With automation and mobility being the support system to survive the competition, integration
with smart glasses will make deliveries easier by hands-free route searches, face recognition for
error-free deliveries and personalized deliveries. With the rise in unmanned aerial vehicles and
smart glasses adoption, the operational efficiencies of first and last mile logistics is expected to
increased along with flexibility and speed of deliveries in completed and congested cities.

Alongside, adapting digital operations, logistics companies globally are trying to set up and meet
their sustainability goals - majorly by reducing their carbon footprints. According to the World
Economic Forum, companies like UPS, DHL, SABMiller and Nestle are amongst the top
companies that are focused on sustainability. With an objective to reduce the carbon footprints,
logistics companies are expected to aggressively adopt industry‘s best practices by 2020.

Overall, 2018 should be an exciting time for logistics, as the modern-age technologies will be
harnessed for driving productivity, increasing delivery experience score and creating new
revenue streams while building an agile and a sustainable Supply Chain in parallel.

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45
Additional Reading
Oracle‟s Modern Supply Chain Experience Ends with Announcement of Office Depot Deal

Oracle ended its Modern Supply Chain Experience (MSCE) event in San Jose, CA by
announcing that Office Depot, Inc. selected Oracle Cloud Applications to modernize its IT
systems and transform its business processes to meet the demands of today‘s digital economy.

Roddy Martin, Oracle‘s vice president of SCM Product Marketing told SCMR in an interview
that MSCE, revealed ―a lot of momentum‖ and interest in cloud based supply chain technology.

―Companies are now deploying this technology and going-live with it. Last year, this was not the
case.‖

Even more so, he adds, Oracle is seeing this transition tie back to all lines of business…including
reverse logistics.

Also, by enhancing the performance and outcomes of key supply chain, HR, and financial
management functions with Oracle Cloud Applications, Office Depot will be able to accelerate
its omnichannel growth, simplify its IT infrastructure, and lower its costs.

According to spokesmen, Office Depot is broadening its business model to stay ahead of the
competition while better addressing its customers, partners and employee‘s needs.

―But making the transition out of just a products-based retailer to a services and subscriptions-
based company meant Office Depot needed a unified business platform to support the anticipated
growth and added complexity that its new business model required,‖ say spokesmen.

Cluster-Based Freight Corridors Could Drive Sustainable Logistics in Europe

An EU-backed research initiative called Clusters 2.0 is laying the groundwork for such a
network by developing ways to link freight hubs via the physical internet.

A hyper-connected network of logistics clusters could play a key role in achieving the European
Union‘s goal of creating a sustainable, more efficient freight transportation system. An EU-
backed research initiative called Clusters 2.0 is laying the groundwork for such a network by
developing ways to link freight hubs via the physical internet.

Clusters 2.0 comprises many research projects and freight interests. The Zaragoza Logistics
Center (ZLC), Zaragoza, Spain, is working on methodologies for collaboration within and
between logistics clusters.

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PLAZA, Europe‘s largest logistics park located near Zaragoza, is supporting the initiative. The
clusters involved are: Duisburg (Duisport), Lille (Dourges), Bologna-Trieste (Interporto/Port of
Trieste), Brussels (BruCargo), London (Heathrow), Pireaus (PCT), and Trellebourg (Port).

Increasing the volume of freight moved by rail is central to the EU‘s sustainable transportation
strategy. To this end, the EU wants 30% of freight flows that exceed 300 kilometres in length to
shift to rail by 2030, and 50% by 2050.

Clusters 2.0 will provide management models and tools that companies need to move freight by
rail between hubs. And by exploiting synergies between the enterprises involved, loads can be
bundled to capture economies of scale. One of the goals is to increase the average door-to-door
vehicle load factor by 75%.

This will require the trading partners to collaborate at both tactical and strategic levels – which is
why ZLC is engaged on developing a multi-user collaborative platform. Many questions must be
answered before such a platform can become a reality. For instance, who will orchestrate and
manage it? Perhaps an intermediary like a fourth-party logistics provider (4PL) could fulfil the
role. Interoperability is another issue; how will information flow between disparate IT systems
and stakeholders? Fortunately, the EU has sponsored substantial research in this area, and ZLC is
utilizing these findings to develop interoperability solutions for cluster-based freight networks.

Prototypes of modular load units for moving freight – an important element of the physical
internet concept which relies on the seamless movement of goods – and automated transhipment
systems also are under development. Cluster 2.0 aims to develop low cost, low capital and
investment intensive systems that reduce the operational costs of transhipment by 30%.

The project‘s collaborative platforms will extend to manufacturing. Manufacturing operations

create demand for logistics services, and it is important that these demand-side requirements are
wired into the freight transportation management systems that underpin the new corridors.

Proximity Terminal Networks (PTNs) represent another important component of the Cluster 2.0
project. PTNs are ―regional‖ networks of intermodal terminals that function internally within
clusters. They are part of the asset and resource sharing mechanisms that support the broader
integrated network, especially in relation to freight movement planning and execution and cargo
consolidation.

Clusters 2.0 could have a significant impact on the regions in which individual clusters operate.
A project goal is to increase economic activity in these locales by 5% annually, while
maintaining a neutral environmental impact on surrounding areas.

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The project could also boost economic activity within each participant cluster. Hub performance
and engagement will improve, possibly doubling the amount of value added activities carried out
and increasing the volume of freight managed by existing infrastructure by as much as 50%.

Much of the work will be carried out in Living Labs, which will test, improve and validate the
proposed solutions and develop the required business models. ZLC is currently working in a
Living Lab dedicated to creating a symbiotic network of logistics clusters. The aim of this living
lab is to connect TEN-T corridors‘ hubs – hubs considered to be of strategic importance in
Clusters 2.0 – by implementing an innovative framework for inter cluster cooperation. This
framework, supported by a dynamic transaction platform, should convince EU shippers and
logistics service providers including 4PLs to bundle their volume in a regional TEN-T hub.
Based on the methodology developed by the Dourges and Barking cargo handling terminals in
the project, the freight bundling concept will be duplicated to other TEN-T hubs.

As well as being an important step in the EU‘s overall sustainability strategy, Clusters 2.0 offers
an opportunity to extend the role of logistics clusters in the region. If these hubs are to support
the growth of intermodal freight as envisioned, their traditional function as centers of logistics
activity will expand to encompass the competitiveness and sustainability of industry in Europe.
And their geographic reach will increase as more clusters join the network.

The knowledge created will benefit future projects. One of the tasks that ZLC has been allocated
is to create a comprehensive inventory of relevant knowledge. This database will be made
available to the logistics community once the 36-month Clusters 2.0 project is completed in
April 2020.

IBM and Port of Rotterdam Embark on Wave of Digitization

The initiative will also prepare the Port of Rotterdam‟s entire site to host connected ships
in the future.

The Port of Rotterdam Authority and IBM today announced their collaboration on a multi-year
digitization initiative to transform the port‘s operational environment using Internet of Things
(IoT) technologies in the cloud to benefit the port and its stakeholders.
The initiative will also prepare the Port of Rotterdam‘s entire site to host connected ships in the
future. It begins with the development of a centralized dashboard application that will collect and
process real-time water, weather sensor data and communications data, analyzed by IBM IoT
technologies.
According to Paul Smits, chief financial officer of the Port of Rotterdam Authority, this will
enable a new wave of safer and more efficient traffic management at the port.

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―Speed and efficiency is essential to our business, and requires us
to use all of the data available to us,‖ he says. ―Thanks to real-time
information about infrastructure, water, air, etc., we can
enormously improve the service we provide to everyone who uses
the port, and prepare to embrace the connected, autonomous
shipping of the future.‖
As the largest port in Europe, the Port of Rotterdam handles over
461 million tons of cargo and more than 140,000 vessels annually.
Previously the port relied on traditional radio and radar
communication between captains, pilots, terminal operators,
tugboats and more to make key decision on port operations.
With the new initiative, Port of Rotterdam operators will also be
able to view the operations of all the different parties at the same
time, making that process more efficient. Spokesmen contend that
ocean carriers and the port stand to save up to one hour in berthing
time which can amount to about $80,000 in savings.
The Port of Rotterdam‘s digital transformation project is enabled
by IBM‘s cloud-based IoT technologies and will see the Port of
Rotterdam and IBM are working together long-term to uncover
other innovative applications of IoT and artificial intelligence.
Cisco and Axians are also involved in the project.

As reported here earlier, IBM and Maersk recently struck a deal to introduce blockchain
technology to global shipping. Over 18 months, through initial pilots, IBM used blockchain
technology to securely digitize, automate, and store critical paperwork.
―Early testing demonstrated that it can significantly reduce administrative costs, which at the
time of testing could be as high as 15% of the value of the goods shipped.

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What Effect Do Chinese IPOs Have on Global Supply Chains?

These big IPOs are definitely good news for global supply chain business and for the
development of new ideas and products.

Do you remember Alibaba‘s stunning $25 billion NYSE IPO in 2014, the biggest in history?

This year, we again expect to see several enormous Chinese IPOs including Didi Chuxing (ride
sharing with 450 million users), Meituan-Dianping (group discounting), and Xiaomi (smart
phones and laptops), among others.

According to Rebecca Fannin, founder of media company Silicon Dragon, the combined market
capitalization of these new listers could surpass a quarter-trillion dollars. No matter if the IPOs
are in New York or Hong Kong or Shanghai or Shenzhen stock exchanges, the amount of capital
involved is breathtaking.

Once again, we are astonished at the economic miracle of China where, in just a few decades, the
country has gone from an undeveloped rural economy to the second largest industrial economy
in the world. ($11.9 trillion) And now, China is taking the innovation lead in several product
categories supported by the largest IPOs.

But what do these jaw-dropping investment amounts have to do with global supply chains?

All of this money flooding into the top Chinese companies gives them a lot of competitive
ammunition. In the manufacturing sector, this is an opportunity for companies to expand their
operations and global reach. That means a lot more products shipped to global markets. That‘s
great for transportation and logistics providers, but that‘s not all. It also means global suppliers
and sub-suppliers to these manufacturers will also expand. Distribution networks will expand.
Competition in the marketplace will become more intense.

Take Xiaomi, for example – one of the largest companies in the world that you never heard of.
Xiaomi makes a smart phone called ―Mi Mi‖ that rivals Apple and Samsung. However, it is not
yet sold in the US. Just imagine a very high-quality smartphone sold at a reasonable price.
Xiaomi also manufactures laptops, headphones, speakers, routers, and other electronics. Going
public may give Xiaomi just the incentive it needs to break into the U.S. market.

We know that increased competition drives down prices and as a result, consumers reap the
benefits. Competition also drives innovation. Can you imagine what new products are coming
next with the flood of capital into these companies?

The potential enormous volume of new products shipped to new markets also creates a grand
opportunity for supply chain innovation. We can use our best creative and analytical skills to
optimize current processes and design new approaches to global sourcing, distribution and global
fulfilment. Disruption of this kind helps us to rethink our supporting processes.

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These big IPOs are definitely good news for global supply chain business and for the
development of new ideas and products. I can‘t wait to see what happens. How about you?

The Future Belongs to Organizations with Intelligent Operations According to New

Research from HfS

Intelligent Operations key to keeping pace with customer expectations and driving superior
business outcomes

The research suggests the future belongs to organizations with Intelligent Operations that enable
them to have a 360-degree view of their operations enabling quicker, insight-led decision
making. The five essential components of Intelligent Operations identified by the research
include:

1. Innovative talent. The talent of the future will need to bring creative problem solving in
addition to digital expertise. Organizations will need a more agile human resources
function and a recruiting approach that heavily leverages an open talent marketplace.
2. Data-driven backbone. Organizations need to capitalize on the explosion of structured
and unstructured data from multiple sources to gain new insights for the innovative talent
to use in order to achieve stronger outcomes.
3. Applied intelligence. Using integrated automation, analytics, and AI-based solutions,
organizations need innovative talent who can understand the business problem and then
apply the right combination of tools to find the answer.
4. Leveraging the power of the cloud. The cloud will enable the plug-and-play digital
services with better integration of diverse data, can scale up and down, and help
organizations move toward an as-a-service environment.
5. Smart partnership ecosystem. Organizations of the future will develop symbiotic
relationships with start-ups, academia, technology providers and platform players to
achieve their goals.

The research is based on the responses of 460 participants from Accenture enterprise clients
involved in buying decisions related to technology and services. The respondents were all
director level or above; working for organizations with more than $3 billion global annual
revenue and spanning diverse geographic locations, including North America, Europe, Latin
America and Asia Pacific.

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52
Implementing Serialization in the Drug Supply Chain

Currently, the pharmaceutical industry uses tracking and tracing technology heavily in the
upstream supply chain. Maintaining visibility of the source of Active Pharmaceutical
Ingredients (API) is of utmost importance.

With the introduction of the Drug Supply Chain Security Act (DSCSA), all players within the
pharmaceutical industry are confronting the challenge of implementing a serialized drug tracing
system with little guidance on data standards, roles, or accountabilities.

The research sponsor companies, both players in the pharmaceutical industry, wanted to
objectively determine the best way to achieve system-wide serialization. The best method would
balance the costs of serialization against the importance of maintaining system reliability,
resiliency and scalability.

To understand the full extent of possible implementation options, we identified two key decision
variables; the Data Management Model (Centralized vs Decentralized), the Relational Model
(Individual Unit-Level vs Nested Parent-Child). A combination of each of these variables was
then used to determine the optimal serialization scenario.

Challenges of Serialization

Currently, the pharmaceutical industry uses tracking and tracing technology heavily in the
upstream supply chain. Maintaining visibility of the source of Active Pharmaceutical Ingredients
(API) is of utmost importance. Resilient lot and batch identification methods have long been
used between supplier and manufacturer supply chains. However, serialization seeks to extend
the identification of drugs down to the individual level, so that each unit may be traced back
through the supply chain.

Although simple at first glance, the challenges of serialization lie in the implementation: Each of
the individual scenarios identified offered advantages and disadvantages. A Centralized Data
Management Model retains data integrity better, but comes at a higher cost; a unit-level
Relational Model is easy to implement, but difficult to scale; External 3rd Party-Owned
databases would be easier to build in theory, but are unproven in operation.

Evaluation of the scenarios took the form of a top-down analysis using publicly available
industry information, which was used to build an initial cost model for each of the serialization
scenarios. This was further validated by a bottom-up analysis with data provided by the thesis
sponsor companies. Qualitative interviews with industry stakeholders provided further validation
around which options were the most feasible.

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Application and Next Steps

Through the top-down and bottom-up analysis, it was determined that a decentralized data
management model would provide the lowest cost implementation, but that a centralized model
would offer the best data integrity and database resiliency.

Key to successful pharmaceutical serialization is the availability of more detailed government

specifications on data standards and accountabilities. Although it is possible to objectively
determine an ideal solution, the constraints of real life will make any suggestions infeasible
without government guidance. Alignment of systems, processes, and responsibilities need to be
achieved before serialization moves from theory to reality.

The challenges of implementing serialization may extend to industries beyond pharmaceuticals.

Although the drive behind this research was the introduction of the DSCSA, efforts in other
industries to determine optimal track and trace solutions could follow a similar methodology to
the one described.

Tips for Navigating the Global 3PL Marketplace: Harnessing Shipper Expectations

Being able to capture and report the sustainability footprint (whether it is carbon or
something else) created by a 3PL on behalf of a shipper is becoming more important

When supply chain managers examine the global third-party logistics (3PL) marketplace this
year, many industry analysts suggest that they take a ―granular‖ view.

―Regional distinctions are key,‖ says Chris Caplice, Executive Director of the MIT Center for
Transportation and Logistics (MIT CTL). ―Some regions, such as Brazil, require tremendous
local knowledge in terms of taxes and other rapidly changing characteristics. I do not see the
emergence of a single dominant player here since the local conditions across the globe are very
different - and are constantly changing.‖

At the same time, Caplice believes that the biggest challenge for global 3PLs will be harnessing
the growing expectations and additional services required by shippers.

―For example, being able to capture and report the sustainability footprint (whether it is carbon
or something else) created by a 3PL on behalf of a shipper is becoming more important,‖ he
says. ―Yet, it is still unclear exactly how to do this - the standards are in their infancy and are
evolving.‖

Similarly, shippers are demanding better visibility – both real time and post-hoc for strategic
analysis. Global carriers and 3PLs need to be able to merge and manage tracking data from
traditional milestone based systems (EDI) and from newer real-time systems (GPS). Many
traditional TMS providers are acquiring these blended capabilities (Descartes acquiring
Macropoint, for example).

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In addressing the question about the benefits of a fully leveraged global 3PL relationship,
Caplice offers the following:

―I believe the mark of a solid strategic relationship is where the provider can help you see around
corners. You are not your 3PL‘s only shipper – they have a wider view of the market than you
will ever have. As strategic partners, the 3PL should be providing you insights not just how to
improve your current workflows and processes, but also to avoid pitfalls in the future.‖

Finally, Caplice observes that there is nothing new here that hasn‘t been part of transportation
service procurement for the last decade.

―The only thing that I would suggest is to avoid wholesale flipping from one provider to another
and instead allow multiple 3PLs to start small and grow into your network as their performance
improves and your needs develop,‖ he says. ―Similar to hiring a tem-to-hire for positions in an
office, I think it is better long term to start small and allow the 3PL to grow…or not.‖

E-Commerce
Going by a formal definition, Electronic commerce or E-Commerce is ―The use of digital
information processing technology in business transactions to create, transform, and redefine
relationships for value creation between or among organizations, and between organizations and
individuals‖

In simple terms, it is a type of industry where the buying and selling of products or services is
conducted over electronic systems such as the Internet and other computer networks.

E-Commerce versus Bricks and Mortar

The debate of 'E-Commerce versus Brick-and-Mortar' is perhaps over. They are not competing
ideas. It is quite wrong to assume that e-commerce would lead to the death of the brick-and-
mortar store.

Rather, e-commerce presents retailers with the opportunity of creating yet another type of
shopping experience, making it more attractive for shoppers by offering them further options on
products, SKUs, pricing, convenience and personalization.

Brick-and-mortar meanwhile is becoming increasingly important in an omni channel retail

environment. A recent study by AT Kearney found that consumers spend most their time
shopping in stores (61%), followed by online (31%). The physical store was the channel of
choice across all ages (from Millennial to senior citizens) and household income levels (from
less than $25,000 per year to more than $100,000 per year).

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Thus, it is time to remove the "versus" in the equation between digital and brick-and-mortar and
replace it with a ―+‖

Types of E-Commerce
Business-to-Business (B2B)

B2B e-commerce is simply defined as e-commerce between companies. This is the type of e-
commerce that deals with relationships between and among businesses. About 80% of e-
commerce is of this type, and most experts predict that B2B commerce will continue to grow
faster than the B2C segment.

Common B2B examples and best practice models are IBM, Hewlett Packard (HP), Cisco and
Dell. Cisco, for instance, receives over 90% of its product orders over the Internet.

Few Benefits:

 Reduction of search costs, as buyers need not go through multiple intermediaries to

searchfor information about suppliers, products and prices as in a traditional supply chain
 Reduction in the costs of processing transactions (e.g. invoices, purchase orders and
payment schemes), as B2B allows for the automation of transaction
 Transparency in pricing. The gathering of many buyers and sellers in a single e-market
reveals market price information and transaction processing to participants.

Business-to-Consumer (B2C)

Business-to-consumer e-commerce, or commerce between companies and consumers, involves

customers gathering information; purchasing physical goods (i.e., tangibles such as books or
consumer products) or information goods (or goods of electronic material or digitized content,
such as software, or e-books); and, for information goods, receiving products over an electronic
network. It is the second largest and the earliest form of e-commerce.

Common B2C business models are the online retailing companies such as Amazon.com,
Drugstore.com, Beyond.com, Barnes and Noble etc. Other B2C examples involving information
goods are E-Trade and Travelocity.

Few Benefits:

 Reduces transactions costs (particularly search costs) by increasing consumer access to

information and allowing consumers to find the most competitive price for a product or
service.
 Reduces market entry barriers since the cost of putting up and maintaining a Web site is
much cheaper than installing a ―brick-and-mortar‖ structure for a firm

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  In the case of information goods, B2C e-commerce is even more attractive because it
saves firms from factoring in the additional cost of a physical distribution network.

Business-to-Government (B2G)

Business-to-government e-commerce or B2G is generally defined as commerce between

companies and the public sector. It refers to the use of the Internet for public procurement,
licensing procedures, and other government-related operations. This kind of e-commerce has two
features: first, the public sector assumes a pilot/leading role in establishing e-commerce; and
second, it is assumed that the public sector has the greatest need for making its procurement
system more effective. Web - based purchasing policies increase the transparency of the
procurement process (and reduce the risk of irregularities). To date, however, the size of the B2G
e-commerce market as a component of total e-commerce is insignificant, as government
eprocurement systems remain undeveloped.

Consumer-to-Consumer (C2C)

Consumer-to-consumer e-commerce or C2C involves the electronically facilitated transactions

between consumers through some third party. A common example is the online auction, in which
a consumer posts an item for sale and other consumers bid to purchase it; the third party
generally charges a flat fee or commission.

The sites are only intermediaries, just there to match consumers. They do not have to check
quality of the products being offered.

Examples are Quikr and OLX, which provide an online classified advertising platform for users
to buy or sell goods and services from each other.

Few Benefits:

 Reduction in cost. Note that while buying ad space on other e-commerce sites is
expensive, in this case sellers post their items for free or with minimal charge depending
on the website
 Increase in the visitor to customer conversion ratio due to the ability to find related
products

Mobile Commerce (m-commerce)

M-commerce (mobile commerce) is the buying and selling of goods and services through
wireless technology i.e., handheld devices such as cellular telephones and personal digital
assistants (PDAs). As content delivery over wireless devices becomes faster, more secure, and
scalable, some believe that m-commerce will surpass wireline e-commerce as the method of
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choice for digital commerce transactions. Let us look at which industries are directly impacted
by m-commerce:

Financial services, including mobile banking (when customers use their handheld devices to
access their accounts and pay their bills), as well as brokerage services (in which stock quotes
can be displayed and trading conducted from the same handheld device);

Telecommunications, in which service changes, bill payment and account reviews can all be
conducted from the same handheld device;

Service/retail, as consumers are given the ability to place and pay for orders on-the-fly;

Information services, which include the delivery of entertainment, financial news, sports figures
and traffic updates to a single mobile device.

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