SUPPLY CHAIN FUNDAMENTALS

Chapter 1 : Understanding the supply chain

What is a supply chain?

 A supply chain is a sequence of processes and flows that take place within and between
different stages and combine to fill a customer need for a product/service.
 A supply chain consists of all the parties that are involved, directly or indirectly, in fulfilling a
customer request.
 It is dynamic and involves the constant flow of information, product and funds among its
different stages.
 The primary purpose of a supply chain is to satisfy the customer needs, and in the process,
generate profit for itself.

Supplier => Manufacturer => Wholesaler => Distributor => Retailer => Customer

 The functions involved are:

- New Product Development
- Operations
- Marketing
- Finance
- Distribution
- Customer Service

What is the objective of supply chain ?

 The objective of every supply chain is to maximize the net value generated by the supply
chain.
 Net value generated by the supply chain = Difference between what the value of final
product is to the customer and the costs incurred to satisfy the customer need.
 Supply Chain Surplus = Customer Value – Supply Chain Cost
 Consumer Surplus = Value of the product – Price paid by the consumer

SCM = S&P and Supply Management + Materials Management + Logistics and Distribution

S&P and Supply Management

- Efforts required to increased profits through increasing sales are far greater than those
involved in generating equivalent returns through a reduction in procurement prices.
- Economic Buying:
- Purchase function is defined as a set of activities, functions and processes concerned
with economic procurement and the in-flow of inputs into the enterprise.
 Topline
- Company’s revenue or gross sales
- Does not consider the operating efficiencies/ inefficiencies
- Can increase topline by:
1. Marketing to drive sales
2. NPD Launch
3. Acquisitions
 Bottomlinewa
- Company’s net income after all expenses have been deducted

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Materials Management

 Combination of Inventory Management, Production Planning and Order processing.

 Raw Material cost = 60% of cost of manufacturing goods

Logistics and Distribution

 It is part of the supply chain management process that plans, implements, and controls the
efficient, effective, forward, and reverse flow and storage of goods =, services and related
information between the point of origin and the point of consumption in order to meet
customer’s requirements.
 Transportation cost = 50% of TLC
 Logistics: It integrates all materials, functions of purchasing, inventory management,
production control, inbound traffic, warehousing, and storekeeping as well as incoming
quality control with the objective of ensuring efficient operations.

US Supply Chains

 Highly consolidated in nature.

 Manufacturers sell directly to the retailers
 Addition of intermediate distributor increases costs due to additional transactions
 Presence of large-scale retailers and hence there is only a need of infrequent replenishment

Indian Supply Chains

 Highly distributed in nature

 Large number of small retail outlets with limited inventory carrying capacity
 Distributors receive truckload of products from different manufacturers and then perform
milk runs to distribute products to retail outlets
 Outbound delivery costs to the retailers are reduced by aggregating products across multiple
manufacturers during delivery runs
 Distributors also handle collections thereby reducing payment collection costs by the
manufacturer

EXAMPLE: 7 Eleven

 Responsive replenishment system

 Robust information system
 High product variety
 POS data helps the shopkeeper to make real time ordering decisions

EXAMPLE: Walmart

 Heavy investment in the information system

 Presence of cluster of stores around DC to enable frequent replenishments

EXAMPLE: Dell

 1st scenario:
- Sells directly to the end customer
- Centralized inventories and hence final assembly is postponed
- Provided large variety (customization) by keeping low inventories of components
 2nd scenario:
- Started selling through retail outlets
- Outsourced assembly to low-cost locations to build to stock (MTS) than Build to Order

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Decision phases in supply chain

 Decisions are based on:

- Frequency of taking the decision
- Time frame for which the decision will be impactful
 Phases of supply chain design:
✓ Supply Chain Strategy/ Design: Structure of the supply chain for the next several years.
o Configuration of supply chain
o Resource allocation
o Processes for each stage
o Outsourcing or perform In-house
o Location and capacity of production and warehousing facilities
o Which product to be manufactured at which facility
o Mode of transportation to be used
o Information system to be implemented
✓ Supply Chain Planning: Quarter to a year
o Constraints put up by strategic phase under which this should operate.
o Developing forecast for coming year, taking costs, prices into consideration.
o Which markets to be served from which location
o Subcontracting or manufacturing
o Inventory policies to be followed
o Timing and size of marketing promotions
o Uncertainty in demand, exchange rates, competition to be taken into
consideration
✓ Supply Chain Operations: Weekly/ Daily
o Handle incoming customer orders in the best possible manner.
o How to handle individual customer order
o Allocation of inventory or production to individual orders
o Set dates for filling orders
o Generation of pick lists at warehouse
o Allocation of orders to particular shipping mode
o Setting delivery schedule of trucks
o Placing replenishment orders
Views of Supply Chain

 Cycle View
- Entire supply chain is divided into a set of cycles:
✓ Customer Order Cycle : Between Customer and Retailer
✓ Replenishment Cycle: Between Retailer and Distributor
✓ Manufacturing Cycle: Between Distributor and Manufacturer
✓ Procurement Cycle: Between Manufacturer and Supplier
- Each cycle has the following processes:
✓ Supplier markets product
✓ Buyer places order
✓ Supplier receives order
✓ Supplier supplies order
✓ Buyer receives order
✓ Buyer returns reverse flow to supplier/ third party
- This view is useful when:
✓ Considering operational decisions

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 ✓ Assigning roles to each member in each stage
✓ Setting up information systems
✓ Defining the processes in each stage and their respective owners

 Push/ Pull View

PUSH PULL
Execution is initiated in anticipation of a Execution is initiated in response to a
customer demand based on a forecast. customer order.
Respond to speculated demand. React to actual customer demand.
Speculative Reactive
- Presence of decoupling point at the push-pull boundary. Careful selection of the
decoupling point helps one to postpone differentiation and keep inventory minimized.
- Useful when considering strategic decisions (Supply chain design)

Supply Chain Macro Processes

CRM – Customer
ISCM – Internal Supply SRM – Supplier Relationship
Relationship
Chain Management Management
Management
Processes that focus on Processes focussing on the
Processes that are internal
interface between firm interface between the firm
to the firm.
and the customers. and its suppliers.
Aims to fulfil the demand
Aims to generate
generated by CRM Aims to arrange for and
customer demand &
processes in a timely manage supply sources for
facilitate placement and
manner and at the lowest various goods and services.
tracking of orders
possible cost.
▪ Marketing ▪ Planning of internal ▪ Evaluation & selection
▪ Pricing production and of suppliers
▪ Sales order storage capacity ▪ Negotiation of supply
management ▪ Preparation of terms
▪ Call centre demand and supply ▪ Communication
management plans regarding new products
▪ Fulfilment of orders & orders with suppliers

 Marketing and manufacturing usually have different forecasts when making their plans.

EXAMPLE: Apple

 Apple carries finished good inventories at all their retail stores

EXAMPLE: Zara

 Design to sales takes 4- 6 weeks

 Able to sell most of its products at full price
 Products with uncertain demand as source from Europe
 Products with certain demand are sourced from Asia
 Postponement: More than 40% of its finish goods purchases and most of its in house
production occur after the sales season starts.

EXAMPLE: TOYOTA

 Toyota global complementation: Toyota redesigns its plans so it could export to markets that
can remain strong when the local market weakens, flexible plants.

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Chapter 2 : Achieving Strategic fit in a supply chain
EXAMPLE: McMaster Carr

- High responsiveness
- High variety
- Greater emphasis on product variety and response time than cost

EXAMPLE: Walmart

- Low price
- High product availability

EXAMPLE: Zales

- Fast response time

- Huge product selection
- Low rate
- High availability

EXAMPLE: Blue Nile

- High variety
- Low prices
- Low responsiveness

 A company's competitive strategy defines the set of consumer needs that is 6 to satisfy
through its products and Services
 supply chain strategy = supplier + operations + logistics
 Product development strategy: it specifies the portfolio of new products as a company's time
to develop. In house or outsource decision.
 Marketing and sales strategy: market segmentation, positioning, pricing, promotions

Supply chain strategy examples:

 Toyota putting production facilities in each of the major market

 Dell’s decision to sell directly to the consumer and then through resellers
 Cisco to use contract manufacturing excellent

EXAMPLE: 7-Eleven

 High density of stores - Responsive

 Excellent information infrastructure

EXAMPLE: Dell -1

 Large variety, high responsiveness flexible assembly facilities

 Common components
 Low inventory

EXAMPLE: Dell -2

 Build to stock
 Use of contract manufacturing
 Reduced cost

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Strategic fit

 Requires both the competitive & supply chain strategies of a company to have aligned goals
 Steps in achieving strategic fit :
- Understanding the customer and supply chain uncertainty
- Understanding the supply chain capabilities
- Achieving strategic fit
 Customer demand depends on the following factors:
- Quantity of the product needed in each lot
- Response time that customers are willing to tolerate
- Variety of products needed
- Service level required
- Price of the product
- Desired rate of innovation

Implied Demand Uncertainty

 Demand uncertainty imposed on the supply chain because of the customer needs it seeks to
satisfy.
 It is the resulting uncertainty for only the portion of the demand that the supply chain plans
to satisfy based on the attributes that the customer desires.

Property Example
 Predictable supply and demand Salt at the supermarket
 One is predictable & other Existing automobile model
unpredictable
 Highly uncertain supply & demand New communication device

Supply Chain Responsiveness

 Ability to:
✓ Meet short lead times
✓ Ensure high service level
✓ Handle large variety
✓ Handle large volumes
✓ Build innovative products
 Supply Chain Efficiency = Inverse of cost of making and delivering a product to the customer
 Cost-Responsiveness Frontier

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Highly efficient : Integrated Steel mills

Somewhat efficient: Hanes Apparel (MTS)

Somewhat responsive : Automotive production

Highly responsive: 7-Eleven

Example: IKEA

 Modular components, Limited variety, MTS

 Uses store inventory to absorb all the uncertainty faced by the supply chain
 Hence stores are responsive (immediate availability) and the suppliers/manufacturers are
efficient (low cost countries)
 All functions within IKEA focus on efficiency
 Responsiveness: IT info transfer, flexible manufacturing, responsive transportation.

Example: Zara

 Trendy items production in Europe (Responsive) – Customized jeans (High demand

uncertainty)
 Basic items production in Aisa (Efficient) - Standard jeans (Low demand uncertainty)

Efficient Responsive
Same Production Plant
Transportation : Truck, Rail FedEX
Mass Production Flexible Manufacturing
Centralized Warehouse Regional Warehouse

New Product Characteristics:

- Uncertain demand
- Unpredictable supply
- High Margins
- Need for responsiveness
- Product availability is critical
- Cost is secondary

Commodity

- Certain demand
- Low margins
- Cost is primary

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Pharmaceutical Industry

 New products are introduced using flexible capacity (High uncertainty, high responsiveness
requirement)
 Mature products shifted to dedicated capacity, advantages of high scale

SUPPLY CHAIN LEVERS

 Capacity: Flexible or Dedicated. Fixed or Excess. Flexible paint mixers in Paint shops
 Inventory: Holding inventory since customer demand is uncertain
 Time: Less time delivery => Quick replenishment (Zara), Long time delivery => Steel Mill
(Aggregate demand)
 Information: POS systems at 7-Eleven to understand consumer consumption pattern, use of
previous sales data to push expected products to be bought
 Price: Pricing changes w.r.t demand and time. Airline, Hotels, etc. Low price if unsold
inventory is high

INTERCOMPANY SCOPE: Walmart & P&G (Planning promotions jointly)

Agile Intercompany scope:

- Used for unpredictable demand

- Use the low-cost supplier to supply the predictable portion of the demand
- Use the responsive supplier as backup for when demand exceeds supply available from
low-cost supplier

INDIAN RETAIL SCENARIO

 Unorganised retail sector in India = 91%

 New Challenge
- Compete with the organised sector
- Embrace e-commerce practices
 The hypermarket format in India, is becoming difficult to sustain in India due to lack of sales
volumes and needs to adapt to Indian consumers
 Walmart Bharti (Did not work)
- Walmart focussed on cash and carry best price modern wholesale operations
- Bharti focussed on retail distribution
 Reliance Retail
- Developing an indigenous sourcing base and concentrating on economies arising out of
disintermediation of supply and distribution channels
- Done through contract farming
- Use of own vehicles, cold storages and warehouses
- Enter into contracts with leading manufacturers
- Launch through own e-commerce portal
 Indian Malls:
- Need to be better located
- Be smaller in sizes
 Honda built flexible plants hat were a great help in 2008 as demand for SUVs dropped but
demand for small cars increased.
 Fragmented supply chain: Very chaotic due to different stages having different ownerships,
policies, focus on local objectives.

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 Chapter 3: Supply Chain Metric and Drivers

 New age Information Technology enabled (ITE) Tools

- Material Requirement Planning (MRP)
- Manufacturing Resource Planning (MRPII)
- Enterprise Resource Planning (ERP)
- Collaborative Planning Forecasting & Replenishment (CPFR)
- Vendor Manager Inventory (VMI)
- Total Asset Visibility (TAV)
- Velocity Management (VM)
 POS capture of data has completely revolutionized the system of replenishment, made cross
docking possible.
 SCOR (Supply Chain Operations Reference Model)
 Systems concept:
- Do efficiency and cost reduction and system level
 Total cost concept:
- Minimize total cost and maximize value to customers
 Trade-off concept:
- Cost or Time?

Financial Metrics

 Return on Equity (ROE): It is the main summary measure of a firm’s performance. Measures
the return on investment made by a firm’s shareholders.
ROE =Net Income/ Average Shareholder Equity
 Return on Assets (ROA): Measures the return earned on each dollar invested by the firm in
assets.
ROA = Earnings before interest/ Average total assets
= {Net income + [Interest expense * (1 - Tax rate)]}/ Average total assets
 Accounts Payable Turnover (APT)
APT = Cost of goods sold / Accounts payable
 Accounts Receivable Turnover
ART = Sales revenue/ Accounts receivable
 Inventory Turnover
INVT = Cost of goods sold /Inventories
 Property, plant and equipment turnover
PPET = Sales revenue /PP&E
 Cash to Cash cycle Measures the average amount of time from when cash enters the process
as cost to when it returns as collected revenue
C2C = - weeks payable (1/APT) + weeks in inventory (1/INVT) + weeks receivable (1/ART)

Markdowns: Markdowns represent the discounts required to convince customers to buy excess
inventory

Lost sales: Represent customer sales that did not materialize because of the absence of products the
customer wanted to buy

Both of them are not reflected in the financial statements.

 Logistical Drivers: Production, storage and movement of goods

- Facilities

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 - Inventory
- Transportation
 Cross functional drivers:
- Information
- Pricing
- Sourcing

Cross Docking: A system in which inventory is not stocked in a warehouse but rather is shipped to
stores from the manufacturer with a brief stop at a distribution center (DCs), where product is
transferred from inbound trucks from the supplier to outbound trucks to the retail store.

At cross-docking facilities, inbound trucks from suppliers are unloaded; the product is broken into
smaller lots and is quickly loaded onto store-bound trucks

FACILITIES

 Actual physical locations in the supply chain network where product is stored, assembled, or
fabricated.
 The two major types of facilities are production sites and storage sites.
 Decisions regarding role, location, capacity, and flexibility of facilities.
 Facility costs show up under PPE, if facilities are owned by the firm or under SGA if they are
leased.
 Number of facilities increases Responsiveness Increases
 Facility costs increases
 Inventory levels increases
 Outbound costs reduces
 Flexibility/ Capacity increases Facility costs increases
 Inventory costs decreases
 Response time decreases

 Local manufacturing facilities advantages:

- Protection from currency fluctuations
- Protection from trade barriers
- Increased responsiveness
 Decisions
- Capability :
Flexible (responsive but inefficient) or Dedicated (Efficient but less no. of products)
Product focussed or Functional focussed
Cross docking or Warehouse storage
- Location (Centralized or Responsive)
- Capacity (Excess capacity or not)
- Demand Allocation (Which facility will serve which market)
 Metrics: Capacity, Utlization, Idle time, SL, Cycle time, etc.

INVENTORY

 Encompasses all raw materials, work in process, and finished goods within a supply chain.
 Exists in the supply chain because of a mismatch between supply and demand.
 Material flow time is the time that elapses between the point at which material enters the
supply chain to the point at which it exits
 Throughput is the rate at which sales occur.
Little’s Law : I = D*T

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  CYCLE INVENTORY: Cycle inventory is the average amount of inventory used to satisfy
demand between receipts of supplier shipments.
 SAFETY INVENTORY: Safety inventory is inventory held in case demand exceeds expectation,
is held to counter uncertainty
 SEASONAL INVENTORY: Seasonal inventory is built up to counter predictable seasonal
variability in demand.
 Level of product availability is the fraction of demand that is served on time from product
held in inventory
 Metrics: Fill rate, Seasonal inventory, Out of stock percentage, etc.

TRANSPORTATION

 Moving inventory from point to point in the supply chain

 Firm selling high-value items may use rapid transportation to be responsive while centralizing
its facilities and inventory to lower cost.
 Firm selling low-value, high-demand items like light bulbs may carry a fair amount of
inventory close to the customer but then use low-cost transportation like sea, rail, and full
trucks to replenish this inventory from plants located in low-cost countries.
 Decisions:
- Transportation Network (Routes, Presence of intermediate consolidation points)
- Transportation mode: Air freight can only be justified if the resulting savings in inventory
and improved responsiveness justifies the increased transportation costs.
 Metrics: Avg IB, OB transportation cost (% of COGS)

INFORMATION

 Consists of data and analysis concerning facilities, inventory, transportation, costs, prices,
and customers throughout the supply chain.
 Seven-Eleven Japan uses information to improve product availability while decreasing
inventories.
 Wal-Mart uses information on shipments from suppliers to facilitate cross-docking and lower
inventory and transportation expense.
 Aggregate sales data is enough rather than detailed POS data. Cheaper to share and provides
most value.
 Too much information is bad.
 Components:
- Demand Planning : Process of generating the best estimate of future demand based on
historical sales, planned marketing and promotions efforts and other factors such as
economy and competition.
- S*OP: Process of creating an overall supply plan (production and inventories) to meet
the anticipated level of demand (sales).
 Metrics: Forecast horizon, FE, Demand variability.

SOURCING

 Choice of who will perform a particular supply chain activity such as production, storage,
transportation, or the management of information
 What functions a firm performs and what functions the firm outsources.
 Set of business processes required o purchase goods and services.
 RISK IS HIGH: Go for In-house
 EFFICEINCY IS HIGH: Go for outsourcing
 Zara

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 - Basic products => Efficiency is the aim => Sourced from low cost countries
- Trendy products => Responsiveness is aim => Sourced from Europe
 Components:
- Inhouse Vs Outsource
- Suppler selection: No. of suppliers => Evaluation Criteria (TOPSIS, AHP) =>
Complementary suppliers are best (One for efficiency, one for responsiveness)
- Procurement: Aim should be to minimize TCO
 Metrics: Lead time, Quality, Days payable outstanding.

PRICING

 Determines how much a firm will charge for the goods and services that it makes available in
the supply chain.
 Short-term discounts can be used to eliminate supply surpluses or decrease seasonal
demand spikes by moving some of the demand forward.
 Differential Pricing provides responsiveness to customers that value it and low cost to
customers that value affordability.
 Components:
- Economies of scale: Volume/ Quantity Discounts
- EDLP : Costco, relatively stable demand; High-Low pricing, peak demand during discount
week
- Fixed Vs Menu Pricing
 Metrics: Profit Margin, Days sales outstanding, Avg Sales Price.

INFRASTUCTURE: To enable the use of all the drivers effectively and efficiently.

Ex: Application of FITSIP for Walmart (reliable, low-cost retailer for a wide variety of mass-
consumption goods)

 Facility: Uses centrally located DCs within its network of stores to decrease the number of
facilities and increase efficiency at each DC
 Inventory: Maintains an efficient supply chain by keeping low levels of inventory using cross
docking
 Transportation: Runs its own fleet, to keep responsiveness high, increases transportation
cost, but the benefits in terms of reduced inventory and improved product availability.
 Sourcing: Identifies efficient sources for each product it sells. Wal-Mart feeds them large
orders, allowing them to be efficient by exploiting economies of scale.
 Information: State of the art POS capture
 Pricing: EDLP (Every Day Low Pricing)

Apparel Retailers => SC performance= 35% of the financial performance

Logistics Performance Index (LPI)

- Published by World Bank

- Provides ranking of countries
- Quality of trade & transport infrastructure, ability to track and trace consignments,
frequency of on time deliveries, competence & quality of logistics services

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Chapter 4: Designing Distribution Networks and Applications to Omni Channel Retailing

Distribution refers to the steps taken to move and store a product from the supplier stage to a
customer stage in the supply chain.

 For an Apparel industry: Distribution = 35% of revenue

 Phases of Network design:
- 1st : Broad structure (Number of stages, Their roles)
- 2nd : Specific locations, capabilities, capacities, demand allocation
 P&G directly distributes to large supermarket chains & to small retail outlets via distributors.
 Factors affecting customer experience:
- Response time
- Product variety
- Product availability
- Customer experience
- Time to market
- Order visibility
- Returnability

As the number of facilities in a supply chain increases, the inventory and resulting inventory costs
also increase.

 Inbound transportation costs are the costs incurred in bringing material into a facility.
 Outbound transportation costs are the costs of sending material out of a facility.

Outbound transportation costs per unit tend to be higher than inbound costs because inbound lot
sizes are typically larger.

 Increasing the number of warehouse locations decreases the average outbound distance to
the customer.

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  As long as inbound transportation economies of scale are maintained, increasing the number
of facilities decreases total transportation cost. If the number of facilities is increased to a
point where inbound lot sizes are also very small and result in a significant loss of economies
of scale in inbound transportation, increasing the number of facilities increases total
transportation cost.

 Facility costs decrease as the number of facilities is reduced because a consolidation of

facilities allows a firm to exploit economies of scale.
 Total logistics costs are the sum of inventory, transportation, and facility costs for a supply
chain network.

Manufacturer Storage with Direct Shipping

 DROP SHIPPING: Retailer takes the order, initiates the delivery request => Product is shipped
directly from the manufacturer to the end customer
 Drop-shipping is used to deliver slow-moving items to customers with unpredictable
demand.
 Best for high value slow moving items.
 Advantages:
- Ability to centralize inventories at the manufacturer who can aggregate demand across
all retailers that it supplies.
- High levels of product availability & variety with low levels of inventory.
 Benefit of aggregation is achieved only if the manufacturer can allocate at least a portion of
the available inventory across retailers on an as-needed basis.

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  Offers the manufacturer the opportunity to postpone customization until after a customer
has placed an order. Postponement further lowers inventories by aggregating to the
component level.
 For slow-moving items, inventory turns can increase by a factor of six or higher if drop-
shipping is used instead of storage at retail stores
 Low Inventory costs, high transportation costs, low facilities costs.
 Handling costs might increase or decrease. Decrease if manufacturer can directly ship from
production line.
 Response time increases.
 Receiving becomes difficult if multiple shipments of same order.
 Market time reduced drastically.
 Difficult and costly return process.
 Good investment in information infrastructure needed.

Business Case: Best suited for a large variety of low-demand, high-value items for which customers
are willing to wait for delivery and accept several partial shipments. BULD TO ORDER.

Manufacturer Storage with Direct Shipping and In-Transit Merge

 In-transit merge combines pieces of the order coming from different locations so that the
customer gets a single delivery.
 Used by Apple for configure-to-order computers, customized products in a single shipment,
used by Dell.
 Ability to aggregate inventories and postpone product customization.
 Lower transportation costs relative to drop-shipping by aggregating final delivery
 Higher facility costs due to in-transit merge capability requirement.
 Receiving costs at the customer are lower because a single delivery is received.
 Better customer experience
 Best implemented if there are no more than four or five sourcing locations.

Business Case: Best suited for low- to medium-demand, high-value items the retailer is sourcing from
a limited number of manufacturers.

Distributor Storage with Carrier Delivery

 Inventory is held by distributors/retailers in intermediate warehouses, and package carriers

are used to transport products from the intermediate location to the final customer.
 Requires a higher level of inventory because of a loss of aggregation.
 Postponement of product differentiation can be implemented with distributor storage, but it
does require that the warehouse develop some assembly capability.
 Used by Amazon in combination with Drop Shipping.
 Transportation costs are somewhat lower for distributor storage compared to manufacturer
storage because an economic mode of transportation (e.g., truckloads) can be employed for
inbound shipments to the warehouse, which is closer to the customer.
 Facility costs (of warehousing) are higher with distributor storage because of a loss of
aggregation.
 Distributor storage is not appropriate for extremely slow-moving items
 Higher Inventory turns than retailer storage.
 Less complex information infrastructure.
 Better response time, limited product variety, higher time to market.
 Better returnability.

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Business Case: Distributor storage with carrier delivery is well suited for slow- to fast-moving items

Distributor Storage with Last-Mile Delivery

 Last-mile delivery refers to the distributor/retailer delivering the product to the customer’s
home instead of using a package carrier.
 Last-mile delivery requires the distributor warehouse to be much closer to the customer.
 Used for Autimobile Industry (spare parts)
 More warehouses are required, higher inventory (lower level of aggregation), high
transportation costs,.
 High population density reduces last mile delivery cost.
 Transportation costs of last-mile delivery are best justified in settings where the customer is
purchasing in large quantities
 High facility and purchasing cost
 Lower response times
 Lower product variety
 Information infrastructure required additional capabilities of scheduling deliveries.
 Higher time to market.
 Easier returnability.

Business Case: Last-mile delivery may be justifiable if customer orders are large enough to provide
some economies of scale, and customers are willing to pay for this convenience.

Manufacturer or Distributor Storage with Customer Pickup

 Inventory is stored at the manufacturer or distributor warehouse, but customers place their
orders online or on the phone and then travel to designated pickup points to collect their
merchandise.
 Amazon partnering with local stores with internet facilities to execute the same.
 Seven-Eleven has distribution centers where product from manufacturers is cross-docked
and sent to retail outlets on a daily basis.
 Inventory costs using this approach can be kept low, with either manufacturer or distributor
storage to exploit aggregation
 Low transportation costs
 Processing costs at the pickup site are high because each order must be matched with a
specific customer when he or she arrives.
 Low response time, easier returns, lower delivery costs,.

Business Case: Use existing facilities as pickup points to lower facility costs. Good investment in
information infrastructure is required.

Very successful for 7-Eleven since they have high density of stores and closer to customers.

Retail Storage with Customer Pickup

 Inventory is stored locally at retail stores.

 Local storage increases inventory costs because of the lack of aggregation.
 Best for fast moving goods.
 Low transportation costs, high facility costs, low investment in infrastructure.
 Good response time, low product variety, expensive product availability.
 Long time to market

Business Case: Best for fast moving items where rapid response is demanded with ability to touch
and feel the product.

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BEST PRACTICES & FACTS

 Niche companies have a single type of distribution network.

 Hybrid Network:
Amazon stocks
- Fast-moving items at most of its warehouses
- Slower moving items at fewer warehouses
- Very slow-moving items may be drop-shipped from distributors or publishers

OMNI CHANNEL RETAILING

 Use of multiple channels to interact with customers and fulfil their orders.
 Film Industry:
- Redbox : Decentralized, Few new releases +
- Netflix : Centralized, Wide variety of movies at lowcost
 Factors for considering retail strategy:
- Information flow
- Product flow
- Fund flow

Modes of selling:

 Traditional Retail
- Face to face interaction
- Touch and feel of product
- High inventory
- Low transportation costs
- High facility cost
 Showrooms
- Face to face exchange
- No inventory for sale
- Low inventory and facility cost
 Online Information & Home Delivery
 Online information & Pickup (WALMART)

Facility Costs = Facility cost + Operations Cost

 Relative benefit of aggregation is small for high demand items with low variability.

SUITABILITY

 Traditional Retail : Preditabke demand, price competitive, high info complexity

 Showrooms: Info complexity, unpredictable demand, high value.

GoI Initiatives:

- Development of cold chains, refrigerated transportation & storage facilities.

- E-trading through electronic spot exchanges
- Minimize wastage of fruits : Fresh & Healthy Enterprises Limited (CONCOR)

 Amazon India joined hands with Shopper’s Stop and Myntra to launch its own physical
stores for its private brands.

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
Chapter 5: Network Design in the Supply Chain

Network Design Components:

 Number of facilities
 Location of facilities
 Capacity to be allocated
 Which products to be manufactured by which facility
 Which market to be served by which facility

Facilities:

- Manufacturing Plants
- Production lines
- DCs/ Warehouses
- Cross docking facilities

Setting up plants in other countries is helpful when home currency strengthens & it becomes
expensive to produce in own country.

 Facility location is decided upon the following factors:

- Costs (Fixed & Variable)
- Future Demand
- Price Fluctuations
- Technology Advancements
 Foxconn/ Flextronics => Low Cost leadership => Location in Asian countries
 Zara => Responsive => Location in Portugal/ Spain => Local capacity
 Costco => Focus on Discounts => Less stores
 7-Eleven => Focus on convenience => More stores
 Ford => Luxury cars built separately => Focus on maintaining quality

Positive Externalities between firms

 Positive externalities occur when the collocation of multiple firms benefits all of them.
 Positive externalities lead to competitors locating close to each other
 Stores located together increases demand, more convenient for people who need to visit
only one location.
 Suzuki’s efforts to build supplier network in India helped other players to set up assembly
plants too & leverage the existing network.

Socioeconomic factors: Special economic zones, Schemes for development of backward areas

Political factors: Low GPRI (Global Political Risk Index), Govt, Society, Security, Economy

Infrastructure Factors: Availability of labour, Rail service, quality of life, access to facilities.

Customer Response time & SL

TLC – Total Logistics Costs

- Total Logistics Costs = Inventory costs + Facility costs + Transportation costs

 Baltic Dry Index : Cost to transport raw materials such as metals, grains, and fossil fuels.

Inventory Transportation Facility

Physical Storage Cost Inbound Infrastructure

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 Cost of Capital Outbound Equipment
Obsolescence cost Labour
Utilities

Facility costs => Fixed (What technology used) + Variable (Utilization)

Semiconductors => High Initial cost, Low transportation cost

Coca-Cola bottles => Low Initial cost, High transportation cost

Macroeconomic factors

- Tariffs & Tax incentives

More tariffs => More production locations
Decrease in tariffs lead to consolidation of global production and distribution facilities
Free Trade zones : Duties/ Taxes relaxed if production used primarily for export
- Exchange rate (Provide excess flexible capacity) & Demand Risk

NETWORK DESIGN FRAMEWORK

PHASE I

 Decide number of stages & which function will be performed In house/ Outsourced

PHASE II

 Regions for facility locations, their roles & capacity

 Forecast Demand => Identify FC & VC => Identity regional tariffs => Identify competitor
locations => Desired response time & logistics cost (regional facility configuration) => Risk
Identification (Demand, Exchange Rate, Political)

PHASE III

 Identify sites within regions based on hard (suppliers, transportation, communication,

utilities) and soft (skilled workforce, community receptivity) infrastructure availability

PHASE IV

 Precise locations and capacity allocation

Inputs required: Demand, Response rate, FC, VC, Inventory holding cost, Transportation cost, Tariffs,
sales price, capacity.

MODELS

- Capacitated Plant Location Model

- Gravity Model

Chapter 7: Demand Forecasting in a Supply Chain

▪ Push => Level of activity (Production, Transportation, Outsourcing)

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 ▪ Pull => Level of capacity, inventory

Ex: Home Depot store selling paint orders the base paint and dyes in anticipation of customer orders,
whereas it performs final mixing of the paint in response to customer orders.

Tough to forecast => Fashion Goods, High Tech products.

Forecasting Characteristics:

 Forecasts are always inaccurate and should thus include both the expected value of then
forecast and a measure of forecast error.
 Long-term forecasts are usually less accurate than short-term forecasts; that is, long-term
forecasts have a larger standard deviation of error relative to the mean than short-term
forecasts
 Aggregate forecasts are usually more accurate than disaggregate forecasts, as they tend to
have a smaller standard deviation of error relative to the mean.
 The farther up the supply chain a company is (or the farther it is from the consumer), the
greater is the distortion of information it receives

Tackling Bullwhip effect:

- Reducing forecast horizon

- Aggregation
- Collaborative Forecasting
 7-Eleven:
- Qualitative inputs also considered
- Manager can enter weather conditions info which is not present in system
 Factors affecting demand:
- Past demand
- Lead time of product replenishment
- Planned advertising or marketing efforts
- Planned price discounts
- State of the economy
- Actions that competitors have taken
 Historical Sales != Historical Demand
- True Past Demand = Past Sales + Unmet Demand (Stockouts, Competitor Actions, pricing,
promotions)

Forecasting Techniques:

 Qualitative (Human judgement)

 Time Series (Past Data)
 Casual (Correlation between demand & other factors)
 Simulation (Time series + Casual)

Observed Demand = Systematic Components + Random Component

 Systematic = Level + Trend + Seasonality

 S&OP => Integrating Demand Planning & Forecasting
 Retailer => Forecast based on promotions
 Mfg => Forecast based on historical data
 If demand for a product influence or is influenced by demand for another product, the two
forecasts are best made jointly.

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 Techniques:

Static & Adaptive

 Adaptive:
- ESM
- Trend corrected ESM (Holt’s Model)
- Trend & Seasonality corrected ESM (Winter’s Model)
 Errors:
- MSE: Using the MSE as a measure of error is appropriate when forecast error has a
distribution that is symmetric about zero
- MAD: MAD can be used to estimate the standard deviation of the random component
assuming that the random component is normally distributed
- MAPE: It is a good measure of forecast error when the underlying forecast has significant
seasonality and demand varies considerably from one period to the next.
- Bias: When a forecast method stops reflecting the underlying demand pattern

Demand Forecasting tools:

- Demantra
- APO
- JDA
 Forecast demand not Sales, opposite happening in India
 Sales => Gives Mkt share
 Demand => Total actual value

Damaging Indian Processes:

- Salesperson pushing distributor to load stock in last week of month to achieve targets,
which is returned next month
- Credit cycle of distributor

FORECASTING FOR INDIA

 Provide technology to capture tertiary sales data, sales forecasting, supply planning, dispatch
planning & analytics
 Provide planner on demand
 Provide all on a subscription-based service to reduce CAPEX

Instead of using ARIMA/ Holt-Winters model, Logarithmic trend with 12 period seasonality to be
used.

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Chapter 8: Aggregate Planning in a Supply Chain

Aggregate planning is a process by which a company determines planned levels of capacity,

production, subcontracting, inventory, stockouts, and even pricing over a specified time horizon.

 Time horizon = 3 – 18 months

 Determining the following:
- Production Level
- Inventory Level
- Capacity Level
- Backlogs
 Production plans for a firm define demand for suppliers and establish supply constraints for
customers.
 Information required by an Aggregate Planner:
- Aggregate demand forecast
- Production costs (Labour, Subcontracting, Capacity)
- Machine hours required
- Inventory holding cost
- Stock out cost
- Constraints (Overtime, layoffs, Capital, stockouts)
 Components of an Aggregate Plan:
- Production Qty from regular, overtime & subcontracted
- Inventory held
- Backlog/ Stockout
- Workforce
- Machine capacity

Trade-offs in Aggregate Planning

 Capacity
 Inventory
 Backlogs/ Lost sales

Strategies:

 Chase strategy: Varying machine capacity/ labour (hiring/ layoffs) as per demand variation
- Low levels of inventory in the supply chain
- High levels of change in capacity and workforce
- To be used when cost of carrying inventory is high and costs to change levels of machine
and labour capacity are low.
 Flexibility strategy—using utilization as the lever: May be used if there is excess machine
capacity
- Workforce kept stable but overtime used
- Low levels of inventory
- Lower average machine utilization.
- To be used when inventory carrying costs are relatively high and machine capacity is
relatively inexpensive
 Level strategy—using inventory as the lever: A stable machine capacity and workforce are
maintained with a constant output rate
- Large inventories built up
- Should be used when inventory carrying, and backlog costs are relatively low.

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 Master Production Schedule (MPS)

 Identifies the batches produced in each period at the level of each product.
 Disintegrates the available information from the Aggregate Plan.

Aggregate Plan shortcomings

 Does not consider any forecast error, flexibility may be built in plan to tackle this:
- Using Safety Inventory (Built up)
- Safety Capacity (Overtime, Extra workforce permanently, Subcontractors)
 Use sensitivity analysis to validate post aggregation planning.

Performance measuring parameters for a manufacturing firm:

- Throughput
- Inventory Holdings
- Operating costs

Modified JIT : Building safety stocks based on the performance of suppliers on whom companies
depend.

Chapter 9: Sales & Operations Planning

Goal of sales & operations planning is to appropriately combine two broad options to handle predictable
variability:

- Manage supply using capacity, inventory, subcontracting, and backlogs.

- Manage demand using short-term price discounts & promotions.

 Meeting Seasonal demand:

- High manufacturing capacity (Low inventory cost, but unused capacity)
- Inventory Buildup during offseason
- Offer price promotions before peak demand (shift demand from peak areas

Managing Supply

 Supply of a product can be varied using:

- Production Capacity
- Inventory
 Managing capacity:
- Time flexibility from workforce
- Use of seasonal workforce
- Use of subcontracting
- Use of dual facilities—specialized and flexible
- Designing product flexibility into the production processes (complementary products)
 Managing Inventory:
- Using common components across multiple products
- Build inventory of high-demand or predictable-demand products

Managing Demand

 Promotions offering, increases demand by:

- Market growth

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 - Stealing share
- Forward Buying

Factors affecting timing of a promotion:

- Product Margins
- Cost of holding inventory
- Cost of changing level of capacity
- Impact of promotion on demand

PRACTICAL APPROACHES TO IMPROVE SUPPLY CHAIN COORDINATION

 Continuous Replenishment and Vendor-Managed Inventories

- CRP
CRP systems are driven by actual withdrawals of inventory from retailer warehouses
rather than POS data at the retailer level. Inventory is owned by retailer.
- VMI
The manufacturer or supplier is responsible for all decisions regarding product
inventories at the retailer. As a result, the control of the replenishment decision moves
to the manufacturer instead of the retailer.
Issue: Retailers selling products from competing manufacturers that are substitutes in
the customer’s mind, ignoring impact of substitution by manufacturers.
Solution: Assign a category leader
 CPFR (Collaborative Planning Forecasting & Replenishment)
 Retail Event Collaborations

Chapter 14: Transportation in Supply Chain

 Modes of transportation:
- Air
- Package Carriers
- Truck
- Rail
- Water
- Pipeline
- Intermodal
 Design options for a transportation network:
- Direct Shipment Network to Single Destination
- Direct Shipping with Milk Runs
- All Shipments via Intermediate Distribution Center with Storage
- All Shipments via Intermediate Transit Point with Cross-Docking
- Shipping via DC Using Milk Runs
- Tailored Network

Chapter 15: Sourcing Decisions in Supply Chain

 How Do Third Parties Increase the Supply Chain Surplus

- Capacity Aggregation
- Inventory Aggregation
- Transportation aggregation by transportation intermediaries

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 - Transportation aggregation by storage intermediaries
- Warehousing aggregation
- Procurement aggregation
- Information aggregation
- Receivables aggregation
- Relationship aggregation
- Lower costs & higher quality
 Risks of using third party:
- Loss of supply chain visibility
- Negative reputational impact
- Ineffective contracts
- Leakage of sensitive data and information
- Loss of internal capability and growth in third-party power
- Reduced customer/supplier contact
- Underestimation of the cost of coordination
- The process is broken

 Total Cost of Ownership (TCO)

- Includes all supply chain costs of sourcing a good or service from a particular supplier:
1) Acquisition costs: Supplier price, Taxes & duties, delivery costs, incoming quality
costs, financing costs.
2) Ownership Costs: Inventory costs, warehousing costs, mfg costs, conversion costs,
production quality costs, production cycle time costs.
3) Post ownership costs: Warranty costs, Environmental costs, Reputational costs,
Product liability costs.
 Risk sharing:
- Buybacks or returns
- Revenue sharing
- Quantity flexibility

SUPPLY CONTRACTS
Supply contracts to share risk:

 Buy-Back Contracts
- Seller agrees to buy back unsold goods from the buyer for some agreed upon price
higher than the salvage value.
- This gives buyer incentive to order more units, since the risk associated with unsold units
is decreased.
 Revenue sharing contracts
- Buyers shares some of its revenue with the seller, in return for a discount on the
wholesale price.
 Quantity Flexibility Contracts
- Contracts in which supplier provides full refund for returned (unsold) items as long as the
number of returns is no larger than a certain quantity.
 Sales Rebate Contracts
- Contracts provide a direct incentive to the retailer to increase sales by means of a rebate
paid by the supplier for any item sold above a certain quantity.
 Global Optimization

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 Contracts for MTS/ MTO

 Pay Back Contracts

- Buyer agrees to pay some agreed-upon price for any unit produced by the manufacturer
but not purchased by the distributor.
 Cost-sharing Contracts
- Buyer shares some of the production costs with the manufacturer in return for a
discount on the wholesaler price.
- Distributor purchases one or more components that the manufacturer needs.
Components remain on the distributor’s books but are shipped to the manufacturer’s
facility for the production of the FGs.

PROCUREMENT

 Strategic Items (low supplier, high impact on customer experience ) : Form Partnerships
- Car engines, transmission systems
 Leverage Items (Many suppliers, high impact): Exploit purchasing power & minimize cost
 Bottleneck Items : Ensure supply by Long term contracts, carrying stocks
 Non-critical items: Simplify & Automate

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
BASICS OF OPERATIONS MANAGEMENTS

Theory of constraints

 The Theory of Constraints states that every system must have at least one constraint limiting
its output. (Focus improvements where it will have the greatest impact)
 It postulates that the goal to make more money can be achieved by:
- Increasing throughput
- Reducing Inventory
- Reducing OpEx

Six Sigma

 Identify and remove the causes of defects and errors in manufacturing and/or service
delivery and business processes.
 DMAIC => For existing processes; DMADV => For creating new processes/ products

Lean Manufacturing

 Identifying and eliminating wastes in a system

 TIMWOOD

TQM

 Management system which is customer focussed and aims to involve all people for continual
improvement of the organisation.
 Customer focussed, Involvement of everybody, Process centred, Continual improvement.

PDCA

 Plan: Plan your improvement

 Do: Execute your strategy (Experimental)
 Check: Check the performance of the execution
 Act: Implement large scale

ISO 14000

 EMS (Environmental Management System)

ISO 9001

 Quality Management System

Spoke-hub distribution

 System of connections arranged like a chariot wheel, in which all traffic moves along spokes
connected to the hub at the center.
 Requires less complexity and routes as compared to point-to-point network, scheduling is
more convenient, inventory at Hub only.
 Hub becomes the bottleneck, longer journey routes, time taken is more.

Inventory classification techniques

 ABC analysis
 VED Analysis
 FSN Analysis

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
Logistics Partner

1PL Refers to a company handling its supply chain entirely on its own. Every process is
completed in-house. Company can keep its product quality & customer service in check.
2PL Asset-based carriers who provide companies with means of transportation for RM pr FG
transfer.
3PL • Storage,• Picking & packing,• Fulfilment & tracking• Importing & exporting (handling of
documentation to clear border customs)• Inventory management and forecasting
• Onboarding to eMarketplaces/brand web-stores
4PL Lead Logistics Partner (LLP) or supply chain integrator, acts on behalf of the company and
oversees all supply chain related activities. At this point, the 4PL is devising a supply chain
network to fulfil the company's organisational goals.
5PL Focused on leveraging technology and big data (Blockchain, Robotics, Automation, Radio
Frequency Identification (RFID) devices) to transform a traditional supply chain into a
supply chain network.

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 SUPPLY CHAIN JARGONS
Inventory management, Warehouse, Forecasting/Planning, Production/Manufacturing, Supplier/
Retailer, Transportation, Quality

Sr No. Jargons Description

1. ABC Classification Based on Pareto law which states that in a large group there are 'significant few'
and 'insignificant many'. In ABC classification, the products driving the most
revenue (or profit or sales) are Class A items (the important few), products driving
very little revenue (or profit or sales) are Class C items (the trivial many) and the
products in the middle are Class B.

Class A- 20% items, 80% revenue

Class B- 30% items, 15% revenue

Class C- 50% items, 5% revenue

The ABC principle is applicable to inventories, purchasing, sales, etc.

2. Just In Time An inventory control system that controls material flow into assembly and
manufacturing plants by coordinating demand and supply to the point
where desired materials arrive just in time for use. This method decreases
inventory, eliminates wastes and improves efficiency.

Pros - least Inventory so holding cost is minimum, minimum reordering level is

maintained, higher ROI.

Cons - requirement of reliable suppliers, zero tolerance for mistakes, transaction

cost will be higher, needs better forecasting.
3. Kaizen Taken from the Japanese words “kai” (change) and “Zen” (good) literally means
“changes that make our product better”. It focuses on continuous improvement.

Key objective- quality control, just in time delivery, standardized work and
elimination of waste.

Kaizen cycle-

1. Get employees involved

2. Find problems

3. Create a solution

4. Test the solution

5. Analyze the results

6. If successful then adopt the solution

7. Repeat steps for continuous improvement

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 Toyota adopted this method and while improving its productivity it has also created
a friendly working environment for employees.
4. Lead Time Lead time is the latency between the initiation and completion of a process. It is the
time from the moment the customer places an order (the moment the supplier
learns of the requirement) to the moment it reaches the customer. Lesser lead
time leads to increase in customer satisfaction, revenue and responsiveness.
5. Cycle Time Cycle Time is the time taken to produce one unit from the start to the end. Cycle
time gives you the idea of how much time it will take to complete the demand,
according to the current rate.

Cycle time = Net Production Time/Total Units Produced

Benefits of calculating Cycle Time:

-Gives an actual idea of the production rate.

-Gives data to make changes in the production rate to satisfy the demand.

-Deciding the actual time of delivery.

6. Takt Time Takt Time means the rate at which the product needs to be manufactured to
satisfy the customer demand. It can be used as a tool to eliminate over and under
production. It is a measure of customer demand.

Takt Time = Workable production Hours/Number of Units Required (Customer

Demand)

Some important benefits of calculating Takt Time:

- Avoid the situation of overproduction

- You can decide a precise guideline for the delivery

- Can also be used to determine the organizational efficiency

- You can manage overtime calculations

- Production rate can be streamlined

If, takt time>cycle time, the process could be overutilized, overstaffed and there is
risk of overproducing. (Generally followed to create buffer against breakdowns)

If, takt time<cycle time, it means the process is not sufficient enough to keep up
with demand.
7. Available Material available which is used to produce goods or the finished goods which are
Inventory available for sale. It could be raw material, WIP inventory or finished goods.
8. Safety Stock SS is the inventory a company holds above normal needs as a buffer against delays
in receipt of supply or changes in customer demand. It helps in reducing the risk of
stocking out.
9. Reorder Point A reorder point (ROP) is a specific level at which your stock needs to be
replenished. In other words, it tells you when to place an order, so you won't run
out of stock.

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 ROP= ADDLT+ Safety Stock

10. WIP Inventory WIP refers to the partially finished goods awaiting completion.
11. Backlog Backlog is an accumulation of incomplete tasks. It is a buildup of all the work that
has not been completed well on time.
12. BOM (Bill of A BOM is a comprehensive list of raw materials, components and assemblies
Material) required to construct, manufacture, and repair a product or service.

Types-

EBOM- Created during the design phase of the product on CAD. It provides the
complete list of components or parts as designed by the engineering team.

MBOM- This is the actual list of components required to produce the finished
products along with the quantities. This is the list which is used by the procurement
department to maintain the stock and to update the ERP system with BOM details.

SBOM-

E.g.- A bicycle manufacturer wants to produce 1000 bicycles. A bill of materials for a
bicycle will include all the parts that make up the bicycle such as seats, frames,
brakes, handlebars, wheels, tires, chains, pedals, and crank sets, including the
quantities required of each component and their cost.
13. Carrying Cost It is the inventory holding cost spent by a company on storage and maintenance of
inventory.

Carrying cost- Insurance, warehouse overheads, salaries, taxes etc

E.g.- Carrying cost of BMW cars is much higher than the carrying cost of SKUs.
14. EOQ (Economic EOQ is the ideal order quantity a company should purchase to minimize
Order Quantity) inventory costs such as holding costs, shortage costs, and order costs.

EOQ= √(2DS/H)

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
 D- how many units of product need to be bought.

S- Setup cost

H- Holding fees/ storage cost per unit of product

E.g.- A shop sells 1,000 shirts each year. It costs the company $5 per year to hold a
single shirt in inventory, and the fixed cost to place an order is $2.

The EOQ formula is the square root of (2 x 1,000 shirts x $2 order cost) / ($5 holding
cost), or 28.3 with rounding. The ideal order size to minimize costs and meet
customer demand is slightly more than 28 shirts.
15. Aggregate Aggregate planning is the process of developing, analyzing, and maintaining a
Planning preliminary, approximate schedule of the overall operations of an organization. It is
an attempt to balance the capacity and demand in such a way that costs are
minimized. Aggregate planning helps achieve balance between operation goal,
financial goal, and overall strategic objective of the organization. It serves as a
platform to manage capacity and demand planning.
Three types of Aggregate planning strategies are-
Level Strategy- It looks to maintain a steady production rate and workforce
level. In this strategy, organization requires a robust forecast demand as to
increase or decrease production in anticipation of lower or higher customer
demand. Advantage of level strategy is steady workforce. Disadvantage of
level strategy is high inventory and increase back logs. Example- Dell Inc,
Southwest Airline, IKEA
Chase Strategy- It looks to dynamically match demand with production.
Advantage of chase strategy is lower inventory levels and back logs.
Disadvantage is lower productivity, quality, and depressed work force.
Example- Walmart, United Parcel Service, Automotive sector.
Hybrid strategy- It looks at creating a balance between level and chase
strategy.
16. Backorder Product which has been ordered by a customer but out of stock and promised to
ship when the product becomes available.

17. Forecasting Forecasting is the attempt to predict future outcomes based on past events and
management insight.
Qualitative methods: These types of forecasting methods are based on judgments,
opinions, intuition, emotions, or personal experiences and are subjective in nature.
They do not rely on any rigorous mathematical computations.
Quantitative methods: These types of forecasting methods are based on
mathematical (quantitative) models and are objective in nature. They rely heavily on
mathematical computations.

18. Buffer Stock Buffer Stock insures companies against sudden spikes in demand. It is the amount
required to hedge against customer-induced variations, or spikes in demand. The
variation can be in terms of fluctuations or unpredictable emergencies.
E.g.- Onion original price- Rs 50/kg. Due to calamity, the crop gets damaged and due
to less availability, the price increases to Rs 100/kg. Depending on the buffer stock,
the price can be reduced to Rs 75/kg.

Energy_Frequency_Vibration_2301024_Aniruddha_Diggiwal
19. 2PL, 3PL, 4PL, 5PL 2PL- An enterprise that owns assets such as vehicles or planes to transport products
from one location to another is a 2PL. Other facilities like warehousing and storage
are available. E.g.- UPS, FedEx

3PL- Outsourcing all or much of a company’s logistics operations to a specialized

company. E.g.- courier, express and parcel services

4PL- It involves employing an overseer for managing an entire supply chain of a

company. These logistics are often called Lead Logistics providers and they are often
treated as a consulting company for many supply chains. They act as a head
administrator and take care of every aspect of these supply chain companies. E.g.-
Consultancy, Business Planning

5PL- A 5PL firm targets this high level of supply chain network management. It works
with and manages multiple 3PL and 4PL services for its clients. It identifies the best
options available and has the resources to employ multiple providers for various
parts of the supply chain. E.g.- e-commerce logistics.

20. Make Vs Buy A make-or-buy decision is an act of choosing between manufacturing a product in-
house or purchasing it from an external supplier.
21. Decoupling point Decoupling points in a supply chain network are areas that break down the
production line from push to pull i.e., from made to stock MTS to made to order
MTO. It creates a safety buffer to cover unexpected situations.
E.g.- Coffee beans- DP at retailers and for Electronics it can be at Warehouse (where
assembly is done).

22. Cross docking Cross docking is close synchronization of all inbound and outbound shipment
movements. All the material coming from the supplier side is inbound facilities and
going to the customer is outbound facilities. At the cross-docking terminal all the
trucks are unloaded followed by screening, sorting and reloaded in outbound
shipments. It is a method to ensure minimal handling and storage.
E.g.- Walmart cross docking system

23. Drop Shipping A customer fulfillment strategy where products are shipped directly from the
manufacturer or distributor to a customer bypassing the retail or secondary
distribution location. No inventory cost and shipping logistics.

24. Fill Rate The fill rate is the fraction of customer demand that is met through immediate stock
availability
25. VMI (Vendor In traditional inventory management, a retailer (sometimes called buyer) makes his
Managed or her own decisions regarding the order size, while in VMI the retailer shares their
Inventory) inventory data with a vendor (sometimes called supplier) such that the vendor is the
decision-maker who determines the order size for both. Thus, the vendor is
responsible for the retailer's ordering cost, while the retailer has to pay for their own
holding cost. This policy can prevent stocking undesired inventories and hence can
lead to an overall cost reduction. Moreover, the bullwhip effect is also reduced by
employing the VMI approach in a buyer– supplier cooperation.

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 E.g.- Walmart’s success in managing its inventory is partly due to the effective
implementation of VMI.

Here Walmart suppliers like P&G, access data from the company’s information
systems, such as data on current inventory levels and the rate at which certain goods
are sold. Suppliers decide when to send additional goods to Walmart, while the
company monitors and controls the actual transit of goods from warehouses to the
stores. This strategy shifts some of the inventory control activities onto the side of
the supplier.
Walmart VMI benefited for:
-minimizing delays in the movement of inventory
-Minimization of costs in inventory management as Walmart need not assign extra
personnel for supplier goods management.
26. CPFR CPFR is the acronym for collaborative planning, forecasting and replenishment, a
practice developed to reduce supply chain costs through collaboration among what
may be many partners in a single supply chain.
Information shared between suppliers and retailers aids in planning and satisfying
customer demands through a supportive system of shared information. This allows
for continuous updating of inventory and upcoming requirements, making the end-
to-end supply chain process more efficient.
27. Bullwhip Effect The bullwhip effect is a distribution channel phenomenon in which demand
forecasts yield supply chain inefficiencies. It talks about inventory fluctuations or
inefficient asset allocation as a result of demand change.
28. WMS A warehouse management system (WMS) is a software application designed to
support and optimize warehouse functionality and distribution center management.
These systems facilitate management in using simplified automatic technologies
useful in daily activities like planning, organizing, staffing, directing, warehouse
keeping and controlling the utilization of available resources, to move and store
materials inside, around and outside of a warehouse, while supporting staff in the
performance of material movement and storage in and around a warehouse,
without causing any large-scale disruption to business resources.
29. Capacity Planning Capacity planning is the process of determining the production capacity needed by
an organization to meet changing demands for its products. In the context of
capacity planning, design capacity is the maximum amount of work that an
organization is capable of completing in a given period.
30. Continuous and The Continuous Review System requires knowing physical inventory all the times,
Periodic Review like using a barcode scanner every time cashier scans product purchased by the
System customer to update inventory. This method is more expensive to administer because
inventory needs to update each time something goes out of shelf or comes into the
shelf. It requires a lower level of safety since there is only uncertainty during the
delivery period is the magnitude of demand. Therefore, during that time, the only
safety stock required is for potential stockouts.
The advantage of the continuous review system:
-Provide real-time updates of inventory counts
-Make easier to know when to order
-Provide accurate accounting
The disadvantage of the continuous system:
-Involves additional cost
The Periodic Review System, evaluate inventory at specific times like counting
inventory at the end of each month. It is inexpensive to administer since counting
takes place at a particular time, but a higher level of safety is required to buffer
against uncertainty in demand over longer planning horizon.

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 The advantage of the periodic review system:
-Reduce time for business owner to analyze inventory counts
-Allows the business owner having more time to run another aspect of the business
-Simple to administer
-Save labor cost for counting
The disadvantage of the periodic review system:
-It may not provide an accurate inventory count when there is a high volume of sale
-It may also make accounting inaccurate
-There is little control over inventory movement
31. Inventory Push The Push System Of Inventory control involves forecasting inventory needs to meet
and Pull System customer demand. Companies must predict which products customers will purchase
along with determining what quantity of goods will be purchased. The company will
in turn produce enough product to meet the forecast demand and sell, or push, the
goods to the consumer.
An example of a push system is Materials Requirements Planning, or MRP. MRP
combines the calculations for financial, operations and logistics planning. It is a
computer-based information system which controls scheduling and ordering. Its
purpose is to make sure raw goods and materials needed for production are
available when they are needed

The Pull Inventory Control System begins with a customer's order. With this strategy,
companies only make enough product to fulfil customer's orders. One advantage to
the system is that there will be no excess of inventory that needs to be stored, thus
reducing inventory levels and the cost of carrying and storing goods.
An example of a pull inventory control system is the just-in-time, or JIT system. The
goal is to keep inventory levels to a minimum by only having enough inventory, not
more or less, to meet customer demand. The JIT system eliminates waste by
reducing the amount of storage space needed for inventory and the costs of storing
goods.
32. Postponement The delay of final activities (i.e., assembly, production, packaging, etc.) until the
latest possible time.
33. Reverse Logistics Reverse logistics comprises of the sector of supply chains that process anything
returning inwards through the supply chain or traveling ‘backward’ through the
supply chain. Hence the name reverse logistics.

Some reverse logistics examples are:

Return of goods by customers

Return of unsold goods by distribution partners due to contract terms

Re-use of packaging

Refurbishment of goods

Repairs and maintenance as per guaranteed agreements

Re-manufacturing of goods from returned or defective items

Selling of goods to a secondary market in response to returns or overstocking

Recycling and disposal of end-of-life goods

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34. Value Chain A value chain is a business model that describes the full range of activities needed to
create a product or service. For companies that produce goods, a value chain
comprises the steps that involve bringing a product from conception to distribution,
and everything in between—such as procuring raw materials, manufacturing
functions, and marketing activities. The purpose of a value-chain analysis is to
increase production efficiency so that a company can deliver maximum value for the
least possible cost.

E.g.- Value Chain of McDonald’s

35. MRP I and MRP II Material requirements planning (MRP I) is a computer-based inventory management
system designed to improve productivity for businesses. Companies use material
requirements-planning systems to estimate quantities of raw materials and schedule
their deliveries.

MRP is designed to answer three questions:

What is needed?

How much is needed?

When is it needed?

MRP works backward from a production plan for finished goods, which is converted
into a list of requirements for the subassemblies, component parts, and raw
materials needed to produce the final product within the established schedule. In
other words, it's basically a system for trying to figure out the materials and items
needed to manufacture a given product

Manufacturing Resource Planning (MRP II) evolved from early Materials

Requirement Planning (MRP) systems by including the integration of additional data,
such as employee and financial needs. It manages resources (man, material, and
machine) and addresses operational planning

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36. 5S 5S is a system for organizing spaces so that work can be performed efficiently,
effectively, and safely. This system focuses on putting everything where it belongs
and keeping the workplace clean, which makes it easier for people to do their jobs
without wasting time or risking injury.
Sort
Set In Order
Shine
Standardize
Sustain

37. Kanban Kanban means “signboard” or “billboard”

Kanban is a supply-chain optimization tool that businesses can use to improve

efficiency. It is a lean or just-in-time manufacturing system in which only
the components and inventory needed at that moment are replenished. This helps
companies improve production while lowering inventory. Because of Kanban’s real-
time, visual signaling, each area on the production line pulls just enough

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 components or raw material and the correct type of components that the process
requires.

This is done at exactly the time they are needed, rather than requiring companies to
have a projected amount of material on hand which may prove unnecessary.
A Kanban card can be:

A physical card

Electronic signal

Other visual signals

38. Production Level Strategy- It looks to maintain a steady production rate and workforce level. In
strategies- Level, this strategy, organization requires a robust forecast demand as to increase or
Chase, Hybrid decrease production in anticipation of lower or higher customer demand. Advantage
of level strategy is steady workforce. Disadvantage of level strategy is high inventory
and increase back logs. Example- Dell Inc, Southwest Airline, IKEA
Chase Strategy- It looks to dynamically match demand with production. Advantage
of chase strategy is lower inventory levels and back logs. Disadvantage is lower
productivity, quality, and depressed work force. Example- Walmart, United Parcel
Service, Automotive sector.
Hybrid strategy- It looks at creating a balance between level and chase strategy.

39. Back Flush Backflush costing is a product costing system generally used in a just-in-time (JIT)
inventory system. In short, it is an accounting method that records the costs
associated with producing a good or service only after they are produced,
completed, or sold.
Backflushing is an alternative to processing actual issue or labour transactions
related to production. Typically, a bill of materials is used to determine the quantity
required to build a product, and relief is based on quantity required per time units
complete. It works well in environments where the time spent in WIP is short;
otherwise, the delay in recording book on hand can cause problems with inventory
control

40. Back Scheduling It is a technique for calculating operation start dates and due dates. To develop the
schedule, start and due dates for each operation are calculated working backwards
from the order due dates. Production schedule can be flexible if the processes are
not on a product's critical path. While front scheduling starts individual processes as
early as possible back scheduling starts each item on the production schedule as late
as possible. The advantages of back scheduling are: Work in process (WIP) can be
reduced by significant quantities, raw materials do not have to be committed to
specific order numbers earlier than needed, and completed components are stored
for shorter lengths of time. For back scheduling to work successfully, the production
system must have accurate bill of materials (BOM) data and lead time estimates

41. Control Charts The control chart is a graph used to study how a process changes over time. Data are
plotted in time order. A control chart always has a central line for the average, an
upper line for the upper control limit, and a lower line for the lower control limit.
These lines are determined from historical data.

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42. Purchase Purchase requisitions are a document used when an employee needs to make a
requisition and purchase or an order request on behalf of their company. It is a document that is
Purchase order used to inform department managers or the purchasing officer of the decision so
that the purchasing department can start the purchasing process. The finance team
will also use this document to coordinate reporting procedures with the accounting
department as well.
43. Routing Process of determining how shipment will move between origin and destination.
Routing information includes designation of carrier(s) involved, actual route of
carrier, and estimated time enroute. Routing is defined as the process of creating the
most cost-effective route through minimization of distance or travel time necessary
to reach a set of planned stops. Routing is a crucial process of logistics systems,
especially due to the high competition and narrowing margins in the global market.
Route scheduling is the process of assigning an arrival and service time for each stop,
with drivers being assigned shifts that adhere to working hours.

44. Tracking signals Tracking signal is a measure used to evaluate if the actual demand does not reflect
and errors in the assumptions in the forecast about the level and perhaps trend in the demand
forecasting profile. In Statistical Process Control, people study when a process is going out of
control and needs intervention.
Similarly Tracking signal tries to flag if there is a persistent tendency for actuals to be
higher or lower systematically. If Forecast is consistently lower than the actual
demand quantity, then there is persistent under forecasting and Tracking Signal will
be positive.
Tracking Signal is calculated as the ratio of Cumulative Error divided by the mean
absolute deviation. The cumulative error can be positive or negative, so the TS can
be positive or negative as well.
TS should pass a threshold test to be significant. If Tracking Signal > 3.75 then there
is persistent under forecasting. On the other hand, if this is less than -3.75 then,
there is persistent over-forecasting.
Tracking Signal = (1/MAD) * Σ(actual – forecast)t
Forecasting errors-
MAPE
The mean absolute percentage error (MAPE) is a measure of how accurate a
forecast system is. It measures this accuracy as a percentage and can be
calculated as the average absolute percent error for each time period minus
actual values divided by actual values.

MAD
Mean Absolute Deviation (MAD) measures the accuracy of the prediction by
averaging the alleged error (the absolute value of each error). MAD is useful
when measuring prediction errors in the same unit as the original series
Mean Absolute Deviation (MAD) = ABS (Actual – Forecast)
MSE
The mean squared error (MSE) tells you how close a regression line is to a
set of points. It does this by taking the distances from the points to the
regression line (these distances are the “errors”) and squaring them. The
squaring is necessary to remove any negative signs. It also gives more weight

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 to larger differences. It’s called the mean squared error as you’re finding the
average of a set of errors. The lower the MSE, the better the forecast.

MSE = (1/n) * Σ(actual – forecast)2

Where:
n = number of items,
Σ = summation notation,
Actual = original or observed y-value,
Forecast = y-value from regression
45. 2 Bin System Two-bin inventory control is a system used to determine when items or materials
used in production should be replenished. When items in the first bin have been
depleted, an order is placed to refill or replace them. The second bin is then
supposed to have enough items to last until the order for the first bin arrives. In
short, the first bin has a minimum of working stock, and the second bin keeps
reserve stock or remaining material

46. TIMWOOD It represents the 7 types of wastes which are as follows -

47. Poka Yoke Poka Yoke means ‘mistake proofing’. It is a technique for avoiding simple human
errors at work. It is the use of any automatic device or method that either makes it
impossible for an error to occur or makes the error immediately obvious once it has
occurred. It is a common process analysis tool.
48. Muda Mura Muri Muda- It is defined as the uselessness in process, machinery and people. There
are two types of Muda-
Type 1
Type 2
Muda Type 1 includes non-value-added activities in the processes that are necessary
for the end customer. For example, inspection and safety testing does not directly

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 add value to the final product; however, they are necessary activities to ensure a
safe product for customers. Muda Type 2 includes non-value-added activities in the
processes, but these activities are unnecessary for the customer.

Mura- Mura means unevenness, non-uniformity, and irregularity. Mura is the reason
for the existence of any of the seven wastes. In other words, Mura drives and leads
to Muda. For example, in a manufacturing line, products need to pass through
several workstations during the assembly process. When the capacity of one station
is greater than the other stations, you will see an accumulation of waste in the form
of overproduction, waiting, etc. Mura can be avoided through the Just-In-Time
‘Kanban’ systems and other pull-based strategies that limits overproduction and
excess inventory.

Muri- Muri means overburden, beyond one’s power, excessiveness, impossible or

unreasonableness. Muri can result from Mura and in some cases be caused by
excessive removal of Muda (waste) from the process. Muri also exists when
machines or operators are utilized for more than 100% capability to complete a task
or in an unsustainable way. Muri over a period of time can result in employee
absenteeism, illness, and breakdowns of machines. Standardize work can help avoid
Muri by designing the work processes to evenly distribute the workload and not
overburden any particular employee or equipment.

49. SMAC SMAC (Social, Mobile, Analytics and Cloud) is the concept that the convergence of
four technologies is currently driving business innovation.
The four technologies improve business operations and help companies get closer to
the customer with minimal overhead and maximum reach.
The four technologies are defined as follows:
Social: Includes a business’s social media presence, incorporating interfaces and
schedules with platforms like Facebook, Twitter, Snapchat and more.
Mobile: Serves as the blanket name for all smart technologies that access the
internet and are handheld, including phone, tablet and watch.
Analytics: Produces results and feedback from large amounts of information. In our
world of big data, analytics help make sense of reams of information by analysing
customer-provided data or social stats.
Cloud: Serves as an internet platform. At this point, we’re all familiar with the cloud,
but for definition’s sake, the cloud is a philosophy viewing the internet as more than
a source of information but as a platform with which to build speedy digital apps and
websites.

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50. 6 Sigma Six-Sigma is a term coined to stress the continuous reduction in process variation to
achieve near-flawless quality. When a Six Sigma rate of improvement has been
achieved, defects are limited to 3.4 per million opportunities.

DMAIC

51. Milk Run A Milk Run is a delivery method used to transport mixed loads from
various suppliers to one customer. Instead of each supplier sending a
truck every week to meet the needs of one customer, one truck (or
vehicle) visits the suppliers to pick up the loads for that customer. This
method of transport got its name from the dairy industry practice,
where one tanker used to collect milk from several dairy farms for
delivery to a milk processing company.

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52. Order Batching One common practice in order picking is order batching, in which items of two or
more orders are picked together in one picking trip. Order batching can reduce the
total order-picking travel distance if orders with similar picking locations are batched
together and picked in the same order-picking trip and also improves the customer
experience.
53. OEE (Overall OEE is how well a manufacturing operation is utilized compared to its full potential.
Equipment An OEE of 100% implies manufacturing only 100% good products, as fast as possible
Effectiveness) with no stop time. It basically tells the part of manufacturing time which is truly
productive.
Depends on-
Availability (time)
Performance (speed)
Quality (product)
54. EDI (Electronic It is the electronic interchange of business information using a standardized format;
Data Interchange) a process which allows one company to send information to another company
electronically rather than with paper. Business entities conducting business
electronically are called trading partners. Thousands of standard business
transaction documents can be spent automatically with EDI.
E.g.-purchase orders, invoices, shipping statuses, customs information, inventory
documents, payment confirmation.

55. RFID Technology RFID a wireless technology that uses transmitted radio signals to tag an item to track
and trace its movement without human intervention. It has superior capabilities
over bar codes and promises many supply-chain benefits, such as reductions in
shrinkage, efficient handling of materials, increased product availability, and
improved asset management
56. Churn Rate A situation where your users leave you is called churn and the rate at which this
happens is called churn rate.
E.g.- BSNL and Jio, Switch of mobile networks frequently

57. FTL, LTL Full truckload can mean 2 things; either you have enough products to fill a full
truckload, or you have a partial load but you prefer a dedicated truck. Full
truckload is often chosen when businesses have 10 pallets or more to ship, when
they have high risk packages, or when time is an issue (FTL is faster).

Full truckload costs more than LTL, but it will get your shipment delivered faster

Advantages of FTL:
Best way to transport large shipments

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 Ideal for high risk or delicate freight shipments
Shipment remains in the same truck from point A to point B
Considerably faster than LTL; great for high consumer demand

LTL is a type of ground freight transportation that combines shipments from

multiple customers. Businesses choose this budget-friendly option when the
consumer demand for their products is average or stable.

Less than truckload shipping is affordable for small business because you share the
transportation costs with other companies, and use a third-party logistics (3PL)
company.

Each company takes up a portion of the truck for their goods and only pays
according to the amount of product shipped and the length of travel.

Advantages of LTL:
Cost effective freight transportation
Ideal for small businesses
58. Heijunka Heijunka (hi-JUNE-kuh) is a Japanese word for leveling. It is part of
the lean methodology of process improvement that helps organizations match
unpredictable customer demand patterns and eliminate manufacturing waste by
leveling the type and quantity of production output over a fixed period of time.
By implementing Heijunka, you can stop producing work in batches and start
processing orders according to customer demand.
59. MTO (Make To Make to order (MTO), or made to order, is a business production strategy that
Order) typically allows consumers to purchase products that are customized to their
specifications. It is a manufacturing process in which the production of an item
begins only after a confirmed customer order is received.

E.g.- One example of a make-to-order company is German luxury car manufacturer

BMW. The carmaker allows customers to buy a car that it has already made.
However, they can customize their vehicle according to their requirements.

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 60. Lead Time 1. Pre-processing time: This is also referred to as the planning time, and it includes
Components the time taken to receive a request for replenishment, understand it and create a
purchase order (when buying an item), or create a job in the case of a
manufacturing firm.

2. Processing time: The processing time is the time taken after receiving a purchase
order to procure or produce the item.

3. Waiting time: The waiting time is the time that’s taken between procuring
necessary items to the time when the production process commences.

4. Storage time: Storage time is the amount of time that items stay in the
warehouse or factory awaiting delivery.

5. Transportation time: The transportation time is the time that the produced item
takes to move from the warehouse/factory to the customer.

6. Inspection time: The inspection time is the time spent by the customer checking
the product to see if it meets the specifications. It also refers to the time required to
deal with any non-conformity with the order request.

ABC Analysis:
ABC analysis is an inventory management technique that determines the value of inventory items based on their importance to
the business. ABC ranks items on demand, cost, and risk data, and inventory managers group items into classes based on those
criteria. This helps business leaders understand which products or services are most critical to the financial success of their
organization.
The most important stock-keeping units (SKUs), based on either sales volume or profitability, are “Class A” items, the next-most
important are Class B and the least important are Class C. Some companies may choose a classification system that breaks
products into more than just those three groups (A-F, for example).
ABC analysis in cost accounting, or activity-based costing, is loosely related but different from ABC analysis for inventory
management. Accountants use activity-based costing in manufacturing to assign indirect or overhead costs like utilities or
salaries to products and services.
How ABC Analysis Relates to the Pareto Principle
The Pareto Principle says that most results come from only 20% of efforts or causes in any system. Based on Pareto’s 80/20
rule, ABC analysis identifies the 20% of goods that deliver about 80% of the value.
Therefore, most businesses have a small number of “A” items, a slightly larger group of B products, and a big group of C goods,
a category that defines the majority of items.

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The Pareto Principle may not always be completely accurate. However, analysis shows that valuable things do tend to bend
toward an 80/20 distribution. ABC analysis identifies the “sweet spot” where most of a business’s revenue comes from with
relatively little effort.

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XYZ Analysis:

XYZ divides items into three categories. X items have the lowest demand variability. Y items have a moderate amount of
demand variability, usually because of a known factor. Z items have the highest demand variability and are therefore the
hardest to forecast.
XYZ analysis is a framework to classify products based on their variability of demand. X-items = regular demand
Y-items = strong variability in demand
Z-items = very irregular and difficult to predict demand
This means you can segment items based on their forecast ability, e.g. the likelihood that their demand will vary from their
forecast.

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HML analysis

HML analysis is an inventory method that categorizes inventory based on a product's unit price. This method classifies inventory
into the following categories:
High Cost (H): Includes high unit value/cost products. Normally they are 10-15% of the total items.
Medium Cost (M): Includes average or medium unit value items. 20-25% of products fall into this category. Low Cost (L):
Includes items with low unit value. 60-70% of the products are usually low-cost.

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FSN Analysis
The fast-moving, slow-moving, and non-moving inventory control method is classifying the goods/products based on the
following parameters. The FSN analysis segregates products based on their consumption rate, quantity, and the rate at which
the inventory is used. The FSN analysis is based on the following parameters mentioned below:
The consumption rate of a product: The average quantity of an item consumed or expended during a given time interval.
The average stays in inventory: Reflects how long did a specific product take to get sold in a given period.
Period of analysis: Define when you are conducting the analysis, in a year, 6 months, etc.
For FSN analysis, the inventory turnover ratio (ITR) for each product should also be calculated because the product is classified
based on the ITR they possess.
The inventory turnover ratio of fast-moving goods is more than 3 and accounts for approximately 10%- 15% of the total
inventory. Slow-moving goods often have an ITR of 1-3 and account for 30%-35% of the total stock. At the same time, the ITR of
non-moving goods is below 1 and amounts to 60%-65% of the total inventory.
Non-moving items constitute around 70% of the average cumulative stay Slow-moving stocks are 20% of the average
cumulative stay
Fast-moving products are 10% or less of the average cumulative stay
Fast-moving products stay only 10% or less of the average stay of the inventory and hence travel quickly through the supply
chain’s analysis is an easy way to find dead stock and reduce its accumulation in the inventory. The FSN analysis technique
empowers retailers to decide on the future of the business of each product. it helps to decide if to increase the purchase of a
particular product or not.
FSN analysis helps get rid of the non-moving products at the correct time to avoid the inventory carrying cost. Doing this
analysis will help you replace those products with the products that bring in the profits instead.

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VEIN Analysis

VEIN (Vital - Essential - Important - Normal) deals with the classification of materials based on their importance to other
materials. Vital (V): These are essential materials whose non-availability while putting a halt to business operations. These
materials need to be in stock at all times else, production will be affected.

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SDE Analysis:

SDE looks at the available inventory and categorizes it into three scarcity levels of supply: Scarce, Difficult, and Easy. Scarce: This includes those products that are short in supply and
are usually imported. Difficult: It entails the items that are available locally. Easy: This category includes the goods that are uncomplicated to acquire as they are available locally and
procured quickly.

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Jargons
Implied Demand Uncertanity Implied demand uncertainty, which is demand uncertainty imposed on the supply chain because of the customer needs it seeks to satisfy. Ex:
Customer Need/ demand- Variety of products
required increases Causes Implied Demand Uncertainty to Increase because demand per product becomes more disaggregate
Demand Uncertainity Demand uncertainty reflects the uncertainty of customer demand for a product. Implied Demand uncertainty, in contrast, is the resulting
uncertainty for only the portion of the demand that
the supply chain plans to satisfy based on the attributes the customer desires
EOQ is a formula used in inventory management to determine the optimal order quantity that minimizes total inventory costs. The goal of EOQ
is to find the balance between ordering costs and holding (carrying) costs. [Total Inventory cost= Total Ordering cost+ Total Holding cost]
EOQ Formula:
Economic Order Quantity EOQ = √[(2 * D * S) / H]
Where:
D = Annual demand (number of units sold or used per year) S = Ordering cost per order (cost of placing an order)
H = Holding cost per unit per year (cost of carrying one unit in inventory for one year)
Temporal Aggregation It refers to the process of consolidating and analyzing data over specific time intervals to gain insights into performance and trends over longer
periods. This technique helps managers to make
informed decisions, identify seasonal patterns, and optimize operations over extended time frames.
Throughput time The time it takes for a specific job, item or order to go through the entire process. In manufacturing settings, throughput time is also known as
manufacturing Lead time
Takt time Takt time refers to the target time at which you need to complete a product in order to meet customer demand. [Takt time= amount of time
available/ Units demanded]
Cycle time Cycle Time refers to the actual time per unit that can be achieved on the production floor.
Inventory refers to the stock of goods, raw materials, or finished products that a company holds for its operations. It represents the assets a
company intends to sell or use to produce goods or services.
Types of Inventory:
Raw Materials Inventory: Basic materials and components that a company holds to use in the production process.
Work in Progress (WIP) Inventory: It consists of partially completed goods that are in the process of being manufactured or assembled but are
Inventory not yet ready for sale. It represents products at various stages of production.
Finished Goods Inventory: It includes the products that have completed the manufacturing process and are ready for sale. These are the final
products intended for customers. Maintenance, Repair, and Operations (MRO) Inventory: It includes items required to maintain and support
the production process. These items are not directly used in the final products but are essential for the smooth operation of the business. MRO
inventory includes spare parts, tools, lubricants...etc.
Transit Inventory: also known as pipeline inventory, refers to the goods that are in transit or moving through the supply chain from suppliers to
manufacturers, distributors, or retailers. These are the products that have been ordered, produced, or shipped but have not yet reached their
final destination or been sold.
Bottleneck The resource that limits the production or service delivery of a process. It is the limiting factor that hinders the overall throughput of the

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 system, preventing it from achieving its maximum
capacity.
Milk run Milk run or milk round, is a logistics concept used in supply chain management to efficiently transport goods from multiple suppliers to a central
location or customer using a single delivery
vehicle. The term "milkrun" originated from the practice of delivering milk to households using a single vehicle that made multiple stops along a
predetermined route.
Bullwhip effect The phenomenon in supply chain whereby ordering patterns experience increasing variance as you proceed upstream in the chain. More minor
fluctuations in retail level demand can cause
more significant changes to wholesalers, raw material suppliers.
Set up time The amount of time it takes to set up or prepare before processing an item or batch of items at a process step
It is a logistics practice in supply chain management where goods or products from inbound shipments are directly transferred from the
receiving dock to the outbound shipping dock, with minimal or no storage in between. It involves streamlining the flow of goods through a
distribution center or warehouse, reducing the need for long-term storage and handling.
Cross docking strategy How Cross Docking Works
1. Receiving Inbound Shipments: When goods arrive at a distribution center or warehouse, they are quickly unloaded from inbound trucks or
containers.
2. Sorting and Staging: The received products are sorted based on their final destination or the outbound trucks they need to be loaded onto.
The products are then staged at designated areas, waiting for the outbound trucks to arrive.
3. Immediate Loading: As soon as the outbound trucks arrive, the sorted products are directly loaded onto them. The products do not stay in
storage for an extended period.
Cross docking is particularly suitable for industries where products have a short shelf life, high demand, or where Just-in-Time (JIT) inventory
management is practiced. By facilitating a faster and more direct flow of goods, cross docking enhances supply chain responsiveness and helps
companies meet customer demands more effectively.

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 Just-in-Time (JIT) inventory management is a supply chain strategy that aims to produce or acquire goods just in time for use in the production
Just in time process or to fulfill customer orders. The goal of JIT is to minimize inventory holding costs, reduce lead times, and improve overall efficiency by
having the right amount of inventory available exactly when it is needed, neither too early nor too late.However, JIT inventory management
requires robust supplier relationships, efficient logistics, and accurate demand forecasting.
Relaible vs Agile supply chain A reliable supply chain is focused on consistency, stability, and predictability. The primary goal of a reliable supply chain is to ensure that
products or materials are consistently available to meet customer demand, without disruptions or delays.An agile supply chain, on the other
hand, is characterized by flexibility, responsiveness, and adaptability. The primary focus of an agile supply chain is to quickly respond to
changing market conditions, customer demands, and supply disruptions.
Fill rate is a performance metric that measures the percentage of customer orders or demands that a company successfully fulfills from
Fill rate available inventory within a specified time frame. It reflects how well a company meets customer demand without stockouts or backorders and
is a crucial indicator of customer service and inventory management effectiveness.
Calculation of Fill Rate:
Fill Rate (%) = (Number of Customer Orders Fulfilled in Full / Total Number of Customer Orders) * 100
A stockout refers to a situation where a company runs out of inventory for a particular product and is unable to fulfill customer orders. It occurs
Stock out, Back order, Lost sales when customer demand exceeds the available inventory, leading to a temporary unavailability of the product. A backorder occurs when a
customer places an order for a product that is currently out of stock, and the company promises to deliver the product to the customer once it
becomes available again. It is essentially an order for a product that cannot be fulfilled immediately but will be fulfilled in the future when the
product is restocked. Lost sales happen when a company is unable to fulfill customer orders or demands due to stockouts or other supply chain
disruptions, and customers choose not to place
backorders or wait for the product to become available again. As a result, the company loses potential sales and revenue.
It refers to a strategy where the final customization of products is delayed until closer to the point of customer demand. Instead of producing
Postponement fully finished products with specific features or configurations in advance, companies keep the products in a more generic or semi-finished state
and complete the customization based on actual customer requirements. This approach allows companies to respond quickly to dynamic
market demands and reduce the risk of holding excessive finished goods inventory. It allows companies to balance the trade-off between
inventory costs and responsiveness, creating a more agile and efficient supply chain.
Responsiveness Responsiveness, in the context of inventory management, refers to a company's ability to quickly fulfill customer demands or respond to
changes in demand.
It refers to the exchange or compromise that companies must make between two conflicting objectives and involves carefully balance. Ex:
Trade-Off minimizing inventory costs and maintaining responsiveness to customer demands. It is the recognition that optimizing one aspect (inventory
costs) may come at the expense of the other (responsiveness) and vice versa.Therefore, the trade-off in this context involves carefully balancing
the desire to minimize inventory costs with the need to maintain adequate inventory levels to meet customer demands promptly and
efficiently.

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 The product life cycle is a concept used in marketing and product management to describe the stages that a product goes through from its
introduction to the market until its eventual decline and discontinuation. It helps businesses understand the typical sales and profitability
patterns of a product over time, allowing them to develop appropriate marketing and business strategies for each stage.
Product- life cycle The product life cycle typically consists of four stages:
1. Introduction Stage
2. Growth Stage
3. Maturity Stage/ Saturation stage
4. Decline Stage
It refers to the process of managing the flow of products /goods from the point of consumption back to the point of origin or to another
designated location for various purposes, such as recycling, reuse, remanufacturing, repair, or disposal. It involves handling returned products,
defective product, managing product recalls, and dealing with end-of-life products in an environmentally responsible manner. steps involved
Reverse logistics are:
1. Product Returns
2. Inspection and Refurbishment
3. Defective Product Handling
4. Product Recycling
5. Product Disposal and Compliance
6. Product Recall Management
Vendor Managed Inventory (VMI) is a business arrangement where a manufacturer or supplier takes responsibility for managing and
VMI (Vendor Management replenishing the inventory of their products at their customer's locations. In traditional inventory management systems, the customer is
Inventory) responsible for ordering and maintaining the inventory levels, but in VMI, the vendor takes on this role. In a VMI arrangement, the vendor
continuously monitors the customer's inventory levels and usage patterns using various data-sharing mechanisms like electronic data
interchange (EDI), point-of- sale (POS) data, or other communication channels. Based on this information, the vendor determines the
appropriate replenishment quantities and schedules.
Service level Service level, in the context of business and operations management, refers to the performance or quality of service that a company provides to
its customers or clients. It is a critical metric used to measure how well an organization meets its customers' expectations and requirements.
Service Level (%) = (Number of Successful Transactions / Total Number of Transactions) × 100
It is a critical function responsible for the effective coordination and execution of various activities involved in the movement and storage of
goods, services, and information from the point of origin to the point of consumption.It involves managing the flow of materials and finished
products across different stages of the supply chain, which typically includes suppliers, manufacturers, distributors, retailers, and ultimately, the
Logistics end customers. The primary objectives of logistics in supply chain and operations management are as follows:
1. Transportation
2. Warehousing and Storage
3. Inventory management
4. Information management
5. Order Fulfillment: order processing, picking, packing, and shipping
6. Risk Management

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 1. 1PL (First-Party Logistics):
In 1PL, the logistics function is entirely managed by the company itself. The company handles all aspects of transportation, warehousing,
inventory management, and distribution without outsourcing any logistics activities to external parties.
2. 2PL (Second-Party Logistics):
In 2PL, a company outsources some specific logistics functions to external service providers. The company retains control over certain aspects of
logistics, while specialized logistics partners are engaged to handle specific tasks, such as transportation or warehousing.
Example: A medium-sized e-commerce company that manages its own inventory and order processing but contracts with a shipping company
1PL vs 2PL vs 3PL vs 4PL vs 5PL to handle the delivery of orders to customers.
3. 3PL (Third-Party Logistics):
3PL involves outsourcing a significant portion of logistics operations to a third-party logistics provider. These providers offer a wide range of
logistics services, such as transportation, warehousing, order fulfillment, and inventory management. 3PL providers are experts in logistics and
supply chain management and can help companies streamline their operations and reduce costs.
Example: A global retail chain that uses a 3PL company to manage its distribution centers, transportation, and inventory, allowing them to focus
on core retail operations and expansion.
4. 4PL (Fourth-Party Logistics):
4PL providers act as an external lead logistics partner that manages and oversees the entire supply chain on behalf of the client company. They
coordinate the activities of multiple logistics providers, including 3PLs, to optimize the supply chain, improve efficiency, and reduce costs. 4PL
providers act as strategic advisors and work closely with the client company to design and implement supply chain solutions.
Example: An electronics manufacturer contracts with a 4PL provider to manage its supply chain from sourcing raw materials to delivering
finished products. The 4PL oversees multiple 3PLs and other suppliers to ensure smooth operations and better supply chain visibility.
5. 5PL (Fifth-Party Logistics):
5PL is a more recent concept where the logistics provider acts as a knowledge-based supply chain integrator. They offer advanced supply chain
management solutions, utilizing cutting-edge technologies, data analytics, and AI to optimize the entire supply chain. 5PLs focus on providing
strategic advice and innovative solutions rather than just physical logistics services.
It is a critical concept in supply chain and operations management that refers to the point in the production or distribution process where the
supply chain transitions from a make-to-stock (MTS) approach to a make-to-order (MTO) approach, or vice versa.In other words, the CODP is
CODP (Customer order the strategic location within the supply chain where a company makes the decision to produce and stock products based on forecasted demand
Decoupling point) (make-to-stock) or produce products in response to specific customer orders (make-to-order). The location of the CODP impacts inventory
levels, production scheduling, lead times, and customer service levels.
Example:
1. Automotive Industry:
In the automotive industry, certain standardized car models may be produced and stocked in dealerships (make-to-stock) since they have
predictable demand. However, customized or high-end cars may be produced only after customers place specific orders (make-to-order) to
meet individual preferences.

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 The ripple effect, also known as the bullwhip effect, is a phenomenon that occurs in supply chains when small changes or fluctuations in
customer demand at the end of the supply chain lead to progressively larger and more significant fluctuations upstream in the supply chain. The
term "ripple effect" is used because the impact of the initial change in demand propagates through the supply chain like ripples in water,
Ripple effect amplifying as it moves upstream.
There are several factors that contribute to the ripple effect:
1. Demand Forecast Inaccuracy
2. Order Batching
3. Inventory Management Practices: High safety stock levels or long reorder lead times can magnify the impact of demand fluctuations.
4. Price Fluctuations and Promotions: Changes in pricing or promotional activities can also lead to sudden fluctuations in customer demand,
causing Forward buys.
Q-commerce involves the ultra-fast delivery of goods and services to customers, often within minutes or hours of placing an order. Q-commerce
Q commerce companies typically leverage advanced logistics networks, last-mile delivery solutions, and technology-driven operations to fulfill orders quickly
and efficiently. These companies often partner with local retailers, dark stores (fulfillment centers dedicated to online orders), or micro-
fulfillment centers strategically located in urban areas to minimize delivery times.
FSN iventory analysis (Fast,
Slow, Non moving) FSN analysis is an inventory management technique used to categorize and prioritize items in a stock based on their usage rate. The FSN
analysis helps businesses identify which items are Fast- moving, Slow-moving, and Non-moving in their inventory. It is a valuable tool for
optimizing inventory control and replenishment strategies to minimize costs and improve overall inventory performance.
XYZ analysis is a inventory management technique used to categorize items based on their demand variability and forecast ability.
XYZ analysis 1. X-category items: Low demand variability and predictable i.e regular demand and easily forecasted
2. Y-category items: Moderate demand variability, can be forecasted considering known factors
3. Z-category items: High demand variability, difficult to forecast
ABC analysis, also known as Pareto analysis or the 80/20 rule, is an inventory management technique used to categorize and prioritize items in
ABC analysis a stock based on their value and importance to the business. The analysis helps companies focus their efforts and resources on managing
inventory more efficiently
1. Category A (High-Value Items): Items represent around 20% of the items but contribute to about 80% of the total inventory value.
2. Category B (Medium-Value Items): Items represent around 30% of the items and contribute to about 15% to 30% of the total inventory
value.
3. Category C (Low-Value Items): Items represent around 50% of the items but contribute to about 5% to 10% of the total inventory value.
FTL FTL (Full Truck Load), a mode of transportation where a shipment occupies the entire capacity of a truck. In FTL, the entire truck is dedicated to
carrying goods from a single customer or supplier
when the shipment is time-sensitive & requires direct transportation.The entire truck is loaded with their products, and it travels directly from
one place to destination without making stops or
LTL LTL (Less Than Truckload), a mode of transportation where multiple shipments from different customers are consolidated & transported
together in a single truck. In LTL, the truck's capacity is
shared among multiple customers, each having smaller shipment size. Ex: A retailer in Delhi needs to restock their inventory with various
products sourced from multiple suppliers across

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 Six Sigma is a data-driven methodology and quality management approach that aims to improve business processes, enhance efficiency, and
Six Sigma reduce defects or errors in products and services developed, by Motorola in the 1980s.In a Six Sigma process, the goal is to achieve a level of
performance where the process produces no more than 3.4 defects per million opportunities . This translates to a process that operates with a
99.99966% accuracy rate.
The Six Sigma methodology follows a structured and disciplined approach, often represented by the DMAIC framework (Define, Measure,
Analyze, Improve, Control) used for existing processes that require improvement. For the design of new processes, the DMADV framework
(Define, Measure, Analyze, Design, Verify) is often utilized.
USP USP stands for "Unique Selling Proposition" or "Unique Selling Point." It is a marketing concept that refers to the unique and distinct features
or benefits of a product, service, or brand that
sets it apart from competitors in the marketplace. The USP is what makes a product or brand stand out and appeals to customers, giving them a
compelling reason to choose it over other alternatives. A well-defined USP is essential for effective marketing and positioning of a product or
brand.
Niche market It refers to a specialized segment of a larger market that caters to the unique needs, preferences, or characteristics of a specific group of
customers. Companies focus on serving a narrow target
audience with distinct requirements that are often not adequately addressed by mainstream products or services. Ex: In India, the market for
organic & natural beauty products can be
Porter's Five Forces is a strategic framework used to analyze the competitive forces within an industry and understand the overall attractiveness
and profitability of that industry. By assessing these forces, businesses can develop effective strategies to gain a competitive advantage and
navigate the market successfully.
Porter's 5 forces The five forces identified by Porter are:
1. Threat of New Entrants: Ease with which new competitors can enter an industry and potentially disrupt the existing market dynamics.
2. Bargaining Power of Buyers: Considers factors such as no. of buyers, size of their orders, the availability of alternative products.
3. Bargaining Power of Suppliers: Suppliers with unique or critical resources or limited competition may have higher bargaining power.
4. Threat of Substitutes: Availability of alternative products or services that can fulfill similar customer needs.
5. Competitive Rivalry: Factors like no. of competitors, their market share, industry growth rate, and differentiation of products play a role in
competitive rivalry.

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 Different manufacturing strategies used to meet customer demand and manage inventory
1. Engineer-to-Order (ETO):
Products are designed and manufactured based on specific customer requirements and engineering specifications. Each order is unique, and
the manufacturing process starts only after receiving the customer's order.
Engineer/Design-to-Order 2. Make-to-Order (MTO):
(ETO), Make/Build-to-Order Products are not produced until a customer places an order. While MTO products may have some standard components, the final assembly and
(MTO), Assemble-to-Order customization occur after receiving the customer's order.
(ATO), Make- to-Stock (MTS) Example: A company that produces custom-made furniture, where the basic furniture components are in stock, but the final assembly and
finishing are done after the customer places an order.
3. Assemble-to-Order (ATO):
Companies keep standard components or subassemblies in stock, but the final product is assembled or configured based on customer
specifications once an order is received.
Example: A computer manufacturer that keeps a stock of standard components like processors, memory, and hard drives. When a customer
places an order, the company assembles the computer with the desired specifications.
4. Make-to-Stock (MTS):
In the Make-to-Stock (MTS) strategy, products are produced and stocked in inventory in anticipation of customer demand based on demand
forecasts and historical sales data.

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 1. Aggregate Production Planning (APP):
- Definition:APP is a strategic planning that determines the overall production levels and resource requirements over a time frame (months to
years). It aims to align production capacity with anticipated demand while considering factors like workforce levels, inventory levels, and
production costs.
- Example: A toy manufacturing company conducts aggregate production planning to decide how many units of different toy models to produce
Aggregate Production Planning in the next quarter. They analyze market demand, seasonal trends, and available production capacity to make informed decisions about their
(APP), Master Production overall production levels.
Schedule (MPS), Material 2. Master Production Schedule (MPS):
Requirements Planning (MRP), - Definition: MPS is a detailed plan that specifies the quantity and timing of specific finished products to be produced based on the demand
MRP I, and MRP II forecast and customer orders. If the demand forecast indicates a higher demand for a particular toy in the upcoming month, the MPS will
specify the exact quantity of that toy to be produced to meet the anticipated orders.
3. Material Requirements Planning (MRP):
- Definition: MRP is a computer-based inventory management & production planning system that calculates the precise quantity and timing of
raw materials, components needed to support the Master Production Schedule.
- Example: The toy manufacturing company uses MRP to determine the quantities of raw materials (e.g., plastic, paint, batteries) and
components (e.g., wheels, electronic chips) required to produce the toys specified in the MPS. MRP generates purchase orders based on
production schedules to ensure timely availability of materials.
4. MRP I (Manufacturing Resource Planning I):
- Definition: MRP I is the initial concept of Material Requirements Planning, which focuses on materials and inventory control within the
manufacturing process.
- Example: In the toy manufacturing company, MRP I ensures that there are enough raw materials and components available on the production
floor to meet the production schedule outlined in the MPS. If the inventory of a specific component is running low, MRP I generates a
replenishment order.
5. MRP II (Manufacturing Resource Planning II):
- Definition: MRP II is an expanded version of MRP I ,integrates other essential functions like finance data, human resources, sales into the
production planning process.
In summary, APP sets the overall production levels, while the MPS specifies the detailed production quantities and timing. MRP calculates
the raw materials and components needed to support the MPS. MRP I focuses on materials and inventory control, and MRP II integrates
other business functions for a more comprehensive production planning approach. Each of these concepts plays a crucial role in efficient

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 "Muda," "Mura," and "Muri" are three Japanese terms used in Lean Manufacturing to identify different types of waste and inefficiencies in a
production process. Understanding and
eliminating these wastes are essential principles to achieve a more streamlined and efficient workflow.
1. Muda (Waste): Muda refers to any activity or process that consumes resources but does not add value to the end product from the
customer's perspective. There are several types of Muda, including overproduction, excess inventory, unnecessary movement, waiting time,
defects, and more. Identifying and eliminating Muda helps to optimize production and reduce costs.
Example of Muda:
In a manufacturing plant, excessive inventory of raw materials is considered Muda. If the plant purchases more raw materials than it needs for
Muda-Mura-Muri immediate production, it ties up capital and occupies valuable storage space without adding immediate value to the end product.
2. Mura (Unevenness): Mura refers to irregularities or unevenness in production or workflow. It can result from fluctuations in customer
demand, uneven workloads, or inconsistent production schedules. Mura creates inefficiencies, strain on resources, and leads to excess
inventory or production backlogs.
Example of Mura:
In a fast-food restaurant, during peak hours, there may be unevenness in customer demand, causing long waiting times and congestion at the
counter. At the same time, during non-peak hours, the staff may be underutilized, resulting in an uneven workload and suboptimal resource
allocation.
3. Muri (Overburden): Muri refers to overburden on workers or equipment due to excessive demands, unreasonable workloads, or poorly
designed processes. Muri can lead to increased errors, reduced productivity, and employee burnout.
Example of Muri:
In a warehouse, if workers are required to manually lift heavy boxes continuously without proper equipment or assistance, it can lead to
overburden (Muri) on their bodies and increase the risk of injuries.
Lean Manufacturing principles focus on eliminating these inefficiencies and creating a continuous improvement culture to optimize the
entire production process and deliver value to customers effectively
SMAC is an acronym that represents four critical technologies that have a significant impact on business operations. The term "SMAC" stands
for Social, Mobile, Analytics, and Cloud. Together, these technologies enable companies to improve efficiency, enhance customer engagement,
and gain valuable insights for better decision-making.
1. Social:
Social technology involves using social media platforms and tools to connect with customers, partners, and employees. It facilitates real-time
SMAC communication, feedback, and collaboration.
2. Mobile:
Example: A logistics company equips its delivery drivers with mobile devices that have real-time tracking and GPS capabilities.
3. Analytics:
Example: An e-commerce company collects vast amounts of customer data, including browsing behavior, purchase history, and demographic
information. By using analytics tools, the company analyzes this data to personalize product recommendations, optimize pricing, and refine
marketing strategies.
4. Cloud:

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 Cloud technology allows businesses to store, manage, and access data and applications over the internet, eliminating the need for on-premises
servers and infrastructure.

MES stands for Manufacturing Execution System, which is a software-based system used in manufacturing industries to monitor, control, and
MES optimize production processes in real-time. It focused on optimizing and managing the manufacturing process on the shop floor. It bridges
the gap between the ERP system and the production floor, ensuring that production activities are executed efficiently and in accordance
with planned schedules.Key Features of MES: Data Collection, Production Monitoring, Quality Management, Resource Allocation,
Traceability,
Reporting and Analysis.
ERP stands for Enterprise Resource Planning. It is a comprehensive software system that integrates and manages various business processes
and functions within an organization. ERP systems provide a centralized database and a unified platform to streamline operations, enhance
efficiency, and facilitate data-driven decision-making across different departments and functions.The ERP system also ensures data accuracy
and security, reduces duplicate data entry, and supports the company's growth and scalability.
Key Features of ERP:
ERP 1. Centralized Database: ERP systems store all relevant data in a centralized database accessible by authorized users across the organization. This
allows for real-time data sharing and eliminates data silos.
2. Modules for Different Functions: ERP typically consists of various modules designed to address specific functions like finance, human
resources, sales, inventory, procurement, production, and more. Each module is interconnected to ensure seamless data flow between
departments.
3. Automation and Integration: ERP automates repetitive tasks and processes, reducing manual efforts and the risk of errors. It also integrates
different functions, enabling better collaboration and coordination between departments.
4. Real-time Reporting and Analytics: ERP provides real-time reporting and analytics capabilities, enabling users to access up-to-date information,
generate meaningful insights, and make data-
driven decisions.

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 Kaizen is a Japanese term that means "continuous improvement" or "change for the better." It is a concept widely used in the context of Lean
Management and Total Quality Management to promote incremental and continuous improvements in processes, products, and services. The
philosophy of Kaizen encourages all employees to actively participate in identifying and implementing small improvements to achieve
greater efficiency and effectiveness over time.
Kaizen Example of Kaizen: Tool box set up- Notice that the positioning of certain tools slows down the assembly process. Steps involved are:
1. Identifying Opportunities for Improvement
2. Brainstorming Solutions
3. Testing and Implementing the Improvement
4. Monitoring and Measuring the Impact
5. Standardizing the Improvement
6. Encouraging Participation
RFID stands for Radio Frequency Identification. It is a technology that uses radio waves to automatically identify and track objects, animals, or
people by attaching or embedding RFID tags to them. RFID tags contain electronically stored information that can be read and captured by
RFID readers without requiring direct line-of-sight contact.
How RFID Works:
RFID RFID systems consist of three main components: RFID tags, RFID readers, and a backend database or system.
RFID Tags: RFID tags are small electronic devices that contain a microchip and an antenna. The microchip stores information about the item or
entity being tracked. The antenna allows the RFID tag to transmit and receive data via radio frequency signals.
RFID Readers: RFID readers are devices that emit radio frequency signals and capture data from RFID tags within their range. When an RFID tag
comes into the reader's range, it transmits its unique identifier and other stored information to the reader.
Backend System: The data captured by the RFID reader is sent to a backend system or database, where the information is processed, stored,
and analyzed.

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 Backflush, in the context of manufacturing and production, is a method of accounting for the consumption of raw materials and components
Back flush used to produce a finished product after the manufacturing process is completed. Instead of recording the usage of individual components as
they are consumed during the production process, the backflush method waits until the product is completed and then "flushes" the total usage
of materials all at once to simplify accounting and reduce paperwork.This method is particularly useful in high-volume manufacturing
environments, where individual component tracking for each unit can be time-consuming and prone to errors.
Kanban (japanese word menaing Bill board) is a visual project management and workflow management method used to optimize and control
work processes. Originating from the Toyota Production System, Kanban is widely adopted in various industries to improve productivity,
efficiency, and collaboration among team members.
How Kanban Works:
Kanban utilizes visual boards to represent the flow of work and tasks within a project. Each work item is represented by a card, and the cards
move through different stages of the workflow, which are represented as columns on the Kanban board.
Example of Kanban:
1. Kanban Board Setup:
Kanbann The team sets up a physical or digital Kanban board with columns representing different stages of the development process. Typical columns
may include "Backlog," "To Do," "In Progress," "Testing," and "Done/completed"
2. Work Items (Cards):
Each task or user story in the development process is represented by a card.
3. Backlog: The "Backlog" column contains all the tasks and user stories that need to be completed, but they haven't been started yet.
4. To Do: As the development team begins work on a task, the corresponding card is moved to the "To Do" column.
5. In Progress: When a developer starts working on a task, the card representing that task is moved to the "In Progress" column.
6. Testing: After a developer completes their work on a task, the card is moved to the "Testing" column, where a tester will verify the
functionality.
7. Done: Once a task has been tested and meets the required criteria, the card is moved to the "Done" column, indicating that the task is
complete.
8. Limiting Work in Progress (WIP):
To ensure that the team does not take on too many tasks at once, Kanban limits the number of cards allowed in the "In Progress" column. This
helps maintain focus, reduce multitasking, and improve the flow of work.
The Two-Bin System is a simple inventory management technique used to control the stock level of items with relatively stable consumption
rates. It involves using two bins, containers, or shelves to hold the inventory of a particular item. When the first bin is empty, it serves as a
Two bin signal to reorder the item, while the second bin provides a buffer stock until the new order arrives. How the Two-Bin System Works:
Bin 1 (Active Bin): The first bin, also known as the active bin, contains the quantity of the item currently in use or readily available for
consumption.
Bin 2 (Reserve Bin): The second bin, also known as the reserve bin, holds the buffer stock of the item. It is typically larger than Bin 1 and serves
as a backup to prevent stockouts when Bin 1 is empty.

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 Heijunka, also known as production smoothing or production leveling, is a Lean Manufacturing technique used to balance and stabilize
production schedules. It aims to reduce production fluctuations and overburden on the production process by producing a mix of different
Heijunka products or components at a steady and consistent rate.
How Heijunka Works:
Heijunka achieves a balanced production schedule by leveling the production volume across different product variants or models. Rather than
producing in large batches or uneven quantities, Heijunka ensures that the production rate is aligned with customer demand and that the
production process remains flexible and responsive to changes.

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 1. Warehouse:
A warehouse is a storage facility used to store goods or products for an extended period. Warehouses are an essential part of the supply
chain, where companies store inventory before it's needed for distribution or sale. They can be owned and operated by manufacturers,
wholesalers, retailers, or third-party logistics providers. The primary functions of a warehouse include:
- Receiving and storing goods in a safe and organized manner.

- Inventory management and control.

- Picking and packing goods for shipment.

- Shipping goods to distribution centers or directly to customers.

Ware House- Distribution 2. Distribution Center:

center- Fulfillment centre A distribution center (DC) is a specific type of warehouse designed to efficiently receive, manage, and distribute products to various
locations, including retail stores, wholesale outlets, or directly to customers. Distribution centers play a crucial role in the supply chain by
facilitating the movement of goods between suppliers and end-users. The main characteristics and functions of a distribution center include:
- Sorting and consolidating goods received from multiple suppliers.

- Cross-docking, which means transferring goods directly from inbound trucks to outbound trucks without storage to minimize handling and

storage time.
- Breaking bulk quantities into smaller units for distribution.

- Managing inventory to meet demand at different retail locations.

- Streamlining the flow of goods to reduce delivery times and costs.

3. Fulfillment Center:

A fulfillment center is a specialized facility focused on efficiently processing and fulfilling online orders for e-commerce businesses. Unlike
traditional warehouses and distribution centers, fulfillment centers are optimized for quick order processing, often with the goal of same-day or
next-day delivery. Fulfillment centers are a crucial part of the e-commerce supply chain, and their functions include:
- Receiving inventory from manufacturers or suppliers.

- Warehousing and organizing products for easy access.

- Efficiently picking, packing, and shipping orders to end-customers.

- Integrating with order management and inventory systems to ensure real-time order processing.

- Handling returns and managing reverse logistics for e-commerce returns.

In summary, while all three play important roles in the supply chain, warehouses focus on long-term storage, distribution centers handle the
movement of goods between suppliers and various retail locations, and fulfillment centers are specialized in quickly processing online orders
and delivering products directly to customers.

Dark ware houses Dark warehouses, also known as dark stores or micro-fulfillment centers, are facilities designed to fulfill online orders and serve as
distribution centers for Quick-commerce businesses. They are called "dark" because they are not open to the public like traditional retail
stores. Instead, they function solely as fulfillment centers, where employees pick, pack, and ship orders directly to customers. Dark warehouses
are becoming increasingly popular due to the rise in online shopping and the need for efficient order processing.

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 It refers to the process of combining multiple orders from different customers into a single shipment or batch for more efficient processing
and delivery. It is a common practice used by various businesses to optimize their operations, reduce shipping costs, and enhance customer
satisfaction. Let's explain order consolidation with an example:
Example: E-Commerce Warehouse
Order Consolidation 1. Individual Orders:
2. Order Consolidation:
Instead of processing each order separately, the e-commerce company identifies opportunities for order consolidation based on factors like
destination, shipping method, and product availability. They group the orders that share similar delivery locations and can be shipped together
3. Benefits of Order Consolidation:
a. Cost Savings
b. Reduced Fulfillment Time
c. Efficient Use of Resources
d. Environmentally Friendly
4. Delivery to Customers
Digital marketing Marketing- 1) Traditional- Newspaper, bill boards_ impossible to track ROI, awarness created. 2) Modern- Search Engine optimization (SEO),
Marketing- Search Engine, Email, Social Media.. Etc.
Product Portfolio A product portfolio refers to the collection of products or services offered by a company within a specific market or industry. It represents the
range of products a company has developed to
meet the needs and preferences of its target customers.
BOM stands for "Bill of Materials." It is a comprehensive list of all the components, parts, and raw materials required to manufacture a product.
The BOM serves as a crucial reference document for various stages of the product lifecycle, including design, production, procurement,
assembly, and maintenance. It ensures that all necessary materials are available in the right quantities and specifications to build the final
product.
Types of BOM:
1. Engineering Bill of Materials (EBOM):
BOM & its types The Engineering BOM is typically created during the product design phase.
2. Manufacturing Bill of Materials (MBOM):
The Manufacturing BOM is created based on the Engineering BOM and includes additional information relevant to the production process.
3. Sales Bill of Materials (SBOM):
The Sales BOM is used for sales and marketing purposes. It lists the components of the product in a customer-friendly format and includes
details like product names, descriptions, and images.
4. Service Bill of Materials (Service BOM):
The Service BOM is used for after-sales service and maintenance purposes.
5. Modular Bill of Materials:
In a Modular BOM, the product is broken down into modular components or building blocks

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 Aggregate planning is a strategic process used by businesses to determine the overall production, workforce, and inventory levels required to
meet fluctuating demand while minimizing costs and maximizing efficiency. It serves as a bridge between strategic planning and operational
planning, providing an intermediate level of planning that covers a medium-term timeframe, typically ranging from three to twelve months.
Aggregate planning allows companies to strike a balance between demand and capacity, enabling them to optimize their resources.
Key aspects of aggregate planning include:
Aggregate Planning 1. Forecasting Demand
2. Capacity Planning
3. Production Planning
4. Inventory Management
5. Workforce Planning
6. Backlog Management
7. Cost Considerations
8. Adjustments and Flexibility
Forecasting It involves predicting future demand, resource requirements, and performance metrics to efficiently plan and manage operations within a
business or organization. It plays a vital role in
optimizing production schedules, inventory levels, workforce allocation, and overall resource utilization. Accurate forecasting helps operations
managers make informed decisions and respond
Backlog In operations, a backlog refers to the accumulation of unfinished tasks, orders, or work items within a production or service process. It
represents the tasks that have not yet been completed or processed within the expected timeframe. A backlog can result from various factors
such as resource constraints, unexpected delays, changing priorities, or inefficiencies in the process.
Dropshipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it
purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.
Here's how dropshipping works:
1. Customer Places Order: A customer places an order on an online store (run by the dropshipping retailer).
Drop shipping 2. Retailer Notifies Supplier: The retailer then purchases the ordered product from a third-party supplier or wholesaler who offers dropshipping
services.
3. Supplier Ships Directly to Customer: The supplier ships the product directly to the customer, using the retailer's branding or packaging if
required. The retailer provides the customer's shipping information to the supplier.
4. Retailer Profits: The retailer makes a profit by selling the product at a price higher than the price they pay to the supplier. This profit covers
the retailer's operating expenses and profit margin.
Dropshipping has become popular due to its low upfront investment and reduced risk, as retailers don't need to purchase inventory before
making sales. However, it also comes with challenges
such as managing product quality, relying on third-party suppliers, and potential shipping delays. Successful dropshipping requires effective
communication with suppliers, a well-designed online store, and strong marketing strategies to attract customers.

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 1. Collaborative Planning: Involves joint planning activities between trading partners to develop a unified and coordinated forecast of future
Collaborative Planning, demand. This involves sharing information about promotions, product launches, market trends, and other factors that could impact demand.
Forecasting and Replenishment2. Forecasting: This shared forecast helps in reducing the bullwhip effect
(CPFR) 3. Replenishment: This helps in preventing stockouts and overstock situations, leading to better customer service and reduced holding costs.
4. Technology and Information Sharing: Electronic data interchange (EDI), shared databases, and advanced software tools are used to facilitate
real-time communication.
Challenges: Implementing CPFR requires a high level of trust and willingness to share sensitive information among partners. Integration of
different technology systems and ensuring consistent data quality can also be challenging.
CPFR helps create a more synchronized and responsive supply chain, leading to better coordination, reduced costs, and increased efficiency
throughout the entire supply chain network.
WMS stands for Warehouse Management System. It's a software application that helps organizations manage and optimize their warehouse
operations. key functions are :
1. Inventory Management: It enables accurate real-time inventory tracking, reducing the risk of stockouts and overstock situations.
2. Order Fulfillment: helps manage the picking, packing, and shipping processes for customer orders. I
WMS 3. Optimal Storage: determines the best storage locations for different types of products based on factors like size, weight, demand, and
compatibility.
4. Tracking and Traceability: provides end-to-end visibility of products throughout the supply chain.
5. Labor Management: optimizes labor utilization by assigning tasks to warehouse workers based on their skills and availability.
6. Reporting and Analytics: This data helps managers make informed decisions to improve efficiency.
7. Accuracy and Error Reduction: With barcode and RFID technology integration, WMS minimizes human errors by guiding workers to the
correct items.
8. Integration with Other Systems: integrate with ERP software, Transportation Management Systems (TMS), and e-commerce platforms.
9. Returns Management: directing returned items to the appropriate locations for inspection, repair, or restocking.
Supply Chain: It encompasses the flow of raw materials, components, and finished products from suppliers to manufacturers, and finally to
customers. The primary goal of the supply chain is to ensure that the right materials are available at the right time and place to facilitate the
production process and meet customer demands. Supply chain includes : 1. Raw Material Sourcing, 2.
Manufacturing, 3. Distribution and Logistics, 4. Inventory Management, 5. Supplier Management, 6. Demand Forecasting
Value chain vs Supply chain Value Chain: refers to a sequence of activities that create value as a product progresses from raw materials to the hands of the end consumer.
It encompasses not only the production processes but also the various stages that contribute to enhancing the product's value and meeting
customer needs. Value chain includes processes:
1. Research and Development, 2. Design and Engineering, 3. Manufacturing and Production, 4. Marketing and Sales, 5. After-Sales Service, 6.
Branding & Customer Experience

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 7. Innovation and Differentiation
In summary, the supply chain focuses on the efficient movement of materials and products through various stages, while the value chain
encompasses the activities that add value to the product at each stage, ultimately contributing to its attractiveness and competitiveness in the
market.

AHP
TIMWOOD TIMWOOD is an acronym used in lean manufacturing and operations management to identify and eliminate sources of waste within a process.
T - Transport, I - Inventory, M - Motion, W - Waiting, O - Overproduction, O - Overprocessing, D - Defects
Back Scheduling Backscheduling is a scheduling technique used in production and operations management to plan and coordinate activities based on a target
completion date or delivery date. It involves
working backward from the desired end date to determine when each task or operation should start in order to meet the deadline.

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 Production strategies are approaches that organizations use to manage their production processes and match their output to customer
demand. The three main production strategies are
1. Level Production Strategy:
In a level production strategy, organizations maintain a consistent and stable production rate regardless of fluctuations in customer demand.
The goal is to produce a relatively constant amount of goods over time, avoiding drastic changes in production levels. Excess production is
stored as inventory during periods of low demand and then drawn from during peak demand times. This strategy helps maintain a stable
workforce and production environment.
Advantages:
Production strategy: Level, - Stable workforce and consistent work environment.

Chase & Hybrid - Smooth production process without frequent changes.

- Potential cost savings through bulk purchasing and efficient production setups. Disadvantages:

- Higher inventory costs due to storage and carrying expenses.

- Risk of obsolete inventory if demand changes significantly.

- May not be suitable for industries with highly variable demand.

2. Chase Production Strategy:

Chase production involves adjusting production levels to match the current demand. When demand increases, production is ramped up, and
when demand decreases, production is scaled back. This strategy aims to minimize excess inventory and align production closely with customer
orders.
Advantages:
- Minimizes excess inventory costs.

- Efficient use of resources as production matches demand.

- Lower risk of holding obsolete inventory. Disadvantages:

- Potential for workforce instability due to frequent changes in production levels.

- Can lead to higher production setup costs due to frequent changes.

- Difficulties in responding quickly to sudden spikes in demand.

3. Hybrid Production Strategy:

The hybrid production strategy combines elements of both level and chase production. It seeks to strike a balance between stable production
and adjusting to demand fluctuations. Organizations may use a combination of inventory storage, flexible workforce arrangements, and
production adjustments to manage production efficiently.
Sorting- Unnecessary and necessary items, reduce the chance of distraction, simplify inspection, increase valuable space and safety by
eliminating obstacles
5s Systematize/ Straighten/ set in order- Placing items in ergonomic locations, where people will not need to bend or make extra movements to
reach them. Keep frequently used tools nearer and use outlines, labels to show things where belong to.
Shining- keeping work areas clean and orderly to inspect in a pleasing work environment
Standardizing- make rules in order to optimize the above tasks using schedules
Sustaining- making this process a habit continued over time by performing regular training and audits

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Nominal group technique The Nominal Group Technique (NGT) is a structured decision-making and problem-solving method used to gather input and ideas from a group
of individuals while ensuring everyone's opinions
are considered and valued. NGT is particularly useful when seeking to generate a range of ideas, evaluate alternatives, and reach a consensus in
a group setting.
Reverse auction A reverse auction is a procurement or sourcing strategy used in business and e-commerce where potential suppliers compete to offer the
lowest price for a particular product or service. Unlike
traditional auctions where buyers bid to win an item, in a reverse auction, sellers bid to win a contract from the buyer.
FIFO
GUS classification
The cash-to-cash cycle, often referred to as the "C2C cycle," is a crucial financial metric for businesses. It represents the time it takes for a
company to convert its investments in inventory and other operating expenses back into cash through sales.
Cash-to-Cash Cycle = Inventory Holding Period + Accounts Receivable Period - Accounts Payable Period
Cash to Cash cycle (C2C) -Inventory Holding Period is the average number of days it takes for inventory to be sold.
-Accounts Receivable Period is the average number of days it takes for the company to collect cash from its customers.
-Accounts Payable Period is the average number of days it takes for the company to pay its suppliers.
A shorter cash-to-cash cycle indicates that the company is able to quickly convert its investments into cash, which is generally seen as a positive
sign. It signifies efficient operations, better working capital management, and a faster revenue conversion process. Conversely, a longer cycle
suggests that cash is tied up for a longer period, potentially leading to liquidity issues.

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"Success is not a race but a journey that unfolds with time, patience,
and unwavering dedication. Every challenge you face and every small
step you take shapes you for the victory ahead. Embrace the setbacks,
for they are not the end but part of the process that strengthens your
resolve. Keep pushing forward, even when the path seems unclear
because every moment of effort brings you closer to the success you
deserve. Trust in your journey, believe in yourself, and remember that
the dream you’re working towards will become your reality in time.
Keep going – you’re already on your way to greatness."

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