There are three main types of operation. The first type is regular service, where major airlines use the cargo space in passenger aircraft that is not needed for baggage. The second type is cargo service, where operators run cargo planes on regular schedules. These are public carriers, moving goods for any customers. The third type is charter operations, where a whole aircraft is hired for a particular delivery. In common with shipping, airlines have problems getting materials to and from their journeys. There are all sorts of facilities located around major airports for moving materials from sources onto the right planes, and then away from planes and out to customers. Unfortunately, these transfers again take time, and can reduce the benefits of air travel. Another problem for airlines is their costs, over which they have very little control. They have a combination of high fixed costs (aeroplanes are expensive to buy) and high variable costs (due to fuel, landing fees, staff, and so on). It is expensive to keep planes flying, and there is no real way of reducing these costs. Competition can also be fierce, putting a limit on the amount they can charge, and this frequently sends new airlines into bankruptcy. 9.3.5 Pipeline The main uses of pipelines are oil and gas together with the utilities of water and sewage. They can also be used for a few other types of product such as pulverised coal in oil. Pipelines have the advantage of moving large quantities over long distances. Unfortunately, they have the disadvantages of being slow (typically moving at less than 10 km per hour), inflexible (only transporting between fixed points), and only carrying large volumes of certain types of fluid. In addition, there is the huge initial investment of building dedicated pipelines. Despite this initial investment, pipelines are the cheapest way of moving liquids –particularly oil and gas – over long distances. Local networks can add flexibility by delivering to a wide range of locations (such as supplies of water and gas to homes). 9.4 CHOICE OF MODE Sometimes the choice of transport mode seems obvious: if you want to move heavy items between Singapore and Brisbane you will use shipping. For land journeys, many 151 CU IDOL SELF LEARNING MATERIAL (SLM)
organisations seem happy to put materials on lorries without much thought for the alternatives. In practice, the choice of mode depends on a variety of factors. Perhaps the main ones are the nature of materials to move, the volume and distance. Other factors include: ● Value of materials, as expensive items raise inventory costs and encourage faster modes ● Importance, as even low-value items that would hold up operations need fast, reliable transport. ● Transit times, as operations that have to respond quickly to changes cannot wait for critical supplies using slow transport ● Reliability, with consistent delivery often being more important than transit time ● cost and flexibility to negotiate rates ● reputation and stability of carrier ● security, loss and damage ● schedules and frequency of delivery ● special facilities available. Many other factors may be important for a final decision. Organisations that routinely use the cheapest mode may be performing badly by some of the other measures. Remember that transport costs are often a relatively small part of overall costs, and it can be worth paying more to get a rapid and reliable delivery. It moves materials through the supply chain so quickly that organisations need fewer warehouses for distribution to customers – by paying more for transport they can reduce overall costs. As a rule of thumb, the cheapest modes of transport are the least flexible. The following table shows a ranking for the cost, speed, flexibility and load limits of different modes of transport. The modes are ranked in order, with 1 being the best performance and 5 being the worst. COST Rail Road Water Air Pipeline SPEED 3 4 1 5 2 FELXIBILITY 3 2 4 1 5 VOLUME 2 1 4 3 5 3 4 1 5 2 152 CU IDOL SELF LEARNING MATERIAL (SLM)
ACCESSIBILITY 2 1 4 3 5 Of course, organisations do not have to use the same mode of transport for an entire journey. They can break the journey into distinct stages and use the best mode for each stage. We will look at such intermodal journeys in the next section. INTERMODAL TRANSPORT We have seen some factors that affect the choice of transport mode, but organisations do not have to use the same mode for an entire journey. Their best option is often to divide the journey into stages and use the best mode for each stage. This does, of course, depend on factors like the length of the journey, the relative costs and the penalty of moving between modes. But if you move materials from, say, Lanchow in central China to Warsaw in Poland, you might start by putting the goods on a truck, transferring them to rail for the journey across China to Shanghai, then onto a ship to Rotterdam, then back onto rail to cross Europe, and then truck for local delivery. Journeys that use several modes of transport are called intermodal. INTERMODAL TRANSPORT refers to journeys that involve two or more different modes of transport. The aim of intermodal transport is to combine the benefits of several separate modes, but avoid the disadvantages of each; perhaps combining the low cost of shipping with the flexibility of road, or getting the speed of air with the cost of road. The main problem is that each transfer between modes causes delays and adds costs for extra handling. You can experience this effect when you transfer between a bus and train, or between a car and ferry. Intermodal transport only works if this transfer can be done efficiently. At the heart of intermodal transport are the systems for transferring materials between modes. The aim is to give a virtually seamless journey, and the best way of achieving this is to use modular or unitised loads. In effect, all materials are put into standard containers, and the equipment is arranged to move these containers. The basic container is a metal box 20-feet long. This size has become somewhat restricting, and it is often replaced by a 40-foot box. Even this can be limiting, and the Hudson’s Bay Company uses 53-foot containers on the trip from Vancouver to Montreal, reducing costs by 10–15%.Putting materials into these boxes eliminates the need to handle items individually, 153 CU IDOL SELF LEARNING MATERIAL (SLM)
and the whole container goes from source to destination. Since these containers were introduced in 1956 on the trip between New York and Houston, they have transformed ideas about transport. In particular, transferring materials between modes has changed from a labour-intensive operation to a capital-intensive one. Huge container ports and terminals have been built around the world to move containers efficiently and with minimum delay from one type of transport to another, or from one carrier to another. In the late 1960s ships spent about 60% of their time laid up in port for loading and uploading. Largely due to containerisation, this has reduced dramatically, and ships can turn around in a few hours. A rule of thumb is that it takes one day to turn around a containership when it used to take three weeks to turn around a conventional ship. Over 70% of freight movements now use containers. Some of the benefits of containerisation include ● Simplified transport and flow of goods ● Easier and faster handling ● Genuine door-to-door service ● Faster deliveries ● Reduced loss due to damage, misplacement and pilferage ● Reduced packing costs ● Lower insurance costs ● Separation of incompatible goods ● Use of less congested routes ● Improved transport encourages trade. Other types of intermodal transport A very wide range of materials can be put into containers, but there are inevitably some that cannot, or are cheaper to transport by other means. Oil, for example, might be put into container-sized tanks (in the same way as bulk wine), but tankers or pipelines give cheaper alternatives. Non-standard containers might also be preferred for some journeys. Standard 154 CU IDOL SELF LEARNING MATERIAL (SLM)
containers have to be strong enough to stack about eight tall, but if a company simply wants to transfer a box from rail to road, it can use ‘swap bodies’. These are skeleton truck bodies that can be transferred to a rail car, but cannot stand the rough treatment of containers. Another alternative to containers is piggy-back transport, where a lorry – or usually just the trailer – is driven onto a train for fast movement over a longer distance. You can see an example of this in the Channel Tunnel, where cars and lorries are driven onto a train for this part of their journey. Another extension to this idea uses land bridges. These are used when materials cross land on what is essentially a sea journey. The most widely used examples are in the USA, where materials from the Far East cross the Pacific to the west coast of America, and then travel by rail on land bridges across to ports on the east coast, before continuing their sea journey to Europe. Two main links are the ‘long bridge’ in the north between Seattle and Baltimore, and the ‘short bridge’ in the south between Long Beach and New Orleans. 9.5. Role of Containerization A container is a large rectangular box into which a firm places commodities to be shipped. After initial loading, the commodities themselves are not re-handled until they are unloaded at their final destination. Throughout the movement, the carrier handles the container, not the commodities; the shipper can transfer the container from one mode of transport to another, eliminating the need to handle the commodities each time. Reducing commodity handling reduces handling costs, damage costs, theft and pilferage, and the time required to complete the modal transfer. Containerization changes materials handling from a labor intensive to a capital intensive operation. Handling containerized freight requires less labour because the container is too large and too heavy for manual movement. Many firms that modify their materials-handling systems to include cranes, forklift trucks, and other equipment capable of handling the large, heavy containers have found containerization to be a desirable avenue for increasing productivity and controlling materials-handling costs, especially in periods of continually increasing labour costs. Containerization has gained notable acceptance in international distribution. The service reduces the time and a cost associated with shipment handling at ports and curtails damage 155 CU IDOL SELF LEARNING MATERIAL (SLM)
and theft. Some firms containerizing shipments to foreign markets have reduced costs by from 10 to 20 percent and have increased the service level they provide to these markets. The transportation mode like intermodal service using the container is the land bridge, which utilizes rail transportation to link prior and subsequent container moves by water transportation. For example, containers destined for Europe from the Far East move to the West Coast of the United States by water transportation. The containers move by rail to the East Cost, where a carrier a carrier loads them onto an oceangoing vessel for the final transportation to Europe. The rail movements provide the intermodal bridge between the two water moves and permits an overall transit time shorter than that of an all watershipment. Some of the benefits of containerization include ➢ Simplified transport and flow of goods ➢ Easier and faster handling ➢ Genuine door-to-door service ➢ Faster deliveries ➢ Reduced loss due to damage, misplacement and pilferage ➢ Reduced packing costs ➢ Lower insurance costs ➢ Separation of incompatible goods ➢ Use of less congested routes ➢ Improved transport encourages trade Types of Containers In most instances the definition is derived from statistical standards developed by international organizations such as the IMF, OECD, and ILO. The main types of containers as defined by ISO Standards Handbook on Freight Containers are General Purpose Containers A shipping unit designed to hold nonspecific types of goods without special equipment, controls, restraints, protective gear or other parts to preserve the condition of the contents. 156 CU IDOL SELF LEARNING MATERIAL (SLM)
Specific Purpose Containers ➢ Closed ventilated container; ➢ Open top container; ➢ Platform based container open sided; ➢ Platform based container open sided with complete superstructure; ➢ Platform based container open sided with incomplete superstructure and fixed ends; ➢ Platform based container open sided with incomplete superstructure and folding ends; ➢ Platform (container); Specific Cargo Containers ➢ Thermal container; ➢ Insulated container; ➢ Refrigerated container - (expendable refrigerant); ➢ Mechanically refrigerated container; ➢ Heated container; ➢ Refrigerated and heated container; ➢ Tank container; ➢ Dry bulk container;- named cargo container (such as automobile, livestock and others); and, ➢ Air mode container. Disadvantages of Containerization ➢ High capital costs are involved in purchasing and maintaining containers. ➢ High training costs are incurred in training labour to handle the loading and unloading of containers. ➢ Containers occupy a lot of space and hence large space is needed to keep the containers. 157 CU IDOL SELF LEARNING MATERIAL (SLM)
➢ The weight of the containers, reduce the amount of goods that can be transported. ➢ Containers are loaded and unloaded with the help of cranes. ➢ This replaces human labour thus causing unemployment. 9.6 OWNERSHIP OF TRANSPORT Own account transport This has an organisation using its own transport fleet to move its materials. The most common form of private transport has large companies running their own fleets of trucks. This has the advantage of flexibility, greater control, closer integration of logistics and easier communications. Transport can also be tailored to the organisation’s needs, with the best type of vehicles, fleet size, delivery schedule, customer service, and so on. Own account transport can be expensive and an organisation should only run its own fleet when it is cheaper than using a specialist third-party carrier. Essentially, this means that own account transport must be run as efficiently as a specialised transport company. There are, however, potential cost savings as there is less pressure for transport to make a profit, possible tax advantages, and development grants. There are also intangible benefits, such as the marketing benefits of vehicles painted in identifiable livery and an impression of reliability and long-term dependability. Only larger organisations can afford the capital investment and costs of running their own fleet. There are, however, ways of avoiding these costs. Most own account fleets are financed by some form of hiring or leasing, which gives a means of acquiring vehicles without having to find all the capital. Hire purchase, for example, spreads the payments over some period, while long-term hiring allows more flexible use. When you see a truck painted in J. Smith’s livery, it does not necessarily mean that J. Smith actually owns the vehicle. He or she is more likely to be leasing it from a company that looks after maintenance, overheads, repairs, replacements and other running costs, in return for a fixed fee. or 4 high, until they are sent inland or delivered to a ship at the quay. Throughput is fast, as it is in everyone’s interest for the containers to spend a minimum time in these stacks. The port is 2 km from the motorway 158 CU IDOL SELF LEARNING MATERIAL (SLM)
network, and trucks can make this journey within 5 minutes. The major centres of Birmingham and Cardiff are around 200 km away. Multi-line sidings allow fast rail connections, and Freightliner run a main service of 13 trains a day. These connect to most major destinations in the UK. Third-party carriers Specialised transport companies offer a range of services to other organisations. The advantage of this arrangement is that specialised companies run the transport, leaving the organisation to concentrate on its core operations. By using their skills and expertise the transport operators can give better services, or lower costs than own account transport. They might also be large enough to reduce costs through economies of scale, and they can get a number of operational benefits. They can, for example, consolidate smaller loads into larger ones and reduce the number of trips between destinations, or they can co-ordinate journeys to give backhauls, where delivery vehicles are loaded with other materials for the return journey. Most third-party transport is provided by common carriers. These are companies like TNT and Excel Logistics which move materials on a one-off basis whenever asked by another organisation. If you want to send a parcel to Australia, you might use a parcel delivery service such as UPS, which acts as a common carrier. Alternatively, an organisation can form a long-term relationship with a contract carrier. This contract carrier then takes over a part – often most of – the organisation’s transport for some extended period. Schenker, for example, act as a contract carrier when they are responsible for all the movement of goods for Roche Diagnostics in the USA. Contract transport companies offer a wide range of services, ranging from an occasional parcel collection to running a large, dedicated fleet for an individual customer. 9.7 CHOICE OF OWNERSHIP 159 There are several factors to consider when choosing the best type of ownership. CU IDOL SELF LEARNING MATERIAL (SLM)
● Operating cost: In different circumstances either own account or third-party transport might be cheaper, and there should be significant other benefits before an organisation moves away from their cheaper option. ● Capital costs: Capital is always scarce, and even if own account transport seems attractive, an organisation might find it difficult to justify the investment in vehicles. We have mentioned alternative arrangements for spreading the costs, so these analyses should be done carefully before reaching any conclusion. ● Customer service: Organisations must use transport that provides acceptable customer service in the best possible way. Sometimes, it is impossible to get a third-party carrier that can meets all requirements, and then own account transport is the only option – and, of course, vice versa ● Control: An organisation clearly has greater control over transport – and therefore wider operations – if it runs its own transport. However, this control might be bought at a high price, and contract companies might offer equivalent services but without the overheads and inflexibility of a private fleet. ● Flexibility: The structure and operations of a private fleet are fairly rigid, as you cannot make quick adjustments to allow for changing circumstances. If there is a sudden peak in demand, you cannot increase the size of the fleet for a few days, and then reduce it again when the peak passes. In the same way, the fleet is structured to carry a certain mix of sizes and modes. Common carriers can make these adjustments much faster, as they rely on demand from some companies going through a trough while demand from other companies is peaking. ● Management skills: Managing transport needs specialised skills, which are not readily available in even the biggest organisation. This gives a strong argument for third-party carriers. Large transport companies can support the management teams with specialist skills, knowledge and experience of different conditions. A supporting argument says that an 160 CU IDOL SELF LEARNING MATERIAL (SLM)
organisation with weak transport management suffers as it gives worse performance than competitors and becomes uncompetitive; one with strong transport management may be diverting valuable talent from the rest of the business. ● Recruitment and training: As well as being the most widely used, road transport is generally the most labour intensive. This gives high employment costs. There is also a shortage of skilled drivers, with many organisations finding it difficult to recruit and train suitable people. Both of these give an incentive to use third-party transport. There are many factors to consider in the final decision, but overall – in common with warehousing – there is a clear trend towards third-party carriers. Many organisations – including the biggest – are reducing their own fleets, using more contract operators, and forming alliances. Again in common with warehousing, a common option is to use a mixture of own account and third-party carriers. Then an organisation can use its own transport for core activities, with full utilisation giving low costs. Any other transport needs are left to outside operators who deal with peaks and unusual demands. Other services An organisation can pass all its transport problems to a third-party carrier, but there are many other people who can offer their own specialised services. These can provide the special skills that are not usually available within a single organisation. Some organisations give fairly general advice, such as management consultants who work in logistics, and software companies that tailor packages for transport. Other experts give more specific services, such as freight forwarders and shipping agents. Many people might help with transport, and you can get the feel of their services from the following examples. ● Common carriers: As we have seen, these move materials between two points for any customer, usually in a one-off delivery using common facilities. ● Contract carriers: These offer transport services, but usually for a longer time. They take over some, or all, aspects of an organisation’s transport for an agreed period. There are many possible arrangements, but they typically involve dedicated facilities set aside exclusively for one organisation. 161 CU IDOL SELF LEARNING MATERIAL (SLM)
● Intermodal carriers: Traditionally carriers have concentrated on one type of transport, such as shipping lines or road haulers. With the growth of intermodal transport, many companies offer a wider range of services and operate different types of transport. They typically look after all aspects of a journey between two specified points. ● Terminal services: Materials have to switch from one mode of transport to another, or move between different operators. These transfers may be done at ports, airports, terminals or container bases, which are run by separate organisations. The terminals do more than just transfer materials, and they might unload delivery vehicles, sort goods, break bulk for local delivery, concentrate goods for onward movement, load outgoing transport, keep track of all movements and provide any other relevant services. In this context you might hear of demurrage. Terminals earn money from their throughput, which they want to be as fast as possible. Any goods that are not collected as soon as they become available take up space and get in the way of other movements. To encourage companies to collect their materials promptly (perhaps within a day or two), terminal operators charge demurrage, which is a penalty for late collection and storage. ● Freight forwarders: One problem with third-party carriers is the expense of moving smaller loads. Unit transport costs fall with increasing quantity, and transport now focuses on standard loads, such as a full container load. If you only have enough material to fill part of a container, you have the obvious choice of leaving empty space – but then you are paying to move a whole container and only using part of it. An alternative is to use a freight forwarder. These are people who collect relatively small loads, and consolidate them into bigger loads travelling between the same points. A freight forwarder might, for example, combine six or seven smaller loads to get a full container, giving lower unit costs and faster delivery. Freight forwarders also provide all the administration needed to move materials through their journey, such as documentation, customs clearance, insurance, and so on. 162 CU IDOL SELF LEARNING MATERIAL (SLM)
● Brokers: A broker acts as an intermediary between customers and carriers. Effectively, they look at the goods to be moved, find the best routes and carriers and negotiate conditions. There are also specialised brokers who assist with particular parts of the journey, such as customs brokers who prepare the documents needed for customs clearance, get materials through customs and move them across international borders. ● Agents: These are usually local people who represent, say, shipping companies. They give a local presence and act as intermediaries between distant carriers and local customers, exchanging information, arrangements, and so on. ● Parcel services: These are similar to a Post Office, as they deliver small packages to any location. Companies such as Federal Express, United Parcel Service (UPS) offer very fast deliveries to almost any location in the world. Their strength is customer service, as they offer guaranteed next day delivery over long distances. 9.8 SUMMARY ● Transport is responsible for the physical movement of materials between points in the supply chain. ● The mode of transport describes the type of transport used. There are basically five different options – rail, road, water, air and pipeline. ● Choice of Mode of transport depends upon value of materials, importance, transit times, Reliability, cost and flexibility, security, loss, and damage. ● The advantage of using own transport for logistics include flexibility, greater control, closer integration of logistics and easier communications. ● Choice of ownership depends on various factors like Operating cost, Capital costs: ● Customer service, Control, Flexibility and Management skills 163 CU IDOL SELF LEARNING MATERIAL (SLM)
9.9 KEY WORDS Transport Tariff-Price for moving unit value of goods from one place to another 9.10 LEARNING ACTIVITY 1. Make a study about dabbawala’s from Mumbai and how they optimally use road and rail transport. ___________________________________________________________________________ _____________________________________________________________________ 9.11 UNIT END QUESTIONS A.Descriptive Questions Short Questions 1. What is meant by the term transport rate.? 2. List a few decision regarding transport of goods an organisation has to make. 3. Briefly explain air mode of transport. 4. Describe the term intermodal transport. 5. Who are freight forwarders? Long Questions 1. Transport cost is the most expensive logistical cost. Comment 2. Discuss in detail about various modes of transport available for transportation of goods. 3. Discuss various factors to be considered when choosing the best type of ownership for transport. 4. Discuss about services provided by third party transport companies. 5. Discuss the merits and demerits on containerization B. Multiple Choice Questions 1. _______ refers to journeys that involve two or more modes of transportation of goods. a. Intramodal transport 164 CU IDOL SELF LEARNING MATERIAL (SLM)
b. Intermodal transport c. Both a and b d. None of these 2. ________ mode of transport helps in moving large quantities of goods over large distances. a. Roadways b. Airways c. Waterways d. Pipeline 3. Costliest means of transportation is _______ a. Waterways b. Roadways c. Airways d. Railways 4. Containerization changes materials handling from a labor intensive_______ a. Capital intensive b. Machine intensive c. Material intensive d. None of these 5. _______are people who collect relatively small loads, and consolidate them into bigger loads travelling between the same points. a. Mailman b. Loadman c. Freight forwarders 165 CU IDOL SELF LEARNING MATERIAL (SLM)
d. brokers Answers 1) a 2) c 3) a 4) a 5) d 9.12 REFERENCES Textbooks ● Simchi-Levi, D., Kaminsky, P., &Simchi-Levi, E. (2003). Designing and managing the supply chain: Concepts, strategies, and case studies. Boston: McGraw-Hill/Irwin. ● Monczka, R. M. (2009). Purchasing and supply chain management. Mason, OH: South-Western. ● Stock & Lambert (2001) Strategic Logistics Management. 4th Edition, McGraw Hill, New York, 70-89. Reference Books ● Raghuram G. &Rangaraj. N.,Logistics (2012 ) Supply Chain Management, Macmillan Publication, ● K. ShridharaBhat,( 2008 ) Logistics Management, Himalaya Publishing House, Mumbai, ● Bowerson, Donald J., David J.Closs and Owner K. Helferich,( 1986) Logistical Management, Macmillan, New York, ● Alan E. Branch,(2009 )Global Supply Chain Management and International Logistics”, Routledge, New York, ● MARTIN CHRISTOPHER, Logistics and Supply Chain Management, Pearson Education Limited, New Delhi, 2016 ● Excel Books Private Limited, Neha Tikoo, Logistics And Supply Chain Management,New Delhi, 2017 166 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 10 - SUPPLY CHAIN INFORMATION SYSTEMS AND E -COMMERCE Structure 10.0 Learning Objective 10.1 Introduction 10.2 Supply Chain Network Design 10.3 Supply chain Processes 10.4 Supply chain Information Systems 10.5 Material Requirement Planning 10.6 Advanced planning Systems 10.7 Manufacturing Executions Systems 10.8 Transportation Management Systems 10.9 Enterprise Resource Planning 10.10 Summary 10.11 Keywords 10.12 Learning Activity 10.13 Unit End Questions 10.14 References 10.0 LEARNING OBJECTIVE After studying this unit, student will be able to ● Remember the various supply chain Processes ● Explain about the supply chain information systems ● Analyse the various ERP processes ● Differentiate between Advanced Planning Systems and Manufacturing Executions Systems 167 CU IDOL SELF LEARNING MATERIAL (SLM)
10.1 INTRODUCTION Supply chain management (SCM) became a common term in the 1980s, heavily influenced by Japanese manufacturing processes like those developed by Toyota, such as just-in-time (JIT) and lean manufacturing. In the 1990s electronic data interchange (EDI) made it possible to coordinate chains of organizations worldwide. This enabled the integration of participant supply chain elements into cooperative components sharing information and enabling coordinated planning, operations, and monitoring of performance. There was a focus on core competencies, abandoning the vertical integration of Standard Oil, U.S. Steel, and Alcoa and replacing it with linkages of independent organizations specializing in what they did best. This encompassed the entire product process to include design, manufacture, distribution, marketing, selling, and service. Agile supply chains, such as Motorola and Panasonic, are flexible, enabling changing the set of partners for given markets, regions, or channels, accessing the specific price or quality mix that enable organizations to be competitive. Original equipment manufacturers (OEMs) shifted from making products to become brand owners. These brand owners needed to know what was going on across their entire supply chain, with the need to control from above rather than from within. Standard Oil in 1900 desired to control everything from within, seeking to own all elements in their supply chain. Conversely, Nike doesn’t make shoes anymore. They coordinate activities from design to retail through communication supported by a variety of information systems linked across their supply chain 10.2 SUPPLY CHAIN NETWORK DESIGN Distribution refers to the steps taken to move and store a product from the supplier stage to a customer stage in the supply chain. Distribution is a key driver of the overall profitability of a firm because it directly impacts both the supply chain cost and the customer experience. Good distribution can be used to achieve a variety of supply chain objectives ranging from low cost to high responsiveness. As a result, companies in the same industry often select very different distribution networks. Following the works of Mentzer et al. (2001) and Aitken (1998, in Christopher 2011), we define a supply chain as a network of connected and interdependent organisations, directly involved in the upstream and downstream flows of products, services, finances, and 168 CU IDOL SELF LEARNING MATERIAL (SLM)
information from sources to customers. These organisations include manufacturers, suppliers, transporters, warehouses, and retailers (Chopra and Meindl, 2007). On a more abstract level, a supply chain is a directed graph in which the set of nodes represents organisations or customers; these are connected by directed arcs, and products flow along these arcs. At the nodes, different products at different stages of the production process are bought, transformed, stored, or sold. The goal of the supply chain is to maximise the overall value added to the products as they pass through the network. The products in turn have to be supplied in required quantities, achieving a specified quality, at a competitive cost, and in a timely fashion. (Chopra and Meindl, 2007; Shapiro, 2007). In a typical supply chain, four types of nodes are identified: at the supplier nodes (S) raw materials or intermediate products are acquired; at facility nodes (F) manufacturing takes place, that is, physical product transformations; at distribution centre nodes (DC) intermediate operations such as sorting, storage, packaging, and dispatching take place, but no physical transformation (Shapiro, 2007); finally, at market nodes (M) products are sold to customers. Supply chain management is defined as the integrated planning within the supply chain across function, space, and time, with the purpose of improving the performance of the individual companies in the supply chain, as well as the entire network (Mentzer et al., 2001; Shapiro, 2007). In this context, functional integration refers to the business functions purchasing, manufacturing, transportation, warehousing, and inventory management. Spatial integration indicates the planning across geographically dispersed nodes in the supply chain, and, thereby, also across multiple businesses. Finally, inter temporal integration, also called hierarchical planning, is the integration across strategic, tactical, and operational planning and spanning across different time horizons; this is discussed in the next section. 1. Factors Influencing Distribution Network Design At the highest level, performance of a distribution network should be evaluated along two dimensions: 1. Customer needs that are met 169 CU IDOL SELF LEARNING MATERIAL (SLM)
2. Cost of meeting customer needs The customer needs that are met influence the company's revenues, which along with cost decide the profitability of the delivery network. While customer service consists of many components, we will focus on those measures that are influenced by the structure of the distribution network. These include: • Response time • Product variety • Product availability • Customer experience • Order visibility • Returnability Response time is the time between when a customer places an order and receives delivery. Product variety is the number of different products / configurations that a customer desires from the distribution network. Availability is the probability of having a product in stock when a customer order arrives. Customer experience includes the ease with which the customer can place and receive their order. Order visibility is the ability of the customer to track their order from placement to delivery. Returnability is the ease with which a customer can return unsatisfactory merchandise and the ability of the network to handle such returns. It may seem at first that a customer always wants the highest level of performance along all these dimensions. In practice, however, this is not always the case. Customers ordering a book at Amazon.com are willing to wait longer than those that drive to a nearby Borders store to get the same book. On the other hand, customers can find a far larger variety of books at Amazon compared to the Borders store. Firms that target customers who can tolerate a large response time require few locations that may be far from the customer and can focus on increasing the capacity of each location. On the other hand, firms that target customers who value short response times need to locate close to them. These firms must have many facilities, with each location having a low capacity. Thus, a decrease in the response time customers desire increases the number of facilities required in the network. 170 CU IDOL SELF LEARNING MATERIAL (SLM)
For example, Borders provides its customers with books on the same day but requires about 400 stores to achieve this goal for most of the United States. Amazon, on the other hand, takes about a week to deliver a book to its customers, but only uses about 5 locations to store its books. Changing the distribution network design affects the following supply chain costs: • Inventories • Transportation • Facilities and handling • Information As the number of facilities in a supply chain increases, the inventory and resulting inventory costs also increase.. For example, Amazon with fewer facilities is able to turn its inventory about twelve times a year, while Borders with about 400 facilities achieves only about two turns per year. As long as inbound transportation economies of scale are maintained, increasing the number of facilities decreases total transportation cost, as shown in Figure 4.2. If the number of facilities is increased to a point where there is a significant loss of economies of scale in inbound transportation, increasing the number of facilities increases total transportation cost. A distribution network with more than one warehouse allows Amazon.com to reduce transportation cost relative to a network with a single warehouse. Total logistics costs are the sum of inventory, transportation, and facility costs for a supply chain network. As the number of facilities is increased, total logistics costs first decrease and then increase. Each firm should have at least the number of facilities that minimize total logistics costs. As a firm wants to further reduce the response time to its customers, it may have to increase the number of facilities beyond the point that minimizes logistics costs. A firm should add facilities beyond the cost- minimizing point only if managers are confident that the increase in revenues because of better responsiveness is greater than the increase in costs because of the additional facilities. 10.3 SUPPLY CHAIN PROCESSES Collaboration across supply chains requires the integration of all supply chain activities. This requires a continuous flow of information. Key supply chain processes include the following • Product development • Procurement to include outsourcing or partnerships 171 CU IDOL SELF LEARNING MATERIAL (SLM)
• Manufacturing • Physical distribution • Customer relationship management (CRM) Product development It can be obtained by linking customers and suppliers. Customers can express their needs (desires), while the supply chain organization can contribute what is possible. Communication enables identification of a product with a competitive life cycle. Procurement (sourcing) involves the selection of supply chain members. This can be for specific products or services, so that an organization like Wal-Mart might have literally millions of temporary sourcing arrangements. A stable supply chain will have relationships benefiting all parties. Outsourcing refers to procuring sources outside the OEM organization. Outsourcing is broader, however, in that it can refer to obtaining any part of a tangible product or intangible service. Information systems can use EDI and web links to communicate rapidly, enabling effective cost and risk management. Procurement generally involves obtaining materials and components. Outsourcing enables many opportunities to develop a more cost-efficient (or lower risk) supply chain. This comes at the cost of requiring significantly more coordination. A manufacturing process can be developed based on what the OEM organization selects as the best combination of cost and risk over the total product life cycle. Manufacturing processes should be flexible to respond to changes in market conditions. The activities of planning, scheduling, inventory, transportation, and coordination across the supply chain require software coordination Physical distribution involves moving products (or services) through the supply chain, ultimately reaching customers. The specific routing is referred to as a channel in marketing and can include a variety of transportation media to move goods. In a service context, the channel can involve the routing of who a customer interacts with to get the service desired. CRM is the management of the relationships between the providing organization and its customers. Customer service provides information from the customers and has the ability to give customers real-time information on product availability, price, and delivery. Linking independent elements to work together to deliver goods and/ or services is flexible and enables rapid change to comply with new circumstances that are commonly encountered 172 CU IDOL SELF LEARNING MATERIAL (SLM)
in contemporary business. By expanding beyond the core organization, a need to monitor performance is needed. Some of the key measures of effective SCM include cost, service, productivity, use of assets, and quality. This is often implemented through monitoring customer perceptions, and identifying best practices as benchmarks to evaluate supply chain performance. 10.4 SUPPLY CHAIN INFORMATION SYSTEMS Many software applications are available for each step in the supply chain process. Many vendors specialize in particular steps supporting part of any one of the six elements given earlier. Each supply chain organization will find that they are best served by various combinations of these software products. Furthermore, as technology evolves, new software is developed to serve specific needs as information systems continue to evolve. A SCM stream can be divided into three main streams: product, information, and finances. Product — Goods moving from sources through manufacturing processes and ultimately on to a customer, to include services such as customer returns .Information — Transmitting orders and updating delivery status .Financial — Credit terms, payment schedules, shipment, and contractual relationships. The advances in manufacturing and distribution systems, the cost of developing new products and services is dropping and time to market is decreasing. This has resulted in increasing demand, local and global competition, and increasing strain on supply chains. SCM software links suppliers to databases that show forecasts, current inventory, shipping, or logistics timeframes within the customer organization. By giving this access to suppliers, they can better meet their customers’ demands. For example, the supplier can adjust shipping to make certain that their customers have the inventory necessary to meet their customers’ needs. They also can monitor unexpected supply chain disruptions to organize alternative routing. Suppliers can download forecasts into their own manufacturing systems to automate their internal processes as well. Planning applications and execution applications are the two primary types of SCM software: Planning applications are capable of generating improved plans through use of mathematical algorithms. 173 CU IDOL SELF LEARNING MATERIAL (SLM)
Execution applications enable tracing goods, managing materials, and exchanging financial information. 10.5MATERIAL REQUIREMENT PLANNING A number of supply chain systems have evolved over the decades. The first was materials requirements planning (MRP). This was extended to include planning schedules (often labeled MRP-II). Enterprise resource planning (ERP) systems seek to integrate all organizational information systems, although of course companies will always have special needs outside of an ERP. Nonetheless, ERP systems support much of supply chain activity, to include financial transactions with sources and customers, inventory dealings with sources, forecasting to support planning, MRP to support assembly operations, and many other activities. The trend is for many functions that used to be outside the ERP to be offered as modules within ERP. One case in point is advanced planning system (APS) software. There also have been systems marketed as warehouse management systems (WMSs), transportation management systems (TMSs), manufacturing execution systems (MESs), and the more general logistics management systems, targeted for specific industries such as the military and/or construction. The 21st century has seen a continued expansion of ERP systems to include additional functionality, such as CRM and SCM systems as part of the enterprise information system (EIS). There also are other uses of information technology available to support supply chains, such as online marketplaces. Materials Requirements Planning The term MRP is used as a general term to include all MRP versions, namely, MRP-I (i.e., materials requirements planning), Closed-loop MRP (i.e., MRP-I with capacity planning and shop floor management), and MRP-II (i.e., Closed-loop MRP integrated with the other functions such as finance and marketing).1 The concept of an integrated information system took shape on the factory floor. Manufacturing software developed during the 1960s and 1970s, evolving from simple inventory tracking systems to MRP software. MRP at its core is a time-phased order release system that schedules and releases manufacturing work orders and purchase orders, so that subassemblies and components are available at the assembly station when they are required. Some of the benefits of MRP are reduction of inventories, improved customer service, and enhanced efficiency and effectiveness. MRP software allows a plant manager to plan production and raw materials requirements by working backward from the sales forecast, the prediction of future sales. Thus, the manager first looks at marketing and sales forecasts of demand (what 174 CU IDOL SELF LEARNING MATERIAL (SLM)
the customer wants), the production schedule needed to meet that demand, calculates the raw materials needed to meet production, and projects raw materials purchase orders to suppliers. For a company with many products, raw materials, and shared production resources, this kind of projection is impossible without a computer to keep track of various inputs. EDI, the direct computer-to-computer exchange of standard business documents, allows companies to handle the purchasing process electronically, avoiding the cost and delays resulting from paper purchase order and invoice systems. SCM began with the sharing of long-range production schedules between manufacturers and their suppliers. The MRP system should provide four basic items of information: when to place order, how much to order, who to order from, and when the items need to be on hand. MRP systems are used to acquire or fabricate component quantities on time for both internal purposes and sales and distribution. MRP is a planning instrument geared exclusively to assembly operations. Each manufacturing unit informs its suppliers what parts it needs and when it requires them. The main aim for the evolution of MRP was to tackle the problem of dependent demand, that is, determining how many of a particular component is required knowing the number of finished products. The next stage of MRP-II evolution was JIT methodology in the late 1980s. MRP-II (manufacturing resource planning) is a method to plan all resources for a manufacturer. A variety of business functions are tied into MRP-II systems, including order processing as in MRP, business planning, sales and operations planning, production plans, master production scheduling, capacity requirements planning, and capacity planning. MRP-II systems are integrated with accounting and finance subsystems to produce reports including business plans, shipping budgets, inventory projections, and purchase plans. A major purpose of MRP- II is to integrate primary functions (i.e., production, marketing, and finance) and other functions, such as personnel, engineering, and purchasing into the planning process, to improve the efficiency of the manufacturing enterprise. Many within the operations management field consider ERP as a natural extension of MRP-II. The APICS Association for Operations Management definition for ERP is a method for the effective planning and control of all resources needed to take, make, ship, and account for customer orders.2 There is at least some truth to this view, but ERP systems are even more comprehensive than simply on manufacturing operations. ERP systems are found in practically all types of large organizations, to include chemical facilities and even universities. MRP-II functions are covered by production planning and other ERP modules. 175 CU IDOL SELF LEARNING MATERIAL (SLM)
10.6 ADVANCED PLANNING SYSTEMS Computer technology makes it possible for improvements at both the cost and value ends of the supply chain. Demand uncertainties can be better managed through improved inventory demand forecasting, reduction of inventories, and improved transportation costs through the optimization of coordinated activities across the supply chain. APSs provide decision support by using operational data to analyze material flows throughout the supply chain. This supports the business functions of purchasing, production, and distribution through the entire spectrum of planning. Purchasing is supported by planning and MRP. Production is supported by strategic, master, and production planning as well as short-term scheduling. Distribution is supported by distribution planning and transportation planning. These planning systems interact, enabling the management of demand across the supply chain. Warehouse Management Systems WMSs provide the functionality of tracking parts throughout a supply chain. Systems such as High Jump Software and Red Prairie Corp (now part of JDA Software Group’s supply chain management product line) offer tools using electronic input such as bar code scanning to track material through the supply chain system, maintaining accurate information flow to parallel physical flow. Radio-frequency identification (RFID) technology provides another form of electronic data input to WMSs. 10.7 MANUFACTURING EXECUTION SYSTEMS Manufacturing Execution Systems MESs appeared in the mid-1990s, evolving as all other supply chain information technology. Original focus was to manage demand on manufacturing organizations with respect to quality, standards, cost reduction, schedule, and ability to react to change. With time, functions have emphasized support traceability. MES functionality now integrates support to most manufacturing execution processes from release of production orders to finished goods delivery. MES also triggers supply chain replenishment upstream (telling sources that replenishment inventory is needed). These systems use a common user interface and data system to integrate support to multiple locations or organizations within a supply chain. An MES offers the following functionalities: • Scheduling • Process management 176 CU IDOL SELF LEARNING MATERIAL (SLM)
• Document control • Data collection or acquisition • Labor management • Quality management • Production unit dispatch • Maintenance management • Product tracking • Performance analysis • Resource allocation and tracking An MES can interact between the organizational ERP and the shop floor, taking production orders from the ERP and allocating machines and labor to tasks or products. Real status from the shop floor in turn is passed on to the ERP to update resource availability, track products and inventory, and record production. Logistics functions in the ERP include plant production scheduling, shipping, and inventory. The MES translates that to execution in the form of dispatching, detailed production scheduling, and tracking material 10.8 TRANSPORTATION MANAGEMENT SYSTEMS TMSs provide software support at an affordable level to control shipping. A variety of alternative sources are available to increase visibility and generate more efficient solutions to move material in an increasingly complex environment involving many risks (piracy, war, regulations). Functionality provided includes transportation mode planning, optimization models, and workflow management. 10.9 ENTERPRISE RESOURCE PLANNING (ERP) The nineties saw unprecedented global competition, customer focus and shortened product life cycles. To respond to these demands corporations had to move towards agile (quick moving) manufacturing of products, continuous improvements of process and business process reengineering. This called for integration of manufacturing with other functional areas including accounting, marketing, finance and human resource development. Activity- 177 CU IDOL SELF LEARNING MATERIAL (SLM)
based costing would not be possible without the integration of manufacturing and accounting. Mass customization of manufacturing needed integration of marketing and manufacturing. Flexible manufacturing with people empowerment necessitated integration of manufacturing with the HRD function. In a sense the 1990s truly called integration of all the functions of management. ERP systems are such integrated information systems build to meet the information and decision needs of an enterprise spanning all the functions of management. Benefits of ERP: (a) Business integration: The first and the most important advantage lie in the promotion of integration. The reason ERP packages are called integrated is the automatic data up gradation between related business components, since conventional company information systems were aimed at the optimization of independent business functions in business units, almost all were weak in terms of the communication and integration of information that transcended the different business functions in the case of large companies in particular, the timing of system structure and directives differs from each product and department / functions and sometimes they are disconnected. For this reason, it has become an obstacle in the shift to new product and business classification. In the case of ERP packages the data of related business functions is also automatically updated at the time a transaction occurs. For this reason, one is able to grasp business details in real time, and carry out various types of management decisions in a timely manner based on that information. (b) Flexibility: The second advantage of ERP packages is their flexibility. Diverse multi functional environments such as language, currency, accounting standards and so on are covered in one system and functions that comprehensively managed multiple locations that span a company are packaged and can be implemented automatically. To cope with company globalization and system unification, this flexibility is essential, and one could say that it has major advantages, not simply for development and maintenance, but also in terms of management. (c) Better analysis and planning capabilities: Yet another advantage is the boosting of planning type functions. By enabling the comprehensive and unified management of related business and its data, it becomes possible to fully utilize many types of decision support systems and stimulation systems. Furthermore, since it becomes possible to carry out flexibility and in real time the feeling and analysis of data from a variety of dimensions, one 178 CU IDOL SELF LEARNING MATERIAL (SLM)
is able to give decision makers the information they want, thus enabling them to make better and informed decisions. (d) Use of latest technology: The fourth advantage is the utilization of latest developments in information technology (IT). The ERP vendors were very quick to realize that in order to grow and to sustain that growth: they have to embrace the latest developments in the field of information technology. So they quickly adopted their systems to take advantages of the latest technologies like open systems, client server technology, internet/ intranet, computer aided acquisition and logistics support, electronic commerce etc. It is this quick adaptation to the latest changes in information technology that makes the flexible adaptation to changes to future business environments possible. It is this flexibility that makes the incorporation of the latest technology possible during the system customization, maintenance and expansion phases. (e) Reduced inventory and inventory carrying cost: The manufacturing nature of many ERP users makes the issue of process and material costs savings paramount. The main factor behind these savings is that implementation of the ERP system allows customers to obtain information on cost, revenues and margins, which allow it to better, manage its overall material cost structure. This ability to manage costs is best seen in savings that organizations can obtain in their inventory systems. Customers can perform a more complete inventory planning and status checking with the ERP system. These checks and plans reveal existing surpluses or shortages in supplies. Improved planning and scheduling practices typically lead to inventory reductions to the order of 20 per cent or better. This provides not only a one time reduction in assets (cost of the material stocked), but also provides ongoing savings of the inventory carrying costs. The cost of carrying inventory includes not only interest but also the costs of warehousing, handling, obsolescence, insurance, taxes, damage and shrinkage. (f) Reduced manpower cost: Improved manufacturing practices lead to fever shortages and interruptions and to less rework and overtime. Typical labor savings from a successful ERP system are a 10 per cent reduction in direct and indirect labor costs. By minimizing rush jobs and parts shortages, less time is needed for expediting, material handling, extra setups, disruptions and tracking splits lots odd jobs that have been set aside. Production supervisors have better visibility of required work and can adjust capacity or loads to meet schedules. Supervisors have more time for managing, directing and training people. Production personnel have more time to develop better methods and improve quality. 179 CU IDOL SELF LEARNING MATERIAL (SLM)
10.10 SUMMARY • Supply Chain management influenced by lean manufacturing systems helped integration of supply chain components and enables planning operations and monitoring performance. • Key supply chain process includes process development, procurement, manufacturing, physical distribution and customer relationship management. • A supply chain management stream can be divided into three main streams ▪ Product ▪ Information and ▪ Finance • Following are the supply chain systems which have evolved over a period of time. ▪ Material requirement planning ▪ Advanced planning systems ▪ Warehouse management systems ▪ Transportation management system ▪ Manufacturing execution system ▪ Customer relationship management system 10.11 KEYWORDS ● TMS – Transportation Management System ● MRP – Material Requirement Planning ● ERP – Enterprise Resource Planning ● CRM – Customer Relationship Management 10.12 LEARNING ACTIVITY 1. List out various processes right from planning to CRM in a textile industry. ___________________________________________________________________________ _____________________________________________________________________ 180 CU IDOL SELF LEARNING MATERIAL (SLM)
10.13 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Write a short note about supply chain process. 2. What is meant by ERP. 3. List the benefits of ERP. 4. List a few software applications available for each step in supply chain process. 5. What is TMS. Briefly explain Long Questions 1. Describe in detail about supply chain process. 2. What is meant by ERP and discuss in detail about its benefits. 3. Describe factors influencing in designing of supply chain network 4. Discuss about the advanced planning systems. 5. Explain in detail about material requirement planning. B. Multiple Choice Questions 1. ___________ provides software support to control shipping. a. Warehouse management system b. Manufacturing execution system c. Transport management system d. None of these 2. __________ helps in Integration of manufacturing process with other functional areas like accounting marketing finance and human resource development. a. Enterprise Information System b. Enterprise Resource Planning c. Advance Planning system 181 CU IDOL SELF LEARNING MATERIAL (SLM)
d. None of these 3. __________ technology helps in identifying company name, production area, date, and other details of an inventory. a. ERP, b. RFID c. WMS d. None of these 4. ____________ refers to the steps taken to move and store a product from the supplier stage to a customer stage in the supply chain. a. Production b. Distribution c. Sales d. Consumption 5. An ____ can interact between the organizational ERP and the shop floor, taking production orders from the ERP and allocating machines and labor to tasks or products a. ERP b. TMS c. MES d. WMS Answers 1) c 2) a 3) b 4) b 5) c 10.14 REFERENCES Text Books 182 CU IDOL SELF LEARNING MATERIAL (SLM)
● Simchi-Levi, D., Kaminsky, P., &Simchi-Levi, E. (2003). Designing and managing the supply chain: Concepts, strategies, and case studies. Boston: McGraw-Hill/Irwin. ● Monczka, R. M. (2009). Purchasing and supply chain management. Mason, OH: South-Western. ● Stock & Lambert (2001) Strategic Logistics Management. 4th Edition, McGraw Hill, New York, 70-89. Reference Books ● Raghuram G. &Rangaraj. N.,Logistics (2012 ) Supply Chain Management, Macmillan Publication, ● K. ShridharaBhat,( 2008 ) Logistics Management, Himalaya Publishing House, Mumbai, ● Bowerson, Donald J., David J.Closs and Owner K. Helferich,( 1986) Logistical Management, Macmillan, New York, ● Alan E. Branch,(2009 )Global Supply Chain Management and International Logistics”, Routledge, New York, ● Strategic Supply Chain Management, Shoshanah Cohen and Joseph Roussel, Tata Mcgraw hill publication, New Delhi, 2018. 183 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 11 - E-COMMERCE AND LOGISTICS Structure 11.0 Learning Objective 11.1 Introduction 11.2 E-Commerce 11.3 Evolution of E-commerce Logistics 11.4 E-commerce and Logistics 11.5 How E-Commerce logistics works 11.6 Summary 11.7 Keywords 11.8 Learning Activity 11.9 Unit End questions 11.10 References 11.0 LEARNING OBJECTIVES After studying this unit, the student will be able to ● State the evolution of E-Commerce Logistics ● Analyse how E-Commerce logistics works ● Evaluate the relationship between E-Commerce and Logistics. 11.1 INTRODUCTION What is logistics in E-Commerce? Logistics is referred to a supply chain process that allows various e-commerce business in shipping their products to their targeted destination. 184 CU IDOL SELF LEARNING MATERIAL (SLM)
Fig 11.1 For example, think of the process like this. So ,if you are a seller who makes homemade jewellery and sells them in your area. One day you decide to expand your horizons and sell your products in other cities, states and even countries as well. In order to make it possible, you contact a few logistics companies. Once you do that, these e-commerce logistics companies in India will outreach their services towards you and will help you to deliver your product to your customers in different places. This delivery logistics will plan, execute and control the movement of your product through a confined shipping system. Once you tie up with a logistics partner, you will be able to deliver your goods hassle free. 11.2 E-COMMERCE Electronic commerce (e-commerce) has become a buzzword for businesses over the past few years, with increased awareness about the use of computer and communications technologies to simplify business procedures and increase efficiency. E-commerce is more than a technology, it is a business model built around the application of information and communication technologies to any aspect of the value chain for products and services. Perhaps the clearest indication of the growing importance of e-commerce in the global economy is the rapidity with which internet use has grown and spread during the last decade. The boom in ecommerce also includes increased use of other media for trade, such as the 185 CU IDOL SELF LEARNING MATERIAL (SLM)
telephone, television, fax, and electronic payment. E-commerce has been the catalyst for the enhancements and greater efficiency in areas that include: • Selling products and processing orders; • Tracking customers’ buying habits; • Presenting customers and prospects with product catalogues; • Presenting financial statements to investors; • Providing customers with inventory availability information; • Providing message databases for off-site sales people and staff; and • Processing purchase orders and invoice from suppliers. 11.3 EVOLUTION OF E-COMMERCE LOGISTICS Over the years, the module of e-commerce business has evolved. Not only did it affect the economy but also allowed various logistics industry to grow. These distribution networks have evolved massively in the last 40 years. Let’s take a look at this evolution in excruciating detail. Fig 11.2 There is a broad evolution in various phrases that are explained through different timelines. 186 CU IDOL SELF LEARNING MATERIAL (SLM)
• Back in the year 1970, different retail stores were replaced and direct deliveries were carried out by the suppliers and the wholesalers. • In 1980, different retailers decided to streamline their store delivery through distribution centers that would be controlled by them. • Later in the year 1990, these retailers started shipping nonfood products and the foundation of global sourcing took place. This allowed different retailers to set up their own import and delivery centers and exchange goods in a streamlined way. • After that, from the 2000s, as the concept of e-commerce started kicking in, these retailers started developing their e-fulfillment distribution network to keep up with people’s demand, all across the world. 11.4 ECOMMERCE AND LOGISTICS Managing Logistics is the greatest challenge for any eCommerce company especially in a country like India with a vast territory. With the advancements in eCommerce, even the logistics industry is witnessing innovation and implementing technological support to cater to such high demands. And now it is possible for online buyers to track their consignment from the date of dispatch from the factory or warehouse till its’ delivery at the consignee’s address. The task of delivering shipments becomes even more strenuous during weather disturbances such as rainy season or when extensive areas get flooded and many bridges are damaged. Before the advent of the eCommerce industry, retailers sourced goods either from manufacturers or distributors. And now that we have a plethora of online shopping stores, the intermediaries cease to exist, leading to deals directly done between the supplier and end- user: C&F (clearing and forwarding agents), distributors, dealers, and retailers have no role in this direct selling process. With these intermediaries removed, eCommerce shipping has become an essential part of the supply chain management and emerged as a highly specialized service with the majority of them being managed by eCommerce companies themselves. 187 CU IDOL SELF LEARNING MATERIAL (SLM)
Logistics is a congregation of various processes such as inventory management, warehousing, packaging, labeling, billing, shipping, payment collection, return, and exchange. All these put together turn into an exigent task, that requires a full-proof strategy to be accomplished. Apart with these, logistics also requires thorough knowledge about territories, roads and road conditions, regulations regarding the movement of goods, and transport laws. The principal purpose of creating a logistics unit is much to deliver parcels much faster, safer, and more accurately. 11.5 HOW E COMMERCE LOGISTICS WORKS A logistics company functions in two directions: • Forward Direction – Distribution and delivery of goods to buyers. • Reverse Direction – Exchanging or replacement of defective, damaged or wrong shipments. Working in the Forward Direction 1. Receiving the order on an eCommerce store 2. Providing a payment option 3. Preparing inventory 4. Packaging the item 5. Preparing its invoice 6. Dispatching the order 7. Handing over the parcel to the courier company For an eCommerce company logistics in the forward direction involves receiving an online order, arranging for the item, packaging, preparing its invoice, arranging the payment, dispatching, and delivering the item to the customer’s doorstep. The time between receiving the order and its distribution depends on the availability of the material and location of the consignee. For specific locations, a separate delivery charge could be applicable From the time of dispatch until delivery of a consignment, it is the responsibility of the seller to notify the exact location of a shipment to its respective consignee through tracking SMS or email notifications. 188 CU IDOL SELF LEARNING MATERIAL (SLM)
Payment collection is essential for any eCommerce business owner, analogous to a retailer. An online retail company should have multiple payment options for better customer experience such as debit/ credit cards, bank transfers, and COD (cash on delivery). In a country like India where buyers are more comfortable with dealing in physical money, COD option is of utmost significance. Working in Reverse Direction In spite of the best efforts the possibilities of incorrect or damaged shipments cannot be ruled out. In such situations an efficient reverse logistics is essential. It is the responsibility of logistics to take back these defective or damaged materials and replace them with proper order that satisfies the customer within a reasonable time. A hassle-free exchange or replacement process goes a long way in building trust between the buyer and an eCommerce company. 11.6 SUMMARY ● Logistics is a supply chain process that helps E-Commerce businesses in shipping their products to the right destination. ● E-Commerce is referred to as conduct of business activities through internet. ● E-Commerce has been catalyst for enhancements and achieve great efficiency in areas like selling products, processing orders, tracking customers, providing customers with availability of stock, processing purchase order and invoices. ● With the advent of E-Commerce the logistic industry is witnessing innovation and implementing technological support to cater the needs of the same. ● A logistic company functions in two directions ● Forward direction, wherein goods are delivered to the respective buyers and reverse direction wherein goods are exchanged and replacement defective, damaged and wrong shipments are done. 11.7 KEY WORDS • E-Commerce – Electronic Commerce 189 CU IDOL SELF LEARNING MATERIAL (SLM)
11.8 LEARNING ACTIVITIES 1. List out the various activities carried out by a clearing and forwarding agent for export of goods. ___________________________________________________________________________ _____________________________________________________________________ 11.9 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is meant by the term E-Commerce? 2. What is meant by forward and reverse direction functions of a logistics company for an e-commerce business. 3. Briefly describe about evolution of e-Commerce logistics. Long Questions 1. Explain in detail how e-commerce logistics work. 2. What is meant by e-commerce and explain the importance of logistics for an e- commerce business. B. Multiple Choice Questions 1. ______________ is a congregation of various processes such as inventory management, warehousing, packaging, labelling, billing, shipping. a. E-Commerce b. E-business c. Logistics d. None of these 2. For an e-commerce company logistics in forward directions means 190 a. Distribution and delivery of goods to buyers b. Exchange and replacement of defective goods CU IDOL SELF LEARNING MATERIAL (SLM)
c. Both a and b d. None of these 3. For an e-commerce company logistics in reverse directions means a. Distribution and delivery of goods to buyers b. Exchange and replacement of defective goods c. Both a and b d. None of these 4. An ____ can interact between the organizational ERP and the shop floor, taking production orders from the ERP and allocating machines and labor to tasks or products a. ERP b. TMS c. MES d. WMS 5. ________ is software application that integrates multiple functional departments of a business. a. SAP b. ERP c. Both a and b d. None of these Answers 1) c 2) a 3) b 4) c 5) a 11.10 REFERENCES Text Books ● Simchi-Levi, D., Kaminsky, P., &Simchi-Levi, E. (2003). Designing and managing the supply chain: Concepts, strategies, and case studies. Boston: McGraw-Hill/Irwin. 191 CU IDOL SELF LEARNING MATERIAL (SLM)
● Monczka, R. M. (2009). Purchasing and supply chain management. Mason, OH: South-Western. ● Stock & Lambert (2001) Strategic Logistics Management. 4th Edition, McGraw Hill, New York, 70-89. Reference Books ● Raghuram G. &Rangaraj. N.,Logistics (2012 ) Supply Chain Management, Macmillan Publication, ● K. ShridharaBhat,( 2008 ) Logistics Management, Himalaya Publishing House, Mumbai, ● Bowerson, Donald J., David J.Closs and Owner K. Helferich,( 1986) Logistical Management, Macmillan, New York, ● Alan E. Branch,(2009 )Global Supply Chain Management and International Logistics”, Routledge, New York, ● MARTIN CHRISTOPHER, Logistics and Supply Chain Management, Pearson Education Limited, New Delhi, 2016 ● Excel Books Private Limited, Neha Tikoo, Logistics And Supply Chain Management,New Delhi, 2017 192 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 12 - USE OF SOFTWARE PACKAGES IN SUPPLY CHAIN MANAGEMENT Structure 12.0 Learning Objectives 12.1 Introduction 12.2 History of SAP 12.3 Integrating Business Components 12.4 SAP for small and medium sized businesses 12.5 Current releases of SAP 12.6 ERP system – A complete introduction 12.7 Introduction to SAP ERP system 12.8 SAP business suite 12.9 Supply Chain Analytics 12.10 Summary 12.11 Keywords 12.12 Learning activity 12.13 Unit End Questions 12.14 References 12.0 LEARNING OBJECTIVES After studying this unit, student will be able to ● Understand the importance of ERP software ● Remember the various types of SAP modules ● Analyse and select best ERP for an organisation ● Differentiate between types of SAP types 193 CU IDOL SELF LEARNING MATERIAL (SLM)
12.1 INTRODUCTION ERP for the Supply Chain Enterprise resource planning (ERP) software has been implemented by a large number of Fortune 500 companies in the last twenty years. The common database and real-time processing have allowed companies to benefit from reacting to situations in the supply chain that would not have been possible without ERP software. The market leader in ERP software is the German company, SAP. 12.2 HISTORY OF SAP The company was founded in 1972 and is now a market and technology leader in client/server enterprise resource planning software. They provide a set of comprehensive solutions for companies of all sizes and all industry sectors. At present SAP is now the third- largest software supplier in the world and delivers scalable solutions that enable its customers to implement industry best practices. The company's emphasis is constantly developing new products that allow their customers to respond to dynamic market conditions and help them maintain a competitive advantage. In 1979, SAP released its mainframe product called R/2. SAP dominated the German market, and in the 1980s SAP developed a broader market in the rest of Europe. In 1992, SAP developed the client/server application we all know now as R/3. This allowed SAP to bring the software to the U.S. market and within a few years, SAP became the gold standard for ERP software. 12.3 INTEGRATING BUSINESS COMPONENTS When businesses chose SAP as their enterprise application software, they identified the integration of the business components as a key advantage. Many other software companies used a best-of-breed approach and developed highly complex interfaces to integrate the separate software packages. Supporting and maintaining just one system rather than several systems with different hardware platforms has yielded a significant cost saving for companies. 194 CU IDOL SELF LEARNING MATERIAL (SLM)
12.4 SAP FOR SMALL AND MEDIUM-SIZED BUSINESSES SAP was originally developed as an enterprise application-software package that was attractive to very large manufacturing companies. As the number of companies adopting SAP began to grow, several smaller companies in many different industries came to believe that SAP was the product that could give them a competitive advantage. Many of these companies required just the core SAP functionality. That usually comprises of finance, production planning, sales and distribution, and materials management. Often companies would start their implementations with this core functionality and then on the second and third phases of their implementations, they would introduce functionality such as product costing, warehouse management, human resources, plant maintenance, and quality management. 12.5 CURRENT RELEASES OF SAP The release of the SAP software—rolled out at the end of 2005—is called ERP Central Component (ECC) 6.0. With this release, SAP announced its plan for future releases dubbed “innovation without disruption. \" The upgrade cycles are minimized but some enhancement packages will continue to be released over the lifecycle of the product. As an example, to be responsive to user demands, the firm released the Enhancement Package (EHP8) in 2016. In addition to the core SAP software, the company has introduced specific software for processes such as Customer Relationship Management (CRM), Supply Chain Management (SCM), Product Lifestyle Management (PLM), and Supplier Relationship Management (SRM). SAP software is designed to allow your company to ship your customers what they want when they want it. And when fully optimized, inventory and lead times are managed so that you're accomplishing this by spending as little money as possible. What Is ERP Software? ERP stands for Enterprise Resource Planning (ERP). ERP is a software application that integrates multiple functional departments of a business. 195 CU IDOL SELF LEARNING MATERIAL (SLM)
ERP uses techniques and concepts of integrated management and enables effective management of business processes, operations, and resources. ERP implementation improves efficiency in the overall organizational operation. Figure:12.1 ERP AND SRP of 12.6 ERP SYSTEM – A COMPLETE INTRODUCTION An ERP system uses multiple components of the computer software and hardware to create an integrated management system. A key ingredient of most ERP systems is the use of a single, unified database to store data for various system modules or processes. Examples of ERP include SAP, PeopleSoft, Oracle E-Business Suite, BAAN, etc. Why Do Businesses Need An ERP Software? Until recently most of the companies had an un-integrated organizational operation. Un- integrated systems support the operations of a single functional area only. Thus, a company would have stand-alone systems to manage production, sales, and supply chain, each with its own hardware, software, and methods of processing data and information. For Example, the purchasing department gave purchase orders without having up-to-date information on the available stock. 196 CU IDOL SELF LEARNING MATERIAL (SLM)
However, to survive in today’s competitive market, companies need to have an integrated system, which would enable decision making based on real-time information. 1) Oracle NetSuite Oracle NetSuite has an ERP solution that can streamline mission-critical processes. It has features and functionalities that will give you clear visibility and control over the business, from financials to supply chain management to billing & beyond. You can get Oracle NetSuite Free Product Tour. Features ● Oracle NetSuite provides robust financial management with built-in business intelligence. ● It offers intuitive planning, budgeting, and forecasting solution. ● It provides the features of Order Management that will accelerate the order-to-cash process. ● It provides the features for Production Management, Supply Chain Management, Warehouse & Fulfillment, and Procurement. An ERP System ● Considers the entire organization as a system and the departments as the sub-systems. ● Stores all organizational information centrally, so as to make it available to all the departments. ● Maintains transparency across all the departments by ensuring that the company moves towards a common goal. 197 CU IDOL SELF LEARNING MATERIAL (SLM)
Figure 12.2 unintegrated and integrated system Conventional Packages Vs ERP Enlisted below are some of the differences between conventional packages and ERP. Features Conventional Packages ERP Business Can handle individual process of Can handle the entire business Process the organization. process of the organization. Database Each process has its own database Centralized database system that and is not connected with each can be accessed across the other. processes. Multitasking Not Available Provides all the three features. Multi- lingual Multi- 198 CU IDOL SELF LEARNING MATERIAL (SLM)
Capacity Ability to None Can adapt version upgrade with Adapt minimal customization. Enterprise Resource Planning (ERP) Modules Given below are the common & basic modules of ERP that can be found in any ERP System. Depending on the needs of the organization the required components are integrated & a customized ERP system is formed. All the below-mentioned modules can be found in any ERP system: ● Human Resource ● Inventory ● Sales & Marketing ● Purchase ● Finance & Accounting ● Customer Relationship Management(CRM) ● Engineering/ Production ● Supply Chain Management (SCM) Figure 12.3 ERP SYSTEM 199 CU IDOL SELF LEARNING MATERIAL (SLM)
Each component mentioned above is specialized to handle a defined business process of the organization. Commonly Used ERP Software ● Microsoft Dynamics AX ● SAP-ERP ● Oracle E-Business Suite ● Sage ● ERP Next ● SAP S/4 HANA ● ERP 5 Advantages of ERP Software ERP system provides several business benefits to the customers. A couple of major business advantages are listed below. Implementation of ERP helps the organization to: 1. Improve business performance by: ● Working towards common organizational goals. ● Reducing business process cycle time. ● Increasing operational and business agility. ● Achieving key performance indicators. 2. Improve business growth requirements by providing new: ● Products ● Product lines ● Customers 3. Improve responsiveness across the organization by providing flexible, integrated, and real-time decision support. 200 CU IDOL SELF LEARNING MATERIAL (SLM)
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