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Lecture 29 : Supply Chain Drivers — Transcript

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0:01[Music]
0:22[Music]
0:26hello dear friends welcome back to nptl
0:28online course on Logistics and Supply ch
0:30management so today we'll start our
0:32discussion on very important chapter in
0:35Supply Chain management that is supply
0:37chain drivers so we'll spend couple of
0:40session on this because this is very
0:42very important and we have six different
0:45supply chain drivers and we'll discuss
0:48in detail the each driver what is the
0:51impact on the supply chain of each
0:53driver how we can model that we can you
0:55know uh change that uh driver in a way
1:00that how it will affect the cost
1:01efficiency of the supply chain or
1:03sometimes can be the responsiveness and
1:06we'll talk about what are the different
1:07components under decision making when we
1:10are talking about facilities inventory
1:12Transportation what different types of
1:14uh decisions we are making and what are
1:16the components under decision making and
1:18we'll talk about some of the matrics in
1:21each of the uh your driver right so uh
1:26like supply chain drivers as the name
1:28suggest are the key point
1:30key drivers which is driving your the
1:32overall performance of the supply chain
1:35right but the thing now for next couple
1:38of sessions you will keep in mind that
1:41whatever we will do with these drivers
1:43they are going to affect your these two
1:46ends cost or
1:50responsiveness whenever you'll change
1:53anything in any driver it will affect
1:56either your cost scenario or responsive
1:58quickly I'll take one example and then
2:00we'll go with the we'll take different
2:02examples as we'll go with the the uh
2:05different slides let's talk about
2:08Transportation because it is one of the
2:10driver we have six drivers right uh
2:14inventory information facility
2:17Transportation sourcing and pricing
2:20let's only take for uh just quick
2:24understanding how these drivers will
2:26affect the cost and responsiveness let's
2:28say I'm taking Transportation I'm doing
2:31through air how it will affect it will
2:34add more to the responsiveness that
2:36means we are now responsive our
2:39transportation parameter we have set for
2:41the responsiveness so in that way we are
2:44quickly delivering the product to the
2:46customer but cost will be very high
2:48because we are using fastest delivery of
2:52the uh delivery mode right so this is
2:54how it will affect quickly we go through
2:57each this driver facilities what type
2:59typ of different facilities we are using
3:01we are using either manufacturing
3:03facilities or we are using the
3:06warehousing facilities right so at
3:09different location manufacturing
3:11facility raw material supplier they are
3:13also having manufacturing units right
3:16that will also be counted as
3:17manufacturing facility and then
3:19warehousing facility wherever you are
3:20temporarily storing doing the cross
3:22doing or you are storing the raw
3:24material those kind of stores can be
3:27considered another facilities so under
3:30this facility we'll see the design that
3:33obviously what type of product you are
3:35handling solid product large product
3:38shape items or maybe guesses product you
3:40are handling so that depends upon design
3:44capacity how much capacity is required
3:46depends upon again the demand from that
3:49particular location and where you will
3:51set set up your facility now uh if you
3:55want Speedy Delivery you will set up
3:57your Warehouse near to the customer
3:59already we discussed right but if you
4:01want to minimize the cost inventory cost
4:03you will keep the centralized uh
4:06facility and from there hent spoke model
4:08from where you will transport the
4:11product to the all the markets right
4:13this is about facility talking about
4:16inventory we are keeping inventory
4:18either raw material semi-finished good
4:20or finished goods keeping more inventory
4:23again will increase your cost
4:27but that will
4:30enhance your responsiveness as well
4:33because as soon as the customer is
4:35reaching your Warehouse or retail shop
4:39you can quickly meet the demand but the
4:42risk of getting that product obsolete is
4:45always there because you are keeping
4:47enough stock and then you need to
4:49minimize the carrying cost because if
4:51you're keeping excess inventory you are
4:54carrying storing Cold Storage are
4:56required so handling is also required
4:58stock rotation you need to ensure all
5:01those cost will be there Transportation
5:03already I talked about we have different
5:05mode of transportation either through
5:07air through Road through ship through
5:10train through pipelines whatever mod you
5:13will pick depending upon you will affect
5:15either your cost or fast delivery in
5:17terms of responsiveness right so that
5:20will also Define information this is a
5:23kind of driver which will affect the
5:25performance of all other
5:27drivers when you need to ship the
5:29product
5:30that information should be shared
5:32quickly how much you need to ship the
5:34product how much you need to keep the
5:36inventory where you should store in the
5:38warehouse right how much you need to you
5:41know uh Source from the uh raw material
5:44supplier this information throughout
5:47means integrate all the stakeholders all
5:50the activities throughout the network
5:52right so coordination and decision
5:54making will be done based on this
5:56particular driver that is information
5:59and then the fifth driver is sourcing
6:02then selection of suppliers then uh how
6:06much you will Outsource what whatever
6:08you are going to manufacture raw
6:10material what is the quality you want to
6:13buy how much lead time you are going to
6:15give to your vendors and what is the
6:18cost so obviously when you'll feed large
6:20orders like Walmart is doing to their
6:23vendors then you can negotiate on the
6:25cost right lead time you need to give
6:28reasonable lead time but that large
6:30order maybe then you need to keep the
6:31inventory so then again that will
6:33trigger the inventory cost right pricing
6:37now again what type of pricing policy
6:39you are opting in the initial uh
6:42sessions when we discussed about you
6:43know e-commerce Industries and we said
6:46that they are coming up with the big
6:47billion days Amazon Prime offers and
6:50then the suddenly the sales is
6:52increasing to 25 to 35% in some of the
6:56products your mobile home appliances
6:59sales increasing like anything so that
7:01means you are very unpredictable in that
7:05way how the sales pattern will behave
7:08right so suddenly you need to manage
7:10maintain the very high inventory but on
7:13the other hand what what Walmart is
7:15doing for this managing this particular
7:19component they are keeping this strategy
7:22everyday low pricing everyday low
7:25pricing means once as a customer if I'm
7:27entering Walmart store I know that this
7:29price is fixed and every day I'm getting
7:31the low price there is no hurry right so
7:34I need not to buy in bulk whatever you
7:36require you can buy that and then I need
7:39not to postpone my ORD because maybe
7:41after two months there will be sales and
7:44what in return Walmart is getting that
7:47they are getting very fixed orders fixed
7:49supplies so minimize they can minimize
7:51the inventory cost because in that way
7:54they are pretty sure about their uh this
7:56so you can just see how these six
7:59drivers we see in details will affect
8:02your performance and will add to the
8:04cost right so uh quickly we'll go
8:08through all these so as per Chopra and
8:11Mandel so they have divided these six
8:15first facility inventory and
8:16transportation as logistical drivers
8:19they are related to logistic activity
8:22where you are shipping your storing
8:24inventory you are producing right and
8:26these are cross sectional uh cross
8:30functional drivers which are you know uh
8:33different functional units you are
8:34touching so that depends upon the scope
8:37of uh these particular drivers right so
8:40what is the ultimate Target is whatever
8:42competitive strategy you are opting
8:44maybe your supply chain is say you want
8:46to be responsive whenever customer is
8:49placing the order you want to you know
8:50deliver the order quickly or whatever
8:53quality level he is expecting you want
8:55to deliver that quality whatever variety
8:57he wants you want to deliver all those
8:59feature whatever are there so your
9:01supply chain strategy should Target the
9:04responsive parameter right but yes you
9:08cannot be purely responsible and then
9:09you are selling maybe 5 rupees item in
9:12500 items you cannot convince your
9:14customer for that right so then you have
9:17to be little efficient but we have some
9:19status class product as well where you
9:22know you you are just saying that we are
9:24responsive we are the best those status
9:27product like BMW Mercedes
9:29those kind of players where they are not
9:32competing on cost right so cross
9:36functional versus Logistics driver cross
9:39functional involve collaboration and
9:41integration across different functional
9:44area within a company right all those
9:46sourcing pricing information these are
9:49cross functional drivers right so within
9:51a company they will integrate all the
9:54different functional units because
9:56information is required sourcing you
9:58need to do and then pricing Logistics
10:01drivers they are working you know with
10:04different stakeholders are involved in
10:06that not one company where you are
10:08taking care of the your facilities
10:10warehouses transportation and will
10:12Define how the final delivery will
10:14happen efficiently and timely right so
10:18key differences if we'll talk about
10:20scope cross functional drivers have a
10:22broader scope where we are encompassing
10:25all the aspects of supply chain from
10:27procurement to the customer end but
10:29Logistics ders will take care only your
10:32physical transportation of the product
10:34from one end to the other end if we'll
10:36talk about collaboration in terms of
10:38cross functional drivers across
10:41different department it will be there
10:43Logistics we have external partner
10:46collaboration right so impact cross
10:49functional drivers have more significant
10:51impact on the responsiveness and Agility
10:54how quickly you are sharing the
10:56information how quickly you are
10:58responding to Market Trends how quickly
11:00you are changing the pricing policies
11:02right how quickly you are responding to
11:04Big billion days your customers are
11:06responding to Big billion days right so
11:08that will help Logistics drivers
11:11primarily focus on efficiency and cost
11:15optimization so let's talk about now the
11:17very first driver which is uh facility
11:20already I talked about facility either
11:23the manufacturing facility or the stores
11:25warehouses where you are keeping the
11:27inventory right what will be role in
11:29competitive strategy already now we'll
11:32discuss all these drivers one by one on
11:35this cost responsiveness
11:40continum how will alter the driver from
11:45one end to other end and it will touch
11:47either cost efficient or
11:50responsiveness
11:51see this facilities decision impact
11:54supply chain performance by balancing
11:56the efficiency and responsiveness how
11:59centralized facility now it will reduce
12:03the responsiveness how because this is
12:05centralized Warehouse from where we are
12:08shipping the orders to all the markets
12:11like we talked about these all are
12:15markets
12:16right now from this Warehouse we are
12:20shipping to all the markets this will
12:23reduce the responsiveness because lead
12:26time will increase anywhere if I'll keep
12:28the order it
12:30will take time to record the order and
12:33to travel this much distance right
12:36because centralized wehouse is there
12:39okay so in that case responsiveness will
12:44reduce if you
12:46are going with this kind of model
12:49responsiveness will reduce but you will
12:52be cost efficient because instead of
12:55maintaining if you what can be the
12:57alternate alternate may be one warehouse
12:59for these three
13:02markets other Warehouse may be here
13:04serving these two markets third
13:06Warehouse may be here serving these two
13:08market now instead of maintaining
13:10inventory at one point we are
13:11maintaining inventory at three different
13:14locations those location facilities are
13:17required Manpower is required all those
13:20resources are required which which are
13:22you know maintaining the inventory
13:23within those facilities so in that way
13:26but you will be more responsive because
13:28you you are very near to the End Market
13:30customer is asking for the product you
13:32are quickly delivering the product but
13:34the inventory cost will increase right
13:36so this you need to keep in mind if
13:39we'll talk about Toyota and Honda they
13:41are more responsive how they are more
13:44responsive because they are opening
13:46local manufacturing facilities near to
13:48the markets many facilities near to the
13:51market now what are the benefits they
13:52are getting after opening the local
13:55facilities one is currency fluctuation
13:57if Indian markets they will not you know
14:00transport or export from India if they
14:03are Manufacturing in India to some other
14:05country because currency fluctuations
14:07are there always right trade barriers
14:09they don't want to go with that right
14:11then increase the responsiveness any
14:13change is required within Indian market
14:16we can do easily in Indian market the
14:18other models in the rest of the world
14:20can go smoothly right so that we can
14:23ensure the other best part of this Honda
14:27facility is they are Manufacturing in
14:29SUVs or normal car sedans in the same
14:32manufacturing unit so this ensure the
14:35high utilization of those manufacturing
14:38facilities right so this is the best
14:40example how they are managing their
14:42facilities now let's talk about
14:44components of facility decision when we
14:47are talking about the facilities what is
14:49the role role is capacity and
14:53flexibility capacity what type of you
14:56know Warehouse you will Design and how
14:58much will be the capacity how much you
15:00will you know store in that warehouse so
15:03then again if you are storing too much
15:05excess inventory stock out uh sorry your
15:08obsolete inventory will be there your
15:11inventory you can damage in the storage
15:13house if you are storing less inventory
15:15less capacity you can be stock out in
15:18the market flexibility how flexible you
15:21are with your manufacturing facilities
15:24that quickly something input is coming
15:26from the market and then you are
15:28amending your product changing your
15:30product design sometimes component
15:32sometime process design whether your
15:34manufacturing facility you want product
15:36focused or functional focused product
15:39focused is that let's say I'm producing
15:43fan so what will what I will do whatever
15:46related to fan assembly solding P PCV we
15:50are developing and then packaging
15:52everything we are doing inh house right
15:54that is a kind of you know product
15:56focused We'll add raw material at
15:59different stages at the last stage we'll
16:01get the output but functional focused is
16:05let's say I'm having one molding plant
16:07we I'm dealing with all the plastic
16:09parts now this molding plant will
16:13provide the plastic raw material to all
16:16the fan manufacturers fan manufacturer
16:19maybe hbls maybe flips maybe some other
16:22manufacturer right any manufacturer I'm
16:24just producing the plastic components
16:27that is molding plant I'm having that is
16:29functional focused cross docking or
16:32storage whether you are designing your
16:34warehouse for storing for some time some
16:37period or it is only small stoppage
16:39Center where the inventory will be shift
16:42from one container to other container
16:44maybe you are consolidating sometimes
16:46order sometimes you are segregating
16:49orders pin buys location buys and
16:51sending in different containers right
16:54then location where you will set your
16:57facility or either you are talking about
16:59your manufacturing facility or you are
17:01talking about your warehousing facility
17:04so some condition already we talked
17:06about if you are near to customer no
17:08need to explain again but you need to
17:11consider some of the factors what is the
17:12labor cost if you're setting up your
17:14manufacturing somewhere in Europe right
17:17maybe very high cost operational cost
17:20somewhere in nation countries maybe you
17:22can get cheap lb cheap resources in that
17:24term right infrastructure then maybe you
17:26are struggling with the infrastructure
17:28if you are working in Dev Nations you
17:31have all the access to the
17:32infrastructure parameters then text
17:34implication what is the text structure
17:36it is simplified very complex very high
17:39taxes so that also will help you to
17:41Define your location
17:45capacity keeping excess capacity you are
17:48responsive but then you are adding to
17:50cost keeping low capacity you are
17:53efficient and but you are not responsive
17:56because you may be stock out because you
17:58are keeping minimum capacity with you
18:01what are the facility related matrics
18:03the parameters which we are observing
18:05when we are evaluating whether a
18:06facility is you know doing well or not
18:09first is capacity what is the maximum
18:12capacity that facility can process if
18:15I'm talking about manufacturing unit how
18:17many units it can produce daily if I
18:20need to run in two shifts how many units
18:22I will get if three shifts how many
18:24units I will get can I go for expansion
18:27of the capacity those those parameters
18:29we'll consider utilization I'm having
18:32that capacity but how many times I'm
18:34utilizing right if you are you see if uh
18:39one truck is going from point A to point
18:42B and it can carry ton ton capacity but
18:44it is carrying only 8 ton so that means
18:47per unit cost will be little higher but
18:49if I'm carrying 9 ton per unit cost will
18:52reduce if I'm carrying 10 ton per unit
18:55cost will reduce further the same way so
18:58utilization if you are doing maximum you
19:01can reduce the per unit cost right but
19:04delays will increase with increase
19:07utilization how it will happen because
19:10let's say if you are uh making a model
19:13on one production line you need 50 items
19:15only but just to uh you know explore
19:18economies of scale you are producing 100
19:21items minimum in one goal to minimize
19:23the cost of production but then you are
19:25waiting to produce the B model right so
19:28that then delay will increase processing
19:31time setup time da time idle time
19:34processing time how much time is
19:35required to convert the raw material
19:37into finished one but it's not only
19:40always raw material if we are talking
19:41about the warehousing how much time you
19:43are taking to load the product how much
19:46time you are taking to Kit the product
19:49how much time you are taking to pack the
19:51product setup time whenever you are
19:54initially setting up the process
19:55changing the product how much time you
19:57are taking change over time right from
20:00one model to all second model you need
20:02to change some equipments right you need
20:05to change the raw material so then how
20:07much time you are taking down time how
20:09much time your process is down because
20:12of some breakdown in the equipment or
20:15maybe absentismo
20:17you or not idle time how much time you
20:21are just waiting idly just to you you
20:23don't have any order to process right so
20:26that is also if you are designing facil
20:28with over capacity obviously you will be
20:31baiting most of the time production cost
20:34per unit that directly affects how many
20:37units you are producing right if you are
20:39producing more units that productivity
20:41will be improved so per unit total units
20:44today produced and you can just uh
20:48divide the overall cost that cost you
20:50can include the material cost your how
20:52many Manpower was working on that day
20:55the equipment depreciation cost the
20:57facility you were using everything you
20:59can add in that and divide total number
21:01of units right so then you will get the
21:04unit cost quality losses I produced 100
21:08products but after inspection and all
21:11that I got only 95 okay items five are
21:15rejected because of different reasons
21:17some missing components not
21:20operational safety related parameters
21:22were compromised something right
21:25theoretical cycle time of the production
21:27this is the pure time we are considering
21:29that everything is going perfect way and
21:32how much time it is required to produce
21:34that product let's say to packet to uh
21:37packet one product you are you need
21:39maybe 30 seconds right so but in that
21:43time you are not considering the change
21:45over from one product to other product
21:47you are not considering something goes
21:49wrong with the packaging sometime
21:51packaging tape is finished do you need
21:53to change that is not you are
21:54considering so theoretical flow is the
21:57flow time is the minimum time to convert
21:59that product into finished one
22:02right actual average flow time now here
22:05we'll consider the delay also if that is
22:08happening right so then if we'll talk
22:11about flow time efficiency it will be
22:14ratio of
22:16your
22:17theoretical Flow versus your actual flow
22:21right so we'll try to come little closer
22:25maybe to
22:278.99 95 so maximum one we cannot have
22:32more than one right so flow time
22:35efficiency will help you to calculate
22:37whether the productivity is above 90%
22:4095% how efficiently you are converting
22:43the your raw material into finished one
22:46product variety then how many different
22:49product variety models you are offering
22:51so this is again if you are having
22:54different model offering in same product
22:57you are you know like we talk about
22:59automobile industry so if car
23:02manufacturer they are coming with more
23:04than 100 models right in the same
23:07product right so then they need to
23:09change over from one model to other
23:10model sometime they are changing color
23:12sometimes they changing engine capacity
23:14sometime they are adding airbags so many
23:17different way sometime petrol version
23:19diesel version all things you need to
23:21take care right so that will add volume
23:24contribution of top 20% that means 802
23:28tool we can apply we can find out those
23:3020 skus skus are stock keeping
23:37units these stock keeping units usually
23:41we have eight uh alpha numeric digit
23:45right we are using to code all those
23:48different products but if any product is
23:50having any variation let's say if you
23:53are keeping soap on your shelf right for
23:56selling if soap size is different then
23:59also the SKU number will change if the
24:02packaging is different then also flavor
24:05is different then also it will change
24:06right price is different then also will
24:08change color is different then also it
24:10will change so skus we are identifying
24:13the products we are identifying how much
24:15inventory is depleted how much inventory
24:18is left out so that we can again
24:19replenish the inventory so here we need
24:22to find out within our facility what are
24:24those 20% of skus which are adding it
24:2880% of the volume these 20 items we are
24:31Manufacturing in huge number demand is
24:34very huge that 80% Market is captured by
24:37these 20% item rest 80% of the items are
24:41only contributing 20% of the volume so
24:44we need to take care of these 20% of the
24:47items right average production batch
24:50size I talked about if you will produce
24:53more items in particular batch before
24:55change over will reduce your
24:57transportation cost but then we'll
24:59increase your inventory storage cost
25:02right so but yes you need to again make
25:04the balance how much you want to produce
25:06so that you can reduce the uh batch
25:10cost now we'll come to the second driver
25:12that is your inventory and inventory we
25:15are keeping why to manage the balance
25:19between supply and demand right so
25:22because we are unsure about your
25:24production we are sometimes unsure about
25:27the consumption cycle
25:28because 100% we are not sure so then we
25:31are maintaining the inventory right so
25:34that we can match the supply and demand
25:37exploiting economies of scale see when
25:40we are keeping extra inventory that
25:42means we are producing in bulk so first
25:45thing is when we are producing in
25:47bulk the production cost will reduce
25:50because economy is of scale second the
25:52transportation cost will also reduce
25:54distribution cost will also reduce
25:56because we are transporting in bulk it's
25:59not only one order is transported from
26:02magd to IIT kakur campus right I'm
26:06combining 10 orders so 10 pasas are
26:09going from one location to other so in
26:11that way we can enjoy the economies of
26:14scale right enhancing
26:18responsiveness if you are keeping extra
26:20inventory quickly customer is coming you
26:22can meet the demand but if you are
26:25keeping minimum inventory then you are
26:27recording the order like Del is doing
26:29they are providing you the customized
26:31product but if you want today only right
26:34now your product maybe then you need to
26:36buy the standardized product only if you
26:38want to configure then it may take one
26:41day two days lead time right so that
26:44will affect your responsiveness impact
26:46on cost and profitability obviously
26:49increasing inventory will your handling
26:52cost will be there and you are keeping
26:54that idle inventory with you right until
26:57you'll consume you'll not not get the
26:58money right so you need to consume the
27:00inventory as soon as possible in the
27:02market right so it will lower down your
27:04profit margin because anyhow any cost is
27:07deducting your profit margin material
27:10flow time material flow time is the time
27:13required from the entry to the exit
27:15Point usually we have this little law I
27:18is equal to DT right this inventory i t
27:24is your flow time and D is your
27:26throughput rate throughput rate is the
27:29rate at which the sales to End customer
27:32is happening so how frequently sales is
27:35happening will be reflected by your
27:37throughput rate right customer demand
27:40and throughput rate obviously more the
27:42customer demand is the more rate of
27:45consuming the final product so you can
27:47align your inventory levels with the
27:49demand of the customer and then you can
27:52you know save that excess
27:54inventory role in competitive strategy
27:58first is we need to Define where we will
28:01locate the inventory right how much
28:03inventory we will locate then if you are
28:05locating large quantity of finished
28:07goods near to customer obviously
28:09responsiveness will be very
28:11high but then cost will be also very
28:15high on the other hand if you are
28:17keeping centralized inventory so then
28:20you can reduce the cost instead of
28:22maintaining inventory at 10 different
28:24location you are placing inventory
28:26Central that's why I'm Amazon is having
28:29different hubs right so uh when you are
28:32placing order from kakur so finally it
28:35is coming to Kolkata Hub and from
28:37Kolkata Hub it is Distributing to all
28:40other hubs balancing cost and
28:43responsiveness then how much inventory
28:46you will keep at every level that will
28:48help you to define whether you you are
28:50cost efficient or you are responsive in
28:53that way Amazon best example very
28:56beautiful best they have segregated the
28:59books which they are selling into three
29:01category best selling books they are
29:04placing order with the regional
29:06warehouses where they have located their
29:08Regional Bas warehouses and quickly
29:10delivering the product high
29:12responsiveness for best selling books if
29:15books are you are slowly moving compared
29:17to best selling then you are stroking
29:20those uh books maybe far little away
29:25from the uh customer Cent ized location
29:29so that the overall cost of inventory
29:31can be reduced but if it is very slowly
29:33moving right very less demand then you
29:36place the order only once you are
29:38getting the order then only you are
29:40replenishing your inventory from the
29:43publisher or distributor so this is best
29:45example with respect to inventory
29:47components of inventory decisions so you
29:50can see product Eva availability is
29:53important point if you are keeping the
29:56inventory you are always is you know
29:59meeting demand that is fill rate we are
30:02calculating in inventory how many times
30:03you are filling the demand of the
30:06customer from the existing inventory so
30:09that depends upon you want to be stock
30:10out or not right but then the again the
30:14maybe the decision you need to model if
30:16I'll reduce the inventory 5% what will
30:18be the effect of on the stock out maybe
30:21I will be 5% stock out whether you are
30:24ready to uh take that chance to be you
30:26know 5% stock out or you don't want to
30:29so that let's keep 5% extra inventory
30:32cycle inventory how much inventory you
30:34are keeping to meet the usual demand
30:37cycle between these two if you are
30:40ordering between these uh two orders how
30:43much inventory you are keeping and that
30:45depends upon what is the average demand
30:47of that reason order quantity what is
30:49the lead time customers are expecting
30:52safety inventory what is the minimum
30:54level always you are maintaining with
30:56you so that if any unpredictable demand
30:59happens so then you can meet that right
31:02so that is safety inventory seasonal
31:04inventory that is for particular season
31:06only for maybe now the summer season is
31:09going on you will maintain inventory for
31:11that much period Then winter season will
31:13come so that much inventory you will
31:15keep right so inventory related
31:17practices or uh performance measures
31:21cash conversion cycle how quickly you
31:23are consuming or inventory in the market
31:27and receiving the the receivables cash
31:29right cash to cash cycle we are
31:31calculating it as cash to cash cycle how
31:34quickly you are getting the cash in
31:36return of consuming your product in the
31:38final Market average inventory always we
31:41talk about your starting inventory end
31:43inventory you add up and divide by two
31:46that is your average inventory you are
31:47maintaining you can not only record the
31:50inventory in terms of unit you are
31:52maintaining sometimes what we are saying
31:54okay we have two days stock left so that
31:57is days you are talking inventory in
32:00terms of days right if I'm uh having
32:05maybe 10 days stock so I'm little
32:07reluctant in that way to replenish the
32:09stock right because still uh maybe the
32:11replenishment will take five six days
32:13I'm having 10 days stock right Financial
32:16value I'm maintaining 10 CR inventory
32:18every day to meet the customer demand
32:21that is another measure to calculate the
32:22inventory seasonal inventory always we
32:25uh already we talked about right so you
32:28need to anticipate in that way so that
32:30you can meet those uh spikes in the
32:34Demand right inventory
32:36turnover cost of goods sold and total
32:40inventory you are maintaining average
32:42inventory you are maintaining so higher
32:44inventory turnover that means quickly
32:45you are efficiently you are rotating
32:48your stock in the Market Days of
32:50inventory
32:52outstanding so average inventory you can
32:55calculate it by dividing the average
32:57inventory by the cost of goods sold per
32:59day right a higher days of inventory
33:02outstanding indicates a longer time to
33:05sell in the inventory so that means you
33:08are not able to generate enough demand
33:11so you need to stop producing excess
33:14inventory May because you are not able
33:16to consume that average replenishment
33:19batch size uh whenever you are placing
33:22order with the manufacturer distributor
33:24how much units you are placing then
33:26again you are measuring all the skus you
33:29are keeping with you and then you are
33:31placing the order that larger batch size
33:34will help you to negotiate the price of
33:36the batch right average safety inventory
33:41average safety inventory how much you
33:43are keeping for units or number of days
33:45for two days I'm keeping the inventory
33:47maybe tomorrow again I'll go for that
33:49fill rate I was just talking about this
33:52is fill rate how many times you are
33:54meeting the customer demand from your
33:56existing inventory and how many times
33:59fraction of time you are out of stake if
34:02customer visited 100 times 98 times I
34:07have met the demand from existing
34:09capacity inventory that means I'm 98% is
34:13the fill rate and 2% is the stock out
34:16rate I could not meet that obsolete
34:18inventory how many times how much
34:20inventory is going
34:21obsolute uh in the stock only and we are
34:24not able to consume that that also we
34:26need to keep in in mind because that
34:29excess inventory we can manage so
34:32overall tradeoff with respect to
34:33responsiveness versus efficiency so
34:36obviously if we'll maintain the
34:39inventory near to customer we will be
34:41more responsive if we are keeping little
34:44away from the invent uh customer our
34:47inventory it will take more lead time to
34:50uh deliver the product but that will
34:52save the cost so these this is how
34:54inventory will touch these two points
34:57right so the third logistic driver is
35:01transportation again faster mode will
35:05reduce the lead time but will increase
35:08the cost and will increase the
35:11responsiveness because quickly you are
35:13delivering the product so that way you
35:15can either you are talking about train
35:17but train then shipping cost will be
35:19lesser but ship if you are talking about
35:22ship then the least cost option you are
35:25having but then that infrastructure is
35:27available or not that also you need to
35:29find out and end mile delivery also that
35:32cannot happen using ship right so those
35:34things we will uh take care when we are
35:36talking about the
35:39transportation what will be the
35:41influence on inventory and facility
35:43location see if you are using uh very
35:48you know want to uh utilize the full
35:51capacity of the container obviously you
35:54need to develop big size warehouses
35:57where you'll keep keep the inventory
35:59that that size you can keep right and
36:02then facility locations if frequently
36:04you are doing that then also it will
36:06affect the facility location decision
36:08right so faster Transportation method
36:10you can opt to reduce the inventory
36:13levels and enhance the responsiveness
36:15and this is Dell how they are using that
36:18strategy flying components from Asia
36:21right so this will increase the
36:25responsiveness responsiveness how
36:27because whenever you will visit uh dell
36:30showroom and place your order for the
36:32customized product the components will
36:35directly fly from the Asia and because
36:39the cost will be higher in
36:40responsiveness obviously will be higher
36:43but this cost you can compensate
36:46somewhere because you are not keeping
36:48extra inventory right so quickly you can
36:51purchase so that you can reduce
36:53inventory cost role in competitive
36:55strategy balancing respons iess and
36:59efficiency so obviously a competitive
37:02strategy if you want to compete on the
37:04speed of the delivery obviously you have
37:06to go by air the fastest mode available
37:09in that reason right if you're competing
37:12on efficiency so obviously you need to
37:15take care of the cost and Mild delivery
37:17let us do by cycle or let us do by
37:20electrical vehicle right so how we can
37:22reduce that cost right strategic
37:25adaptation if you are selling high value
37:28items then responsiveness is required
37:30right so high value items you cannot
37:33store near to customer because the value
37:35is very high an example is Blue Nile
37:37where this is online diamond store but
37:40what they are doing they they are you
37:43know uh they are ensuring the overnight
37:47delivery using FedEx and ensuring high
37:49responsiveness so in that way they are
37:52centralizing the diamond
37:55inventory so centralizing means
37:58inventory cost they are reducing and the
38:01other cost because Diamond industry is a
38:03kind of where you need to invest heavily
38:06on security parameters as well so that
38:08also instead of investing on security
38:12parameter at five different location you
38:14can just manage the security at one
38:16point and then you can manage that right
38:19so this is how you can uh minimize the
38:23cost right components of Transportation
38:25decision design of Transportation
38:27Network what is the mode location route
38:30rooting algorithm will help you to find
38:32out the optimal loot to minim minimize
38:34the cost right and then multiple Supply
38:37or demand points maybe you can include
38:41or you can means you can consolidate all
38:43the orders or you are going for single
38:44delivery 30 minutes delivery of pizza so
38:47then go for the single delivery as well
38:49choice of Transportation mode will
38:51affect yours again responsiveness C
38:55through air and then maybe
38:57uh if you are looking for reducing the
39:00cost then through C if available not
39:02available then Road or train maybe
39:05better option and then again depends
39:07upon the factors which mode you will
39:09pick speed shipment size cost or
39:12flexibility right Transportation related
39:15metrics quickly we'll go through all
39:17those points which we are counting when
39:19we are talking about evaluating the
39:22Transportation uh your driver average
39:25inbound transport ation cost so I always
39:29talk about that uh this average your
39:32trans inbound cost is always higher than
39:35the outbound Transportation cost that's
39:37why your manufacturing facility or
39:39assembling facility should be near to
39:41the market so that the outbound logistic
39:43distance can be reduced so average
39:45inbound Transportation cost how many
39:47units you are transferring raw material
39:49to your company so that you can
39:52calculate and we are usually reflecting
39:55it at percentage of cost of goods sold
39:58so that how much this inbound
40:00Transportation cost is uh sharing in our
40:03overall cost 5% 7% 10% what is the
40:07share average incoming shipment size
40:11whether we are buying in small loads or
40:13we are buying in large lot that will
40:15help you to Define your inventory
40:18practices as well then how much you can
40:20negotiate on your large orders right
40:23average inbound Transportation cost per
40:26shipment so same example if in one
40:29shipment you are transporting 10,000
40:32units so total cost may be 10,000 you
40:35can divide so then that will be per unit
40:39cost right total cost 10,000 divided by
40:4110,000 1 rupe but let's say still you
40:44are uh your transportation cost is
40:4610,000 only but this time you
40:48transported 11,000 units so then the
40:5110,000 divided by 11,000 units then that
40:54way your per unit cost will be reduced
40:57average outbound outbound means whatever
41:00is going away from your Market as uh
41:02your manufacturing unit right your final
41:05product you are shipping from your
41:07manufacturing unit to the End customer
41:09so that cost you are calculating so what
41:12is the average cost Transportation cost
41:14total because I uh already discussed
41:17that this cost is higher than the
41:19inbound Logistics so again measure as
41:22the percentage of sale this much cost
41:25your outbound Logistics is contributing
41:27towards the overall sales right average
41:31out shipment size how many units you are
41:33transporting right so that also whether
41:37you are going for economies of scale or
41:39you are processing the individual order
41:42average outbound Transportation cost per
41:44shipment one shipment how many units you
41:46are transporting you can divide the
41:48total cost divided by your shipment size
41:52and then economies of scale you can find
41:54out the percentage of that average
41:56outbound Transportation cost per
41:58shipment in the total sales fraction of
42:02uh fraction transported by mode so I'm
42:05using 5% maybe ship I'm using 20% Maybe
42:10by train I'm using 50% by Road I'm using
42:14rest of the part Maybe by air so this is
42:17how uh you can find out and then you can
42:20say that our mejor portion is going
42:22through air why don't we you know
42:25streamline that process and we'll go
42:27with the routine maybe using ship or
42:29train which is more you know cost
42:31efficient then you need to maybe set up
42:34location near to Market you need to
42:36figure your demand function in more
42:38refined way so that accurate information
42:40you can get right so then it will help
42:43you to reduce that
42:45cost overall trade of responsive versus
42:48efficiency so Transportation you can see
42:52will add to efficiency if you are
42:54working on economies of scale combining
42:57any orders and if you are individually
42:59processing the order will add to the
43:01responsiveness so if you want fast quick
43:04delivery through air you can go through
43:06drone you can make the delivery if you
43:08want you have lead time you can go by
43:11normal Transportation mode that will
43:13help you to reduce the cost right so
43:16this is all about your Logistics drivers
43:19in the next session we'll discuss about
43:22your cross functional drivers so these
43:24are the references thank you very much

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