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Lecture 30 : Supply Chain Drivers — Transcript

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0:01[Music]
0:22[Music]
0:26so hello dear friends welcome back to
0:28nptl online course on Logistics and
0:30Supply Chain management so in the last
0:32session we started discussion on supply
0:35chain drivers and we discussed how we
0:38can you know uh change these drivers and
0:41then the whatever supply chain
0:44capabilities we want to develop in terms
0:46of either uh cost efficient supply chain
0:48or responsive supply chain so then we we
0:51can see how these drivers will impact
0:54your maybe responsiveness of the supply
0:56chain or the efficiency of the supply
0:58chain right so then we discussed about
1:01uh The Matrix related to each driver we
1:04discussed in detail your Logistics
1:06drivers today we'll uh discuss about the
1:09cross functional drivers uh that those
1:11cross functional drivers are sourcing
1:13pricing and information so we'll start
1:17with the information so if you see
1:20information is a kind of driver which
1:23will affect your all other drivers
1:26having said that that means if you have
1:28accurate information you know where you
1:31should locate your facility where you
1:33should locate your uh warehouses right
1:36where you should locate your
1:37manufacturing facility where you should
1:39locate your assembly lines right so that
1:41is kind of information because if from
1:44particular Market you are getting orders
1:46in bulk so obviously you should be near
1:49to that market how you can expand other
1:51market so this is one how information is
1:54affecting your facility location then
1:57talking about effect of information on
1:59Logistics activities obviously how much
2:02you will ship right from which point to
2:04which point you are going to ship so
2:06that what is going to be the uh quantity
2:09in each shipment then what is the
2:11capacity of the container who is
2:13carrying that shipment right so all
2:15those decision again you require
2:18information and then it will affect then
2:20talking about sourcing from where you
2:22should Source your raw material or sub
2:25assemblies again you need to process
2:27whole information related to all the
2:29available vendors suppliers you need to
2:31collect information as per their
2:34capacity as to their capabilities their
2:36skills their quality the quantity they
2:39can produce the coverage the industrial
2:41relation of that particular supplier all
2:43those parameters you will record in
2:46terms of information and then again you
2:48will make the decision talking about
2:51pricing how this information will affect
2:53pricing see when you have excess
2:56inventory in the market how you can
2:57consume that obviously you will come
2:59with with the some seasonal offers or
3:01you will come with some to consume extra
3:04inventory you will come with some maybe
3:06concessional rate you are providing to
3:07the customer so that you can ensure the
3:09consumption of that excess inventory in
3:12the market when you are maybe stock out
3:15in the market most of the time maybe
3:17there is interruption in the supply or
3:19there is sudden increase in the demand
3:21how you can again mitigate you will
3:23raise the prices of the product so that
3:26rationing can be done in that way so
3:27then again how you will get this
3:29information again this information
3:31driver is playing important role right
3:35so this is how this information driver
3:37will impact all other drivers talking
3:39about responsiveness or
3:42efficiency responsiveness is whenever
3:45your customer is asking for something
3:47how quickly you are responding this is
3:49in simple terms customer can ask in
3:51terms of so many different things in
3:53terms of variety quality price quantity
3:56whatever it is right so that again
3:58information so that means if you want
4:01responsive kind of supply chain quick
4:03information you need to share efficiency
4:06again how it will impact information
4:08will impact your efficiency parameter so
4:10warehousing capacity maximization how
4:13you can do that when you have exact
4:15information how much inventory you are
4:17storing what is the stock rotation rate
4:20and then how much inventory you can
4:22again consolidate there so many other
4:24functions you can perform within that
4:26during Transportation how many units you
4:29are transport uh transporting in one
4:30shipment so then again this is how the
4:33information parameter is going to affect
4:35your efficiency versus responsiveness so
4:39uh quickly we'll go through uh some of
4:42the parameters role of uh in the supply
4:44chain asset utilization so already I
4:48discussed about you will be able to
4:51utilize your resources properly
4:54resources in terms of equipment
4:56utilization rate in terms of warehousing
4:59utilization rate in terms of optimum
5:01route of the vehicle right
5:04Transportation during your
5:05transportation so those all things will
5:09happen only when you have realtime data
5:11information and you are processing that
5:14information so frequently so quickly
5:17that you can make the realtime decisions
5:19right coordination of the supply chain
5:22flows obviously supply chain flows
5:24either you are talking about your uh
5:26material flow you are talking about
5:28Finance flow you are talking about
5:30information itself right this will only
5:32happen when you have coordinated supply
5:35chain integration among all the players
5:38stakeholders in the uh complete supply
5:41chain then only you can ensure that
5:43procurement is happening on time
5:46whatever right quantity is required
5:48production will happen accordingly
5:49whatever demand is there and then that
5:51much inventory you will store near to
5:54that particular Market which you will
5:56again distribute as and when required by
5:59the customer customer increasing
6:01responsiveness quickly you are
6:03responding to customer requirement that
6:06means that can happen only when you are
6:08having the transparent supply chain the
6:11visibility is there any fluctuation
6:13coming from the outside market right
6:16because this is dynamic Market anything
6:18can happen at any time any change in the
6:21strategy strategy by your uh the
6:24competitors right so then again how you
6:27are responding quickly if customer is
6:29asking for some extra Services how
6:32quickly you are responding so then that
6:34will information how quickly you are
6:35sharing that will Define your
6:38capabilities to respond quickly to the
6:41customer requirements reducing cost
6:44obviously when I'm talking about let's
6:46say from point A we are traveling to
6:49point B when we have that information
6:51that this route is the best route as per
6:54maybe the traffic as per maybe the uh
6:58road conditions as per maybe the weather
7:01conditions as per maybe so many other
7:04parameters so that means when I'm having
7:06complete information I can reduce cost
7:09during Transportation as well then how
7:11much inventory I'm carrying in one
7:13container if still there is unutilized
7:16capacity can I utilize that capacity
7:19right inventory holding cost how much
7:22inventory ID I'm hold holding all the
7:25time can I minimize that
7:27inventory uh uh avoid ing the stockouts
7:30rate right so how much I can avoid if I
7:33can have that information if I am having
7:36that just in time of you know kind of
7:39system but that Justin time will work
7:41only when the material is required and
7:45you are supplying that material at that
7:46point of time right so for that again
7:49information is the key driver right
7:51talking about 711 old Walmart word giant
7:55you know retailers how they are doing
7:58this how they are utiliz ing they have
8:01uh uh you know invested use in setting
8:03up the information channels the only
8:06thing is why they are doing so so that
8:08they can ensure the product availability
8:10there is no stock out they can tap that
8:13all the parameters which are defining
8:15the function of demand and then they are
8:18ensuring the availability of the product
8:21for cross doing cross doing means you
8:23are consolidating orders coming from the
8:26large container and then you are
8:28segregating as per pin code wise let us
8:30say this is one example but then pin
8:32code wise you need to segregate you need
8:34to have that information how many orders
8:36from that particular Market from that
8:38PIN code right and from how many orders
8:41are coming from that particular seller
8:42so cross doing is purely purely a
8:46function of your information tool only
8:49right because there you are not uh
8:51keeping the inventory you are just
8:53making the temporary you know halt at
8:55that point and again sorting the orders
8:58right and optimizing sourcing decisions
9:01the best bendor you will pick and that
9:04best bendor you will Define based on
9:06what you will Define based on the price
9:09he's offering based on the quality he is
9:12offering based on the flexibility in
9:14terms of qu quantity right if you are
9:17asking for 50 unit he is ready to ship
9:19if you are asking 500 unit he is ready
9:22to ship right so that optimizing
9:25decisions uh also will help you to
9:27reduce the cost all right right so now
9:31we'll see the role of information in
9:33competitive strategy see when we are
9:35saying competitive strategy and I'm
9:37saying my competitive strategy is to
9:40provide the cost efficient product to my
9:43customer so then my supply chain
9:45strategy has to be in synchronization
9:47with the competitive strategy that cost
9:49efficiency that means responsiveness
9:52somewhere we will compromise but we'll
9:54not compromise with the cost right we'll
9:58work on how we can cons consolidate
9:59maximum moders we'll work on how we can
10:02utilize the economies of scales right
10:04those kind of Concepts where we can
10:06transfer the maximum units in as per the
10:10capacity of that vehicle who is carrying
10:12that uh units from one point to other
10:14point so that the per unit
10:16Transportation cost can be reduced right
10:18so we'll quickly see role in competitive
10:22strategy customer Centric approach
10:24having said that customer centering
10:26approach that means you are recording
10:28the information from the customer what
10:30are your requirements in terms of
10:33product features quality variety color
10:36all those things and then after sales
10:38Services what are going to be your
10:40requirement so providing those tailored
10:43services to individual customer that is
10:46customer Centric approach so your supply
10:48chain is responsible enough having you
10:51know sharing information throughout the
10:54you know that Network so that you can
10:56provide the customer Centric approach
10:58right and then investment in Information
11:00Technology see the uh online players or
11:04these Walmart or 7-Eleven we are talking
11:06about Amazon flip cart there they they
11:10have to implement this information
11:12technology Network very strong Network
11:14only then they can ensure visibility of
11:16all the transactions transaction in
11:18terms of the product you are shipping
11:21where is product right now now it has
11:23reached to this Hub right now it is out
11:26for delivery now customer has received
11:28it customer has processed for the return
11:31why he has processed for the return
11:33whether we are we need to again credit
11:36back to the customer so this all
11:38information you need to you need to
11:40process right and then we are using this
11:43information in the analytical tools for
11:46enhancing your decision making skills
11:49more information based decisions we can
11:51make coordinating for common goal like
11:54the example I coded if your supply chain
11:56is focusing on cost efficient right so
12:00starting from your raw material
12:01suppliers they need we need to
12:03communicate to the raw material supplier
12:05that this is the low cost product
12:07category right so somewhere you you need
12:10to be efficient efficient in terms of
12:12how many units we are making in one
12:14batch right efficient in terms of maybe
12:17the uh the material we are using so that
12:20we can reduce the overall cost efficient
12:23we are using the technology you know or
12:26the equipment to convert that raw
12:28material into the finished
12:29how we can reduce the overall cost but
12:32when we are talking about responsiveness
12:34so then responsiveness that that means
12:36even if individual order is coming to
12:38swiy swii is ready to process the even
12:42the single piece of Suite that is how
12:44they are advertising right so there the
12:47cost is not the main concern the main
12:49concern is your responsiveness but if
12:53swiigy is promising this but they are uh
12:56collaborating with the career Partners
12:58right who are making the delivery but
13:01delivery person is saying no because
13:02quantity is very less so he's not going
13:04to ship that so then what will happen so
13:06that means coordination should be there
13:09among all the players optimizing
13:11information sharing see this is also
13:13very important that information
13:15obviously will help you in making the
13:17improved decisions will help you to
13:19optimize the cost optimizing your
13:22activities resources utilization
13:24everything will be there but
13:26then are you in that process getting or
13:29collecting too much information and then
13:32it is in the end you are ending you are
13:34landing somewhere where you are full of
13:37information but then you don't know what
13:39to do with the information right if you
13:42additional information you are
13:44collecting and that is the cost is maybe
13:46let us say 5% extra you are spending on
13:49that right and then you are getting only
13:521% margin out of that by tapping that
13:54five uh that extra information you are
13:57spending 5% extra but the return is only
13:591% so that you need to you know make the
14:03trade off whether that excess
14:04information is going to help you or not
14:07there is one small case study Suns suet
14:10growers in California they they are
14:13actually uh dealing with the dry fruit
14:15market right so obviously this this is a
14:19seasonal product then and uh they are
14:21somewhere harvesting uh between
14:24September to October and the demand is
14:26also seasonal in that way and during the
14:29Christmas period they are experiencing
14:30the highest peak in the demand so how
14:33they are channelizing this they have
14:35channelized their production with the
14:39they have implemented this SN op sales
14:41and operation planning so they are
14:43collaborating with the sales team
14:45marketing team getting the exact
14:47quantity you know they need to process
14:50and they need to supply in the market
14:52and they are implementing early warning
14:54capability systems right which is you
14:57know if any fluctuation in in the market
14:59other than the routine uh seasonal
15:02demand if any other fluctuation right
15:05which may hike your demand or which may
15:07drop your demand both way so then they
15:09are coming up with the early warning
15:11capability kind of system so you can see
15:13production overruns they have reduced
15:16from 13 30% to 15% that means earlier
15:20they were producing 30% more now they
15:22are producing 15% less see how much they
15:25can save in that inventory processing
15:27cost and this because they are producing
15:30extra so then in the end you have to
15:32sell with the seasonal offers right so
15:35maybe at 50% lower price or 30% lower
15:38price or whatever right so they improved
15:40their forecasting as well by
15:42implementing this information system
15:44from 15 to 20% what are the component of
15:47information decision push versus pull we
15:50discussed about push supply chain is a
15:53kind of supply chain where we are making
15:54the forecast and pushing the inventory
15:57whatever we have made in the market
15:58right pull is based on means kind of
16:01reactive process we'll record the
16:04customer order first and then we'll
16:06start processing the order both way
16:08whether you are going for forecasting
16:10first or you are going to record the
16:12customer information then you will
16:13provide the customized product in both
16:16way you need the information system
16:19right and then we discussed in that
16:21session that where you should set up
16:23your push pull boundary right that is
16:25very important that you need to set Push
16:28Pull boundary maybe up to procurement
16:30cycle you are setting the push boundary
16:32right push cycle you are implementing
16:34after that you are including the pull
16:37process right so that means maybe
16:39somewhere in manufacturing you are uh
16:41doing the push process and after
16:44manufacturing replenishment cycle or
16:46customer order cycle you are handling
16:48with the pull process if any demand is
16:50coming from the particular Market only
16:52then we'll replenish the inventory in
16:54that particular market so then again how
16:57you will decide that that this
16:59particular Market need you know product
17:02right now again your pushpull uh
17:04information system will provide you that
17:07information right coordination and
17:09information sharing lack of coordination
17:13can lead to inefficiencies lows in
17:15supply chain Surplus in terms of there
17:18is no correct information sharing with
17:19the suppliers they produced excess
17:21inventory no production overrun is there
17:24right so that means there is a lack in
17:27the sharing of the information so
17:29correct information should be shared so
17:31that your raw material supplier should
17:33also process the same inventory because
17:36in that way your supply chain is
17:38efficient only when all the stakeholders
17:40are
17:41efficient sales and operation planning
17:44already we talked about that you connect
17:47your sales with the operation and then
17:49whatever is the requirement from a
17:51particular Market only those many things
17:53you are implementing enabling
17:55Technologies now we are having
17:57enterprise resource planning material
17:59resource planning Advanced analytics
18:00cloud-based platform which are you know
18:03helpful to utilize your whatever
18:07capacity resources you are using in more
18:09efficient way like we talked about in
18:11Warehouse session we talked about how we
18:14can have the automated Warehouse system
18:16where automatically robots are managing
18:18all those system and we can be in that
18:21way stock rotation can be ensured and we
18:24can ensure that no inventory is going
18:26obsolete with the help of this
18:28enterprise resource planning how many
18:30resources are lying idle at particular
18:33point we need to tap those resources how
18:35we can utilize if we are not utilizing
18:38can be Outsource or can be you know give
18:41those resources on rent to some other
18:43vendor who who may be you know utilize
18:45at that time so that we can keep in mind
18:49what are the information related matrics
18:51which the performance parameters which
18:52we are talking about uh related to each
18:55driver so uh with respect to information
18:59forecast origon this is very important
19:01for how longer period you are
19:03forecasting if your lead time is higher
19:06than your forecasting let's say you
19:08forecasted that tomorrow this is going
19:11to be a demand but you said 50 quantity
19:15right for tomorrow you forecasted 50
19:17quantity but lead time is maybe 3 days
19:21that means this forecast is only
19:24applicable for one day and your lead
19:26time is 3 days so this is not going to
19:28serve the purpose anywhere your
19:30forecasting or Reason should be from 3
19:33days to 5 days 5 days to 7 days so that
19:36whatever you are manufacturing you can
19:38ensure the consumption of the product in
19:40the market frequency of update how
19:43frequently you are updating your
19:44forecast if today you are forecasting
19:47for next one month in between how many
19:50times you are updating your forecast
19:52because maybe there can be change in the
19:54parameters right if there is any change
19:57you can flag those ch changes you can
19:59take the corrective actions and
20:01meanwhile you'll say okay we forecasted
20:03for 50 units but we are now uh maybe
20:07some other factors are there in the
20:08market and we need to produce somewhere
20:10around 30 to 35 units so that way you
20:13can reduce the extra inventory in that
20:15way forecast error is always there
20:17whatever you are predicting whatever
20:19actual demand at that time you can just
20:22find out the difference and that is you
20:23can measure the forecasting error so we
20:26have different forecasting techniques
20:27some qualitative techniques are also
20:29there we'll discuss in the further
20:31sessions right and we have quantitative
20:33DEC uh these forecasting techniques as
20:36well seasonal factors like we talked
20:39about that organization who is dealing
20:41with the dry Foods so seasonal spike in
20:44the demand is there that that can happen
20:46in any any product right if we're
20:48talking about fmcc kind of industry kind
20:50of mean saturated Demand right but if
20:52you are talking about let's say uh AC
20:55industry or product who are
20:56manufacturing fans ACS or or coolers so
20:59related to summer season is there right
21:01so there is always hike in the demand
21:04then VAR variance from the plan so
21:07difference between the plant production
21:09inventory and the actual values whatever
21:11is the variation right that depends upon
21:13the variability in your production
21:15capabilities if you PL for 50 units but
21:17you could produce only 40 units whatever
21:20may be the reasons either breakdown
21:22happened raw material supply interrupted
21:24Manpower absen ISM rate anything
21:27happened so but the variation is there
21:30ratio of demand variability to order
21:33variability that
21:34means demand and order you predicted
21:38demand maybe the actual demand also or
21:40you order for something like we talk
21:42about the WWI effect in detail where we
21:45said that the demand is coming maybe for
21:48from the uh retailer is for 50 units
21:50distributor put the order for maybe 75
21:53unit with the manufacturer manufacturer
21:55put order for maybe 100 unit from the
21:56raw material supplier raw material
21:58supplier maybe put order for 110 units
22:02for the uh the next level raw material
22:05supplier this is W whip effect right so
22:07that means if that is happening your
22:10demand is less and you you are placing
22:13order for more that that means this
22:15ratio will be less than one if it is
22:17less than one that means that you are
22:20not predicting accurately and will whip
22:22is there so information driver is
22:25helpful in capturing that bull whip
22:27effect right
22:30tradeoff obviously if you want to be
22:33efficient as well as responsive this
22:35information driver is going to help in
22:37both the way right risk you can handle
22:40in more better way because you are
22:43having prior information about the risk
22:45coming from the market complexity and
22:48cost obviously complex Market structure
22:51your product is all for itself is very
22:55complex you are having different
22:56variants different features different
22:59than targeted to different customers and
23:01then those customers are you know uh
23:04visiting different channels to get your
23:06product and services so in that way very
23:08complex Supply chains are there right
23:11marginal value this is what we talked
23:13about whether spending 5% extra on that
23:16information is you know giving you
23:19returns 10% more or only 1% extra return
23:22so that you need to find out crucial to
23:25assess the minimum necessary information
23:28obviously that much uh demand you need
23:31to process that only will happen when
23:33you have that minimum point of
23:34information maybe that is you are
23:36collecting from the point of sale where
23:38the final desk at uh where the billing
23:41all those things are happening and then
23:42you can find out the that information is
23:45there right so always trade off between
23:48complexity and value if you are
23:50collecting too much information will be
23:53complex but value how much you are
23:56generating right twoo less information
23:58then also decision because decision
24:00making is based only on your
24:02information now the fifth driver is
24:05sourcing and sourcing we have seen is
24:08getting you your raw material suppliers
24:11your co-manufacturer suppliers you are
24:13not uh you know in that way efficient or
24:16you are feeling competent so then you
24:18are thinking that let us Outsource to
24:21the third party so this first decision
24:23whether you are going to do it in-house
24:25or ouse Outsource that means to turn
24:28third party that is the decision first
24:30you are making under this supply chain
24:33strategy now if you want to be
24:35responsive right so somewhere in some of
24:38the I'm not saying absolute situation
24:40that responsive then always you should
24:42be in in house right but usually when
24:45you are going for efficiency you are
24:48Outsourcing and usually when you are
24:50going for responsiveness you are doing
24:52it inhouse but it is not absolute in all
24:55the cases I'll take the example let's
24:58say say you want to quickly respond to
25:02the uh let's say the example of swiggy
25:04swiy is saying that we are ready to
25:06deliver even one piece of Suite that
25:08means if third party is focusing the
25:12delivery partner is saying that minimum
25:14order this much should be there only
25:16then we'll deliver that means that
25:18responsiveness will not happen you have
25:20to set up your own delivery Network
25:22ensuring that that even the minimum
25:24piece that delivery you can process so
25:27that means responsiveness is not
25:29happening with the third party
25:31efficiency when you are saying
25:33efficiency uh usually I'm operating with
25:36the restaurant uh usually only 50 orders
25:39are coming or maybe sometimes 100 orders
25:41are coming so that much resources I
25:43cannot acquire and it is also very
25:44unpredictable let us Outsource to some
25:47career partner in that way I'll get the
25:49efficient Services because if I'm today
25:51delivering 50 orders I'll pay for 50
25:54orders if tomorrow I'll deliver 500
25:56orders I'll pay for 500 ORD so you can
25:58see there the efficiency can be managed
26:01right but when you are saying
26:02responsiveness and I'm saying that let
26:04us Expo U Outsource this particular
26:08activity to third party because DHL DHL
26:12career partner as a career partner
26:15quickly you are getting the services so
26:17that means their responsi is also
26:19increased their information system
26:21whenever you are shipping at any moment
26:23you can track the product so there you
26:25see the Outsourcing is adding to your
26:27responsib business as well so you can
26:30keep this concept in mind usually we are
26:32going for low coast country like Ika is
26:34doing for you know manufacturing the
26:36furniture they are finding the low
26:39Source Dell is what Dell is doing they
26:41are using you know efficiency supply
26:44chain also and responsiveness how they
26:47are sourcing from China to lower down
26:50the cost of the components but they are
26:52maintaining responsiveness by in-house
26:55production inhouse production and also
26:57they are interacting Direct direct ly
26:58with the customer recording their
27:00configuration and then providing the
27:02product so you see one end they are
27:04implementing responsiveness other end of
27:06the supply chain where they are getting
27:08cheaper product from China they are
27:10sourcing from China globalization
27:13obviously has given this concept uh has
27:17given opportunities to customers as well
27:19as the manufacturers right so in that
27:21way you need to make make the decision
27:23role in competitive strategy already I
27:25talked about how your sourcing will
27:28effect efficiency and responsiveness
27:30third part is sometimes we are using
27:32those corer Partners which are expert in
27:34that area right so then they will add to
27:37responsiveness but if it is costly how
27:40we are making usually decision that we
27:42should go for outsourcing or in-house
27:45this is Break Even analysis also you can
27:46use where maybe this is the fixed cost
27:49this is the variable cost somewhere
27:52let's say the total cost is this much
27:54this is the total cost which is
27:56combination of fixed Cost Plus variable
27:58cost and then this is your revenue or
28:02profit whatever you are saying revenue
28:04or profit so that means up to this
28:07point this is quantity on the x-axis
28:10here sales revenue or profit whatever
28:14you are recording you can highlight on
28:16the y- AIS now see up to this point that
28:19means if you will produce in house that
28:21will be you will be under losses right
28:25so after this point if your quanti
28:28demanded is more than this queue then
28:30you should produce inh house because
28:32then so this is how you are taking
28:34usually the Outsourcing decision so
28:36maybe then there is one vendor who is
28:39processing these kind of products doing
28:41sub assembly for other players as well
28:43you can also take the services of those
28:45vendor and then you can reduce the cost
28:48right so you can see how Zara we have
28:51discuss the Zara case where they have
28:53in-house as well as they have outsourc
28:56to put uh uh some countries like turkey
29:00or Bangladesh or Pakistan or Asian
29:03countries for getting the deliveries for
29:06those product where they are having uh
29:08you know uh higher lead time and they
29:10want to minimize the cost and products
29:13are also very exended but the products
29:15which are you know require uh quick uh
29:19change in the pattern or fashion they
29:21are processing all those products inh
29:24house in Europe only near to very that
29:27market where they are selling right so
29:29that is one example Cisco is also
29:31another example Cisco usually dealing
29:34with the uh your software products as
29:38well as Hardware also router and all
29:40those uh things right so computer
29:43accessories also they are selling so
29:45what they are doing they are maintaining
29:47efficiency supply chain for low-end
29:49products see this is how they are
29:51segregating for low-end products
29:53efficiency for high-end products which
29:54are of high value they are get they are
29:58uh offering responsiveness Services
30:00right so Cisco you can just go through
30:03in detail so they have Outsource almost
30:06all the manufacturing right sourcing
30:09strategy varies with the product type
30:10like we talked about high-end product uh
30:14will be uh uh under your responsive
30:17supply chain lowend product will be
30:20efficient supply chain so lowend product
30:22like rotors they are making for home
30:24networks so these rotors are packed in
30:27China bu order they are processing and
30:29then finally shipping those to United
30:32State right so they they are saving the
30:34cost but for high-end product what they
30:37are doing they Outsource to contract
30:40manufacturer in United States only
30:43because these locations are not cost
30:46efficient high cost locations are there
30:49but then in that way because you are to
30:51near to the End Market you are getting
30:53more responsiveness components of
30:55sourcing decision you should produce
30:57inhouse Outsource already we talked
30:59about Break Even analysis you can use
31:01supplier selection how you will select
31:04the supplier based on different criteria
31:07maybe the capabilities of the suppliers
31:10skills of the suppliers maybe the cost
31:12he's offering price in terms of price
31:15maybe the quality level he is offering
31:17maybe his experience in that particular
31:19product field right maybe the quantity
31:22he can offer to you maybe the Lots he
31:25can offer you delivery schedules he is
31:28offering you right all these parameters
31:31you will see track for that particular
31:33vendor and then you will select the
31:36particular vendor procurement then also
31:38your procurement is if now you are
31:40acquiring the goods and services from
31:42your vendors will Define how many uh
31:46Lots you will process in each month each
31:48week and then what will be the load
31:50quantity and maybe if different segments
31:52of the products are there how you'll
31:53take that decision sourcing related
31:56Matrix quickly will go through what are
31:58the performance parameters if you'll see
32:00sourcing days payable
32:02outstanding when you are transporting
32:05the product and when you are getting the
32:07uh returns means paid when you are
32:09getting paid by the customer that
32:11customer can be retailer for the
32:13distributor distributor for the
32:15manufacturer right in that way average
32:17purchase price throughout that period
32:20from day one to day 30th in that month
32:23maybe you purchased five Lots quantity
32:27in each lot is maybe different right so
32:29maybe then in one lot you put you
32:32purchase 10,000 item in other lot you
32:34purchase 50,000 item so you will just
32:37see what is the average price whether
32:39you negotiated for this large lot so
32:43this is you need to track if you are
32:44placing order in bulk you should be able
32:47to negotiate Supply quality different
32:50parameters on sampling bases you are
32:52checking whether the quality of the raw
32:54material coming or the finished good
32:56coming is okay or not Supply lead time
32:59how much lead time is there so if
33:01usually if your suppliers is taking long
33:03lead time after placing the order that
33:06means he is not responsive he may be
33:08working on the efficiency and
33:11wice fraction of time on time delivery
33:13this is what I talked about when you you
33:16are picking the supplier if you placed
33:1810 orders in that last month how many
33:21orders were delivered on time as per
33:24schedule if he promised within one day
33:26delivery 24 hour how many were delivered
33:2920 in within 24 hours range of the
33:32purchase price again within that
33:35whatever quantity you purchased and then
33:38is there any relationship with the price
33:39if you're placing higher order higher
33:41quantity whether you are getting the
33:43reduced price or not supplier
33:45reliability in terms of variability in
33:48the lead time in the quality in the
33:50quantity sometimes be placed order for
33:5350,000 item he only supplied 30,000
33:55items because there is you know he's
33:58struggling with the managing the
33:59capacity with the breakdowns with the
34:02equipment getting their raw material and
34:04all those things right so that is
34:06supplier reliability overall tradeoff if
34:08you'll see supply chain Surplus
34:11maximizing total Surplus this will only
34:13happen sourcing will help you to reduce
34:16cost and in we have discussed whenever
34:19we are going for sourcing the first very
34:21basic purpose is that you are looking
34:23for lowc cost supplies and second is you
34:25are looking for expert Services because
34:28those Outsourcing partners are expert in
34:31that field right and then Outsourcing
34:33considerations you can discuss all those
34:36points whatever the points when you are
34:38going for outsourcing picking the
34:40partners those things the last driver is
34:43pricing now this is the driver which
34:45will affect all other things if you are
34:48lowering down the price demand will
34:50increase that means more product
34:53suppliers need to supply your
34:55manufacturing capacity you need to
34:56process more more then your distribution
34:59channel will feel little burden because
35:02like we talked about during big billion
35:04days or those kind of seasonal offers
35:06then there is huge demand 30 35% hike in
35:10the Demand right so how that that
35:13pricing only playing role right and when
35:15you are struggling with getting the raw
35:17material then you can increase the price
35:20so that customer will buy in less
35:22quantity and but there are some reasons
35:24where even there is fluctuation uh maybe
35:28that is only that is created in the
35:29market kind of panic buying that
35:31customers are buying in quantity but
35:33actual that demand is not there but
35:35still they are buying maybe next 4
35:37months they will not come again to buy
35:39the again that product right so this is
35:42the role by pricing determining Revenue
35:45obviously the pricing whatever strategy
35:48you are picking different pricing
35:50optional marginal pricing of optional is
35:52this
35:53psychologic pricing is there then
35:56competitive pricing is there so many
35:58different pricing options in marketing
36:00we usually study right but here the
36:03point is whatever you are picking will
36:05Define your Revenue right and this is
36:08the tool we are using to match the
36:10demand and Supply like I quoted if you
36:13are Having excess demand you increase
36:16the price if you are Having excess
36:18Supply you decrease the price people
36:21will buy in bulk right and then impact
36:24on demand usually you can see when you
36:26will lower down the price there will be
36:29hike in the demand strategic positioning
36:32how you are putting your price like uh
36:35you can
36:36see uh if you are lowering down the
36:40price that means your strategy is to
36:42fetch the customer based on the pricing
36:44right there may be another point that
36:47customer usually think that if it is
36:49lowc cost product maybe the quality is
36:52somewhere compromised but when you
36:55actually use that product and you see if
36:57you is comparable and then also you are
36:59providing at low cost there are certain
37:01markets right if you are talk talking
37:03about high status product then they are
37:06not competing at cost right if we're
37:08talking about the routine item fmcc kind
37:11of industry then usually they are uh
37:13competing on their strategic Position
37:15will be defined by their costing your
37:18their pricing strategy segmentation and
37:20targeting like I talked about PNG is
37:22coming up different products in
37:24detergent only they are having in soap
37:26only they are having having multiple
37:28products one is coming with very low
37:30cost other is coming for the medium type
37:33of Industry uh Market next one is coming
37:36for the uh top market right so pricing
37:39strategy is being done as per that and
37:41obviously there are certain uh compromis
37:45uh if you are talking about with the
37:47quality of the product as well because
37:49that cost you are you know paying for
37:51that so balancing efficiency and
37:55responsiveness so efficiency means if
37:58you want to lower down the price
38:00efficiency means you have to be cost
38:02effective right so responsiveness then
38:05you are not bothering about the pricing
38:07but you are going highest level of
38:10innovation providing the latest services
38:12to your pro uh customers so in that way
38:15you can charge high on that right
38:17customer differentiation usually Amazon
38:20is doing that they are having different
38:22types of customers and I have included
38:24one case study on Amazon we go through
38:27that
38:28this is the case study if a customer is
38:30purchasing two B uh books $30 is the
38:33price and they are asking for standard
38:35shipping right so uh it will be shipped
38:39in 3 to 5 days at a cost of maybe $5
38:43somewhere two day shipping they are
38:45asking maybe then cost will be $13 or
38:48$14 if they are asking for one day
38:51shipping cost will be $22 more than $22
38:55if they are saying that routine delivery
38:57then maybe it will be shipped within 15
38:59days but you will get the free shipping
39:02so this is how see that you want extra
39:05Services quick Services you need to pay
39:07little higher responsiveness but then
39:10this responsiveness is putting very high
39:12degree of uncertainty on Amazon supply
39:15chain right so anytime that order for
39:18same day delivery can come so how you'll
39:20keep that promise obviously you are
39:23charging high for that but then
39:25delivering product is also another
39:27challenge right so this you can see for
39:29different segments how they are
39:31preparing components of pricing decision
39:35economies of scale lower down the cost
39:37you can lower down the price as well
39:39everyday low prices versus high low
39:41pricing everyday low pricing means now
39:44you are saturated you are well aware
39:46about the market you can go with that
39:48right high low pricing means if price is
39:51high maybe cost will be less uh your
39:53demand will be lesser if you are
39:56reducing the price so then there will be
39:58you know coming up uh sudden spike in
40:02the demand and you need to provide that
40:04so this depends upon what type of model
40:06you are fixing right fixed price versus
40:09manual price uh pricing again you can go
40:12for Amazon if fixed price is there
40:14whether uh maybe uh extended delivery
40:17will be there so that much will be
40:19charged manual pricing as per they have
40:21done so if you want same day delivery
40:24two days delivery or whatever so they
40:26have done that pricing related Matrix
40:28quickly we can go for profit margin how
40:31you are setting up your profit margin
40:33this will be defined margin type you are
40:35talking about gross margin whatever is
40:38coming after reducing the cost of
40:40operation of good or net margin profit
40:42after reducing the cost as well as the
40:45operational cost but in gross margin we
40:47are only taking care of the cost of
40:49production of that Goods right scope SKU
40:52product line division entire form now
40:54why this is we are doing this pricing we
40:56are doing
40:57depending upon the type of the product
41:00scope or customer we want to find out
41:03those 20% of the customer who are almost
41:06contributing towards 80% 8020 rule 80%
41:09of your profit right we need to find out
41:12those 20% of the product see maruti
41:15Suzuki have different products but all
41:17are not equally contributing so if they
41:20have different 30 models maybe top 20%
41:23are contributing 80% of their profit
41:26maybe some of our running under losses
41:28as well right so if another example if
41:31I'll take from credit card industry if
41:34any bank is offering you credit card and
41:36always you are paying your amount on
41:39time that means you are never seeking
41:41for loans which They are promoting
41:43through credit card right so if you're
41:46not never you have taken loan since last
41:495 years you are a cost to my uh company
41:52right because I'm not getting any
41:54Revenue out of you this is extra cost
41:57I'm providing you the card I'm providing
41:59you all those Services I'm paying your
42:00vend all the vendors from where you are
42:03buying so that I need to find out these
42:05many customers are not adding anything
42:08to my profit margin that's why this
42:10analysis is done Day sales uh
42:13outstanding means how much time it will
42:16take from your customer to get back your
42:18money right when you uh deliver the
42:21product and services and when you are
42:23getting the uh payment incremental fixed
42:26cost per order and incremental variable
42:29cost per unit if extra one unit you are
42:31producing what what fixed asset uh
42:35investment you need to make and if extra
42:38one unit you are making what is the
42:40variable cost right so fixed cost in
42:43terms of uh maybe infrastructure you
42:45need to develop to you know uh maybe
42:48extra machine you are installing and
42:50then that order is for only for some
42:53period of time so what you will do with
42:55that extra fed cost variable cost maybe
42:59if you are manufacturing 10 cars you
43:02need 50 tires if you are manufacturing
43:0420 cars you need 100 tires as simple
43:07this is variable with the units right
43:10average sale price throughout that
43:12period what is the average sale price
43:14some products may be same product you
43:17sold at the MRP some you sold at maybe
43:2150% lower cost because of excess
43:24inventory right so that you need to fix
43:26up average order size how much you are
43:30uh processing order in each lot that
43:32will help you to design your economies
43:34of scale range of sale price again will
43:37help you to Define what was the sale
43:39price R range of periodic sales how
43:43quickly you are coming with the sales
43:45what is the highest and lowest sales qu
43:48quantity in terms of either you are
43:49talking about day Wise week- Wise or
43:51month-wise it will help you to find out
43:53again whether there is any relationship
43:55when you lower down the price or you uh
43:58increase the price with respect to sales
44:01right so tradeoff you can see quickly
44:05the S this uh pricing everyday low
44:08pricing means stable patterns pricing
44:12fluctuation demand fluctuation will be
44:14there so that again will put extra
44:16pressure on the distribution Network
44:18right so this is how you need to make
44:20trade of between these so now we can
44:23conclude that we need to take care these
44:26six
44:27uh drivers three your Logistics drivers
44:29facility Transportation inventory and
44:32three your cross functional drivers
44:34sourcing information and pricing and
44:36when you will vary these drivers from 1
44:39to 10 scale let us say your responsib
44:42and uh efficiency will be impacted right
44:46and when having said that that
44:47responsiveness will increase or
44:49efficiency will increase that depends
44:51upon which Market you are operating what
44:53are the requirement from the customer
44:55right so and that that way you need to
44:58change your uh all these drivers and you
45:00need to you can say manipulate your
45:02drivers in that way you can get the
45:05desired performance right so we'll talk
45:07about uh in detail in future sessions
45:09creating the Strategic fit we'll talk
45:11about in the next week we'll talk about
45:14how we can develop the strategy and we
45:16can fix all those drivers uh based on
45:19whatever strategy we are picking and
45:21then we can find out the best strategic
45:24fit for our organization so these are
45:26the ref es and uh thank you very much

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