Class 2

Class 2

Cost distribution in manufacturing firm

· 4% - Profit

· 21% - Logistics

· 27% - Marketing Cost

· 48% - Manufacturing Cost

TISCO – End to end owner (owner of all value added processes) – Integrated way of doing business

Dell – Configuring the supply chain – does not own every value adding activity

Dell

1) Mass Customization – Limited customization at affordable price

2) Standard components and customized finished products

3) Lean – No inventory (only after order is received, inventory is booked)

4) Outsourcing – Capital cost is reduced (by not starting vendor’s company)

5) Lead time reduction

6) Shorter supply chain, hence, commission is saved.

7) Small operating cycle (cash to cash cycle) – Payment received from customer first then payment is made to supplier.

8) Selling is on advance payment, but payment is done to vendors after 30 days

9) POS – Point of Sale – Customer tastes are known upfront

Repro (Vashi, Navi - Mumbai) – Earlier printing company, now makes CD for Microsoft company. If more than 24 hours, penalty points is generated to penalize vendor. (Customer gives order to Microsoft, who inturn passes it on to Repro Vashi who makes the CD and couriers it using Fedex courier. Repro and Fedex each has 24 hours to complete their task). Repro manages the inventory of CDs, not task of Microsoft. Prime aim of supply chain – Fulfill customer request, maximize value creation in supply chain.

Only problem with POS is data sharing with different partners of supply chain.

Supply chain is actually a WEB. Cost as well as profit is shared between company and its suppliers and distributors. Supply chain costs include inventory carrying cost (ICC), Warehousing Cost.

Managing supply chain is

1) Material flow forward (to consumer)

2) Cash flows backward (to manufacturer)

3) Information flow (in both directions)

For managing supply chain, one needs,

1) Velocity – Faster access

2) Visibility – For better information

3) Value – To meet customer expectations

Value Chain looks at how value is getting added whereas supply chain looks at how product is getting transported

Make to Stock –Ex -Grocery. Lead time to supply is very small. Customer do not wait to buy the item, customer may not buy the item as well. Manufacturer is at the mercy of the consumer. Here, the sale is pushed. Mass production method is adopted, produced in proportion to population. Sale is easily predictable. Example – Salt, commodities.

Make to Order – Only design is ready with some standard parts. Example – Suits. Lead time is high, customer should be prepared to wait. Very expensive, especially customized for customer. Example – Dilip Chabaria car, Taj Roof-top restaurant.

Assemble to order – Example – Jeans, Ikea, McDonalds, Subway. Lead time is less than make to order but more than make to stock.

Engineer to order – Design by customers, full choice to customer, highest customization, costliest. Example – Individual bunglow (depends on customer’s requirement), NASA spaceship etc.

Asian Paints – Slogan – We do not sell paints, we sell painted house. They only use 5 base colors. Use postponement technique to make finished products - by assembling final colors from the base color just before final assembly. Inventory came down from 14.5% to 6% because of postponement.