Definition of Supply Chain Management

If you go to a Supermarket and pick up a few items of the shelf from electronics and white goods

or even clothes and look at the labels, chances are that you will find them having been

manufactured in China or Mexico. The coffee pods you buy to use for your every day use comes

from Africa. Computers have been shipped out of South American Factories and Soft furnishings

on the shelves are from India and Hong Kong.

Global markets are expanding beyond borders and re-defining the way demand and supplies are

managed. Global companies are driven by markets across continents. In order to keep the cost of

manufacturing down, they are forced to keep looking to set up production centers where cost of

raw materials and labor is cheap. Sourcing of raw materials and vendors to supply the right

quality, quantity and at right price calls for dynamic procurement strategy spanning across

countries.

With the above scenario you find companies procuring materials globally from various vendors

to supply raw materials to their factories situated in different continents. The finished goods out

of these different factory locations then pass through different chains of distribution network

involving warehouses, exports to different countries or local markets, distributors, retailers and

finally to the end customer.

In simple language, managing all of the above activities in tandem to manage demand and supply

on a global scale is Supply Chain Management. As per definition SCM is the management of

a network of all business processes and activities involving procurement of raw materials,

manufacturing and distribution management of Finished Goods. SCM is also called the art

of management of providing the Right Product, At the Right Time, Right Place and at the Right

Cost to the Customer.

Why SCM strategy is important for an Organization

Supply Chain Strategies are the critical backbone to Business Organizations today. Effective

Market coverage, Availability of Products at locations which hold the key to revenue recognition

depends upon the effectiveness of Supply Chain Strategy rolled out. Very simply stated, when a

product is introduced in the market and advertised, the entire market in the country and all the

sales counters need to have the product where the customer is able to buy and take delivery. Any

glitch in product not being available at the right time can result in drop in customer interest and

demand which can be disastrous. Transportation network design and management assume

importance to support sales and marketing strategy.

Inventory control and inventory visibility are two very critical elements in any operations for

these are the cost drivers and directly impact the bottom lines in the balance sheet. Inventory

means value and is an asset of the company. Every business has a standard for inventory

turnaround that is optimum for the business. Inventory turnaround refers to the number of times

the inventory is sold and replaced in a period of twelve months. The health of the inventory turn

relates to the health of business.

In a global scenario, the finished goods inventory is held at many locations and distribution

centers, managed by third parties. A lot of inventory would also be in the pipeline in

transportation, besides the inventory with distributors and retail stocking points. Since any loss

of inventory anywhere in the supply chain would result in loss of value, effective control of

inventory and visibility of inventory gains importance as a key factor of Supply Chain

Management function.

Information Technology - A Key Driver of SCM

Supply Chain Management is a broad based function which encompasses all business and

operational processes involved in but not limited to Procurement, Manufacturing, and Finished

Goods Transportation, warehousing & Distribution and Inventory Management.

In a globalized business scenario characterized by Geographically spread markets, raw material

procurement sources across the world and cheaper manufacturing and labor markets being

available in developing world, the business of meeting demand with supply is constantly

changing and evolving.

Global business has been fuelled and enabled by the IT Technology which has redefined

all aspects of business today. All businesses today are run on ERP - Enterprise Resource

Planning which provides the organizations with tools to manage all the functions including

procurement, production, sales and finance management in seamless and integrated manner.

These software systems like SAP, Oracle, People soft etc, have taken over and enhanced the

business processes which were traditionally being managed manually.

Demand planning, Forecasting, Global procurement management are some of the enabling tools

on which the Global procurement strategies are built and managed. The availability of these

sophisticated systems has further enabled companies to implement good and cost effective

manufacturing practices like JIT, Kanban, VMI etc.

Finished goods distribution, transportation and inventory management, besides sales process is

again driven by the various ERP modules combined with additional specific applications as

required.

ERP has enabled companies to manage their business processes in different markets and

countries under one common business process thus providing standardization and control.

The complex network of various processes, software platforms and applications and different

soft ware tools used by various vendors and agents in the entire chain drive the supply chain of

the companies.

E commerce has further redefined the way business is carried on. Online purchase has impacted

the way supply chains are organized and markets are driven. Customer behavior and preferences

are changing as online marketing is establishing a one to one contact with the customer and is

able to offer a personalized experience. The instant delivery of the information through internet

elicits immediate response and action from the customer. The sales lead time is rapidly

decreasing. The demanding customer therefore needs to be serviced immediately at the same

speed.

The internet technology has further opened up the geographical boundaries for the companies.

Any person sitting in any corner of the globe is able to purchase a product online at the click of a

button. The companies have to be well equipped with the logistics and supply chain network to

be able to service the customer.

When in a global scenario, goods and services move through multiple chains involving very

many agents including transporters, forwarders, customs, distribution centers, distributors and

lastly the retail outlets, availability of data, documentation and information becomes the lifeline

for the organization to be able to take decisions and ensure seamless processes and control the

supply chain.

IT is one of the most important enabler of the Supply chain in modern complex world of

Global Businesses.

Supply chain Management encompasses, planning, design, control and implementation of

all business processes related to procurement, manufacturing, distribution and sales order

fulfillment functions of a business.

All these activities involve multiple networks of vendors and service providers which are

integrated and co-coordinated by the Supply chain Experts of the organization to move raw

materials and finished goods from and to all distant locations across the globe.

Logistics is the backbone on which Supply Chains are driven. Logistics refers to management of

flow of goods and supplies involving information, data and documentation between two entities

or points. Logistics play important role in post procurement function of delivery of raw material

from the supplier to the point of production and Finished Goods Supply chain management from

the point of dispatch from factory to the point of delivery to the customer.

The flow of goods flows through a network of transportation by road, rail, air or ship and

intermediary warehouses to hold inventories before moving to the forward locations. The entire

activity involves multi tier suppliers, agents and agencies including freight forwarders, packers,

customs department, distributors and Logistics service providers etc.

Logistics therefore is an integral component of Supply chain Management.

Origin of Logistics as a recognized discipline is generally attributed to military and defense

organizations. Defense departments make use of detailed and extensive planning to gather

supplies and move men and materials to various locations and bases. The success of any military

exercise depends upon the ability of the establishment to be able to gather information, analyze,

assimilate and take appropriate logistical measures to continuously support their units.

Similarly in any business organization, the successful operations depend upon visibility and

control over the logistics process managed through and with excellent logistics service provider

backbone and network.

In many cases Supply chain is often referred to as Logistics and vice e versa. Though

logistics and supply chain are intricately linked, both do not mean the same. Logistics is a sub

component and extension of Supply Chain.

Supply chain design in an organization would detail, plan and strategize the procurement

strategy, manufacturing location selection, design and develop distribution network and strategy

for finished goods etc. While logistics planning would deal with the details of procurement

logistics, finished goods distribution, sales order fulfillment and inventory management etc.

Logistics planning derives the strategic direction and framework for its design planning from

SCM Strategy.

Take the case of production procurement, SCM strategy will define the process, selection of

vendors, procurement strategy and the mode of order fulfillment coupled with cycle time and

lead time to supply to the production floor. Logistics in this case details out the mode of

transportation from the vendor, the consignment planning, process for order trigger,

consolidation of shipments, detailing transportation modes and vendors, defines transit times,

documentation process and implements the plan, controls and monitors the flow of goods from

point of origin up to the point of delivery to the plant for production.

In the case of Finished Goods distribution, SCM strategy will define overall network design for

stock holding and further channels of distribution. Logistics deals with the entire gamut of

designing transportation network, partnering with 3rd party logistics providers to establish

distribution centers and warehouses, planning inventory management and operations process

including packing, promotional bundling etc, primary, secondary distribution network and

vendors and at the end the complete documentation and information process for the entire chain

of activities

Logistics Operations in Supply Chain Network inShare

Logistics has aided and contributed to enabling global trade. Third Party Logistics Service

Providers both at global levels and local levels form major partners to manage and offer

Supply Chain services and the second major factor being the internet and IT technology

which helps manage information and data ahead of or along with flow of materials and

goods.

Supply chain Consultants and professionals find it very essential to have knowledge of the

operational field and how things work on the ground. Theoretical models can be effectively

deployed only when realities on the ground are understood and adapted to.

Take an example of DELL which has successfully implemented its Supply Chain strategy built

around the concept of JIT manufacturing and Direct Marketing.

Dell has manufacturing facilities located in Austin-Texas, North Carolina, Miami, Florida that

service US Markets. European Markets are serviced from its plants in Ireland and Poland. Asia

and other sub continents are supported by its manufacturing facilities in Penang in Malaysia and

Xiamen in China along with the latest factory setup in Chennai in India. South America is

serviced from its Eldora do plant while the new plan in Brazil supports the African continent.

One can imagine the complexities involved in designing procurement systems. Dell does not buy

raw materials and components and maintain inventory. Dell’s vendors use third party service

providers to setup logistics parks and distribution warehouses close to Dell’s plants and deliver

materials just in time to the plant against an order for production which is triggers based on an

order confirmed by the customer on the internet.

Under procurement Logistics in this case, there are number of logistics service providers who

play major part in ensuring smooth operations. Vendors are based out of Europe, Taiwan, China,

Singapore, Hong Kong, Korea and Japan etc.

Though the raw materials belong to the vendors until the time they are supplied to production

shop floor, the design, planning and selection of logistics service provider is initiated and

managed by Dell. Dell has appointed freight forwarders such as DHL, CEVA, Panalpina, UPS

etc sector wise to pick up shipments from vendor locations, transport the collected shipments by

road and consolidate inventories of all vendors in the freight forwarders consolidation

warehouses situated at the gate ways in each country and ship out cargo by ships to the port of

destination or airfreight shipments to the plant locations after completing exports and customs

clearance formalities on behalf of vendors.

While the shipments are in transit, the freight forwarders electronically transfer shipment

information and documentations to their overseas offices or agents at the destination and keep

Dell and vendors informed of the status of shipments.

Freight forwarders at the destination ports file advance shipment documents with customs and on

arrival of cargo, complete customs formalities and custom cleared cargo is then transported to

freight forwarders warehouse or customs bonded warehouse or to another designated third party

warehouse which houses all inventories meant for Dell.

The third party service provider who manages the inventories in his warehouse receives the

cargo, unpacks the shipments from bulk skids to individual carton level and completes inbound

formalities including up dating of inventories in its system and stocks the materials in designated

rack locations. Both vendors and Dell are continuously kept informed of the data regarding

shipments and stocks. The warehouse stocks inventories in the name of various vendors at SKU

level. Most of the times these warehouses are situated adjacent to the plant or at close proximity.

Upon receiving a production order from Dell, as per Bill of Material received through DELL

ERP system, items are picked up, loaded into the supply cages and trays as per pre determined

design and delivered to the plant after completing documentation and system entries to remove

inventory from its system held in vendors name, invoice raised and physical delivery

accompanied with documents completes the supply chain cycle of Raw material supply.

The revenue recognition happens when material is transferred out of the warehouse and its

system and invoiced to Dell

Logistics Service Providers keeps Supply Chain Moving inShare

Procurement Logistics, Manufacturing Logistics and Finished Goods Logistics functions

are managed by different independent departments in a company. Though the functions of

the departments involve common activities like transportation etc, however the processes and

nature of logistics functions are specific to each function besides the requirements and

sensitivities of delivery times, schedules etc.

With the emerging trends and availability of third party logistics providers has pushed the

companies to adapt the practice of outsourcing all supply chain components and logistics

functions termed as non core functions to their part logistics providers.

In this topic we shall examine the role and functions of Third Party Service Providers a little

closely to understand how they make a difference to the supply chain activities.

Third Party Logistics field is a multi-layer or multi-tier integration of various players who have the

niche segment expertise to manage any one or many functions of Logistics. In any Logistics Contract or

Supply Chain Network, you will not find one single service provider being able to manage the entire

chain of activities. You can have a lead logistics service provider who will further tie up with and manage

other service providers to provide a single window service to the client organization. At all levels, a lot of

components of logistics get outsourced by these service providers to contractors and local players. Like

for example in a contract logistics facility, the third party logistics provider who has secured the contract

may not own and operate the facility himself. Labor is often outsource along with other operations like

Loading/ Unloading, Yard Management, Fleet management etc.

Logistics further also works with the concept of the 4Party Logistics providers in market who

take up large projects spanning huge volumes and multiple locations and services as the lead

service providers. They draw up the operating plans, requirements, and specifications for the

services and in turn choose the best service provider in each segment or function for each of the

locations and thus manage to provide the entire gamut of logistics services to the customer.

Normally in Logistics, the lead players front ending the businesses would be the Freight

Forwarders, Transport Companies (generally in long haul segment only) and Warehousing

Service Providers. In many cases Freight Forwards own and manage warehousing facilities too.

Freight forwarders are those agencies who consolidate the cargo and book the cargo for onward

freight using an airline or a shipping line or use ground transportation network including rail

services wherever required. Freight forwarders do not own any mode of transportation services.

They book the space with airlines and shipping lines and negotiate the freight. They play the key

role of providing origin and destination services coupled with single window client services

using other third party service providers. Most of them also have in house customs clearance

division to support ground logistics operations.

Without the support of the freight forwarders who are multi national companies capable of

managing your supply chain with ability to provide services in any country, any location across

the globe, supply chain would not be able to function efficiently, for it is impossible for

companies to co-ordinate and manage each leg and every activity in so many locations and

manage so many vendors and interfaces.

Supply Chains ride on Logistics Networks and IT Applications / Internet. In this topic a

brief introduction to each of the Logistics Function / Industry is attempted.

The foundation of logistics function is based mainly on Transportation by Road, Rail, and Air &

Sea.

Maritime trade has existed since times immemorial. History is replete with the major maritime

routes that connected continents across the globe and enabled trade between them. Harbors and

waterways have flourished in strategic locations in all countries attracting trade and commerce.

Global trade is dependant 80% on sea route than air route, simply for the fact that air route is far

more expensive and is used only in case of light weight cargo, perishable cargo and priority

shipments or in other conditions where shipping would not be possible.

Shipping trade is characterized by shipping companies who own vessels and specialize in

transportation of certain types of cargo like General Cargo, Containerized cargo, bulk

commodities carriers, oil tankers, gas tankers, OD cargo carriers etc. Normally the so called

mother vessels ply on the main shipping route across the continents traveling through pacific or

Atlantic oceans and calling on countries from point to point. Mother vessels are bigger vessels

with higher cargo carrying capacity. Some of the main routes normally traversed by mother

vessels are Far East to Europe and Mediterranean, Europe to America East Coast and Gulf of

Mexico, Far East Australia to South Africa, Intra Asia, Asia to Middle East, and Europe to South

Africa etc. The schedules in detail are announced in advance for each of the vessels. The feeder

vessels carry cargo from individual ports in nearby countries which discharge the cargo at the

port of calling to be transshipped on to the main vessel.

Thus for example, a cargo originating in India bound for South Africa may follow the route

where cargo reaches one of the ports in Ceylon or Dubai even Singapore in some cases and

travels right up to Europe where in is further transshipped on another vessel bound to south

Africa. Like wise the global shipping trade lanes have certain gateways and lanes which they

operate and in turn are fed and supported by feeder lanes and vessels.

Shipping liner announces schedules of the vessels a few months in advance. Freight forwarding

agents book space on the vessels either based on estimates or based on their pipeline orders.

Depending upon the volume that the forwarder is able to give and patronize shipping lines, they

get to bargain and negotiate for better rates. In general cargo, the shipments are made in FCL

Containers. FCL stands for Full Container Load. FCLs come in two sizes called 20 feet and 40

feet containers which refers to the length of the container. Each container has fixed dimension

and weight carrying capacity. FCL Containers are provided by shipping lines to the freight

forwarders who stuff the cargo and get the cargo sealed after customs inspection which is then

picked up and loaded on the ship at the port.

Some of the major international shipping lines dominated world shipping trade is P&A,

Nedlloyd, Maersk, Hapag Lyod, American President Lines, Evergreen, NYK, HanJin,

Cosco, CSCL etc

Role of Freight Forwarding & Logistics Companies in Supply Chain

Management inShare

Global Logistics Scene is dominated by a handful of ten to twelve multi national Companies

followed by smaller companies all together numbering below fifty. Entire global trade is

facilitated by these service providers. Major players in the field are lead by DHL, Kuehne +

Nagel, Schenker/BAX, UPS, Geodis, Expeditors, Agility, CEVA Logistics, Hellman worldwide

logistics etc. The last two decades have seen the emergence of multi national companies having

acquired and bought out local and smaller players to acquire the multi national status coupled

with global network. The entire logistics field is filled with mergers and acquisitions in quick

succession in the recent past.

Most of the logistics players have been traditionally freight forwarders dealing with cargo

bookings coupled with origin and destination services. However as the global business

practices changed and supply chain managements started gaining ground, these companies

realized the potential of being able to offer multiple services including ground transportation,

warehousing and contract logistics under one umbrella as the future trend and quickly turned

themselves to acquire the required capabilities and have managed to become single window

service providers on global scale.

In any supply chain, these 3PL Service providers further outsource certain functions and

segments to many other local service providers. Any SCM expert would naturally wonder if it is

possible to deal directly with the other service providers and cut out the 3PL Lead provider and

thereby save some cost. In a global scenario, this would not be possible for many reasons.

3PL Service providers are able to offer you standard operating processes and procedures across

all locations and countries. If you dealing with a 3PL office in Europe and another in Japan

besides your local office in Houston for example, all three offices would follow the same

methodology, documentation and processes. Secondly 3PL providers know the local situations

and can adapt international processes to suit local situations better. A principle company may not

be able to get into the local situation be it with transportation or customs or legal compliance and

is better left to the 3PL to deal with it effectively. By virtue of the size of these companies 3PL

logistics providers have built core competencies and capabilities in all of the functions

namely Freight, Customs Clearance and Contract Logistics and are equipped with cutting

edge technology to support international operations and provide visibility to the customers

at all time. 3PL companies rely heavily on electronic exchange of data and information in their

businesses. Today 3PL companies not only provide highly specialized inventory management

and warehousing operations, they offer other value adds like Purchase Order Management, Semi

and Light Manufacturing, other value added services designed for niche segments called as

Integrated Logistics Services.

3PL service providers are today investing into building distribution networks and facilities to

cater to the client’s requirements wherever required. They are building in house capabilities with

employing SCM Experts to specialize in Automotive Logistics, Aero Spares, Medical &

Environmental Logistics and other specific segments.

SCM strategy of the company today aims at converting logistics cost to transactional cost and

thus avoids any investments into managing Supply Chain.

It would not be possible for a principle company to invest into setting up and managing logistics

services and facilities in origin and destination locations for its Supply Chain and manage local

regulations etc. It is best left to the best Service Provider as the partner and leverage on his

competencies and skill sets as is being done today

3PL Contract Logistics Operations inShare

While Freight Forwarding is an important function of 3PL Service providers to facilitate the

Supply Chain, another equally important function managed by 3PL Logistics Companies is

Contract Logistics.

Under the broad umbrella of Contract Logistics, 3PL providers provide services of setting

up consolidation centers, distribution centers, warehouses and inventory management

services.

European network of transportation and warehouses stand apart from the rest of the world and

are highly evolved in terms of supply chain capabilities. America too has similar capabilities

developed in recent years. Normally warehousing facilities are built and rented out as real

estates. Warehousing Parks or Distribution Facilities are designed with complete layout and

infrastructure for truck parking, yard management and security systems etc. Warehousing

buildings of sizes ranging from 1000 sq. mtrs to several hundred sq. mtrs come equipped with

all weather docks, dock levelers and dock platforms to facilitate continuous loading and

unloading activities and quick turnaround of vehicles. These facilities include office facilities

and other utilities too as a complete stand alone facility.

3PL companies rent out such facilities or in some cases invest into building their own facilities in

strategic locations in the transportation network or near major markets or in some cases in

specific locations close to customer facilities.

3PL Warehousing is used for managing inventories of both raw materials and finished goods

including spare parts, consumables and promotional materials as the case may be.

Depending upon the need and size of operations, a 3PL may set up completely dedicated

facility for a client specific requirement or provide dedicated storage space and services in

shared facility or provide pallet wise storage on rental basis. All these modes are used

depending upon the particular need of the logistics plan.

Normally the warehouses consist of vertical racks with levels anywhere from five levels up to

ten and above with a carrying capacity of one ton per pallet position. Depending upon the storage

need, racking design will vary from pallet racking to block stack, deck racking, shelving, bins

etc. Material Handling equipments used include Hand Pallet Jacks, Trolleys, Battery operated

Fork Lifts and various types of Reach Trucks used in racks.

The entire warehousing operations include Receiving Process involving unloading, de skidding,

inspection, in warding and put away. Delivery or shipment includes receipt of shipping order

from customer along with invoice or sales documentation, picking materials, consolidation,

packing, marking, preparing outbound documentation and shipping out by loading into

containers. Besides these functions, the other main functions in the warehouse include inventory

management which involves location management, managing storage capacities and bulk and

loose inventory, carrying out inventory counts to ensure accuracy of inventory and stock takes.

The entire warehousing operations are dependant upon documentation and systems which

manage operations and inventory. Generally warehouses use WMS - Warehouse Management

System as the backbone. The system manages inbound transactions, location management and

generates and controls warehousing operations for both inbound and outbound transactions

coupled with maintaining inventory in detailed level and managing inventories.

For any principle employer, the support of a good 3PL is necessary because its entire inventory

amounting to huge amount in terms of value is in the custody of a third party. Inventory

management operations are core to any operations. Hence it is necessary for every SCM

Expert to understand nuances of 3PL Contract Logistics operations before taking decisions

to outsource these functions

Finished Goods Supply Chain

Buying a Desktop computer for your home or a Laptop for your use is very easy. You browse

through the internet to see the latest models and configurations, decide on your specific

requirement and click to place an order. At times of course you might go into an electronic

supermarket and check out the physical product before you buy. Immediately on payment you

cannot wait for the delivery and expect to be serviced on priority.

Ever wondered how companies like HP, Dell, and IBM manage to place just the right products

in all point of sale not only in your city, but all over your country, all over the world where the

product availability and standard processes are made available? If u start thinking back on

where the products came in from? Where were they manufactured? Where were they stored and

finally how and who brought it down to your door step, you are in fact tracing the logistics of

the supply chain.

Finished Goods supply chains are very dynamic and are the backbone of a good sales

organization. A number of departments are responsible to work in coordination and seamlessly

to ensure Finished Goods reach the markets and the customers. Logistics and supply chain

departments have to work in tandem with or aim to be ahead of Marketing and Sales and ensure

that when a product is announced for sale by marketing, the products are made available at all

nook and corner of the city, state and country. A situation where the customer goes to a sales

counter to place an order and the product is not available cannot and should never happen as a

rule.

Taking customer as the starting point, let us trace back the journey of finished goods and

the functions.

While Marketing departments work on marketing and advertising the product and are focused on

reaching out to the customer to sell a product to him, Whenever a customer places an order,

further coordination and deliveries are managed by order fulfillment teams which are responsible

for sales order processing who place orders on the distribution centers on the backend to pull

materials for forward stocking points or to effect deliveries to the customers. Customer

Fulfillment teams are the internal customers to the FG Logistics team. Logistics team is the

department which is responsible for stocks and FG inventory held in the pipeline across multiple

networks of distribution centers and the inventory in pipeline in various transit points. In other

words, Logistics teams own the inventory from the point they leave the plant until delivery is

effected to the customer who may be a distributor, retailer or end user as the case may be.

Logistics teams comprise of multiple competency centers including inventory planners, freight

managers responsible for transportation leg and warehousing operations experts who are

responsible for the inventory and warehousing operations including documentation control and

statutory process compliance.

Logistics teams work in close co-ordination with finance teams, the procurement team, plants

and manage operations through a chain of third party service providers who actually run the

operations of inventory handling and distribution.

Logistics is never an event free operation. While multi tier third party service providers are

handling the cargo across various borders, locations each with its own unique local situations,

there are very many additional vagaries of nature and events that can keep disrupting the smooth

flow of supplies and the situation is every dynamic.

Managing multiple product lines, and vast distribution networks coupled with managing third

party partners calls for the Logistics Managers and Supply Chain Managers to be always

thinking on their feet and constantly innovating new processes and finding new ways to keep

operations happening smoothly.

Finished Goods Supply Chain Operations inShare

FG Supply Chain consists of all activities involved in movement, storage and distribution of

Finished Goods from the Delivery point of Plant to the Point of Sale.

In the case of global supply chains supply chain management gets more complicated with the

variations arising out of different countries regulations and logistical practices.

Computer Hardware supply chain is a good example for students and SCM professionals to

understand the dynamics. Life cycle of computers is very short and frequently models and

technology keeps changing all the time. This factor needs to be kept in mind while drawing up

the supply chain strategy for Finished Goods to ensure that obsolete inventory does not clog the

pipeline and that the inventory maintained is lean.

Manufacturing practices have changed drastically over the last decades. With the help of ERP

systems, manufacturing has JIT system of manufacturing.

Computer manufacturers have established the strategy of setting up assembly plants in various

countries to service global markets. Computer manufacturing is built on two models. While

certain fast moving desk tops are built on BTS - Build to Stock model, most of the laptops and

other products are manufactured on Build to Order Model, where in manufacturing of a batch

quantity is taken up on confirmation of orders from the customers.

HP has multiple business divisions managing different product lines. While one division

manages PSG Group - Printer and Consumables section of the product, two other divisions

separately manage laptops, desk tops and servers. Manufacturing of all the products are spread

across various countries for each of these products. Common Supply Chain Division and

Logistics services departments manage the functions of all business divisions.

Managing multiple product lines under common logistics network provides challenges in

ensuring process compliance. To add to the complexity, a set of Desk Top or Laptop includes the

main module assembled at HP Plant and other items like monitors, key board, mouse etc which

are bought out from third party vendors.

Third party vendor items are supplied to the designated FG warehouses which are managed by 3

part Logistics Providers and held as HP inventory. Finished goods are received similarly from

HP Plants across countries.

Normal Supply Network consists of 3PL Owned Country Depot in each country and further

regional distribution centers and stocking points which ship out goods to distributors who

maintain their own logistical network to reach to the customer point of delivery.

On receipt of all items at the warehouse, process is designed to kit or bundle all the items

together, re label the cartons at the distribution center and move out as one item.

Such an activity involves managing inventory processes where the items are received as

individual items with SKU description and after the kitting or bundling is done, all SKUs get

converted into a separate SKU as the final product. The inventory management and transaction

of conversion needs to be managed both at the warehouse level in the warehouse management

system and simultaneously in HP Systems.

In few cases the bought out items are kept in stock at the warehouse as vendor managed

inventory belonging to the vendor and only at the time of kitting, the transfer of ownership

happens by means of sale. In such cases the 3rd Party Logistics provider maintains HP inventory

and Vendor inventories in the same system and managed operations accordingly.

In FG Distribution, ensuring FIFO is essential for all items and capturing serial numbers at the

point of dispatch from distribution center to ensure updating in warranty tracking database.

A culture of drilling down processes, active participation and interaction with 3PL service

provider with frequent audits and training goes a long way in ensuring that service levels are met

by the 3PL service provider which reflects on the SCM division’s performance too

Contract Logistics RFQ Process

Outsourcing of core Logistics function of Warehousing is fast becoming popular not only for

Multi National Companies with global operations, but for all organizations in medium and small

sector too.

Outsourcing may generally fall under two categories. One category would be the flow through

warehouses, merging and distribution centers which are but a consolidation points in the supply

chain network. These can be managing finished goods or raw material supplies or even spare

parts etc. The project size is relatively smaller and the warehouse is not expected to hold

inventories beyond a few days.

Second category of warehouses could be the larger distribution centers managing finished goods

inventory and related operations in large scale, catering to exports or supplies to a region,

continent or country level or inbound raw material warehouses managing JIT or VMI

operations, in plant management, Plant FG operations etc. These warehouse operations are

critical in nature and are primarily categorized by the volume & value of inventory held, size of

operations and its relative position and important in the supply chain network.

In the first case of a flow through consolidation center, the selection of a 3PL vendor is relatively

simpler and the criteria lesser. In the second case the SCM managers of the Buyer and the

procurement have to set up a project to float the RFP, invite bidders, evaluate the bidders,

negotiate and award the contract.

RFQ should contain complete details of the said project to enable the 3PL to propose a solution

and prepare a solution design document. The RFQ should contain at least the following

details as minimum information:

Detailed explanation of the business requirements, service specifications coupled with details of business process, IT Process and product etc.

Project Scope should cover details of activities, volumes, IT infrastructure, interface requirements, report requirements etc.

List service level expected along with performance metrics for all operations of the warehouse RFQ dates for vendor meets, presentations and submission of bids.

Project span including timelines for selection of vendor, criteria and process of selection, project implementation & Go Live.

Contract Period and Extensions Pricing and Costing expectations, methodology & approach. Legal and statutory compliance requirements. Liability requirements including inventory liability, third party liability and insurance. Contract and agreement terms and draft of proposed contract Any specific requirement of the buyer with regard to services or project etc. Confidentiality agreements if any.

RFQ Process

RFQ document is prepared normally by the business function manager along with project lead

and procurement leaders.

Once document is prepared and internal processes and approval are in place, the procurement

issues the RFQ to either all vendors in the market or short listed vendors.

Post RFQ, the buyer invites all participants for Question and Answer session either in a face to

face meeting or on mail. Normally all answers to the received questions are posted to all vendors

participating to ensure fair chance for every one.

The vendors can be allowed to meet and discuss the scope in detail or visit the proposed site to

collect more details.

Buyer facilitates clarifications and discussions with all relevant internal business functional

groups when ever required by the vendors to be able to give them better insight into the

requirement.

On due date of the RFQ, vendors are required to submit detailed bid response document.

Short listing of vendors happens internally with participation from related functional teams and

project leaders. Response documents are studied, graded and tabulated based on evaluation of

solution design, capability as well as pricing. Short listed vendors are given opportunity to

present solution to the buyer’s team on selected dates.

Final selection happens after the vendor is selected internally and procurement further negotiates

with the selected vendor and comes to agreeable terms and conditions.

Lastly, internal management approval is obtained from concerned, selected vendor is announced

and LOI is released to the selected vendor.

Vendor Managed Inventory - A collaborative Supply Chain Concept inShare

As the name suggests, VMI stands for Vendor Managed Inventory. VMI involves a

collaborative and continuous inventory supply owned, managed and replenished by the

Manufacturer right up to the last stocking point or point of sale to end customer.

VMI concept is widely being used by companies both as procurement business model and FG

supply chain model too. Industries like retail supermarkets, consumable supplier industry,

electronic hardware industry and Automotive Components industries have adopted these

strategies effectively to improve their supply chain efficiencies.

VMI concept aims to reduce inventory in the pipeline, besides achieving the concept of JIT -

Just in time where in the ownership of the inventory lies with the supplier until the time of usage

or sale where it gets transferred to the buyer. This model also reduces operational costs of

logistics and inventory management for the buyer.

VMI’s success depends upon several factors. First of the entire concept pre determines the

existence of a strategic partnership and alliance between the supplier and the distributor as well

as the logistics service partners. On the part of the supplier, an participative approach to grow the

relationship by investing into enhancing value for the customer and extending customer

relationship management initiative drives such an approach, where in the supplier agrees to own

the inventory until the point of call off and continues to monitor and manage the inventory

besides ensuring replenishments. The customer being distributor or manufacturing plant in this

case, appreciates the supplier initiative and take interest in coordinating and cooperating with

supplier and supervise at times the 3PL who is situated at his premise or at a near by location.

In the case of Raw Material supplies and OE Supplies to Manufacturing plants, the VMI

programs are driven by the procurement logistics team of the plants. The VMI warehouses are

operated upon by a designated 3PL within the plant premises or at a nearby location. In such

cases, though the inventory belongs to the supplier and the cost of operations are paid for by the

supplier, the procurement logistics team of the plant continues to monitor, supervise and manage

the 3PL service provider as the suppliers do not have visibility or effective control over 3PL at

such remote locations.

The role of a competent 3PL Warehousing Partner is very critical to the success of a VMI

in a manufacturing plant setup. Normally a lead logistics player is selected by the Buyer

Company and given the responsibility to handle the transportation logistics from the place of

origin, provides destination services like customs clearance, domestic transportation and

thereafter set up and manage warehousing operations and JIT supplies to the plants. The buyer

organization would have a panel of buyers enrolled into the VMI program and can include

multiple suppliers supplying similar materials and products. The 3PL would act as a warehouse

provider for all the companies, manage the inventories of different suppliers in its WMS system

and supply such materials as per the call off list provided by the buyer.

A VMI model as practiced in retail supermarkets is similar conceptually to the model as in

Manufacturing setup, but the role of 3PL would not be as important or relevant it may not call

for huge inventory management operations to be setup at the retail store. Though the purchasing

and consumption decisions are taken by the buyer and accordingly trigger for stock release takes

place from VMI bins, the supplier actively monitors the inventory usage and operates

replenishment cycle, plans the shipment modes, delivery and takes ownership to ensuring agreed

inventory fill rates and service performance

Spare Parts Supply Chain inShare

When you buy any Computer or Electronics Hardware or equipment, normally one of the

questions asked to the sales person is “What is the Service Support” provided by the company.

Today the brand image or market demand rides not only the quality of the product but on

the quality of service support too. Service support is critical in industries like Computers,

Telecom, Aero spares etc. In all cases the response time and availability of the spares become

critical. In all cases corporate installations demanding onsite support coupled with critical down

time service level measurements have pushed the suppliers to set up an efficient spare parts

supply chain.

Take the case of an installation of a server in a bank’s central processing division cannot afford

to be down at all. The company who installs the server is required to ensure that service engineer

is available at site during normal hours and on call basis on 24 × 7 basis. It is not enough to have

the engineer attending to or being available at site, the required spare parts need to be available.

Critical and high value spare parts have to be made available in a near by warehousing location

and logistical arrangements are required to be made to reach it to the site in a fastest and quickest

reach time, which is a few hours in most of the cases. The site engineer most often is able to

perform diagnostic functions and report back to the service team. The service support team

would then escalate the matters to the technical experts who get involved in solving the problem.

All of the coordination and problem solving along with logistics arrangements is required to

happen in a matter of hours. Such tight performance levels are documented in the service

agreements and in most cases 99% up times are required to be committed by the company

supplying the server.

Similar situation exists in aero spares parts supply chain too. Airplanes can develop snags in any

location and not necessarily at the base where they operated from. Therefore the logistics of

having to locate the defective part, requisitioning the part besides the request being directed to

the central spare parts warehouse by the 3PL service provider and managing to airlift or courier

the part in the fastest mode is the normal requirement in this industry. Most of the parts are high

value parts and cannot be stocked or warehoused in all locations as inventory. Airplanes cannot

be grounded for a long time which would result in heavy losses to the airlines. The down time

allotted for preventive maintenance itself is very less.

Aero spare parts supply chain has also been built around processes to ensure fastest lead times

and ready availability and immediate retrieval of the right component.

In most cases the essential spare parts are kept in stock at the country level based on the number

of installations or volumes of sale under each category of product. In case of non availability the

parts are called for on urgent basis from a regional distribution center normally available at a

regional level servicing a continent and flown down on urgent courier mode.

In all cases ensuring minimum down time is the key factor that drives the spare parts

process which involves logistics service providers, warehouses, customer service teams and

technical teams working in tandem to ensure customer satisfaction

Spare Parts Logistics inShare

In a computer spare parts supply chain, usually the network consists of country depot which

stocks all the parts required to support the field. The number of parts in such depots run very

high depending upon the volume of sales and can range from 15000 SKUs to 35000 SKUs.

Depending upon the model and vendors. In country regional locations are housed in all states or

major markets normally in all major cities. At the regional and local levels, the parts supply

warehouse is combined often with test repair centers where customers can walk in and submit

their laptops or products for repair.

Spare parts are delivered out of these outlets in two modes. One is under warranty service where

the customer has bought a warranty contract with the company including free replacement of

spare parts. In such situation, the good part is issued by the warehouse in lieu of receipt of a

defective spare part. The other mode is sale of part where the customer pays for a spare part and

makes the purchase.

Besides the Test Repair Centers, larger markets also have authorized service agents and dealers

located all over the city. The regional warehouse receives orders for parts from these dealers who

service the end customers. The orders can be under warranty free replacement or sale of part.

Warehouse accordingly services orders and delivers parts locally to the dealers and collects the

defectives back.

The regional warehouses in turn requisition parts from the country depot based on their forecast

and stocking pattern.

In case of parts supply warehouses, commonly they contain two different warehousing divisions’

namely good part and defective parts store.

In case of good spare parts, the warehouses maintain and manage two separate inventory lines as

well as separate processes to manage original spare parts procured from vendors and re furbished

spare parts repaired locally through third party repair vendors.

Against each good part supplied, a defective part is taken back which travels through the various

stocking points to the warehouse’s defective parts store. The defective parts stores issue parts to

identified vendors for repair and once repaired issue back the refurbished parts to good store for

inventory.

In some cases the defective parts if still under warranty are grouped together and re exported

back to the vendor overseas for free replacement under warranty.

The entire supply chain network of spare parts involves the Logistics department of the

principle company, inventory planners, test repair center teams and outsourced 3PL

warehousing partners who manage warehousing and local logistics and designated dealers,

authorized service representatives and repair vendors.

The entire supply chain rides on strong backbone of IT application which manages sales

order fulfillment on one end and inventory management at the other end. The applications

are robust with enhanced features to be able to manage and track warranties and also SKU wise

stocks and serial nos. Defective parts collection and management is as important as good part

management and carries the same value as it becomes a refurbished good part once again after

repairs.

Reverse Logistics inShare

As Supply Chain Activities are evolving and partnering changes in business models, the focus

and activities are not restricted to management of raw materials and finished goods from point

of origin from the vendors to plants and further on to the end customers. There is another

extension to Supply Chain Process called as Reverse Logistics.

Reverse Logistics as the name denotes, deals with the planning, process and flow of

finished goods inventory, packaging materials and parts of finished product back from end

customer to the product company as sales return or warranty return or unsold inventory

with trading partners. Reverse Logistics planning further re-captures value from these

materials as much as possible by way of re salvaging, repair, re-furbishing, re cycling etc.

Globally awareness about Hazardous waste generation and disposal is increasing and leading to

legislations being passed by the various countries. Europe has been the leader to implement legislation

with regard to ensuring that the product companies take responsibility for reverse logistics of all

product

wastage arising out of any supply chain activity. European Union has passed bills on Waste Electrical and

Electronic Equipment and Restriction of Hazardous Substances. Green Logistics initiative has outlined

detailed process for the suppliers and manufacturers to adapt color coding systems to identify

different kinds of waste re usable, recyclable, green waste etc. Packaging retrieval, salvaging and

scrapping process have been well developed with the entry of many small and medium sector

companies investing into setting up scrap salvaging activity as commercial ventures.

Awareness has further pushed companies to adopt standards and measures in ensuring recycling

and e-waste in a bid to take responsibility towards minimizing environmental impacts and

reducing scrap besides ensuring complete recovery of waste materials.

Automotive After Market and Electronic Equipment and Computer Hardware industries have

developed successful Reverse logistics practices and have managed to integrate reverse logistics

as a important marketing strategy to project the company’s social responsibility in the area of

waste management as well as to contribute to the developmental activities in society by donating

funds arising out of scrap disposal and recycling.

While many developing countries are yet to pass legislation with regard to environmental

safeguards, recycling, e waste disposal processes, the Multi National Organizations have already

adapted processes of reverse logistics and implemented them in all countries wherever they have

operations.

Automotive after Market industry has developed successful practice of producing re-furbished

parts and recycled components which are sold through the spares markets. A lot of value has

been unlocked from the reusable parts of vehicles specially starters and alternators.

Re-engineering products with re-used material has yielded in saving of tones of raw materials,

besides providing and generating employment to hundreds of people involved in settling up

small outfits to dismantle the parts. As per industry estimates this activity has employed over

12000 in US alone and the reused auto parts make up for over 36 billion dollars as estimated by

Auto Parts Re Manufacturers Association.

In the computer hardware and peripherals industry case study, HP makes for a good example. HP

has developed supply chain model of collecting the used cartridges and other consumables

through e bins prominently displayed with the retailer outlets. The reverse logistics for this

particular process is designed to collect the waste locally from all e bins, consolidate and ship out

to regional centers which are located at gateway ports in the country. Such consolidated waste is

further forwarded to recycling plants identified within the country to another nearby location

overseas. Recycling plants manage to salvage metals and other materials before using the plastic

raw material as raw material to manufacture some other items such as bottles etc. It is reported

that HP has allocated the funds generated out of such activity to sponsor events directed at

fulfillment of its social responsibility and community development projects.

Today taking responsibility to take back the packaging and products has been found not only to

yield scrap and salvage value, but is increasingly being looked upon as corporate responsibility

and part of corporate governance and good practice adopted by responsible companies. No doubt

this provides value to marketing strategy too, and improves stature business.

Reverse Logistics & SCM - Scope and Advantages inShare

Supply Chain Management is concerned not only with the flow of raw materials and finished

goods, but scope extends beyond this to include reverse flow of unsold finished goods, parts and

packaging materials from the point of consumption at customer’s end back to the organization or

to rework / refurbishing vendors.

Today reverse logistics has been adapted in a big way by automotive after market spare parts

field as well as electronics and computer hardware markets. Retail and book publishing too have

implemented reverse logistics schemes but the volumes that are returned are relatively lesser

than the other fields.

Reverse Logistics offers several advantages to the company in terms of both tangible and intangible

benefits. In the first instance, companies are able to retrieve defective equipments and parts which are

either salvaged or refurbished and thus reclaims value out of the defective parts. Secondly, the

packaging and defective materials are collected and recycled thereby generating scrap value back for

the company. Thirdly unsold and obsolete equipments are collected

back from point of sale which encourages the distributors and stockists to confidently buy stocks from

the company knowing that he can always return unused inventory and not stand to loose in the bargain.

Distributors are more likely to be open to stocking all fast moving as well as slow moving stocks.

In the eyes of the customer and society, the organization stands to gain a good standing and

reputation of being a responsible company which takes care of the e waste and hazardous waste

generated and thus stands out for its corporate governance policies.

Reverse logistics has been successfully adapted as marketing strategy. Refurbished computers

are sold at cheaper prices by all leading brands and the demand for such laptops seems to be

growing. The spare parts used by the computer manufacturers to service the laptops and

computers on warranty or on sale, include refurbished parts. Many electronic and consumer

durable manufacturing companies offer buy back or exchange offer for the old equipments in

lieu of the customer purchasing a brand new product. In consumer electronics and white goods,

the exchange offers are a big hit during discount sale seasons.

Managing reverse logistics process is as operations intensive and complex as FG supply chain and

demands the same focus and involves multiple

logistics partners. Companies like IBM, HP, Dell and other equipment manufacturers like Xerox have

established processes and network of refurbishing centers together with spare parts distribution

centers. Unlike managing good parts inventory, defective spare parts require more handling and

processes at the logistics providers end. Commonly it has been noticed that the good parts are handled

neatly by all involved in the supply chain including distributors and retailers. On the other hand, while

the process demands that the defective part be returned in good condition, both users and retailers do

not give enough attention to handling defective parts. Statistics have shown that the defective parts are

found to have suffered more transit damage and handling damage than good part. A lack of

understanding that the defective part has value to the organization is noticed in few cases of the sales

staff of the organizations as well as retailers, who treat defectives as scrap.

However the reverse logistics processes followed by the computer and electronic equipments

industry is a good example for other industries to begin looking at adapting similar strategies in

their markets too

Contract Logistics - Key block in Supply Chain Management inShare

Supply Chain Activities constitute multi modal transportation, customs clearance and

warehousing activities in one or more locations in the entire network. Supply chain activities

may be local referring to within the country or regional meaning within a continent or region

and global which is essentially inter continental. Global operations are the order of the day as

businesses follow markets and also look for cheaper conversion costs which are achieved by

setting up manufacturing facilities in countries where costs are cheaper.

Take the case of Pharmaceutical industry. High cost of manufacturing led the companies to shift

manufacturing out of Europe and US to South Africa, India and other cheaper nations.

While inbound supplies from these countries may be consolidated in each country by the freight

forwarder and shipped out, they may also be shipped out by supplier to a third party warehouse

in the destination country for VMI inventory replenishments. Inbound supplies may be running

into thousands of part numbers and hundreds of shipments from a few hundred suppliers.

Finished goods on the other hand would be dispatched from the plant directly to a distribution

center in the country or exported to another distribution center abroad. Similarly each country

distribution center would receive finished goods from the local plant, imported finished goods

from other distribution centers. They would also receive the bought out items which are procured

for integration with finished goods at the distribution center. The distribution center manages the

inventory, completes any in house process etc. Further movement of cargo goes happens from

the mother distribution center to subsidiary or secondary warehouses from where they finally

reach the distributor.

If you plot the above two supply chains, you will see that at any time, the highest amount of

inventory is help at the warehouse which holds supplier parts and the distribution center and

subsidiary warehouse. The amount of shipments in the pipeline would be very small compared to

the inventory at the warehouses. Plants do not hold inventories at all. Therefore warehouses are

critical to supply chain networks. Warehouses are the main links in the supply chain and their

location and functioning in terms of operations affect the rest of the supply chain efficiency.

Distribution Centers, VMI Centers, Parts Centers and various business models of warehousing

activities are now outsourced to 3PL Service providers. Many companies do manage these as

critical functions in-house, but the increasing trend is to outsource these activities.

A warehousing operation encompasses many value added processes and critical operations. In

case of plant logistics these activities involve complete responsibility of managing inbound

traffic management, yard management, and inbound shipment receiving, warehousing and

inventory management. In-house processes can include kitting; sub assembly and any other value

add processes to be managed before parts are supplied to the plant. Any wrong transaction or

mistake in transaction will affect the production line and result in increase in down time. Other

responsibilities managed also include scrap management, packing material management etc. In

case of automotive plants, these warehousing activities are very big and complex in size and

word as independent companies on 24 x 7 basis with senior management being present at site to

manage the small company. Hypothetically In typical small size operations, a logistics facility

could be receiving over a hundred shipments a day, unloading around 50-60 containers a day,

maintaining inventory anywhere between 20000 to 35000 SKU part numbers, held in various

modes in 8000 to 10000 rack locations and many more block stock locations. Outgoing supplies

to plant may happen on call basis - every two hours and supplies can consist of a few hundred

parts kitted as per the Bill of Material. All this activities needs to happen continuously on shift

basis. Contract Logistics companies have further extended their services into managing semi

manufacturing processes within the plant.

Many multi-national companies have invested into building Contract Logistics capabilities. The

management structure consists of supply chain managers, engineers and other technical staff

required managing specific segments. Development of core competence in managing

warehousing operations and supply chain network was perfected in Europe in automotive, retail

and many other industries.

In cases where the operations size and processes involved are more than just a warehouse,

normally it is referred to as Contract Logistics. The business is driven by a Contract Manager

at site with administration support staff and operations teams. Such sites normally call for a lot of

investments in infrastructure including material handling equipments, racking, building etc. The

size of operations and investments being large, the contracts usually run for a number of years.

The projects involve integration and building interface with IT applications of both companies to

facilitate day to day transactions.

Documentation - A Control Mechanism of Supply Chain Logistics inShare

Supply chain operations and network extend beyond domestic boundaries and global boundaries

of all countries. A logistical exercise originates at the buyers end and involves multiple agencies

including buyer, seller, 3PL freight forwarder, transporters at various juncture, shipping lines,

airlines, various governmental agencies, customs departments at various locations and financial

institutions like banks to complete the entire supply chain cycle.

Smooth flowing of materials in a journey originating at one point and going through the entire

cycle of exports and imports to reach a point of consumption would mean engagement and

interaction with all of the above agencies who have a stake in the said transaction. Need for

decision making concerning financial, commercial, technical, operational matters pertaining to

shipments arise at various times in the cycle, which demands that the 3PL, the logistics carrier,

the buyer, the supplier are actively engaged and have visibility to information and

documentation for the smooth flow across various transit points. In fact in faultless logistics

operations the documentation and information flow should precede physical movement of

goods.

Documentation becomes important not only for the physical logistics operations involving

multiple agencies engaged in the entire chain, the financial, trading and accounting

processes of the both buyer and seller organizations and partner banks involved also

depend upon the entire set of documentation pertaining to each transaction to be able to

recognize the sale, recognize value of consignment and effect necessary payment.

Accounting practices of the organizations require detailed documentation as per book keeping

practices and norms. Finally goods and services are recognized and identified at every stage only

with the set of authenticated documentation showing ownership based on which the customs

allow them to be exported or imported into or out of the country. There are many more aspects

like terms of carriage by the carrier coupled with insurance liabilities and coverage which call for

set of documentation covering specific aspects of each transaction.

Therefore the entire supply chain transaction involves set of standardized documentation from

buyer and seller, from 3PL carriers and documentation as required by customs at exporting

country and importing country coupled with trading or bank requirements documents. The entire

set of documents and the terms of trade have been developed and standardized across all

countries to facilitate international trade.

INCO terms and EDI approved / enabled standardized documentation has made Export and

Imports smoother and hassle free, thus cutting down on bottlenecks and delays arising out of

documentation requirements.

Today software applications have built in standardized documentation templates and modules in

their offerings which reduce the amount of time and effort involved in preparing documentation.

ERP modules contain the documentation formats as an integral part of its internal processes. 3PL

logistics providers work with various software applications which have shipping documentation

built into its operational processes and offer track and trace with documentation visibility to

customers on the web. Filing documents with customs has been EDI enabled. Electronic

documentation has become a part of operations amongst all agencies. However at customs and

banking counters, original documents are required to be produced as negotiating and legal valid

documents for shipments to be cleared through.

A supply chain manager needs to be aware of the complete set of documentation requirement

along with the various aspects to be able to design processes and documentation control

mechanisms. Errors in documentation will lead to financial damage, delays in delivery and

performance which is what every manager aims to avoid.

Warehouse Management System inShare

In any Supply Chain, Inventory Management and Warehousing form a part of operations

intensive function and is one of the key building blocks in the entire chain. Most of the

inventory is held at the warehouses as compared to the pipeline, and the efficiency of the

warehouse operations will determine the further supply chain efficiency.

Though it is a normal industry practice now to outsource the warehousing operations to a 3PL

Logistics service provider, the SCM managers who are the decision makers and network owners

would need to know the intricacies of warehouse operations and get actively involved in

choosing the right partner and right facility.

A distribution center or a warehouse is the key to the entire model as it holds the inventories and

also manages other operations like bundling, packing, labeling, co packing, kitting etc as per

buyer requirement. Most of the marketing and buyers requirements are met with from the

warehouses.

Many factors and elements contribute to successful operations of a distribution center. The time

taken to detail the project and build a model taking into account all considerations will go a long

way in ensuring operational efficiency of the supply chain.

Physical Infrastructure

The building blocks or operational criteria of an ideal Warehouse Management System includes

location, structure, roof height and flooring, design and layout external, utilities and facilities in

the premise, internal layout design, storage infrastructure, material handling equipments, lighting

and safety equipments and mechanisms, office infrastructure, IT and communications

infrastructure, power and backup services and finally accessibility of the location and availability

of labor. The list can be exhaustive and depends upon specific needs of each buyer’s business.

IT Systems

The efficiency of warehousing operations is highly dependant not only upon the physical

infrastructure but the system and intelligence that controls, directs and manages the physical

transactions. A robust WMS capable of managing inventory and locations which is RF driven or

enabled, would be the backbone of a good efficient warehouse.

The Warehouse Management System controls two sets of operations:

1. On the inventory front, the system maintains inventory in the warehouse at Zone & individual location level, SKU level, pallet wise, carton wise and unit level inventories for multiple customers and allows specific inventory attributes and parameters to be built in to manage, allocate or block the inventory. The system also provides options to adapt FIFO, LIFO or other methods of inventory flow.

2. On the Operations front the system manages, controls and directs all operations including receiving processes, put away processes, order processing, inventory allocation, picking process, packing process and finally shipment along with inventory updating. The intelligent system guides and helps operations manager to schedule and manage all operations for various groups and teams simultaneously depending upon the work load and pattern and thereby manage resource allocation too.

Another critical function of WMS is the cycle count process which is required to maintain the

health of the inventory. WMS initiates daily cycle count and wall to wall counts as per user

specification and attributes.

Lastly WMS is able to provide various types and categories of reports and information related to

inventory, shipments, transactions, timings of transactions and many more parameters.

Selecting 3PL Service Provider for Warehouse Management inShare1

Global business models are rapidly changing. Shorter life cycles of products and new business

needs exert pressure on Supply Chain managers to keep pace with the new scenarios. They are

often faced with the target to reduce logistical costs and establish new supply networks.

It has now become a common practice to outsource all logistical activities to third party

vendors both in procurement side of logistics as well as finished goods, spare parts and reverse

logistics areas too.

Today the 3PL service providers market is filled with players of all sizes and competencies,

from single owner driven local service provider to multi national companies. Most of the

companies have traditionally been transporters or freight forwarders and over the years have

acquired warehousing and contract management capabilities keeping in line with the growing

needs.

Selecting a 3PL service provider to provide warehousing services needs careful

considerations on the part of the SCM manager responsible for the decision. The right

partner selection is important because you are handing over the companies assets to someone

else’s custody and secondly any performance hindrance can seriously effect the sales and

revenues of the company in case of FG Supply chain or effect the plant production in case of

Raw Material supplies.

1. Size of company, Structure & Responsiveness

The business volumes and size of the project will determine the selection of the Service

provider. Most of the Multi National Companies are able to offer integrated logistics

services to manage the entire supply chain including freight, transportation and

warehousing, you will also find companies at regional or local levels who offer

warehousing as a core competency area.

The size of the company is important as a key parameter as one would not want to deal

with a small company which does not have the capability to invest or a fly by night

operator. The Management structure of the company holds clue to their focus on the

various businesses and customers. This will enable you to find out the kind of

management focus that the service provider has in warehousing or CL as a product.

A multi national company being able to invest into your business does not necessarily

make for the best choice. They can more often turn out to be expensive. Besides

availability of CL expertise in another location or country does not necessarily ensure

competence locally. However Multi nationals are preferred as partners most of the times

due to many other advantages like integrated services, global standards, ability to invest

etc.

Responsiveness measures the quality and speed with which the service provider

company responds to your bid request and engages with you to offer a solution. The

nature of response and interaction hold key to the company’s culture and enables us to

evaluate options of investing into a relationship or partnership possibility.

2. Technical & Operational competency of Vendor

A vendor should be able to demonstrate the competency in terms of its experience in

managing functions for other customers and products. Besides the competency can be

demonstrated and seen in the solution building process or document prepared and

presented by the vendor.

A company with experience in managing distribution center operations would have the

team comprising of people with sufficient experience in the operations at management

level, supervisory and staff levels.

The company needs have to have a strong IT management and functional operational

competence and capability in managing the IT system at site as well as being able to

support the site with IT administration at management level.

3. Service provider’s interest and attitude towards your business proposal

The capability, interest and attitude of the vendor would help you to choose the vendor

who is interested in your business with long term prospect and is willing to invest time,

money and effort and not somebody who is chasing business as a sales target and

doesn’t have the required interest, organizational and operational capability to service

your business.

Lastly the cost drivers play a major role in vendor selection for the project. An RFQ document

should seek information on above criteria from the vendor and the process of selection should

be based on evaluation, demonstration coupled with site visits to vendor’s site to assess overall

suitability.

Selecting 3PL Service Partner inShare

When an Organization chooses to outsource its inventory management services, the project

success hinges on choosing the right partner because the stakes in a warehouse management

projects are very high. Besides the impact to the other functions like manufacturing or

markets, the third party service provider is the custodian of your inventory which meaning

your money is in someone else’s hands.

So the question one needs to ask for is - What are we looking for in a 3PL Partner ?

The answer to this question will take you through few of the important factors that are to be

considered.

Choice between Multi National 3PL Service Provider or Local Service Provider

This is often a dilemma faced by SCM managers while choosing the partners. Dealing with Multi

National Companies has its advantages. Normally the MNC service providers provide integrated

logistics services which gives you value addition besides seamless service coupled with lower

costs. Strategically it makes sense to go with Multi National companies who are able to leverage

on their competence available across the network and provide standardized processes across

various locations.

However on the flip side, these companies may not have the same management focus and

competence in all countries and all locations. Besides many companies have been traditionally

transportation providers who have acquired warehousing competence and skill sets and are not

warehouse centric or focused players.

Domestic Service providers on the other hand would know the laws of the land better and know

how things work. They will have the local expertise and capability to manage operations and

resources better. By virtue of them being local and small players, one can expect better focus and

attention.

The choice is a difficult one to make. At the end it depends upon the size of the project, the

number of locations and the company’s policies besides any local specific situations to decide on

the above.

Global companies prefer to tie up with Multi National Players to be able to leverage on their

network as well as operate with a global agreement. With a lot of business in transportation and

warehousing being given to a MNC, the buyer can have a better bargaining power with the 3PL

provider. Contractual obligations, third party obligation and local statutory compliances can be

easily owned and managed by MNC 3PL providers.

Service Provider Capability Evaluation

Evaluation of a 3PL service provider involves understanding of their capabilities both in terms of

technical competence, operational capabilities and Management Culture.

The evaluation normally consists of Detailed Response document to RFQ from the 3PL service

provider, followed by presentation by the 3PL and subsequent site visits to the proposed location,

site visits to other locations /operations of 3PL, coupled with customer references. Detailing

these processes becomes important especially in the case of a bigger project depending upon the

criticality of the project.

Management Focus / Involvement and commitment at corporate and local level

Often the face to the markets from the 3PL side is the marketing and BD teams. As contract

logistics is capital intensive and operations intensive, it is important to understand the company

management’s focus and commitment towards this part of the business, especially in cases where

3PL is a Integrated Service Provider with other logistics businesses. A management interested

and focused on CL business is likely to invest into building a long term relationship and enhance

its competence and deliver better value proposition to the buyer. Company profile and meetings

with management will enable one to assess this criterion.

The other important and relevant areas to be evaluated are the IT Backbone and capabilities of

the 3PL and its experience and expertise in deploying and managing WMS systems.

Expertise in Operations and inventory management as core functions coupled with project

management capability, local expertise availability and quality programs etc can be judged from

the response document and subsequent personal discussions and site visits.

Internal Planning for Effective Operations in Warehousing Projects inShare

Globally outsourcing 3PL Market is growing fast. In the US the industry is expected to reach

over $150 billion as compared to a global estimate standing at $450 billion as per industry

experts estimates.

Companies aiming for aggressive growth in global scenario recognize the need to partner with

3PL logistics providers to be able to establish supply chain networks across countries.

Outsourcing is the only vehicle with which they can operate and cannot afford to manage

functions in house.

Warehousing activities whether in Finished Goods logistics or Plant logistics, are very critical to the

entire supply chain. Take the example of an automobile manufacturer who depends upon a 3PL to

manage complete inbound activities including vehicle unloading, inventory management and JIT

supplies to the plant. The manufacturing facility completely is dependant upon the 3PL service provider.

Both the buyer and 3PL co exist together at the same location, over a period of time the systems and

operations get enmeshed and integrated in the process of localization and finding practical solutions. In

such cases any non

performance on the part of 3PL will due to any reason will affect the plant output. It is not possible to

make a sudden switch to another 3PL overnight. Hence the marriage has to be lived through and

managed.

Therefore choosing a 3PL partner for your warehouse operations needs thoughtful considerations

and evaluation. Of course, any project of this nature is dependant upon the relationship between

the buyer and 3PL. Collaborative and partnership approaches have yielded very good results than

a buyer and seller relationship. Where ever buyers have invested time and interest in engaging

directly with 3PL operations, with helping in training and periodic assessments coupled with

motivational exercises have helped 3PL operations remain focused on the deliverables and

maintain efficiencies.

Before you start looking for a 3PL partner, internal alignment with management, clarity of the

project and criteria for selecting 3PL Partner is to be worked out in detail.

Following factors are to be considered internally to plan the exercise:

1. Internal Decisions a. Outsourcing project should be clearly defined as to Scope of Activity, Business Risks

Identified. Decision to outsource with definite timelines inline with business function should be approved by Management.

b. Budgetary approvals should be in place for the project implementation as well as the monthly logistical service outflow from concerned business functions and Management.

Without clarity, many times RFP & RFQs are floated and discarded resulting in

wastage of time and effort of all parties concerned.

2. Defining Project Scope and Responsibilities

Plant Supply Warehouses, Regional Distribution Centers, VMI etc projects are often very

huge in size of operations as compared to a flow through finished goods warehouse in a

supply chain network.

Such big projects are characterized by huge capital outlay, multiple process designs, and

infrastructure intensive and involve complex IT system design and interfaces.

RFP / RFQ would need to define each element very clearly and describe the scope of

activity and responsibility on the part of the buyer as well as the 3PL.

The document should define clearly the capabilities and competencies required for the

project, the timelines and deliverables.

Detailed understanding of the project scope will ensure that only the 3PL who has the

required capability and strength will bid for the project.

3. An outsourcing project should have clear internal guidelines with regard to the ownership of the project, individual program owners, business unit who will own the project after implementation coupled with operation management and escalation process.

This information can be shared with the 3PL in the RFQ and one should expect similar

structure from the 3PL in its response document.

4. Defining Length of the Contract with possible scope for extension and period of extension is essential to help 3PL work out financials. It helps to define the methodology of costing template along with the RFQ to ensure common platform.

5. Finally determining process for evaluation of vendor is very essential. What are the capabilities that you look for in a 3PL, what is the selection criteria, who are the internal team members to be involved in selection process and decision making should be clearly enumerated.

A well thought out internal proposal and RFQ document will help you find the best fit and

smooth project implementation.

Warehouse Design Concepts inShare

Supply chain efficiencies depend upon the efficiency of logistics including transportation and

warehousing operations. Warehouse efficiencies depend upon a combination of warehouse

design, layout, infrastructure, systems, process and people.

In cases where one is able to design a warehouse and implement the complete project from

ground zero, gives the SCM Project manager a good scope to create a tailor made solution

design matching the exact requirement, thereby increase efficiency as well as reduce

transactional cost. However this may not be the case all the time. In an ongoing situation, often

SCM managers are forced to take up available facilities and work around the available design

and try to get the best results.

Warehouse Design element aims to maximize the utility of space, equipment and

efficiency of operations. We will briefly cover the various elements of a warehouse design

and understand their importance.

In basic functional aspects, a warehouse function consists of - Material receipts including

unloading, unpacking and inspection, put away and Storage of materials in various categories of

storage locations, systems updating, pull materials for dispatch and delivery of materials after

processing.

Warehouse Location, Layout and Building

The location of a warehouse should ideally be situated in a flat ground. The location should be

easily approachable and in a area suited for this nature of business. Locations closer to markets

or to national highways would be ideal. Public transportation and communication infrastructure

should also be available.

The layout of the building should be designed to accommodate fleet parking, and enable

containers to drive in and drive out easily. Any time two containers should be able to pass

through on the path without any interruption. There should be enough free space for vehicles to

maneuver. The layout should also provide for other utility, safety and security operations.

Building is normally constructed using galvanized metallic sheets mounted on C Section girdles.

The flooring should be RCC concrete with weight bearing capacity as per requirement of the

load to be calculated in each case. The ground should be flat, even and smooth surface to

facilitate MHE movements and dust free.

The roof height would be a major consideration to be able to install multi vertical storage

racking installation. The walls and roof should be designed with suitable lighting panels and

ventilators for air exchange fitted with bird cages.

The number of loading and unloading docs and placement of these docs play an important role

in the design of operations and efficiency of operation. All weather docks and the facility should

enable 24 hours operations. Dock Levels. The docks should be equipped with dock levelers and

all these have to be installed during construction phase itself. Ramps have to be provided to

facilitate movement of forklift etc.

Lighting design will depend upon the layout and the racking design.

Internal Layout

Internal layout design will be built taking into account the operational process, nature of goods,

volumes of transactions both inbound and outbound, storage types, in house operations

involving put away and pull sequences and process requirements including packing, kitting etc

and the availability of floor space coupled with building layout design of inbound and outbound

docks.

The design aims to maximize space utilization, minimize MHE movement and Manpower

movement.

Types of Storage

Types of storage are determined by the nature of cargo. Depending upon the cargo whether

finished goods, raw material parts etc, the types of storage can vary from bulk stock, block stock,

racking, pallet racking, shelf racking, binning, unit pick or loose pick face, carton pick etc. The

storage types vary with nature of materials with different types of storage designs for drums,

pallets, tires, cartons, tube and rods etc.

Racking Designs & Material Handling Equipment

Racking Design takes into account the storage type, storage unit, volume and weight coupled

with the available floor space and roof height to design system which maximizes the storage

capacity. Put away and picking process and transactional volumes are also taken into

consideration. The inventory profile study would include detailing of number of SKUs in each

category of fast moving, slow moving or other criteria as per the nature of business and the

storage type would be designed as per the inventory profile and the process.

Racking designs are very many and varies with the type of industries and nature of inventory.

Normal racking designs include pallet racking on multiple levels. You can have shelving,

binning or combination of bulk stock and forward pick face racking designs. Block stack racking

and other types of high density racking can be found in FG warehouses. Mezzanine store binning

and shelving rack designs are normally designed for spare parts and small parts.

Highly automated racking designs can have automatic retrieval systems and conveyors in the

warehouse.

Material Handling Equipments are specified based on rack design coupled with pallet design,

nature of cargo, weight and the warehouse layout etc. Forklifts, reach trucks, hand pallet jacks,

trolleys are normal Material handling equipments in normal warehousing operations.

Warehouse Operational Efficiency Contributing Factors inShare

Managing Warehouse Operations is akin to playing symphony with people, systems and

processes. As long as these elements are balanced and in harmony the operations go on

smoothly and efficiently.

People

People are very important assets of warehouse operations. Human resources can be the strongest

and the weakest link to warehouse performance.

Even in a highly automated and system controlled design, warehouse operations are heavily

dependant upon people to run and manage operations.

Typically in warehouse operations, besides management structure, the operations resource

categories are MHE Operators, Operations staff who manage shipments, put away, material

picking tasks and other operations including labeling, packing, kitting, inventory counting,

documentation and systems operators. These resources are mainly categorized into team leaders

and operators.

Normally in warehouse operations, the manpower resources structure is employed in a mix of, on

the company role jobs, on contract and temporary or daily wages and outsourced contract labor.

The categorization is based on the nature and skill set requirement of each job coupled with

criticality of the position and the local supply and availability of resources.

Workforce - Qty, Job Structure

Many times in 3rd party managed warehouses, workforce strength is often an issue which affects

the operational efficiency. It has been noticed several times that few local managements try to

cut corners by under staffing at various levels and extending the working hours or job

responsibilities and trying to save costs. There can be several instances of shortage of manpower

from the strength that has been planned and budgeted for.

Any warehouse operations needs to have an optimum workforce budgeted based on clear cut

tasks and volumes of transactions. As all operations are time bound activities having inter-related

tasks and dependencies, estimation of work and work division clarity is essential to avoid over

staffing or under staffing. Over staffing can result in slackness in individual performance levels

besides increasing the costs.

Warehouse activities very often are found to be seasonal and cyclical. The business type and

seasons resulting in peak seasons and low seasons place similar demands on the warehouse to

step up operational through puts or cu down on operations. Besides internal requirement also

creates temporary demand for workforce. Extra teams are called for during year end operations,

annual wall to wall stock takes or any internal inventory exercises etc.

Warehouses source temporary labor and resources from local nearby areas to mange these

sudden surge in demands. Any change in internal process or business process or improvement in

systems and processes can lead to redundancies. Many times, they are having to face over

staffing problems and need to look at ways to reduce numbers or re deploy resources into other

activities. Therefore warehouse operations are never in a stable state or status quo for a long

time. Managing people dynamics holds key to managing operations effectively.

Right skill sets

In warehousing operations, process and system compliance demands keen focus and discipline at

all levels. The skill sets and attitude requirements are different for different jobs. The skill set

requirement is more linked to attitude and functional capability of the persons and less dependant

upon knowledge or educational qualification.

Any person who works on Forklift would need to have a good sense of control, direction and

patience. Similarly a picker would need to be able to identify and have a feel of locations,

Inventory SKU types and be able to identify the part numbers, description.

At operating level, people are required to understand what is expected of them, be able to follow

the process and comply with the process and instructions. The operations require manual

dexterity and ability to be on feet for long durations besides being able to bend down and reach

up constantly to pick up items. Ability to lift small weights and walking distances in the

warehouse are a Must Have strengths. These practical points have to be kept in mind and

evaluated while hiring people.

Attitude and Outlook

It has been seen in warehouse operations that the workforce attitude towards the company, job

and customer plays an important role in the operations. Studies done in various cases have shown

a direct link between people’s attitude and commitment to day to day operations. Wrong

shipments, short shipments and defective deliveries coupled with warehouse equipment damage,

misuse and accidents are few of the results of the problems that show up and need correction of

attitudes at individual levels. Inventory management functions are highly vulnerable to

individual performance and attention to detail.

A good warehousing operations management team who is sensitive to the above factors and is

equipped to manage a team and the dynamics would be successful in ensuring efficient

operations.

Warehouse Operational Efficiency and Inventory Health inShare

Any warehouse operations are measured by service levels, volume of transactions handled

quality of transactions and most importantly inventory health maintained.

By Inventory health in a warehouse, we are referring to Physical Inventory Accuracy, the way

inventory is physically kept in locations and discipline maintained in transactions, inventory

maintained in the system.

Inventory Health in turn is dependant upon System setup, floor layout and infrastructure coupled

with defined process, compliance and regular inventory checking, audit and training.

The key to good warehouse operations is reflected in availability of documented process

covering all above mentioned functions and documented proof of day to day compliance of

above tasks.

All warehouse processes are documented in Standard Operating Procedure which is the guiding

bible. These processes are further broken down to Work Instructions for each job function and

task or activity.

Physical Inventory

Warehouse floor will have layout design with designated areas for stocking inbound materials

waiting to be in warded, stocking locations with locations marked either in racks, shelves, bins or

floor locations to store pallet level, carton level or unit level items and outbound shipment area

where materials are removed from inventory locations and kept for consolidation and preparing

cargo for outbound shipments.

A good warehouse floor will have clearly marked aisles, locations with labels depicting various

kinds of inventory like good stock, stock on hold/ QA, defectives, returns materials, reserve

stocks etc.

The key to inventory health as well as to operational efficiency lies in people following process

to keep the right material in the right location, in the right way and updating system transaction

to complete the cycle.

Location accuracy is critical to the operations. In a huge operation, materials are picked based on

system guided pick lists or RF enabled picking. Any wrong material lying in the location picked

may get missed out in the process and end up as wrong shipment or pickers may have to waste a

lot of time looking for right part numbers if the location accuracy is not perfect and the lead

times cannot be maintained.

System Inventory

Warehouse operations and stocks are driven by Inventory management systems or warehouse

management systems. WMS systems manage locations, initiate and control transactions for in

warding and outward shipments tasks coupled with inventory management besides interacting

with external sources to receive advance shipment notices and to report back on warehouse

inventory and transactions.

In all cases system transactions and physical transactions are very closely linked. System always

initiates action and tasks which is executed by Physical operations.

Since system is the brain that drives operations and inventory, system inventory and physical

inventory needs to be matching perfectly at all times.

Matching system transactions with physical transaction is a must and very crucial in day to day

operations. All system transactions have bearing on physical transactions and vice versa.

Therefore process adherence to complete transactions is a must.

Taking a simple example, if an operator initiates a change of location of one particular part

number for operational purpose and does not update system, the system inventory will show

wrong inventory location and not match with physical location. Similarly if the system initiates

any transaction which is not made good on the location will impact stocks adversely.

In an ongoing operation thousands of transaction keep taking place in the system and tasks keep

getting generated and updated. Even in an RF driven operations scenario, there is always a need

to ensure that every system transaction is closed.

Best practices in warehouse operations involve daily audit of system transaction audit and

location accuracy audit on continuous basis on all shift. System integrity checks are also

conducted frequently.

Inventory Audits

Finally a warehouse which gives important to inventory audits as much as to its operations

reflects good healthy warehouse operations.

Inventory checking and counting is practiced as a daily activity. Inventory counting teams

consist of system operators and shop floor operatives. Inventory counts are normally system

driven and stratified where a percentage of locations or Inventory is verified as per list thrown up

by the system. In a 4 week cycle or a quarterly cycle all locations in the warehouse would have

been counted and system throws up inventory discrepancies and transactions which are then

resolved by management. Annually wall to wall audits are conducted to count all inventory in the

warehouse before starting a new database for New Year.

Contract Logistics & Warehousing - Pricing & Costing Mechanisms inShare

3PL logistics Service Providers are many in the market. There are players from Multi National

background, regional players, local companies and individual managed business organizations.

Warehousing business on the other hand can include flow through warehouses, consolidation

and merging centers, finished goods stocking points, forward locations, raw material

warehouses, JIT / VMI operations, Bonded warehouses, in plant warehouses etc. depending

upon the business requirement.

In this section of the article, we proposed to cover pricing mechanism aspects of a small

warehouse like a consolidation center or finished goods flow through warehouse which need not

be dedicated to the buyer alone and can be a shared facility.

Normally the bigger operations involving inventory management etc are considered stand alone

facilities and costing is worked out for the entire project and this part of discussion is not

covered under the scope of this article.

Normally in Finished goods supply chain or raw material supply chains, there would be a need

for a warehouse facility en route to the plant or to the markets. These warehouses can be

consolidation centers or merging centers in case of finished goods where different components of

the order or finished goods are brought in from various locations, merged together and

dispatched to the next leg of the network. In case of raw material supplies, there can be a

consolidation center at a country level where all shipments from various buyers are consolidated

and shipped out as a container load.

Such kinds of warehousing requirements may not call for dedicated facilities. Normally the 3PL

service provider who manages the freight will have warehouses which are used as shared or

common facilities. In few cases public warehouses are also used by the buyers as the case may

be.

General cargo warehouses or shared facilities and public warehouses are warehouses which

house cargo of various clients. Depending upon the clients requirements, materials can be stored

per day, per week or per month etc. Inventory held of each customer may not be very high.

Storage Space

Storage and space options provided by the 3PL in such cases can vary with the client’s nature of

business. In a country consolidation center, where multiple shipments are stored and

consolidated, the buyer may contract a fixed space on square foot basis with specified number of

locations.

In another case of a merging center, the buyer may not contract fixed space and pay on

transaction basis.

Public warehouses normally rent out space in terms of per pallet storage.

Pricing

1. Fixed Price: In cases where the buyer contracts a fixed space, the costing model will be based on a fixed fee per month including cost of space, resources, infrastructure etc.

Even in Fixed Fee model, there are many variations in pricing models.

2. Transaction based pricing model: Wherever there is no fixed space allocation, the transactional pricing models are in vogue. Variable pricing models are many. Some of the usual methods of pricing are - Per pallet price, per unit or per Kg -volumetric weight /volume price, per transaction price including price per inward, per shipment etc.

Normally in transactional pricing model, the buyer’s requirement will be minimalist and

does not call for any specific or dedicated investments. The 3PL provider normally uses

his general or public facility and recovers his total cost of investment and operations on

the volume or transactions.

Contract Logistics Pricing Methods inShare

Warehousing and Contract Logistics forms an important part of Supply Chain Networks.

Contract Logistics projects are of two kinds. The first being a flow through warehouse which

can be a Finished Goods warehouse for the purpose of consolidation and merging or

documentation purposes or in case of supplier shipments, inventories being consolidated to

enable FCL shipments. Often supply chain logistics call for shipments and cargo to be

warehoused at the point of origin or destination. In all such cases, warehousing facilities are

normally public warehouses or shared and common facilities offered by 3PL are used.

The second kind of Contract Logistics projects involves larger projects which are client specific

and dedicated. Such warehousing projects may be called for in Supplier inventory management

and supplies to the Plant or manufacturing lines called in plant logistics or models like JIT,

VMI warehouses. In case of Finished Goods too, the distribution centers, FG warehouse and

hubs at regional or country level entail dedicated facility.

Warehousing Projects are normally managed through an RFQ process where the qualified 3PL

vendors bid for the business with the response document containing solution design, followed by

presentations and negotiations with final selected 3PL supplier. Many companies prefer to

suggest a pricing mechanism or model in the RFQ to enable them to compare the various bids as

well as have clarity on costs involved therein.

Types of Pricing Models in Contract Logistics:

1. Fee based on percentage of Sales Turnover or volume. 2. Cost Plus model 3. Price per Sq. Ft 4. Transaction and Fixed Price combination 5. Cost per transaction or per unit pricing

Fee based on percentage of Sales Turnover or volume.

Traditionally warehousing service providers who are called carrying and forwarding agencies

involved mainly in Finished Goods logistics have practiced the pricing mechanism of charging

Warehousing Fee as a percentage of sales billed per month. The fee can vary anywhere from 0.5

to 2% of the monthly gross sales turnover. This practice has been in vogue in a multi tier supply

chain network involving distributors at state levels and further regional distributors and so on.

This pricing mechanism includes a basic minimum guarantee pricing called as floor price. Floor

price or minimum price covers the fixed cost expenses of the warehouse. The revenue earned by

the 3PL varies with the sales revenue. 3PL stands to gain during peak months and loose during

slack months. The variable cost that has a major impact on the costing is labor. 3PL service

providers manage this costing by employing minimum number of human resources and add on

temporary labor only when required.

While 3PL is generally aware of the market conditions and sales estimation for the buyer’s

products he stands to make a gain when the sales shoot up. Buyer on the other hand would find it

easier to account the cost as a standard percentage of the sales turnover without having to get

into other operational details.

Cost Plus model

Large size projects which are dedicated and setup as per a buyer’s requirement are normally run

based on Cost plus model. As the name suggests, the pricing mechanism involves estimating the

total cost of running operations and profit as a Management Fee which is fixed as a percentage of

the total cost.

This costing method works well when the project size is huge and operations include multiple

transactions and value added activities within the warehouse. A large size warehousing project

calls for huge investments to create the building and infrastructure. The build may have to be

built or may be hired by paying a security deposit. Infrastructure investments would include

racking or shelving systems, material handling equipments including Forklifts, Reach Trucks,

Dock levelers etc, conveyer or any other equipment needed. IT infrastructure can include cost of

hardware including servers, desktops, laptops, printers, RF equipment etc.

In view of the size of the project and the investments involved, the contract or project is awarded

for 3 years with two extensions of one year each. This helps the 3PL to amortize the investments

over the contract period.

Contract Logistics Cost Model inShare

Warehousing Costing methods vary with the business models. While some warehouses using

common shared facilities may be worked up based on transaction costs, dedicated and stand

alone facilities would be on a different costing model.

In this section, we shall go through the cost elements of a warehouse project briefly.

Warehouse Cost elements are primarily divided into Fixed Costs, Variable costs and Overheads.

1. Cost of Land & Building

This cost element is included if the land and building is provided by the 3PL and not the

buyer.

Incase the land and building is acquired by the 3PL, the cost of land and building may be

amortized over the life of the building or as per industry standards (average 10-12 years)

and proportionate monthly costs can be added. One needs to ensure that the costs are

realistic and nearer to market rates for rentals.

Incase the land and building is rented by the 3PL, the cost of monthly rental along with

the cost of funds for security deposit may be added to the costing.

All costs would be worked out for the term of contract period with annual escalations

considered annually.

2. Infrastructure Cost

Cost of acquisition of all infrastructure including racks, MHE, Charging equipments,

dock levelers and any other equipment including office equipments are itemized and

amortized over the contract period or over the shelf life of the equipment as the case may

be, to arrive at monthly cost of infrastructure.

3. IT Infrastructure

IT infrastructure consists of cost of Hardware & Cost of Software. Hardware covers all

servers, desktops, printers, laptops, RF Equipments and any other IT related hardware.

Software application costs include cost of WMS based on one time fee or individual

number of user license, cost of other soft wares including mailing system and any

operations related soft wares.

IT Costs are amortized over two or three years depending upon statutory audit guidelines.

4. Manpower

Detailed manpower costing will include cost of Management Staff, Operating staff, in

house operatives and outsourced operatives like labor, MHE Drivers etc. Outsourced

security staff costs are also added under this item heading.

In case of in-house staff, detailed calculations based on cost to the company is worked

out including staff benefit, insurance, bonus, training costs, uniform etc. along with

proposed incremental cost over the number of years as per contract period.

Outsourced staff costs are also tabulated for the contract period including annual

escalations.

5. Utilities & Consumables

Utilities are not fixed costs. They are monthly variable costs. The items in this category

are the costs towards office and communication expenses including telephones, internet

etc, stationary and consumables both for office and shop floor items like tapes, packing

materials etc, cost of electricity, water, fuel etc.

6. Administrative expenses

Costs of office support, cost of insurance and third party liabilities and travel costs etc

including any other statutory costs, deposits are covered here.

7. Overheads

Cost of management time is estimated and included here. Alternatively a percentage of

corporate or regional office cost overhead is loaded.

Cost of money or interest cost on working capital for 3 months can be included.

8. Profit / Management Fee

Management fee can be added as a percentage of total cost or a fixed amount.

Contract Logistics Solution Design Document inShare

In any project involving outsourcing of warehousing operations, setting up a Distribution

Center or Managing Plant logistics, if the project involves setting up dedicated facility for the

customer and the size of the project is huge; such project requires detailed attention and work

from both parties. The buyer would have to detail the requirements in the RFQ document and

the 3PL service provider would have to work on designing a detailed solution.

The RFQ response document holds the key to showcase the proposed solution and the vendors

understanding of the requirement and capability.

In this article we proposed to cover the components of the solution design document in brief.

A response document to an RFQ will normally contain the following sections:

Covering Letter with List of Enclosures Solution Design Case Study of 3PL’s other works of experience in similar industry with photos or video if

possible. Company Profile, Management Structure and financial information as requested in the RFQ, Project Implementation information detailing project team, project sponsor and management

team, proposed timelines and schedule etc. Pricing Terms and Conditions of offer Any identified deviations from the RFQ assumptions or requirements with justification Any other information supporting the solution design.

Solution Design Document

Solution Design document is the main part of a response document, which details the solution

proposed matching with the requirements of the buyer.

Solution design generation is generally driven by Business Development team with the active

involvement of a solution design team. The solution design team would have the required

competence, engineering capability and tools to prepare the design. Functional experts or Subject

Matter Experts and operational experts are brought in to collaborate with solution design

wherever required.

Once solution design is ready, it is reviewed by operations team and IT besides costing team for

internal acceptance and approval before being submitted to the client.

A solution design normally consists of:

General:

- Detailing business process, requirement and assumptions as understood from RFQ.

- Inventory analysis and other data analysis and resultant assumptions made in design

Proposed Location:

- Explain details pertaining to the selection of proposed site, facility drawing, layout and

structural details including height, number of bays etc.

Proposed Infrastructure:

- Proposed Racking and Internal Layout Design with explanation on storage type selection,

number of locations, total storage capacity etc. including technical details of the racking.

- Material Handling equipments and details.

- All other infrastructure and equipment details.

IT:

- Proposed System / Application with technical information including possible enhancement

requirements to support business operations.

- Outline benefits of using the system and how it fits into buyer’s requirement

- System and network architecture design map with Document interface requirements and

other technical points relevant to enable interaction between 3PL and buyer’s systems.

- Hardware and Network plan

- IT infrastructure specification and list of equipments including RF equipment, labeling and

printing machines, desk tops, Laptops etc.

- Detailed implementation plan if possible.

Process / Operations:

- Process document should provide complete over view of the internal operations process

combined with systems and physical processes. This document should be able to give a clear

picture to the reader and enable him to visualize the entire process within the facility.

Human Resource:

- List of total manpower assumption worked out

- Proposed operations management structure

- Escalation Route and structure

- Details on how recruitments will be managed for the project

- Brief on company policy on hiring, recruitment and HR management practices

Other information:

- EHS, Safety & Security Management plan with details.

- Maintenance Plan

- Disaster Recovery Plan, including IT recovery.

- Quality Policy and Quality systems implementation plan

Inventory Migration - Meaning, its need and importance inShare

The need for Inventory Migration from one warehouse to another warehouse does not come

about very often in Supply Chain Operations. However, some times the business demands

necessitate a change of warehousing location, setting up a new location or even a change of

business model.

The occasion and need for an inventory migration can come about due to many reasons:

Non performance of a 3PL service provider A change in tax policy of the government A shift in market dynamics calling for a change of location Change of Business Model Product Mix and supply chain strategy or a simple case of increase of business volume could

make a case for shifting or setting up of a new warehouse and closing down a currently operating warehouse.

There could be many more reasons apart from the above mentioned situations warranting an inventory

migration.

A successful migration will depend upon carefully planning, detailing of every activity,

simulation and trials, combined with team training and briefing exercises. Such a project

involves and affects all functions including marketing, IT, finance, operations, order fulfillment,

inventory planners and controllers, procurement, 3PL service provider, transporters, legal and tax

compliance teams and finally the management.

The project leader in charge of the project would have to have the knowledge to design

operational processes for the entire project coupled with knowledge of the activities and

functional departments involved in the entire exercise.

The first exercise involved would be to set up cross functional project team, drawing leaders

from all functional departments. If the proposed operations are being managed by a 3PL, then the

team would have to include them as well. In fact in such cases the 3PL would need to form an

internal project team with a project manager too. Effectively there would be two project teams

managing the project and taking joint responsibility. First team would be from the Principle

Company and second team from the 3PL. While the design, process, budgets, guidelines, project

management would be driven from the company, the 3PL will manage to get the new facility

ready, setup the team, training, getting ready to receive materials and start operations, besides

planning for transportation and inventory movement.

The project being very critical in nature would need a Project Sponsor who will review as

Management and facilitate and co-ordinate to ensure timely decisions, resources are made

available and manage communication with other departments and partners. The 3PL provider too

will be required to setup a similar management structure to facilitate the project.

A very important aspect of managing a smooth inventory migration is to build a healthy

dialogue and continuous communication with the existing 3PL service provider to ensure

the ongoing operations at the project planning stage are not disrupted and the Service provider

co-operates with the company and the new 3PL in working together to hand over the inventory

and assets belonging to the company as per laid down process and comply. Periodic meetings

and contract review discussions have to be held to iron out differences arising out of the situation

and would have to be handled sensitively and intelligently with patience.

Inventory Migration Scope inShare

Inventory Migration is a mammoth project exercise involving internal teams as well as

many external agencies. Detailed planning, process, simulation and training are the basis

to ensure successful inventory migration exercise.

Project Teams would consist of teams from all functional departments namely finance, legal

/compliance, inventory planners, IT, procurement, marketing, order fulfillment and logistics &

Facilities team and headed by a Project Leader who knows the operational details involved in

such a project. A similar project team is required to be setup at the 3PL service provider’s end

too. The project also calls for Project sponsors from management to oversee and facilitate the

project decisions.

In this article, we aim to cover briefly the various functions that are required to be planned in a

project for inventory migration to give an inside view of the project.

The project planning and execution revolves around the setting of a target date for start up

operations from the new facility after migration. All activities originate after this announcement.

Normally the transitions should be planned in a lean month or period when the demand on

logistics supply chain is likely to be lean and the inventory in the warehouse is at the lowest

level.

Marketing, Sales and Order Fulfillment departments would have to announce the plans to the

distributors, channel partners and the rest of the players in the chain and plan to increase the

stocks at the forward locations to cover up for the period of migration when the supplies are

likely to get disrupted. The new location address and details would have to be informed to the

markets.

Procurement, inventory planners and logistics will plan for holding required stocks in the

pipeline, plan for a lean inventory in the warehouse by shipping out and liquidating stocks as

much as possible, stop inbound shipments during the transition period and inform all vendors,

suppliers, freight forwarders of the new warehouse location for future transactions.

Legal compliance would entail registering the new facility with the authorities and obtaining the

necessary licenses, permissions and clearances from all statutory authorities concerned. This

would have to be complied with, both by the company as well as the 3PL service provider in

their respective areas of obligation.

Inventory process planning involves three major components. Firstly, the volume of inventory to

be transferred has to be estimated, number of container loads calculated. This becomes the input

for the rest of the major activities to be planned including transportation planning, resource

planning, determining lead times for inventory handing over at the existing warehouse, transit

time estimation and time for receiving and put away of inventory at the receiving warehouse.

Process planning would entail following activities at the existing warehouse. Step by step

preparation of inventory at the existing warehouse for shipment, sequence of inventory handing

over by the existing warehouse for shipping out, process of counting and handing over inventory,

handing over documentation and sign off process. The plan should also cover the allocation of

necessary resources, teams including supervisory and management staff.

Transport management planning would have to ensure that the transporter provides dedicated

capacity and containers as planned without disruption. Sufficient arrangements for loading

equipments and teams would have to be planned for. The inventory loading plan should cover

details of how inventory would be loaded in sequence and the documentation process. The

documents and loading information would have to be passed on to the receiving warehouse

electronically before shipment reaches, so that the receiving teams can prepare the systems and

teams in advance with the information on what to expect in each container.

The receiving team operations would have to plan in detail to receive shipments, unload, count

and put away materials and upload the inventory into the system before declaring the warehouse

ready to start operations and serve orders.

IT plays an important and critical role. Detailed planning would entail setting up of new location

and transfer of inventory in the system or transferring the existing inventory database to the new

service provider. Aspects of location changes, layout changes or process changes would have to

be worked out in detail, along with trails undertaken to ensure interfacing and data transfer in

sync with the WMS at the new service location. In a migration scene, resolving the inventory

discrepancies arising from the transfer and ensuring a hundred percent matching of physical

inventory to the new system upload at the new warehouse location with the system at the

companies end is most critical to the entire operations.

Warranty Management - Meaning and its Components inShare

Warranty Management had been traditionally viewed by companies as a cost of doing business.

The costs of warranty management were found to be costing between 4 to 5 percent of the total

sales revenue of the company per annum and were considered to be the cost of providing

customer satisfaction and as an opportunity to building customer relationship.

However over the last few years, many organizations have realized the underlying value that can

be realized in this area. Today Warranty Management is considered to be a separate revenue

stream. The process of Warranty Management has evolved over a period of time. The

benchmarking of best practices have led to reduction in cost of service delivery of parts with

increase in customer satisfaction and a independent revenue stream of warranty services.

What is Warranty ?

Warranty is a statement of assurance or undertaking issued by the manufacturer of a product with

regard to the performance of the product and parts supplied by him by way of sale transaction to the

customer, for a certain period of time as

stated in the Warranty Card accompanying the product. In other words, it is a performance guarantee

for the product given by the manufacturer. In case of any defective performance due to the non

performance of any part or defect in any part of the product, will be made good by the supplier /

manufacturer with either replacement of the part or product or repair of the product.

Important Components of Warranty Management System

Warranty Management is today a separate function of Service Parts Management Stream in the

organization. Service Parts Managers are P & L heads of their department and the entire business

unit functions as a profit center with its own revenue and cost budget.

Service Parts Management Team

Service Parts Management Teams and structure are the Service Support Delivery owners and

function as primary contact points with the customer. At the first level Service support teams

comprise of Customer Desk which is the first point contact for the customers to register the

service request. Technicians and Engineers as front end site supports and second point contacts

to the customers. Parts Support Managers over see the functioning of the operations and take

responsibility to close calls and for delivery performance.

Warranty Management and Claims Processing System

The entire business process and workflow management is driven by the internet and e commerce

enabled system application which generally consists of the following modules:

Service Warranty Database and Tracker (Database information uploaded from Sales Module) Service Request Registration, authorization, service job ticket issue, job ticket closure & Report

functions. Parts procurement request, parts issue authorization Parts Inventory Management, Purchase Order Management, Repair Management, Vendor

management etc.

Logistics Service Management and Parts Supply Chain Management processes are driven

outside the above system, managed by 3PL service providers and Logistics teams.

SME Experts

Service Parts Teams are supported by a team of Subject Matter Experts. Escalation processes

determine the nature of technical support required to be assigned and timelines for service issue

closures.

Parts Procurement and Logistics

Parts Procurement and Logistics may be handled by a single department or by separate teams

depending upon the volume of business and the management structure.

These functions manage parts procurement functions, inbound logistics, parts warehousing and

distribution on the outbound cycle.

Reverse Logistics functions managed by the team involve - Parts collection, parts segregation,

inventory holding of defective parts, parts repair, warranty replacement with OE manufacturer,

Re Export and Waste disposal or Scrapping functions.

Warranty Management is Cross Functional Team Effort

Supply Chain Network and Technology inShare

The entire concept of business philosophy has move away from traditional model to being more

customer oriented, driven by demand and based on collaborative and joint operational strategies

across global markets.

Supply Chain Networks have in recent times evolved from simple sequential and liner

process networks to highly dynamic processes which call for information and sharing and

visibility to be available across the network coupled with decision making on real time

basis. Integrated approach to managing logistical tasks in a highly dynamic market place is

necessary as it involves a number of internal as well as external business processes and agencies

working in tandem to manage supply chains.

Logistics events at each stage of the network demands transactional exchange of information

and documentation which further leads to decision making by various stake holders at each

activity level on continuous basis. The technology has not only reduced supply chain timelines,

but increased its reliance on system and application capabilities to manage critical processes.

Applications today manage multiple functions in Supply Chain. While applications primarily

function as store house of information, database to capture all transactional information and

history, they also drive and enable processes in the supply chain.

Various technology platforms collaborate and function to enhance supply chain network

functions today. Applications like ERP with various modules covering all functions like MM,

SCM etc.

Warehouse Management System, Warranty Management System and many more core business

enterprise systems drive business processes in Supply Chain network.

However these systems alone do not suffice. Many more applications to support these systems

are used as required depending upon specific process and needs of the business. Supporting soft

wares may be used as stand alone applications or integrated with the ERP. Most often it is

found that the systems are used as stand alone applications without having to integrate with

ERP in lieu of the cost of integrating and the effort involved therein.

Let us take the example of a supply chain situation of managing multiple vendor supplies in a

warehouse owned and managed by a 3PL service provider on behalf of multiple vendors at the

buyers plant location to effect Just in Time supplies in a VMI Distribution Center. Operations

involve sellers at one end, the buyer at the other end besides in house operations and the freight

services and logistics of inbound traffic. The 3PL warehouse has to be linked with Buyer to

constantly publish updated inventory information and snapshots to buyer’s system to trigger call

off for materials to be supplies as well as to trigger procurement cycle. 3PL warehouse system

also needs to be talking to suppliers/sellers to give visibility to inventory to trigger

replenishment cycles in sellers system. Further 3PL Operations need visibility to trace and track

shipments in pipeline with the freight forwarder.

All these multiple systems talking to each other in real time is made possible by communication

enabling applications including interfaces, EDI, Internet, e-mail, Web Enabling of applications

etc.

Flow of Information and Cargo in a Supply Chain Network

In a highly evolved technology driven supply chain, the need for managing processes, events and

deviations on a 24 × 7 basis is a must. Multi process network, sharing knowledge,

information, and enabling transactions can be managed only with a electronically enabled

technology solutions driving businesses processes. These technology enterprises need to be

able to work on collaborative mode and be supported by infrastructure support and a IT strategy

at the business enterprise level.

Supply Chain Network Design & Contributing Factors inShare

Designing Supply Chain Network for each industry or business involves arriving at a satisfactory

design framework taking into all elements like product, market, process, technology, costs,

external environment and factors and their impact besides evaluating alternate scenarios suiting

your specific business requirements. No two supply chain designs can be the same. The network

design will vary depending upon many factors including location and whether you are looking at

national, regional or global business models.

1. Supply Chain Network in Simple and basic Terms Involves determining following process design:

Procurement

Where are your suppliers How will you procure raw materials and components

Manufacturing

Where will you locate the factories for manufacturing / assembly Manufacturing Methodology

Finished Good

Where will you hold inventories, Number of Warehouses, Location of warehouses etc. How will you distribute to markets - Transportation and Distribution logistics

All above decisions are influenced and driven by Key Driver which is the Customer

Fulfillment.

2. Designing Supply Chain Network involves determining and defining following Elements: Market Structure Demand Plotting or Estimation Market Segment Procurement Cost Product /Conversion Costs Logistics Costs including Inventory holding costs Over heads Cost of Sales

3. Network Design aims to define: Best fit Procurement model - Buying decision and processes- VMI, JIT, Kanban,

procurement cost models etc. Production processes - One or more number of plants, plant capacity design, Building

to order, build to stock etc, in-house manufacturing or outsource manufacturing and related decisions including technology for production.

Manufacturing Facility design - Location, Number of factories, size of unit, time frames for the plant setup project etc.

Finished Goods Supply Chain network - Number of warehouses, location & size of warehouses, inventory flow and volume decisions, transportation.

Sales and Marketing Decisions - Sales Channel and network strategy, Sales pricing and promotions, order management and fulfillment process, service delivery process definitions.

4. Network Design also examines: Derives cost estimates for every network element Examines ways to optimize costs and reduce costs Extrapolates cost impact over various product lines and all possible permutations and

combinations to project profitability 5. Some of the key factors that affect the supply chain network modeling are:

Government Policies of the Country where plants are to be located. Political climate Local culture, availability of skilled / unskilled human resources, industrial relations

environment, infrastructural support, energy availability etc. Taxation policies, Incentives, Subsidies etc across proposed plant location as well as tax

structures in different market locations. Technology infrastructure status. Foreign investment policy, Foreign Exchange and repatriation Policy and regulations.

Supply Chain Network designs not only provide an operating framework of the entire business to

guide the managements, they also examine the structure from strategic view point taking into

account external influences, interdependencies of all processes and critically evaluate

opportunities to maximize profitability.

Supply Chain Design consultants use various design soft wares and optimization techniques

coupled with inputs from industry consultants and experts.

Customs Clearance - Meaning, Scope and Documentation inShare

Customs Departments are the government designated authority to implement the policies

related to import and export, collect customs duties and facilitate movement of people, goods

and cargo into and out of the country.

Area of Operations and Authority

Customs departments have offices at all sea ports, air ports and border gateways which are

essentially the exit and entry points for people and cargo movements into and out of the

country.

Customs agencies are empowered to make arrests, confiscate goods and enjoy powers similar

to that of police departments.

Customs and Trade Logistics

Every country annually publishes its policy for Foreign Trade which stipulates the conditions

under which goods and services are eligible to be exported or imported. Customs departments

implement the provisions of the policy under customs rules, regulations and tariffs.

Imports in many countries may be allowed freely or some categories may be permitted with due

licenses. Many items are also published as banned for import and not allowed entry into the

country.

All of the items imported into the country have to be custom cleared. This is applicable to the

items brought in as personal effects and also imported by trade and business establishments

including governmental and defense agencies. Necessary stipulated duties would have to be paid

before the goods are released by Customs.

Cargo imported into the country through any point of entry is warehoused at Customs bonded

area under customs jurisdiction until it is released after clearance.

Imports and Customs Clearance

Freight Forwarders who co ordinate the international transportation also provide customs

clearance services to the clients. The activity is called customs brokerage.

Customs clearance work involves preparation and submission of documentations required to

facilitate export or imports into the country, representing client during customs examination,

assessment, payment of duty and co taking delivery of cargo from customs after clearance along

with documents.

Some of the documents involved in customs clearance are :

1. Exports Documentation: Purchase order from Buyer, Sales Invoice, Packing List, Shipping bill, Bill of Lading or air way bill, Certificate of Origin and any other specific documentation as specified by the buyer, or as required by financial institutions or LC terms or as per importing country regulations.

2. Imports Documentation: Purchase Order from Buyer, Sales Invoice of supplier, Bill of Entry, Bill of Lading or Air way bill, Packing List, Certificate of Origin, and any other specific documentation required by the buyer, or financial institution or the importing country regulation.

Customs Agents prepare the document of Shipping Bills in house for submission while rests of

the documents are obtained from the client. Preparing shipping bill involves Classification of

cargo under specific classification which is a critical activity in the entire process.

Customs clearance agents are also called Carrying and Forwarding agents. They are registered

and licensed by Customs to operate. Their role is limited to acting on behalf of and representing

clients as third party agencies engaged in customs clearance.

Customs Agents are linked through EDI with customs in most of the countries and use

documentation software to facilitate entire process.

Ecommerce and Internet Enabled Supply Chains inShare1

Internet Technology has impacted our day to day life beyond imagination. It has changed the

way we make purchase decisions, the process by which we compare products and finally buy

the product. All this has been enabled instantly by the click of a mouse, sitting in the

comfortable environs of your home.

Lets take the case of e commerce on a B 2 C model. You have just logged into the DELL

website, compared the products and configurations. You go on to construct and build your

own configuration laptop, get the pricing and click to make online payment through your

credit card and have completed a purchase online.

Was this imaginable a few decades ago? No. Internet and E commerce have helped markets

get closer to the customer. Customer Decision making and sales process has been shortened.

Financial payment and delivery mechanism has been instantaneous in this case involving third

party gateways making the transaction possible with collaborative networking.

How does the above transaction impact Supply Chain? At the back end, the customer order has

been logged and a corresponding order has been placed on the nearest plant to assemble the

required laptop as per order. This in turn will trigger a bill of material to be triggered to the

vendor managed inventory warehouse to supply required parts.

Looking into the forward transaction, the laptop gets assembled, is dispatched to the forward

stocking warehouse of the freight forwarder or logistics partner from where it is customs cleared

and exported to the country of customer location or transported to the customer location if it is

within the same country. In case of import into another country, the freight forwarder completes

import customs clearance, takes it to his hub or warehouse to complete further leg of domestic

transportation and delivery to the customer.

The entire exercise is completed within 7 days involving multiple vendors, plant, 3PL service

Providers with integrated logistics flow through activities (warehousing, shipment consolidation,

labeling, packing & transportation at various stages )besides involving airlines and customs

agencies etc. The shipment is continuously tracked and shipment status is visible to all over the

internet. This has been made possible with the various intern organizational systems operating

Internet as platform, extranet, ERP, EDI, Emails besides online web tools.

Internet enabled technologies have impacted supply chain in major way. Earlier on ERP

systems revolutionized business models and processes. These have further been impact

with Internet enabling of ERP applications coupled with other technologies and

applications.

On procurement front, e commerce has give birth to E Auction, Online Bidding and Global

RFQs being floated with vendor evaluations being conducted through video conferring etc.

Further on, it has also enabled buyer and supplier to collaborate and implement lean inventory

management concepts and auto replenishments using models like VMI, JIT, Kanban, etc.

In a typical supply chain involving supply of raw materials and components to a manufacturing

location, three different systems of buyer, sellers and the 3PL service agency managing

inventory talking to each other on real time basis exchanging information, data and managing

transactions. Buyer is able to initiate an order, the 3PL is able to process the order, manage

inventory and ship out and the supplier is able to replenish the inventory in very short time.

Visibility of transactions and inventory is available to all the three parties involved.

In the case of Logistics, the freight forwarders system at the distribution center holding

inventory is able to interface with buyer system and initiate processes for documentation from

buyer, shipment label generation. The freight management department picks up details from

warehousing system to further process and generates shipping documents and file with customs

to custom clear export shipment and airlines to book the freight.

All documents are then uploaded on to a website from where the status of shipment can be

tracked by the buyer, seller and others. Advance shipments are downloaded at the point of

destination by the freight forwarding agent from the internet before shipment lands at

destination. He files documents with customs for inbound clearance on EDI. After clearance, the

shipment is delivered to the customer via domestic distribution network and delivery

confirmation is uploaded into the website from where information is picked up by buyer and the

sales process is completed.

Internet has shortened the supply chain transaction time, exploded boundaries of operation

across, increased the amount of volume that the supply chain network can manage and finally

has resulted in bringing down cost of logistics as well as procurement and inventory holding

costs besides reducing manpower costs.

Sourcing Strategies & Procurement Processes inShare

Not long ago, purchase function was seen to be a desk job, monotonous paper work, dull and

passive and more of an administrative function. The purchase managements were the fall guys

whose only aim was to keep feeding shop floor and avoiding stock out situation.

Today the situation has changed totally. Procurement function is considered to be a strategic

initiative and seen to be adding value to entire business process. Profile of the procurement

managers has changed and expectations from these managers are different.

Modern day procurement managers manage procurement and sourcing function both at strategic

and operational levels. They are proactively engaged in building supplier networks, estimating,

controlling and reducing costs besides performing other functions and ensuring service levels.

Their job functions are increasing becoming cross functional together with supply chain and

manufacturing functions.

Procurement process and paper work is today managed by the ERP systems which drive the

procurement business process.

Procurement Function

Procurement function as explained above is one part of the sourcing function. In an ERP enabled

environment, procurement function consists of detailed indenting process, procurement budget

management, purchase order release, shipment schedule planning with seller coupled with

ensuring compliance with documentation and system updating processes. All these processes are

driven by ERP.

Procurement function deals not only with procurement of raw materials and components, but

also with capital equipments, project procurement, spare parts procurement for after market,

managing rejections, defective returns, warranty replacement process with suppliers too.

Vendor development is a key function in procurement. Sourcing and vendor development are

some of the skill sets required to be developed by Procurement team.

Procurement function works closely with procurement logistics or inbound supply chain. A

procurement professional needs to have operational knowledge of logistical activities in supply

chain network, the various agencies, knowledge of policies, customs rules, Taxation,

commercial, logistical and customs documentation besides knowledge of commercial trade rules

and terms.

Procurement process and sourcing strategy

Though interlinked closely, both procurement process and sourcing strategy are not one and

same.

Sourcing strategy deals with planning, designing and building a reliable and competitive supplier

base, determining the strategy for procurement, defining pricing strategies and supply chain

requirements. The strategy involves integration of its objectives in line with or confirming to the

objectives of stake holders in operations, finance. Marketing and distribution. Lastly sourcing

strategy involves planning to competitive buying sources for its raw materials, components and

services along with alternative variables.

Procurement Process as described above, deals with operational zing business process of

procurement function and ensuring performance.

Shift in Sourcing Strategic approach

Having realized that suppliers play a key important role in the supply chain network of the

business, there has been a change in the way organizations perceive and approach supplier

relationships.

Several factors have contributed to the shifting of the perceive value of supplier partnerships.

Complex business models at global scales coupled with market demands have necessitated

companies to set up manufacturing or assembly facilities closer to markets as well as in locations

where conversion costs are relatively cheaper. This necessitates that the business be supported by

a solid vendor base which is able to ensure supplies at all locations.

Advancement in technology and R & D capability enhancement is leading to shorter product life

cycles. New versions and product innovation means products become obsolete faster. Besides

new introductions of products depend upon speedy development of new design supplier parts

and the suppliers having to keep pace with changing designs and requirements.

Lean Manufacturing and cost per unit concept is demanding that the managers keep looking to

reduce the procurement cost as well as procurement logistics cost. By developing a relationship

with suppliers in a collaborative mode, buyers are able to get supplier companies to hold

inventories for them at buyer location and postpone taking inventory ownership up to the point

of consumption. Today preferred suppliers follow the buyer into countries where buyer is setting

up facilities and take on value added services including managing warehousing in the spirit of

customer relationship management.

Therefore managements have realized the fact that to be able to develop global business model,

they have to develop supplier partnerships and work with collaboration spirit and invest in

developing the supplier capabilities as well as invest into building the relationship. Supplier

management is no longer transactional.

Supply Chain Management - Problems and Roadblocks inShare6

Companies increasingly are becoming aware that their opportunity to having a competitive edge

in business can come through supply chain. In the case of companies operating on global scale,

supply chain strategies drive operational efficiencies and affect the bottom line. Unlike

technology or other core areas affecting business, Supply chain is always in a dynamic mode.

Project managers who head supply chain projects are often faced with lot of challenges and

issues to over come all through the project. In this topic we air to discuss a few practical

problems and road blocks faced in implementing and operations of Global supply chain projects.

Project Scale & Span of Control

Often projects are rolled out on global scale involving multiple countries and locations with all sites

scheduled to go live around same timelines. The Project managers and sponsors would be located in

one country and physically it becomes impossible for project managers to keep running to all locations

and be available to concentrate on all sites. Yes project teams are formed at regional country level.

However if the project planning, design and control lies with one office or a single person or a team, the

rest of the project teams would become enablers and implementers resulting in the dilution of energy

and focus. The core project team resources cannot spread themselves thin to attend to all sites and

hence the biggest or the most important locations get attention while the others suffer due to lack of

focus.

Supply chain projects involve technology implementation including infrastructure and software.

They also involve multiple logistical modules involving transportation, international freight and

warehousing etc.

Span of control over project implementation is very important in case of logistics projects

involving multiple channels and external and internal agencies. Project managers at best can

concentrate on rolling out the project in one country depending upon the number of sites and the

logistical components involved.

If the project involves setting up a distribution center or warehouse, all the more reasons that the

roll out should be limited to country level.

Technology

Adoption of right technology and implementation often faces roadblocks in implementing global

supply chain projects. Projects roll out common processes to be followed across all countries and

locations and involve use of technology to drive the processes.

Many issues concerning technology are faced in a project:

Technology solutions

Most multi national companies find that their supply chain operations across the world

are managed not on one application or a set of applications, but each location and country

would have implemented either legacy systems or stand alone systems to manage

individual local logistics activities. Once implemented, it becomes difficult to isolate

such applications and shift them to one common platform without which common

processes and standardization cannot be driven across locations.

Secondly any software solution would require to be customized to suit local site and

country requirements. One solution does not fit all. While the solution may work in one

country with bigger volumes and size of supply chain network and warehouses, the same

software may not be suitable to be implemented in a small country with one location.

Cost of Technology Absorption then becomes an issue. When a project proposes to

introduce a system across all countries in the supply chain network to bring about

seamless integration and common processes, it fails to account for the cost of technology

and capability of all countries and locations to absorb the cost. The costs of IT

implementation are exorbitant. A bigger site and country may be able to pay for the IT

cost but if the same cost is expected to be paid out of another country which has lesser

volumes, it may not be able to absorb the cost, unless the global project management is

able to absorb the costs into the project cost or get corporate management to absorb the

cost and take it off from the user country’s budget.

Cost of Technology absorption

Implementation of technology calls for the IT teams to travel to all locations, implement

the setup. Train the people and stabilize the sites post Go Live. The cost of

implementation can run high. Again all countries may not be able to bear the cost of such

implementation.

Availability of technology infrastructure

Technology infrastructure availability is different amongst countries and within the

country. Internet connectivity and bandwidth may not be the same cross all locations

which can hinder implementation of an internet based technology application. Normally

if the project is driven at a global level, the local infrastructure issues of many countries

do not figure while considering the suitability of IT platform for implementation.

Internal & External resource capability

Supply chain projects involve multiple locations and cross functional departments and

teams within the organization. Besides they also include multiple external agencies who

manage the logistics.

Driving projects through various country managements requires enormous internal

selling to be done. The projects also call for external selling with the service providers.

Local country managements as well as the service provider country managements may or

may not have the same interest and commitment to the project as much as the global

project leadership would have. These are soft challenges faced by Project Managers, to

be able to sell the idea and get commitment from all stake holders.

The availability of quality resources both internally and externally in all locations is

critical to the implementation of the project and is often a challenge which can hold up

implementations and training

Supply Chain Management - Problems and Roadblocks inShare6

Companies increasingly are becoming aware that their opportunity to having a competitive edge

in business can come through supply chain. In the case of companies operating on global scale,

supply chain strategies drive operational efficiencies and affect the bottom line. Unlike

technology or other core areas affecting business, Supply chain is always in a dynamic mode.

Project managers who head supply chain projects are often faced with lot of challenges and

issues to over come all through the project. In this topic we air to discuss a few practical

problems and road blocks faced in implementing and operations of Global supply chain projects.

Project Scale & Span of Control

Often projects are rolled out on global scale involving multiple countries and locations with all sites

scheduled to go live around same timelines. The Project managers and sponsors would be located in

one country and physically it becomes impossible for project managers to keep running to all locations

and be available to concentrate on all sites. Yes project teams are formed at regional country level.

However if the project planning, design and control lies with one office or a single person or a team, the

rest of the project teams would become enablers and implementers resulting in the dilution of energy

and focus. The core project team resources cannot spread themselves thin to attend to all sites and

hence the biggest or the most important locations get attention while the others suffer due to lack of

focus.

Supply chain projects involve technology implementation including infrastructure and software.

They also involve multiple logistical modules involving transportation, international freight and

warehousing etc.

Span of control over project implementation is very important in case of logistics projects

involving multiple channels and external and internal agencies. Project managers at best can

concentrate on rolling out the project in one country depending upon the number of sites and the

logistical components involved.

If the project involves setting up a distribution center or warehouse, all the more reasons that the

roll out should be limited to country level.

Technology

Adoption of right technology and implementation often faces roadblocks in implementing global

supply chain projects. Projects roll out common processes to be followed across all countries and

locations and involve use of technology to drive the processes.

Many issues concerning technology are faced in a project:

Technology solutions

Most multi national companies find that their supply chain operations across the world

are managed not on one application or a set of applications, but each location and country

would have implemented either legacy systems or stand alone systems to manage

individual local logistics activities. Once implemented, it becomes difficult to isolate

such applications and shift them to one common platform without which common

processes and standardization cannot be driven across locations.

Secondly any software solution would require to be customized to suit local site and

country requirements. One solution does not fit all. While the solution may work in one

country with bigger volumes and size of supply chain network and warehouses, the same

software may not be suitable to be implemented in a small country with one location.

Cost of Technology Absorption then becomes an issue. When a project proposes to

introduce a system across all countries in the supply chain network to bring about

seamless integration and common processes, it fails to account for the cost of technology

and capability of all countries and locations to absorb the cost. The costs of IT

implementation are exorbitant. A bigger site and country may be able to pay for the IT

cost but if the same cost is expected to be paid out of another country which has lesser

volumes, it may not be able to absorb the cost, unless the global project management is

able to absorb the costs into the project cost or get corporate management to absorb the

cost and take it off from the user country’s budget.

Cost of Technology absorption

Implementation of technology calls for the IT teams to travel to all locations, implement

the setup. Train the people and stabilize the sites post Go Live. The cost of

implementation can run high. Again all countries may not be able to bear the cost of such

implementation.

Availability of technology infrastructure

Technology infrastructure availability is different amongst countries and within the

country. Internet connectivity and bandwidth may not be the same cross all locations

which can hinder implementation of an internet based technology application. Normally

if the project is driven at a global level, the local infrastructure issues of many countries

do not figure while considering the suitability of IT platform for implementation.

Internal & External resource capability

Supply chain projects involve multiple locations and cross functional departments and

teams within the organization. Besides they also include multiple external agencies who

manage the logistics.

Driving projects through various country managements requires enormous internal

selling to be done. The projects also call for external selling with the service providers.

Local country managements as well as the service provider country managements may or

may not have the same interest and commitment to the project as much as the global

project leadership would have. These are soft challenges faced by Project Managers, to

be able to sell the idea and get commitment from all stake holders.

The availability of quality resources both internally and externally in all locations is

critical to the implementation of the project and is often a challenge which can hold up

implementations and training

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