LOGISTICS AND SUPPLY CHAIN MANAGEMENT

Lecture Notes-2: Understanding the Supply Chain

Role of Business Logistics:

The logistic process involves,
(1) selection of warehouses
(2) freight transportation
(3) receiving the raw material, parts, components, assemblies and final product
(4) inventory control
(5) handling
(6) market forecasting
(7) protective packaging, etc.,

Logistics = Supply + Materials Management + Distribution

What is a Supply Chain?

 A supply chain consists of all parties involved, directly or indirectly, in fulfilling a
customer request. The supply chain includes not only the manufacturer and
suppliers, but also transporters, warehouses, retailers, and even customers
themselves.
 Within each organization, such as a manufacturer, the supply chain includes all
functions involved in receiving and filling a customer request. These functions
include, but are not limited to, new product development, marketing, operations,
distribution, finance, and customer service
 Supply chain management has thus emerged as an integrative philosophy and a
strategic-level business practice which encompasses flow of materials, funds, and
information throughout the network that ultimately delivers value to the customer.

Supply Chain Stages:

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A typical supply chain may involve a variety of stages, including the following:
 Customers
 Retailers
 Wholesalers/distributors
 Manufacturers
 Component/raw material suppliers
Each stage in a supply chain is connected through the flow of products, information, and
funds

Timber Paper XYZ

Compan Manufacturer Corporation

Tooth- Third Party DC Retail Store Customer

paste

Chemical Plastic
Manufacturer Producer

Figure 2.1 Stages of a Toothpaste Supply Chain

Decision Phases in Supply Chain

Successful supply chain management requires many decisions relating to the flow of
information, product, and funds. Each decision should be made to raise the supply chain
surplus.

These decisions fall into three categories or phases, depending on the frequency of each
decision and the time frame during which a decision phase has an impact. As a result, each
category of decisions must consider uncertainty over the decision horizon.

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  Supply Chain Strategy or Design
 Supply Chain Planning
 Supply Chain Operation

Supply Chain Strategy or Design:

During this phase, a company decides how to structure the supply chain over the next
several years.
It decides what the chain’s configuration will be, how resources will be allocated, and what
processes each stage will perform.

Strategic decisions made by companies include whether to outsource or perform a supply

chain function in-house, the location and capacities of production and warehousing
facilities, the products to be manufactured or stored at various locations, the modes of
transportation to be made available along different shipping legs, and the type of
information system to be utilized.

Supply Chain Planning:

For decisions made during this phase, the time frame considered is a quarter to a year.
Therefore, the supply chain’s configuration determined in the strategic phase is fixed. This
configuration establishes constraints within which planning must be done.

The goal of planning is to maximize the supply chain surplus that can be generated over the
planning horizon given the constraints established during the strategic or design phase.

Companies start the planning phase with a forecast for the coming year (or a comparable
time frame) of demand and other factors such as costs and prices in different markets.
Planning includes making decisions regarding which markets will be supplied from which
locations, the subcontracting of manufacturing, the inventory policies to be followed, and
the timing and size of marketing and price promotions.

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Supply Chain Operation:
The time horizon here is weekly or daily. During this phase, companies make decisions
regarding individual customer orders. At the operational level, supply chain configuration is
considered fixed, and planning policies are already defined. The goal of supply chain
operations is to handle incoming customer orders in the best possible manner.

During this phase, firms allocate inventory or production to individual orders, set a date that
an order is to be filled, generate pick lists at a warehouse, allocate an order to a particular
shipping mode and shipment, set delivery schedules of trucks, and place replenishment
orders.

Because operational decisions are being made in the short term (minutes, hours, or days),
there is less uncertainty about demand information. Given the constraints established by
the configuration and planning policies, the goal during the operation phase is to exploit the
reduction of uncertainty and optimize performance.

Supply Chain Integration:

Stage 1 - Baseline: Complete functional independence where each function such as
production or purchasing does its own thing in complete isolation from other business
function.
Stage 2 - Functional Integration: Companies recognize the need for limited integration
between adjacent functions such as distribution and inventory management or purchasing
and material control.
Stage 3 - Internal integration: A natural extension of stage two, leading to establishment and
implementation of end-to-end integration. A concept of linkage and coordination is
achieved.
Stage 4 – External integration: The linkage achieved in stage three is extended upstream to
suppliers and downstream to customers. It represents true supply chain integration.

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Stage 1: Baseline

Material Distribution
Sales
Purchasing Control Production

Material Flow Customer Service

Stage 2: Functional Integration

Materials Manufacturing Distribution

Management Management

Material Flow Customer Service

Stage 3: Integral Integration

Materials Manufacturing
Distribution
Management Management

Material Flow Customer Service

Stage 4: External Integration

Internal Supply
Suppliers Customer
Chain

Material Flow Customer Service

Figure 2.2 Integration of Supply Chain

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Process views of a Supply Chain:
A supply chain is a sequence of processes and flows that take place within and between
different stages and combine to fill a customer need for a product. There are two ways to
view the processes performed in a supply chain.

Cycle View: The processes in a supply chain are divided into a series of cycles, each
performed at the interface between two successive stages of a supply chain.

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor
Manufacturing Cycle

Manufacturer

Procurement Cycle

Supplier

Figure 2. Supply Chain Process Cycle

Given the five stages (Customer, Retailer, Distributor, Manufacturer and Supplier) of a
supply chain as shown in Figure, all supply chain processes can be broken down into the
following four process cycles, as shown in Figure:
 Customer order cycle
 Replenishment cycle

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  Manufacturing cycle
 Procurement cycle

Push/Pull View: The processes in a supply chain are divided into two categories depending
on whether they are executed in response to a customer order or in anticipation of
customer orders. Pull processes are initiated by a customer order, whereas push processes
are initiated and performed in anticipation of customer orders.

Each cycle occurs at the interface between two successive stages of the supply chain. Not
every supply chain will have all four cycles clearly separated. For example, a grocery supply
chain in which a retailer stocks finished-goods inventories and places replenishment orders
with a distributor is likely to have all four cycles separated. Dell, in contrast, bypasses the
retailer and distributor when it sells directly to customers.

Customer Pull Processes Customer

Order Cycle Customer Order Cycle

Customer Order Arrives [Link]

Replenishment and
Manufacturing Cycle
Procurement,
Manufacturing, Push Processes Manufacturer
Replenishment
Procurement Cycle
Cycles
Supplier

Figure 2.4 Push/Pull processes for the L.L Bean Supply Chain [Make-to-stock]

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 Customer Pull Processes
Order and
Customer Order and
Manufacturing
Manufacturing Cycle
Cycle

Customer Order Arrives

Procurement Cycle
Procurement
Cycles Push Processes

Figure 2.5 Push/Pull processes for Ethan Allen Supply Chain for Customized Furniture
[Build-to-order]

Supply Chain Stages:

Exercise Questions:

1) What is supply chain management? Discuss the goal of a supply chain and explain the
impact of supply chain decisions on the success of a firm.

2) Consider the supply chain involved when a customer purchases men’s apparel at
retailer in a metro city. What are some strategic, planning and operational decisions
that must be made by the retailer such as Max Fashions?

3) Consider the supply chain involved when a customer orders customized PCs from Dell.
Identify the cycle and pull/push boundary of supply chain and explain the processes
with a schematic diagram.

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4) Consider the purchase of a well-known detergent at a super market. Describe the
various stages in the supply chain and the different flows involved with schematic
diagram.

5) Consider the supply chain involved when a customer purchases a book at a bookstore.
Describe the process cycles in this supply chain and the location of the push/pull
boundary with a schematic diagram.

Case Study: Jaipur Rugs [Supply Chain Coordination]

Jaipur Rugs - How it All Started:

Nand Kishore Chaudhary grew up in a small town in Rajasthan, a state in northwestern
India. After graduating from the University of Rajasthan, Chaudhary began his career in his
family's shoe shop. However, he wanted to do something on his own, and heard that high
quality rug weaving was in demand. He bought two looms and installed them in his home,
and fell in love with the weaving business. He quickly learned the technical aspects of
weaving from local weavers and expanded his business, adding six more looms in his house,
and then more looms in six nearby villages. Chaudhary's entrepreneurial drive ultimately led
him to Jaipur, the capital of Rajasthan, to pursue a career in the rug export business.
Chaudhary and his brother started exporting rugs in 1986. Both brothers remained in the
rug industry but split up their business interests in 1999, and after several company name
changes, Chaudhary registered his export company under the name of Jaipur Rugs in 2006.
By 2008, Jaipur Rugs was the largest manufacturer and exporter of Indian hand knotted
rugs.

From the beginning Chaudhary realized the immense potential lying untapped with the
women in traditional rural Indian households who are refrained from stepping outside for
employment. Chaudhary knew that providing these women with sustainable livelihood at

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their homes, which allows them to use their skills while looking after their families and
household chores within the precincts of their homes, can provide rapid scaling to his
business. Jaipur Rugs is founder mentality in action - defining insurgency, focusing on a few
critical capabilities, and connecting the frontline directly to the customers, and then starting
a conversation.

Jaipur Rugs is revolutionized the carpet industry by creating an entirely new business model
– working directly with artisans and empowering them and their communities with a
sustainable livelihood. Jaipur Rugs has been continually and successfully training over
50,000 artisans from rural India who work on 7000 looms across 600 villages. Jaipur Rugs is
the proud winner of the prestigious German Design Award 2016 (Special Mention – Product
Excellence) and over 20 awards in the last 5 years for product design and social impact.

Jaipur Rugs is a family business that combines the pursuit of profit with the spreading of
kindness in a way that benefits all of its stakeholders: its consumers and their families, the
artisans and their families, its employees, its suppliers, the buyers and channels they work
with. The business is built on bedrock of values that goes back to the founder that combines
kindness as their default demeanour, compassion for those around them, and the humility
that everyone deserves dignity. This means that Jaipur Rugs will work with all those who
stand for these values and it drives them as an organization to work with and tap into the
creative capacity of those in society that are disadvantaged or rejected. With their help,
Jaipur Rugs not only creates the most distinct design of the highest quality, but are also able
to capture the blessings of the disadvantaged such as the artisans and their families. This
blessing derives from their passion and devoted labour as they receive the opportunity to
grow their fortunes, self-worth and pride which then transform into their products. As a
result, a Jaipur Rugs customer will receive the most beautiful, highest quality design
together with the blessing of an artisan’s family.

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Challenge/Opportunity:
Jaipur Rugs commands very high brand awareness and loyalty in the export market. With a
reach in over 50 countries, Jaipur Rugs has become synonymous in the minds of trade
partners with exceptional quality and design as well as reliability. B2B trade accounts for
more than 98% of the rugs that are sold.

The conventional wisdom advocates talking about quality, design, stock, price and reach of
the company. Over these decades of journey, the category had already spoken this language
many times. However, for Jaipur Rugs, linking the grassroots with the end customers has
always been a major focus. To take this forward, an E-commerce website was launched in
November 2015 with an aim to connect with the end customers globally. Also, India has
always been an unexplored market for Jaipur Rugs. With just a mere 1-2% share of its total
sales coming from domestic market, an exercise to increase domestic penetration started in
early 2016. This led to a decision to open up a retail store in Delhi (opening in July 2016).
The challenge, however, lies in educating the Indian customer and making them aware of
what goes behind making a rug.

Specific Deliverables:
• A marketing campaign that brings alive the proposition. The deployment plan must factor
in solutions relevant for online where the campaign must ultimately drive sales through E-
commerce and also for offline, where the same should drive sales through the retail store
• Evaluate the current E-Commerce presence and activation and suggest areas of
improvement within the same to better impact sales
• Recommend activities to drive higher footfalls to the retail store and also marketing ideas
for in-store that will increase conversion from the walk-ins. Make sure to mention the
budget required and the sales expected.

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But who is Jaipur Rugs' Customer in India?
The typical price of an 8x10 handmade rug starts from Rs.20,000 and can go over
Rs.5,00,000 depending upon the type of construction (i.e. hand knotted, hand tufted,
handloom, Flat weave etc.). Hence whether it is an educated housewife or a married
working female, a young family guy or a businessman/entrepreneur, a designer/architect or
an expat, the brand exists to serve those who value handmade products.

Other Information:
Jaipur Rugs specializes in hand knotted rugs. What differentiates Jaipur Rugs from its
competitors is about how every rug has a story. Every hand knotted rug can be traced back
to that weaver who wove that particular rug and the village where it was weaved. This
makes it unique since the customer gets to directly know/meet the maker of the rug.

Secondly, Jaipur Rugs designs have been really appreciated worldwide. With a wide
assortment of Traditional, Transitional and Modern/Contemporary designs, Jaipur Rugs has
been a sought after brand amongst the design fraternity. This has in turn led to a number of
awards including Carpet Design Award and German Design Award. Another issue facing the
industry is the lead time. A typical 8x10 feet hand knotted rug (with more than 8 million
knots) may take 6-8 months to get completed. And the customers are not ready to wait.
Jaipur Rugs launched its stock program where they identified the best-selling designs and
have started keeping a stock. This way a customer doesn't have to wait and the rug can be
delivered immediately within a week.

Current Marketing Activities:

Jaipur Rugs, being a socio-economic entity, has never used television as a mass media tool
for promotion. However, we have been covered by leading newspapers and magazines, but
these have been earned PR. In online media, Facebook has been main driver in terms of
building awareness followed by Instagram and Twitter. The major strategy to reach out to
trade partners and build new business outside India has been through participating in high

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end trade shows in Germany (Domotex, Hannover/IMM Cologne), USA (Atlanta/High
Point/Las Vegas), Singapore etc.

With the help of this information, the following points are to be discussed:
 In the developing world, how can small-scale and medium-scale industries leverage
the power of supply chains to deliver value to the customers and simultaneously
improve the standard of living of the artisans?
 How can the involvement of middleman be minimized to free artisans from
exploitation and underpayment?

Sources:
[Link]
[Link]

Questions:

1) The value chain of Jaipur Rugs emphasizes the close relationship between all the
functional strategies within company and working directly with artisans and
empowering them and their communities with a sustainable livelihood.
(a) True
(b) False

2) Jaipur Rugs Strategic Fit refers to consistency between the customer

priorities with hand knotted, hand tufted, handloom, Flat weaved Rugs that the
competitive strategy is designed to satisfy; and the supply chain capabilities that the
supply chain strategy aims to build by connecting artisan’s families from rural India.
(a) True
(b) False

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 3) Jaipur Rugs organizational strategies relate to which of the following the factors?
(a) Profitability and survival of artisans
(b) Highest quality design rugs and benefit to consumers
(c) Creative capacity of those in society
(d) All of these

4) The major strategy of Jaipur Rugs to reach out to trade partners and build new
business outside India has been through ___________.
(a) advertising in newspaper and magazine
(b) participating in high end trade shows
(c) online media like Facebook, Instagram and Twitter
(d) mass media like television

5) Global competition really only applies to multi-national organizations.

(a) True
(b) False

6) Production systems with customized outputs like carpets typically have relatively:
(a) high volumes of output
(b) low unit costs
(c) high amount of specialized equipment
(d) highly skilled workforce

7) Jaipur Rugs pursuing a strategy based on customization and variety of design will
tend to structure and manage its supply chain to accommodate more _________
than a firm pursuing a strategy based on low-cost and high-volume.
(a) Variation
(b) Streamlined flow
(c) Quality
(d) Capacity

8) Which of the following is not a key factor of competitiveness?

(a) price
(b) product differentiation
(c) flexibility
(d) size of organization

9) In Jaipur Rugs, a typical 8x10 feet hand knotted rug (with more than 8 million knots)
may take ________ to get completed.
(a) 2 to 3 months
(b) 6 to 8 weeks
(c) 6 to 8 months
(d) 2 to 3 weeks

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 10) Jaipur Rugs specializes in hand knotted rugs. What differentiates Jaipur Rugs from its
competitors supply chain is about how every rug has a story. Every hand knotted rug
can be traced back to that weaver who wove that particular rug and the village
where it was weaved. This makes it unique since the customer gets to directly
know/meet the _________.
(a) factory manager
(b) maker of the rug
(c) owner of the company
(d) sales representatives

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