TITLE: A COMPARISON OF
1) INTRODUCTION
2) LITERATURE REVIEW
- SUPPLY CHAIN MANAGEMENT FUNCTIONS
- PERFORMANCE MEASURMENT
- SCM IN DEVELOPED & DEVELOPING COUNTRIES
3) SUMMARY
4) PROPOSED OBJECTIVES
5) PROPOSED RESEARCH METHODOLOGY
6) REFERENCES
1) INTRODUCTION:
Logistics has always been a critical part as one of the 4 P’s in Marketing: Product, Place, Price and Promotion. The “Place” component ensures the product is at the right place, at the right time, in the right quantity and the right quality. Logistics received recognition in military operations during World War II. It gained its momentum as it contributed to the effective distribution of machinery and supplies to troops. A service delivery failure here may mean an increase in unnecessary fatalities. Drucker (1962) identified logistics as a growing concern within business. This generated more prominence towards the practice of logistics. As the economies in
A supply chain includes all the activities, functions and facilities involved (either directly or indirectly) in the flow and transformation of goods and services from the material stage to the end-user (Russell and Taylor, 2000, p. 373; Handfield and Nichols, 1999, p. 2). SCM aims to integrate the various structures and processes of the supply chain, facilitating and coordinating the flow of goods and services and the flow of information necessary to provide the value that customers demand. Usually, SCM projects are complex and the required outlays of time and money are great (McCormick, 2001). Many large companies are conglomerations of business units and acquisitions across the globe (Spiegel, 2001). It is necessary to know how people work together and what kind of information will be exchanged in order to determine which technologies can support these exchanges and the best way to connect them (Ramos, 2001). According to Cox (1997a), a way of thinking that is devoted to discovering tools and techniques that provide for increased operational effectiveness and efficiency throughout the delivery channels that must be created internally and externally to support and supply existing corporate product and service offerings to customers.
2.1) SUPPLY CHAIN MANAGEMENT:
According to Lummus & Vokurka (1999), The supply chain is a network of suppliers, factories, warehouses, distribution centers and retailers through which raw materials are acquired, transformed and delivered to the customer. Supply chain management is the strategic, tactical and operational level decision making that optimizes supply chain performance. The strategic level defines the supply chain network, i.e., selection of suppliers, transportation routes, manufacturing facilities, production levels, warehouses, etc. The tactical level plans and schedules the supply chain to meet actual demand. The operational level executes plans. Tactical and operational level decision making functions are distributed across the supply chain.
• Location. It's important to know where production facilities, stocking points and sourcing points are located; these determine the paths along which goods will flow.
• Production. An organization must decide what products to create at which plants, which suppliers will service those plants, which plants will supply specific distribution centers, and, sometimes, how goods will get to the final customer. These decisions have a big impact on revenue, costs and customer service.
• Inventory. Each link in the supply chain has to keep a certain inventory of raw materials, parts, subassemblies and other goods on hand as a buffer against uncertainties and unpredictabilities. Shutting down an assembly plant because an expected parts shipment didn't arrive is expensive. But inventory costs money too, so it's important to manage deployment strategies, determine efficient order quantities and reorder points, and set safety stock levels.
Managing the Chain
Once you've determined all of the elements in the supply chain, how do you manage the chain? There are three main paths in the process:
• Product flow includes the movement of goods from a supplier to a customer, as well as customer returns.
• Information flow involves transmitting orders and updating the status of delivery.
• Financial flow consists of credit terms, payments and payment schedules, plus consignment and title ownership.
Juggling these elements involves record-keeping, tracking and analysis by many departments. Supply chain software, especially large, integrated packages, combines many different technologies to give a single view of supply chain data that can be shared with others.
2.1.2)
A distribution center for a set of products is a warehouse or other specialized building, often with refrigeration or air conditioning, which is stocked with products to be re-distributed to retailers or wholesalers. All distribution centers have three main areas and may have additional specialized areas. The three main areas are the receiving dock, the storage area and the shipping dock. The primary role of a distribution center is to receive large quantities of products and ship small quantities to individual stores, an important secondary role is storage. Many retailers have prioritized having as many items in stock at one time as possible. To conserve space, minimize inventory costs, and maximize the variety they offer the retail might only stock one or a few items of a particular product.
The functions of RDC are
- Order management planning
- Transportation planning
- Labour planning
- Dock area management
- Receiving
- Put-away
- Picking
- shipping
2.1.3) PERFORMANCE MEASURMENT:
In today’s markets, technological and competitive forces are changing at an ever increasing rate. To respond to these forces, radical changes in organizations have become necessary. The viability of a firm now depends largely on how well it is capable of responding to customer requirements while becoming lean. It is becoming increasingly more difficult and less economical for companies to produce their needs on their own. Instead, outsourcing is becoming one of their main strategies. Moreover, such measures and metrics are needed to test and reveal the viability of strategies without which a clear direction for improvement and realization of goals would be highly difficult. So it is necessary to measure the performance of an organisation. The reasons to calculate the performance is
- Lack of balanced approach:
Many companies have realized the importance of financial and non-financial performance measures. However, they failed to understand them in a balanced framework. According to Kaplan and Norton (1992), while some managers and researchers have concentrated on financial performance measures, others have concentrated on operational measures. Such an inequality does not lead to metrics that can present a clear picture of the organizational performance. As suggested by Maskell (1991), for a balanced approach, companies should bear in mind that, while financial performance measurements are important for strategic decisions and external reporting, day-to-day control of manufacturing and distribution operations is better handled with non-financial measures.
- Lack of a clear distinction between metrics at strategic, tactical , and operational levels:
Metrics that are used in performance measurement influence the decisions to be made at strategic, tactical, and operational levels. However, we fail to come across any such classification for supply chain management. Using a classification based on these three levels, each metric can be assigned to a level where it would be most appropriate. For example, in dealing with inventory, it would be most suitable to assess it from an operational point of view where day-to-day inventory level can be measured and monitored.
a) TYPICAL PERFORMANCE MEASURMENT PROBLEMS:
Traditional performance measurement has several good reasons, not least because of its inability to allocate resources to areas important to future success, e.g. the development of employees' competency, capabilities and skills. There are some assumptions are prevailed, those are lack of systems thinking, and the increased complexity in supply chains encompassing several organizations with different corporate cultures, different policies and different routines. Using a single-firm management style when managing a supply chain is therefore likely to obstruct supply chain integration. A few important problems are briefly described.
One problem that deserves attention is the lack of connection between strategy and measurements. Adams et al. (1995) report that many measurement initiatives are not derived from strategy and is therefore not supporting the business. Although it seems obvious and natural to base a measurement system on the company's strategy, Eccles (1991) claims that a surprising number of companies do little to measure the variables described in their strategies. Because of the missing connection, measures and measurement activities seem focused on internal functions instead of overall company Performance and customer needs. For instance, a firm may measure productivity throughout its own facility and closely track that goods are shipped on time, but pay little or no attention to whether the goods actually arrive at the customers' facilities when promised or needed. Furthermore, because of the weak link to strategy, different divisions and functions have developed their own metrics in isolation and linked local reward incentives to those measures. This might lead them in different directions. Thus, the missing connection between strategy and measurements promotes an internal focus, which becomes an obstacle to developing supply chain measurement systems. However, not all strategies are successful. Regardless of how well a measurement system is connected to strategy, it will not turn a losing strategy into a winning one.
- A biased focus on financial metrics :
Many companies still rely too heavily on financial figures as their key performance indicators, which unfortunately are better at showing the result of yesterday's actions than indicating tomorrow's performance. Financial metrics have served as a tool for comparing firms and evaluating a firm's behavior over time, and the information was primarily designed to meet external evaluators' needs. Today the situation is quite different. People inside the organizations have more responsibility, and financial information is not decision-relevant to them (Atkinson et al., 1997). The lagging nature of financial metrics makes them less useful for proactive actions. What meaningful actions to manage a situation can be taken when the report finally arrives two weeks after the event? Furthermore, the usefulness of financial information is reduced by the aggregation of data over time and place, which makes it even more difficult to understand.
Success in business today is not solely determined by a strong cash flow or meeting a financial budget. Instead, developing competency, capabilities and skills in areas such as team-based problem solving and innovation are much more important, yet not easily measured in financial terms (Vitale and Mavrinac, 1995).
- Too many isolated and incompatible measures:
The number and variety of metrics used in organizations tend to increase over time, and require more and more resources to produce. Because metrics once introduced are too seldom removed, they soon become obsolete as strategy and underlying activities continue to change. For instance, why do firms continue giving top priority to goods handling efficiency and fill rate in trucks, when what the customers really need are timely and accurate shipments of goods? A common conclusion is that measurement systems have measured too many things and the wrong things. The negative impact of insufficient measurement systems can be severe. For example, Baldwin and Clark (1992) claim that a major cause of the
2.1.4) SCM IN DEVELOPED COUNTRIES & DEVELOPING COUNTRIES:
SCM systems are different from developed countries systems to developing countries. The developed countries are used the advanced technologies, procedures or methods which will effected the out come of the organisations. Out come is the success or failure and minimizing the costs and improving the profits. This will happened because of advanced technology, methods and culture. It is important to know that culture play an important role in any organisations. How the culture is related to the organisation is manger is a person who is having the authority to take decisions, so every decision taken by him is influenced by the culture.
Culture can be defined as the system of shared beliefs, values, customs, behaviours, and artifacts that the members of society use to cope with their world and with one another, and that are transmitted from generation to generation through learning.
The procedures or methods of SCM systems used by developed countries are advanced, the developing countries used some of those strategies not all, the methods are
a) THIRD PARTY LOGISTICS:
3PL providers can also contribute to improved customer satisfaction and provide access to international distribution networks (Bask, 2001). The most often-cited risks are associated with loss of control over the logistics function and loss of in-house capability and customer contact (Ellram and Cooper, 1990). A TPL provider is an independent economic entity that creates value for its client. Some of the benefits include reduced need for personnel, reduced transportation and distribution cost, improved customer service, improved cycle time and freed up capital in manufacturers and marketers non-core areas. TPL can leverage tremendous freight volumes in contract negotiations with carriers to receive rates lower than what an individual shipper could obtain (Cooke 1998).
TPL provide an opportunity to reduce costs and through value-added services provide higher levels of customer satisfaction via third party logistics (Tompkins 1999) and international distribution networks (Bask, 2001). Potter is facing the problem of low customer service so by implementing the system of TPL they can improve the customer service. The most often-cited risks are associated with loss of control over the logistics function and loss of in-house capability and customer contact (Ellram and Cooper, 1990).
According to Lysons & Farrington (2005), a push strategy is when products are manufactured in anticipation of demand and production is based on long-term forecasts and therefore, uncertain. Push based supply chains are associated with high inventory levels and high manufacturing and transportation costs, due to the need to respond quickly to demand changes. But there is another system which will works effectively compared to push supply chain system is called pull supply chain system. Pull strategy is when products are manufactured to specific orders rather than forecasts. Thus, demand is certain and inventory is low or non-existent. Because information about the customer demand is quickly transmitted to the various supply chain participants, the bullwhip effect is avoided.
d) BULL-WHIP EFFECT:
A well-known example of supply chain dynamics is the bullwhip effect, a term first
coined by the logistics executives of Procter and Gamble (Lee et al., 1997). It is so-called because small order variability at the customer level amplifies the orders for upstream players, such as wholesalers and manufacturers, as the order moves up along a supply chain.
When consumer sales show relatively constant demands, the demand/order placed by a retailer to a wholesaler is likely to fluctuate more than the actual demand perceived by that retailer. The wholesaler’s order to the manufacturer and the order of the manufacturer to the supplier fluctuate even more. This increase in the variability of orders at each stage in a supply chain is often called the bullwhip effect (Bagchi & Skjoett, 2007). Bullwhip effect causes excessive swings in different demand or inventory-stocking points throughout the supply chain. This swing is also likely to be wider upstream in the supply chain.
According to MARTIN (1998) Customer service is to provide time and place utility in the transfer of goods and services between buyer and seller. According to CROCKER AND EMMETT (2006) Service is concerned with continually meeting the customer needs as the market changes and involves support available, product availability, flexibility, reliability, and consistency Customer service level is variable and each
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customer variable has a cost associated with it. Customer service level can be increased by many aspects of the total service offering. Those aspects are delivery and availability of goods, but also quality of the goods, cycle lead time, cost and service levels. Quality, cost, service and lead time are all interlinked.
e) INFORMATION TECHNOLOGY:
Another contributor that led to an increased presence for logistics was the explosion in information technology and use of computers throughout the 1980’s and onwards. The use of the Internet and increased bandwidth capacity further enhanced and enabled quick connectivity and collaborative relationships that reduced inventories and created a Just-In-Time operating opportunity for organizations. These efficiencies reduced errors, increased fill-rates and cut overall operating costs for organizations
Advances in information technology have changed modern business practice, making collaborative SCM possible (Cachon and Fisher, 2000; Chatfield et al, 2004; Lee et al, 2000; Li, 2002). Information's competitive value is widely heralded – it substitutes for inventory, speeds new product design, shortens order fulfillment cycles, drives process reengineering, and coordinates SC activities (Cachon and Fisher, 1997; Clark and Hammond, 1997; Hammer, 1990; Hult et al, 2004, Kulp et al, 2004; Kurt Salmon Associates Inc., 1993; Lee et al, 1997, 2000).
An Extranet is an Intranet open to those who do not belong to the organisation owning the Intranet (customers, suppliers or distributors) that provides security and confidentiality warranties. It can therefore be defined as a part of an Intranet that can be accessed by other companies through the Internet or as a tool that makes possible co-operation between different organisations (Berger & Gattorna, 2001). Only those members collaborating with the company owning the Intranet can access the shared information.
· Quick Response Strategy
This strategy has been successfully used in the grocery retailing industry. Using this strategy, suppliers have links to the retailer’s Point of Sale (POS) data, which is essentially sourced from cash register terminals from all retail locations. Suppliers use this information to optimize their production and inventory levels using actual demand. The retailer is still responsible for ordering, however the supplier is better able to manage its inventory and reduce lead times as it improves its forecast.
· Continuous Replenishment Strategy
As with the Quick Response strategy, retailers must share their POS data with the supplier. An agreement is then made on the delivery frequency and inventory levels with both parties. The result is increased inventory levels. Typically, the supplier gradually reduces inventory levels further while maintaining service levels.
· Vendor Managed Inventory (VMI)
The supplier takes on more responsibility with this initiative, as it determines both the inventory levels and delivery frequency to maintain agreed-upon in-stock levels.
3) SUMMARY:
A system whose constituent parts include material suppliers, production facilities, distribution services and customers linked together via the feed forward flow of materials and the feedback flow of information is called supply chain management. In this research explained the history of SCM, SCM functions. Supply chain management consists of several functions which are similar to all the organizations but differ in the methods using by the organisation. RDC is a type of warehouse where the storage of goods and delivery of goods to retailers or other stores. Performance measurement selection is a critical step in the design and evaluation of any system. Generally, the larger and more complex the system, the more challenging it becomes to measure effectively. While there is an ever increasing number of supply chain models presented in the literature, there is very little available in supply chain performance measure selection. Of course, the use of simple performance measures is tempting, since simple measures are more easily implemented into numerical models; however, by limiting the scope of the performance measurement, these models ignore important performance tradeoffs. The effects of these performance trade-offs are magnified when the supply chain is reconfigured on the basis of a non-inclusive measurement system. In order to improve the effectiveness of supply chain models, performance measures must be selected that will allow for a more complete and accurate analysis. Among the problems described were the weak link between strategy and actions, a heavy reliance on financial measures causing reactive behavior, and a confusing multitude of isolated measures. Together the problems made it difficult for firms to understand and act upon the information provided by their measurement systems. What are the strategies are using the developed countries and how effectively it works, what are the advantages by using those strategies.
Generally if any international chain restaurants operations are maintained same standards all over the world but to know whether the methods used in uk and india are same or not, if any differences are there in terms of technology used, performance measurement systems, different functions of SCM system and culture of the each country manger make any differences.
- To explore the advantages of using advanced methods from old fashion methods used by developing countries
- To investigate the most appropriate metrics to calculate performance
- To investigate the appropriate ways to solve the problems to measure the performance.
KFC is one of the world's largest fast-food chains; the company owns and franchises more than 14,800 outlets in more than 100 countries. More than 20% of the restaurants are company-operated; the rest are franchised or licensed. KFC is a division of global fast-food franchiser YUM! Brands. KFC have the globalised presence in different countries with different strategies. KFC is having huge distribution system; it should make the changes in SCM systems according to the technology changes. The reason behind the choosing
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