Supply Chain Management

Lecture material on Moodle

On Moodle course titled as
“Supply Chain Management (PGP IV term)”

Course outline available on Moodle

Supply Chain Course Outline

• Responsive and Efficient Supply Chains; Inventory Allocation
Issues
• Sourcing and Contracts
– Types of Supply Chain Contracts: Impact of Contracts on Supply Chain
Profit; Portfolio of Contracts
– In-house manufacturing versus Outsourcing
– Outsourcing in Service Supply Chain;
• Pricing in Supply Chain: Bidding, Fixed Price
• Supply Chain Networks: Distribution and Transportation
Networks; Hub and Spoked model; Cross Docking; Online
Retailing
• Capacity Issues: Sizing (How much); Manufacturing
Flexibility
• Risks in Supply Chains
• Revenue Management (in Service Supply Chain)
2

1
 Evaluation

• Group Assignments 20% (Group Evaluation)

• Project 15% (Group Evaluation)
• Supply Chain Game 10% (Group Evaluation)
• Tests (Midterm + Endterm) 45% (15+30;
open book/notes)
• Class Participation 10%

Cases
• Barilla: To create a Cost-efficient Supply Chain: Reduce
Inventory; Avoid stock-outs; Reduce manufacturing costs
through better asset management;
• Reebok: Improve Product availability; Quick response to
demand; Minimizing Manufacturing cost may not be the
primary objective
• Wills Lifestyle: Similar to Reebok in terms of Objectives:
Improve availability at a higher manufacturing cost; Shift from
a Cost-efficient supply chain to a responsive supply chain.
• Crome/Vinyas: Interaction between buyer and supplier(s);
How does a supply chain contract ensure both players are better
off (higher profits). Portfolio of contracts to manage Demand
Uncertainty

2
 Cases
• Fuyayo: Choice of sourcing from a long distance plant versus a
plant in close proximity. Trade-offs between cost and potential
future risks
• Procurement Auction: Pricing in Supply Chain: How to
extract value from the suppliers
• VF Brand: What happens if you squeeze your suppliers too
much. Cost vs Responsiveness trade-offs. A substitute for in-
house operations
• Bharti Airtel: Interaction between buyer and supplier in a
service context. Cost, Quality of Service trade-offs. Outsourcing
in Services

Cases
• Amazon: Comparison of Supply Chain performance of
Physical versus Online Retailing; Economics of Loyalty
program (Amazon Prime)

• Merloni: Transportation Networks: Hub & Spoke, Direct;

Cross Docking

• Renesas: Planning for low probability-high impact disruption.

• Netflix: Service Supply chain; Pricing Issues; Moving from

Outsourcing to Insourcing in Services

3
 Supply Chain Benchmarking

• How do you compare/benchmark Supply Chains?

• Gartner Research (Top 25 Supply Chain)
– Inventory Turns
– Return on Assets
– Revenue Growth

Gartner Announces Rankings of the 2021 Supply Chain Top 25

Return onInventory Revenue ESG Total

Rank Company Physical ATurns Growth CompoScore
1 Cisco Systems 306% 13.6 -0.4% 10 6.37
2 Colgate-Palmolive 66% 4.2 2.9% 10 5.58
3 Johnson & Johnso 74% 3 1.8% 8 5.22
4 Schneider Electric 59% 4.9 -1.2% 10 5.07
5 Nestlé 41% 4.2 -3.6% 10 4.41
6 Intel 37% 3.8 7.2% 10 4.4
7 PepsiCo 43% 7.8 3.9% 10 4.37
8 Walmart 15% 9.4 4.5% 8 4.23
9 L’Oréal 70% 2.7 0.8% 10 4.05
10 Alibaba 69% 20.9 44.4% 1 3.9
11 AbbVie 216% 4.4 22.5% 5 3.78
12 Nike 33% 3.4 1.2% 8 3.6
13 Inditex 22% 3.8 -10.8% 10 3.51
14 Dell Technologies 30% 18.5 4.6% 8 3.47
15 HP Inc. 46% 8 0.8% 10 3.46
16 Lenovo 19% 10.4 4.5% 8 3.4
17 Diageo 37% 0.8 -2.4% 10 3.36
18 Coca-Cola 69% 4 -4.2% 6 3.34
19 BAT 97% 0.6 6.5% 10 3.13
20 BMW 19% 3.7 -0.5% 10 3.13
21 Pfizer 41% 1 -3.3% 6 2.97
22 Starbucks 30% 12.2 -1.4% 6 2.87
23 General Mills 55% 7.2 4.6% 10 2.83
24 Bristol Myers Squ 80% 3.7 37.8% 6 2.8
Jishnu Hazra 25 3M 51% 4 0.2% 6 2.78
IIMB

4
 Gartner Announces Rankings of the 2021 Supply Chain Top 25

Return onInventory Revenue ESG Total

Rank Company Physical ATurns Growth CompoScore
1 Cisco Systems 306% 13.6 -0.4% 10 6.37
2 Colgate-Palmolive 66% 4.2 2.9% 10 5.58
3 Johnson & Johnso 74% 3 1.8% 8 5.22
4 Schneider Electric 59% 4.9 -1.2% 10 5.07
5 Nestlé 41% 4.2 -3.6% 10 4.41
6 Intel 37% 3.8 7.2% 10 4.4
7 PepsiCo 43% 7.8 3.9% 10 4.37
8 Walmart 15% 9.4 4.5% 8 4.23
9 L’Oréal 70% 2.7 0.8% 10 4.05
10 Alibaba 69% 20.9 44.4% 1 3.9
11 AbbVie 216% 4.4 22.5% 5 3.78
12 Nike 33% 3.4 1.2% 8 3.6
13 Inditex 22% 3.8 -10.8% 10 3.51
14 Dell Technologies 30% 18.5 4.6% 8 3.47
15 HP Inc. 46% 8 0.8% 10 3.46
16 Lenovo 19% 10.4 4.5% 8 3.4
17 Diageo 37% 0.8 -2.4% 10 3.36
18 Coca-Cola 69% 4 -4.2% 6 3.34
19 BAT 97% 0.6 6.5% 10 3.13
20 BMW 19% 3.7 -0.5% 10 3.13
21 Pfizer 41% 1 -3.3% 6 2.97
22 Starbucks 30% 12.2 -1.4% 6 2.87
23 General Mills 55% 7.2 4.6% 10 2.83
24 Bristol Myers Squ 80% 3.7 37.8% 6 2.8
Jishnu Hazra 25 3M 51% 4 0.2% 6 2.78
IIMB

Gartner Announces Rankings of the 2021 Supply Chain Top 25

Return onInventory Revenue ESG Total

Rank Company Physical ATurns Growth CompoScore
1 Cisco Systems 306% 13.6 -0.4% 10 6.37
2 Colgate-Palmolive 66% 4.2 2.9% 10 5.58
3 Johnson & Johnso 74% 3 1.8% 8 5.22
4 Schneider Electric 59% 4.9 -1.2% 10 5.07
5 Nestlé 41% 4.2 -3.6% 10 4.41
6 Intel 37% 3.8 7.2% 10 4.4
7 PepsiCo 43% 7.8 3.9% 10 4.37
8 Walmart 15% 9.4 4.5% 8 4.23
9 L’Oréal 70% 2.7 0.8% 10 4.05
10 Alibaba 69% 20.9 44.4% 1 3.9
11 AbbVie 216% 4.4 22.5% 5 3.78
12 Nike 33% 3.4 1.2% 8 3.6
13 Inditex 22% 3.8 -10.8% 10 3.51
14 Dell Technologies 30% 18.5 4.6% 8 3.47
15 HP Inc. 46% 8 0.8% 10 3.46
16 Lenovo 19% 10.4 4.5% 8 3.4
17 Diageo 37% 0.8 -2.4% 10 3.36
18 Coca-Cola 69% 4 -4.2% 6 3.34
19 BAT 97% 0.6 6.5% 10 3.13
20 BMW 19% 3.7 -0.5% 10 3.13
21 Pfizer 41% 1 -3.3% 6 2.97
22 Starbucks 30% 12.2 -1.4% 6 2.87
23 General Mills 55% 7.2 4.6% 10 2.83
24 Bristol Myers Squ 80% 3.7 37.8% 6 2.8
Jishnu Hazra 25 3M 51% 4 0.2% 6 2.78
IIMB

10

5
 Supply Chain Metrics are Not Comparable
(in general) across Industries
• Inventory Turnover: Not comparable across
Industry: eg, Inventory Turnover (IT) of
Titan vs Hindustan Unilever
• Inventory Growth versus Revenue Growth
• Asset-light company versus Asset-heavy
company

11

Gross Margin versus Inventory Turns

• (Generally) There is a trade-off between

gross margin and inventory turn

Jishnu Hazra
IIMB

12

6
 Association between Gross Margin and Inventory
Turns Empirical Relationship
not Mathematical

Groceries might have thin margins but high inventory turn.

High-end Retail (luxury items) might have higher margins but
low turn.
Jishnu Hazra
IIMB

13

Problems with the Inventory Turnover Metric

Jishnu Hazra
IIMB

14

7
 Problems with the Inventory Turnover Metric

One of the problems with the classic measure

of inventory turns is that it masks missed
sales due to stock outs. Any lost sales due to
low inventory are not captured in inventory
turns.

Jishnu Hazra
IIMB

15

Days of Working Capital

Jishnu Hazra
IIMB

16

8
 Days of Working Capital

Jishnu Hazra
IIMB

17

Inventory also Depends on Supply Chain Strategy

Walmart Amazon Apple Samsung

Inventory 8 7 60 7.2
Turns

Inventory 46 52 6 51
days

Days 5 22 28 40
Receivables

Days 38 113 76 28
Payable

Cash to Cash 13 -39 -42 63

Cycle Time
Jishnu Hazra
IIMB

18

9
 Amazon Strategy: Increased Variety and High Service Level

Amazon (in 2015): 488 million different products

Wal-Mart supercentre carries around 140,000 different products
Jishnu Hazra
IIMB Source: Internet
19

Managing Working Capital

• There are different sources for low working

capital
• Generally speaking, one source is
operational, through low inventory, and
another is marketing power, through low
receivables or payables.

Jishnu Hazra
IIMB

20

10