Cost reduction through Supply Chain management (SCM) & Third Party Logistics (3PL)

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Introduction:

With India’s gross domestic profit (GDP) growing at over 9% per year and the manufacturing sector enjoying double digit growth rates, the Indian supply chain industry is at an inflection point and is expected to reach a market size of over $125 billion in the year 2010. However, as a result of the under developed trade and Supply chain infrastructure the supply chain cost of the Indian economy is over 13% of GDP compared to less than 10% of GDP in almost the entire Western Europe and North America.

Amidst this backdrop, it is found that, Manufacturers increasingly rely on innovation from their suppliers to improve the cost, quality, and timeliness of their products. Manufacturing capabilities are enhanced by supplier innovativeness directly, because of the embedded nature of the supplied component, and indirectly, as the manufacturer learns from its suppliers. We use organizational learning theory to develop a conceptual model of learning factors that act as contingencies and magnify the effect of supplier innovativeness. First, we argue that a manufacturer’s absorptive capacity, its ability to learn and use external knowledge, positively moderates the impact of supplier innovativeness on the manufacturer’s performance. …

The Indian Supply chain industry is characterized by the dominance of a disorganized market. Transporters with fleets smaller than five trucks account for over two thirds of the total trucks owned and operated in India and make up 80% of revenues. The freight forwarding segment is also represented by thousands of small customers, brokers and clearing & forwarding agents, who cater to local cargo requirements.

A logistic strategy can either be a pull strategy or a push strategy. A pull Supply chain strategy has orders for merchandise being generated at the store level, on the basis of demand data captured by the POS terminals. A push Supply chain strategy has merchandise allocated to stores based on historical demand, the inventory position of the store and at the warehouse.

As retail operations become more complex and the flow of information within the organization is established more retailers are now moving towards the pull strategy. At the heart of Supply chain is the distribution Center (DC). It serves functions from coordinating inbound transportation receiving, checking, storing and cross docking to coordinating outbound transportation.

The method of handling Supply chain largely depends on the nature of the industry ad the number of outlets that the organization would have in each city, state or region. Food World a grocery retail chain in India works on the hub and spoke system. The hub is the Distribution Center which it develops in each city. The hub services all the shops in that particular city.

On the other hand, a department store like Shopper’s Stop may find that it is not feasible to develop and maintain a Distribution Center in each city as it would have one or at the most two shops in every city. In such a case, a Regional Distribution Center may be developed. Some retail organizations in India like Globus have outsourced their needs for Supply chain and distribution.

Analogy:

The chief purchasing officer (CPO) plays a critical role in ensuring supply contributes effectively to organizational goals and strategies. The selection of the individual who will become the company’s first CPO is especially important. A reporting line establishment occurs at the same time as an appointment of a first CPO when a large organization centralizes a previously decentralized supply function. Using case-based methodology, this research in large North American and European organizations examined 26 appointments of the first CPO and corresponding reporting line establishments. Data collection and analysis covered six aspects: drivers, CPO background, reporting line, the key.

Third party Supply chain OR Logistics (3PL)

3PL / outsourced Supply chain is the outsourcing of a company’s Supply chain operations to a specialized firm, which provides multiple tactical Supply chain services for use byustomers as opposed to the respective company having a business unit in-house to oversee its supply chain and transportation of goods.

A third part Supply chain provider can be defined as the supply of Supply chain related operations between traders by independent organizations. The trend of moving towards specialist providers of the services is increasing since as companies tend to spread their business across the globe, the need for specialist providers of services increases. A third party Supply chain provider (3PL) provider may provide Supply chain services to companies for part or sometimes all of their supply chain management functions. Third party Supply chain providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to suit the customer’s needs, based on market conditions and the demands and delivery service requirements for his products and materials.

According to Data monitor, outsourced Supply chain at just above one quarter of the entire $90 billion Indian Supply chain market is slated to grow at a compound annual growth rate (CAGR) of over 16% from 2007-10.

In order to reduce Supply chain costs and focus on core competencies Indian companies cross verticals are now increasingly seeking and using the services of third party Supply chain service providers (3PLs).

Realizing the potential in the contract Supply chain market, 3PL service providers are expanding their basket of services as companies are now looking for more than just transportation of their products and raw materials. Trucking and courier companies are now leveraging their network to provide express distribution and warehousing. Similarly freight forwarders are moving towards owning assets in the form of container freight stations ( CFS) , Inland Container Deports (ICD) and container trains.

Furthermore 3Pls are also increasing investments to become end to end integrated players As per the investment plans of the leading 3PLs in India, the Supply chain industry’s capital expenditure is progressively increasing to almost its revenue growth, a strong indicator of both 3PLs desiring to become integrated service providers and the industry enjoying investments driven growth.

Conclusion:

This article covered research in the Supply Chain Management (SCM) field, offering a review focused on the existing trends and gaps in the supply chain literature. Finally, a conceptual framework of the SCM indicates that there is a need for more research in 3PL with the intention to seek.

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Source by DR.R.SRINIVASAN


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