 Hello everyone, welcome back to this course on supply chain digitization. This course is jointly floated by myself, Professor Priyanka Verma along with my colleagues, Professor Sushmita Narayana and Professor Deba Pratadas. We are from IIM Mumbai. Going forward, we will be starting to focus on our first module again where we have been discussing so far about fundamentals of supply chain management. So if you remember from our last discussions, we were talking about the competitive strategy, the competitive priority and competitive capability that the business should have. This helps in deciding the focus of the business and accordingly how it is being translated to the manufacturing requirement and to the supply chain requirement. So far we have understood that if the business is cost focused, the manufacturing accordingly should be focusing on ensuring that it is following a system where it is dealing with higher volumes and with lesser varieties. In this way, the objective of dealing with or providing the product at lesser cost can be achieved significantly through selection of the right manufacturing process. It can be assembly or it can be continuous in this way. Similarly, when we talk about other type of competitive strategy that is allowing or producing products with a differentiation strategy where the focus is more on introducing more and more new type of products or new dimensions in the product is obviously differentiation strategy to be followed. This is again being translated to the required manufacturing process where you can go for job type of production system where you can have higher varieties but maybe lesser volumes. So we have seen the linkage between the competitive strategies, the competitive priorities and the competitive capabilities along with the manufacturing processes that needs to be accordingly selected and that helps in building the right match. Going forward, this needs to be further translated to the supply chain requirement as we are talking about how the products one made are being distributed to the consumer in the right way. So this leads to the decision that whether our supply chains are required to be responsive or they are required to be efficient. So when we are saying that the supply chain is required to be responsive, the expectation is something from the supply chain that it will fulfill the customers need with in the minimum possible time, following a differentiation strategy and so on. Whereas when we say that the supply chains are required to be efficient, the primary it is focusing on ensuring that the linked with this is at the minimal value. So we can say that in order to achieve that whether a supply chain should be responsive or should be efficient, this requires lot of different supply chain drivers to play a critical role. For any business it is very important to keep a balance between the expectation from the customer end that is being by falling a balance between being responsive or being efficient. The supply chain requires the support of all of the supply chain drivers in order to achieve this balance. Let us see that what are the supply chain drivers. These are the primarily well known supply chain drivers which are facilities, information, inventory, sourcing, transportation and pricing. The supply chain can employ these drivers to actually attain the performance benchmarks which is outlined in the strategy and does to optimize their profits. When we see these drivers, the combined effects of these drivers will actually help you in determining the balance between the responsiveness required and also to achieve the highest possible value of the profit for the entire supply chains. Let us have a quick look into the supply chain drivers. As you can see out of these six supply chain drivers, three of them are more of the physical entities which are your facilities, inventory and transportation. These are also called as logistical drivers whereas when we see the other three that is information sourcing and pricing, these are something which are obviously required by these physical drivers and that is why they are called as cross sectional drivers. So for running these physical drivers that is facilities, inventory and transportation, you need a very close coordination that is achieved through information. You need the right information about your suppliers and the sourcing decisions and obviously how you are having a pricing strategies in gaining these benefits. So we can now understand that whether we want our supply chains to be responsive or to be efficient to fulfill this need, we have to decide about the roles of the supply chain drivers accordingly. Let us have a quick look into all these drivers one by one. The first from this list of drivers is the facilities which is very, very important driver as the different locations in the supply chain which can include the location of a plant or a warehouse or a retail store. At these facilities, the primary role is to store the inventory which can be in the form of raw material components or finished goods or WIPs. So the main role of these facilities is to receive these raw materials or to store them as when required. So at these facilities, these raw materials or these inventories are converted into finished goods that is at the production centers or these raw materials components of finished goods are stored at facilities like warehouses. In order to understand these facilities in detail and specifically what will be their role to see that these facilities can contribute in making the supply chain efficient or responsive, let us see that what these facilities should do. When it comes in terms of deciding the capacities of the facilities, if we are keeping a large capacity of the facilities, then obviously these facilities can handle larger volumes. But the benefit is that these higher volumes can be managed very effectively with fewer resources. This will lead to the reduction in the unit cost and as we can see that there is a benefit of cost because of doing the large scale of operation with minimal resources, this helps you in making your supply chain efficient. But in case you are having your facilities with smaller capacities, they are quite adaptable to any change in the demand or the market condition because of which the unit cost associated with small capacity of the facility comes very high. However, keeping smaller capacity will help you in achieving your target of making supply chain responsive. Similarly, in terms of the location of the facilities, these locations can be either centralized or can be decentralized. In case you have got centralized locations of the facilities, they help you in achieving the target of making a supply chain efficient by following the principles of economics of scale. However, in case of decentralized facilities, they are good in ways of making a supply chain responsive. When we talk about the role of the production facilities, this again can be classified into two types. Your production facilities can be flexible or it can be dedicated. In case your production facilities are designed in a way which can make multiple type of products, similar set of equipments and workers, obviously it is allowing you to introduce flexibility in the system which is again helping you in achieving higher responsiveness. However, if you have got dedicated resources, dedicated machines, dedicated manpower, this is helpful in seeing that you can make large quantity of good but with limited varieties. So, we can see that a flexible production facility can help you in making your supply chains responsive. However, a dedicated production facilities can help you in making your supply chain efficient. Let us talk about warehouses. In warehouses, again we can have two ways of functioning, whether we can either we can have cross talking or we can have against storage type of systems. In case we have cross talking, we are allowing the inventory to be moved without storing it for long time at the warehouses. So, here you can do lot of mix and match as per the customer requirements, thereby introducing more and more flexibility into the system which is actually helping you in achieving your target of making your supply chains responsive. Whereas, if you have dedicated storage systems, this is suitable for larger volumes and again it is targeting for minimal cost thereby making the processes more and more efficient and thus the supply chains which are efficient in nature can have a dedicated storage system in their warehouses. Let us look into the second driver which is your inventory. Again, inventory is a physical entity as we can understand. There are different types of or different components of inventory decision. This include your seasonal inventory, your cycle inventory and your safety inventory. When we talk about cycle inventory, this is an inventory decision which is related to the ordering of same quantity of material in a repeated cyclic form. Whereas, when we talk about safety inventory, this is required for keeping minimum balance to see that you do not lose your processes because of non-availability of the inventory. Whereas, seasonal inventories are helpful in case your products are having some fluctuating demands which varies maybe due to seasonal requirements or maybe due to some specified business requirements. In this case, you will carry additional inventory in peak seasons and you will manage your inventories considering the seasonal requirements. When we talk about inventory related decisions, these are the three primary components of inventory decision which has to be taken care about deciding the different levels of inventories to be carried at the different facilities in a given supply chain. When we talk about inventory, their primary role is to minimize the gap between the supply and demand. In case the inventory you are carrying is very high, will obviously help you in fulfilling all your demand, but this will add cost to your overall supply chain. In none of the case, if the inventory that you are carrying is quite low, your service level will be again getting affected, your demand that you are trying to fulfill will get affected and though you are able to minimize your inventory cost, but your other cost gets significantly affected and this will affects very severely to your businesses. So, it is important that the availability of the product should be taken care by ensuring that right amount of inventory is available whether it is related to raw materials, components or finish goods. So, in case we have got a high availability of the products that is high inventory, this makes the supply chains highly responsive, but as we know that higher is the inventory that you are carrying, it will add cost to your supply chains. Another case when the availability is low for this inventory, there is customer lost and this is a very heavy penalty on the overall business. Carrying low inventory will have low cost, but the implication of losing your customer is very significant. So, how do you take decision related to inventory and particularly when you want your supply chains to be responsive or you want them to be efficient. So, if you are trying to make your supply chains responsive, remember that it comes at high cost of inventory. To achieve this responsiveness target, you are required to carry large amount of finish goods and this inventory of the finish goods should be available closure to the consumers. The more they are close to the consumer, the better is the responsiveness that can be achieved. Whereas, if you are trying our supply chains to be efficient, then we can carry large amount of finish goods and which can be at a centralized location. So, you can take the benefit of order consolidations and you can have your transportation optimization type of methods where you can deliver your products in a significantly lesser value. So, we can see that whether we want our supply chains to be responsive or to be efficient, it is important that you find the right location and quantity of the inventory which helps you in finding the optimal level of responsiveness, but also at the lowest cost. So, when we are talking about making supply chains and responsive, it is not always in terms of a pure strategies to be followed by the supply chains, it can be a mix of both. That is your supply chain can be a mix of both, little bit of responsiveness and it can also have a mix of little bit of efficiency. So, the way you want your supply chains to be responsive or to be efficient, you have to keep this point in mind about deciding decisions related to inventory in this manner. The next decision is about transportation and which is again a very, very important driver as it ensures the delivery of the raw material from the suppliers to the manufacturing and also it also takes care of the delivery of the finished course to the final customer. When we talk about the decisions that we primarily take in transportation, we have two major decisions. The first is about how should be the transportation network designed. There are different possible ways in which the products can be delivered to customers. Very interestingly, one of the method is you can have a transportation network which tries to deliver the product directly to the demand point from the manufacturer. This is also referred as direct shipping, but we have alternative options where we try to deliver it, but through intermediaries in between the manufacturing and the customers. So, depending on again whether we want the supply chains to be responsive or to be efficient, the transportation network design can be accordingly selected. Similarly, the another type of decisions which is related to the transportation is about the choice of the transportation modes. These are the four transportation modes which are well available in today's time. They are the air mode, the rail mode, the road mode or the seaways. And as we can see, depending upon the expectations of the supply chains to be responsive or to be efficient, we can select any of these transportation modes. If the focus is more on being efficient, seaways are the best as it delivers large quantity of goods in minimum cost by actually going through, by taking the benefit of economic scale. Whereas, we have airways is another as the transportation mode which can deliver products in faster time, but with a very high cost. So, in case the supply chains are required to be responsive, this is again a very, very effective mode of transportation. In short, if we are trying to summarize the role of transportation decisions for any decision-making, we can see that the requirement of supply chains being responsive or being efficient can be seen in two ways. Either you need a supply chains which are rapid or you need a supply chains which are at low cost. So, if you are looking for a responsive supply chains, the transportation are required to be rapid. Now, this type of supply chains is suitable for high value products, but which are having very low demand. So, here we are trying to see that the customers are getting these products as quickly as possible. In this case, we can have, we will be supported with the centralized facility because here we have, we can store wide variety of the products and direct delivery of the cost, direct delivery of the products can be given to the consumers. Whereas, if the focus is on making a supply chains efficient, it is how well you are having a transportation which is helping you in achieving low cost. This is very useful for products which have got low value but have got significantly very high demand. In this case, we can see that if we can bring the inventory of these products closer to the customers, the transportation can be done at the minimal possible cost. Going forward, we have the next supply chain driver which is information. When we talk about information, again we can see that there are different functions of information as a supply chain driver which can help you in achieving the target of supply chain being efficient or being responsive. So, remember that your supply chains can be having a push strategy or a pull strategy. When we talk about push strategy or a pull strategy, this concept we will discuss more frequently in the upcoming sessions. But let us try to understand the role of information in making or in responding to push versus pull strategy. A push strategy is something where we see that the production is initiated based on forecast and you have enough historical demand pattern based on which you can predict about the production requirements. This will help us in deciding the products to be manufactured or the services to be provided in advance of the actual customer orders. In case of push system, the information requirement will be very different. Whereas in a pull system, the production or the service provision is actually triggered by the customer demand. The products are made or the services are provided in response to the specific orders or the consumption need. So, we can say that there is a huge difference between the push strategy or the pull strategy and correspondingly in order to fulfill this requirement, the information plays a very critical role over here. As the demand is well known, in case of push strategy, the information system can be used to plan the system in advance. Whereas in pull system, it is more of being responsive, the information system can help in ensuring the collaboration between all the partners so that they can react quickly to the customer who is having a pull type of requirements. Similarly, the other aspect of information is how well the coordination is done between the different partners of supply chain and how the information sharing is done between them. Supply chain coordination takes place when every phase within a supply chain collaboratively strives to achieve the goal of maximizing the overall profitability of the entire supply chain by sharing information. This is one of the very, very important role of the information that has to be achieved. Lastly, when we talk about other functions of the supply chain, whether it is sales, marketing, production or any other department, it is important that all are in tune with the business requirements. So, we can see that the role of the information is very important if we want our supply chains to be efficient or if we want them to be responsive. In case of being supply chain efficient, the forecasting, inventory management, supplier collaboration, production planning and the optimization of transportation decisions can be done effectively which helps you in achieving these targets significantly. Whereas, in case of supply chains being responsive, the real-time visibility can be achieved with the use of proper machine learning methods. The changes in the demand can be sensed and by offering right promotions, the demand shipping can be done. Several scenario planning can be done and obviously all these can help you in reducing your response time. So, that is why supply chain is playing a critical role over here to see that how supply chains can be managed in an efficient way or in a responsive way with the help of information systems. The next decision is the sourcing decision and the components of the sourcing decisions include decisions related to procurement, sourcing strategies and supplier selections. The procurement decisions are all related to the different types of materials which are required in the system. We will be talking more about procurement in future sessions through tragic metrics and so on. Similarly, the decisions related to sourcing strategies include whether you will have single sourcing, multiple sourcing or so on or whether you should have in-house processes or outsourcing. And lastly, last type of sourcing decision includes that who should be your suppliers, what are your requirements and which are the suppliers who can fulfill these requirements. So, supplier selection again is a very critical decision in ensuring that the sourcing is done in the most effective manner. One of the important decision that is taken in sourcing is about should you go for in-house or outsource your any of the existing processes. These processes can be manufacturing, transportation or so on. If we want the supply chains to be efficient, the sourcing can help us by achieving it through cost optimization, by achieving it through economies of scale and also ensuring that the suppliers are being consolidated which helps you in getting your target in making your supply chains efficient. Whereas, in case you want the supply chain to be responsive, the sourcing decisions will ensure the collaborations between the suppliers and that will help you in making the supply chains responsive as in case of any disruptions being happening, the collaborative supply chains or the collaborations between the suppliers will ensure that they can respond to these disruptions very well. Similarly, keeping a base of alternative suppliers always helps in making supply chains responsive as it ensures that no demand remains unfulfilled because of the presence of the alternative suppliers and sourcing can helps you in devising proper strategies to achieve customization which is one of the primary requirements of the supply chains being responsive. Let us discuss the final driver of supply chain which is pricing. Again, pricing can be having different strategies. It can have strategies of economies of scale or everyday low pricing versus high low pricing or fixed pricing versus menu pricing. In case of strategies of economies of scale, then this strategy is very suitable for the big batch production where the economies of scale help you in making it cost effective and also it is ensuring that the change over cost is saved because of larger volumes. The other type of pricing strategy is everyday low pricing or having a high low pricing. Now, EDLP keeps the price steady over time. That is one of the biggest benefit of EDLP versus high discounts every week in high low pricing is again ensuring that different pricing are being offered at different point of time and this actually is an interesting strategy if you want the supply chains to be responsive. There is another type of strategy which is fixed pricing versus menu pricing. Fixed pricing, the prices are already fixed and it is quite efficient to work in the system. That is why for supply chains to be efficient it is interesting to have a fixed pricing versus menu pricing is all about depending upon the requirements these values can be changed. The prices can also vary with the other attributes like response time or location. So, depending upon again whether you want your supply chains to be efficient or to be responsive you can select these pricing strategies and accordingly you can decide your strategy related to pricing. So, we can see that the role of pricing in decision making is quite significant. Customers who prefer responsiveness or customers who prefer efficiency are entirely different. So, it is very important that we have the right pricing strategy so that we can target the two divergent needs of the customers accordingly. Let us try to summarize the overall discussions. In this session we have seen that how the competitive strategy of the business is being translated to the competitive priority and to the competitive capability which is first translated to decide the right manufacturing process and ultimately you are required to translate it to decide about right about your right supply chain strategy. The supply chain strategy again it can be in terms of supply chain being efficient or supply chain being responsive. In terms of making your supply chain efficient or supply chain responsive you need to have support of six main drivers which includes your facilities, transportation, inventory, information, sourcing and pricing. So, we have gone through the details of all these drivers one by one and we have seen that what role they are required to play to make the supply chains responsive or to be efficient. In terms of facilities it is required that more facilities are there but they should be located next to the customers or near to the customers whereas for making your supply chain efficient it is important that you have larger capacities which will help you in decreasing your inventory cost. So, you can have decentralized facilities for making your supply chains responsive and you can have centralized facilities for making your supply chains efficient. In case of inventory keep higher inventory for making responsive supply chain and because of the centralized facility you can have reduced inventory holding cost. The transportation can help you in making your supply chain responsive by allowing you fast modes of transportation whereas it needs slow modes of transportation and thereby taking the benefit of cost for making the supply chains efficient. For information more information sharing improves the responsive nets but obviously it will create more complexity. For efficiency the advance planning can be done very effectively with the right information systems. Sourcing suggests that in-house processes is good if the risk associated with outsourcing is small. However the outsourcing to the third party will see that the supply chains can be efficient. The pricing can have a strategy of offering differential pricing to follow a responsive supply chain requirement whereas pricing can have a everyday low pricing strategy to make your supply chain efficient. So, in short we have seen the role of all of these drivers in a nutshell to help us making our supply chains responsive and efficient. In this way we have covered about the supply chains the requirement of the or business and how these business requirements are being translated to the manufacturing and to the supply chain processes capabilities as well. With this we will close for today. Thank you everyone have a nice day.