 Hello everyone. Welcome back to this course on supply chain digitization. This course is jointly being offered by myself, Professor Priyanka Verma, Professor Sushmita Narayana and Professor Debra Pratadas from IIM, Mumbai. We are going to start our discussion in module one and in lecture four. We are going to extend the discussions about fundamentals of supply chain management. If you remember in our last discussions, we had a brief discussion about the differences between the responsive and efficient supply chain and we have seen the different characteristics or the expectations from the customers which can be fulfilled through the types of supply chains that is in terms of their strategy or in terms of their behavior. If you want them to be responsive, how they need to be designed and similarly if you want them to be efficient in terms of cost and so on, how the supply chain needs to be managed. Typically we have also discussed about the different supply chain drivers that is facilities, inventory, transportation, information, sourcing and pricing and their role in making the supply chain to be responsive and to be efficient. This was discussed in detail in our previous sessions and it helps us in understanding the role of all of these drivers in ensuring to fulfill the requirement of the customers depending upon they want a quick supply, they want a quick delivery or they want to get a product in a cost efficient manner. In this session, we are going to focus broadly on different supply chain processes and we will be looking after these processes in detail considering the expectations from these processes, how these processes can be managed and in terms of the expectations by defining the KPIs that should be covered or that should be monitored on a time to time basis to see that these processes are followed in a most efficient and effective manner. When we look into these processes which are majorly involved in any supply chain, we can see this list as follows. This includes processes of planning and forecasting. As you can see from here, the list can includes activities like planning and forecasting, sourcing and procurement, production and manufacturing, inventory management, distribution and logistics and customer services. When we look into these processes, if one thing if you have observed, there is a sequence of activity which needs to be followed in any supply chain and these processes resembles that sequence which has to be done or which is followed in any supply chain. It always starts with the planning and forecasting which in a way helps the companies to decide about the demand that is required to be fulfilled and how the resources can be mapped in order to complete that requirement. Similarly, going to the next stage, we have the sourcing and the procurement act process which takes care of getting the raw materials or the components from the identified suppliers and in the most effective way how this is done. The next step or the next process takes care of converting this raw material components or subcomponents into final product which is later on managed in the inventory management process at different stages in a supply chain. This is further followed by the distribution of these products by the different facilities in a supply chain and all the logistics related decisions which has to be taken up. Finally, once it reaches to the customer, it is important that the customer gets the required services whether it is on getting the product on time or of the required quantity or as per the expectation from the customer side. So we can see that these are the list of processes which are majorly involved in any supply chain and it can be constant or there can be small changes in the list. Also, these processes are being followed by the different members in the supply chain or the different stakeholders in the supply chain which we have discussed previously in our sessions. Going forward, we will be discussing these processes in detail. So let us start our discussion with the first process that is planning and forecasting. When we look into these two terms, the planning and forecasting are quite correlated but there is a very small difference between them that is planning involves taking lot of decisions related to managing your resources based on the forecasting that is done. So forecasting is all about predicting your future requirements, predicting your demands, predicting your marketing sales and so on. Whereas planning involves taking decisions about how do you manage your resources, how do you manage your production, your inventory, capacity and all your financials to see that the predicted demand is fulfilled properly. This is a broad difference between the forecasting activities and the planning activities. If we look into the difference into forecasting and planning, let us see it through a small example. In any supply chain, it is important to decide that what are, how are you going to make your product. Now product will have different components, will require different type of raw materials and so on. Many times there is, it is required that how do you take a decision related to the component. Do you want the components to produce it or you want to purchase the final product from the production facility that is we can say it in form of outsourcing facility or the component can be purchased from a supplier which can be later on assembled to make your final products. Of course this decision will depend upon the type of the products which are made. Does it require all raw materials as the input to make the product or does it require a mix of component and raw material to make your final product. So how do you get these raw material and the components is a very important decision and it is taken care through the planning activity. Similarly it is also important that we decide on the role of the facilities that is your, which include your manufacturing facility, which include your details and which also include your warehouses. How they are going to play their roles in a given supply chain network also needs to be planned well in advance. This helps in creating and structuring your overall supply chain network and we can see that how the quantities or the products which are required to be made at this manufacturing sites or stored at these warehouses or sold by these retailers are done. So we can see that this also involves lot of planning over here. In terms of monitoring the performances of all of these facilities or all of the processes it is very important that we look or we keep a check on their productivity. So monitoring the productivity is an important step in ensuring that the planning and forecasting is done in a most effective manner in any supply chains. For this purpose we need to define some KPIs or also called as key performance indicators, which we can see that needs to be monitored on a time to time basis to see that all the processes which are involved with the planning activities are done in a time to time basis in a most effective manner. So KPIs are again important way of ensuring that the process monitoring is done in a most effective way. We can define the for we can define different KPIs for planning and forecasting. Let us have a quick look into the way how the forecasting is done and how we can have different KPIs for managing the results of these forecasting. Let us take a quick look into some of the forecasting approaches which are well known. In order to understand this we will take up a small example over here. Let us imagine that there is a small online sports equipment store which is trying to prepare for its holiday season and it is expecting that is that is there is going to be increase in the bicycle orders. However it is very difficult to make this prediction. So for that purpose they have relied on the historical data and they are going to use this to forecast about their bicycle sales for August 2023. If we know the expected demand it becomes very easy to plan your inventory levels and accordingly plan your resources like your manpower and so on so that they are all used in a most effective way. We have been given with the historical demand data as you can see from here. We have got information related to the demand in the period of May which is around 200. Similarly we have been given with the demand which is in June 2023 it was 180. In July 2023 it was 150. Now as we have got this historical data we have to use this information to predict the demand for the month of August 2023. How do we do this? Obviously there are different methods which can be used for estimating the demand in the period of August 2023. Let us use a very simple method called as simple moving average for forecasting your demand. So what this sports equipment store has done? They have used this method called as simple moving average in order to forecast for this August 2023 sales for the bicycle. Remember as we have been given with 3 month historical data we are going to use 3 month moving average. If we are available with 4 month historical data then we can use 4 month moving average and so on. Let us try to estimate the demand for the upcoming month that is in August 2023. So using a simple moving average we can say that the formula for we can use the month 1 sales data plus month 2 sales data plus month 3 sales data divided by 3 which can be used for estimating or as an estimate of the demand in the period of August 2023. Using this formula as you can see from this equation we have substituted it with the required sales information in the past 3 months and we can say that so if we add 200 plus 180 plus 150 cycles and take an average of these 3 values we get the estimated demand for the period of August 2023 as around 176.67 cycles. Of course it cannot be with decimals so you can round it up. Now looking into this you can see that this will give us an estimate for the August 2023 bicycle sales but this is not required that our future demand is going to be of the same value. So obviously it means that there is going to be a difference with the estimated demand and with the actual demand. So the difference between the estimated demand and the actual demand is referred as errors. In order to measure the performances of the forecasting method we use different KPIs and here we use these errors to estimate that how good our forecasting approaches are. There are different ways of measuring KPIs for forecasting like forecast accuracy, like forecast error or if you are using any forecasting model performance then we have different methods for checking their performances as well. Let us talk little bit about forecast accuracy. For forecast accuracy we often use methods called as MAPE which is actually measuring the average percentage difference between the forecasted value and the actual value. When we look into this interpretation a lower value of MAPE is actually trying to indicate higher forecast accuracy based on the methods that you have selected. Similarly there are different ways of measuring forecast error like MAG mean absolute deviation, MSC mean square error, RMSE root mean square error or BIAS and so on. BIAS often helps us in terms of understanding that whether we are over forecasting or we are under forecasting. So these are depending on that what type of error will suit you to measure your KPIs and depending upon the industry the KPIs can be accordingly selected. Nowadays as we are loaded with data in any industry we often use AI and ML type of approaches for forecasting the demand. In that time or in this method in order to see the performance of the model that has been used for making the estimation we often rely on some of the statistical performance measures like R square. Regression is one of the method which is quite popular for forecasting and in regression R square is one important parameter or important statistical performance measure which is used for capturing the performance of the forecasted model. When we talk about R square it is actually trying to measure the proportion of the variation in actual data which is explained by the forecasting model. A higher value of R square is always a better fit for your data. So it is always important to see that whatever machine learning methods you are using for forecasting if your performance measure includes R square see that you have got a high R square value that confirms that the model that you have selected is good. Now forecasting as we all say is quite essential in this example as you can see that forecasting will help the retailer to accurately predict the bicycle sales and if he knows that what is the bicycle sales that is expected in August 2023 he can very efficiently manage the inventory for the bicycles he can manage for the staffing and marketing initiatives can be planned for the holiday season based on the based on this information of the expected demand. So we can see that these are the ways in which planning and forecasting can be done in any supply chain. Let us pick up the next process the next process is sourcing and procurement. When we talk about sourcing sourcing includes everything about identifying the right suppliers evaluating them selecting them and ensuring that they are able to fulfill your requirement. The goal of sourcing is always on ensuring that there is a reduction in cost followed by this it is important that the suppliers that are selected are diversified because if you have a diversified supplier portfolio it is going to help you in reducing your reliance on a single supplier or on a source which will help later in mitigating different types of risk. Along with that sourcing also see that the quality is followed that the quality parameter is followed by all these suppliers or the vendors associated with the company and as in today's world we keep exploring about more and more new product innovation is something which is expected nowadays from the suppliers also. So with the introduction of the new products in the systems it is expected that the suppliers and vendors do support in providing this innovative products or innovative requirements of the customers are fulfilled. When we talk about procurement procurement is all about obtaining products services as per the company requirement it takes care of end to end process of acquiring goods services or any type of work that is required for the company from the external sources. In terms of the goals of the procurement the goals of the procurement are again ensuring that the cost is controlled whether it is starting from your sourcing till going through the complete process of procurement and reaching out to the last stage which is payment. So we can see that procurement takes care of end to end process starting from acquiring goods or getting your suppliers and getting the products through them and till you make the final payment takes care of procurement activities. They also track and ensures that the flow of goods or services are done in a timely manner and in a most efficient way followed by this one important portfolio of procurement is having a proper risk management system. Now when we talk about risk management as we can see that there are multiple players involved in a supply chain. So obviously the relationships with these players with the suppliers have a critical role managing good relationships with the suppliers to see that the complete procurement process is done as per the company expectation is the role of is a critical role of procurement related activities. The quality of the products should be maintained and the delivery should also be done on time. Finally the compliance is something which is taken care by the procurement related activity. So when we see the difference or when we see the relationship between sourcing and procurement we can make out very clearly that sourcing is a subset of procurement and this encompasses the whole activities or this triggers the activities of procurement from the sourcing side. In terms of measuring the performances of sourcing and procurement activities there are many KPIs but a few have been discussed over here. For sourcing KPIs it is important that the performance of the suppliers are evaluated on a time to time basis. There are many critical parameters which will affect the supplier performances. One of them is the lead time but depending upon the company's requirement the performance expectation from the suppliers can change. Using these different criteria of evaluating the performances of suppliers a supplier performance score can be developed based on which the expectation from the suppliers can be tracked on a time to time basis. If any supplier is not able to fulfill the requirement then it helps the management to decide on it in a timely manner. Similarly for the procurement KPIs there are different type of KPIs which ranges from management of the purchase order or it can be KPIs related to the compliance of contract or payment or invoicing. When it is about management of the purchase order it is all about what is the cycle time of purchase order, what is the accuracy of the purchase order and so on. Coming to the next process which is production and manufacturing. As we all know that in today's time there are lot of technologies which are being introduced in the today's model production systems. These technologies are actually helping us in capturing point to point data and also in terms of tracking the progress of the production activities. This is leading to availability of large amount of data and it becomes an essential requirement that how this data can be analyzed. You can have data for employee and the sale performance. On tracking this data the company can achieve and ensure that they are able to achieve their production goals. Depending upon this data analytics the management can also change the employees schedules or the production levels as and when needed. These are some of the side benefits which are discussed over here related to availability of data and how this data can be used for managing the production and manufacturing effectively. When we see that so much data is available we can use some efficient data analytics techniques to do lot of activities related to production and manufacturing. We can use this data analytics for predictive maintenance, for quality control using SPC and machine learning and machine learning models for doing some root cause analysis or even for monitoring your processes. There are so many ways in which this data can be used or can be analyzed but depends upon the requirements this decision can be taken by the management. When we talk about the KPIs for the production and manufacturing again it depends upon the focus of the production and manufacturing activity. Some of the KPIs that are broadly used in today's time includes OEE that is overall equipment effectiveness, cycle time, throughput, capacity utilization and so on. So we can see that in today's time how with the availability of the data the decision related to production and manufacturing can be taken in a most effective way. So far we have covered three processes. We will be continuing this discussion with the remaining processes in the next lecture. Thank you. Have a nice day.