Indian Supply Chain Practices

Dr. B.S. SahayDean (Research & Consultancy)

Management Development InstituteGurgaon, India

Conference on “Winning with Intelligent Supply Chains” ( WISC 2004)

FICCI, 24 September 2004

Presentation Agenda Some Facts The Dynamics of Supply Chain Supply Chain Practices in India

Supply Chain Processes Inventory Management Manufacturing Management Outsourcing Customer-Supplier Involvement E- Supply Chains Supply Chain Implementation

Supply Chain Framework Recommendations

Some Facts

• GDP : Rs. 27.55 Lakh Crores*

• Inventory tied up : Rs. 1.17 Lakh Crores

• Logistics Cost : 14% of our GDP

• 1% Reduction in LC : Rs. 27550 Crorers

• 2% Reduction in LC : Rs. 55100 Crorers

* Economic Survey 2003-04

Logistics Cost

13.5281.5Taiwan

12.487.0Singapore

12.4468.7Korea

10.53996.2Japan

14.0460.0India

14.51237.1China Mainland

Asian Region

10-11393.0Australia

Logistics Cost as % of GDP

GDP (USD b)*Country

* World Competitiveness Year Book 2003

08.710445.6USA

14.4637.3Mexico

11.8729.3Canada

North American Region

12.21555.2UK

12.1654.0Spain

12.2418.8Netherlands

12.61186.0Italy

11.81987.0Germany

11.71419.3France

European Region

Logistics Cost as % of GDP

GDP (USD b)*Country

* World Competitiveness Year Book 2003

Logistics Cost

International Comparison of Customer Orientation

74.4357.7062.6269.8459.67USA

66.5054.0057.0058.5063.00Thailand

57.1447.1459.2948.5760.71South Korea

74.7668.4469.7863.1172.89Netherlands

72.2089.7693.1781.4692.68Japan

52.4341.0830.2734.0541.08India

75.8378.6188.0671.3992.50Germany

66.0945.5644.6466.9655.94France

66.4562.5062.1958.0668.13Canada

51.8339.1536.3456.6252.39Brazil

Managing Distribution

After-Sales Service

On-Time Delivery

Product Design

Product Quality

Parameters

Note: Companies are rated 0=poor to 100=excellent

Elements of Logistics cost

• Transportation 35% 

• Inventories 25% 

• Losses 14% 

• Packaging 11% 

• Handling and Warehousing 9% 

• Customers' shopping 6% 

The Dynamics of the Supply Chain O

rde

r S

ize

Time

CustomerDemand

CustomerDemand

Retailer OrdersRetailer OrdersDistributor OrdersDistributor Orders

Production PlanProduction Plan

The Dynamics of the Supply Chain O

rde

r S

ize

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

CustomerDemand

CustomerDemand

Production PlanProduction Plan

Traditional Planning Approach Characterized by Sequential, Decomposed, Slow

Sales & Distribution(Demand)

Manufacturing(Capacity)

Procurement(Material)

CUSTOMER

Optimize to Mfg objectives

Optimize toLogistics obj

Optimize toSales & Mktg obj

“Globally” Integrated Planning“Globally” Integrated Planning

“The sum of the local optima do notequal the global optimum.”

(Goldratt, Theory of Constraints, 1986)

Supply

Sources:plantsvendorsports

RegionalWarehouses:stocking points

Field Warehouses:stockingpoints

Customers,demandcenterssinks

Production/purchase costs

Inventory &warehousing costs

Transportation costs

Inventory &warehousing costs

Transportation costs

What’s New in Supply Chain?

• Global competition • Well informed more powerful Customers • Customer Expectations• Shorter product life cycle • New, low-cost distribution channels • Internet and E-Business strategies

What’s New in Supply Chain?

• Global competition • More powerful well informed customers • Customer expectations• Shorter product life cycle • New, low-cost distribution channels • Internet and E-Business strategies

Research ProjectResearch ProjectIndian Supply Chain Management Practices

•Detailed Survey Questionnaire•1756 organisations •Received 153 responses •Major sectors represented in the all-India study - Agri Products, Automotive, Chemicals/Fertilizers, Computer Hardware, Consumer Durables, Engineering, FMCG, Metals, Oil/Gas, Pharmaceuticals, Retail, Telecommunications, Textile/Apparel

Profile of Responding Profile of Responding CompaniesCompanies

North38%

East10%

West33%

South19%

Respondents by Respondents by OwnershipOwnership

Public Limited(77%)

Public Sector(5%) Private

(18%)

Participation by Participation by Management LevelManagement Level

Vice President17%

Director/GM28%

Sr.Manager

25%

Manager16%

CEO/COO/CFO/President

14%

Business ObjectivesBusiness Objectives

4.02Increase earning per share

4.27Deliver Highest Value to Shareholders

4.28Increase Return on Investment

4.37Increase turnover (sales)

4.46Maximize Profit

4.82Maximize Customer Satisfaction

Weighted Score for Importance

Overall Business Objectives

Supply Chain ObjectivesSupply Chain Objectives

3.43Having Products in Stock

3.62Expanding Width/Depth of Distribution

3.64Reducing/Rationalise Supplier Base

3.68Reducing Warehouse Cost

3.96Reducing Transportation Cost

4.28Reducing Lead Time

4.33Reducing Order to Delivery Cycle Time

4.45Improving On-Time Delivery

4.52Reducing Inventory Cost

4.56Expanding Sales Revenue

4.93Enhancing Customer Service

Weighted ScoreSupply Chain Objectives

Supply Chain ProcessesSupply Chain Processes

0 1 2 3 4 5

Customer Service

Demand Management

Inventory Management

Order Processing/Fulfillment

Manufacturing

Product Development

Transportation

Distribution Management

Import Export Management

Promotion Planning

Warehousing

Criticality Score

Critical Processes

Inventory Inventory ManagementManagementThe Indian Scenario

Inventory Overall Industry Sector Averages [as number of days of sales] Average Lowers Highers Lowers Highers

Raw Material 33.41 1 120 CDs 25.0 Engg 42.2

Work in Progress 14.25 0.1 210 FMCG 4.4 Engg 20.7

Finished Goods 16.09 1 40 Auto 9.9 CDs 23.3

Goods in Transit 6.44 - 85 Auto 4.08 Elec 11.0

Accounts Receivables 46.51 2 145 FMCG 16Engg 72.0Accounts Payables 45 2 127 Elec 25 CDs 60.0

Inv. at CFAs/DCs 14.48 2 50 Elect 10 CDs 24.7

Inv. at Distributors 16.77 3 45 Elec 3.0 Engg 23.4

Inv. at Retailers 13.48 1 45 Chem 8.6 Auto 30.0

Manufacturing Manufacturing ManagementManagement

What is the penetration level of Inventory Replenishment Processes?

Pull16%

Push84%

Logistics CostLogistics Cost

The Indian ScenarioSupply Chain Cost Type Overall Industry Sector Averages [as a % of gross sales] Average Lowers Highers LowersHighersCost of Material 52.92 15 90 CDs 35.5 Elect 69.5

Cost of Labour 8.90 0.51 70 CDs 4.9 Elect 12.9

Cost of Prod OH 11.78 0.5 40 Elect 3.5 Chem 12.1Storage Cost 3.52 0.16 12 Elect 0.8 Auto 5.2

Inbound Transp Cost 3.38 0.12 20 CDs 1.3Chem 4.0Outbound Transp Cost 3.38 0.12 20 Auto 1.8Chem 4.9Warehousing Cost 2.06 0.1 8 Elect 0.3 Engg 3.1

Sec/Ter Transp Cost 2.02 0.2 10 Auto 0.5 Engg 3.4

Distributor’s Margin 6.35 0.1 20 Elect 2.0 CDs 9.7

Order FulfillmentOrder FulfillmentShipment Accuracy v/s OTOFR Matrix

for Order Processing

29.7%Hopefuls

50.8%Leaders

17.6%Laggards

1.9%Hopeless

0 90 100

0

90

Timeliness

(On-time Order Fill Rate)

Co

mp

lete

nes

s

(Shi

pmen

t A

ccur

acy)

OutsourcingOutsourcingWhat is the extent of outsourcing

of supply chain activities?

0 10 20 30 40 50 60 70 80 90 100

Transportation

Warehousing

Manufacturing

Information Systems

Import/Export Mgmt

Procurement

Customer Service

Order Processing

Inventory Management

Percentage Number of Respondents

YesNo

OutsourcingOutsourcingWhat are the major reasons for

outsourcing of supply chain activities?

Process Effectiveness24%

Lower Cost27%Lack of Internal

Capability

11%

Investment Reasons12%

Strategic Reasons26%

Customer-Supplier Customer-Supplier InvolvementInvolvementWhat is the level of customer & supplier

involvement in supply chain activities?

Customer Supplier Involvement

1.501.802.102.402.703.003.303.60

1.50 1.80 2.10 2.40 2.70 3.00 3.30 3.60

Customer Involvement

Su

pp

lier

Invo

lve

me

nt

1

3

4

5

6

2

8

9 107

11

12

1 Import-Export Management

2 Warehousing Management

3 Merchandising

4 Distribution Management

5 Promotions Management

6 Inventory Management

7 Manufacturing (Planning)

8 Transportation Management

9 Order Processing/Fulfilment

10 Product Development

11 Settlement and Payment

12 Demand Management

e-Enablement of Supply Chainse-Enablement of Supply ChainsWhat is the usage pattern of

IT Applications?

0% 10% 20% 30% 40% 50% 60% 70%

Materials Accounting

ERP/MRPII

Sales & Distribution

CAD/Drafting

Shop Scheduling & Loading

Warehouse Management

Supply Chain Management

Process Control & Optimisation

Demand Management

Engineering Data Management

Manufacturing Execution System

Computer Aided Process Planning

% Respondents using it

Aligning Supply Chain Aligning Supply Chain Strategy with Business Strategy with Business

StrategyStrategy

26%Doers

27%Leaders

13%Laggards

34%Dreamers

Business Strategy

Su

pp

ly C

ha i

n S

trat

egy

Framework for Supply Chain Strategy

Business Objectives

Management Processes

Focus of Top Management

Supply Chain Objectives

Supply Chain Processes

Importance to Top Management

Aligning Supply Chain Aligning Supply Chain Strategy with Business Strategy with Business

StrategyStrategyBusiness Objectives

Management Processes

Focus of Top Management

Supply Chain Objectives

Supply Chain Processes

Importance to Top Management

Business Strategy

Supply Chain Strategy

Supply Chains Supply Chains ImplementationImplementation

What are the benefits achieved bysupply chain implementation?

Measurable Indicators Extent of Improvement

1. Sales Revenue Increased 20.2%

2. Profits Increased 15.5%

3. Order to Delivery Cycle time Reduced 32.8%

4. Inventory Reduction

a. Raw Material 25.1%

b. WIP 38.7%

c. Finished Goods 32.1%

5. On Time Delivery Improved 33.4%

6. Customer Base Increased 27.7%

How to achieve the desired result?Supply Chain: A Paradigm Shift

Companies will collaborate with SC partners and synchronised operations.

Technology will be key enabler for innovative SC strategy

SC restructured and reskilled to achieve the goal

Thank You

Indian Supply Chain PracticesIndian Supply Chain Practices

Bullwhip Effect: Variability-Contributing Factors

1. Demand forecasting

2. Lead time

3. Batch ordering

4. Price fluctuation

5. Inflated Orders – supply shortage is suspected.

How to Cop with Bullwhip Effect?

• Reducing uncertainty• Make information at each stage available to others.

• Reducing demand variability• Regular low price; no promotion

• Reducing lead time.• Strategic partnerships

• Vender Managed Inventory• Incentive to make customer’s demand data

available.