scmpro february 2015
DESCRIPTION
View from the top from the supply chain industry in India.TRANSCRIPT
February 2015 Vol. 3- No. 1
Rs. 150
NEWS
SCM WORLD
KNOWLEDGE
CLASSROOM
ACADEMIC ADVOCACY
February 2015
EDITORIAL
3
he baby that we delivered in February 2013, has Tturned two. And what a sense of pride and happiness it brings to see it being welcomed by you - our readers. We are indeed thankful for your support. It has been a hectic year for us. SCMPro and our Editorial Partner – Institute of Supply Chain Management (ISCM) decided to collaborate in multiple ventures. Over the span of three months, we organized four events – beginning with the ISCM – Great Lakes Supply chain convention in September 2014, the ISCM – OPPI Pharma conference in October 2014, the Master Class by John Gattorna and the ISCM-SCMPro Supply Chain Strategy Summit in December 2014. It was hectic. We are thankful to our readers who supported us. And we did carry the synopsis of these events in our subsequent issues.
And this year promises to be a packed one – we start with our Demand Planning Forum, where ISCM and we join hands to felicitate the best demand planners in India – in February. This will be followed by a Masterclass by Dr. Rakesh Singh in April, am Agri Supply Chain and Rural Summit in May, followed by the Pharma conference in November and the ISCM – SCMPro strategy summit 2015 in December. The agenda is set.
And while we do this, the Indian economy is waiting to take off. The hopes and aspirations of a billion people are focused on one man – our prime minister – and each heart has the same prayer – may the torpor of the past be buried, and may we take new wings.
We wait with bated breath for the winds of growth to lift us up.
Happy Reading
GIRISH V S EDITOR
On the Wings of Wishes
February 2015
CO
NTE
NTS
FEB
RU
AR
Y 2
01
5
4
06SCM NEWS >>
Analysis of latest Supply Chain and Logistics happenings.
08ISCM WORLDS >>
13LEAD STORY
40SME CORNER >>
Dr. Rakesh Singh, Managing Editor, SCMPro on impact of GST on Supply Chain and logistics industry.
SCMPro dedicate this edition to professionals who spared their valuable time to pen down their thoughts on Industry with our readers.
SCMPro explores the role of supply chain management in SMEs.
5
48SCMPro CLASSROOM >>
50ACADEMIC ADVOCACY >>
Dr. Rakesh Singh explains the concept of Bullwhip effect.
An insightful on research on how firms survive violent and unexpected disruptions.
EXECUTIVE PUBLISHERJayaram Nair
Mobile:9821732929
EDITORIALMANAGING EDITOR
Rakesh Singh
EDITOR
Girish V S
RESEARCH EDITOR
Piyush Shah
ADVERTISINGSoney Mathew
Mobile: 9987272050
Supply Chain Management Professional
D-204, Riddhi Siddhi Complex, Off. S.V. Road, Prem Nagar Road, Off. S.V. Road, Opp. Patkar College, Goregaon (West),Mumbai 400062. INDIA.
B2B Media Group
Printed and Published by Jayaram Nair on behalf of B2B Media Group. Printed at Printrade Issues (India) Pvt. Ltd, Unit No. 10, Pragati Indl. Estate 316, N.M. Joshi Marg, (Delsie Road), Mumbai 400011. And Published at D-204, Riddhi Siddhi Complex, Off. S.V.Road, Prem Nagar Road, Off. S.V.Road, Opp. Patkar College, Goregaon (West), Mumbai 400062. INDIA.
No part of this Publication may be reproduced or transmitted in any form or by any means including photocopying or scanning without the prior permission of the publisher. Such written permission of the must also be obtained from the publisher before any part of the publication is stored in a retrieval system of any nature. No liabilities can be accepted for inaccuracies of any description, although the publishers would be pleased to receive amendments for possible inclusion in the future editions. Opinions reflected in the publication are those of writers. The publisher assumes no responsibilities for return of unsolicited material or material lost or damaged in transit. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Mumbai only.
Annual Subscription Rate: (INDIA)- Rs. 1500/-
Editorial Partner:
44KNOWLEDGE >>
This is concluding part of six part series on Managing and sustaining high performance in supply chain.
Dr. Rakesh Singh
February 2015
6
sk any Acarrier – the
number one
problem they
have is driver
shortage. A few
years back, the
problem was
cargo availability. It is estimated that 15 percent of the trucks in
India are idle at any moment in time due to lack of drivers. And
we are not alone. Even the US of A seems to suffer the same
problem. For years the US trucking industry too is faced by a
driver shortage. And the problem seems to be getting wore
even in the US. Driver shortage is the key constraint in trucking
company's expansion plans. Drivers are leaving the profession
in droves – and the culprit is – of all things – the lack of
parking! The US can't find place for the truck to stop while on
the road! A survey revealed that 70 percent of truckers found
the truck stop full when they tried to stop! Apparently trucks
there have to find a stop by 4.00 PM if they want to rest. The
US of A should learn from India - we will park it anywhere – so
what if the road gets blocked! And we will expect the driver to
guard the consignment too!
ore than 50 years ago Jay Forrester identified Mthe issue of the amplification of the consumer
demand along the supply chain. It was called the
Forrester Effect. But since supply chain was not a
separate science, it died a natural death, till Dr. Hau
Lee of Stanford and P&G re-discovered it. At a
townhall meeting by Supply Chain Digest in
December, Kevin Smith, a consultant and faculty at
Depaul University presented the following chart.
he one big Tlesson that
e-commerce
firms have
learnt is that
spike in demand
is a fact of life.
We saw it
during the
Flipkart discount
sale, the Christmas sale in UK, the Bachelors day sale in
China. Service delivery firms cannot afford to invest in huge
capacities that will be used once a year. And sellers cannot
afford to disappoint their customers. Is there a way out? Dick
Stead, the Chairman of Yodel, the UK delivery firm which was
forced to stop picking up new orders for delivery before
Christmas feels so. According to Mr. Stead, firms will need to
understand that delivery capacity has a limitation. And peak
delivery numbers cannot be the basis of capacity planning. His
advice – and a reasonable one – is to do away with the same
day deliver during such peak periods – possibly have a 48 or
72 hour delivery model. Simple but effective!
February 2015
It is not just drivers! Slower Delivery Norms – the Need of the Hour
The Bullwhip effect
KNOWLEDGESCM WORLD CLASSROOMNEWS ACADEMIC ADVOCACY
8February 2015
The Budget 2015-2016 is expected to
announce the rollout of the much
awaited GST. GST will transform the
landscape of doing business in India. It
promises gains in terms of supply
chain redesign. The 3 PLs are also
going to gain in terms of reduced
paper work and lower overheads as
well as opportunity arising out of
warehousing rationalisation. Indian
firms need to pull up their socks and be
ready for this change.
will changethe Supply Chain Landscape
Dr. Rakesh Singh
Visiting Professor of supply chain strategy and economics, Great Lakes, Chennai and Chairman, Institute of Supply Chain Management, Mumbai, Managing Editor, SCMPro
GSTKNOWLEDGESCM WORLD CLASSROOMNEWS ACADEMIC ADVOCACY
10February 2015
SCM WORLD
he better regulatory changes etc. These state level taxes are infrastructure is also high. Thus Tare definite to happen. In levied on top of these central both manufacturing fact the countdown has already taxes. This complex indirect tax organisations and logistics service begin. The main being Goods structure meant that providers are caught in this and service tax (GST). The new manufacturers base their inefficiency trap.government is serious in inventory and distribution implementing GST and thus decision on tax avoidance rather paving way for a more rational than operational efficiency. They How is GST going to help and realistic supply chain all have created stock transfer companies plan their logistics structural changes, which will between inventory stocking better? What is GST? What are help Indian firms operating in points within states. the taxes that are going to be India become productive and subsumed in GST? Will all this This complex state wise indirect competitive globally. In this lead to a more efficient and taxation has created an inefficient column we will explore the need competitive landscape? To say supply chain network and forced for GST. Post GST what will be that India's tax structure has a firms to take inefficient route of challenges for both user and significant impact on supply mapping inventory, service providers in supply chain chain design is an transportation and domain. The few questions that understatement. Products in manufacturing costs. For them arises are: India are taxed twice first by the cost benefit analysis between
central government and then by What is the structure of taxation efficiency and taxation is in the respective state governments. in India currently? What has favour of taxation. The network CST forced many companies to been the impact of this tax instead of matching demand set up warehouses in their state of structure on supply chain design? supply focuses on minimising the operation rather than pay CST. What has been the net impact of impact of indirect taxation. Most Excise duty with a culture of supply chain profitability of the manufacturing companies and selective regional exemption has firms and at what costs? Why even logistics service providers forced firm to choose locations rolling out of GST will be a great have warehouses and offices in which may not be the best choice opportunity for the Indian firms each state. With 33 states in leading to a huge logistics cost. and logistics companies? How India most large consumer With different forms of value will procurement strategies, durables companies have around added tax and custom exemption networks design, shifts in 3 PL 25 to 50 warehouses. If we in Special economic zones have service patterns and leveraging compare this with advanced made supply chain design a information technology to help countries we find that they just challenge and eroded supply maximise the gain will change have 6 to 8 warehouses which chain profitability.the economics of post GST era. serves a geography of India size.
Even developing countries have The planned GST system seeks only around 10-15 warehouses to replace around fifteen state with similar geographical and federal taxes and tariff for a expanse. The net impact on The current tax structure in India single point of sale. It is a supply chain of Indian firms have is complex and multi-layered comprehensive form of a tax been requirement of more space both at union and state level. It based on a uniform rate of tax for and inventory and thus leading has led to a complicated supply both goods and services and GST to an increase in both capital and chain design and an inefficient is payable at the final point of working capital requirement. network. There are central level consumption. The fundamental These fragmented warehouses are taxes in form of excise custom issue with GST still is the small and inefficient, distribution duty and Cenvat and there are revenue neutral rate of GST cost is high, and material different state level taxes like which will be acceptable to both handling cost is also high. The VAT, Octroi and State level cess centre and state governments. cost of implementing IT
GST will change the landscape
Indirect taxes as the basis of supply chain decision
12February 2015
SCM WORLD
This tax according to the empowered committee is 27 percent. This rate is exceptionally high when compared with other developed economies and competitive emerging economies. However the earlier rate of 12 percent suggested by the empowered committee was abysmally low. The empowered committee of state finance ministers and the
A study by Accenture clearly at each level of supply chain.government of India indicates that there will be needs to work out a rate which reduction in number of will be acceptable, minimise warehouses with the same conflict between the state and A common market with service levels, reduction in the centre and pave way for common tax will pave way for freight cost due to consolidation development of a common the firms to restructure their of freight. The growth domestic market at the same supply chain. In the new GST opportunities for 3 PLs is time resulting in revenue era, the firm will have to think expected to come prominently buoyancy and higher growth of what should be the from warehousing and end to the economy. manufacturing location. What end supply chain opportunities. should we manufacture at each Reduced documentation and point? Which distribution lower overhead will also make center do we need? Where do we them more efficient. Indian A common market with a locate the regional distribution transport firms will also find uniform tax structure will help center? What is the optimal relief as they will save around 24 firms improve their physical and flow? Direct shipments or to 48 hours that they lost in information supply chain transfers? Should warehouses be dealing with formalities and resulting in a massive gain in consolidated how are our paperwork at various check post. financial supply chain. It will working capital requirement GST will also improve the cash free organisations to locate their going to change? How do we flows. It is too be paid at the distribution and warehousing design our logistics network? point of sale and not centres purely based on tax How will firms realign their manufacturing. It will also open consideration. Rationality will information technology with the up broader availability of credit emerge in supply chain design, new supply chain design? How in interstate transaction. GST location and structures. Intra- and with whom do we partner will help to enrich the and inter-state transactions will to create a seamless supply information in the supply chain. incur equal tax liability and tax chain?The CFAs will no longer be considerations and will no Managing this restructuring and required as businesses will no longer hamper operational transition will be crucial for longer be worried about taxation efficiency. Companies will be organisations and it calls for a due to interstate transfer. This able to optimise their end to end complete new strategic seamless flow would bring more supply chain with more rational direction. Are Indian firms ready transparency into the supply choice of design and locations in for this transition?chain and reduce the waste lying supply chains.
Challenges Ahead
Towards more rational SCM landscape
13
A VIEW FROM THE TOP
February 2015
TOP
um Do…….HFor the past two years SCMPro has sought to inform and engage with you – the supply chain professional with a wide variety of articles, news and features. At each step we asked ourselves – what can we do to make SCMPro the magazine of choice to you. What will make you reach for it? This has been our driving force.
And as we look back on these two years, we believe we have been to redeem ourselves credibly. We realize, it is you who matter.
From you who matter it was a small jump to those who matter. As we were searching for a theme for the anniversary edition, we had an idea – why not invite a wide cross section of professionals – CEOs, Supply Chain Heads, Academicians and practice heads to contribute one or two pages to the magazine on any matter they feel is of relevance and importance to the supply chain sector.
We are warmed by the response we got. We dedicate this issue to those professionals who spared their valuable time to pen down their thoughts for our readers. We hope you will lie them.
Happy Reading
A VIEW FROM THE
14
A VIEW FROM THE TOP
February 2015
Debjit RoyAssociate Professor in Production and Quantitative Methods at Indian Institute of Management, Ahmedabad
often get the question from senior supply chain.Imanagement executives in supply chain The supply chain company has a strategic and logistics domain – is there a magic mandate to cut down costs. The company mantra or a strategic tool that I can use to is in a dilemma whether they should vet my decisions? While there is no magic supply products to the retailer from a mantra to eliminate decision risks and single DC (option 1) or supply products guarantee an optimal decision choice, but to retailers from multiple DCs (option 2), a structural framework may help decision see Figure 1. If the supply chain makers to guide their decision making performance measure (P) is costs then an process and take a more informed choice. isolated analysis of the costs may not lead ?I usually say “Use PAID to get paid!” to an optimal decision. For instance, if we What am I referring to? The four letter only analyse (A) the costs at the DCs in acronym PAID refers to- isolation then clearly option 1 results in
lower DC inventory costs (due to risk ?erformance measure
pooling effects observed at a centralized ?nalysis of decision trade-offs DC), see Figure 2. However, the lead time
from a central DC (one DC case) to the ?ntegrated view across all functions
retailers may grow leading to larger and decisionsinventory holds at the retailers. Such an
?esign of organizational structure and integrated (I) cost analysis needs to be incentive systems done and the overall supply chain costs
need to be studied, see Figure 3. Functions Let us try to understand the PAID generally work in silos and due to the large framework by analysing a two-stage retail
P
A
I
D
DC Inventory Costs Low
Lead Time High
R1
R1
R2
R2
R3 R
3
R4
R4
DC
DC1
DC2
DC Inventory Costs High
Lead Time Low
Option 1
An Integrated ViewAn Isolated View
Option 2
R1
R1
R2
R2
R3 R
3
R4
R4
DC
DC1
DC2
DC- Distribution CenterR- Retailer
16
scale of a supply chain network, the decision analysis is often limited to a particular level or a function. Such barriers need to be broken and the managers should have a foresight of their decision implications both upstream and downstream. The job of a manager does not end with a decision on the network reconfiguration. Managers need to design/ re-design (D) the organizational structure and develop the appropriate incentive mechanism to support the organizational change. The incentive mechanism should be tightly connected with the performance measure (P) that was driving the analysis in the first place. Figure 1: Two options for retail distribution (option 1: with one
DC and option 2: with two DCs)
Figure 2: Analyzing the cost trade-offs by only considering one echelon (the DC's)
Figure 3: Analyzing the cost trade-offs by considering both echelons (the DC's and the Retailers)
R1
R1
R2
R2
R3
R3
R4
R4
DC
DC1
DC2
Supply Chain Inventory Costs Low?
Lead Time High
Supply Chain Inventory Costs High?
Lead Time Low
High Safety Stocks at Retailers Low Safety Stocks at Retailers
A VIEW FROM THE TOP
February 2015
20
Arun RaoGeneral Manager – 3PL & Warehousing Services; All Cargo Logistics Ltd.
February 2015
Logistics & Supply Chain Management in India will be stretched beyond its limits in the next year or two.
A VIEW FROM THE TOP
18
he Indian economy is possibly in the next few years are:Tat its best in terms of creating The consumer will a positive sentiment to all continue to demand for customized stakeholders current and products and for features that will prospective. The Government is cater her taste. Sensing demand, showing a renewed vigor in framing supply, consumer needs, trends, policies that have a bearing on the competition, prices, performance Indian market, and there is an etc. will need increased increasing commitment from the sophistication in the way data is industry in building the economy. being captured, analyzed and Given this scenario, Logistics & interpreted. Supply Chains will be Supply Chain Management in India far more segmented than ever. will be stretched beyond its limits in Internet, Communication the next year or two. There will be Technology, Big Data, Cloud efforts put in by the industry to Computing will be technologies ensure that the supply chain that will pay a big role in sensing. performs as per expectations. Companies will move away from Supply Chain Performance will having one single massive inflexible continue to be driven by demands ERP to more specialized & focused from consumer and investor / tools to help them in these areas.stakeholder. Manufacturing in The dominant elements in the India has evolved over the years. We Supply chain that will be focused on still do not believe in ourselves and
Sensing:
Manufacturing:
20
systems to shorten lead time). Safety and Security systems will be strengthened. Digitization will gain a strong foothold and will be the differentiator especially in telecommunication and Printing/ Media industry. For example: There will be very little to differentiate between mobile handsets but the apps provided as downloads will be the line between acceptance and rejection.
There are a few in our capability to manufacture world class areas where in industry; companies products. The most neglected aspect of collaborate albeit with very little Manufacturing - design will have to be conviction. This will change. There will be brought to the fore front if we want to many more “Ubers” surfacing at various make India a manufacturing destination. points in the supply chain. This will be a When it comes to areas of material science
phenomenon that is just waiting to be like alternative methods of manufacturing caught up across the world.(additive manufacturing) we have yet to
build competencies to make a significant It will not be just contribution to enhance supply chain the chemical / hazmat supply chain that performance. Robotics, 3-D Imaging, will be the ones who will shoulder the Digital Imaging, 3D- Printing are some of responsibility to ensure that there is not the technologies that will emerge as much damage done to the environment. differentiators in the industry. Sustainability will be the responsibility of
This by far is going to be crux every company whether in manufacturing of India's economic resurgence. or services. Anything that has the potential Infrastructure, Policies, and optimization to damage the environment will be will be the drivers in Supply Chain carefully looked into and the supply chain execution. Every step we take in the right designed to minimize the impact. Carbon direction in executing / delivering customer mapping, carbon foot prints will become all expectations is going to be crucial to pervasive.performance. Supply chain networks will Finally, for us in India it is going to be be redesigned, transportation constraints “EXECUTION”, “EXECUTION” and addressed in a collaborative manner. The “EXECUTION”. It's just that a large part transportation / logistics services will move of India still remains a challenge in terms of towards being more organized. Last mile execution. We will see investments in delivery (e-commerce) mechanisms will be making that link of the supply chain stretched (will probably see use of newer stronger than ever.methods of tracing, tracking and delivery
Sharing / Collaborative Services:
Reverse Supply Chain:
Execution:
February 2015
A VIEW FROM THE TOP
22
A VIEW FROM THE TOP
February 2015
Indian Economy
Supply Chain for the New Environment
commerce retail is already Supply chain Management process of demonstrating its usefulness and it is end to end will continue to remain as It was in early 17th century, trading expected to reach 25% of the total retail basic requirement! But the expectations expedition of East India Company trade by 2025. of service and assurance may change in arrived in India. Subsequently the
the minds of consumers.economy of the Indian sub-Continent dwarfed that of British Isles. The Just as product conformance, Delivery strength of India was then, a huge, conformance will be of critical educated & motivated population! And importance. Customer delight is today yet again, India is reclaiming its apparent only when it meets his traditional role as economic power, with expectations in terms of quality, its strength of a huge, young, educated traceability and assurance of delivery in and motivated population to march a sustainable manner.forward in the next decade or more!
Any organization that will pursue a The second fastest growing economy in systematic process on all the three the world, by 2025 is likely to be a aspects will capture the imagination & global economic powerhouse. One loyalty of its consumers. study shares that the nominal GDP
While significant efforts have been estimated around $ 7 trillion (against $ pursued by most of the organizations in 2 trillion today), catapulting India into terms of product conformation and third place amongst the economies. Will the traditional five elements of adopting technologies in terms of its
supply chain process such as Design, Increasing awareness, greater per capita traceability, the focus on assurance of Plan, Procure, Produce, and Delivers till income, online visibility and social delivery has been left to the discretion hold well in the emerging scenario?networking will lead to further micro of unorganized third party transport
segmentation of consumers. E
K ShankarSafety Head – CFCastrol India Limited
Increasing awareness, greater per capita income, online visibility and social networking will lead to further micro segmentation of consumers.
contractors and not integrated as part ?Other benefits vehicle that protects the load and its of the design!. More often than not it passengers should be the pre-requisite Briefly we try to understand the is by chance than by choice! for delivery. expectations in terms of each and As a consequence, 34.3% of the every aspect spelled above. Dignity of Labour- Drivers has Unnatural death occurs on account of already become sparse resources. Few
Reduce distance travelled- The the Road Accidents. Incidentally India studies suggest that at least 15% of expectation here is to focus upon the contributes to the highest fatality vehicles are off the road due to driver reduction of distance travelled to reach crashes in the world today. Truck & paucity. It is important to value their the consumers. It is a continuous Lorry contributes the most in terms of services and responsibilities that they process of reviewing the network of the casualties and injuries. This is carry on our behalf. It has to be the operations &de bottle neck the more on account of lack of design in recognized as a job that needs a inefficiencies in terms of production, the process of delivery by the corporate specialized skill, right attitude and Inventory, Distance travelled & safer world. behaviour. Such awareness program movement of goods to be the key does not exist in the market, corporate While when India emerges as strong considerations.should take it as its responsibility in economical leader, the situation will imparting those skills and monitor pose a greater challenge if it is not their performances... This helps to recognized and addressed. , build loyalty amongst driver fraternity.
As a responsible corporate Standardized and robust process- organization, the mobility of its whatever has been spelled as resources (both People and goods) will expectations above, should have been have to assume significant importance standardized aided by a robust process and should consider as its to monitor, evaluate, review and responsibility. It has to integrate it as improve.part of its process and strive hard for
its compliance in terms of its own Technology support may be required expectations. While the expectations Eliminate spot hired transport here to capture the equipment are clear, the process of managing the operations- Traditional transport standards, Driver deployed, trips uncontrolled environment is easier model of operating through Middle made, journey planning, adherence said than done! men sourced trucks (spot hired) to be and monitor compliance.This author shares his perspective and discarded and to encourage the
Continuous improvement- whatever suggests a program gained from his ownership amongst transport is monitored can be measured and working experience in this sphere. contractors. Transport contractor who whatever can be measured will only owns his truck has an ownership of his improve. This is a continuous process assets/ drivers and the support system.and focus is required in terms of
Consolidate the transport contract A systematic approach and focus on strengthening the standards.operators- Fewer the transport the following will enable reliable contractors, better the control and it transportation operations:helps in effective process management Carbon emissions are a cause of ?Reduction of distance travelled and controls and drive the message.
concern to the environment. The ?Eliminate Spot Hired Transport Fit for purpose (equipment)- not all growing vehicle population should Operationsvehicles are fit for carrying all the worry all of us in terms of damage that
?Consolidate the transport operations loads. The equipment used for it will cause to environment! However ?Fit for purpose( Equipment) transhipment must be fit for purposes. the efforts that we put in place
This has to be a collaborative study through the above process will help to ?Dignity of labourbetween the equipment manufacturer mitigate the damage that may be
?A standardized and robust process and the users. Distribution of load, caused.?Continuous improvement ensuring that the loads are secured and
How do we address the assured delivery?
Other Benefits
24
A VIEW FROM THE TOP
February 2015
The growing vehicle population should worry all of us in terms of damage that it will cause to environment!
204-D, Riddhi Siddhi Complex, Off. S. V. Road, Opp. Patkar College, Goregaon (West), Mumbai 400062.Tel: + 91 22 60020157/159 Mobile: + 91 9821732929
26
A VIEW FROM THE TOP
February 2015
Vijay WadhwaniHead (Supply Chain Management)Relaxo Footwears Limited
ndia spends nearly 14 percent of its GDP on and other allied industrial sectors have been logistics, as compared to an average of 8-9 working since the last six to seven years, reaping I
percent in developed economies. With high dividends. Across industries, firms are now globalization and shortened product life cycles, facing the need to fulfil the never ending 'value for Indian Industry is focusing to re-engineer its money' demand from end user and the ever supply chain and logistics activities to achieve increasing 'threat' of product supplies from low-competitive edge. Indian cost, small-sized players. Thus, companies are increasingly the stage is now set for logistics integrating their supply chain to perform as an amazing change and outsourcing their Supply agent and provide competitive Chain Management edge to companies. Logistics, by requirements. This has virtue of being a function that created the need for a range can work across the chain, will of Logistics and now emerge from the shadows of Transportation solutions for other functional areas, as supply the industry, ranging from chain coordinators and ensure solutions for multimodal better service to customers by transport, freight forwarding, material handling, means of phenomenal changes in the corporate warehousing, shipping, air cargo, packaging, mind-set aimed at quality delivery. inventory management and, more importantly, in
The requirement of appropriate logistics system to integrating logistics and supply chainany enterprise begins with the concept of an
Logistics is an area in which leading corporate integrated total movement and storage. Firms need enterprises, especially, automobile, FMCG, steel, a synergistic approach between different inter-
LOGISTICS
GROWING IMPORTANCE OF
LOGISTICS
GROWING IMPORTANCE OF
In a buyer's market, a well-positioned product may face rough weather in absence of proper service to customers.
27
department logistics functions, to deliver ample another country and sold in third country at a opportunities for cost saving, accelerate competitive price. For instance, in the leather productivity and profitability by means of making footwear industry, leather for soles moves from just-in-time supplies and deliveries, minimizing Argentina to developing countries like India and inventory. In Relaxo Footwears, inventory cycle the Far East; is converted to shoes; and then time was 35 days, But after implementation of shipped to markets in the US and Western Europe. detailed logistics system specifying uninterrupted Efficient logistics allows a high level of flow of raw materials at each stage of production international trade with comparative advantages of for different products, it has now been reduced to factors of production and distribution to different 14 days. markets.
From the beginning of last decade, Indian Logistics may further be used as an effective economy is zooming towards market orientation in weapon to combat competition, which leads a firm which customers are considered supreme in almost towards non-price competition. In a buyer's all sectors. Rarely do companies enjoy a monopoly market, a well-positioned product may face rough and find themselves in positions to create brand weather in absence of proper service to customers, patronization or keep loyal consumers waiting who add value by pushing it, if properly even for a few days. Logistics management motivated. prevents firms from facing these embarrassments. On the basis of the foregoing points, it is clear that Furthermore, drastic changes have been taking the fragrance of logistics has been pervading due to place with regard to lifestyle, awareness and mounting pressure on firms to reach the market at alertness of people, probably due to the expansion the most opportune time and place at a least cost. and innovations in mass media networks. The In other words, we can say that logistics not only ever-expanding size of market from local to leads a firm towards productivity and profitability national to global due to liberalization of the by elimination of wastage, curtailment of cost and economies like China, transporting goods with acceleration of sales but can also be used as an greater speed and economy have become vital. instrument of core competency to offset Raw material from one country is processed in competition.
A VIEW FROM THE TOP
February 2015
28
Rakesh ShahDirector Supply Chain & Strategic Dealer Management, Merck Limited
February 2015
Go beyond Supply Chain: pricing between countries, unpredictable molecule band in the country, Track and trace system imposed by Govt to pharma
Before Supply Chain concept, in early day's company's industries, right vendors and association influence (India) in the
MD was playing a vital role to manage many departments business.
and managing overall business. Also many companies have not consolidate their sub department
Supply Chain concept started and many departments under one roof Supply Chain and struggling to give the best
(Demand Planning, Supply Planning, Mfg Planning, services to customer, rationalize the cost and overall ownership is
Purchase, Business Development, Contract Manufacturing, missing in the company.
Sourcing, Distribution, Warehousing, Logistic and With all the challenges Supply Chain department is managing International Logistic) comes under one roof. Supply and providing the best services, managing cost very well and Chain becomes a link between Marketing/Sales and all having huge influence in the business in the company.other service department to run the smooth
operation/business. Key initiator on Innovation in the process, business, services and cost rationalize is way of life for supply chain head.Supply Chain function becomes a challenging function to
meet the dynamic marketing requirements, to match the Continues improvement in area of: process, cost, service level for service level, control overall business, control overall the organisation is key mantra for Supply Chain person. working capital, rationalize the cost and meet all the
Supply chain department is going beyond the reach and now government rules and regulation (FDA, Excise, Custom, managing generic (domestic and international) business, involved Regulatory, Taxation, NPPA, and DCGI). Slow growth in the strategic business change management, proactively and overall economic downfall is also effecting the involved for how to expand the business, approach Govt to have operation. public private partnership model for the society and brand,
Also meet the expectation of chairman/MD/Board of the partnership with insurance/bank and helping customer and now company to minimize the supply chain cost (Product cost playing a role as a VUCA (Handle any Volatile situation, including service cost) without effecting the service level is Uncertainty, face the Challenges and Ambiguous situation) the key challenge for Supply Chain. leader.Continuously starving and facing current challenges by Supply Chain has to play Entrepreneurial role in the company Supply Chain: To meet CGMP, GDP, Label claims and collaborate with all the departments. environment for the product, Cold Chain Management
To create a value and to have a visibility of Supply Chain in the and services, Price cutting for essential products by Govt company is the role of supply chain head.(for India), State wise different tax structure, Internal and
external audits, Logistic infrastructure, Inflation, Oil prices, Supply Chain department is heart of the company with many Currency fluctuation, Huge variation in the products issues, challenges and hopes.
A VIEW FROM THE TOP
February 21, 2015, 'The Orchid', Mumbai
Demand Planning Forum celebrates the demand planning and forecasting function in Indian companies, by
recognizing and sharing the best practices adopted by both individuals and companies. ISCM invites top
companies to share with it the demand planning process.
£Benchmark yourselves against the best in the Industry.
£Hear what Demand Planning and forecasting will look like 3 to 5
years from now.
£Improve your company's forecasting accuracy and the value and
effectiveness of your forecasting and planning team.
£Get your team to learn and make your Demand Planning more
productive.
The Forum is open to product managers, marketing
managers, corporate planners, market researchers, or
professionals who prepares or analyses forecasts as part of
their job responsibilities.
All corporates who have a formal demand planning and
forecasting function are encouraged to participate under the
corporate platform.
Who Should Participate? Why Should You Participate?
Registration fee: Rs. 7500 + Service tax 12.36%.
For registration, contact [email protected] or call 022 60020157/ 59
Initiative
Supported By
Welcome Address: Girish V S – Executive Director ISCM, Editor SCMPro.
Keynote Address: Managing Demand Planning in Uncertain Times by Dr. Rakesh Sinha, COO, Godrej
Consumer Product Ltd.
Track 1: Understanding Variability and Tackling it through S&OP by Pratin Vete, Associate Director,
Performance Improvement, Ernst & Young.
Tea Break
Track 2: Forecasting Model Error and Performance Management by Dr. Rakesh Singh, Chairman, ISCM
Track 3: Forecasting and Demand Planning in Agrochemicals by Susheel Mittal, Supply Chain
Management, BASF
Track 4: “New Product Forecasting- The Next frontier’ by Nilmadhab Mandal, Practice Manager, SAS
India.
Lunch
Track 5: Big Data & Predictive Analytics by Dr. Neeraj Hatekar, Director Department of Economics,
Mumbai University.
Track 6: Panel Discussion- Way Forward
Presentation by three selected Companies followed by Award Ceremony
Valedictory Address
09:30am to 09:40am
09:40am to 10:10am
10:10am to 10:55am
10:55am to 11:05am
11:05am to 11:35am
11:35am to 12:05pm
12:05pm to 12:45pm
12:45pm to 01:45pm
01.45pm to 02:05pm
02.05pm to 03.20pm
03.20pm to 04.05pm
04.05pm to 04.35pm
30
A VIEW FROM THE TOP
February 2015
S. A. Mohan CEO , Maini Materials Movement Pvt. Ltd.
upply chain management primarily technology. Investment in “big data” supportive supply chain footprint, and Senables a company to satisfy its analysis tools is on the cards within the to hone in on the consumer targets are customers' needs. Current logistics next five years, seeking increased deemed to be most relevant across the complexity in the form of fragmented planning and control outcomes through largely manufacturing-centric group. channels, increased product variations, developed capabilities around the Technology to support SCM will and growing customer expectations for comprehensive handling and intelligent primarily be “on tap.”customized solutions, traditional connection of data. New wave of As we step back and decipher the measures often fail when pursuing decentralized automated network implications for supply chain strategies to satisfy customers. technologies is in their infancy. In practitioners, it is abundantly clear that SCM, trends and strategies for the ability to create differentiated and managing risk around demand and multiple supply chains and to embrace a planning are now ramped up. This is of Today's networked economies, forces service-based culture is of paramount course, to mitigate of internal and companies to collaborate with partners importance. These capabilities, coupled external risks.both vertically and horizontally in their with the need to service unique micro Omni-supply chain network, and these segments in a profitable manner, partners expect them to integrate their continue to be high on industry leaders' processes and systems and hence agenda. Fostering open collaboration
In the recent future we can expect that adopting network thinking rather than with trading partners, improving mainstream supply chain activities company thinking. enterprise supply chain risk embedded with artificial intelligence to management processes and As global footprints expand, logistics be design ready for serving the base of incorporating in real time local performance as measured by delivery the pyramid, increased importance of regulatory measures will definitely reliability has deteriorated, due to service chains over product chains and impact the perception of supply chain. increasing customer requirements, more and more adoption of proactive
greater volatility and market Growth and progress will come from rather than reactive strategies to tackle turbulences, problems with anticipating and capitalizing on the the upcoming challenges constantly infrastructure and talent shortages at emerging mega trends and creating questioning the company's logistics/ both the operational level as well as the incremental value. Standing still is not supply chain capability.planning. an option in this dynamic industry.
The increased importance of pre- and Firms will need to align with the Companies are now recognizing the post-sales service, the ability to evolving needs of the industry, if they growing need for investments in new recognise the micro-segment with a are to be relevant.
Key Trends
Supply chain domain - future expectations
31
specified constraints such as required lead times, costs and ndian manufacturers have a golden chance to emerge from targeted service levels. the shadow of the country's services sector and seize more I
of the global market. With the government's 'Make in India' On the quality front the manufacturing industry has made initiative and focus on congenial policy for the industry tremendous strides toward higher quality, all thanks to the gaining momentum, manufacturing is poised to take center contribution made by gurus such as Deming and Juran, stage. Indian manufacturers have so far lagged behind their and initiatives like TPM. However, with the adoption of global peers in key operational areas including production Internet of Things (IOT) and social media, the quality bar planning, supply chain management, quality systems and is being raised faster than manufacturers can keep up. Here process. However, this is set to change as the supply chain too analytics can help. For instance, quality-centric leadership in India is poised to unlock the value hidden in predictive analytic and visualization technologies can the data and leverage big data analytics to address the provide a holistic view of quality across the enterprise and bottlenecks and drastically reduce operating costs. throughout the entire product life cycle. However, for an effective use of analytics, businesses need to Advanced analytics plays an important role enabling have an enterprise-wise analytics framework in place. This companies to increase quality, improve reliability and get makes it easy for them to use their data assets for value higher yields. Furthermore, with tighter controls and more creation which in turn contributes to the strategic efficient processes the rework and scrap rates can be transformation of the organization. Additionally, they need reduced. For example, by deploying Statistical Process to focus on data management, which takes the information Control (SPC), a process manufacturing organization can from multiple sources and prepares it in such a way that identify the reasons for large variations in end product analytics can be applied and insights derived. These insights quality by plant, item and specification. By identifying the can be reported on the web and mobile devices to get reasons for these variations and isolating the factors, cost of information for decision makers when decision makers need production can be reduced which in turn can significantly it. improve profitability. Predictive models can be used to
achieve advanced process control (APC). Moreover, by Today, there is a growing popularity of data driven predicting events that can cause outages, the solution can forecasting, where data from all demand and replenishment help reduce the amount of unplanned maintenance and planning processes are collated and analyzed to generate maintenance costs. accurate weekly forecasts for setting sales goals, production
levels and distribution plans. However, the sign of a true Analytics have also the capability to integrate text and demand forecasting tool is when it has the capability of also structured data across the service chain to issue early incorporating the effects of various factors such as sales warnings of problems, reduce time to identify root cause promotions, marketing events, and other external events and minimize the size and scope of recalls. It can also help (e.g., holidays, severe weather, government policy etc). in addressing downstream quality issues, which can
significantly reduce customer satisfaction rates especially Another area where analytics can add value is delivering when problems appear after the product has been higher accuracy in new product forecast. Intelligent data manufactured and sold. mining methods are used to build a forecast using the
historical data of groups of existing products with similar Going forward, an integrated approach towards analytics attributes. Additionally, to ensure an efficient supply chain will make manufacturers more competitive by enabling and increased customer satisfaction, mathematical constraint them to exploit existing value chains to the greatest extent based optimization can be used, which calculates optimal possible, generate new value chains that can drive inventory levels and replenishment policies based on user- substantial profit or significantly cut costs.
Noshin Kagalwalla Managing Director, SAS Institute (India) Pvt. Ltd.
A VIEW FROM THE TOP
February 2015
32
A VIEW FROM THE TOP
February 2015
Ravind MithePartner, Management ConsultingKPMG Advisory Services Private Ltd.
n my view India is a melting pot of several focusing on supply chain improvements for last 25 Isupply chain issues. As a developing economy years from early nineties. Initially focus was on our manufacturing plants are not well designed, as manufacturing capability followed by ERP most have evolved over the years through solutions and now supply chain integration is the haphazard capacity expansions. This leads to buzz word. But all this has always been like bottlenecks, scheduling challenges, unplanned seasonal flavors. That needs to change if we have to downtime and rework leading to unreliability of move from just slogans to making manufacturing manufacturing output. Most of the manufacturing in India a competitive edge. companies have a large vendor base that is not very Looking from supply chain functional view, compliant on delivery schedules. We don't have a barring a few, it is largely siloed as Procurement mindset to go for single source as it is seen as too function, production planning and dispatch with risky hence we live with large number of inefficient sales team responsible for last mile availability.suppliers who always feel threatened. Indian logistics industry is still fragmented and road Thus for managing a supply chain in Indian infrastructure is poor adding to delays in inbound context one has to be a “Godess Durga” with all and outbound. For distributor lead B2C segment, hands fighting with more enemies than the hands. the network is mostly consisting of unorganized No wonder that the supply chain managers are the CFAs and distributors who still remain at arm's most hassled lot fighting multiple fires at the same length. Indian managers are still using Excel spread time.sheets even though many companies boast of their
For “make in India” to be successful and to make ERP environment. To top it all the domestic manufacturing as the backbone of economy we demand is unpredictable due to complexity of our have to invent our own “Supply chain model”. markets. Given that many of the issues will remain for
Indian manufacturing companies have been foreseeable future the Indian supply chain models
33
have to be designed in terms of following service providers who bring superior capabilities important dimensions. than them. Good news is that such players are
emerging fast and soon we will have industry 1. Lean Manufacturing: Use of basic Lean specific expertise.concepts in manufacturing specially concepts like Kanban, dedicated small value streams, TPM, 5S, 5. CEO Focus: Traditionally Indian CEOs have Kaizen and multi-skilled work force. All aimed at focused on markets and finance. But now the making manufacturing fewer complexes. To my CEO focus clearly has to be on supply chain. mind “Lean” thinking and There is a need to have a long-capabilities have to be the term view on supply chain which foundation of our supply chain today remains restricted to cost model. reduction and availability in short
term. Promoting supply chain 2. Supply Chain Synchronization: culture will be the key focus area For years CEOs are looking for for manufacturing CEOs. “click of a button” solutions to Focused efforts are needed on planning and have ended up inculcating right behaviors across having very complex models the business that will promote forecasting or scheduling which supply chain thinking. have not helped. What we first Dismantling silo mindsets and need is a robust and integrated turfs, job rotations, enforcing planning process with well-defined collaboration through KPIs, supply chain vision, clear and developing “whole system” view simple rules & policies, well- analytical ability and customer structured SNOP Meetings, orientation are the key tasks in correct & connected KPIs, clear front of the manufacturing roles followed by a good ERP solution. company CEO to make the company successful in 3. Supply Chain Structure: An integrated supply “Make in India” environment. chain function reporting to the CEO that takes While the task looks complex and daunting it is end to end responsibility of product availability at not that difficult. Fortunately today's CEOs have farthest end of downstream. great abilities and are dreaming big. Especially 4. Bring in experts: Companies have to aggressively when Indian is dreaming big under the new handover the down-stream distribution to 3PL leadership.
For “make in India” to be successful and to make manufacturing as the backbone of economy we have to invent our own “Supply chain model”.
February 2015
A VIEW FROM THE TOP
34
ndian industry spends a high 14% of its GDP on logistics, unwilling to invest in technology and share data with their Icompared to 10-11% in Europe and 9% in USA and logistics service providers. I think the government should have nearly 22% of aggregate sales is tied up in inventories in the a committee for encouraging IT-integration in logistics and supply chains. The cost of logistics remains high due to supply chain. Lack of visibility and transparency of operations various factors including a dearth of large specialized, is one of the biggest hurdles this industry is facing. integrated third party logistics firms, using effective Automation of logistics processes can bring in standardization, technologies and also inadequacy of infrastructure. This predictability & accountability in the industry, thereby indicates that there is ample scope for Indian companies to making it more professional. Digital supply chain, has the streamline their supply chain process and become more potential to meet increasingly complex demand requirements competitive. with light speed and low costs by 'shipping' software or other
digitised product to the point of consumption. In recent past The Indian industry is yet to match the supply chain some of the 3PL logistics players like Mahindra Logistics have standards of developed countries and tremendous potential invested significantly in technology to provide integration of exists for national level integration of supply chains. There is all logistical activities.also a need for external support to the industry by way of supportive government regulations and policies and The role of supply chain has shifted from reducing operating development of infrastructure. costs and overall inventory levels, to improving customer
service and speed of product delivery to markets. This has However, with the onset of the new economic reforms like the necessitated revolutionary changes like collaboration with 'Make in India' initiative, and infrastructure development stakeholders for consolidation, asset utilization, network projects like DMIC (Delhi-Mumbai Industrial Corridor), optimization etc. We, at MLL, have practiced collaborative there seems to have been a revival of hope and excitement logistics by partnering with other third party logistics about the growth trajectory of the Indian Supply Chain providers in order to minimize the capacity constraints in industry. It's not just the domestic market which is in focus. transportation through backhaul flows and vehicle utilization. The establishment of ICEGATE, the Customs EDI Gateway This collaboration has empowered us to leverage each other's Portal of Government of India which provides a single strengths in transportation management. window integrating customs, excise, and all other relevant agencies involved in EXIM clearances has opened a new 'gate' Apart from collaboration, there has been an increase in the for international trade & commerce. perception of innovation as a service differentiator. There is
also increasing awareness on carbon footprint & sustainability. However, one core concern that still needs to be addressed is Many logistics players have undertaken driver welfare that the adoption of technology in most supply chains in initiatives. India is still very much in its infancy. Although there is a high awareness among Indian Tier-1 companies, the usage of Hence, though the Indian logistics industry still has a long productive-enhancing tools such as data analytics, ERP, RFID way to go, it is, according to me moving in the right direction. etc are still at low levels especially among Tier 2 companies And with the pace at which we are witnessing developmental due to challenges such as cultural, financial, organizational reforms in India, I am confident that we will definitely reach and technological barriers. Many companies, till date, are global standards of service & quality in the years to come!
Pirojshaw Sarkari
CEO, Mahindra Logistics
A VIEW FROM THE TOP
February 2015
35
Suunil DabralCEO SSI Schaefer
ew Year is the time both to glance expected to move towards venturing into Nback and to look ahead, and that the cold chain industry in the coming has always helped us to comprehend the years. path we all are heading towards. The On a positive note, the introduction of year 2014 has definitely been a basket of certain direct tax benefits related to mixed occasions; however 2015 may be warehousing and supply chain considered as the year for Indian management were provided in the last Logistics'! budget, which facilitated reduction in
the duties and taxes related to the equipment's/ machinery used in the cold stores. We hope that companies will
In spite of being the second largest make use of the government support to producer of fruits and vegetables, India have a state-of-the art cold store with has seen tremendous loss of these personalised warehouse solutions along produce due to spoilage and poor cold with innovations to best use the space storage facilities. I think a big lesson available. This should be one of the from 2014 is that despite of the trends to look out for in the year 2015. government trying to introduce initiatives and policies for this sector, the gap between the total produce and the storage facility available for the same has been huge. With the demand at an all- 2014 was a promising year for the time high, along with a growing number Indian E-commerce industry with the of incentives, many companies are biggest deals and investments from the
Cold Chain Industry will speed up in the coming years
As E-commerce matures in India, supply chain industry will emerge as a parallel- growing industry
Having the best product is definitely a need; however whose product reaches the customer first becomes a competitive advantage.
February 2015
A VIEW FROM THE TOP
36
Indian E-commerce industry with the biggest deals The sector has witnessed slow but sustained growth and investments from the top players of this industry. and by 2015, India is set to be the 4th largest Various initiatives and promotional activities automotive market by volume. This will entail a undertaken by the market players witnessed a sustainable domestic demand and initiatives like tremendous surge in the E-commerce platform and 'Make in India' which will drive more automakers to marked an increase in online shopping. take up the export growth model and manufacture Having the best product is definitely a need; however and export from India. Therefore there will be a need whose product reaches the customer first becomes a for further investment in increasing production competitive advantage. New generation consumers are capacity and warehousing capabilities to meet the very demanding and they have the “I need it right growing demand in domestic as well as export now” attitude in order to suit their lifestyle. The speed markets. This will give tremendous opportunities to at which the E-commerce industry is growing is quite the Warehousing and Intralogistics business in evident. Changing trends in consumer demand and India. behaviour will soon call in for Just in time and quick response inventory management. As far as 2015 is concerned, companies will have to strategically
Looking at the design their supply progress and chain in a way to initiatives taken meet the by the unpredictable government in demands of the order to roll out future GST is a clear requirements. This indication that will be the time future holds a when the expertise better picture. of the Intralogistics Implementation solution providers of GST will will come into definitely reduce picture! the tax burden
and motivate manufacturers to focus on matters like facelift of the warehouse, up gradation in technology,
Several factors are going to decide how the automotive Automation in Material Handling. industry is going to perform in 2015. After a downward spiral in 2013, car sales gradually picked up With all hopes from the new Indian government in mid-2014 due to several factors like the decrease in under Prime Minister Narendra Modi, massive excise duties on small cars from 12% to 8% and the changes are expected in the coming year which formation of the new government. Vehicle sales across should work in favour of the Logistics Industry. The categories registered an increase of 5.68% as compared business commitment and policies facilitated by the to 2013. government for the foreign companies are clear
signals inviting the international companies to The big challenge that emerged in the year 2014 was support the economically friendly policy of the new the diesel deregulation, wherein the customers started government in order to implement their own migrating back towards petrol cars and several business interest and support the country to carmakers which recently bumped up diesel engine becoming a modern industrial site. These production capacity are in for a serious setback. developments will offer enormous opportunities.
GST implementation will have a strong impact on the logistic industry
Automotive Industry has come a long way
A VIEW FROM THE TOP
February 2015
37
t has been a privilege to be part of the effort to develop people skills in supply chain ISCMPro team in contributing to the dialogue and logistics functions. According to The World on important supply chain issues over the last Economic Forum, India is not unique in having two years. skill shortages. Around the world Human
Resources and Recruitment professionals as one In this short time supply chain and logistics has of their biggest challenges often tout the gone through some major changes in India and problem of the “war for talent”. It is not so across Asia. There have been layers of complexity much that there is a lack of staff but more that and customization added to the approach taken there is a lack of refined skill sets. These skills as in manufacturing, logistics, and supply chain to required by Supply Chain professionals are also meet the requirements of the Indian Continent constantly changing and evolving. Rapid and beyond. As a result, these sectors have innovations in technology have rapidly boosted grown in prominence, resulting in a deeper the supply chain and logistics capability. Larger, understanding of best practice and application more geographically challenged workforces to business.require greater soft skills in communication and
Looking at the year ahead, 2015 will continue leadership. the development of Supply Chain and Logistics
This publication has performed a great service in in India as the country grows and strains to meet increasing the awareness of these skill shortages the ever more complex requirements of fast so that we can address this issue. Greater developing industries, changing wealth collaboration between professional bodies, distribution and the need for greater efficiencies academic institutions, governments, and and performance with the supply chain.industry is required to create a new training
In order to keep up with these rapid paradigm that will provide an adequate solution. improvements there needs to be a concerted
Darryl JuddChief Operating Officer, Global Operations Logistics Executive
February 2015
A VIEW FROM THE TOP
38
A VIEW FROM THE TOP
Education needs to move out of industry with learning institutions via universities and training institutions and real-time modalities. This new approach into the workforce by way of shorter, more is giving private companies a more flexible online modules that can be tailored competitive advantage and will continue to meet rapidly changing developments in to do so in the year ahead. By creating a industry. leaner, more focused approach to meeting
skill shortages, online learning is Moving away from formal university revolutionizing the training space and training and to an online solution that emerging as a new, meaningful way of offers formal recognition but which has connecting. closer ties to industry would be of
enormous benefit. This paradigm would However, there is still a lot to do. up-skill staff at a faster, more cost effective Governments, industry bodies, and the rate. In addition, these benefits would private entities need to work together to make it easier to cascade down through the solve the growing people issues caused by different levels of the workforce. In increased complexities in managing contrast formal courses such as an MBA supply chain and changing market that do not have the proximity to changing demands. Online training and other industry requirements cannot often keep modalities that both promote training up with the changes in technology and solutions and bring awareness to the work design and do not move fast enough growing gap in supply chain and logistics to cater to these changing demands. skill sets are desperately required in order
to meet the challenges approaching us in Online learning is providing a major way the future. of solving this shortfall, by connecting
In order to keep up with these rapid improvements there needs to be a concerted effort to develop people skills in supply chain and logistics functions.
39
arehousing is as a major game are more often carried out in an ad-hoc address challenges in the long term. Wchanger in the field of logistics. manner. This not only builds in Many positives are emerging in terms of It is adding value to the transportation inefficiency but also leads to many policy and practices which generates and also provides opportunities for mishandling problems including immense optimism for this sector. additional value added services, while at damages and subsequent increases in Proposed implementation of goods and the same time reducing the overall cost. services tax, relaxation in FDI norms, logistics cost. It is a crucial component mushrooming E-Commerce ventures, The warehousing sector in India, with of supply chain management and growth in logistics parks and FTWZ some exceptions, is characterised by low accounts for about 20-25 per cent of the segment, development of cold storages, technology levels that act as a handicap total logistics industry. Indian increasing consolidation, growth in in the emerging Indian and global warehousing players face multiple outsourcing are some of the key drivers market. Limited real-time visibility with challenges and bottlenecks at various that will give the necessary fillip to manual inventory management, stages of their operation life cycle leading growth in this sector. Warehouses are warehousing management, to fundamental issues of long term now stressing on having efficient documentation, billing and reporting sustainability. inventory management systems and has raised doubts on the sustainability of adopting technology solutions to Infrastructure is one of the most a large number of warehousing players. streamline operations, improve important components of the The lack of training institutes adds to turnaround time and process warehousing sector. An efficient the woes of the warehousing sector. consignments. Greater emphasis is being warehousing operation hinges critically Evolving warehouse management laid on value added services such as on high-quality supporting processes and operations with more consolidation, labeling, packaging and infrastructure. Escalating costs and demanding customers, lack of attraction re-packaging, bar-coding, distribution challenges in land acquisition and for new recruits arising from poor services, custom clearance service, development pose major challenge to the working conditions, relatively less customer service and reverse logistics. developers. A majority of the Indian attractive incentives and benefits, and Increase in IT adoption and knowledge warehousing players today have the emergence of attractive alternate infrastructure is also seen to provide a inefficient methods of storing, handling career options are reasons that contribute boost to the growth and maturity of and monitoring of goods. They also to the skill shortage in the Indian warehousing players in India.suffer from stock visibility issues, stock warehousing sector.traceability, higher pilferages and The momentum gained from ''Make in The sustainable growth of the damages. There is an absence of India' initiatives will translate to ''move warehousing sector will rely heavily on standardised operating processes and in India' and help the industry to how effectively industry players and the procedures at warehouses. The material achieve its true status and recognition in government can work together to unloading, handling, storing and loading the long term.
K.U.ThankachenManaging Director Central Railside Warehouse Company Limited
February 2015
A VIEW FROM THE TOP
he main focus of any firm is to SCM include lower supply chain improved communication, risk provide right product to the costs, improved productivity, reduction, reduced product T
right customers at the right cost, at inventory reduction, forecast development cycle time processes, the right time, with the right quality accuracy, delivery performance, reduction in duplication of inter-and right quantity. This is a challenge fulfillment cycle time and better fill organizational processes, inventory for a Small and Medium Enterprise rates. reduction and improvement in due to a variety of reasons – from electronic trading.lack of a clear understanding of the The structure and size of SMEs customer requirements, to ability to defines how they will use technology. source efficiently to produce and A typical SME will have a few distribute in time, and at the same suppliers from whom they source time fund the operations at an material and even fewer customers – acceptable cost - all pose major often a few large firms from the challenges. The short-term strategic majority of SME customers. This goal of SCM is to reduce cycle time makes them vulnerable and and inventory and thus increasing There are various studies that have dependent on their large customers. productivity, whereas the long-term evaluated the benefits of IT use in To survive in such scenarios, the goal is to enhance profits through SCM among SMEs. Some of the SME owner/manager will have market share and customer potential benefits include increased collaborate closely with the customer satisfaction (Tan, 2002).According to customer service and responsiveness, and supplier. This close collaboration a study, the quantified benefits of improved supply chain visibility, offers the SME an easy access to
SMEs are in focus – banks financial institutions and governments are focusing on enabling
the SME. There is a newfound love for the SME sector. A sector which generates 40% of
exports and 40% of the manufactured output is sadly neglected. Across the spectrum, the
SME has very little clout in the value chain. Their lack of resources and skills makes them
some of the most inefficient and costly part of the supply chain. We at SCM Pro realized
that the time has come for India to harness the potential of its SME sector. Managing editor
of SCMPro, Girish V S explores the role of supply chain management in SMEs.
40February 2015
IT is for SMEs
SME CORNER
In a survival of the fittest scenario, the SME will have to adopt technology help in their SCM processes.
41
SME CORNER
February 2015
technology, best practices and production to sales processes as followed by the large and services and the enterprise. The SME and the large reverse flow of good
The start of any IT program will be firm form a symbiotic relationship, past their use by date, and also to share with reasonably accurate forecast of the where the SME will gain technology information flows, including financial product demand – if the SME can and best practices, while giving away a information along the entire supply assess the demand for products and part of their profits. chain. In fact, recent academic research services better, they will be able to plan defines supply chain management as “a But SMEs suffer from quite a few procurement and production in a cost digitally enabled inter-firm process challenges. Shortage of skilled personnel effective way. The increased forecast capability.”is a major constraint in an SME. accuracy in turn will lead to a lower
Another major challenge is finances – In the digital supply chain, the stake inventory, which will free up precious loans are difficult to come by, alternate holders are linked through the flow of finances. Improved forecast accuracy sources of financing are horrendously information as opposed to the will also enable the SME to plan his expensive and the payment terms from traditional method of integration by supply chain activities better, leading to their customers are most often loaded ownership. This change has resulted in a lower total cost of the supply chain. against them. They lack the ability to the shift from the physical process – drive a hard bargain and end up with warehousing, logistics, and inventory - payment terms that are not very linkage to information flow based attractive. This combination of lack of integration. The information system finances and skills leads to a slower includes data, process, resource, adoption of technology. organization, analysis tools, methods,
techniques and algorithms which SMEs have been hit disproportionately concern Inventory, Facilities, hard by the severe squeeze in financing, Transportations, Cost, Prices, and but they have shown a resilience and Customers.flexibility that bodes well for their But accurate forecast cannot be done ability to capitalize on the innovation without the use of a robust IT and evolution. Most SMEs have a huge infrastructure. This is the first source of
¢E-Supply Chain Management is the dependence on their customers. To add IT for SMEs. collaborative use of technology to to the problems, they are hemmed in by improve the operations of supply chain In a survival of the fittest scenario, the a tough external situation - such as activities as well as the management of SME will have to adopt technology changes in the economic cycle, policy supply chains, over the internet or help in their SCM processes. If nothing shifts, geo-political developments, and mobile platforms. An e-supply chain is else, the finances freed up from lower changes in technology – all these have a potential gold mine for an SME. The inventory alone should help the SME the potential to create problems for the business environment forces SMEs to owner adopt better IT practices. If SME. These barriers would impede the improve the quality of their products India has to continue to develop, if implementation of SCM in SMEs.and reduce their manufacturing costs. India has to provide jobs for an
There is a silver lining in the SME story This makes e-supply chain a certain estimated 20 million youth a year, and – their flatter hierarchy – where most winner. if India has to gain competitive often the owner makes all the decisions advantage, supply chain management
¢The potential E-Supply Chain – helps them be more responsive to practices need to be augmented by Transactions could be:their customers. This also helps them to information technology. ¢Providing information across the adopt best practices easily. Once the
Innovations enabled by information supply chain.owner is convinced, implementation technology (IT) are creating new ways will not be a difficult task. ¢Negotiating prices and contracts with for firms to manage supply chain customers and suppliersIn such a scenario, how can relationships. Large firms are already
¢Allowing customers to place ordersInformation Technology help an SME using IT to co-ordinate their entire manage their supply chain? ¢Allowing customers to track orderssupply chain - from procurement to
E-Supply Chain
To effectively plan, monitor and control such a complex network, we need a set of information technology (IT) tools.
42February 2015
¢Filling and delivering orders to The advantages customers of PS for SME's
is that, PS helps ¢Receiving payment from customers investment in information systems in cost savings and price reductions, should be looked at more as value The e-supply chain can enable the reduction or elimination of the role enhancers – the question that needs SME to reduce costs at the same time of intermediaries, shortening supply to be asked is not how much will I improve collaboration and service chain response and transaction times, save, but, what value added services quality. Emerging technologies like gain a wider presence and increased can I provide to the network that will cloud computing and the falling visibility for companies, greater help me improve my competitive prices of bandwidth makes it possible choices and more information for position in the supply chain.for an SME to embrace the latest in customers, improved service as a technology at a fraction of the cost.result of instant accessibility to services, collection and analysis of
A typical user of cloud computing is enormous amounts of customer data the SME. Cloud computing enables Today's supply chain is multi layered, and preferences, creation of virtual the SME to deploy IT resources – spread across geographies and companies and provide a level playing hardware, software, storage and complex. To effectively plan, monitor field for small companies who wish to network on a pay per use model, and control such a complex network, gain global access to markets, allowing them to scale up the IT we need a set of information suppliers, and distribution channels.systems and their requirements technology (IT) tools. These systems increase. Cloud computing allows are called A Planning and Scheduling SMEs to reduce the upfront Systems or PS. PS is used for infrastructure costs, and focus on information integration, inventory projects that differentiate their management, order fulfillment, businesses instead of infrastructure. delivery planning and coordination Cloud computing allows enterprises across the entire supply chain. PS to get their applications up and focus on a very challenging issue in running faster, with improved supply chains - the need to manageability and less maintenance, synchronize thousands of decisions at and enables IT to more rapidly adjust strategic, tactical and operational resources to meet fluctuating and level in the complex environment. unpredictable business demand – Basically, PS are computer supported essentially putting the power of planning systems that put forward advanced computing in the hands of various functions of Supply Chain even the smallest player.Management, including
procurement, production, There are multiple technology pieces distribution and sales, at the strategic, that an SME can adopt for The operations of an SME are tactical and operational planning streamlining their supply chain constrained by the lack of resources, levels operations. One significant issue that managerial skills, finances and the
SMEs should keep in mind is – never The dynamic nature of today's ability to implement and use IT buy technology because it is the latest business makes long-range forecasting systems across their organization. or is available. The golden rule of IT difficult. PS helps supply chain deal However, competition and the for SME is – “Appropriate with demand uncertainty, forecasting, squeeze on profits create a daunting Technology” – technology that will inventory reduction and optimized challenge. As long as the SME looks help the SME maximize the money transportation costs. PS use at IT investment through the lens of spent on IT, without sacrificing operational data to analyze material cost reduction, they will find the ROI usability.flows in supply chain using historical cannot be easily justified. As opposed
demand for forecasts. to a ROI based approach, the
Cloud Computing
Planning and Scheduling Systems
IT and the SME
SME CORNER
Cloud computing enables the SME to deploy IT resources – hardware, software, storage and network on a pay per use model, allowing them to scale up the IT systems and their requirements increase.
For more information on the articles or to contact the writers please email [email protected]
Managing and sustaining high performance
in the supply chain, is the last part in this six-
part series. If you missed the previous
publications and would like to receive
copies of any article, or discuss any of the
concepts and ideas that the authors have
raised, then please contact the email
address at the end of this article. Stephanie
Krishnan, Joe Lombardo and Raymon
Krishnan conclude the series.
44
KNOWLEDGESCM WORLD CLASSROOMNEWS ACADEMIC ADVOCACY
February 2015
Managing and Sustaining
in the Supply Chain
High Performance
Introduction
This is the final part of the six part series on Supply Chain by Stephanie Krishnan, Joe Lombardo and Raymon Krishnan. The previous articles in this series were:
Part 1- Why do some find it so challenging to manage their Supply Chains?
Part 2- Understanding the Value of a Supply Chain Structure
Part 3- Building and Sustaining an Enterprise Supply Chain Model
Part 4- People and Competencies in the Supply Chain execution model
Part 5- Understanding and Managing Risk in the Supply Chain
Company and business performance are always at the forefront of the CEO's objectives and the targets set are usually around financial and marketing goals. As a support function, the supply chain's targets are often “enveloped” within these overarching goals, resulting in few specific targets for this key area.
In part 3 we made reference to key performance indicators (KPIs) and quote: “It is relevant to note at this juncture that we should not confuse business KPIs with supply chain KPIs, which may appear to be similar but are not always the same. Supply chain KPIs measure the capabilities and performance of operational processes and flows. Supply chain KPIs would, generally, revolve around KPIs that measure “time”, “cost” and “quality” of supply chain activities and processes.”So how does this translate into high performance?
February 201545
KNOWLEDGE
To better understand these dynamics, we should How do we define performance of the supply delve deeper into the definitions of performance and chain?of high performance. A simple definition of
As illustrated in our enterprise structure diagram performance is executing what is expected, which used throughout the series (Fig 1), it is the supply implies aiming fora target or goal. The most chain execution model that delivers the goals common and most practiced performance goals defined by the business strategy. The business model associated with the supply chain are that of Time can change and be adapted to the various market and Cost. and industry conditions, but it is the supply chain that executes the strategies of this business model.
Having established this principle, we are able to formulate what are the expected performance factors of the supply chain. In part 3 we defined the KPIs of the supply chain as those revolving around “time”, “cost” and “quality”. If these are the basis of the supply chain deliverables, then we can define the supply chain performance as the optimization of company resources through a structure of Supply Chain Capabilities.
The illustration in Fig.2, we see how the performance measurements of Time and Cost of the supply chain are derived from the Supply Chain Model. Time is defined as and Cost, defined as a percentage of sales of cost of goods sold. We could consider this as the optimized performance measurement of the supply chain model, if the parameters were applied across the whole organization and managed with an equal intensity.
However, this kind of optimized model and measurements of performance are not sufficient to guarantee the deliverables expected to achieve the business strategy goals. But as we cannot be satisfied Managing capabilities to achieve high on performance targets alone in the supply chain, performance we must aim for a high
It all seems quite easy then: manage the resources performance. So what does high and capabilities in the supply chain and in return performance really mean? you can expect a high performance. In principle that is absolutely correct, but this would only be possible The Adaptive High if the surrounding conditions remained constant Performing Supply Chainand nothing changed. However we all know that
A dynamic CEO is continuously this is not the case in supply chains. The daily anticipating changes in the challenges are to deal with many variables in the business environment, leading his business environment and the resulting resources team to work on innovative flows. solutions and enhanced product
Figure: 2
Figure: 1
As a support function, the supply chain's targets are often “enveloped” within these overarching goals, resulting in few specific targets for this key area.
46
KNOWLEDGE
February 2015
offerings that will achieve and exceed the strategic goals of challenges and deploy the necessary the business. The challenges of anticipation changes often capabilities, the current supply chain will need requires a flexibility of priorities and an agility of execution. to be re-configured to an adaptive model. This This approach could only be sustainable if the means that not only must the model manage organization's business culture is able to adapt and pro- the new variables and intrinsic resource buffers, actively respond to changes within the shortest time but it must also achieve the same or better horizon. performance levels from the expected
deliverables, appropriately expressed in Speed, An optimized supply chain model, would not be able to Agility, Time, Costs and Quality. But how can respond effectively to the challenges of anticipation without this are achieved?re-defining the model. To meet the new dimensions of the business environment, the supply chain model will need to
Managing the adaptive high also be adapted to the new parameters and conditions.performance supply chain
The performance characteristics dominant in the adaptive supply chain model, can seem to be contradictory to each other and it could be questionable as to how they could effectively work together. The key characteristics of this model (fast, lean, flexible, agile, cost effective) are the ones that need to be managed so as to deliver the high performance capabilities of the business.
As supply chain performance deliverables become more demanding, they also become more complex. Managing the variables and complexities of the supply chain will require disciplined approaches and methodologies. Once performance targets have been set,
Being adaptive also means being flexible. However any continuous monitoring will be necessary and degree of flexibility can only be achieved by allowing and any deviations or excursions from the target managing variables and buffers in the supply chain. performance indicators must be addressed as a Introducing new elements in the optimized model will matter of priority and immediate corrective change the dynamics of the time and costs. In Fig. 3 we actions implemented. illustrate that by adding variables into the pipeline, will
It is such an attention to detail that will sustain increase the supply chain time and by adding additional performance and enable improvements and buffers in resources will increase costs. allow even more flexibility into the supply
By allowing new dimensions into the chain. The key is to learn to master and optimized supply chain model, we are by manage the flexibilities in the supply chain default allowing and accepting a change without any performance degradation. This can in performance deliverables. This could be achieved by following three simple, effective lead to a recognizable degradation of steps of defining and controlling performance.performance compared to levels
Adapting flexibility into the supply chain previously achieved.without performance degradation
However, the supply chain model has to a. Define tolerance levels in relevant processes meet the CEO's challenges of that will have small impact on KPIsanticipation and respond to business
changes, whilst delivering the goals of b. Define process controls to manage KPIs the business strategy. To meet these
Figure: 3
However, the supply chain model has to meet the CEO's challenges of anticipation and respond to business changes, whilst delivering the goals of the business strategy.
47
deviations and excursions. line performance. In this case the overall delivery c. Monitor & measure benefit ` flexibility model vs fixed to the Customer will only structure. achieve 85%.
This KPI chart Sustaining the High Performance deliverablescalculation has been
Having defined all the parameters, monitoring the KPIs simplified to illustrate and controlling the deviations from the targets as described that a company supply in the previous sections, will not be enough to sustain high chain performance is performing supply chains. The successful supply chains are highly dependent on all those that can achieve an integrated and collective overall the contributors in the performance. chain and that the high
performance of one The CEO and his senior executives should typically define function does not mean at least the Top 6 Supply Chain KPIs that will deliver the another weaker business goals. The KPI targets, actuals and deviations will performance can be easily be reported in the Performance Dashboard, available on a compensated. For example, poor daily, weekly and monthly report for their review and inventory availability cannot be management attention.immediately rectified by increasing
In Fig. 4 are illustrated an example of the top 6 Supply warehouse service level or transportation Chain key performance indicators. performance. The impact of having no
stock on some items can be devastating in a key customer account.
Supply chain performance deliverables would be most effective if they are designed and developed in alignment with the strategic goals and embedded into the contribution functions as part of the planning.
Whatever the nature of your supply chain, understanding the interconnections and dependencies of each function in the supply chain will ensure clarity of vision of the business structure and require alignment of the execution capabilities required to achieve a high performing supply chain model. The full engagement of all stakeholders in supply chain performance In this model the goal set is a 6 sigma target. Each function management is a fundamental pre-in the supply chain will have to achieve 98% of their target requisite to ensuring that supply chains performance. In the blue column of the chart, most are able to perform to the highest functions have achieved 98% performance and this would standard. seem adequate.
However the cumulative performance of each function will not be enough to achieve the business goal of 98% over all P performance. In the Overall Performance, it is evident that any deviation lower than 98% will degrade the bottom
Figure: 4
For more information on the articles or to contact the writers please email [email protected]
A company supply chain performance is highly dependent on all contributors in the chain and the high performance of one function does not mean another weaker performance can be easily compensated.
KNOWLEDGE
February 2015
The distortion of the demand data
implies that the manufacturer who
only observes its immediate order
data will be misled by the amplified
demand pattern. When a supply
chain is plagued with a bullwhip
effect, results are quite paralyzing.
These would include excess inventory,
poor forecast products, and poor
customer service due to unavailable
products or long backlogs, uncertain
production planning and high costs of
taking corrective actions. Rakesh
Singh explains the concept.
48
Understanding
he co-ordination function in the supply chain is measure greater than one indicates amplified order defined by the flow of information among the variability. T
members of the supply chain. Information is a very Holstrom in a study reports a supply chain where variability, important parameter of SCM and the noise in the as measured by the standard deviation of weekly demand, information flow contributes significantly to demand increases from 9 to 19, for two different variability. Information flows are required for product groups going from consumer deciding the production scheduling, demand to plant supply. Fransoo and inventory control and material flow between Wouters, in their study of four companies' the individual members of the supply chain. several retail stores found that the bullwhip Distortion in the demand information as we effect was present significantly as one moved move up the supply chain levels is known as up from retail franchisee to distribution the bullwhip effect. center to production. Levi, Kaminsky and The bullwhip effect refers to increasing Levi found that Barilla, the Italian pasta variability of demand, further upstream in major, was caught up in the trap of a the supply chain as a result of information bullwhip effect. They found that variations distortion in supply chain, where company in distributors' order pattern had caused upstream does not have information on severe operational inefficiencies and cost actual consumer demand. Consequently, penalties for Barilla. The extreme variability their ordering decision is based on incoming orders that Barilla received were surprising, orders from the next downstream company. considering the distribution demand for This may lead to amplified order variability. pasta in Italy. Indeed, while variability in
aggregate demand for pasta was quite small, Demand coming from a lower company has orders placed by the distributors had a huge a lower variability than the demand to an variability. All The studies share a common upstream company. A measure of this bullwhip effect is the recurring theme: the variability of an upstream site is always variability of upstream demand - measured by the standard greater than those of the downstream sites. This deviation of demand, relative to mean demand - divided by phenomenon known as the bullwhip effect is due, in part, to the variability of the downstream demand. A value for this the effects of demand forecasting. In particular, they showed
The bullwhip effect refers to increasing variability of demand, further upstream in the supply chain as a result of information distortion in supply chain, where company upstream does not have information on actual consumer demand.
BullwhipDr. Rakesh SinghVisiting Professor of supply chain strategy and economics, Great Lakes, Chennai and Chairman, Institute of Supply Chain Management, Mumbai, Managing Editor, SCMPro
February 2015
KNOWLEDGESCM WORLD CLASSROOMNEWS ACADEMIC ADVOCACY
49
that if the retailer, periodically updates which is transferred to the next link by observed on a periodic basis.the mean and the variance of demand increased order quantities. That link also
Price fluctuations- price fluctuation based on observed customer demand sees an increase in the demand, updates can also lead to bullwhip effect. If prices data, then the variance of the orders its forecast, and distorts information for fluctuate, retailers often attempt to stock placed by the retailer will be greater than the subsequent link. It works in the up when prices are lower. This is that of the orders placed by the retailers reverse when end-customer demand accentuated by the prevailing practice in and in turn, will be greater than the decreases. many industries of offering promotions variance of demand. Whats the final Lead-time- it is easy to see that the and discounts at certain times or for implication on the firm? Bullwhip thus increase is magnified by increase in lead- certain quantities. Kotler (2000) says is amplification of demand at various time. The safety stock level depends that the trade deals and consumer level of supply chain, leading to upon average demand and its variability promotions constitute 47% and 28%, variability and supply chain distortions. multiplied by the lead-time. Thus, with respectively, of the total promotion A firm may have shortages in some longer lead-time and a small change in budget in the US and all of these causes place, stock out in others and may be the demand variability implies a bullwhip effect due to their impact on manufacturing to meet the demand in significant change in the safety stock, price fluctuation. When the price the third place. Let's explore the causes the re-order level, and, thus, in the order returns to the normal, the customer of bullwhip effect as a part of this quantities. buys less than the needed to deplete its classroom column. inventory. Sometimes, companies run
promotion schemes in certain regional markets, which might give a
The first research to extensively study downstream member an incentive to the amplification of demand buy in bulk, when the promotion is held information in a supply chain was and then divert the products to other reported by Forrester in his seminal regions. This diversion can prove costly book Industrial Dynamics. He basically for the supply chain.reduces the causes of this demand
Rationing of shortage gaming- when amplification to two types of delay, Order-batching- demands come in; product demand exceeds supply, a namely the delay of transferring demand depleting inventories but the company supplier needs to ration its product to information and the delay of may not immediately place an order customer, knowing that, customer may transferring physical products through with its supplier. If the retailer uses order more than really needed. Later, the supply chain (lead-times).The roots batch ordering, then the wholesaler will when there are no shortages, orders of bullwhip effect thus go back to observe a large order, followed by disappear. Such orders are common systems dynamic theory. Forrester found another large order, followed by several when retailers and distributors suspect that it was common for the variance of periods of no order, followed by another that a product will be in short supply, the perceived demand to the large order and so on. Thus, the and, therefore, anticipate receiving manufacturer to far exceed the variance wholesaler sees a distorted and highly supply proportional to the amount of the consumer demand. Also, the variable pattern of orders. Firms use ordered. When the period of shortages is seasonal impact was usually larger for batch ordering for a number of reasons. over the retailer goes back to its standard manufacturers than retailers. Further, it A firm facing fixed ordering costs, orders, leading to all kinds of distortions was also found out that effect is resorts to batch ordering. Secondly, as and variations in demand estimatesamplified at each stage in the supply transportation costs became more chain. A number of other studies have Bullwhip is a common ailment present significant, retailer may order quantities identified the following causes of today in most of the organisation. that allow them to take advantage of the bullwhip effect in an organization: Theory provides a framework for transportation discounts. This may lead
understanding the major issue in supply to some weeks with large orders and Demand forecasting updating- links in chain coordination. We will explore all some with no orders at all. Finally, the the supply chain base their -expectations the implications of bull whip effect in quarterly or yearly sales quota or on the basis of the orders they receive the subsequent column. incentives observed in many businesses from the succeeding link. An increase in
can also result in unusually large orders orders leads to higher demand forecasts,
Causes of Bullwhip Effect An increase in orders leads to higher demand forecasts, which is transferred to the next link by increased order quantities.
February 2015
SCMPro CLASSROOM
50
Supply chain disasters can have a devastating effect on firms. After the earthquake and tsunami
in Japan, a large number of Japanese firms faced major disruptions in their supply chain. We
need to learn from their experiences – especially how can firms survive such violent disruptions.
We bring you an insightful article from a research undertaken at the Research Institute of
Economy, Trade, and Industry.
February 2015
ost the devastating earthquake, firms in Japan faced networks with suppliers and clients in different locations in Psevere disruptions in their supply chains. The authors particular contribute to the resilience of firms to natural examine how supply chain networks affected the resilience of disasters.firms to the Great East Japan earthquake, particularly the The positive effect of supply chain networks on economic time that passed before firms resumed operations after the resilience found in this study has not been well recognized in earthquake and sales growth from the pre- to post- literature. The findings of this research suggest that earthquake period. The results indicate that the expansion of simulation exercises on output losses from disasters, such as supply chain networks has two opposing effects on resilience that conducted by Hallegatte (2012), should incorporate this of firms to disasters. On the one hand, when firms are positive effect into theoretical models, which may lower connected with additional firms through supply chain estimated output losses of firms indirectly affected by networks, they are more likely to experience disruption of disasters through supply chain networks.supplies and demands, which delays recovery. On the other hand, firms can benefit from diversified networks with One caveat of this study is that although the study found suppliers and clients because they can substitute surviving benefits from diversifying supply chain networks, the extent firms in the network for damaged partners and receive to which firms should diversify their supply chain networks support from surviving partners. The results indicate that remains unclear because the authors did not conduct any networks with firms outside the impacted area contributed to cost–benefit analysis. Clearly, diversifying suppliers and the earlier resumption of production after the earthquake, clients across regions is expensive, which is most likely the whereas networks within the region contributed to sales main reason why many firms have a limited number of recovery in the medium term, implying that the positive suppliers and clients. It is expected that future research will effects of supply chains on recovery typically exceed the investigate the costs of finding suppliers and clients explicitly. negative effects. The authors conclude that diversified supply This type of investigation would make it possible to find the chain networks contribute to the resilience of firms to natural optimal level of diversification to maximize the net benefit, disasters. i.e., the long-term benefits from strengthened economic
resilience less short-term costs.To summarize, the results, supply chain networks facilitate recovery from natural disasters in many cases, although the effect varies depending on the locations of the suppliers and clients and on the time span of the recovery measure (short-term recovery time or medium-term sales growth). The study did not find any effect of supply chain networks on recovery, except for a small positive effect of indirect suppliers and clients on the recovery time, which was mostly offset by the negative effects of other types of networks. Therefore, one can conclude that supply chain networks and diversified
Yasuyuki Todo- Department of International Studies, the University of Tokyo and Research Institute of Economy, Trade and Industry. 5-1-5 Kashiwanoha, Kashiwa, Chiba, 277-8563, Japan. Kentaro Nakajima- Graduate School of Economics, Tohoku University. 27-1 Kawauchi, Aoba-ku, Sendai, 980-8576, Japan.Petr Matous- Department of Civil Engineering, the University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-8656, Japan.
How Do Supply Chain Networks Affect the Resilience of Firms to Natural Disasters? Evidence from theGreat East Japan Earthquake
-YasuyukiTodo, Kentaro Nakajima, Petr Matous
KNOWLEDGESCM WORLD CLASSROOMNEWS ACADEMIC ADVOCACY
