Convenor’s Message ‘OPUS’ means a musical composition with the whole gamut of musical notes resonating in harmony with each other. Slightest dissonance in a single tone can render the entire composition in discords. A similar analogy is applicable to the entire supply chain where every entity contributes to the functioning and completeness of the system. Hence, harmonious relationships between the various entities of the supply chain are of supreme importance for its efficiency and effectiveness. Traditionally, the word chain has a connotation of ‘restraint’ or ‘control’. As a result, we see the supply chain becoming ineffective and often failing because of opportunProf. Harsh V. istic and exploitative tactics of the power brokers. Today, supply chains are complex Bhasin and there is a mutual need for interdependence and hence building relationships is becoming increasingly important. Progress can only be achieved through a paradigm shift i.e. evolving from the control philosophy to a collaborative philosophy seeking mutual sustainability and prosperity. Only then will we be able to capture the true essence of the supply chain management. At NITIE, it has been our sincere effort to explore the vast domain of supply chain management and to mutual sharing of knowledge with industry and the academia. Propagating this tradition passionately and descriptively, we collaborate with the thought leaders in the industries, faculty across the globe and with the students from various reputed institutes to create and develop new knowledge, skills and capabilities on the subject. Chain-to-Excellence (C2X), a student initiated SCM Interest Group in NITIE, strives to bring together all the stakeholders and enables the creation and dissemination of knowledge across supply chain community. The publication ‘OPUS’ is an initiative of the students of NITIE and intends to be a reference for students in the field of supply chain and as a case guide for industry problems. I am certain that OPUS will gradually build up to be a fabulous source of knowledge and a timely herald of news and happenings in the world of supply chain management. It gives me great pleasure to be associated with such an undertaking and I wish Team C2X, the student initiators of ‘OPUS’, all the very best for all their future endeavors. I congratulate the efforts behind this creation and wish all the readers a great learning experience!
Prof. Harsh V. Bhasin Convener, OPUS NITIE, Mumbai
The EDIT Page Government policy changes, globalization, tax reforms, growth of rural markets, new technologies, stiff competition and rising customer expectations have made SCM all the more dynamic. Due to dramatic increase in choices and brand awareness, the customer is demanding more and better everyday. But to what extent should customers be pampered is a key challenge for every company. Some companies like Flipkart etc. are even being considered as being too customer-centric to sustain. How to reach inaccessible markets with their huge spread efficiently with the current poor infrastructure? How to choose the right technology that fits one’s business model? How to adapt to new government policies like GST? These and many more questions have become crucial for every business in manufacturing and services. Companies have to keep changing fast to adapt and improve every day. They need to create a culture of driving positive change from the grass-root level of the organization and empower people to do that. Supply chains have to reach to the bottom of the pyramid for not only social cause but also for good business. It has been observed that a small saving in supply chain and operations make a bigger impact in total profits of the company. All this speaks amply loud that no company can neglect their supply chain and operations under the law of the survival of the fittest. With new business models, technology and lean/six-sigma management, almost every company is pushed hard to innovate, sustain and prosper. With all these curiosity to explore further, C2X (supply chain interest group of NITIE) has taken this initiative. This is the first issue of OPUS which has become possible with the efforts from industry experts, professors and students of NITIE. With OPUS we commit to keep reader updated with latest trends, issues, advice and foresight on SCM. We invite suggestions, views and requests to bring the best to you. You can write to us at nitie.c2x@gmail.com Editor, OPUS Team C2X
Contents
Page - 1 Operations at Non-Government Organizations: A Human Value Chain Page - 3 Trivia Page - 4 Flexibility- A strategic pre-requisite in Global Supply Chain Page - 6 Supply Chain in Flower Industry
Page - 9 Mantra to Successful Retail Page - 12 Hall of Fame Page - 13 Personality of the Issue Page - 14 Crossword Page - 15 News Corner窶認DI in Retail
Operations at Non-Government Organizations: A Human Value Chain Biswarup Saha & Anjali Patil (IIM Kozhikode) Non-Government Organizations (NGOs) have emerged as powerful organizations, which focus on a variety of key issues. Their common objective is to bring about changes for a better world. It is estimated that in the year 2009, India had 3.3 million NGOs, i.e. one NGO for every 400 people. It is interesting to understand how the NGOs manage their supply of various relief goods and other services to the target recipients NGO Supply Chain NGOs undertake two primary activities: sourcing and distribution. Unlike in other business firms, these activities are done in-house. As we can see from the figures below, manufacturers outsource the activities of raw material supply and finished goods distribution to the outside agencies. As a result of the in-house nature of these activities, the NGO faces a number of supply chain challenges.
NGOs do not have adequate number of regular employees but mainly rely on volunteers, whose availability is not permanent/ predetermined
Coordinating between volunteers is a challenge
Sourcing is done from a large number of individual donors
Direct distribution to a large number of recipients is challenging.
There is constant demand-supply mismatch.
Lack of profit motive
Lack of command and control structure
From the above lists, we can conclude that one problem leads to another. Hence, identifying the main cause of the problems is of utmost importance.
Constructing a causal loop model for the problem (Figure – 2, next page), it is understood that the human contribution to the supply chain is the major bottleneck. In such a case, it would be best to look at the supply chain as a “human value chain”.
these areas. In their 2010 paper, Cao and others introduced the concept of supply chain collaboration of seven inter-related factors are a) Information sharing b) Goal congruence c) Decision synchronization d) Incentive alignment e) Resource sharing f) Collaborative communication and g) Joint knowledge creation. These factors are critical because of the human nature.
Human Value Chain A supply chain’s performance can be measured by the strength of the relationship between the different stakeholders. Considering the importance of human resource in a NGO supply chain, relationships become an imperative parameter to judge the effectiveness and efficiency of the supply chain. A lot of research has been done in
These factors are not only absolutely vital for the functioning of a commercial supply chain and but they are also equally important for a human supply chain. Based on these factors, we propose a model for operating NGOs for better results. 1
Solar – Cluster Model of NGO operations
+
Uncertain Volunteering
+
Problem in distributing material
+
Assumptions: 1) Individual NGOs are willing to cooperate and collaborate with other NGOs 2) Every NGO has a certain distinctiveness - what is commercially called as the core competence 3) There is absolute transparency in the operations of the NGOs 4) All the NGOs have a common goal – sustainable development 5) NGOs around the world can be broadly classified as: Operational NGO Support NGO Networking NGO Funding NGO
+ Problem in sourcing material
DemandSupply mismatch
Figure 2 – Causal loop model, NGO supply chain problem
LOCAL Operational
Our model is based on coordination at three levels: local, regional and national/international. The framework for coordination is shown in Figure -3.
REGIONAL Support
NATIONAL Network
Figure 3 - Framework of coordination for NGOs
Local Level Coordination Operational NGOs, which generally work at grass-root levels, form clusters at the local level. The NGOs may have different means but have similar goals. By forming such clusters they will not only be complementing each others’ work, but also be able to share the scarce resources. Regional Level Coordination Support NGOs will operate predominantly at the regional level. However, they will share their expertise with local NGOs. They may provide logistic help and encourage more volunteers to join the local NGOs. They may also conduct short training courses for the volunteers and employees of the local NGOs. Network NGOs will provide a platform for NGOs to discuss best practices and share insight in their line of work. Networking also broadens the scope of each NGO. They will primarily facilitate technology dissemination. National/International Level Coordination Availability of funds has always been one of the hindrances for the operations at a NGO. Funding NGOs will dedicate themselves to sourcing funds from the corporate through CSR activities or donations. They will also try to exploit the funds made available by various government 2
Funding
schemes. These funds can then be channelled to the operational NGOs.
NGOs.
References: 1) McLachlin R and Larson P. D. (2011), Building Some advantages of the above models are: humanitarian supply chain relationships: lessons from A) Each NGO has a specific role in the model. Hence leading practitioners, Journal of Humanitarian Logisthey can specialize in their roles which will increase tics and Supply Chain Management, Vol. 1 No. 1, pp operational performance. 32 – 49 B) Resource sharing at the different levels is a boon for all the NGOs. 2) Jahre M. and Leif-Magnus J. (2010), Coordination C) Such an operation will create joint knowledge, in humanitarian logistics through clusters, Internawhich can be leveraged upon by other NGOs. tional Journal of Physical Distribution and Logistics D) Sourcing of funds will be streamlined, and hence the Management, Vol. 40 No. 89, pp 667 – 674 operations will not be bottlenecked by the lack of funds. 3) Adivar B., Atan T., Oflac B. S. and Orten T (2010), Improving social welfare chain using optimal Conclusion planning model, Supply Chain Management: An InterNGOs are generally development and growth enhancers in national Journal, Vol. 15 No. 4, pp 290 – 305 a community. However, when their operations are ineffective and inefficient, they cannot realize their objective. 4) Tatham P. H. and Pettit S. (2010), Transforming NGOs, should build on the human behavior of coordina- humanitarian logistics: the journey to supply network tion, and leverage this to achieve the societal goal of sus- management, International Journal of Physical Distribution and Logistics Management, Vol. 40 No. 89, pp tainable development. We hope that this model of coop609 – 622 eration in operations will improve the performance of the
The world's second-largest restaurant chain, McDonald's is soon going to open its first vegetarian only outlet at the foothills of Vaishnav Devi, Katara- Jammu. Dominos and Subways already have started few vegetarian only outlets in North India.
Samsung has been one of the largest component suppliers to Apple. Aftermath of global patent battle, Apple has decided to cut down its dependency on Samsung for the supply of memory chips and displays. It is evaluating other available options like Toshiba, SK Hynix and Elpida Memory. More than 350 Global 2000 companies rely on IBM EMPTORIS for its strategic spend, supply and contract management solutions. The solutions are consistently recognized by leading independent analyst firms as the most comprehensive and tested strategic supply management solutions on the market Gati Ltd is planning to rope in a strategic partner in its shipping division, which was hived off into a separate subsidiary in March. The company is also planning to set up a pan-India cold chain network. As part of the restructuring plan, Gati has moved its core business to GatiKintetsu Pvt Ltd. 3
Flexibility- A strategic pre-requisite in Global Supply Chain Mohit Talwar & Kumar Anubhav (NITIE) Globalisation has created a world without boundaries. The new business environment is characterised by informed customers, customized products, short product life cycle and short lead-time. These factors have led to fierce competition in global operations of manufacturing and logistics.
sudden changes in demand. Flexibility measures the capabilities of promptness and the degree to which a firm can meet the changes required in its supply chain speed, destinations and volumes. Global supply chain categorizes the entire supply chain into five flexibility perspectives - product development flexibility, manufacturing flexibility, sourcing flexibility, logistics flexibility and information systems flexibility. Researchers also classify flexibility as range flexibility and response flexibility. Range flexibility is concerned with the extent to which the operations can be changed.
The impact of failure of one entity in the supply chain can lead to a number of entities closing down and in some instances the whole supply chain shuts down. Recent events like hurricane in New Orleans or earthquakes in Japan have demonstrated that risk events are inevitable and that they are even more likely to affect today’s supply chain with their increasing global stretch and complexity. One such example is a fire at a single source supplier for Ericsson, which led to loss of sales of $400 million, culminating in Ericsson’s exit from that part of business. Even political problems can bring about supply chain disruptions, like an agreement between EU and China on trade limits stalled delivery of 80mn pack of clothing which were ordered well before the agreement was enforced. Still, some companies appear to be able to weather such events more effectively than others to come to a state of normality from where they can operate. The apparent ability of some supply chains to recover more effectively from others has proved supply chain flexibility to be a strategic weapon.
Managing Flexibility Certain Risk management strategies are used by global supply chain operators to ensure smooth functioning and faster recovery during turbulent times.These strategies can be divided into three major categories such as Product modularity, Supply chain practices and Supply chain structure. Product Modularity Postponement includes delaying the actual packaging, assembly, labelling and manufacturing of resources to maintain flexibility in the supply chain. Form postponement refers to delayed customization whereas time postponement refers to movement of goods only after consumer orders are received. However, this strategy involves a substantial investment in terms of understanding product design for Form postponement and coordinating with suppliers and customers in Time postponement. There is always a trade off between Cost
Flexibility refers to the maintenance of the customer service levels by adapting to disturbances in supply and
4
of flexibility and Cost of Postponement, but with increasing attention to mass customization and agile operations, organization now days are more interested in postponement. Supply chain practices Hedging is a supply side risk management strategy that keeps an organization flexible to serve during currency fluctuations or a natural disaster. Hedging is undertaken by having a globally dispersed portfolio of suppliers, thus creating multiple options for decision variables, that provides protection against risk of quality, quantity, disruption, price, variability in performance, and opportunism. Selective risks is speculating demand to make product available in advance. By predicting the number of the finished goods at the earliest point, it is possible to gain economies of scale in production, procurement, and transportation, as well as lead to reduction in sorting costs.
deliver cars at a short notice. Figure below shows a relationship between flexibility and cost dimensions in operation strategy. There are two options left to an organization to handle situation of increased cost. One is to pass cost to customers as a premium. Generally, as flexibility increases, the perceived value of the product also increases and customers do not complain about paying a premium for flexibility. Other option is to develop systems to overcome such trade-off obstacles in comparison to those of their competitors. With the advent of sophisticated manufacturing philosophies and technologies, it has become possible to pursue this option. The smart choice for any company is to map its business model with suitable flexibility criterion.
Supply Chain structure Integration increases the ability of a member to control processes, systems, methods and decisions. Toyota was first company that introduced flexibility in its entire business system. Toyota’s ‘lean philosophy’ incorporated suppliers into their production program, ensuring better exchange of information improving the quality level of products and services to their customers. Currently, several automobile brands clearly recognize the strength of ‘lean References: thinking’ in relation to increase flexibility in their supply 1) Operations Management: Theory and Practice By B. Mahadevan chain activities. Disintegration helps an organization to respond easily to environmental changes. The firms are going for outsourcing of non-core activities while focusing on core competencies. Outsourcing firms customize themselves with growing and changing needs of markets hence creating flexibility for their customers. A knowledgeable third-party provider with global expertise that can offer network design and optimization, primary and secondary packaging support, campus-based warehouse and transportation solutions, labour management, real estate services, regional expertise, and collaboration opportunities will be equipped to deliver the service, flexibility and value needed to remain competitive in any market. The Cost-Flexibility Trade off
2) Supply chain resilience in the global financial crisis: an empirical study By Uta Ju¨ttner and Stan Maklan (Cranfield School of Management, Cranfield University, Cranfield, UK) 3) Supply strategies for build-to-order: managing global auto operations By Joe Miemczyk (Audencia Nantes School of Management, Nantes, France) & Mickey Howard (School of Management, University of Bath, Bath, UK) 4) Flexibility in global supply chain: modeling the enablers By Pravin Kumar, Ravi Shankar and Surendra S. Yadav (Department of Management Studies, Indian Institute of Technology Delhi)
5) Global supply chain risk management strategies By Ila Manuj (Department of Marketing and Logistics, UniNone of these strategies ensure full flexibility and opera- versity of North Texas, Denton,Texas, USA, and) and tional efficiency. Consider a car manufacturer which uses John T. Mentzer (The University of Tennessee, Knoxpostponement strategy to manage global operations. It has ville, Tennessee, USA) to incur an additional cost of having either an assembling plant at the client side or a faster transportation system to 5
Supply chain in Flower Industry Kamal Nayan Srivastav (IIM Indore) Introduction:
The Flower Supply Chain
Flowers, which began as a seasonal business in a nursery, today have developed into a global floriculture industry. Floriculture industry can be defined as cultivation/ production and marketing of a wide variety of plants and planting material - starting from parental products like plants to end products like cut flowers. Its productportfolio mainly consists of cut flowers, pot plants, cut foliage, seed bulbs, tubers, rooted cuttings and dried flowers or leaves. Some internationally traded cut flowers are Rose, Carnation, Chrysanthemum, Dahlia, Gargera, Garbera, Gladiolus, Gypsophila, Liastris, Nerine, Orchids, Poinsettia, Archilea, Anthurium, Tulip and Lilies. The most traded flower in the international market is Rose.
DOMESTIC
IMPORTED IMPORTED FLOWERS FLOWERS
DOMESTIC PRODUCPRODUCTION TION
Auctions Agents
Exporters
Flowers are generally grown in massive poly-houses conditioned for faster and quality growth of plants. Flowers are generally cut while in bud stage and are sprinkled with chemicals like vinegar to delay the flower decay. Chemicals are also used to keep flowers disease free and to reduce thorns in flowers like roses. Cut flowers need to be refrigerated at 330F-410F immediately after being cut. Apart from refrigeration, other cost drivers in this industry include facilitation of artificial sunlight in form of 1300 watt bulbs and transportation by flights/ships.
Wholesalers
Bundling Station
Local/
Purchase Organiza-
Retailer
Floriculture as an industry has an immense potential for generating self-employment among farmers and earning highly needed foreign exchange. It has demonstrated constant annual growth of 6-9% before 2008, and its current turnover worldwide is about € 30 billion year – surpassing the entire music industry.
The Mediating Agency
The main components of supply chain are:
The mediating agency is an outlet that is used by producers and traders to guarantee sales and to cater to wishes and needs of customers through contracts.
Producers
Wholesale
In the Western markets, producers sell their products directly through wholesale markets while in countries like Japan & the Netherlands, selling is mainly through auctions. Some producers also sell their produce to the retail traders. However, direct selling is the most popular among the producers.
In countries that do not have auctions, flowers are sold through wholesale and retail trade. The gross profit margins are in the range of 10-15% for commissioned agents and approximately 15% for other wholesalers. The different forms of wholesalers are:
Auctions
Breeder/Wholesaler
Auctions are sales organizations where producers try to obtain the highest possible price for their products.
Domestic Wholesaler
Cash and Carry
6
Exporter Commission agent/importer
They are:
Logistics Cut flowers and plants are perishable products. Cut flowers have a higher priority for sale than plants on the same day of purchase. They are kept fresh by storing in water, cooling of storage rooms and means of transport, fast and efficient delivery and proper packaging. Retail Trade The consumer can choose from 4 types of retailers:
USA
European Union and Russia
Japan
In India, the existence of variety in agro-climatic zones lend it a unique position to grow a large number of flowers including temperate flowers at high altitude states. According to India's Agricultural and Processed Food Products Export Development Authority (APEDA), India currently produces 2,00,000 tons of loose flowers and 500 million tons of cut flowers In India, the consumption of flowers is much higher in the southern states than in the northern. While the major demand driving cities include Mumbai, Pune, Bangalore, Chennai, Hyderabad, Delhi, Chandigarh, Lucknow and Calcutta, the flower producing states include Odisha, J&K, Punjab, Andhra Pradesh, Meghalaya and Tamil Nadu. Karnataka is the leader in floriculture, accounting for 75% of India's total flower production.
Florist Supermarkets Street Vendors Garden Centres
Consumers Consumers can be divided into three types:
Individual Households Institutional Markets (include government institutions, hotels and other profit/non-profit businesses) Perfume industries
Six Agri-Export Zones have been set up in the states of Sikkim, Tamil Nadu, Uttaranchal, Karnataka and Maharashtra. To facilitate exports, APEDA has set up cold storage and cargo handling facilities at the key airports of New Delhi, Mumbai, Hyderabad, Bangalore, ChenFlower supply chain: Global and Indian context nai, Trivandrum and Cochin. Flower Auction Centers have been set up in Bangalore, Mumbai, Noida, and Gradually diversifying in terms of global actors (Exhibit Kolkata for better price discovery for a variety of flow1), about 120 countries are actively involved in the floriers, both for export and domestic markets. culture industry today, with the Netherlands holding lion’s share of 52.3% in global export. Economies like Nether- Key issues in Floriculture supply chain: lands, Columbia, Israel are dependent on the floriculture industry. Countries like Ecuador, Kenya, Israel, Costa The main criticality associated with floriculture supply Rica, Thailand, Poland, India, China, Republic of Korea chain is the perishability of flowers which demands and Mexico have emerged recently as global producers and technology to delay their decay and keep them fresh without any bruises or torn petals. This perishability exporters mainly to the USA and Europe. aggravates during transportation. Research shows that There are three major markets, as evident from the map heat generated during transportation decreases vase-life below, which import the lion’s share of the world’s total of flowers by increasing respiration rate of flowers and also enhances negative gravio-tropic bending of neck of production of fresh cut flowers. Fig 1: Flower Routes
Source: Geo Magazine, Edition 43, December 2011, Article: Flower Power - Blooming Business, page 118 7
flowers. While for shipping, the vase-life of cut flowers has to be increased to a month, transportation though aircraft increases loss due to bad adjustment in the cargo hold of passenger aircraft. The practice of using ethylene instead of refrigeration for cost-cutting adversely affects the vase life of flowers. Moreover, flowers develop cuts and bruises due to bad packaging during transportation or due to any other kind of mistreatment Exhibit 1
Conclusion Indian supply chain mainly suffers from lack of cold storage facilities and technical expertise to grow export quality flowers because flowers which are damaged, diseased or lack luster are not accepted in international market. India is potentially strong to be the face of future flower industry globally, and elimination of such barriers in supply chain can help developing this industry which in longer run shall be helpful in addressing domestic challenges of unemployment and poverty. Major Importers of flowers
Source: SADC Trade; Trade information brief, Cut flowers and foliage
Major Exporters of flowers
Source: SADC Trade; Trade information
Exhibit 2 The Foot, Cone & Belding grid (FCB matrix) for analysing customer-product relationship for flower industry
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Mantra to Successful Retail Demand planning process takes into account various parameters like past sales data, trends and seasonality to arrive at the demand. Seasonality is majorly visible to the apparel retailer in which there is a high variation from season to season in the sales of the SKUs. The fashion apparels have higher seasonality than basic apparels. The other major factors which are taken into account are the promotional schemes (in house or vendor planned) and the vendor inputs. But to arrive at a final figure, annual budgets, sales targets, competitor strategy are consumer trends are also taken into account.
SUPPLY CHAIN IN ORGANIZED RETAIL In the organized retail market in India, the role of supply chain is very important for the fulfillment of the customer demands at affordable prices with a variety of product mixes. The retailers need to maintain a balance between the product mix and the inventory as holding excess inventory is a costly affair. There are various factors that have made the function of supply chain more complex in the retail market. The infrastructure in India in terms of road, rail and air links is not sufficient. Evolving retail trends like dedicated category formats, online retailing and its private labels make the supply chain even more complex.
Inventory Management
MAJOR ASPECTS OF THE RETAIL SUPPLY CHAIN
Major Indian retailers follow a top-down planning approach, where the budgets and the inventory decisions are taken at the corporate level. Most of the retailers in India take the decision of merchandising on the basis of the margin derived from it. The supply on hand varies between the different categories. It depends on the factors like throughput of inventory, fill rate and the lead time of the supplier.
Demand Planning This basically pertains to the process of forecasting total, annual or the seasonal demand, depending upon the planning cycles. Major retailers do a product wise demand planning. The total demand which is forecasted for each product is divided into various regions as per the past sales data. This process is mostly mapped at a store level by most of the retailers except for those having a few stores in the area. They do a hub level forecasting. Moreover the slow moving SKU’s and private labels are mapped at hub-level and the fast moving SKU’s are mapped at the store level.
Inventory Issue: Time sensitive inventories and food categories account for highest level of waste. This happens due to inadequate storage facility, theft, pilferage and expiry. The other major inventory issues are the stock-outs and the over-stocks. In India, the supplierretailer collaboration is at a nascent stage. Therefore there is always a communication gap between the forecast of the customer and the supplier. Stock-outs result in the loss of the sales opportunity and are generally experienced in the fast moving SKUs. The issue of over -stocking is largely a result of the improper demand planning and the replenishment process. For food category, it translates into wastage due to expiry. For apparels, the overstock leads to sales promotions and thereby to market planning. For consumer electronics overstock leads to obsolescence that needs to be depreciated or revaluated. Replenishment Process The process of replenishment is completely system driven for the modern trade. There are various triggers which are used for replenishment. The most common of them is MBQ (Minimum base quantity). As soon as the inventory level falls below this, an intent is generated for that inventory. Some of them even have a maximum 9
time the level of inventory does not overshoot this level. Others have a supply on hand criteria where they define inventory on basis of the days of the stock. At all times the level has to be maintained so whatever inventory is soldoff is replenished to maintain the level. There are mostly two models of replenishment followed i.e. Hub and Spoke Model wherein the inventory is routed through the warehouse to the stores. That is the vendor supplies the stock to the warehouse from where it is moved to the stores. The issue with this method is that it raises the holding cost for the retailers. Partial hub and Spoke model is the one where there are some SKUs (mostly the fast moving SKU’s and DSI) that are directly replenished by the vendors at the stores whereas the slow moving SKU/private labels are replenished from the warehouse by the vendors and from there it moves to the stores. The replenishment cycles are calculated mostly on a daily or weekly basis. Earlier the trend was more towards a monthly and weekly process. But as the processes are becoming more refined and industry estimates more accurate, the cycles are being calculated on a daily basis. In fact, some retailers are planning to calculate the replenishment cycle twice a day. This would basically let them to replenish the same day inventory that is sold out by the afternoon. The performance of the vendors is tracked by the fill rates. The benchmark rate for the Indian retail industry is 97% (Ref: Indian retail report 2009). As a result the big vendor have a low fill rate ranging around 50 -60%. The Way Forward As Indian retailers ramp-up operations by opening multiple stores across the country, the need for integrated supply chain solution becomes critical to improve store management and increase ROI. In order to make supply chain more robust, the retailers should strive for the following:
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1) A shelf-centric partnership between the retailer and the manufacturer which will create a loss-free supply chain by combating the changes in demand variability. This will also lead to reduced cost and shorter order cycle time. 2) Outsourcing the logistics to better manage complex supply chain and to focus on the core business. The logistics firm can also take care of the related services, inbound warehousing, labeling, packaging, fleet management, order picking and inventory management. 3) Employ Advanced SCM tools like Demand management, CPFR (Collaborating, planning forecasting and replenishment system) which helps in capturing inputs from the vendors about real time sales data and also helps in analyzing consumer needs from the CRM inputs. Moreover such tools should help in acute planning for acute situations like recession Fashion markets are synonymous with rapid change and as a result commercial success or failure in these markets is largely determined by the organization’s flexibility and responsiveness. Responsiveness is characterized by short time-to-market, the ability to scale up or down quickly and rapid incorporation of consumer preferences into design process. Fashion industry is associated with following characteristics: 1) Short Life Cycle- The product is often ephemeral, designed to capture the mood of the moment. Consequently, the period in which it is likely to be saleable is likely to be short and seasonal, measured in months or even weeks. 2) High Volatility: Demand for these products is rarely stable or linear. It may be influenced by the vagaries of weather, films or sports events.
3) Low Predictability– Because of the volatility of the demand, it is extremely difficult to determine an aggregate forecast with high accuracy. It becomes even more complex to determine the weekly demand or the demand w.r.t. a S.K.U. or category. 4) High Impulse Purchasing: Many buying decision by the consumers for these products are made at the point of purchase. In other words, the shopper when confronted with the product is stimulated to buy it. Hence the availability of the merchandise at the touch points is critical to sale. 5) The growing tendency to source products and materials offshore has led in many cases to significantly longer lead times. Though there is usually a substantial cost advantage in manufacturing through sourcing from low labor cost areas, the effect on lead time can be detrimental. To understand the forecasting, it is necessary to understand the life cycle of the product. The life cycle phases can be categorized as: Pre-season: In this phase, planning for the designs, colors, style and materials is done by the designers. The forecasting helps in determining the volumes in which the categories and styles need to be produced. Early Season: It marks the start of the season where the majority of styles are sent to the shops and sales start to increase. This phase helps in determining the styles which perform above average and below average as the planned performance in each category. The expedition of above average performing category can be planned at this phase. Mid Season: This phase involves starting with the markdown of slow moving styles with some promotions and advertisement effects. It also includes end-of-season sales for all the remaining left styles for the season. This is done to maximize the sales and to prepare for the next season. Late Season: The remaining stock is sent back to the warehouses and to certain other stores and factory outlets.
The forecast is heavily dependent on the local conditions of the market, like competitive pressure, change in demographic in the market. The variations are observed not only in total sales but also on trends, colors and style. The model which cannot incorporate such variations cannot be deemed fit for the forecasting of fashion apparels. The models like Holt’s model, Winter’s trend & seasonality model and exponential forecasting do take into consideration the trends and seasonal variations in the historical data but are not able to account for the subjectivities in demand like competitive pressure, seasonal bias in terms of styles and colors. For e.g. products that may sell in Punjab may not sell in Assam. MODELS There are various models that are being researched for making a forecast for the fashion industry. Certain advanced statistical techniques which have been used for the forecasting in the fashion industry are: Winters Thee Parameters Exponential Smoothening: Winter’s powerful method model trend, seasonality and randomness using an efficient exponential smoothening process. The underlying structure of additive trend and multiplicative seasonality of winter’s model assume that: Yt +m-(St+Bt)It-L+m St- smoothed non seasonal level of the series at end of t with smoothening of α(alpha). Bt- smoothed trend in period t with smoothening factor of β (beta). m- horizon lengths of the forecast of Yt+m It-L+m – smoothed seasonal index for period t + m with smoothening factor of gamma.
DEFINITION FOR FORECASTING IN FASHION APPAREL
That is, Yt +m the actual value of the series, equals to smoothed leveled value St plus an estimate of the trend.
The process of forecasting includes determining the range to be produced. The range constitutes of apparel varying in styles, colors and size.
Bt times a seasonal trend It-L+m. These three components of the demand are each exponentially smoothed values available at the end of period t.
DIFFICLUTY IN USING CONVENTIONAL MODEL FOR FORECASTING
Artificial neural network model
The number of SKUs range from 200 to 3000 per season. As profiles in fashion industry breeds on freshness, new styles and products are introduced every season. Hence, historical sales data is not very reliable in the fashion industry. 11
Neural network mimic some of the parallel process capabilities of the human brain as models of simple and complex forecasting application. These models are capable of identifying non linear and interactive relationships and hence can provide good forecast
accuracy. ANN model consists of multiple layers. Each layer has a set of variables and function. The hidden layers are the variables in which several input combinations from the input layer are fed and the resulting output is also fed into the output layer..{x1.. xm} are the training vector and {z1..zm} is output vector. The above model is trained i.e. huge historical data is fed and feedback of error with respect to expected is used to tune the model.
Opscribe ‘12
C2X Article Writing Competition 12
Personality of the Issue "I do not drink milk as I don't like it." -’The Milkman of India’ V Kurien Engineer and businessman V.Kurien passed away on Sept 9, 2012. He is best known as the “father of milk revolution” and the creator of Dr. V Kurien "Amul" Brand of dairy products. Amul or Anand Milk Union Limited has soared with revenue more than $2 billion. He has founded around 30 institutions of excellence (like AMUL, GCMMF, IRMA, NDDB etc) which are owned, managed by farmers and run by professionals (source: wiki). He was the first person to manufacture milk powder and condensed milk from buffalo’s milk when other companies were making it from cow’s milk. Currently 3.1 million producer members of Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF) have a milk collection average of 9.1 million litres per day. It is a very unique situation where the owners themselves are the biggest vendors for the company. Kurien, owing to his magnificent achievements, won several awards including India's second-highest civilian honor –Padma Vibhushan, the World Food Prize and the Ramon Magsaysay Award.
The Amul Model The Amul Model of dairy development is a three-tiered structure with the dairy cooperative societies at the village level federated under a milk union at the district level and a federation of member unions at the state level. Establishment of a direct linkage between milk producers and consumers by eliminating middlemen. Milk producers (farmers) control procurement, processing and marketing.
Professional Management More than 15 million milk producers pour their milk in 1,44,246 dairy cooperative societies across the country. Their milk is processed in 177 District Co-operative Unions and marketed by 22 State Marketing Federations, ensuring a better life for millions. Source: http://www.amul.com/m/about-us and www.Wikipedia.org
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2) A rapid and radical change process, sometimes used as a precursor to Kaizen activities. (7)
Across 4) An analogy of one person riding over another in logistics management (9)
3) 6 years, 30 Tier 1 suppliers, over hundred tier 2 and 3 suppliers and 15 countries involved. Which company did this “dream� project? (6)
7)A lean manufacturing technique used to analyze and design the flow of materials and information (5,6,7)
5) One of the company's claims to fame is that it manufactured the equipment that enables Cadbury to mix the distinctive yellow and white fondant at the heart of its Creme Eggs. (4)
8) In warehousing, sometimes when the storage lane are not filled completely by unit-loads of an item. The unused pallet position in this high density storage is termed as (5,7)
6) Part of very famous concept in operations, it represents a time buffer ensuring the customer shipment happens on time (4)
9) Material type which supplier dominated having low contribution to firm's profitability is called (10) 11) Run charts allow you to determine______ (6)
10) JIT systems regard inventory in excess of current production and R & D needs to be __________ (5)
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12) Evolving set of best practices that help supply chain partners jointly plan some or all key activities from production of raw materials to the sale of finished goods (4)
1) If I ask you to produce different quantities and types of products every day, which Japanese quality principle am I not following? (8) 14
News Corner: FDI in Retail Ankit Rampuria (NITIE)
After much criticism from every corner for its lethargy and haplessness, the UPA government finally ended its policy paralysis and unleashed a wave of big ticket reforms most notably among them was the decision to allow 51% FDI in Multi brand retail.
storage, cold storage facilities for perishable items and 3rd party supply chain companies. The players in multi brand retail will buy directly from farmers and invest in storage facilities to reduce wastage thus bringing down the costs by eliminating middlemen, wastage and other transportation costs. This would require huge investments in supply chain logistics which is expected through FDI. The fear of local retailer shutting down due to opening up of modern retail stores is also misplaced as currently the local Kirana stores are coexisting comfortably with the likes of Reliance Fresh and Tata Tesco and the policy comes with a one million population rider restricting such stores to around only 53 cities. The example of farmers doubling their income after direct contract with Pepsi Co. and ITC due to improved productivity and stability also serves as example of it being a win-win situation for the farmers and the retailers.
This means that several international retailers like Carrefour, Wal-Mart can now open majority ownership shops in India where retail is $450 billion industry — 90% controlled by unorganized small and medium traders. This decision boosted the morale of Indian Corporate sector and Indian shares traded in New York reached their highest level in five months. Although the government has left the decision up to states regarding the implementation of policy, most Congress led states have welcomed the decision and others are expected to follow suit once the benefits start appearing. The benefits expected from this policy are:
The policy was a much needed respite from the gloomy picture drawn due to decreasing production figures, credit rating downgrading and popping up of one scam after another.
For the economy, it means more FDI investment which grew from $7.6 billion in 2005 to $35 billion in 2009, at an annual FDI inflow of $20.4 billion per annum between 2006 and 2009. In comparison, the estimated inflow of $3 billion from FDI in retail over the next five years seems modest. This would lead to creation of around 10 million jobs as per Government of India and will help control inflation, spur investments in the country and boost realty. The compulsory 30% sourcing norm from MSME sector is a big opportunity for suppliers.
References: 1) Bhavesh Shah and Himansh Dhomse , FDI in retail positive in long term Daily News & Analysis , Sep.15, 2012 2) ET Bureau, UPA unleashes big-ticket economic reforms: India Inc cheers FDI in retail, aviation and power exchanges, The Economic Times, 15 Sep. 2012
For the industry it means an opportunity to attract foreign investments which would help in expansion, mergers and partnerships. It would also help the industry tackle the rising problem of mounting debts which led to closure of retailers such as Vishal Retail and Subhiksha. The efficiency of the industry is also expected to increase through involvement of relevant technology, inflow of knowledge from international experts, growing competition and investment is supply chain logistics.
3) Nilanjan Banik, The big picture on FDI in retail www.thehindubusinessline.com/opinion/ article2714921.ece (Published Dec.14,2011) 4) Paresh Parekh, Expected impact of FDI in Retail – Ernst & Young India Viewpoint http://www.ey.com/ IN/en/Industries/India-sectors/Retail---Wholesale/ Retail_Expected-impact-of-FDI-in-Retail (Accessed Sep.17, 2012)
For the general public it is expected to bring a variety of products at cheaper prices through investment in supply chain logistics such as infrastructure, transportation, 15
Who We Are... C2X, Chain to Excellence, the supply chain forum is an endeavor by students of NITIE to catalyze the supply chain interests and to bring awareness about up-to date industry best practices and latest supply chain innovations. In this current age, where the competition is no longer between the organizations but between their supply chains, C2X is an initiative where NITIEans do their bit to bring out the best of the industry to one and all. The forum aims at being an interface between industry and academics. The raison d’être of C2X is to supplement the teachings at our institute. Our activities focus on enlightening the students on Supply Chain by conducting various group activities, guest lectures, case studies and knowledge sessions etc. We believe that supply chain being a very dynamic field, there is a lot to explore and lot more scope for us to improve. We hope you enjoy the magazine as much we enjoyed creating it. Please do write to us in case of any concern. https://www.facebook.com/nitie.c2x
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Charubala G
Neha Agrawal
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Abhishek Tripathi
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Sahil Garg
Girish Choudhary
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Sumit Choudhary
Shubham Bansal
Ankit Rampuria
Kailash Mohan
Parthiban Veerabadran
Sonam
Aniket Ghosh Choudhury
Sonal Teotia
Piyush Shah
National Institute of Industrial Engineering Vihar Lake, Mumbai - 400087