Vol. 02 | Issue 01 | APRIL 2011
CEO – Publishing Sandeep Khosla
EDITORIAL Executive Editor Archana Tiwari-Nayudu Features Editor Prerna Sharma Senior Features Writer Sumedha Mahorey Features Writer Sandeep Pai, Sudhir Muddana, Purna Parmar Copy Desk Kimberley D’Mello, Swati Sharma Product Desk Michael Anthony
nniversaries make you emotional and nostalgic. They make you swing between the ‘it seems like yesterday’ mode, recalling the teething problems to getting into a ‘wiz kid’ parental mind set; full of forecast of its favourable future. And delivery… how can we forget about delivery? Well, before you assume another meaning to this emotional outburst, we wish to congratulate each one of you as your magazine, the one created and crafted for you, by you, completes its first year of existence. This SMART mag on the block has shown a very rare trait… the trait of a winner. It has the enthusiasm of a newcomer, but the experience of a veteran with its lineage and legacy! Bubbling with enthusiasm, this special anniversary edition promises to deliver a treat to every supply chain professional. And delivery incidentally is also a key word, which is both, a delight as well as dilemma for every logistics professional. We not only deliver goods and services, but more importantly, we are entrusted to deliver the business strategy of the company and what the brand stands for and swears by. The anthem of the company is a reality that the supply chain network of that company lives every minute. And as mentioned earlier, it is both, a delight as well as a dilemma. It is a huge responsibility. To take a case in point, there is a whole lot of supply chain excellence that goes into making that sinful bite of a Big Mac Burger worth every calorie that
Assistant Art Director Varuna Naik
DELIVERING… AND HOW!
Design Team Sanjay Dalvi, Uttam Rane, Chaitanya Surpur (Cover Illustration) Chief Photographer Mexy Xavier Photographer Neha Mithbawkar & Joshua Navalkar
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CORPORATE Associate Vice President Sudhanva Jategaonkar Marketing & Branding Ganesh Mahale, Prachi Mutha, Shibani Gharat, Jagruti Shah
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we consume. As the creamy cheese melts and the fresh lettuce leaf cracks softly in every satisfied soul’s mouth as he murmurs a throaty ‘i’m lovin’ it’, there is a whole supply chain network of McDonalds, from farm to plate, which takes a bow! But wait there is more… it is an unforgiving competition and unparalleled expectations that this industry – the supply chain and logistics industry – deals with, every minute. So, the task is not only to deliver the best & the fastest, in the most economical way, without harming the environment, but most importantly, delivering all this and more every time. Consistent and persistent excellence is the norm of the day and as we grow more and go forward, this streak to overachieve excellence will grow fiercer among competing companies. So, with so much happening around you, and in an attempt to being your true partners in progress, here’s presenting you a treat of rich content. As we talk about the future supply chain, we have analysed critical aspects that will make your supply chain world class. We also visited truly complex supply chain networks like PepsiCo & Onida to study their unique problems and solutions, the idea being, bringing out the best and next practices. So, read all this and more in this special first anniversary issue, which is dedicated to every critical link of the logistics and SCM value chain… the real movers and shakers of the Indian economy!
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APRIL 2011 • SMART LOGISTICS • 5
VOL. 02, NO. 01
SL EXCLUSIVE: FUTURE VALUE CHAIN Building Strategies For The New Decade What do you want to achieve in 2020? Are you focussed on making your business more sustainable, optimising a new shared supply chain, engaging with technology-enabled consumers or helping consumers improve their health and well-being? Do you expect to achieve all this by yourself, or will you look for collaboration? Here’s decoding Future Value Chain 2020 to help you ﬁnd the right solutions for your problems towards creating a seamless supply chain network…
STRATEGISTS SPEAK Risk Management Minimising Global Uncertainties Key Supply Chain Enablers Collaborating To Excel Reverse Logistics Total Logistics Is A Round Trip, Not One-way Distribution Management Brewing A Flexible Route Breakthrough Technologies Game-changing Proposition For Solution Providers
22 28 30 32 36
SMART STRATEGIES Demand Planning Unlocking New Proﬁt Potential For Distributors
SUPPLY CHAIN MANAGEMENT Best Practices Six Pillars Of Global Competitiveness
SMART SUPPLY CHAINS PepsiCo India Quenching The Thirst Of Youngistaan Onida Supply Chain Competitors’ ENVY, Supply Chain’s PRIDE
ONE Q, MANY VIEWS Supply Chain Need-gaps Strategising The GenY Supply Chain Model Industry Wish List Aiming Towards Supply Chain Excellence
INDUSTRY WISH LIST Suggestive Measures Roadmap To Success
6 • SMART LOGISTICS • APRIL 2011
Tools & Techniques Leashing The Change
ALSO IN THIS ISSUE VIEWPOINT
NEWS, VIEWS & ANALYSIS Latest Happenings In The World Of Logistics
PREVIEW SL Leadership Consortium United For The Cause Of Collaboration
PRODUCT & ADVERTISERS’ INDEX
PRODUCT & ADVERTISERS’ INQUIRY FORM
NEWS, VIEWS & ANALYSIS L A T E S T
H A P P E N I N G S
WORLD BANK LENDS OUT $350M FOR INDIAN ROADS PROJECT CAPTIVE PORT POLICY TO REWARD COMPANIES THAT CUT CARGO-HANDLING TIME The government will soon announce a captive port policy to allot exclusive berths to companies that reduce cargohandling time for ships. “The policy would provide dedicated terminals for various commodities,” said K Mohandas, Secretary, Ministry of Shipping recently. However, he declined to give the details of the policy. While the policy would allow private players in the sector, it would also encourage public private partnership (PPP) projects. Competitive bidding in case of PPP projects provide up to 50 per cent higher revenue than captive projects. As per the policy captive berths would only be provided at places where PPP projects are not possible. According to a ministry official, the proposed policy will also specify procedures for getting approvals, including that for land acquisition. The Ministry is also planning to streamline laws governing shipping activities by merging the Indian Ports Act, 1905 and the Major Ports Act, 1963. With this policy the government aims at reducing the average turnaround time for ships at India’s major ports which is at present 3.87 days, while that at private ports is about two days.
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360BUY TO INVEST $1.2BN IN LOGISTICS SERVICE DEVELOPMENT IN CHINA RAILWAYS STRUGGLES WITH EMPTIES The movement of empty rakes, according to one estimate, accounts for nearly one-third of the rake movement of the Indian Railways. Mismatch of traffic in either direction is sighted as the main reason. For example, rakes carrying coal from the eastern region to northern region or from Chhattisgarh to Gujarat come back empty, and the distance is substantial. The movement of finished steel is generally one directional. Earlier, the empty movement was even larger. This was because foodgrains from Punjab and Haryana used to move to various states but the traffic was in one direction. The same was true for cement movement, as there were three major cement producing clusters in Andhra Pradesh, Madhya Pradesh and Rajasthan, with the whole country depending on them. The situation has now changed with the improvement in production of rice and wheat in states earlier known to be grain deficit. Similarly, cement production too is now more widespread. On certain routes, there is enough cargo in both directions. For example, rakes carrying iron ore exports to ports are back loaded with imported coal.
KOLKATA PORT LAUNCHES FIRST CONTAINER FREIGHT STATION The Kolkata Port Trust’s (KoPT) first rail-linked container freight station (CFS), built by Container Corporation of India (Concor), at a cost of `2.5 crore, was launched recently. A total of 21 boxes, all imports, were transported by a train from the Netaji Subhas Dock (Berth 7) to the bonded area of CFS for customs inspection. Once the inspection was complete, there would be dispersal of the boxes either by train or by road. The CFS, complete with a bonded area of about 14,000 sq m, including a covered warehouse of 1,000 sq m, has the capacity to handle 1,500 TEUs a month. It is part of the total 85,000 sq m acquired by Concor from KoPT as early as 2005. “Since there is enough space available at our disposal, it should be possible to step up the capacity of the CFS depending on the growth of throughput,” says Concor Spokesman. Currently, there are three other CFSs within the port area. These are operated by two public sector organisations, namely, Central Warehousing Corporation, Balmer Lawrie and a private firm, Century Plywood. But these CFSs, being road-linked, create congestion, which in turn throws up myriad other problems. The first rail-linked CFS, therefore, should be the preferred choice of most users, it is believed.
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L O G I S T I C S
JAPAN’S NUCLEAR CRISIS THREATENS GLOBAL SUPPLY CHAIN A widening nuclear crisis that has already forced some shipping firms to avoid Japan’s key ports and sea lanes, could upset the global supply chain and hamper the nation’s recovery, say analysts. German container shipping giant Hapag-Lloyd has halted services to the ports of Yokohama and Tokyo – the two major facilities on Tokyo Bay – over fears of radiation contaminating its vessels, crew or cargo. Other shipping lines have not so far interrupted port calls in the Tokyo Bay region, but have established no-go zones around the Fukushima nuclear power plant crippled by quake and tsunami that hit north-east Japan on March 11. Radiation from the plant is a ‘clear and present danger’ to shipping lanes and ports on Japan’s north-east coast,” said Rajiv Biswas, Asia Pacific chief economist at consultancy IHS Global Insight. Workers have so far failed to contain radiation leaks from the plant, which have contaminated farm produce & drinking water, and prompted several countries to ban food imports from the area. Levels of radioactive Iodine-131 in the sea off the plant hit 4,385 times the legal limit, their highest reading so far, officials said, amid a struggle to deal with large amounts of radioactive water at the site. Officials have said that tidal dispersion means there is no immediate health threat, and that the iodine degrades relatively quickly.
‘IRON ORE RAIL FREIGHT RATES TO RISE’ Indian Railways will levy a ‘busy season charge’ of 7 per cent on iron ore freight rates from April 1 to June 30, and from October 1 to March 31, declared government officials in a recent statement. India, the third biggest exporter of iron ore, had hiked railway freight rates by `100 to `1,600 per tonne from March 3. The Railways has also levied a busy season charge of 5 per cent on coal and coke group.
NEWS, VIEWS & ANALYSIS L A T E S T
H A P P E N I N G S
INDIA WAREHOUSING SHOW 2011 FROM APRIL 21-23 AT DELHI Indian warehousing segment has been attracting a slew of investments lately owing to the surge in Indian economy and trade prospects. To tap this growth potential, India Warehousing Show 2011 will be held from April 21-23 at India Expo Centre, Delhi. It is a premier warehousing, supply chain, logistics, materials handling and storage exhibition showcasing hundreds of products and services from across the supply chain. The show will provide visitors with a unique one-stop shop for everything required in the modern warehouse. Not only will there be materials handling equipment – from forklift trucks to automated logistics systems – but visitors will also discover innovative and cost-effective ideas in racking and shelving; storage solutions; health and safety systems; software; and palletising equipment; property recruitment and training services; 3PL; transport and distribution (including cold chain); flooring; packaging; handling system design; financial services; and warehousing. Sponsored by Meicbech, Mettler Toledo and Motorola, in association with Smart Logistics as the media partner, the event comes at an ideal time. With the industry growing at an incomparable pace, the focus is on delivering goods in an efficient and cost-effective manner. The show has over 100 exhibitors and is apt for even those who operate a small facility with a single forklift. The event shall also appeal to manufacturers looking to consolidate store room, or a retail operation with distribution or delivery issues. A concurrent conference on ‘Developing Effective Strategies to Build Profitability in Warehousing and Supply Chain Logistic Operations’, would give an insight into various other aspects of modern warehousing.
NORTHAMPTONSHIRE-BASED RCS LOGISTICS INVESTS £340,000 IN ITS UK AND INTERNATIONAL OPERATIONS
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MANULIFE ASSET MANAGEMENT ACQUIRES 5% STAKE IN BRAZILIAN LOGISTICS FIRM LLX LOGISTICA SCI SET TO BUY EIGHT LARGE VESSELS Shipping Corporation of India (SCI) is in the process of acquiring eight very large vessels to augment its capacity, besides buying second-hand vessels on offer at a low cost in the aftermath of the global economic crisis. The state-owned firm plans to acquire 110 vessels by 2020 to augment its fleet at an estimated cost of `27,668 crore. “SCI has already floated separate tenders for the acquisition of 2+2 very large crude carriers and four Kamsarmax Bulk Carriers. These tenders are in addition to the tenders floated for second hand/resale Supermax Bulk Carriers and container vessels,” says the government. The Parliamentary Standing Committee on Transport, chaired by Sitaram Yechury, has asked the state-owned PSU to plan its activities to maximise profits at a time when the impact of the global recession is diminishing. The panel noted that `2,921.37 crore has been provided for vessels on firm orders during the current fiscal, besides `1,064 crore for new projects to acquire vessels and invest in joint ventures. “The committee hopes that SCI would make all efforts to utilise the amount optimally and implement its programmes to acquire more vessels without further loss of time,” said the panel.
L O G I S T I C S
DB SCHENKER PHILIPPINES OPENS NEW FACILITY IN MANILA DB Schenker has opened a new central facility in Manila and the three units that had previously been located in the region have been relocated to a central complex in Sabrina Compound, Sucat/Paranaque City. The new facility provides an office space of 2,400 sq m and accomodates the teams for air and ocean freight, customs clearance, special projects and contract logistics. The new facility, which has around 450 employees enables orders to be processed faster and allows throughgoing supply chain solutions. Reiner Allgeier, MD, Schenker Philippines, said that the new facility will allow the company to deliver even more punctually than before and further improve the service quality. Thomas Lieb, Board Chairman said that Manila is a key hub in the global network operated by the company, particularly for customers in the consumer electronics sector. The company further informed that new building includes approx 1,000 sq m for cross-docking operations, and is adjacent to the 5,000 sqm open yard area dedicated to project logistics. The complex also includes 7 warehouses with 18,000 sq m of storage area and 8,500 pallet positions, where logistics services are provided to customers in healthcare, semiconductors & telecommunications.
INDICON LOGISTICS TO INVEST `500 CRORE IN NEW UNITS
COCHIN SHIPYARD ON AN EXPANSION MODE The public-sector Cochin Shipyard is proposing to expand its existing capacity through a shiplift system with an investment of `500 crore. The new system is likely to come up at the northern end of the CSL estate and would be 120 m long and able to accommodate ships up to 6,000 tonne, Commodore K Subramaniam, CMD, CSL, said. The project is likely to be taken up next year. The shipyard has two dry docks. One of the docks is being used for the construction of the indigenous aircraft carrier of the Indian Navy and the other is used for shipbuilding and ship repair. Once the shiplift system gets completed, it is likely to ease the congestion in the drydock. At present, the yard has orders for 34 ships consisting of 14 offshore platform vessels for domestic and international owners and 20 fast patrol vessels for the Coast Guard valued at `4,000 crore.
APRIL 2011 • SMART LOGISTICS • 9
NEWS, VIEWS & ANALYSIS L A T E S T
H A P P E N I N G S
T H E
W O R L D
DHAMRA PORT TO BE OPERATIONAL SOON The `3,200-crore Dhamra Port in Orissa, a 50:50 joint venture between Tata Steel and Larsen & Toubro (L&T), is ready and will start operations in April. Dhamra Port Company (DPCL) has so far invested `2,900-crore out of the total project cost of `3,239-crore and almost 100 per cent work on the project has been completed. “The port is now ready and it (Dhamra Port) will go operational in April this year,” Santosh Mohapatra, CEO, Dhamra Port Company. He said, “We have completed 100 per cent work of the port including the construction work for the 62-kilometre rail link from Dhamra to Bhadrak on the main Howrah-Chennai line.” Situated between Haldia and Paradip, the port at Dhamra will be the deepest in India with a draught of 18 metre, which can accommodate super cape-size vessels up to 1,80,000 dead weight tonne (DWT). DPCL has recently entered into a sister port relationship agreement with the US-based Port of Seattle. The pact aims at exchanging information on port users, technology transfer and sharing of best practices between the two ports. The port, which aims to serve industries in Jharkhand, Orissa and Chhattisgarh, would initially deal with bulk cargo such as coal, iron-ore, chromite, bauxite and steel.
UPS LAUNCHES NEW NEXT-DAY FREIGHT SERVICE FROM HONG KONG TO EUROPE
PACKERS MUST NOW PAY MORE FOR LOSS OF GOODS IN TRANSIT
UPS has launched four new direct flights from Hong Kong to Europe that offer next-day delivery coverage for both, packages and heavy freight from Hong Kong to Europe. With the addition of four new direct flights, the company will now offer 11 flights from Hong Kong to Europe each week, which gives companies in the region easier access and more options to conduct business with Europe. The new daily direct flights will link Hong Kong with Cologne, Germany, Monday to Thursday using B747-400 aircraft and will operate in addition to the seven flights that the company already offers each week between Hong Kong and Cologne via Dubai. The company said that the new service offers wide coverage across Europe, reaching 34 countries with non-dutiable small package and letters service, and 18 countries with dutiable small package service. With the UPS express freight service, shipments can be delivered in one day to 18 countries and 39 cities across Europe, including Paris, Milan, Prague, Frankfurt, Madrid, Barcelona and Copenhagen.
If goods transport agents (GTAs) lose high-value items during transit due to negligence or with an insidious intent to steal, they will not only be held responsible but also have to pick up the tab for the total loss. While the Centre issued a notification to tighten the noose on fly-by-night transport agents and logistics firms, it stipulated the suspension of registration for only one week if any GTA violates the norms. Incidentally, the draft rules had clearly proposed that a GTA’s registration should be suspended for 15 days for the first violation and 30 days for a second offence. And, a third violation would lead to a permanent revocation of the licence. The Road, Transport and Highways Ministry notified the rules after the Carriage By Road Act was passed by Parliament more than four years ago. The rule makes its mandatory for all transport and booking agents and logistics firms to get registered. The notification has also made it mandatory for GTAs to maintain their quarterly records and file regular returns.
OIL COMPANIES HIKE ATF PRICES BY 1.4 PER CENT
10 • SMART LOGISTICS • APRIL 2011
TNT EXPRESS MAKES SIGNIFICANT INVESTMENT BY ADDING BOEING 767 TO SERVE MIDDLE EAST
L O G I S T I C S
US FREIGHT TRANSPORTATION SERVICES INDEX ROSE 0.9% IN JANUARY The Freight Transportation Services Index (TSI) rose 0.9 per cent in January from a revised December level, rising for the second consecutive month, the US Department of Transportation’s Bureau of Transportation Statistics (BTS) reported recently. BTS, a part of the Research and Innovative Technology Administration, reported that this release includes a comprehensive, biannual revision that resulted in changes to monthly numbers released previously. The comprehensive revision produced upward revisions in monthly Freight TSI numbers for September through December 2010. The revised freight TSI rose 14.6 per cent over the last 21 months, starting in May 2009, after declining 16.8 per cent in the previous 16 months, beginning in January 2008. The index has increased in 16 of the last 21 months. In January 2011, the freight index returned to 108.1, the same level as in August 2008 when the index was early in the decline. The Freight TSI rose 6.4 per cent in 2010 based on revised numbers, compared to the 0.4 per cent annual increase reported in the February release. The 6.4 per cent rise was the largest annual increase in the Freight TSI since 2002.
INDIA, CHINA TO HELP BUILD ETHIOPIA RAIL NETWORK India and China will help build a railway network across Ethiopia that would significantly improve the East African nation’s transport system. India has pledged $300 million for the national rail network construction while China’s Export and Import Bank has inked a deal to finance 85 per cent of the cost of a light rail network in the capital city of Addis Ababa at $490 million. According to an initial estimation, the cost of the rail network across the country has been estimated at $6 billion. The rail network is part of the country’s Growth and Transformation Plan that sets a target of construction of a 2,395-km national rail track. The Addis Ababa track would be 36.5 km long and help in solving the ever-increasing transportation problems the city was facing, say officials.
NEWS, VIEWS & ANALYSIS L A T E S T
H A P P E N I N G S
RAILWAYS ADDS 700 KM OF NEW LINES IN 2010-11 ADANI TO INVEST `300 CRORE ON VIZAG COAL IMPORT TERMINAL After Gujarat and Goa, the Adani Group’s port development arm will now expand operations to the east coast of India, with an investment of over `300 crore to set up a 6.5 million tonne per annum (mtpa) coal import terminal at Visakhapatnam port in Andhra Pradesh. The Adani Group-promoted Mundra Port and Special Economic Zone (MPSEZL), India’s largest private multi-port operator and a subsidiary of Adani Enterprises, leading infrastructure conglomerate, has won a bid to develop a coal import terminal at Visakhapatnam, marking the entry of MPSEZL on the eastern coast, said a company spokesman. MPSEZL has selected Visakhapatnam Port Trust to develop the coal import terminal. The selection was made by a competitive bidding process to design, build, finance, operate and transfer Berth East Quay - 1, which will handle imported coal volumes of about 6.5 mtpa. The company plans to build and commission the terminal in 24 months. Visakhapatnam port is a strategic port for coal imports to feed local industries and power plants located in Andhra Pradesh, Orissa, Chhattisgarh and Eastern Maharashtra.
US RAIL FREIGHT TO INVEST RECORD $12 BILLION ON NETWORK IN 2011
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CONCOR TO MOVE VALLARPADAM CARGO TO CFS AT KOCHI To ease the problems faced by the trade industry in evacuating containers from the newly commissioned Vallarpadam Terminal, Container Corporation of India (Concor) is coming up with a new service to move cargo from the ICTT to Kochi port’s CFS at Willingdon Island by rail. The service will be connected from the ICTT at Vallarpadam to Edappally, and from there to Willingdon Island, where the port’s CFS is located. The officials at DP World said that the service will commence shortly as the parties are working on the movement plan with respective lines. Around 90 TEUs can be evacuated from the terminal in a single move, which is an additional way of evacuating boxes, and, thereby reducing congestion on roads. A decision to this effect was taken following the request from Kochi Port and DP World for the benefit of the trade in order to reduce logistical cost. The rates for moving containers will be fixed at `3,850 for TEUs and `6,000 for FEUs, the officials pointed out that the commencement of this service would be an additional benefit to trade for evacuation of containers, as it would help the trade to move the cargo faster to the southern part of Kerala from Willingdon Island. Earlier, there was no such provision to move cargo from Vallarpadam to Willingdon Island by rail and the trade had to depend on congested roads in the city, which resulted in high cost and time delay. Besides, the shortage of drivers for container trailers had also added to the woes of trailer operators in clearing the cargo.
L O G I S T I C S
INFRASTRUCTURE INDIA HOLDINGS TO ACQUIRE 6.35% IN AEGIS LOGISTICS FOR `68 CRORE AGILITY LAUNCHES CROSS BORDER TRUCKING SERVICES IN SOUTH EAST ASIA Agility, a global logistics provider, is expanding its South East Asian crossborder trucking operations as demand grows for road services to connect countries across the region and into China. The company’s integrated trucking network provides shippers with an option to truck directly to several major cities in South East Asia and China as well as direct connections to major airports and ports in the region. The company said that the service provides a timeand cost-effective alternative to air and sea freight. The new services offer new transport routes and enable the combination of land, air and sea for the transportation of raw materials and finished goods. Mike Gildea, CEO, Agility South East Asia said that customer demand for cross-border logistics in South East Asia has been growing year-afteryear as more manufacturers relocate to the region to take advantage of the increasing connectivity and lower labour and land costs. “Developing a cross-border service will create jobs in the region and help local economies grow,” said Gildea. The company has long established cross-border links between Vietnam and South West China and now the network is expanding in the rest of the country.
NEW RULES MAKE HIRING EASIER FOR MARITIME TRAINING SCHOOLS Maritime training institutes should applaud the recent move of the Directorate General of Shipping (DGS) to relax faculty qualification norms to address severe shortage. The institutes have been fighting with the DGS to relax faculty norms to make it easier for them to attract quality teachers. The DGS recently accepted this demand. According to the recommendation of the collegium, the DGS has waived the
teaching and sailing experience required for the approval of teachers of subjects in pre-sea, officer-level courses. It has been decided that the officer holding the Certificate of Competency as MEO Class-I or Master can teach the relevant marine subjects of pre-sea, officer-level courses. Similarly, no teaching experience is required for approval of the faculties teaching the non-marine subjects but the educational qualification requirement
has to be according to UGC or AICTE norms. While it is difficult to ascertain the faculties available, the DGS requires a ratio of 1:8 for practical and 1:15 for classrooms, said an industry source. There are around 120 maritime training institutes, but only about 20 of them are conducting long-term courses. There is a need for approximately 600 faculty members.
APRIL 2011 • SMART LOGISTICS • 11
PRICE TRENDS Road Freight Index Chart for March 2011
IRFI TREND FOR MARCH 2011: The RFI stood at 175 Points for the month of March 2011, which was same as in the month of February 2011 but it has registered an increase of 2 points in comparison to the same period last year.
ZONAL FREIGHT TRENDS Freight rates are increasing substantially overall due to movement of agricultural products from South & Western zones to all India. In the northern zone, there is a situation of insufficient return load due to which rates have decreased from north.
COMMERCIAL VEHICLES: TRENDS FOR MARCH (Y-o-Y)
The cumulative sales of commercial 171
vehicles segment registered growth at 166
29% in April – February 2011 as compared to the same period last year. Medium &
heavy commercial vehicles grew at 34% and light commercial vehicles grew at 24%.
FORECAST FOR APRIL 2011: 2005-06
The RFI in April 2010 over April 2009
Index trend for six years
had registered an increase of 2% and it is expected that volumes and freight rates will remain constant.
Indian Road Freight Index (IRFI), a service introduced by Transport Corporation of India (TCI), is an index of weighted average lorry freight rates across various routes, calculated based on the route density and the dynamic freight rates of routes across the country. Knowledge Partner: Transport Corporation of India (TCI); website: www.tcil.com; e-mail: email@example.com
12 • SMART LOGISTICS • APRIL 2011
SL LEADERSHIP CONSORTIUM PREVIEW
UNITED FOR THE CAUSE OF
Looking at the fragmented and isolated nature of Indian logistics, the need was felt by the industry to get united & collaborate, both, in terms of partnerships as well as sharing ideas. With an intent to bring together the entire logistics fraternity and provide a platform for industry players to discuss issues and share their views, experiences and expertise to derive at tangible solutions, Smart Logistics Leadership Series Consortium was formed. Tracking its journey from an idea to reality... SUDHIR MUDDANA PROBLEMS aplenty yet buzzing with promising prospects would best describe the current status of the Indian logistics industry. While the industry has been trying to do away with its unorganised nature and has been taking every step possible to match its global counterparts, there still lies a lacuna in sharing information, knowledge and expertise. With this as the guiding thought, Smart Logistics initiated the Leadership Summit that took place on October 22, 2010 where the Indian logistics industry witnessed the industry players joining hands of prospective partnership & alliance. This was the day when the industry pledged to work towards collaboration and surge ahead...the day when Smart Logistics Leadership Series witnessed the entire industry standing united to fructify collaboration. The notion of collaboration didn’t just stop with the Leadership Series. To fructify the outcomes of the summit into the tangible gains for the industry and to provide workable solutions for the issues faced by the industry, Smart Logistics formed the Leadership Series Consortium. The consortium is aimed at creating symbiotic partnerships and providing breakthrough strategies to garner benefits. The USP of this online portal lies in addressing the real problems existing in the industry and reaching a common consensus to harmonise the supply chain of tomorrow.
GOING LIVE! The intent was clear and the Consortium
was formed at the summit with industry veterans and the core team members (mentors) of this Consortium – Arif A Siddiqui, Director, Coign Consulting; Jasjit Sethi, CEO, TCI Supply Chain Solutions; Juzar Mustan, Founder & Director, Reciprocity; Lloyd Sanford, Founder & Director, Applied Logistics India and Head – SC Solutions, Attero; N Sukumar, Sr VP – Supply Chain, Reliance Industries; Suneel Aiyar, Associate Director – Consulting, Supply Chain, PwC – who took lead in this initiative. What was missing at that very point of time was the mode of connection/communication. With an understanding of the industry and its tech-savvy attitude, Smart Logistics gives the logistics industry a tool to create a persona that would be so powerful that the government would not dare neglect it, so proactive, that people would crave to know & follow it – the Consortium went live on March 15, 2011.
BENEFITS OF THE CONSORTIUM The Consortium has members from both, the user community as well as the logistics service provider. Keeping this in mind, the website has been designed in such a way that it gives industry players a chance to connect with the users as well as their service providers. The website consists of a discussion forum in which each and every Consortium member can post a query, which is open to be answered by the entire logistics industry. A major advantage of this is that every query will have multiple and varied views and opinions. In addition to the general
discussion topics, any member who has a question in mind that needs expert advice can have his query redressed by an expert having considerable experience in the industry. Along with the discussion forum, the website also has a forum – ‘Ask the Experts’ – which our members can use to ask our mentors specific queries and seek their expertise and advice. You can reach out to our mentors to get strategic solutions to your problems or share your ocean of knowledge with the community.
IT’S TIME TO GET CONNECTED With the Consortium going LIVE, we are all set to invigorate blood into the veins of this hugely unorganised and highly challenging industry. The Consortium has already registered 25 posts, 23 topics and a whooping 38 members. These numbers reflect the upbeat enthusiasm of the industry to share ideas and do whatever it takes to get the logistics industry to the pinnacle of success. Come & be a part of this initiative that aims at driving the supply chain movement in the country. Take a step forward and change the way the logistics industry works for the betterment of its fraternity. NOW is the time to ask questions, share expertise in high-profile discussions that help solve a multitude of challenges that the logistics and supply chain industry has been facing since long. Join us in our endeavour to make Smart Logistics Leadership Series Consortium the force behind the ‘SCM Movement’ in India. Be a part of the buzz on http://www. leadershipseries.in/forum.
APRIL 2011 • SMART LOGISTICS • 13
TECH TRACK IT TRENDS IN LOGISTICS
PeopleSoft Mobile Inventory Management LOTS to provide to improve inventory accuracy end-to-end ORACLE has recently announced its Manager, PeopleSoft Enterprise, Oracle. visibility to PeopleSoft Mobile Inventory Management The PeopleSoft Mobile Inventory – a new application in Oracle’s PeopleSoft Management application leverages the consumers Enterprise Supply Chain Management suite. flexible environment delivered by Oracle This application helps improve inventory accuracy and labour productivity by automating mobile inventory transactions for users of Microsoft Windows-enabled mobile devices and handheld scanners. It enables users to access information on inventory availability, process receipts and issues as well as carry out physical inventory counts without changing station or work location. It helps streamline inventory management processes and increase user mobility and convenience. By directly integrating this application with software like PeopleSoft Enterprise Inventory and Fulfillment Management, companies can further increase efficiencies and inventory accuracy in real-time and at the point of use. “By integrating mobile devices, organisations can improve data accuracy, increase mobility and streamline inventory management processes,” said Paco Aubrejuan, Group VP and General
Application Development Framework (ADF) Mobile, a component of Oracle Fusion Middleware 11g, to accelerate data entry on mobile devices by allowing the user interface to be tailored to each user and specific task. The new application helps organisations optimise inventory transactions by improving inventory accuracy and worker productivity, as well as supporting the rapidly changing mobile technology. By leveraging the PeopleSoft security setup, the new mobile application can improve data security on mobile devices by authenticating a user’s ID and password directly against that in the existing PeopleSoft system. Customers can now consolidate their internal inventory management applications onto one system, thereby eliminating additional technology vendors and improving return on investment.
Printer/encoder designed for high-volume, item-level tagging A new RXi4 RFID printer/encoder designed for high-volume, item-level tagging from supply chain to retail floor has recently been announced by Zebra Technologies Europe. The new R110Xi4 printer/encoder aims to streamline workflow operations and supply chain management applications, such as inventory management across retail, manufacturing, healthcare and distribution channels. The RXi4 features Zebra’s patentpending Adaptive Encoding technology, which can detect the RFID inlay position within the label and automatically configure the printer/encoder. This enables companies to use media converted for other brands’ printer/encoders with minimal
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printer reconfiguration, thus ensuring tag accuracy and saving time & money. Other features of the RXi4 include on-pitch encoding for lower cost per label and faster printer/encoder throughput, along with global certifications for multinational supply chain management. A recent survey from VDC Research projects reported that in 2011, the market for RFID printer/encoders is expected to grow by nearly 20 per cent in Europe, Middle East and Africa. This growth can be attributed to an increased demand from sectors like retail, manufacturing, healthcare and other industries for item-level tracking to better monitor inventory levels and track assets.
A bespoke web-based Live Order Tracking System (LOTS) has been developed internally and is expected to revolutionise the way DHL staff and its customers view order information securely over the Internet. Andy Lightfoot, Regional Transport Manager, DHL Supply Chain, said, “We are pleased to launch this exciting IT innovation, which will bring complete clarity of delivery status to our customers without the need for them to contact us directly. LOTS provides an incredible level of ‘real-time’ detail about an order by consolidating event information from multiple systems.” In a nutshell, this means that both DHL and the customer can see what is happening with every product stock keeping unit (SKU), at any stage of the logistics process, from order receipt, planning, picking, loading, dispatch and delivery, to confirmed receipt. He explained, “As a result, our Customer Service Account Management teams and load planners can make more effective consignment decisions for customers throughout the day. It also allows for better load planning and helps reduce empty running miles. It has already made a significant impact on operational efficiencies in the time it has saved on phone calls, thanks to the improved visibility of the fleet.” Adding to this, Allan Butterworth, VP IT, Consumer Sector, DHL Supply Chain, said, “We have taken into account a large amount of feedback from our customers and invested significantly in leading technologies to ensure that this system is at the cutting edge of logistics IT.” The development and implementation of this project took 12 months, and the developers are confident that it would significantly improve their distribution service and boost the efficiency of not only their customers’ supply chain, but also of their customers’ customers.
Tracking and monitoring with Apprion releases asset and EPC Gen2 RFID sensory tag personnel tracking tags IDS Microchip, an innovative semiconductor company focussed on RFID and sensor solutions has begun shipping first production parts of its new EPC Gen2-compliant RFID sensory tag chip – SL900A. Based on popular EPC Gen2 standard for supply chain applications, the new single chip enables a range of new applications like supply and cold chain with dynamic shelflife monitoring, tracking history & condition of constructions, controlling and recording of medication, process control in factory automation and remote metering & supervision. This single chip can automatically track, monitor, time-stamp and record sensory information, which include temperature, pressure, humidity & vibration. It can also be configured to automatically execute an alarm or notification when critical conditions occur. This event-driven capability enables various applications in the cold chain, pharmaceutical and food & health industries, as well as applications in the construction industry. It makes possible to determine the condition of materials used, in an economical, non-invasive and practical way.
New technology for better warehouse management LANDIS Company, a turnkey third-party order fulfillment services provider based in Reading, Pennsylvania, has rolled out a brand new system for warehouse management aimed at providing more visibility and processing capabilities to both, the company and its clients. Leveraging the advanced CoreWarehouse Management System (WMS), Landis can seamlessly handle the complexities of its customer’s programmes with real-time tracking of all day-to-day operations. “Core’s web-enabled processing gives realtime insight into all warehouse operations and inventory availability, allowing us to provide instantaneous information on a programme, including inventory levels, order history, transactions, shipping status and more,” explained Ken Kowal, Director, New Business Development, Landis. Landis’ WMS also allows clients to have 24/7 access to their accounts, 365 days a year, from any location via a browser, WAP device or Palm device. The event- and activity-triggered reports interface is easy to retrieve and allows customers to view their most up-to-date order status, inventory levels, etc. “With web-enabled communications, we can keep the exchange of information open with clients, while further streamlining our programmes to run at maximum efficiency,” said Robert Tompkins, President & CEO, Landis.
APPRION, the leader in industrial wireless application networks, has recently released ION Location Applications – IONite Personnel Tag and IONite Asset Tag. ION Location enables a suite of applications to address security, safety & environmental regulations and improves overall safety, productivity, asset utilisation and performance. It supports leading real-time locating technology systems, including Wi-Fi, passive or active RFID, UWB and satellite in a single, comprehensive network. The location information from these systems is displayed on a single dashboard with integrated CAD drawings, maps and satellite photographs of a site to visually navigate the entire facility from a desktop, and gives a highly accurate spatial and visual perspective. “Apprion’s location solution addresses the issues that have compromised the value of typical solutions,” said Harry Forbes, Analyst, ARC Advisory Group. “While location tracking seems attractive in process manufacturing, the products for real-time location tracking have met with limited success because it requires multiple tagging technologies. In these plants, the physical environment is complex and network infrastructure sparse. Apprion recognises that a technological solution that suits in a warehouse or distribution centre cannot just be scaled up to meet the needs of these plants,” he added. ION Location provides a unified view for simplicity,
organisation and visibility into all information, activities and details of a facility’s complex network systems. This gives the workforce one record with many views for better accountability, less complexity and more impactful information. It has following key features: • Asset Tracking: IONite Asset Tags are attached to mobile assets and tracked with the ION Location software to provide real-time location and status of tagged facility assets for better asset utilisation. It also provides temperature data. • Personnel Tracking: IONite Personnel Tag tracks and monitors employees and contractors via a map-based graphical interface that is integrated with satellite images of the facility. • Site Access Control: ION Location uses a unique user ID stored on the IONite Personnel Tag to track all personnel entering and exiting sensitive areas, vehicle gates or main entry and exit points. IONite Asset Tag and Personnel Tag are multi-radio RTLS tags that combine passive and active technologies to provide accurate location information in the ION Location Application. These tags are engineered to exceed industrial regulatory and unique environmental requirements and include flexible industry-appropriate power source options such as long life, rechargeable battery and line power.
APRIL 2011 • SMART LOGISTICS • 17
FUTURE VALUE CHAIN
ON A LIGHTER VEIN
Illustration Courtesy: CAPGEMINI
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APRIL 2011 • SMART LOGISTICS • 19
FUTURE VALUE CHAIN
Illustration By Sanjay Dalvi
BUILDING STRATEGIES FOR THE NEW DECADE What do you want to achieve in 2020? Are you focussed on making your business more sustainable, optimising a new shared supply chain, engaging with technology-enabled consumers or helping consumers improve their health and well-being? Do you expect to achieve all this by yourself, or will you look for collaboration? Here’s decoding Future Value Chain 2020 to help you find the right solutions for your problems towards creating a seamless supply chain network… MUCH of the success in the industry has been based on concepts and ideas developed in the 1990s or even earlier. But the new century brought about changes at a phenomenal pace – change that would fundamentally impact our industry and trigger the need for new collaborative business models for our industry. The explosion of consumer communication and technology – from social networking to mobile Internet – is perhaps the most visible change. The speed of change is accelerating and organisations and industries must
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respond faster. But how do we ensure that change happens for us instead of to us? And that decisions are made with full information? The Future Value Chain approach of looking beyond the ordinary and identifying unexpected consequences of the root trends is instrumental to the development of industry strategies and tactics. The Future Value Chain framework addresses these questions by identifying and analysing trends that will have the greatest impact on the industry in the coming 10 years. Let us have a closer look at the 12 identified root trends:
Over half of humanity lives in cities, and by 2050, roughly 70 per cent of the world’s population will live in urban centres. The number of cities with populations higher than eight million is expected to double by 2015. Among the consequences of urbanisation for consumer goods and retail industry will be a shift to smaller-footprint stores with no room for unproductive inventory. The industry will also face significant supply & logistical challenges and new distribution infrastructure will be required. The industry
has an opportunity to work with cities that will massively invest in modernising and expanding their infrastructures.
The ageing of societies will have unexpected economic and political consequences. The view of an older population as being relatively poor does not hold up. Older consumers have, in fact, substantial economic power and devote a greater proportion of their total expenditure to necessities such as food & drink, housing, fuel and power than younger households. This scenario notwithstanding, most of the youthful developing countries may see a growth boost as working-age populations increase. But, population ageing will likely depress growth rates in advanced economies.
INCREASING SPREAD OF WEALTH
The middle class, particularly in developing regions, is rapidly expanding, with the population in low- and middleincome countries with purchasing power parity (PPP) expected to triple by 2030. In 2000, developing countries were home to 56 per cent of the global middle class; by 2030, this figure is expected to reach 93 per cent. The rise in the developing world’s middle class will lead to an increase in consumption, which may have implications on the availability and price of commodities like oil and foodstuff. It may also result in protectionist policies by countries with a middle class that feels threatened by growth abroad. But the new middle class will also be a source of growth for manufacturers and retailers.
INCREASED IMPACT OF CONSUMER
Shoppers will continue to become more empowered through the use of new communication technologies. The growth of mobile features and device convergence such as wallet phones will drive mobile commerce. By 2013, more than two billion mobile users globally will have made a purchase via their handsets. Also, store visits will be enhanced by dynamic digital displays and personalisation through a hand-held device or the customer’s own phone. The use of these new tools will not only impact consumers’ own behaviour but also influence the buying behaviour of other consumers as the use of social media continues to spread.
INCREASE IN CONSUMER SERVICE DEMANDS
The exponential growth and adoption of consumer technologies will drive new levels of service demands by shoppers and consumers. We will see the rise of a stronger web-based service economy, giving consumers greater choice of shopping options and improved transparency. In this environment, consumers will expect and demand services 24x7. The most prominent occurrence of this trend is shown by the expected impact of sales via the Internet: over the next decade, the online channel will grow to 25-30 per cent of the total retail sales, up from the current 4-15 per cent. This trend will also define new service models, offered via the Internet, that move beyond selling individual products and bring different ‘solutions’ to consumers and shoppers.
INCREASED IMPORTANCE OF HEALTH AND WELL-BEING
Health, safety and well-being are increasingly important for consumers as well as for manufacturers and retailers. And these will have significant ramifications in the future, as shoppers pay greater attention to health products and healthier lifestyles. Emerging consumer segments like Lifestyles of Health and Sustainability (LOHAS) will help drive the safety and health market in the next decade. In the US, for example, the LOHAS market is estimated to comprise 19 per cent of the adult population, representing a market of 41 million consumers. Sales from LOHAS consumers are expected to nearly quadruple in the coming five years.
GROWING CONSUMER CONCERN FOR SUSTAINABILITY
Consumer awareness and carbon-footprint regulations are expected to significantly increase, as consumers look to governments and companies to play a major role in combating climate change. According to the Natural Marketing Institute (NMI), the green marketplace in the US is predicted to grow from $420 billion in 2010 to $845 billion by 2015. Food & beverage and personal & household goods sectors are particularly exposed to carbon-emissions costs and future regulation risks due to their relatively high levels of emissions compared with revenues. Waste is also becoming a
key focus of sustainability discussions. The food industry, in particular, witnesses major waste losses due to inefficient processes across the value chain.
SHIFTING OF ECONOMIC POWER
SCARCITY OF NATURAL RESOURCES
In the next decade, new economic powers like China and India will continue to rise. China’s share of total world GDP in terms of PPP has increased from 7.1 per cent in 2000 to 13.3 per cent in 2010 and is expected to reach 20.7 per cent by 2020. China will overtake the US to become the world’s largest economy as early as 2017. And by 2012, India will have overtaken Japan to become the world’s third largest economy, with GDP accounting for 5.8 per cent of the world total in PPP terms. As this power shift occurs, a volatile global economy will remain the norm for the coming decade. Trade areas will evolve and a new generation of globally competitive companies from developing markets will emerge, which will help solidify their position in the global marketplace: Brazil in agribusiness & offshore energy exploration; Russia in energy and metals; India in IT services, pharmaceuticals & auto parts; and China in steel, home appliances and telecommunications equipment.
By 2030, the world’s population will reach 8.3 billion, with the demand for food and energy increasing by 50 per cent and for fresh water by 30 per cent. This growth will put more pressure on natural resources like energy, water and food, with demand projected to outstrip easily available supplies over the next decade, resulting in increasing production costs. Going forward, the industry needs to collaborate to address sustainability in business practices, particularly as consumers consider sustainability aspects in their buying decisions.
INCREASE IN REGULATORY PRESSURE
Over the next decade, regulatory pressure is expected to increase, particularly for hot-button areas like environment and sustainability. The recent global economic meltdown serves as a timely reminder of the inter-connected nature of global trade today. Food safety will be a key focus for regulatory action. For example, China, Japan and Korea have signed a food safety
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Future value chain 2020, continued
CASE STUDY Focus on sustainable supply chains in 2020 The Australia Future Value Chain workshop focussed on developing a sustainable supply chain, with a goal to shape the overall sustainability agenda. Here are four path-breaking initiatives to make it work: 1 Export/Import Model for Unitised and Bulk Cargo: Two distinct types of import and export tasks are important to Australia – the unitised and bulk freight movements. The major change expected in 2020 will be the improved use of IT, enabling not just the large players, but all players involved in import and export freight movements. To successfully adopt and implement the proposed model, the core working group recommended: • Land-use planning • A Virtual Shared Logistics Management System (VSLMS) with open access based on standards and protocols • A national freight strategy, which includes all relevant nodes • Greater partnership between the public and private sectors. 2 Urban, Inter-Urban, Regional and Import Chain Model: The team focussed on developing a cohesive future-state model for urban, inter-urban and regional sustainable supply chains by 2020. Creating a step change towards supply chain sustainability will require a set of guiding principles for movement of freight in the urban domain. These principles are that large volumes require ‘conveyor-like’ transport lanes; medium volumes require ‘tram-like’ mechanisms; and small volumes need ‘semi-like’ movements. The team recommended raising the profile of freight with policymakers at all levels and ensuring that it is firmly based on the agenda. To assure the viability of the future-state model, the group recommended that it be placed in the context of a longer-term vision, beyond 2020. 3 Rural and Remote Model: The team developed a cohesive future-state model for rural and remote sustainable supply chains by 2020. They began examining the current situation for rural & remote areas and decided that due to the nature of this area of supply chains, the status quo should remain and the future-state model need not be radically different from the current state. But, they identified areas for improvement such as enhanced collaboration to provide open access and economic benefits to the community, with regard to deep sea ports and bulk commodity movement; consolidation of local logistics providers and resource sharing to enhance rural & remote supply chains; and improved visibility of information regarding supply and demand to enable the ability to consolidate and smooth demand to ensure sustainable distribution. The team recommended: • Greater collaboration • Greater investment where appropriate by government • Private enterprise and public/private partnerships • Consolidation of and better access to data. 4 Communication: The group confirmed that the current supply chain trends and regulations are unsustainable and identified a strategy to highlight issues and offer solutions to government, industry and the community. The team developed key messages around this platform for change in order to ensure that the future generation’s standard of living does not decline as a result of reduced resources and housing affordability, increased congestion, increased costs as well as urban tension from population growth. They noted that these factors, if left unaddressed, will result in a decline in productivity and international competitiveness. With these key initiatives, a sustainable supply chain has the potential to create economic benefits for the enterprise such as a 40 per cent reduction in pallet costs and 20 per cent reduction in energy costs. The way to achieve those benefits is through the creation of collaborative frameworks to enable business to work together.
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pact that enables the three nations to notify each other immediately if a food safety problem surfaces and to clarify the process of investigation.
RAPID ADOPTION OF SUPPLY CHAIN TECHNOLOGY CAPABILITIES In the coming decade, improved collaboration together with new supply chain/logistics technologies and information transparency will enable a more synchronised value chain with greater visibility and traceability. Already 73 per cent of fast moving consumer goods companies say that they have implemented or improved their logistics related technology tools or enablers. Visibility will be enhanced by suppliers that have access to better demand signals, enabling them to efficiently use their capacity and other resources. Communication and high-quality data sharing will be the most critical factor in successful collaboration. EDI, GDS and RFID will be key enablers of this supply chain transparency in the future.
IMPACT OF NEXT-GENERATION INFORMATION TECHNOLOGIES Information technology will no longer be just an indispensable support function, but an expansion of the organisation’s intelligence, a universal connector, the way to become adaptive. With executives, employees, partners, shoppers and consumers experiencing IT in a new way, with business making technology its own, there will be a new way to deal, jointly, with business and technology in the consumer goods industry. New waves of business technology solutions will enable manufacturers and retailers to quickly and dynamically simulate, describe, model, execute and manage business processes.
OBJECTIVES: WHAT NEEDS TO BE ACHIEVED The overall impact of all these root trends is significant, and will require a fundamental change in the way consumer products companies and retailers run their businesses and serve consumers and shoppers. Things not only need to be done differently, they also need to be done collaboratively. Working together makes it possible to:
Future value chain 2020, continued
Make Business More Sustainable: From Niche To Norm The urgency to achieve a more sustainable business is driven by a number of trends. The continued growth of economies like China, India and Brazil will put a further strain on the world’s natural resources – food, energy, water. The predicted scarcity of some of these critical resources will increasingly be top-of-mind topics for media attention and societal discussions. People will be more aware of the impact of their behaviour and cautious about the choices they make. In this environment, companies need to take responsibility, and if they do not, consumers will force them to do so. Sustainability must be viewed holistically, with a lifecycle approach that includes consumer use. This means that influencing consumer behaviour will be the biggest challenge as well as opportunity for the industry to make a difference. Collaborate Differently, Compete Differently There are clear trends that drive the need to optimise and share supply chains. Increasing urbanisation, which leads to strict regulations by city governments, requires new collaborative formats for city distribution. Consumer awareness about sustainability demands a more CO2-friendly supply of products and services. Increased adoption of consumer technologies, the ageing population and growing urbanisation will significantly change shopping behaviour and result in, for example, a strong growth in home shopping. This will trigger new mechanisms for home delivery and neighbourhood pick-up. The adoption of supply chain technologies provides further transparency and visibility. Advancements in IT will enable new ways of collaboration and information sharing among all partners in the value chain. New business models will focus on ‘collaborating to compete’ as brand independent and ‘smart’ supply chains emerge where information (forecast, inventory data) and assets (technologies, facilities and fleets) are shared across the value chain. Engage With Tech-enabled Consumers The urgency to engage differently with technology-enabled consumers originates from the enormous increase in consumer technology adoption. Consumers seamlessly integrate the use of all kinds of technologies in their lives and their buying behaviour – at any time or location. Shoppers will become even more informed and opinionated about the products and
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services they want and use. They will take greater control over their own lives and be more empowered towards industries that serve them. This has set the stage for the next level of consumer service demands. A similar development is taking place regarding business technologies, enabling companies to seamlessly and directly connect their new IT platforms with shoppers and consumers. Companies will have the opportunity to drive greater value by switching from ‘talking to’ towards ‘engaging with’ consumers and shoppers. The shopper and consumer will be in the driver’s seat, and the challenge for companies will be to maintain a true two-way dialogue with consumers and shoppers. Focus On Quality Of Life Among the trends directly impacting this objective are the overall increased importance placed on health and well-being by societies and consumers as well as the ageing population. Consumers increasingly demand convenience and no loss of quality of life. There is strong pressure on the industry to find new ways to inform, educate and engage consumers, governments and other stakeholders. Health and well-being will increasingly become a key focus area for regulatory actions by governmental bodies. For example, food safety will further drive the need for greater transparency in the supply chain, and thus increase adoption of new supply chain technologies. By taking voluntary and responsible action, the industry may have an opportunity to forestall safety and health regulations. Achieving this objective will require full industry collaboration and focus on issues such as product safety as well as providing healthier choices.
OPTIMISE A SHARED SUPPLY CHAIN Keeping all these objectives in mind, a new integrated supply chain model should take into account sustainability parameters such as CO2 emission reduction, lower energy consumption, better traceability and reduced traffic congestion, as well as traditional measures like on-shelf availability, cost reduction and financial performance. The issue of a shared supply chain is being addressed with company initiatives that include shared transport and shared data to standardise business processes, drive efficiency and enable faster innovation. Examples include: • Danone Dairy is working with
Carrefour in France to leverage supply-driven shopper insights based on near real-time transaction and inventory data at store level. This enables optimisation of shelf availability and improves the effectiveness of innovations and promotions due to real-time insights. • Colgate-Palmolive and other companies are using Global Data Synchronisation (GDS) as foundation for trading partner collaboration. The use of GDS has provided benefits, including improved data quality, affecting efficiency of all processes; standardisation of business processes; one-to-many – data to anyone, anywhere; reduced trade partner set-up time; increased speed to market for new products; customer data integration and improved global spend analysis. • United Biscuits and Nestlé share transport, which allows them to generate significant environmental and cost savings. The companies have created roundtrips that are more efficient and avoid empty truck movements. • Mars Netherlands, working with Capgemini and logistics provider Kuehne + Nagel, has implemented a green order sustainable logistics initiative. This initiative measures and visualises the impact of order placement behaviour on the environment for all partners in the logistics chain.
NEED FOR COLLABORATION The project and the wider Future Value Chain initiative will continue to be a topic high on the industry agenda throughout 2011. But what conclusions can be drawn from the project? There is undoubtedly a need to increase collaboration and drive implementation; also, the urgency to act has significantly increased. Companies across the industry need to challenge themselves on how prepared they are for 2020. They need to develop strategies and tactical plans that can respond to the external shopper, consumer and societal trends. But does this mean that the industry is not making progress? No! The industry is making progress. But a lot more needs to be done and at a faster pace, and this comprises the key call to action – act together, act now, act fast! The article is an excerpt from the whitepaper, Future Value Chain 2020 by Capgemini.
SUPPLY CHAIN LOOPHOLES STRATEGISTS SPEAK
BRIDGING THE NEED-GAPS Logistics plays a crucial role in ensuring that a supply chain operates efﬁciently and generates the highest level of customer satisfaction at the lowest possible cost. This makes it all the more important to ensure that all the loopholes affecting the movement along the supply chain are eliminated. Constructive efforts towards improving the logistics scenario will boost the sector’s capability of understanding its true potential. • Infrastructure: Poor infrastructure, issues like ‘no entry’ timings at peak hours of delivery and pick-up in metro cities, road congestion, inadequate highway infrastructure, limited space at airports, lack of parking bays at important airports • Regulatory: Cumbersome regulatory requirements of ST/ Octroi/Customs • Price hike: Higher costs due to high ATF, rise in petrol/fuel costs • Policies: Government policies, lack of understanding on the government’s part about the role played by logistics in order to give it an industry status.
Anil Khanna is the MD of Blue Dart Express, South Asia’s premier Express Air and Integrated Transportation, Distribution & Logistics Company and part of the Deutsche Post DHL Group. He has been with Blue Dart for over 18 years, with an overall experience of 32 years across diverse industries. He took over as MD of Blue Dart in 2007. Khanna is a graduate from St. Stephen’s College, Delhi and holds an MBA Degree in Marketing and Finance from UBS, Chandigarh.
THE goal of Supply Chain Management (SCM) is to get a company’s products from the concept phase to market in order to create a fast, efficient and low-cost network of business relationships. However, for any business venture to survive and grow, it is imperative that the end customers receive an uninterrupted flow of goods & services. But to ensure that this flow is free from loopholes, logistics management is crucial. SCM loopholes can be classified into internal and external. The internal problems include supplier-related issues, location of stores, production facilities, warehouse maintenance, customer delivery, etc. To overcome these shortcomings, a company generally outsources its SCM to a logistics expert who will help plan, implement and control the efficient flow of goods, services and related information. However, there are some external factors that adversely affect the efficiency of SCM. These include: • Unforeseen calamities: Natural disasters or man made problems
Express industry remains crucial to globalisation, which coupled with trade liberalisation, is the driving force of economic growth worldwide. In an increasingly global community and marketplace, air express plays an increasingly prominent role. It is imperative in the transport and logistics value chain and has been instrumental in radically transforming the world trade scenario. Quality is a necessary and intrinsic part of the air express service in order to deliver a strong value proposition. Service excellence, coupled with cost-efficiency, would stimulate the industry and expand business for all stakeholders – airlines, airports, service providers and customers. Air express typically operates within a very short time-window, processing large volumes at high speed with the support of technology to ensure reliability through the chain. Control is essential to ensure the delivery of quality. Factors that would assist the air express industry include: • Facilities at airports with airside and city side access allowing simultaneous docking of multiple vehicles for speedy loading/ unloading • Parking bays for aircraft at close proximity to operation facilities in order to enable rapid transfer/loading of shipments • Implementation of the proposed uniform Goods & Services Tax regime. Though the problems are many, the scenario is fast improving with an enthusiastic upswing in infrastructure. The Golden Quadrilateral Project is a good start, along with the East-West and NorthSouth corridors. This will enable a significant increase in inbound and outbound cargo movement. There are also plans to develop world-class airports and seaports. All these and some more constructive efforts in this direction will see the transformation required, providing the much needed support to this sector in order to fully realise its potential.
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STRATEGISTS SPEAK RISK MANAGEMENT
UNCERTAINTIES Supply chains play an important role in terms of fostering the growth prospects of a sector. Any disruptions in the same can not only reduce a company’s revenue but also threaten its production and distribution. Unfortunately, no supply chain can totally eliminate the possibility of a risk from occurring. Controlling the intensity of damage that this risk can cause will depend on the manager’s ability to identify and prepare for new risks. sectors such as energy, automobile, pharmaceutical, aerospace, electronics, computer, food, apparel, IT, logistics and retail. In global manufacturing or service networks, components may be sourced from several countries, assembled in yet another country and distributed to customers all over the world. Globalisation of value chains is a new organisational method in business practice, and an innovation in its own right. A new and powerful industrial structure has taken roots from vertically integrated structures to network structures. Production and trade are now handled by extensive global supply chains, where components and subassemblies are traded several times before the final good is assembled and produced. As per the statistics, 70 per cent of the trade deals with goods, and the rest with services.
Prof N Viswanadham is Executive Director, The Centre for Global Logistics and Manufacturing Strategies (GLAMS), Indian School of Business (ISB). Viswanadham has held several prestigious positions before joining ISB, such as Deputy Executive Director of The Logistics Institute-Asia Pacific and Professor in Department of Mechanical and Production Engineering, National University of Singapore during 19982005, to name a few. He has contributed significantly to the area of automation, and in particular, supply chain automation. His current research interests include logistics and global manufacturing & service networks. He has developed an ecosystem framework for analysis and design of integrated manufacturing and service supply chain networks.
AN integrated supply or service chain network is a group of independent companies consisting of contract manufacturers, third party logistics companies, accounting firms, consultants, research organisations and several others. These are often located in different countries, forming a strategic alliance and have the common goal of designing, manufacturing and delivering quality products to customer groups faster than other alliance groups and vertically integrated firms. Such networks are common in
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No supply chain strategy will eliminate risk, nor should it do, as the cost would be too high. The managers can, and should, excel in identifying, quantifying and preparing for new realities of risk. The organisation or individual should make provisions to handle possible consequences. Determining whether greater resilience is worth the extra cost is part of the new calculus. Most companies are proud of their supply chains. They have worked hard to reduce costs from the mechanisms and processes by which they could get components and inputs to the right places at the right time. They have achieved this by implementing techniques such as lean production, just-in-time manufacturing, single-source suppliers, efficient logistics & trade facilitation and global outsourcing from low-cost countries. A number of countries have created independent industrial clusters and loosely coupled companies, which offer advantages like efficiency and flexibility. Companies in clusters can tap the vast pool of employees, thereby reducing their search and transaction costs. Logistics networks and Internet have made efficient and secure transfer of goods, information and funds across continents possible. Globalisation and outsourcing have improved the connectivity between people, companies and countries.
CHALLENGES FACING GLOBAL SUPPLY CHAIN NETWORKS
The instruments that were created to make the supply chain more efficient and lean can also become sources of risk that can destroy it. Risk can emanate from several sources, including the supply chain and its partners. It is important to consider the risk that arises from the entire ecosystem rather than just the supply chain. The four distinct risk sources in manufacturing and service supply chain networks include: • Products and supply chains • Institutions – governmental and social • Resources including human, natural, financial and industrial clusters
Supply Chain Ecosystem
• Delivery service infrastructure Businesses are embedded in an institutional setting. Institutions such as constitutions, laws, contracts and regulations like labour laws, as also import & export restrictions, affect the performance of the supply chain. Also important are informal institutions like non-Governmental Organisations (NGOs), social activists, farmer’s unions, trade associations (eg. FICCI, CII, etc.) that wield political clout. The social and government institutions of countries through which the supply chain crosses, the direct and indirect barriers of trade, eg. protectionism, sourcing from local companies, raising tariffs, lack of laws to protect intellectual property, corruption, etc. can also pose severe financial losses.
FACTORS AFFECTING THE SUPPLY CHAIN The resources considered here are natural, human, financial and industry resources. In the human resources arena, there are skills shortages and employee attrition, communicable diseases affecting the number of effective working days, strikes that lead to stoppage of production, etc. Input material shortages (eg. grains, fruits, vegetables, livestock), quality problems due to diseases (eg. mad cow disease, chicken flu) and price fluctuations (eg. oil prices, foreign currency fluctuations) impact the efficiency of the supply chain. Failure of equipment, power or water resources can result in unavailability of plants, warehouses and office buildings. Delay or unavailability of either inbound or outbound transportation to move goods due to carrier breakdown
ECOSYSTEM FRAMEWORK FOR RISK MANAGEMENT
Institutions Delivery Services Infrastructure
The global supply chain network – a popular business model in the last two decades – is now being challenged on two grounds. First, global supply chains are fragile & risky and may have been a factor that caused the 2008-09 synchronous trade collapse. Second, uncertainty of oil prices, rising costs of human and other resources in lowcost countries as well as environmental concerns in the transport of raw materials and other goods across the globe may counteract the low-cost production advantages. Connectivity has made individuals and organisations accessible over distance. On the negative side, connectivity has multiplied the channels through which accidents, diseases or malevolent actions can propagate. Natural disasters in one part of the planet can have substantial economic and financial impacts on other parts. Epidemics spread rapidly due to international travel, trade and tourism. Damage caused by an accident is higher for a concentrated group rather than separate owners in several locations. Last but not the least, there are no appropriate governing structures in place for monitoring and controlling the globally dispersed manufacturing and service networks. Managing accountability for safety and performance of products and processes in a long, global supply chain is a difficult challenge.
or weather problems can cause the supply-demand matching problem. Failure of information and communication infrastructure due to line, computer hardware or software failures or virus attacks, will lead to the inability to coordinate operations and execute transactions. While the physical supply chain handles the movement of documents data & physical goods, the financial supply chain handles movement of documents data & money. Thus, any credit squeeze by financial institutions will affect the supply chain. It is easy to analyse how above factors in the supply chain ecosystem can ultimately affect its performance. Managing long networks accountability is a big challenge.
GLOBAL RISK RESPONSE STRATEGIES The design of resilient supply chains is an important topic, which must focus on specific verticals. Strategies for a government, corporation or individual to reduce overall risk exposure include: • Avoid risk whenever possible • Mitigate risk directly by proving flexibility to reduce the impact or likelihood of risk at source (eg. dual sourcing) • Adapt to risk by preparing for its occurrence (eg. earthquake-resistant building construction, quick evacuation in case of floods) • Transfer the risk to a third party, such as an insurer, or through more sophisticated hedging strategies. No supply chain strategy will eliminate risk, nor should it do, as the cost would be too high. The managers can, and should, excel in identifying, quantifying and preparing for new realities of risk. The organisation or individual should make provisions to handle possible consequences. Determining whether greater resilience is worth the extra cost is part of the new calculus. Disclaimer: No content from this article in part or whole can be republished without the prior consent of Professor N Viswanadham.
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KEY SUPPLY CHAIN ENABLERS
COLLABORATING TO EXCEL Approaching the supply chain as part of a company’s core competency is a key marker of supply chain excellence. But how can average companies begin to pursue supply chain excellence? If companies wish to optimise efﬁciency, they need to shun their traditional mindset and adopt a suitable operating procedure. challenged them to provide value-added services. They were just performing the tasks stipulated by the customer without any value addition. This is why a change in mindset is the need of the hour. So, how do we ensure that this landscape changes? It will only change when demand quality changes. If the demand quality changes, then people are pushed towards opting for innovative and new ways for moving goods & services. Once that happens, every customer will be ready to pay the premium for the valueadded service, which probably nobody else can offer. It will reiterate the fact that quality and innovation come at a price.
THE TYPICAL USER-PROVIDER ENIGMA
Arif Siddiqui is Founder of Coign Consulting, an advisory firm for logistics & supply chain business management consulting & infrastructure (warehouse) design. A management post graduate, Arif has over 23 years of hands-on experience in sales, operations & management, of which he spent 18 years in the logistics industry. He has to his credit several successful contract logistics solutions & operations. He is also a faculty at SP Jain Institute of Management – Singapore and Dubai Campus, Mumbai Business School and Institute of Supply Chain Management.
The problem that the service provider community needs to address and seek solutions should be in the lines of ‘Is the service provider able to reform and adopt as per the changing market dynamics?’ While taking a different perspective, a service provider might say that he has invested in a state-of-the-art warehouse equipped with high-tech solutions, racking systems, material handling equipment and so on & so forth. But how can the service provider sustain the business till the time he is not paid for it? I think that neither the service user nor the service provider has been able to work out the rupee value of those benefits that accrue due to these valuable offerings. Unfortunately, in the Indian context, managing professional relationships is something that doesn’t come naturally to us. The trust element is missing here.
PERFECT PARTNERS IN PROFIT To define their crystal-clear roles, I am segmenting the ingredients into two broad categories, viz, users & service providers.
AS Henry Ford once said, “Coming together is the beginning, keeping together is progress and working together is success.” With this as the start, I would want to vouch for the tremendous benefits that collaboration can bring to the logistics industry. In this century, it is imperative to challenge the conventional approaches of outsourcing and develop truly collaborative relationships where all parties are vested in the overall success of the entire value chain. Till date, the nature of the entire logistics industry is very fragmented. In order to break the shackles of this conventional way of functioning, the focus of the industry should be on changing the character of the service provider. Till the time you do not attempt or demand to change the character, the landscape of the supply chain will not change. Companies will continue to function in their silos with traditional mindsets. Why this shift has never been possible, so far, is probably because users have never
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USERS Align business strategy with the supply chain strategy: The first thing needed here is a clear belief that supply chain strategies and supply chain outcomes are strategic to profit making and to achieve customer delight, a critical enabler in customer retention. So, it must be given that strategic importance. The business strategy is actually something that specifies what the company intends to do. And supply chain strategy is the one that decides how to deliver that outcome. If I have a great strategy, for instance, McDonalds says, ‘I’m Lovin It’, that is precisely the vision & mission of the company, which can only be fulfilled if their supply chain strategy is completely aligned with the business strategy. In a nutshell, the supply chain strategy delivers the business strategy. Therefore, it is essential that the entire link is sharpened with adequate skills, technology and everything that is required to create an
exceptional supply chain model. It should be able to deliver delight and at the same time, ensure that it is economically and efficiently delivered. You need to put the right people with the right skills on the right job to realise the desired outcome. For this, you must be able to select a right outsourced partner. You need to leverage the best-in-class supply chain technologies such as system optimisation tools and visibility tools that aid in tracking & tracing the inventory and transactions. It also facilitates quick decision so that necessary action can be taken in case of any non-moving material in the warehouse. Eliminating cross-functional disconnects including SKU proliferation: As has been the case in most organisations, one function is always treated as the rival of another. This disconnect continues to pose a threat to the overall supply chain efficiency of an organisation. Crossfunctional integration cannot happen until one department does not appreciate another department’s functions. All departments should align their functional strategy to the business strategy. Collaborating with suppliers and vendors for seamless information flow: Unfortunately, we consider our logistics service suppliers, who are critical elements of the whole value chain, as commodity suppliers. We do not value them in terms
OMPANIES FIRST NEED TO CLEARLY DEMARCATE THEIR ROLE IN THE ENTIRE SUPPLY CHAIN. EVERY LINK OF THE CHAIN MUST PERFORM ITS ROLE PERFECTLY TO ELIMINATE LOOPHOLES. THERE SHOULD BE VALUE ADDITIONS IN EACH PROCESS.
of their input. That is the whole reason why we fail to bring about a paradigm shift in the way the logistics industry functions today. If given a chance, these suppliers would also want to add value to the entire process, to bring in mutual gains. Collaboration is about thinking together and developing solutions from
Key takeaways for a service user • Have your outsourcing objectives been clearly outlined? If these are not defined properly, companies will not be able to partner with the right provider. • Consider an outsourced partner as an expert in the field. • Be open to change. Do not be receptive. • Do not plan action that cannot be delivered. • Do not fix symptoms, fix the root cause. • Streamline & eliminate non-value added activities. • Create a business model where both, the service provider and the user can maximise profit. This ultimately creates a culture wherein both parties work together to make the end-to-end process efficient regardless of which party is performing its duty. This means creating an approach wherein service providers are rewarded for reducing their revenue. • Adopt lean principles in supply chain management. • Pay the outsourced service provider to meet the service levels while making the overall operation as efficient as possible. experiences. This important task should be methodically approached, with clearly outlined objectives forming a part of the supply chain strategy. Managing supply chain projects successfully: Companies today operate in an environment of high uncertainities. A lot of year-end pressures, seasonal spikes, unfavourable circumstances such as flood and draught, greatly increase complexities in the supply chain. To obtain success in such projects, planning & forecasting is key. Proper planning of the projects will enable companies to deliver goods on time. Because supply chains are also stringed with projects running throughout the year, immaculate project planning, co-ordination and top-class execution is important. Segmentation of supply chain: There is no ‘one size fits all’ solution in a supply chain. It changes with responsiveness and efficiencies aspects. Companies need to group customers into various segments and deliver products based on their needs and the products’ responsiveness, in the shortest possible time. With this segmentation, instead of taking the ‘one size fits all’ situation, customised solutions are created for distinct customer segmentations. For the same product, multiple supply chains are developed to meet the needs of different customer segments and volume. High-volume customers will funnel through a supply chain design to maximise efficiency, while low-volume high-variability customers would funnel through a supply chain design to maximise the flexibility or the
responsiveness. As a result, companies reduce product complexities, cost and improve profit margins & service levels and increase marketshare.
SERVICE PROVIDERS Talking about the service providers’ perspective, companies first need to clearly demarcate their role in the entire supply chain. Every link of the chain must perform its role perfectly to eliminate loopholes. There should be value additions in each process. Only then can a flawless supply chain model be created. The next important aspect is people and their skill sets. The industry is facing the biggest challenge in terms of recruiting talent, and on-the-job training should be emphasised more. The sales teams and key account or programme management teams should be focussed on solutions training and also speak the language of a specialist, as they interact at the management level with the customer. The next is the process. Some companies have skilled people but do not have a defined process to perform a task. In most cases, the processes are not documented or exhibited. Due to this, employees learn from one another, not necessarily the best practice. Also, companies do not refer to standard operating procedures. Learning without a clearly defined process can spell doom for companies. In contrast, a properly written process can aid in efficiency optimisation. It should be easy and simple to comprehend. These are the most basic supply chain loopholes that need to be repaired on an immediate basis.
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TOTAL LOGISTICS IS A
ROUND TRIP, NOT ONE-WAY Pressure is mounting on ﬁrms to optimise inventories and give clients more value & a better shopping experience at a lesser cost. Reverse logistics management today is critical to every ﬁrms’ bottom line, revenue and productivity gain as well as client retention. Thus, better returns on investment demands improved reverse logistics operations, in addition to the forward processes. This necessitates adopting a two-way approach towards ensuring a complete supply chain management programme.
Lloyd Sanford is the Founder & Director of Applied Logistics India and Head of SC Solutions, Attero. He has over 20 years of Senior Executive Supply Chain Logistics Management experience in Global Transportation, Forwarding, Logistics, Warehousing & Supply Chain Technology. With three years of ‘hands on’ experience in India, Sanford helps firms solve complex logistics problems.
WHEN looking at your supply chain, does your firm only look at the detail surrounding and supporting your forward logistics distribution? Is the same picture of your reverse logistics activity vague and incomplete? Do you find it difficult to make accurate plans and execution decisions based on the returns management reports you have in hand? Most firms would reply ‘Yes’ to these questions because they have binding contracts with key clients to deliver finished goods according to set vendor performance standards and built-in penalties. Hence, more attention is being paid to timely delivery and forward logistics rather than reverse logistics. When prioritising finished goods-oriented, client-driven supply chains, how well can your company plan and execute round-trip SCM processes and create ‘smart’ procedures that fit the new age global supply chain complexities and challenges?
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For example, there is increasing pressure to optimise inventories without compromising on quality at optimum cost. A satisfactory shopping experience now also includes timely and fulfilling postsales client support services. If you do not take complete care of the customer, including returns, then there are chances that your competitor will outwit you. Your firm may excel in getting new products to stores and in the hands of the buyer cost-effectively, but how good is your company on the backhaul? Following are some questions to introspect: • Do you have an accurate measurement of the costs of completely managing a returned product? • Can you measure the level of service quality as experienced by your customers who need to return a defective product? • Does your returns programme enable you to accurately project spare parts purchase and distribution to ensure that the right part is in the right place at the right time, in the right quantity and at the right landed cost? • Do you have trouble forecasting product or component defects by type and location and are you carrying excessive inventories or experiencing ‘out-of-stock’ situations with particular spare components in certain geographies more than others? • What happens, exactly, to the used parts swapped out for new ones at client site or service depots? Do you have standard operating procedures (SOPs) implemented and working along side low-cost reverse logistics operations? • Have you adopted a reverse logistics set up to ensure that defects move quickly into and out of repair centres at the lowest possible cost with reliable pick up and delivery?
INCLUDE REVERSE LOGISTICS IN YOUR NEXT UPGRADATION While preparing for your next SCM improvement, whether to cut costs, improve service levels, create a competitive advantage or increase revenue, I recommend companies to take some fundamental planning steps that also include a close look at reverse logistics activities: • A thorough evaluation of how well your SCM and logistics
operations support current distribution schemes, returns management/reverse logistics and strategic business goals. Take a thorough look across all activities and see how well interdependencies work. A close inspection of how well the existing procedures, assigned resources and skill levels manage reverse logistics activities, with specific emphasis on efficiency and effectiveness, translating into reduced inventory handling and carrying costs. Take your customers pulse as it regards your firm’s service quality of warranty works and focus on filling quality gaps for better customer satisfaction. Determine whether your return on investments (ROI) on returns inventory is in line with financial expectations. Where is the used goods inventory idle and taking up costly warehouse or production space? Ensure that you have an accurate inventory of your assets, their projected lifecycles and the forecasted lifecycle of critical operating components so that you can plan timely new product purchasing more accurately. Measure staff productivity across direct returns management operating labour and administrative overhead. Are you achieving internal goals and international productivity norms? Are you in compliance with all government regulations as well as client SOPs, as it pertains to returns management, reverse logistics, product refurbishing and recycling?
PAY ATTENTION TO REVERSE LIFECYCLE MANAGEMENT Having analysed the critical aspects, it is apparent that reverse logistics, in particular, Reverse Lifecycle Management (RLM), has not been able to get the attention it deserves. Companies typically make profit on the front end of the supply chain where high margins and high volumes reign and the focus is concentrated on product branding and market penetration targets. These companies have either ignored or allocated limited resources to returns management and reverse logistics because this has not been the primary client ‘hot button’. Moreover, the cumulative costs of poor reverse logistics have not been captured and made evident. Firms are now recognising that they need to tighten up all aspects of their client relationships
while aggressively seeking out additional cost reductions, new revenue streams and ways to increase value through extended product lifecycles. Another aspect of inventory management, that is, asset management, should also be considered. Paying attention to the financial impacts of total inventory is not just about keeping finished goods stocks levels under control, but it is also about optimising inventory through sophisticated re-allocation processes, while new units are being dispatched to the customer. It is also about getting surplus or defective inventory back into the market as a product or to the firm as an asset.
REVERSE LOGISTICS TECHNOLOGY Today, RLM is becoming increasingly important to the companies’ bottom line, revenue improvement, productivity gains and client retention. Inefficiencies in this tail-end portion of a ‘close-loop’ supply chain can no longer be ignored. Meanwhile, customers are demanding that their vendors improve product turnaround times and eliminate the excessive delay experienced today when bringing a defective product back to the store. Technology plays a crucial role in terms of automating steps and supporting EDI for speed, accuracy and efficiency improvement. State-of-the-art technology, such as new Software as a Service (SaaS) technology based on ‘cloud’ application access & connectivity, plays a prominent role, which supports the rapid growth of low-cost and highly responsive reverse logistics operations. There are software available in the market aimed at specifically at improving returns management processes with an emphasis on product handling, event tracking and real-time status updates. Ensuring consistently improved pick up and delivery times will become a reality if these events are accurately and timely measured, tracked and built into a pro-active system, whereby event exceptions trigger automated responses and accelerate the necessary corrections along the supply chain. There are software applications and complete technology systems in the market that can be tailored to an individual firm’s IT requirements, which can be easily integrated with the existing systems for straightforward exchange of relevant data. Client-specific
IT-based logistics solutions enable fast and accurate data capture and presentation between all key reverse logistics supply chain players for the complete visibility of orders and shipments.
REVERSE LOGISTICS CHALLENGES Market dynamics are driving increased attention towards well-managed reverse logistics with the advent of secondary markets for refurbished goods & electronic goods and electrical appliance owners seeking longer product lifecycles for improved ROI and reduced capital expenditures (CAPEX). Increasing numbers of consumers will pay a discounted price for used goods and some resellers are even willing to give a warranty ranging from 6 months to 1 year for previously owned goods. Tracking visibility is fundamental in today’s forward logistics distribution systems. However, this is lacking in reverse logistics. Forward logistics handling costs based on factory production schedules can be readily optimised. However, reverse logistics is more complex than forward, with an estimated 12 steps for every one forward and unpredictability, as it considers product type, quantity and pick up origin & disposition. These dynamics make it extremely difficult to accurately pre-plan truck pickups, routes, consolidations, vehicle types, warehouse receiving & shipping and related labour costs. Total landed cost is thus subject to wide fluctuations and sub-optimal planning & execution. However, with the right SOPs, collaborative relationships and underlying technology, one can improve event visibility and thus reduce unnecessary reverse logistics costs & delays. The hurdles are higher and more frequent in reverse logistics. Today, ‘smart logistics’ providers are forced to be innovative and come up with viable and affordable solutions comprising wellpositioned offices, the right mix of assets and outsourced service control, trained logistics professionals and configurable technology. These market changes will continue to drive the challenge to improve reverse logistics operations. Therefore, I suggest that firms lacking a complete ‘closed-loop’ supply chain model or those struggling to solve some of the inherent reverse logistics problems with cost and efficiency gaps, take corrective action sooner, than later.
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FLEXIBLE ROUTE In today’s demand-driven world where companies are squeezed by an even more demanding marketplace, beverage companies can no longer afford to organise their supply chain around ﬁlling orders. They, therefore, have to focus on anticipating demand, seeking to deploy the right inventories in the right places at the right times to ﬁll demand. This requires agile production and distribution operations that allow them to continuously realign their supply chains as fast-changing evolving market trends take shape. TYPICAL SUPPLY CHAIN ISSUES
Suneel Aiyar is the Associate Director of Consulting – Supply Chain Practice of PricewaterhouseCoopers. Suneel has led and managed several engagements in the areas of lean transformation, supply chain optimisation, strategic sourcing and spend management across diverse industries. He is currently involved in assisting companies transform supply chain & logistics that are operating under the considerations of delays in GST implementation, infrastructural constraints and increased rural demand.
VERY few brands have created a significant impact in India the way Pepsi or Coca Cola have. These international beverage companies have brought both, competition and best practices into the Indian market. With established successful models of branding, marketing and supply chain best practices globally, many such companies offer product innovation ideas that have the potential to significantly impact the Indian market. Companies therefore need to do a thorough analysis of consumers’ buying habits, food choices and overall preferences to gain a major market share. Failure in doing so will only limit their success.
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A number of challenges are present throughout the divisions of the supply chain. However, relevant issues are mostly associated with manufacturing and distribution. These include: • Several plants with obsolete practices • Insufficient distribution in rural areas • Inherent market risk. Typically, a beverage company has a number of plants scattered all over the nation, and do not have the ability to adapt to new requirements. For instance, PET bottles are rapidly replacing returnable glass bottles in the consumer market. However, most of the third-party plants operated by small companies are not equipped with PET blowing capabilities. In addition, these plants are often located in proximity to their glass bottle suppliers due to which any consolidation is complicated, as this proximity becomes irrelevant from the supplier-customer relationship once glass bottles become obsolete in the Indian market.
CHALLENGES FACED DURING DISTRIBUTION Distribution is a major part of supply chain operations and its concerns are more abundant and problematic from a profitability standpoint. This is because the challenges troubling the distribution network not only amount to lost revenue, but also to potential marketshare. This is of greater concern in rural areas where the companies need to expand their reach in order to become market leaders. However, following distribution practices, which are being followed in the rural areas, in the developed nations is not feasible from a cost perspective. The challenge facing the distribution is in part due to the physical conditions of the Indian market as well as the financial position of its customers. This increases distribution set up costs and insufficient sales that could offset the set up costs. The insufficient sales are a result of a variety of factors.
SUPPLY CHAIN DESIGN While this may seem like a marketing concern, it can be perceived as an issue in supply chain design. For instance, could
the juice division modify its supply chain in a manner that provides the consumer a perception of a fresh product? All other factors persist from a supply chain perspective. For instance, retail outlets are usually small mom and pop stores and the concept of supermarkets like Wal-Mart and K-Mart are limited, if not absent, in rural areas. Current supermarkets are the modern trade partners that were mentioned in a description of the Indian supply chain and are mostly present in urban regions. As a result, Vendor Managed Inventory (VMI) is not possible in this scenario. The VMI practice in the US market has proved to be exceptionally successful both, from a cost savings viewpoint as well as in driving sales numbers due to the direct store delivery (DSD) model. The small size of retail outlets also limits the stock keeping units (SKUs) that can be stocked at these outlets. This further fosters lost sales opportunities and limits brand marketing in rural regions. This adds up to the national level as indicated by the comparison in numbers from the Indian and the US market.
THE RURAL DILEMMA Most rural distributors for PepsiCo in India distribute around 20,000 cases or so in a year. In the US, single distributor facilities sell 15-20 million cases a year. Currently, the entire regional distribution zones of India (East, West, South or North) distribute this volume. The lost opportunity is enormous as the sheer population of India’s rural areas is an indication that multimillion beverage unit volumes can be achieved per rural district. Inherent risks associated with Indian market conditions also persist. An example of an issue that distribution services face is the need to have retail centres in rural regions that consistently serve customers. Since rural retail outlets are small stores, they have limited refrigeration and storage capacity. The inventory levels of all products at these outlets (predominantly fresh produce) are usually kept only at levels sufficient to meet the demand for the day. A majority of the fresh produce is kept out in the open due to the lack of space. Thus, monsoons force the retailers to close shop, thereby reducing the sale of products. This prevents consistent exposure of products in rural areas.
There are challenges associated with procurement and are usually unavoidable as they arise from the government-issued regulations. For instance, sugar (one of the largest procurement items) is rationed by the Indian government even though India is the largest producer of sugar in the world. The government regulations are characteristics of emerging markets due to which overcoming them becomes a question of legal issues and anticipation. Factors such as seasonal impacts on procurement are unavoidable but are common for all markets. Due to this, issues associated with climatic conditions of the Indian subcontinent were only mentioned but not elaborated upon.
SUCCESSFUL STRATEGIES OF BEVERAGE COMPANIES The marketing success of beverage companies in India can be amplified by innovative supply chain strategies adopted. Some of them are: • Utilising the collective effort of small-scale farmers, land holders & regional governments • Alliances with other multinationals • Promoting entrepreneurship. These strategies are essential to overcome the regional, professional, political and cultural barriers for entry into India. As multinational beverage manufacturers entered the Indian market, they decided to take the partnership route. For this purpose, they selected a broad range of third-party bottlers, 40-45 per cent of which remain partners to this day. As time progressed, the partners that phased out were brought by the beverage companies, which had slowly started building their manufacturing presence. Since agricultural land ownership is predominantly fragmented in India, the beverage companies also attempted partnerships at the supplier level. The first series of partnerships was utilised to develop India as a source for tomato paste supplies. The highlight of this successful partnership was to utilise small-scale farmers with the support of the local government to harvest tomatoes. The project overcame the deficiency of fragmented holdings and of the farmers by pooling in collective
efforts and lands of the farmers. In return, it utilised its marketing power to educate the farmers and provided them with a portion of the farming raw materials; in this case, tomato seeds. This ensured the quality and overcame the lack of quality raw materials, which is a constraint for the agro industry. This example of cultivation of tomato was subsequently replicated in Punjab, where citrus fruits were harvested. The purpose of this venture was to reduce the dependency on imports of orange juice from Brazil. When there was trouble distributing products in rural areas, the companies utilised a strategy similar to the Project Shakti adopted by Hindustan Lever. However, this involved alliances with individuals and other multinationals. Rural distribution of beverages was relatively ineffective as a result of poor transportation infrastructure in India. So, when the companies were looking to expand distribution to rural areas, they started fuelling the ambition of local entrepreneurs to foster their own interests. As a first step, they invited enterprising individuals to form the spokes and hub of its distribution network in rural regions. Since the distribution of only beverage products were not sufficient to sustain local entrepreneurs, the companies then convinced experienced players like Hindustan Lever to join their distribution network. Thus, the collaborative effort ended up supporting these entrepreneurs by providing them a larger product spectrum to distribute.
SUCCESS MANTRA The case desribed here indicates the power of partnership in overcoming obstacles of fragmentation and how a unique supply chain design can scale and act as an enabler for profitable growth. With so much untapped opportunity, there will also undoubtedly be more competition as new players – including private-label manufacturers – enter the Indian market. These factors make it even more critical for today’s beverage companies to take control of their supply chains. The most successful companies will be those that leverage the best practice procedures and processes from around the globe and across the supply chain function.
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GAME-CHANGING PROPOSITION FOR SOLUTION PROVIDERS Globalisation, cloud computing & state-of-the-art technologies and Millennials are responsible for bringing about a dramatic transformation in work procedures. In order to ensure increased productivity and improved performance, decision makers need to leverage on the best-in-class global solutions. This, in turn, will help shape the future of supply chain management solutions. claim to do what it takes to realise this dream. And globally, they have delivered the same with varying degrees of success. As the Indian economy continues to gallop and businesses strive for global scale and standards, manufacturers and logistics providers would aspire to reach this Utopian state. Supply Chain Management (SCM) is accepted as a strategic enabler. Here, however, India lacks the developed markets. To reach global standards in SCM and to take the next big leap, corporate India could consider a localised version of proven global solutions or consider a next-gen solution leveraging on the latest technology, such as mobility-based platforms.
Sandilya Gopalan is VP, Cognizant Business Consulting (CBC), and heads CBC for Retail & Consumer Goods, and Manufacturing & Engineering Services. His focus is on providing business-aligned IT solutions to retailers, consumer packaged goods companies, process & discrete manufacturers, logistics intermediaries and the hospitality industry. Sandilya is a qualified Chartered Accountant and has an MBA from The Rotterdam School of Management, Erasmus University, The Netherlands.
EVER imagined how a dream scenario for a logistics manager would play out? Let’s zoom into the scenario where a customer picks up, say, a bar of soap from the store shelf. Almost instantaneously, the key stakeholders in the supply chain get to know about it. The back-end of the warehouse swings into action to restock the product on the shelf. The stockist accordingly schedules it into the store’s replenishment plans. The trucker dynamically factors it into the routing plans. This information seeps its way to the palm oil producer in Malaysia, who keeps next shipment of oil ready to dispatch to the factory. Sounds like a dream scene? Not really, there are quite a few globally proven IT-enabled solutions that
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Transportation is a key cost item in the supply chain and clearly a low-hanging fruit for optimisation, especially in India, as most of the transportation here is unplanned and unorganised, resulting from ad hoc decisions. Proven packaged software and niche solutions, backed by world-class simulation techniques and algorithms are available to predict the most optimal transportation mix and scheduling. Transportation in India has some unique characteristics. While more than 70 per cent of the transportation comprises road freight, 80 per cent of the trucking companies have 1-2 trucks and only 10 per cent have over 15 trucks. While a handful of large players can leverage on proven global solutions, for the rest, this fragmented nature of the industry stunts the potential for such solutions. Furthermore, 35-45 per cent of the trips are empty loads, that is, they return empty after dropping off the load. The need of the hour is to create some level of aggregation in order to take advantage of the economies of scale. Here lies a potential opportunity for SCM solutions providers to create a platform that can serve as the e-marketplace for transportation providers as well as buyers. All sophisticated optimisation engines would be able to run on this platform and truckers would be oblivious to it. The recent developments in cloud computing and virtualisation can be effectively leveraged for this. This could prove to be the game-changer for SCM solution providers and even for some entrepreneurs.
THE ETERNAL RETAIL CONUNDRUM One often comes across a situation wherein no matter how large a retailer is, there will always be customers standing in front of a retail shelf that is unable to find the product they are looking for. This scenario gets further accentuated at the neighbourhood kirana (grocery) store, wherein the owner aggressively pushes a competitor (in terms of offering a higher margin), or worse, sells a private label saying ‘it is the same thing, but a tad cheaper’. This is not specific to developing markets like India. Even in the most developed retail markets such as the US, stock-outs range from anywhere between 5 and 15 per cent, and in cases such as electronics retailing, it is double that number. The number increases when the company is doing a promotion and not all parts of the organisation come together. The consumer looking for promotion ends up feeling disappointed. It is not just the loss of sales, but brand loyalty also takes a beating as competitors or private labels get a toehold.
OFF-THE-SHELF SOLUTIONS The solution is theoretically simple and sufficient technology, bandwidth & off-the-shelf software solutions are available to make it happen. The key input is the visibility to store sales data in near real-time. With accurate store-level sales data, demand forecasting solutions can accurately predict future sales, ship products and plan inventory levels accordingly. In this way, the manufacturers’ Maximum Retail Price (MRP) process becomes much more
central repository either manually or through an easy data-dump process. And all the processing happens at the manufacturers’ end. This has proven to be a good practice in terms of minimising IT intervention at the user level. In addition, like in the case of transportation, cloud computing has
Transportation is a key cost item in the supply chain and clearly a low-hanging fruit for optimisation, especially in India, as most of the transportation here is unplanned and unorganised, resulting from ad hoc decisions. Proven packaged software and niche solutions, backed by world-class simulation techniques and algorithms are available to predict the most optimal transportation mix and scheduling.
significant potential here. Traditional IT solution providers could consider offering cloud-based solutions to run the entire operations of companies. It could be at an affordable price and no upfront capital expenditure may be required. In turn, companies could sign up for access to sales data and become a source of syndicated data, a potential additional revenue stream for them. This may well be easier said than done. But clearly, technology trends allow for such blue-sky thinking.
MILLENNIALS – AN EMERGING OPPORTUNITY As we consider the age-old transportation and out-of-stock problems, there is a new generation of Millennials. They are the 15-35-year olds, who have grown up with technology, are ‘digital natives’ and take
Manufacturers need to ensure that Millennials have a seamless purchasing experience across all channels – the store, call centres, mobile devices and online. Manufacturers & logistics providers can have a competitive edge if they plan their supply chain infrastructure for the future to deliver this seamless experience. realistic. Some of the larger FMCG companies have devised simple solutions, given the traditional nature of retail in India. They have created simple processes to get daily sales data pumped into a
for commercial transactions as well. Millennials constitute about 25-30 per cent of India’s population today, and another 30 per cent will join this generation in the next few years. They are and will be the key customers for any manufacturer and this has significant implications on the supply chain.
to mobile devices, the Internet and social media like a fish to water. Given the telecom boom, where we have leapfrogged many developed markets, Millennials are using digital media
Manufacturers need to ensure that Millennials have a seamless purchasing experience across all channels – the store, call centres, mobile devices and online. Manufacturers & logistics providers can have a competitive edge if they plan their supply chain infrastructure for the future to deliver this seamless experience. Key to this is order management, as companies are moving from planning for stability to planning for flexibility. The online buyer should be able to browse online, order over the phone, have the product delivered at home, pay with a mobile device and, if need be, return the product at a physical store. A robust distributed order management infrastructure could be a sound strategic investment. Solutions are evolving in this space and manufacturers should maintain flexible platforms to plug in any of these future solutions and accommodate the needs of Millennials, without having to rip their IT infrastructure apart.
FUTURE OF SCM The forces of globalisation, virtualisation, next-gen technologies such as cloud computing and the Millennial generation are redefining the way people work. Faced with this, SCM decision-makers can leverage on the global best practices and solutions, consider cloud computing and virtualisation for enhanced nimbleness and operational maturity, rise up to the expectations of Millennials, and in doing so, craft the future of SCM solutions.
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SMART SUPPLY CHAINS
QUENCHING THE THIRST OF YOUNGISTAAN With cut throat competition, growing volumes of demand, especially in the beverage industry, it becomes critical for companies to make their supply chains strong enough to cater to complex markets. One such company that has created a seamless supply chain ensuring its customers, whose ‘Dil Always Maange More’ are never left without their thirst quenched, is PepsiCo India. While decoding a world-class supply chain, we looked at its unique offerings and strategies to understand how it managed to bag the most loved stature by the youngistaan of the country. SUMEDHA MAHOREY IN the heat of scorching summers and with the intent to satiate the taste buds while keeping the last fizz of the drink intact, brand Pepsi surely stands tall and clearly outwits its competitors in this outrageously competitive landscape. But have you ever wondered as to how that
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bottle reached you in the farthest and the remotest of the places? A world-class supply chain, which has evolved with experiences gained by moving on the front foot and taking on all the challenges head on has made this possible. Gaining the ubiquitous ‘socialiser’ tag, every
product of PepsiCo today symbolises the dreams and aspirations of the young population. And satisfying the demands of this ever-increasing and ever-demanding youngistaan, is the supply chain of PepsiCo, which has aligned itself to the ‘Dil Maange More’ strategy.
While selecting a 3PL provider, PepsiCo looks for 4Cs: Character: The company thoroughly looks at the third party logistics provider in terms of their vision statement and its inter-linkages with the company’s overall vision. It also focusses on the 3PLs notion for short term gains or long term partnerships Competency: Their current investment/clientele and credentials to service a volume-based business Cost: The cost of operations they offer vis-à-vis the company’s cost of operations – what is the customer service level that they are able to agree on Comfort: Can the company give the 3PL provider the task and be assured?
THE COMPANY LEGACY As the world’s second largest food and beverage company, PepsiCo offers a portfolio of enjoyable products to consumers in more than 200 countries. PepsiCo entered India in 1989 and has grown to become India’s largest selling food and beverage company. In beverages, the group has built an expansive business. Today, PepsiCo owns a range of products, which includes iconic refreshment beverages – Pepsi, 7UP, Mirinda and Mountain Dew, in addition to low calorie options such as Diet Pepsi, hydrating and nutritional beverages such as Aquafina drinking water, isotonic sports drinks – Gatorade, Tropicana 100% fruit
juices, and juice-based drinks – Tropicana Nectars, Tropicana Twister and Slice, non-carbonated beverage and Nimbooz by 7UP. Local brands – Lehar Evervess Soda and Dukes Lemonade add to the diverse range of brands. To support its operations, PepsiCo has 36 bottling plants in India, of which 13 are company-owned and 23 are franchiseeowned. Supporting this manufacturing endeavour is the highly successful and well-evolved supply chain of PepsiCo India.
faster reaction time.” So what is the company’s magic potion for creating wealth not only in terms of savings, but also ensuring sustainably and establishing reliable supplier base? Bhattacharya highlights, “Ninety per cent of our current vendors are as old as we are. We look at partnerships and not suppliers. So, the magic potion of our success is the way we look at partnerships. We not only manage our P&L but also our suppliers and ensure that they grow along with us.”
THE BRAND IDENTITY
SUPPLY CHAIN USPs
Ever since its launch, PepsiCo has been high on innovation. Diet Pepsi, 2 litre bottles, recyclable plastic cola bottles and the famous ‘My Can’ concept are the outcomes of its innovative ideas. From the branding perspective, Pepsi has established a direct relationship with the youth through its stylish advertising strategy. Presently, PepsiCo’s portfolio has expanded much beyond Pepsi with new product launches, variants and packages, an integral part of the company’s success in reaching out to the masses in the remotest corner of the country lies in its ever-evolving, precision-focussed supply chain. Abhishek Bhattacharya, General Manager – Supply Chain (Western region), PepsiCo India, says, “In an impulse-driven market, the biggest impactor is product availability. We have a very clear approach towards the supply chain based on the word FOCUS, where F stands for ‘fewer is better’; O for ‘own your business’; C for ‘care for people’; U for ‘up the execution’ and S for ‘swift decision making’. We enable people to own the business. When each level of employee takes decisions in the interest of the business, it allows
An efficient supply chain ensures that the right product reaches the right place at the right time and at the right cost. But there are many challenges in achieving this. Bhattacharya points out, “During the peak season, i.e. summer, demand spike is 5X more than the off peak season. From this level of complexity, there is a lot of pressure on the supply chain to manage the volumes to deliver, align the plants, backend manpower management, etc. Vehicle requirement during the peak season goes up, and so, the availability of vehicles in the market also becomes an issue due to high spot rates.” To keep hiccups at bay during the peak season, PepsiCo has devised certain strategies. “Seasonality poses the biggest challenge for the beverage industry. Summer is peak season for us and we have two strategies in place to satisfy market demand. One is pre-producing. For this, we have to be very careful about capacity mapping. We build our stocks with the help of excess capacities that we have during lean months. This helps us maintain our stock levels during the peak season,” Bhattacharya elaborates. With a strong sales and operational planning process in place, the company is
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PepsiCo India, continued
able to foresee the anticipated demand. The second plan is to employ territory warehouse mapping, which helps the company to move stocks to a location where the company can logistically satisfy the spurt in demand. Bhattacharya says, “We need to plan where to place our warehouse, and ascertain how much we exactly need to build up. A critical thing in this is FIFO management.” Apart from these, the supply chain efficiencies achieved at PepsiCo include: • Service management: A push-based continuous replenishment model at the distributor location • Near real-time secondary sales data and visibility on distributor inventory holding enables the planning team to channel product availability • Centralised order processing allows for transparency, visibility, MIS and quick decision making • Improvement in product packaging to increase loadability • Hub & Spoke Model • Smaller distributors, which have now been moved to hubs with increased storage and serviceability capacity • Instead of mix brand loads/under loads, the company has moved to full truckload of the same brand • Replacing non-palletised vehicle operation with higher palletised vehicle operations • Productivity increased in sorting, handling; lesser breakage/leakage with improved product quality • Increased vehicle turnaround times from source plant dispatch to hubs and back • Improved vehicle design with branded truck backs • Procurement: Synergising with national suppliers by fixed ordering frequencies that eventually pulls down order to supply lead time and optimise costs
• Packaging: This maximises product presentation and ensures safe stock movement, storage and shipping that boosts productivity • Transportation: Production schedule at source plants has been aligned with freight optimisation initiatives that reduce handling, transit time, levies and freight. Sourcing Matrix and Network design analysis have also been done to optimise freight.
MANAGING THE INTERNAL SUPPLY While the external supply chain has been a major competent factor for the company in gaining the market share, its internal supply chain is also marked with complexities. Elaborating on this, Sumit Mukherjee, Assistant Manager – Demand Planning, says, “We have rationalised the supplier base. When the demand comes in, we have a rough cut capacity plan, which gets fed into SAP. This plan then goes to the materials planning department. We roll out this plan twice a month nationally. This helps our suppliers accumulate the required materials well in advance.” This system gives PepsiCo the visibility into the exact quantity of raw materials viz, glass, packaging material, pet bottles, crown and labels ordered across the country. This helps the company establish a progressive supply chain, which thereby leads to better scheduling of the ordering process and decreases the lead time of material buying.
TECHNOLOGIES IN PLACE
Technology has a major role to play in the success of the company’s supply chain. To ensure success, the company has deployed the best of technology tools. For efficient storage and retrieval in the warehouses, PepsiCo has implemented warehousing management system. So far, the company has not implemented the bar coding system PepsiCo’s Supply Chain for product tracking but they track Warehouse Hub stocks batch wise. Plant Elaborating on the Distributors Tertiary Sales (Inbound same, Bhattacharya logistics) Key Account says, “We have a couple of plans, for Reverse Logistics instance, since the Hub last one year, at Plant Distributors Tertiary Sales one of our plants in Mumbai, we Key Account have adapted a
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technology with the help of which we are able to use the entire vertical space upto 1+4 height. This technology is satellite controlled and has an orbitor that moves around the rack and identifies the pallet. The operator just needs to key in the position code. It will identify the position of the stock, pick it up and bring it right in the front. The only requisite is that the operator needs to place the orbitor in the right tunnel.” Commenting on the benefits of using such technologies, he adds, “For us, the first priority in business is safety. We are aiming to lessen manual forklift operations and move to automated lift and shift as increase in the forklift movement in the warehouse reduces the safety aspect in the work function.” Other systems that are in place at PepsiCo include Sales Automation Management for the New Age (SAMNA), which has helped the company in gaining visibility of its various products, and the Automated SAP (AS@P).
SUPPLY CHAIN TRANSFORMATIONS For a company as big as PepsiCo, creating a supply chain, which is flexible enough to accommodate additional loads through product introductions as well as market fluctuations, is a tough task. But the company has managed to bring about supply chain transformations and overcome many challenges. Mukherjee explains, “Presently, we have real-time sales data. We have visibility of the secondary sales, which is important. We have real-time updates on off take from the plant and off take from the distributor’s end.” Commenting on the criticality of having such a system in place, Bhattacharya elaborates, “Visibility of secondary data is of prime importance for any FMCG manufacturer, as the whole production process depends on demand. If we are able to bring demand and sales at parity, we will be able to achieve a perfect supply chain. With real-time visibility, we know where, what and how much sales off take has happened – this helps to maximise product availability.” Another transformation that the company has undergone is in the way it formulates last mile logistics. Mukherjee elaborates, “We have created a distributors’ replenishment model, which helps us track stocks at their end. Whenever the stock levels go down,
we immediately replenish it. With this continuous replenishment model, we are able to drive sales, product availability and market visibility.” Highlighting the role of technology in achieving data integration of all the processes in the manufacturing cycle, Bhattacharya says, “We have integrated the process with the help of an IT tool – i2. With this, we have integrated demand, production and supply on a single platform. We know what exactly is to be produced, purchased and what needs to be dispatched. Right from purchase planning to dispatch planning, everything is done by i2.” Apart from this, to ensure last mile logistics, the company has adopted the Hub and Spoke Model for distribution. Elaborating on the strategy implemented for last mile logistics, Mukherjee says, “Instead of having many small distributors, we have clubbed them to a large distributor. Now, we directly service the large distributors who then supply to the small distributors. This ensures that the product reaches the last mile.”
PepsiCo has shifted its attention towards higher palletised vehicle operations to reduce cost.
REVERSE SUPPLY CHAIN LOGISTICS Every glass has to be brought back to the plant as these are reused and rejected ones. This is done by a very efficient reverse logistics chain. For this, the company has separated glass and PET bottles logistics, thereby simplifying the whole transportation process. Apart from this, sorting of mix glass bottles is done at the hub point. This helps reduce manpower cost in glass sorting at the plant level and results in faster glass intake to production line turnaround. Other measures include full truck load glass return at source plant.
GREEN IS THE BUZZ PepsiCo’s business is based on its sustainability vision of making tomorrow better than today. PepsiCo’s commitment to living by this vision every day is visible in its contribution to the country, consumers and farmers. The company has taken many green initiatives. These include: • Shift from a reactive to a proactive approach towards leading sustainability initiatives, mission named ‘Performance with Purpose’ • About 75 per cent of a company’s carbon footprint comes from transportation and logistics. Thus, to reduce the footprint, the company
moved to higher CNG-variant vehicles from diesel-powered vehicles Plants of the company are ISO 14000 certified with Effluent Treatment Plants that has resulted in less water consumption. Plants boilers are driven by biofuel that reduce indirect emissions from the generation of electricity Shipping at plants and warehouses are done with battery-operated forklifts and not diesel-operated forklifts. The company has also incentivised hub operations to switch over to batteryoperated forklifts. Positive Water Balance: Through rain water harvesting, community watersheds and water conservation in agriculture, PepsiCo India saved 836 million litre of water than what was consumed in 2009. Waste such as PET and plastic bottles, waste paper and tetra packs are recycled.
action. This team consults the supply chain team and plans the steps that need to be taken to tackle the situation. This includes production schedules that need to be reworked, new packaging design, artwork, etc. that needs to be introduced.
DISASTER MANAGEMENT PLANS Supply chain disruptions are not new for a country as vast as India. Natural disasters and strikes tend to drastically affect the supply chain. Ensuring efficient supply chain amid such crisis is a nightmare for any supply chain. Overcoming this, the company’s unique approach to distribution through its Hub & Spoke Model ensures that even Maoist-affected regions get the product on time. With visibility till the hub level, the company is able to source the stocks from another large distributor, if stocks cannot be serviced by the hub in the region.
PERFECTING WITH TIME REFLEXIVE SUPPLY CHAIN The company is presently working towards moving to an intelligent supply chain that will enable reaction to demand-supply gaps at short notice. Measures that have already helped PepsiCo maintain a truly agile supply chain include near real-time data reporting and smart system driven MIS, which enhances sales visibility and allows for streamlined backend planning and execution; commission of smart handheld devices which increase visibility of secondary sales and distributor inventory; and the continuous replenishment system that allows for faster response to market changes. Adding to this, there is a senior management leadership team in place, which tracks competition activity and takes due measures on the next course of
With a unique approach on all fronts, be it supplier management, green initiatives or process visibility, the supply chain of the company depicts an attitude, which aims at perfection every time it takes up a challenge. A seamless supply chain, which caters to a multitude of products reaching out to every nook and corner of the country, the supply chain at PepsiCo is truly impeccable at every stage. Improving with time, experience and the market conditions, PepsiCo has managed to establish flexibility as well as agility in its supply chain. No wonder the company today stands at a leadership position in the beverage industry in India, all thanks to an integrated and reflexive supply chain. It is Aamsutra at its operational best!
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SMART SUPPLY CHAINS
COMPETITORS’ ENVY SUPPLY CHAIN’S PRIDE Superior products backed by distinctive design, cutting-edge advertising and purposeful marketing have made Onida a household name in India. While the brand managed to truly make its products every neighbour’s envy and owner’s pride, Onida now endeavours to bring innovatively designed products keeping customers’ needs in mind through an equally robust supply chain. Presenting the intricacies of cutting-edge supply chain model that has made Onida a brand to reckon with... PURNA PARMAR THE success of a brand depends on the acceptance it receives in the consumer market. For a brand to generate a recall value in the customer’s mind, it needs to stand out from its competitors, especially if it is a product, eg. a television, which finds itself surrounded by many competitors. In such a scenario, one brand that has managed to carve a niche for itself is Onida.
CLUTTER-BREAKING INNOVATION Till the 1990s, the ‘Onida Devil’ – a
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green-horned devil with a long pointed tail – was the brand mascot in all its ad campaigns. The ‘Onida Devil’ helped the company gain substantial marketshare and brand recall among customers, which pushed it to become one of the top three television brands in the country. Despite years of enjoying a high brand recall value, MIRC Electronics, the promoters of Onida, decided to do away with the ‘Neighbours’ envy owner’s pride’ brand proposition, as owning a television is no more a reason to envy one’s
neighbour. Instead, it came up with a new brand strategy, which was as innovative and clutter-breaking. The new Onida promises to deliver the right combination of style and substance, the brand now communicates the new brand proposition ‘Designed with you in mind.’ However, this time, this is not just the brand tagline. Onida makes its television enviable by depicting its functions, thoughtfully designed features and innovative thinking and well supported by its cutting-edge supply chain.
ESSENTIALS OF SUPPLY CHAIN This deep-rooted brand philosophy is well reflected in Onida’s supply chain, which aims to achieve global world-class standards and provides best-of-breed localised business & technology solutions, with continuous innovation & quality, delivered by a talented pool of people. Right from the brand anthem to planning of the entire value chain, the employees at Onida are committed to deliver the brand proposition ‘Designed with you in mind’. This is where the core competency of the supply chain lies. The company has designed a 3(I) System – Instrumentated, Interconnected and Intelligent – that helps it to streamline its supply chain. Explaining the 3(I) System, CR Talathi, VP – Operations, MIRC Electronics, avers, “At Onida, we interpret the 3(I) System in the form of hardware, software and manpower. Hardware, which ensures that the supply chain is well-connected; software which enables container visibility and transparency, and manpower, which ensures skill set to understand hardware & software. The 3(I) System controls Onida’s supply process, thereby making it a smart supply chain.”
BEST PRACTICE ADOPTION Onida’s four strong pillars, viz. Segmented Manufacturing & Local Assembling of Products, Packaging Innovation, Supply Chain Ownership Team (SCOT) and Single Truck Load Model have managed to make Onida a preferred consumer brand. Segmented Manufacturing & Local Assembling of Products Onida has local manufacturing hubs all over the country, which ensure that the customer gets the goods on time. Despite this, it still faces several other challenges. Elaborating on the same, Talathi says, “Some of the major challenges we face are demand variability (forecasting), cost containment & reduction, inventory management & optimisation, escalating customer expectations and managing product innovations.” Talathi observes, “Although we have mobile tracking systems, supply chain visibility is a cause of concern for most companies. Poor road conditions, traffic jams and local agitations, lack of mobile connectivity in that particular area or drivers’ mistakes are some of the issues, which still pose a challenge in ensuring supply chain visibility.” To create this supply chain visibility,
Onida’s Supply Chain Model
the company has implemented segmented manufacturing in its manufacturing hubs. “We have manufacturing facilities in five locations in India and have divided the supply chain in these five different zones. As a result, our factory at Roorkee manages all requirements of the north zone, while our facility at Wada handles the west zone’s requirements,” Talathi explains. “To reduce the supply chain cost, we do not transport the whole product. Instead, we use the same set of special tools at
our manufacturing facilities. So first, we use these tools for manufacturing at our Wada factory and then, the same set is sent to the facility at Roorkee,” Talathi adds. According to Talathi, the logistics cost of sending tools is much lesser than sending the entire product. Using one set of tools, the company manufactures around 10,000 units of television sets. For transporting these products, the company will need at least 50 trucks, whereas one set of tools can be despatched in one truck, thus reducing
An Onida LCD being subjected to a drop test
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At Onida, we interpret the 3(I) System in the form of hardware, software and manpower. Hardware, which ensures that the supply chain is well-connected; software which enables container visibility and transparency, and manpower, which ensures skill set to understand hardware & software. The 3(I) System controls Onida’s supply process, thereby making it a smart supply chain. CR TALATHI, VP – OPERATIONS, MIRC ELECTRONICS the logistics cost substantially. Packaging Innovation A rapidly expanding middle class with high aspirations and a growing appetite for quality goods makes India a highly volatile and competitive market for consumer durable goods companies. “Our business has wafer-thin margins, therefore we need to innovate to reduce per unit cost. Second, India is a very price-sensitive market where competition is tough, and hence we have to be on our toes all the time. Unlike in the automotive market, we cannot increase the prices of our products
according to market fluctuations. For instance, the price of copper is increasing drastically, which is a vital raw material for making air conditioners, but we cannot pass on this cost to the consumer, as the air conditioner market is price-sensitive. Another problem we face is high customer expectations, where customers are always on the lookout for discounts or schemes, and thus delay their purchases. So, to reduce cost, we have to find a way by looking at end-to-end supply chain costs,” says Talathi. To reduce per unit cost, Onida
Onida’s relationship management with dealers and vendors Supply Chain Ownership Team (SCOT) has enabled Onida to build a strong relationship with its vendors and dealers. “Our dealers and vendors are informed well in advance about our company’s plans for the festive season. At the beginning of the festive season, dealers and vendors are taken on a tour of the factory, where we demonstrate our production process. Dealers are also taken for another tour to special destinations, like Bangkok, where they are informed about our company’s plans for the year. They are also briefed about the company’s new product launches and technologies. This helps dealers decide on bookings accordingly. Thus, they are kept in sync with the company’s brand philosophy and brand strategy,” explains CR Talathi. Cementing Talathi’s views is Pankaj Wadhwa, MD, MWV Wadco India, one of Onida’s vendors. He says, “We supply corrugated boxes to Onida. The company has showed confidence in our manufacturing process and has helped us immensely. In fact, it invited us to set up base near its factory in Wada. The entire inventory of the brand is managed in our factory. This helps us in further reducing logistics cost,” Wadhwa says. Amit Mulchandani, Director, Snehanjali Retail, testifies Onida’s strong relationship with its dealers. He avers, “We have been associated with Onida for the past two decades and our relationship has grown stronger over the years. It offers us customised logistics support, even for less than 10 products that we would need. Another advantage of being associated with Onida is that product margins are good, which makes it our preferred partner. The brand has a strong identity, which is associated with quality. Unfortunately, it has not been able to fully leverage on this. It needs to introduce a strong product line-up and capitalise on that,” Mulchandani suggests.
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has introduced innovative packaging. Generally, television sets are packaged in rectangular boxes. However, this year onwards, the company plans to use rhomboid-shaped packaging, using which they will save 33 per cent space in the container and reduce the overall cost by 10 per cent. Rhomboid-shaped packaging ensures that instead of the regular 160 pieces, 240 boxes can be accommodated in the container at a time. For small-sized LCDs, the company need not package these in a box, as these can be easily carried. Therefore, the company has compiled five sets on one pallet, which is then sent to the dealer. The customer can carry the set in a carry bag. This move saves the company Rs 200 on each packaging. The brand can thus share this profit with its customers, thereby keeping them happy as well. Supply Chain Ownership Team Onida has adopted one of the best practices in the manufacturing industry – Supply Chain Ownership Team (SCOT). Through SCOT, the company plans to reduce cost and have a flexible, active and responsive supply chain. With a wide and complex supply base having multiple tiers, SCOT helps Onida to procure components on time despite high lead time for parts, change of plans due to frequent demand changes by marketing and a wide variety of parts leading to high inventory. It also helps the company reduce pressure on supplier capacities due to overall demand growth and meet customer expectations that are becoming tougher. In addition, SCOT helps Onida reduce infusion of competitors that put high pressure on the supply base. The entire value chain, ie. all employees, must be in sync with the brand philosophy, which should be finally transferred to the customers. “We treat our suppliers as our partners and give them complete information well in advance. For instance, if there is festival season in Kerala, all the dealers and distributors would be informed at least a month in advance about the offers and schemes we have introduced for the festive season so that they can allocate their resources accordingly,” Talathi says. Onida works on a system wherein daily task is planned on Onida Fortnight (OF) and Onida Month (OM) bases. These operate on the requirement from the marketing department on what is to be produced and distributed. The
details of when and which stock needs to be produced and distributed all over India are updated on SAP, thus ensuring complete visibility. Talathi explains, “We have a specific plan of six OFs, of which two are fixed, while the third OF can have 50 per cent changes in the demand-supply plan. And the next few OFs are flexible to plan the dispatch of material. The data updated in the SAP system also gives Onida suppliers a fair idea of the six planned OFs. This, in a way, offers suppliers a large extended lead time. The six OFs are slotted keeping in mind component manufacturers from China, Japan and Taiwan. This gives them a defined lead time along with 10 days of transit time. Similarly, this gives Onida time to negotiate the pricing for the components.” Single Truck Load Model Onida manufactures a wide range of products right from mobile phone handsets to television sets and microwaves. The wide range of its products makes it difficult for the company to maintain a supply chain of all these goods. “As a company, we always prefer to supply one type of model or product to the dealers in order to optimally utilise space, which ultimately reduces logistics cost. But since dealers prefer to stock a variety of products, we, as a company, need to be flexible and have higher adaptability in our supply chain model,” Talathi elaborates. He adds, “To ensure this, we have innovative packaging, such as the rhomboid packaging, or arrange the products such that maximum number of goods can be sent in one container. In this way, we have managed to increase the adaptability of the supply chain in single truck load.” When dispatching goods to different locations, there is a 24-hour lead time. But there are instances where we have to dispatch goods to select remote locations like Assam or Kolkata, which pose logistical challenges and make it difficult to transport goods within 24 hours. In such cases, the company combines the supply of two or three OFs. It sends the products in a single truck load for dispatch in one go. This helps the company meet customers’ demand and at the same time reduce logistics costs.
SAFETY OF GOODS WHILE HANDLING While the company battles the supply
Rhomboid-shaped packaged boxes
chain challenges it faces on a day-today basis, it also has to ensure safety of products during transportation. Onida is one of the first companies to have an extremely stringent safety test process. Talathi says, “We have gone several steps ahead in ensuring safety of our products. We design our products in such a way that if it is dropped from a height of 7.5 cm, it will still sustain the impact.” Talathi adds, “The products have to undergo this ‘drop test’, as the people handling the goods, like transporters and porters, are not educated and may not handle the goods with care. Also, if the product is heavy, the handlers might even drop it. So, we need to ensure that the product passes the drop test. The product is also subject to a bump test to ensure that it does not get damaged while being transported along bumpy roads.”
THE FUTURE IS BRIGHT, THE FUTURE IS COPS As Onida aims to excel in sourcing and managing its supply chain, it needs to stick to fundamentals – good hardware, software and manpower. This will ultimately lead to greater visibility, flexibility and constant focus on product innovation to exceed customer expectations and relentless cost innovation. To attain the same and build a worldclass supply chain model, Onida is now in the process of transforming its supply chain from SCOT to Customer Owned Procurement System (COPS). With COPS, Onida hopes to further fortify its supply chain by focussing on a customercentric supply chain process. “COPS will
help the company serve our customers better. In this process, customers will be the core, while rest of the supply chain will remain the same. We will still retain product & packaging innovations and supplier transparency. The only difference here will be that the supply chain planning will now be done according to customers’ requirements that are made available to us from the marketing initiative taken by the company,” Talathi says.
LOOKING FORWARD TO A NEW SPECTRUM The green-horned devil turned out to be an angel in disguise. His mischievious message stood the brand in good stead in times that saw many of its rivals capitulate under market pressure. Taking forward its legacy of clutter-breaking ideas, the new brand strategy made sure that the brand philosophy of ‘Design with you (the customer) in mind’ was well presented. In times when most Indian companies feared a wipe out during the ‘MNC invasion’, Onida managed to build a strong connect with its consumers, which remained intact even during challenging times. With products that are not only globally competitive, but also measure up to the global standards of quality, the brand designed a world-class supply chain model that has helped the company once again in attaining a competitive edge that comes only with its fast responses to demand changes. The company’s new supply chain model COPS further strengthens its leadership position in India through thoughtful product designs and innovations.
APRIL 2011 • SMART LOGISTICS • 45
ONE ‘Q’ MANY VIEWS
SUPPLY CHAIN NEED-GAPS
STRATEGISING THE GenY The Indian logistics industry is highly fragmented, characterised by numerous small market players, logistics and transportation resulting from India’s infrastructural inadequacies are affecting the the infrastructure, the pace seems slower than the economic growth. Presenting thought leaders’ big supply-demand divide…
Priority slack in organisational strategy is treated as avoidable cost; when it actually forms an integral part of a value addition for a product. SCM should be induced as a fulcrum strategy, while investments for supply chain innovations should be part of long-term strategies. The learning process can be supported by joining hands with a 3PLs/4PLs, which will invest and work as partners and also help the organisation to focus on brand development. The ﬂip side is that it will incur higher start-up costs but recede by joint process optimisation. The learning process can be maintained on a transparent level as cost plus model and can be short-term (3 years), move inhouse or long-term association. This, along with the GST regime where input costs along with logistics for value-added process will be provided with credit of Service Tax, will help the industry in making a planned and right investment strategy while avoiding the risk of sunk costs. Also, capacity build-up by logistics industry is directly proportional to the amount of customer partners available to manage the blue sky in SCM. The need of the hour is to stimulate a virtuous cycle of investments and capacity building, while mitigating avoidable risks. – ANAND BALKRISHNA, Head BD – SCM, Gati
The biggest challenge facing industry is poor infrastructure – road and power – and the pace of work done to improve the infrastructure in the country. The lack of even basic amenities continues to haunt those involved in this sector. There is a need for more transparency in the execution of infrastructure projects. The other area of concern is land reforms. The process of land acquisition is rife with corruption, bureaucratic delays and politics. Land development projects in India have attracted considerable controversy lately amid accusations from leftist politicians and activists that farmers are getting a raw deal. Labour reforms are the need of the hour in India. For long, India has enjoyed the fruits of cheap labour, which has resulted in thriving businesses. Inﬂation has changed the way we conduct business today, and it is only natural that policy makers now work towards reforms in the area of minimum wages and IR, which will bring control and clarity in this sensitive and critical area. The area of regulatory changes has seen a ray of hope, with the approval of the bill on GST. In order to truly make the business seamless in the country, there is a need for complete and honest implementation of GST and related reforms. Anything less, partial or delayed will probably do more harm than beneﬁt. These are potential change agents that can lead to transformations, which are long overdue. The industry itself can support the cause by becoming united and speaking one language for all its issues. – AJAY CHOPRA, CEO, Drive India Enterprise Solutions
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SUPPLY CHAIN MODEL making implementation of synchronised industry best practices difficult. The escalating costs of cost savings achieved from manufacturing in India. Although steps are being taken to improve insights on the need-gaps that the Indian logistics industry is facing today and the ways to mend the
The challenges in supply chain encompass forecasting; selecting the right manufacturing location and product mix; purchase decisions and their intricacies – from where, whom, economic order quantity and over this, a complete supply chain visibility from source to manufacture/value add to ﬁnal consumption. All these need to be done at a speed, which makes the vision to execution worthwhile, coupled with cost efﬁciency and agility in the supply chain, for adjustments that need to be made in forecasting and the competitive market forces. What is needed here is supply chain professionals who interface the above-mentioned functions in a seamless manner. The time has come for India to recognise Supply Chain as a discipline. In the absence of such individuals, it is advisable to deploy specialists rather than a do-it-yourself approach, as sometimes ‘modernising’ can have unforeseen fallouts. These specialists are not the usual run-of-the-mill consultants, but hardcore 3PL/4PL organisations that have the intellect and execution expertise to match. – JASJIT SETHI, CEO, TCI Supply Chain Solutions
Standardisation is the biggest challenge faced by the Indian logistics industry today. A huge number of trucks move goods across the the country on a daily basis. Despite this, there are no industry standards to deﬁne the body size, which would ensure optimum utilisation of trucking space. As global standards facilitate palletised movement of goods, it is important that we adopt these standards to build efﬁciency along the entire supply chain. The need of the hour is for government bodies, trucker associations and the industry to work together to bring about this change. The next wave of logistics consolidation will be deﬁned by the growth in mega warehouses, which would bring in global racking standards as well. We are witnessing a tremendous spurt in warehousing activity as well, which will act as a catalyst for the palletised movement of goods. A crucial challenge today for India is interconnection of its road, rail and waterway networks to facilitate multimodal operations. Another vital emphasis is on cost of services and speed-to-market for delivery of time-dependent ‘perishable’ goods, with minimum damage to products and equipment. With more controls applied on stocking levels at the point of sale, the demand for time-bound deliveries will increase as loss of sales opportunity due to non-availability of goods will play a crucial role in the bottom lines of most organisations.
– PRANIL VADGAMA, President, Chep India
APRIL 2011 • SMART LOGISTICS • 47
One ‘Q’ many views, continued
Currently, the logistics industry is highly unorganised, with a large number of players providing individual services across the value chain. The fragmented nature of the industry results in customers having to deal with various service providers, which puts a strain on their logistics costs. As a result, customers have to deal with multiple service providers, which further increases the logistics costs. Unorganised players compete on cost basis, at the expense of service quality and customer delight, which indirectly increases per unit cost due to wastage and higher inventory costs. As per government estimates, the overall Indian logistics spend in 2009-10 was `3 trillion, which included only primary transport modes and infrastructure. This is growing at a CAGR of 11 per cent, and is expected to reach revenues of `4.6 trillion by 2013-14. The unorganised segment is estimated to account for 75-80 per cent of marketshare across the logistics segment. The Free Trade and Warehousing Zone regulatory framework will give India the much needed impetus to drive its economic growth to the next level, while truly leveraging on the country’s vast domestic market and purchasing power parity.
– AJAY MITTAL, Chairman, Arshiya International
Infrastructure is one of the major challenges as it is still growing at a very slow rate. However, this budget has come as respite for some supply chain companies as it has increased the infrastructure outlay. In the budget, special incentive has been given to cold chain, which will promote companies to invest in logistics parks/cold chain hubs. This will help in plugging leakage in supply chain costs. Another challenge is the trained manpower for driving vehicles. However, even this issue has been addressed to some extent by opening up of driver training colleges across India and by the introduction of logistics courses in various colleges. Lastly, the industry is very fragmented, therefore the companies lose out on collaborative advantage. For addressing this issue, leading industrial organisations should focus on bringing logistics companies on a common platform so that they can work closely to harmonise the supply chain network. – AJAY SINGH BAMEL, COO, Apeejay Infralogistics
In India, the concept of 3PLs and 4PLs is not much evolved. Different companies are involved in various aspects of supply chain, such as packaging, design and logistics, but only few are providing complete end-to-end solutions. Consolidation by one agency is the way forward as this will help companies ﬁnancially and provide time beneﬁts as well. Thus, there is a need to come up with complete supply chain solutions. The huge manufacturing market in India further increases the scope for such companies. – P K AGRAWAL, Chief GM (Western Region), Container Corporation of India
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The Indian logistics industry needs a dramatic shift, which can be brought about by taking a multipronged approach. To ensure this, logistics managers must have a broad perspective of supply chain cost optimisation. Today, most often they are focussed on minimising transactional costs rather than optimising overall supply chain cost. An environment of trust and transparency with logistics partners is necessary to facilitate information sharing between the two. The unwillingness to share data and EDI is a major reason why the industry has not been able to reap beneﬁts, despite the availability of sufﬁcient IT capabilities with service providers. Poor infrastructure is one of the biggest impediments to growth of the industry in India. Creating infrastructure requires upfront investment from the government and private sector both. Further, introduction of GST and opening up of the Indian retail sector for global players are some of the other growth drivers. There is also a need to focus on quality education and training in logistics & SCM for inducting young talent.
– RAJEEV SAXENA, Vice President - Contract Logistics, Agility Logistics
Some of the major concerns that India faces is the lack of an organised supply chain industry. India’s warehousing sector is estimated to have about 1,800 million sq ft of warehousing space, and only eight per cent of this is owned and operated by organised players. Complementing growth in the logistics industry, India needs at least 25-30 million sq ft of additional warehousing space annually. India has realised the need for the concept of an efﬁcient supply chain. Most Indian organisations today are looking towards implementing a comprehensive supply chain strategy, and then linking that tactic to deliver bottom line results. – VIKAS ANAND, COO, DHL Supply Chain, India
The logistics industry has several loopholes. First, the excise and tax laws have large variation, and also differ from one state to another. Addressing this matter requires speedy implementation of GST. The second is non-uniformity in laws relating to load ability of trucks between different states. Thus, uniformity in laws is an important requirement across the country. For instance, customs at various sea, air and dry ports across the country interpret the same laws differently, thus creating barriers to mobility for the trade. The third problem is poor infrastructure, which considerably increases transit time, coupled with toll payments at various points en route leading to wastage of time and increased transaction cost. Therefore, transport infrastructure needs to be given a special status. Last and the most important issue is that logistics is not given the status of an industry in India. In relation to this point, logistics can play a pivotal role in increasing the competitiveness of an economy and boost GDP growth through lowered transaction cost, which is critical in these times of high food inﬂation. Logistics cost in India at 13 per cent is almost double that of developed countries. Special dispensations to encourage the logistics industry will go a long way in creating more structured and effective logistics capabilities. – BHARAT JOSHI, Director, Associated Container Terminal
APRIL 2011 • SMART LOGISTICS • 49
One ‘Q’ many views, continued
The key challenge has been the new normal – where volatility of customer demand is a given – forcing companies to reshape their supply chains to become more nimble, ﬂexible and responsive. Companies require better quality customer information and costs that can enable & support decisions to address uncertainties that lie ahead. The second challenge is maintaining visibility across the supply chain from sourcing supplies to ﬁnished product. Companies need to eliminate the disconnect between data and decision making, to create an astute supply chain. For this, companies are responding by investing in IT systems, and working collaboratively to understand & optimise supply chain costs. The third and perhaps key challenge has been the low involvement of the CEO, which hampers managing cross-functional trade-offs that underpin many supply chain decisions. The role of CEOs in bridging the functional divides that thwart collaboration will help in building an efﬁcient supply chain by making it a strategic undertaking capable of fulﬁlling business requirements. – SANJIV KATHURIA, Country – Sales & Marketing Director, TNT India
The Indian logistics industry needs an innovative approach to achieve further growth. DRS was the ﬁrst company to introduce the concept of double door carriers. One of the biggest challenges today faced by India is the time lost in transit of goods. With the double door carriers, we have managed to not only reduce the transit time, but also decrease damage to goods. Multiple shipments can be handled without ofﬂoading goods, which helps in faster transit of goods. Encouraged by the success of double door carriers, we are coming up with retail warehousing. This concept is new to Indian logistics industry, but will help reduce warehousing cost. This will also make warehousing space more ﬂexible, wherein the customer is not bound to enter into any agreement, and thereby have a signiﬁcant impact on per unit cost of the product.
– VARUN KUMAR, GM – 3PL & Corporate Marketing Relocation, DRS Logistics
One of the key challenges that supply chain managers face today on an organisational level is the speed of delivery, quality and cost. With an increasing ability and willingness of customers to ﬁnd alternative supply sources, customer demand can change dramatically and rapidly. To counter this, companies must focus on enhanced customer service and deeper understanding of consumer behaviour to ensure real-time supply and demand planning. End-to-end supply chain cost optimisation also acts as a major hurdle. Another persistent issue is to continuously optimise and reduce supply chain costs without compromising quality or time-to-market. The solution lies in objectively managing outsourcing of non-core functions and looking at the total supply chain cost rather than piecemeal cost. – SANJAY SINHA, MD & Founder Member, Leeway Logistics
Coordinated by Sandeep Pai, Sudhir Muddana & Purna Parmar
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INDUSTRY WISH LIST ONE ‘Q’ MANY VIEWS
AIMING TOWARDS SUPPLY CHAIN
Supply chain processes are the operational heart of a company and having a world-class supply chain is critical for achieving the level of cost, working capital investment and service needed to guarantee profitability. To ensure that a world-class supply chain does not crumble under the burden of inefficiencies, it needs to be supported by the strong pillars of lean flow, distribution network & transport and supplier integration. As India mulls over the concept of attaining a world-class supply chain, industry leaders offer their constructive insights into how India could convert this idea into reality. SUMEDHA MAHOREY
Multimodal activity for the movement of cargo is essential to provide seamless logistics. If you take the current Indian scenario, almost 65 per cent of the cargo uses road, 28 per cent uses rail and only seven per cent uses the coast. If we take all these percentages into consideration, the utilisation of all modes of transportation is very poor, as cargo distribution among these is not equivalent. If we wish to create a seamless supply chain, then we need to bring all these three modes of transportation at parity. We also need tax parity in all modes of transportation. Another facet is parity in the documentation process, which has to be uniform across the country as it will facilitate seamless movement of goods, leading to cost as well as time efﬁciencies. – S VARADARAJAN, CEO, Shreyas Relay Systems
The focus of the industry has still been on reducing costs by getting cheaper service providers, not realising that an efﬁcient service provision and experience of the service provider also is a gain to the company. Within organisations, this mode of thinking requires a change in culture and more interconnecting systems and automation, with less focus on human intervention. Furthermore, a clear system of nationwide regulations, taxes and tolls would allow a less time consuming and cheaper domestic distribution network, opening up more efﬁcient networks. If we can change the corporate mindset into integral thinking and set the government decision making processes up to logistics speed, India will be able to achieve that ‘seamless’ supply chain and sustain its growth. – CAROLINE SCHNEIDER, Business Development Manager, BLR Supply Chain
APRIL 2011 • SMART LOGISTICS • 51
One ‘Q’ many views, continued
The major hurdles faced by India’s logistics industry are insufﬁcient knowledge, underexposure of logistics solution providers, inadequate infrastructure, ineffective IT usage, complex tax laws and lack of an integrated transport policy. If we wish to create a seamless supply chain, we need to overcome these challenges. India needs to invest in road and railways, which are eco-friendly and the most cost-effective systems. Inland waterways neglected over the years need to be developed as well. Another challenge is the poor condition of roads, which translates directly into higher vehicle turnover that increases operating costs and reduces efﬁciency. These inefﬁciencies are passed on to the logistics industry, with transportation costs accounting for nearly 40 per cent of the logistics costs. Apart from this, while it is a welcome move to veer towards GST, the same has to be implemented on a fast track as the inter-state transfer of goods are delayed at various check posts increasing the dwell time for vehicle thus adding indirect cost. – PRADYUMN SHARMA, Manager – Operations, JWC Logistics Park
Logistics organisations should sell efﬁcient services, which will enable healthy competition. Most of the logistics ﬁrms today are taking short-cuts as they are unable to meet expenses, hence, compromising on service standards. The Indian logistics industry will have to arrive on strict standardisation of rate structure to achieve a seamless supply chain. – S MEHMOOD, Operations Manager – Corporate, Skypak Service Specialists
With higher labour rates in Asia, coupled with higher expectations of retailers, we are beginning to see an acceptance that it is no longer possible to simply throw low-cost labour into the warehouse to solve these problems. Investment in a higher degree of storage systems is now the solution. This does not necessarily mean top-end level of automation, which is easier to justify with the higher salary levels in the US or Europe, but can start with some relatively simple solutions, which may be upgraded to meet increased demands. Countries such as Singapore have already recognised that it is now essential to increase the productivity of warehouse operatives, which will increase overall productivity. To help promote this concept, Schaefer will be installing a technology centre in 2011, which will feature a range of solutions to enhance productivity, picking accuracy and reduce the storage footprint in the warehouse. – BRIAN MILES, Managing Director, SSI Schaefer APAC & Middle East
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SUGGESTIVE MEASURES INDUSTRY WISH LIST
ROADMAP TO SUCCESS Breaking the shackles of conventional thinking and age-old practices, the Indian logistics industry has been gearing up for good times ahead looking at the fast paced industrialisation. Though the road to success is not simpler, a thorough emphasis on critical enablers such as skill development and transportation management, can aid in gaining the desired momentum. taxes, duties charged by different states and even corporations in the country and various documents required for payment of taxes, clearing material, consume time as well as increase costs, which ultimately make the end consumers suffer. • Attracting talent: This is one of the most crucial issue that is paying faced by the logistics industry today. Apart from this, skill development is also one of the major issues that is hampering the growth of the industry. To mitigate the same, specialised training institutions need to be developed across India to provide desired training to professionals. • Developing ‘Special Warehousing Zones’: Setting up of Special Warehousing Zones close to airports, railway stations, highways is desired to attain a seamless flow of goods. It should also include facilities such as uninterrupted power supply, skilled talent availability, etc.
Ashish Palande, a second-generation entrepreneur, is the Group Director of Palande Courier. A Commerce Graduate from the University of Pune, Palande has done his Post Graduation in Management from Victoria University, Australia. He has also done a Post Graduate Diploma in Foreign Trade from Symbiosis. Palande is successfully managing the transition phase of the business from an individually run business to a professionally run business.
MARRED by innumerable challenges, the Indian logistics industry has not been able to match its global counterparts. Though the scenario looks grim, the renewed thrust of the government towards creating a seamless infrastructure & transportation network has provided a ray of hope to the logistics players in gaining a competitive advantage. The road to success lies in managing the following crucial parameters: • Reducing check posts and border crossing posts: Hundreds of check posts consume a lot of time, fuel and energy of the manpower on vehicles and incidental costs, which results into longer transit times and higher costs for consumers. The government must simplify these procedures to enable faster and uninterrupted movement of vehicles. • Nationwide uniform documentation and taxation: Various
• Improvement in airports in tier 2 & tier 3 cities with night operations: Apart from metro cities, airports need to be developed in tier 2 & 3 cities with facilities like night landing, night operations, material scanning, etc. The government should encourage airlines to operate cargo aircraft on these routes and offer tax holidays, lesser landing/parking charges, etc. • Separate railway tracks for freight movement: Railways is a cheaper and faster mode of transportation. With sufficient power generation to run Railways, India will not have to depend on other countries for supply of fuel thus, reducing cost burden on the consumers. • Promote usage of technology: Technological advancements like RFID, tracking systems and GPRS will enable efficiency and accuracy. As allied products for a potential growth sector, the government should charge less import duties on such items. • Collaboration/tie-ups between players: To provide consumers with value-added services, adopting a collaborative approach is of prudent importance. These efforts will reduce costs, improve transit times, thus benefitting logistics companies as well as end consumers. • Fuel prices: This should be changed at stipulated intervals so that logistics companies can charge its customers accordingly. Merely charging fuel surcharge as per fuel price fluctuation invites resistance from customers.
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Illustration By Uttam Rane
To effectively run business, distributors need to instantly respond to ever-changing demands of customers, vendors and markets. They must become proficient at understanding, forecasting and gauging product demand and automatically detecting seasonality, trends, slow-moving items and step-changes in demand. To ensure the same, demand planning promises to bring in new profit potential for distributors and yield tangible results, thereby translating into better returns. DISTRIBUTORS have always relied on their professional buying skills and inventory management expertise to service their customers. Yet today’s global supply chains, redundant inventories, demanding customers, expedited orders and tighter margins require distributors to add capabilities to survive, or rather, to thrive. Each day, distributors are challenged to source and sell globally while maintaining a local presence and strong customer
54 • SMART LOGISTICS • APRIL 2011
service. To remain competitive, distributors must be able to rapidly react to even the slightest change in demand. But current forecasting tools and techniques that most distributors use today are not suffiicient. Using the replenishment policy to trigger re-order points does not provide a longterm view. The use of spreadsheets is no longer a saviour as they are error-prone, labour-intensive and do not integrate easily with ERP systems. In such a scenario, leading distributors
are turning to forecasting and inventory planning to increase profits across all three main activities in their organisation, viz, buying goods, stocking goods and selling goods.
DISTRIBUTION DYNAMICS Several dynamics are putting pressure on the distribution business environment and many distributors are struggling to master today’s marketplace. Distributors are facing multiple challenges, including:
• Managing global supply chains and redundant inventories • Chasing new growth, markets, products and business models to adjust to market trends • Increasingly difficult customer demands, including stringent timelines and expedited orders • Tightening margins due to customer price pressures and rising costs • Controlling costs and doing more with less, which is complicated by internal operational silos. Excess inventory is the single biggest threat to the financial performance of every distributor. This results from global expansion that has multiplied overall inventory levels and increased time to market, as well as complex multi-tier supply chains that have increased ‘just in case’ safety stock. In some cases, decentralisation has added even more redundant inventory. Despite these challenges, new opportunities are emerging: Vendor managed inventory (VMI): In this profit model, distributors take ownership of a customer’s inventory for a premium price. Supply chain collaboration: By sharing information with vendors and customers, distributors can profit from stronger relationships that foster more reliable supplier performance. Acquisitions: As distributors expand their coverage, there are opportunities for greater economies of scale.
PITFALLS OF CURRENT FORECASTING TECHNIQUES In the past, most distributors subscribed to the conventional view that forecasting added little value. A distributor’s business was more supply focussed rather than being demand driven. Given today’s complex global supply chains, these needs have changed. However, current forecasting tools and techniques used by most distributors are not adequate anymore. Some distributors use replenishment policies to trigger re-order points. But this method does not look beyond the next purchase order placed, and makes it difficult for suppliers to plan their business efficiently. Other distributors use multiple spreadsheets, usually with thousands of rows of data, making it a painful, errorprone and manually intensive process.
Demand planning empowers buyers to become more strategic
Increased forecast accuracy means smarter inventory investments
Increased customer service
Visibility builds stronger relationship with suppliers
More efficient inventory management
Better fill rates increase revenue and block competitors
More complete picture means better negotiations
Better inventory placement means less repositioning
Value added services, such as VMI, strengthen customer relationships
Lower cost of goods sold
Lower inventory carrying and logistics costs
Opportunity to increase price and margin
Figure 1: Operational impact of demand planning
Spreadsheets also lack the ability to easily integrate with ERP and procurement systems. With spreadsheets, it is difficult to: • Introduce new products and phase out old ones • Provide the manufacturer with visibility into future growth or decline for specific products, to help them plan their business accordingly • Work with manufacturers to plan promotions to stimulate demand • Build stock for a new product introduction or a store opening • Determine sourcing strategies and supplier splits • Manage demand for a project • Identify slow-moving products • Add in a new distribution centre • Convert the forecast into a financial plan for revenue, purchase spend and cash flow • Collaborate to capture knowledge from supply chain partners, eg. manufacturers, designers & transportation resources. In short, spreadsheets cannot provide multi-dimensional analysis or collaborative planning capabilities required to plan demand and supply. That is why distributors are turning towards demand planning to help predict and shape customer demand with greater accuracy. Demand planning accommodates even the toughest forecasting challenges associated with seasonality, promotional events and new product introductions.
DEMAND PLANNING Distributor operations can be grouped into three main activities: Buying, stocking and selling goods. Demand planning can help distributors tap into new profits across each of these aspects of their business (Figure 1). This section provides insights as to how demand planning impacts a distributor’s procurement, inventory
management and sales functions. Buy: Better visibility, more proficient procurement Every distributor depends on the professional buying skills of its procurement team. Demand planning provides increased visibility and a longer horizon, so the negotiating skills of these buyers can reach new levels based on a complete picture of supply chain cost and service. Having a long-term view of demand empowers buyers to move beyond re-order point purchasing towards a more strategic procurement. Demand planning provides a foundation for more proficient procurement that helps distributors: • Eliminate the guesswork while making purchasing decisions • Transform buyers into planners • Provide more time for negotiations • Build a stronger relationship with suppliers. By leveraging on demand planning, distributors can collaborate with suppliers via the Internet and provide longer planning horizons. In turn, these suppliermanufacturers can use the longer planning horizons to improve their reliability and delivery performance. More strategic procurement and better negotiating add up to a lower cost of goods sold and higher profits for distributors. Stock: Lower operating costs with more efficient inventory management Distributors can leverage on demand planning to boost forecast accuracy. That increased accuracy translates directly into smarter inventory investments. With demand planning, distributors have the ability to drive out excess inventory that does not add value, without sacrificing customer service. More efficient inventory management helps distributors: • Maintain a more consistent and
APRIL 2011 • SMART LOGISTICS • 55
Demand planning, continued
Distributors must change. These changes include leveraging better customer demand data, sharing demand-based information and performing real-time analysis of orders to become more demand driven. DR ADAM J FEIN, PhD, Founder & President, Pembroke Consulting accurate inventory balance • Place inventory in the right markets, resulting in less repositioning • Decrease costly obsolete inventories. With improved forecast accuracy, distributors can better carry the right inventory in the right place at the right time. Ultimately, increasing inventory efficiency lowers inventory carrying and logistics costs, thereby delivering greater profits. Sell: Using higher service levels to become a preferred vendor By having the right inventory in the right place at the right time, distributors can increase customer service and build stronger relationships with customers, thus becoming a customer’s preferred vendor. Better customer service helps distributors: • Increase fill rates and boost revenue • Prevent competitors from gaining access to customers • Improve their reputation in the market. With demand planning, distributors can offer advanced value-add services, such as VMI, for premium prices, more consistent fill rates and premium services to increase margins and boost the bottom line.
THE DEMAND PLANNING MATURITY MODEL: WHERE ARE YOU TODAY? The Demand Planning Maturity Model has been designed to aid distributors in assessing their current forecasting process and limitations, and then chart an action plan for improving their capabilities in forecasting and inventory management. Distributors can leverage demand planning across a wide spectrum of capabilities – with the ultimate goal of collaborative demand planning (Figure 2). Stage 1: Gut Feeling At the low end of the Demand Planning Maturity Model is the notion of forecasting based on ‘gut feel’, with no formal analysis of historical sales data. This forecast is usually a combination of the aggregated sales forecasts and the
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forecaster’s opinion as to whether this forecast is credible. Because of inadequate tools and performance review processes, often forecasters at this level are working at an aggregate product level, or worse, a forecast expressed in revenue. But purchasing requires forecasts at Stock Keeping Unit (SKU) levels, and in a multi-site operation, warehouse assignments are important, in order to orchestrate deliveries. Stage 2: Sales/Historical Review Traditional forecasting methods have typically stemmed from the analysis of historical data and figures such as sales orders and inventory stock-outs. By tracking and analysing historical data, forecasters try to predict future demand for a particular customer or aggregate of customers over a given time period. Typically performed through spreadsheet analysis, this model has served distributors well over the years, given the flexibility and user-friendliness of spreadsheets. Often, the primary purpose of this type of planning is for financial management, not for operations management. Enterprise systems have also been used for this type of forecasting, and have helped forecasters shift from making a forecast based on gut feeling to a reasonable, substantiated, albeit difficult-to-manage, forecast. Stage 3: Statistical Analysis The next stage of demand planning is statistical analysis, which uses basic
statistical formula to project demand. Many people perform some level of statistical analysis with rudimentary timeseries methodologies, such as moving averages and focus forecasting. At this level of the maturity model, forecasters essentially use tools to systematically arrive at a demand forecast that they can utilise as a starting point and to which they can apply external factors not known to the system. Stage 4: Inventory Planning The next stage moves to the heart of a distributor’s business – inventory and replenishment planning. At this level, distributors import their sales history from their ERP systems and feed the generated forecasts into their planning systems. Leveraging forecasts to drive inventory plans means that distributors can achieve a pre-set service level for each inventory classification using the forecast error to determine safety stock. By integrating an ERP system with demand planning, distributors can increase operational efficiencies, enhance employee effectiveness, improve customer service and maximise their IT investment. Stage 5: Inventory Deployment After integrating forecasts into existing systems and improving inventory planning, distributors can efficiently deploy inventory across their distribution network. By placing the right inventory in the right location, distributors avoid costly repositioning and obsolescence. More effective inventory deployments mean that a distributor is ready to capitalise on sales opportunities as and when they arise. Stage 6: Internal Collaboration Even the most advanced of the earlier demand planning techniques are backward-
Degree of Forecast Accuracy
Input into SCP Demand Planning Maturity
Figure 2: Demand Planning Maturity Model
Input External into Collaboration SCP
looking, using historical information to project future demand. With internal collaboration begins forward-looking forecasting. This includes collaboration between sales, marketing, procurement and inventory management to get a complete view of the demand and supply conditions affecting the business. From accounting to sales to the warehouse, and everywhere in between, with collaborative demand planning, distributors can harness employee knowledge to optimise inventory levels, increase productivity and improve profitability. Stage 7: External Collaboration At the final stage of collaboration, companies harness knowledge from outside, and forecasting transforms into a supply chain-wide collaborative effort. At this point, customers and suppliers work together in real-time and use statistical analysis, functional extensions and often, advanced Internet technologies to formulate the most accurate forecasts possible. Working or collaborating with trading partners creates a way to share information that eliminates the guesswork
Distributors are turning towards demand planning to help predict and shape customer demand with greater accuracy. And, demand planning accommodates even the toughest forecasting challenges associated with seasonality, promotional events and new product introductions. and prediction around a customer’s needs. The goal of collaboration is to provide economically viable technical solutions to support simplified, automated, closedloop demand planning processes that allow users to spend less time creating the information and more time using it, eg. Web-based tools.
NEW CHALLENGES CREATE NEW OPPORTUNITIES Although today’s complex global supply chains create new challenges for distributors, these also create new opportunities. To leverage on these opportunities, distributors must become more proficient at understanding, forecasting and shaping product demand. With demand planning, unlocking new profit potential has become easier
for distributors. From the procurement perspective, a long-term view of demand empowers buyers to move beyond re-order point purchasing to a more strategic procurement, building stronger relationships with suppliers and lowering the cost of goods sold. For operations, increased forecast accuracy means smarter inventory investments and more efficient inventory management. From a sales viewpoint, more consistent fill rates and premium services can both increase margins and boost the bottom line. Demand planning thus delivers tangible results that translate into a better return on assets for distributors. Courtesy: This article is an excerpt from the whitepaper, ‘Can demand planning unlock new profit potential for distributors?’ by Infor SCM.
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APRIL 2011 • SMART LOGISTICS • 57
SUPPLY CHAIN MANAGEMENT
STRATEGIC ALIGNMENT IN THE SUPPLY CHAIN
Business strategy alone can set the direction, provide objectives, specify the desired corporate goals, but cannot deliver results. If each functional strategy in a company is aligned with the same and supports the goals set by the business strategy, then it can become a powerful roadmap for achieving the desired results. To achieve a worldclass supply chain order, companies align their supply chain strategy with that of the corporate strategy, and then drive alignment across the supply chain on objectives and aspirations. In the best in class companies, supply chain colleagues from the shop floor to the most senior managers clearly understand the supply chain strategy and aspirations. Alignment in theory must also be practiced to reap the benefits. Companies that can achieve best practice in strategic alignment are more likely to achieve top service, cost and inventory performance. Most successful companies achieve this by first setting and communicating clear aspirations and ensuring that all colleagues – from the shop floor to the most senior managers – clearly understand the strategies. They then translate the aspirations into strategic initiatives and, ultimately, deploy and monitor tactical change plans.
SEGMENTATION TO EMBRACE COMPLEXITY THAT MATTERS
Increasing product and customer complexity has been one of the most significant challenges for many organisations in recent years. Globalisation results in the formation of geographically diverse customer groups; while within the same markets, the growth of small and more demanding consumer niches calls for different levels of products and service as well as different routes to market. Some companies have chosen to tackle this challenge by ignoring it, despite complaints from those involved in the supply chain. Companies struggle to find an acceptable compromise to meet these diverse requests, using a single set of supply chain processes, which often leads to higher cost. However, leading companies actively manage product and service complexity. They design multiple supply chains within a network to capitalise on the complexity that delivers a competitive advantage. Companies take firm steps to eliminate complexity where it is not
58 • SMART LOGISTICS • APRIL 2011
OF GLOBAL COMPETITIVENESS Excellent supply chain management helps leading companies around the world achieve better service, lower costs, lower inventory and, ultimately, a competitive advantage. Some of the companies are chasing the opportunities by following six valuable practices. These practices if followed with sanctity can help in attaining a world-class supply chain models. required. Most successful supply chain companies use effective segmentation techniques to identify the specific product and service demands of different customer groups. They then build their production and distribution networks specifically to meet these demands, ultimately enabling complexity at a lower cost than a one-size-fits-all approach. The key to ensure the success of these companies, however, is their ability to meet the demands of
their different customer segments without increasing supply chain costs.
A BALANCED AND FORWARD-LOOKING DESIGN
While most companies are striving to make incremental decisions on where to place new assets, the best of organisations make their decisions using a comprehensive and forward-looking network strategy. They first design an
overall supply chain strategy to deliver the right service levels to their different customer segments at the right cost and at appropriate levels of risk. They then optimise their network structure, transport links and inventory levels to match these. Keeping cost, customer service and risk in mind at every stage of the supply chain, design allows these companies to avail of the best tradeoffs for overall supply chain performance. For example, they control costs by keeping asset utilisation sufficiently high, so that they do not lose the flexibility needed to serve unpredictable customers. Leading companies create a top-down and forward-looking vision of their overall supply network. They ensure that the network balances productivity, flexibility and risk to deliver great service without excessive cost or risk.
A LEAN, END-TO-END VALUE CHAIN
The geographically and functionally diverse nature of the supply chain functions can lead companies to optimise locally at the cost of overall efficiency. Companies may focus only on improving the performance of planning function or manufacturing, for instance, risks that introduce additional costs or poor service elsewhere in the chain. The most successful companies the world over often take extensive steps to avoid this problem. Leading companies task their supply chain managers with optimising end-to-end value chains and drive true collaboration across functions. They typically deploy a standard toolkit for continuous improvement (eg, lean or Six Sigma), which they have made their own. By giving supply chain managers control and ownership of end-to-end supply chain costs, the best companies ensure that management decisions improve the total business and not just functional performance. They even extend this end-to-end perspective beyond the boundaries of the organisation, by involving suppliers in the supply chain decision-making processes and by systematically aligning supplier incentives with supply chain objectives. Such a broad, cross-functional approach inevitably involves complex tradeoffs and the need for problem solving. Using standard ‘lean’ and other continuous improvement problem-solving tools, these companies ensure that all functions have a common approach
for resolving such issues and driving end-to-end improvement. In addition, they align metrics across the organisation to drive true collaboration. Moreover, endto-end thinking has a powerful effect on the supply chain cost. Companies using this approach can capture savings that are not accessible to those that only optimise within functional or regional silos.
WORLD-CLASS INTEGRATED PLANNING
Even the most agile supply chains must execute a plan. Leading companies use disciplined integrated planning processes to ensure that their organisation executes in synchronisation, without the need for ‘heroes’. The quality of integrated planning processes used by various companies will play a key role in determining the overall effectiveness of their supply chains for meeting customer needs without excessive inventories, such as expedited freight. The best of companies execute strong cross-functional planning processes that integrate actions across functions in the business. They execute the sales and operations planning (S&OP) process in regular meetings, with active participation from senior leaders across the business, including sales and finance. During these meetings, senior leaders agree on one future view of demand for the business, and may need to allocate products to certain customers for developing a feasible capacity constrained production plan. Capacity planners then inform the staff about these decisions using real-time visibility of inventories and production lead times across the supply chain. In addition, at the meeting, the senior leaders agree on a long-term demand plan that feeds the network and capacity planning processes. For an effective demand planning, companies start by understanding the unique demand patterns of their products and customers. The organisation then defines different planning processes for each segment. For example, a company might use unaided statistical forecasting for products with long lifecycles and stable demand. For a different segment that is highly promoted, the same company might invest to build collaborative demand planning processes with its customers. They then use these demand plans as inputs for robust and cross-functional sales & operations planning processes that ensure alignment between current purchasing,
production and distribution activities and latest forecasts.
RIGHT TALENT ACCOUNTABLE FOR PERFORMANCE
Companies should make supply chain talent development and acquisition an organisational priority. Supply chain positions form part of the top management career track. Once the right people are on board, companies should hold their talented people accountable for the supply chain’s performance. There are numerous examples of companies across the world, which have adopted a strategic approach to acquiring and developing talent in the supply chain function. Some of the leading companies are also striving to link talent development in the supply chain function with that of the wider organisation. The role of supply chain becomes part of the career path for general managers, and staff. While it is common for supply chain functions to recruit new talent only when positions become vacant, the best companies use the talent gap analysis to identify future capability needs. These companies then take steps to fulfill those needs, by holding training and mentoring programmes to build internal capabilities and recruiting people with a broad range of backgrounds and experience. In the best companies, each member of the organisation is responsible and accountable for the supply chain’s contribution to business success. Companies achieve this by building a comprehensive series of aspirations that cascade as metrics from strategic requirements for overall supply chain performance to every part of the organisation. Critically, these metrics express performance requirements in terms that are directly relevant to each function.
THE TAKEAWAY Companies across the spectrum having diverse systems & processes have been seeking ways to improve their supply chain to attain various benefits. Some supply chain practices appear to have a strong effect on the supply chain’s performance. Therefore, by sincerely following these practices, companies can immensely improve their supply chain efficiency and attain a competitive edge over others in the race to stay ahead. Compiled by Sandeep Pai
APRIL 2011 • SMART LOGISTICS • 61
TOOLS & TECHNIQUES
Illustration By Sanjay Dalvi
SUPPLY CHAIN MANAGEMENT
LEASHING THE CHANGE In this day and age, it is important for supply chains to continuously evolve to meet the transient business demands. Any weak link in the supply chain could bring in instability and affect the overall supply chain management process. Utilising methodologies such as Failure Mode and Effects Analysis and Theory of Constraints can not only repair the damage, but also ensure a proactive supply chain management. THE recent economic crisis has been an eye opener for most organisations, indicating an urgent need to align operations and policies to the changing business requirements. In today’s world, an organisation can succeed only if it is prepared for unknown challenges. Although an economic crisis instills fear and makes one conservative, it is important to remember that every downturn is followed by an upturn. Adaptability should be robust enough to traverse through both times. Similar is the scenario with the supply chain. Today’s supply chain faces overwhelming challenges, the nature of which varies with changing times. The robustness of a supply chain will depend on the ability to detect and act on upcoming challenges before the supply chain becomes unstable.
CHALLENGES OF MANAGING TODAY’S SUPPLY CHAIN The following factors make the supply chain exceedingly difficult to manage: Complex global network: The supply chain network has grown complex due to two factors – numerousness and remoteness of stakeholders. Today, suppliers and customers can be at remote geographical locations. Due to profitable outsourcing/off-shoring options, manufacturing and service partners are spread across geographies. This has caused reduced visibility across the supply
62 • SMART LOGISTICS • APRIL 2011
chain coupled with delay and distortion of information while exchanging information, and hence reduces the responsiveness of the supply chain. As shown in Figure 1, the aim of the entire supply chain is to deliver the end product to the customer’s customer. All entities, right from the supplier side links of the chain through the internal links to the customers as well as the service partners, should have a common aim – delivering to the last end of the chain, ie. customer’s customer. It is a colossal challenge to synchronise the goals of all these entities into a common goal of making the entire supply chain robust. Also, costs and complexity of infrastructure, transportation and communication have soared due to the complex global network. As the supply chain spans many countries, their environmental, economic and political conditions affect the supply chain. A supplier, customer or a service partner situated in a location with unstable conditions can weaken the entire supply chain. Product mix and product lifecycles: Competition in almost all sectors has become intense. Companies are constantly focussing on innovation and customisation to enhance customer satisfaction. This has resulted in shorter product lifecycles and a large number of Stock Keeping Units (SKUs) to manage.
Uncertain customer demand: With the advent of the Internet, customers are now empowered with a plethora of information and choices. It is extremely difficult to predict customer needs and decisions under such conditions. Technology: Technology is fast advancing to empower us with newer and faster ways of communicating, computing and transacting. Keeping up with changing technology is expensive and difficult. It also dampens the pace of the supply chain during learning curves. Having mentioned the challenges, it is worth stating that all the above factors like globalisation, outsourcing, innovation, large product mix, advanced technology, etc., have been immensely beneficial for businesses and for society at large. However, all these have added to the complexity of managing businesses and making decisions. If one can combat the challenges accompanying these factors, then these very factors can prove to be competitive advantages for success.
MEASURES TO COMBAT CHALLENGES
SERVICE PARTNERS Material ﬂow Information ﬂow
Figure 1: Supply chain structure
Nitty-gritty of an ideal supply chain framework Supply chain is, in essence, the flow of material from the point of origin to the point of sale or vice-versa. Controlling the supply chain is, therefore, essentially controlling the flow of this material so that the right product reaches the customer in right quantity, time and price. Figure 1 depicts a typical supply chain. The primary chain comprises double-bordered boxes linked with each other. The strength of the supply chain is only as good as the strength of the weakest link in the chain. Hence, every link in the chain should be equally strong to have a robust supply chain. For example, let us consider the link ‘Source’ in Figure 1. If the quality, quantity, time and price of the material that is procured at this stage are not as desired, then the entire supply chain is affected, regardless of how well the other links are performing. As illustrated in Figure 1, the supply chain can be divided into Internal, External and Service Partners according to the level of control exerted on the links. The links Source, Make, Store, Move and Sell are grouped under Internal SCM and are directly controlled by the organisation in consideration. On the other hand, the links on the demand end and supply end are grouped under External SCM. These links are in low control. However, visibility across these links is imperative. The other group is Service Partners. Although these are outside the organisation, there can be some level of control and high level of co-operation as they are extended support partners of the internal SCM links.
Collaboration: This could prove to be a panacea for supply chain hurdles. Collaboration means that stakeholders have a common goal of working towards successfully delivering to the end customer all the time. This mammoth task can be achieved by: • Mutual trust in terms of sharing of knowledge, information, best practices, risk and gain • Mutual goal setting and expectation setting at the onset • Helping each other in achieving the common goal even if it means capability building of an external chain member, like a supplier or service partner • Jointly working towards removing constraints in the supply chain. Visibility: The dotted arrows in Figure 1 show the flow of information in the supply chain. Planning of sales, cash flow and the material flow across the supply chain is done based on the information gathered from the customers, suppliers, market intelligence, economic predictions, etc. This plan is then executed by the internal chain members – Source, Make, Store, Move and Sell. However, proper execution strongly depends on the support from the external members – Service Partners, Suppliers and Customers. The information flow between all these chain members must be appropriate, accurate and seamless to establish visibility across the supply chain and enable correct planning. Relevant information regarding customer needs, design change, planning decisions, etc. must be accurately available to all chain members to enable correct material flow through every link. Forecasting: Needless to mention, the effectiveness of the supply chain relies on forecasting the demand. Traditional methods
of forecasting based on demand history have proved to work well under predictable business conditions. However, in today’s dynamic environment, traditional forecasting models are not able to make close predictions. Therefore, companies end up having huge unwanted inventory and are still not able to meet customers’ needs. For accurate forecasting today, collaboration and visibility across the supply chain is essential. Forecasting should be based not only on past demand, but also incorporate market intelligence information gathered from customers, suppliers, market and economic conditions. Given the dynamic nature of business today, the above mentioned challenges may change in nature for which different remedies may be required. How then can one build a robust supply chain? For this, one has to find a method of predicting upcoming challenges and then taking proactive steps to mitigate the effects of the challenge before it can affect the supply chain.
TOOLS TO BUILD A ROBUST SUPPLY CHAIN The Failure Mode and Effect Analysis (FMEA) and Theory of Constraints (TOC) can prove to be useful tools to formulate a
APRIL 2011 • SMART LOGISTICS • 63
Supply chain tools & techniques, continued
Essential terminologies • Attribute is the quality, volume, price and time of the material. • Failure Mode is the defect or non-conformance with the desired level. • Effect of Failure is the impact on the supply chain and the customer if the Failure Mode is not corrected or prevented. • Causes of Failure are the reasons that have resulted in the Failure Mode.
analysis is performed for each link in the internal chain against each attribute in Table 1. Table 2 illustrates the sample typical procedure of calculating RPN. Let us consider the link, Source and the attribute, Volume. The analysis considers one Failure Mode as an illustration of RPN calculation. However, there could be more failure modes and more effects and causes depending on the business. The total RPN value would then be the sum of RPNs of all failure modes associated with the particular link and attribute. In the above FMEA analysis, once the Failure Modes, Effects and Causes are identified and listed, these must be assigned ratings on a scale of 1-10: • Severity (SEV): It defines how severe the impact of the Effects of Failure is on the supply chain and, consequently, the end customer. A high rating would indicate a high severity of the impact. • Occurrence (OCC): It defines the likelihood of the Causes of Failure Mode to occur. A high rating would indicate high probability of occurrence of the problem. • Detection (DET): It defines the likelihood of the current system to detect the Cause of Failure Mode if it occurs. A high rating would mean low probability of detection. RPN = SEV × OCC × DET This gives the numerical representation of the relative risk associated with Failure Mode. From the above matrix, the RPN values for R1C1, R1C2, etc. in Table 1 can be obtained. Similarly, all other RPN values in Table 1 can be calculated. But before inserting these values in Table 1, it is essential to decide the threshold RPN for each cell. Threshold RPN is the acceptable RPN for a cell. The threshold values may vary for different businesses and industry sectors. If a cell has a higher RPN than its threshold value, then it is at a more than acceptable risk. After inserting the corresponding actual RPN
64 • SMART LOGISTICS • APRIL 2011
way to build a robust supply chain. FMEA is a widely known tool to assess risks, which, if not mitigated, can cause system failure. It helps analyse potential failure modes within a system for its severity and likelihood of failure. TOC is another effective tool, which gives a systematic methodology of managing constraints. Failure mode and effects analysis Although uncertainties are difficult to predict, most changes have a transition period, and hence it is important to have a methodology to detect the changes at the onset of the transition before any damage is done to the chain. FMEA can be used to detect the potential risk of change or failure in the chain. It is difficult to manage what cannot be measured. But first, let us formulate the parameters for which the risk needs to be measured: Supply chain is about delivering the right quantity, of the right product, at the right time and at the right price to the customer. Therefore, it is logical to say that the quantity, volume, price and time of the material flowing through each link in the chain needs to be controlled. When any of these attributes are at risk in any link, the entire supply chain has to bear the consequences. The risk analysis discussed here will consider only internal Attribute SCM links, that is, Source, Make, Store, Move and Sell. This Chain Quality Volume Price Time is because external SCM links cannot be directly controlled. Member However, their support is indispensable for the success of the Source R1C1 R1C2 R1C3 R2C4 internal chain. Here, it will be assumed that even though external Make R2C1 R2C2 R2C3 R2C4 chain members are not included in the analysis below, if the Store R3C1 R3C2 R3C3 R3C4 support from any of the external SCM members weakens, it Move R4C1 R4C2 R4C3 R4C4 would also weaken the internal chain, and thus the analysis will Sell R5C1 R5C2 R5C3 R5C4 be able to detect the risk. Total Attribute Table 1 evaluates the risk associated with the links Source, C1 C2 C3 C4 RPN Make, Store, Move and Sell in terms of quality, volume, price Table 1: Risk Priority Numbers (RPN) and time of the flow of material across the link. The analysis will measure the risk of each chain member by calculating Risk Priority Number (RPN). FMEA - Chain Link: Source In Table 1, R1C1 is the RPN of the link, Causes Source, in terms of Quality. R2C2 is the Failure Effects of Failure of Attribute Current Controls RPN of the link Make in terms of Quantity Mode Mode Failure and so on and so forth. The rightmost Mode column is the total RPN associated with Weekly review of Stock out and loss Low Planning a corresponding link. Therefore, R1 is the 5 planning vs demand 2 Volume quantity of customer order 9 error performance procured and goodwill total RPN of the link, Source. Likewise, the Weekly review RPN of all other links can be calculated. Supplier 7 of supplier 4 These RPN numbers, therefore, give a issue performance measure of the relative risk that each chain Demand member is contributing to the overall risk in 8 7 variability the supply chain. Table 2: FMEA Analysis Example To arrive at the RPN numbers, an FMEA
Total link RPN R1 R2 R3 R4 R5 RC
values in the table, one can also calculate the percentage difference of each cell from its threshold value. Thus, the relative risks associated with each member and attribute have been determined. Theory of Constraints – A Five-step Methodology TOC is a constraint management philosophy introduced by Dr Eliyahu M Goldratt in his book titled ‘Goal’. TOC states that if you do not manage constraints, then constraints will start managing you. The TOC process is based on the fact that the rate of achievement of the goal is limited by at least one constraint in the system and there is always at least one constraint present in the system. Overall throughput can improve if the performance of the constraint is improved. His five-step methodology provides an ongoing method of identifying and eliminating constraints. The five steps are as follows: • Identify In this step, the link, which is the constraint or the weakest link, is identified. For determining this, let us refer to the RPN obtained from Table 1. The values R1, R2, R3, R4 and R5 are the total RPN values for the links Source, Make, Store, Move and Sell, respectively. The threshold RPN for each of these members has also been set. Therefore, for each link, one can calculate the percentage difference of the actual RPN from its threshold. The link with the highest percentage difference is the link, which poses the highest risk. Therefore, it can be said that if the risk is not removed, this link will contribute the most to weaken the entire supply chain and is, therefore, a constraint. • Exploit This step aims to extract the maximum from the weakest link (constraint) and strengthen it. In this step, methods to increase the output of the constraint member are devised. From step 1, the weakest link has been identified. It could be Source, Make, Store, Move or Sell. But what needs to be identified is the root cause, which is weakening the link. For example, let us consider the case that the link, Store, is the constraint. The values of R3C1, R3C2, R3C4 and R3C5 can give an insight into the root cause. The factors influencing these attributes to identify the root cause of the risk are then analysed. In the exploit stage, the effects of this root cause are mitigated so that the maximum possible output from this link can be reaped. Let us say, the Quality attribute of link, Store, is posing the highest risk. Then, the focus of the supply chain strategies will be to have the highest possible Quality output at this link. • Subordinate In this step, other members are brought to the new speed of the constraint member. The entire chain should synchronise with the strength of the weakest link and the focus should be on getting the maximum output from the constraint member. For this to happen, there must be visibility throughout the supply chain. Planning for each link should consider the constraint factor rather than plan according to its own localised strength. • Elevate In this step, the capability of the constraint member is increased. If step 2 is not sufficient to eliminate the constraint, then capital may need to be invested to enhance the capability of the constraint member. • Return to step 1 until the constraint is eliminated In this step, the RPN values in Table 1 are re-calculated. The
risk of the present constraint link is compared against all the other links. If it is still at the highest risk, then one should return to step 1 and repeat the cycles. However, if the value is lesser than the RPN of any other link, then the constraint has been overcome and the new constraint is linked with the current highest RPN. This step ensures that inertia is not a constraint. The system will always have at least one constraint. When one constraint has been mitigated, one must move on to the next constraint and the cycle continues.
A STITCH IN TIME In this fast-changing world, supply chains are frequently faced with new challenges, which tend to disrupt the stability of the supply chains. The challenges can be redressed by using tools such as Failure Mode and Effects Analysis and the Theory of Constraints. These two tools will help in detecting the links in the chain, which are at high risk. If this methodology is adopted as a continual practice to detect and act on constraints or risks before they result in failures, then it will repair the situation much before any serious damage can be done to the supply chain. Jayeeta Mohanty is Senior Consultant of Genpact Analytics India. In her present role, she does supply chain analytics. Mohanty has done an MBA in Supply Chain and Operations from India and MS in Electrical Engineering from the US. She has varied experience in the fields of Supply Chain, R&D and Marketing. E-mail: firstname.lastname@example.org
APRIL 2011 • SMART LOGISTICS • 65
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Commercial vehicles ........................................................................................34, 35
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Pooling of pallets & crates..................................................................................BIC Project logistics ........................................................................................................... BC
Everest pre-engineered steel buildings ........................................................FIC Reverse logistics ......................................................................................................... BC Exhibition - Engineering Expo ............................................................................... 4 Self-adhesive tapes .....................................................................................................65 Forklift spares................................................................................................................... 3 Supply chain management-design & planning .......................................... BC Freight forwarding .......................................................................................................23
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Warehousing ................................................................................................................ BC
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