Fullmag feb 14

SCMPr

n ACADEMIC ADVOCACY n Knowledge n WHITEPAPER n BEST PRACTICE n HUMAN RESOURCE

Supply Chain Management Professional

February 2014 Vol. 2—No. 1

`150

1st

Anniversary

Evolution of Indian Supply Chain “Supply Chain Zeitgeist” Sector In This Issue

Page 26-27

insight Why Supply Chain work or do not Page...6

Knowledge Bridging the Knowledge Gap Page...18

WhitePaper 7 Reasons to Consider ERP in the cloud Page...38

editorial

A Year Old! W

Girish V S Executive Editor

hew. How quickly time flies. A year ago we were in the midst of planning the launch of SCM Pro. Agonizing over the editorial content. Seeking out the opinions of the men and women who matter. And before we knew it we are a year old. The baby has blossomed into a serious magazine. We are indeed thankful to you for support. Your acceptance of a new magazine. From the initial euphoria to the excitement to create value for our readers month after month, we had seen a fantastic journey.

In the meanwhile the economy slowed down. Rates went up.

Fuel became dearer. Jobs became scarce. And optimism diminished. The country flirted with untested bunch of people to govern a state. And saw them fall from grace. We saw regime changes across the world. We witnessed the acrimonious creation of a new state. We agonized over our income decreasing due to inflation.

We saw the God of Cricket retire. We saw our men in Blue beaten black and blue. Clearly we are in tough times.

But amidst these tough times, we held steady. We did not waver from our goal of positive journalism. We did not deviate from our self imposed discipline of looking at the brighter side. And we hope you like what we did.

The time has come to re-dedicate ourselves to a better year. Better content. Better coverage. Better everything. And we need your help in this. We derive our strength from you. We cherish your support. But we cannot do it without you.

As ever, please write in to us with your comments and critiques.

Happy Reading. And yes–a big Happy Birthday to us.

Executive Editor

SCMPr

February 2014

3

Contents February 2014 4 SCMPr

06 Insight >> Dr. Rakesh Singh on Why Supply Chain work or do not.

14 Academic Advocacy >>

An extract from a research paper on Meta - Analysis of Logistics Customer service.

18 knowledge >> University of Southern California and Infosys Joins hands for Global Center of Supply Chain Management.

February 2014

24 lead story

SCMPr Executive Publisher Jayaram Nair jayaram.nair@scmp.in EDITORIAL Executive Editor Girish V S girish.vs@scmp.in Consultant Editor Dr. Rakesh Singh rakesh.singh@scmp.in Creative & Production Shivasankaran Pillai shiva.pillai@scmp.in Advertising Soney Mathew soney.mathew@scmp.in

An overview of three broad areas which we feel will drive the evolution of a better supply chain management process in the country.

38 Whitepaper >> 7 Reasons to consider ERP in the Cloud

44 Column >> Anil Sathe on Supplier Audit Program for effective Supply Chain Management.

46 Human resource >> Darryl Judd professes on integrating finance with Supply Chain for greater visibility and cost and time saving.

Rashid Iqbal-Director rashid.iqbal@scmp.in Media Group 211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai -400069 INDIA.

Printed and published by Jayaram Nair on behalf of B2B Media Group. Printed at SAP Print Solutions Pvt. Ltd, 28 Laxmi Ind. Estate, Lower Parel, Mumbai - 400 705, India and published at 211/1, Sona Udyog, Parshi Panchayat Rd., Andheri (E), Mumbai - 400069.

No part of this publication may be reproduced or transmitted in any form or by any means including photocopying or scanning without the prior permission of the publishers. Such written permission must also be obtained from the publisher before any part of the publication is stored in a retrieval system of any nature. No liabilities can be accepted for inaccuracies of any description, although the publishers would be pleased to receive amendments for possible inclusion in future editions. Opinions reflected in the publication are those of the writers. The publisher assumes no responsibilities for return of unsolicited material or material lost or damaged in transit. All correspondence should be addressed to B2B Media Group. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Mumbai only.

ANNUAL SUBSCRIPTION RATE INDIA: `1,800/-

Academic Partner

SCMPr

February 2014

5

insiight

Why Supply chain work or do not‌ Supply chain management has emerged as one of the most powerful business improvement tools. Suppliers, manufacturers, distributors, retailers and a host of service organization have discovered that they must either transform their operations and tactics or be beaten by competition by more aggressive supply networks. Dr. Rakesh Singh explores the reasons for success or failure of supply chains.

W

Rakesh Singh Director, Durgadevi Saraf Institute of Management Studies, Chairman ISCM.

6 SCMPr

February 2014

orldwide organizations have formed networks for sourcing raw materials, manufacturing products or creating services, storing and distributing the goods and ultimately delivering the products and services to customers and consumers. The objectives of these networks are to encourage product and service innovation with a view to satisfy the ultimate customer. These organizations see the value of integrating systems and supply chain operations across the full range of component function. Business strategies are getting intrinsically connected with supply chain and information strategies. Leaders are using advanced supply chain and data systems to harmonies organizational efforts and achieve very ambitious long-term strategic initiative.

Leading Indian companies are forging future supply and demand networks that create an integrated delivery system, appearing seamless to the final consumer.

Companies are moving towards a total sys-

tem of supply, linked directly to the current demands in the chosen markets, so that efficiency savings are accrued and shared across the network. Supply chain has come to become the main artery of all businesses.

As the army of logistic businesses grows almost exponentially, firms are throwing their best resources into supply chain management. The practice of supply chain improvement will invariably produce winners and pretenders, and this distinction will strongly influence the business organization’s design and dynamics in future.

Few questions need to be answered in order to understand how supply chains are structured in Indian industries: n What

are the requirements for the implementation of a successful supply chain? n What do we stand to gain? n Is our managerial talent ready to cope up with this challenge? n Are we ready to change?

insiight The Leaders Vs Followers In a study undertaken by me and sponsored by the Narsee Monjee Institute of Management Studies, Mumbai to understand how Indian corporate manage their supply chains, we discovered that not many firms are prepared to cope with this challenge.

There is an evident gap between the firms, which truly understand and implement the concept of forward-looking supply chain management and those that simply follow a trend. And this gap has tended to increase over time period.

While leaders are approaching advanced supply chain levels, other firms are struggling to achieve similar results. Firms, which have succeeded to integrate supply chain practices successfully with larger corporate strategy, have benefited from quick gains and increased profits. They have been able to reduce supply cost through concerted improvement in purchasing function. Both inbound and outbound inventories have been either cut or moved upstream in the supply chain, and warehousing and transportation

costs have usually been reduced. Companies have applied information technologies to gain an advantage over slower reacting networks. Despite many false steps these companies have made substantial improvements.

Why this gap between leaders and followers? Why have few companies struggled to achieve similar results? Why have some firms failed to benefit from supply chain management practices while others have been able to reap substantial gains? We found that failure developed in two critical areas: n A lack of trust and sincerity of efforts among participants in the chain n A myopic view focused solely on internal gains rather than creating strategic advantage for the firm. Many of these firms who claim to practice supply chain management do not have one! Readymade software cannot be a quick fix. It cannot replace the need to link structures with processes. Most of these firms have a rigid and outdated organizational structure leading to less internal decision-making flexibility. They are unable to link vari-

FACTORS AFFECTING SUPPLY CHAIN MANAGEMENT PROJECT SUCCESS IN SUCCESSFUL ORGANIZATIONS

8 SCMPr

Rank

Mean

STD.

Factors

1

4.8

1.68

Integrated behaviour between customers and suppliers

2

4.4

1.6

Sharing information with all levels of the supply chain - Internet

3

4.15

1.52

Co-operation throughout the supply chain and collaboration

4

4

1.58

Clear objectives and expectations by all parties in the chain

5

3.95

1.61

Integration of processes of supply chain activities

6

3.9

1.42

Establishing partnerships

7

3.4

1.51

Mutually sharing channel risks and rewards

8

3.08

1.61

Reducing response time across the supply chain

9

2.9

1.52

Making products easily adaptable to various markets

10

2.6

1.58

Utilize various quality suppliers (outsourcing)

11

2.5

1.48

Producing quality goods or services

12

2.45

1.54

Accurate forecasting of products or services

13

2.4

1.72

Fulfill all orders in a timely and efficient manner

14

2.35

1.64

Flexibility in anticipating change in demand and supply

February 2014

8

insiight ous processes of organization with corresponding structures. The structural issues here deal with – what is to be done in terms of organizations, in terms of cross-functional teams, with regard to supply bases in terms of the structure of distribution channel, the structure of the manufacturing center, etc.

Key processes that come into play include insuring / outsourcing, strategic processes, new product development, supply planning and execution, demand planning, logistics, and strategic sourcing. There could be a supply chain only if we know the key linkages between structures and processes. Among the most important ones are common information, cross enterprise teams, cross-functional teams, common measures, joint planning and some degree of trust. If we take the case of the successful firms they developed not only cross-functional trust but also crossfunctional trust but also cross-organizational trust with distributors and suppliers. The cross-functional discipline requires various

internal groups to put aside their turf issues and focus on building an advantaged distribution system. Many successful companies have succeeded in improving cooperation among internal functions and gained significant functions and gained significant operational benefits. On the other hand, the firms in which well meaning employees are reluctant to work effectively together with other department inside the firm, it is much easier to point a finger at other departments, than to cooperate in making the chain error-free.

They consider departmental or functional excellence as more important than business excellence.

In most firms, there is a huge dividing line between each functional area. They do not even conduct sales and operation meeting regularly. In an agrochemical company, we found that though the information technology is in place, the intended benefit of SCM cannot be derived due to lack of newer organizational design, which emphasizes on process approach as compared to a function-

FACTORS AFFECTING SUPPLY CHAIN MANAGEMENT PROJECT SUCCESS IN UNSUCCESSFUL ORGANIZATIONS (REASONS FOR FAILURE) Rank

Mean

STD.

Factors

1

4.4

1.28

Lack of co-operation within the supply chain activities

2

4

1.2

Lack of information sharing within the supply chain activities

3

3.85

1.22

Lack of integration in Behaviour and functions

4

3.6

1.18

Lack of trust and partnerships

5

3.65

1.31

Lack of sharing channel risks and rewards

6

3.5

1.02

Lack of long-term commitment

7

3

1.11

Lack of same goals and focus of serving customers

8

2.78

1.31

Increasing variety of products - makes it less adaptable

9

2.5

1.12

Decreasing product lifecycles

10

2.3

1.28

Increasingly demanding customers

11

2.2

1.18

Globalization

12

2.15

1.24

Lack of quality in goods or services

13

2

1.32

Lack of accurate forecasting

14

1.95

1.24

Lack of flexibility to respond to change

10 SCMPr

February 2014

Bespoke Training Be an for Employable Corporates Graduate

insiight

Forecast of future demand is essential to supply chain manager’s decisionmaking and planning process. Forecast of future demand, forms the basis for all strategic and planning decisions in the supply chain.

12 SCMPr

February 2014

al approach. There was no sign of cross-functional teams, the supply chain process and structure and linkages were not well defined.

Mahindra Tractors in order to streamline its supply chain and improve service offering to customers started with Sahyog a programme for dealers to improve service to customers.

What was surprising was that this Sahayog became dealer’s responsibility rather than supply chain initiative. The sales force, which lived in traditional mindset, did not realize the benefit of cross-organizational effort and kept itself away from implementation of the same. It is important today that we treat our partners as partners and work collaboratively to optimize supply chain gains.

It is important that firms establish external partnership with suppliers and distributors. Successful firms have also established external partnership with suppliers and distributors. Such practices result in new ways of supplying products and services to the customers along the chain down to the ultimate consumers. Most of these firms also develop innovative applications to take advantage of the burgeoning databases created through partnering relationships. These vaults of knowledge are full of demand information that could be linked across the entire supply networks, allowing traditional push systems to be transformed into a smooth flowing network driven by actual consumer demand.

In short, the new supply chain game is becoming a competition between effective supply networks rather than individual corporations, and the gap between the leaders and followers is growing rapidly.

Forecasting the Weak Link Some companies have pursued the benefit of flexible manufacturing systems and focused on planning and scheduling as two key ingredients that would dramatically reduce inventory, fabrication, and conversion costs. Using demand information, companies have established systems that efficiently manage the process of acquiring the right raw materials, making the necessary machine time and human resources available, and scheduling output to meet demand without excess stores and inventories. Successful firms realize that an analysis of the chain should focus on the “finish

line” i.e. demand rather than the starting point i.e. supply.

Forecast of future demand is essential to supply chain manager’s decision-making and planning process. Forecast of future demand, forms the basis for all strategic and planning decisions in the supply chain. Firms use forecast of future demand as the basis for all strategic and planning decisions in the supply chain. If supply chain management begins with a forecast that is substantially in error, in terms of timing or quantity, the ramifications will be felt throughout the entire process. The consequences are many: manufacturing will have to adjust and run at less capacity or work overtime to meet customer demands; logistic expenses will be less than optimal; product will be at the wrong place at the wrong time, impacting customer service; the list could go on ad infinitum.

Inspite of better techniques at predicting demand and seasonal shifts, and closer communication with customers, most forecasters rely on intuition and last year’s results. In actual practice most firms gave up on sophisticated forecasting techniques and worked off the projected plans, which called for annual focus on volumes regardless of market conditions. Financial targets were artificially set as often other consideration determine monthly forecasts. Supply chains systems were then selected and attempts made at implementing delivery to these spurious and often fictitious projections of consumer demand. The result: a hodge-podge of planning and scheduling that was constantly subjected to manual overrides for meeting actual consumer demand.

Successful firms on the other hand have focused on linking the demand chain with the supply chain in a holistic manner to achieve cost reductions throughout the entire chain. They achieved substantial savings through more efficient procurement, handling, storage, and delivery of products in their supply chain. This was possible because supply chain forecasting process and structures were very well defined in these companies. Most companies are beginning to adopt robust forecasting processes as a part of their forecasting processes.

Some of the firms like Mahindra tractors have a well defined macro economic forecast for various states, but they do not

insight know to combine these forecast with their rolling plans. What they could actually do is to disaggregate quarterly econometric forecast into months by applying seasonal factors computed from monthly raw data. But probably due to lack of training in forecasting, they find it difficult to combine forecasts and derive appropriate forecast.

An appliance company in order to reduce inventory-carrying cost should consider the fluctuations in demand with changes in seasons for deciding inventory levels. The company should also consider the high peak to average ratio that is prominent in appliance industry. However most appliance company Including Godrej-GE are far away from using the right kind of models. Rolling plans can only be a poor substitute to time series models that considers both the element of seasonality and peak to average ratios. Most of these firms chose ignore the driver of demand for each product category.

IT Hindrance or Help?

IT is an essential element of supply chain strategy of an organization. Supply chain management to a large extent is about management of information flows. Unfortunately, lack of sophistication in the information system is still one of the biggest roadblocks to supply chain integration today. IT investments are still guided by technology, functional and internal consideration and not on business strategy and needs. There is lack of extended enterprise functionality, lack of flexibility in adopting to ever changing supply chain needs, lack of more advanced functionality beyond transaction management and lack of open, modular, Internet-like system architectures. Human error is plentiful in firms that thought information technology would come to their rescue, problems. Inspite of the personal computers in the hands of sales representatives, agents and brokers very few were capable of using them effectively. This led to additional workload for clerical staff that would spend their time correcting other people’s mistakes.

In the absence of trust and partnership, organizations are not able to share information, even information sharing among sup-

Few organizations, which have taken initiative to integrate its distribution network by way of implementing ERP and EDI across its branch networks.

ply chain activities are absent. This leads to amplification of demand at all the level of supply chain, leading to bullwhip effect. The firms are caught in a tricky situation, even when the total demand variability is low, the variability in orders are very high. This increases the supply chain cost only to render these firms uncompetitive. The only solution to this problem is centralized information system. Few organizations, which have taken initiative to integrate its distribution network by way of implementing ERP and EDI across its branch networks. However their work is incomplete without including their suppliers and channel partners. These organizations do not have centralized information, which is visible across the organization. This will lead to a large variability in orders due to smoothening at various level of the supply chain.

To conclude, the key to a successful supply chain rides on: n The

extent to which key processes in demand planning are linked n The extent to which the key processes in supply planning are linked n The clarity and swiftness with which information is transmitted between and among suppliers, customers and various processes in the supply chain. n Whether all the organizations see the current status of schedules and parts.

Companies talking about an integrated supply chain without any of these in place are just mouthing gibberish.

SCMPr

February 2014

13

n ACADEMIC ADVOCACY n Knowledge n WHITEPAPER n BEST PRACTICE n HUMAN RESOURCE

A Meta-Analysis of Logistics Customer Service

Academic Advocacy

By RUDOLF LEUSCHNER, Rutgers University FRANÇOIS CHARVET Northeastern University, and DALE S. ROGERS, Rutgers University

Logistics Customer Service (LCS) has received considerable attention over the past several decades.

Evidence exists that superior logistics customer service leads to better overall firm performance. Yet mixed findings were observed, and this relationship has been tested across multiple operationalization and diverse industry settings, which may contribute to these mixed findings. There is thus a need for a systematic analysis that examines all of the prior evidence in an aggregate inquiry of logistics customer service. SCMPro brings you an extract from a research paper of the same title published in the Journal of Supply Chain management, Volume 49, Issue 1.

M

eta-analysis is a relatively under-utilized methodology in supply chain management research. The authors apply Meta Analysis to provide a quantitative examination of 37 sample studies and an assessment of overall population effects. The main contribution of this research is that the authors statistically aggregate and summarize existing research on logistics customer service. In addition, moderators that affect the relationship between logistics customer service and firm performance are examined. The results provide evidence that logistics customer service has a significant positive relationship with firm performance; however, significant heterogeneity was detected. This points to areas in need of additional research in order to obtain generalizable evidence.

In this paper, the authors accumulated and integrated the results of empirical research on the relationship between LCS and firm performance to provide generalizable evidence for the advancement of theory and practice on logistics customer service. The authors view LCS in the context of the Resource Based View of the firm explored by Barney and Wernerfelt and the extension of RBV that was resource-advantage theory (R-A). The primary objective of this research was to test whether logistics customer service as a firm resource correlates with better firm overall performance. This can help determine whether LCS can indeed be a source of competitive advantage. The relationship between logistics customer service and firm performance was significant and that is strong evidence that companies that fulfil their customers’ needs around order fulfilment can achieve better overall business results. Inconsistencies in original research results may be due to artefacts such as sample sizes and measurement errors in the original studies. Throughout this research, the authors found evidence for this relationship, but there were several results that were not significant, and this points to areas in need of more research to determine why these relationships were not significant. Within the RBV and R-A theory, logistics customer service is a firm resource that can be considered a source of competitive advantage. While the RBV and R-A researchers have already acknowledged the importance of supply chain management as a potential rare, difficult-to-imitate and valuable resource, this research serves as an extension by providing empirical evidence that the more specific aspect of LCS can be considered a firm resource in the RBV/R-A perspectives. The results point to the fact that logistics can be a unique firm resource that is SCMPr

February 2014

15

15

Academic Advocacy difficult to copy by competitors. In the paper, the authors describe how the results of this research have theoretical implications, what implications managers can draw from this research to improve the performance of their firms and the limitations of the meta-analysis.

Theoretical Implications A main contribution of this research is the testing of different subgroups and moderators. The evaluation of the main effect and the subgroup analysis of several operationalizations of LCS revealed several findings. The non-significant aggregate correlations of relational LCS and order placement highlight the contention that the main contribution of logistics is in the operational domain. Rather than diminish the importance of relational performance and order placement, this result should show more clearly how important the operational and order receipt constructs are. While it may be appealing to argue for a higher-level contribution of logistics, the results clearly show the strength of operational and tactical contributions. The relationship between customer-oriented performance and LCS was significant, but the nominal level of the correlation did not change from overall firm performance. In the subgroup analysis, the customer satisfaction subgroup did not have a different effect size, and customer loyalty has a stronger effect. While the difference is only nominal and not statistical (the credibility intervals overlap), the results do provide an indication that superior logistics may contribute more to customer loyalty than to customer satisfaction. This is an indication that logistics has the potential to contribute to a deeper level of commitment than just satisfaction.

In most studies, loyalty is mod16 SCMPr

February 2014

elled as a consequence of satisfaction and as such it is remarkable that the direct effect is stronger.

Based on the results, it may be possible that satisfaction is not as much of a mediator between logistics customer service and loyalty as previously thought. The relationship between logistics customer service and financial performance and the subsequent subgroups was inconsistent. The impact of LCS on the two revenue-based measures of financial performance was not significant, while the effect of profitability was significant. The non-significant relationship between LCS and sales or market share is likely because there are numerous factors that can increase sales or improve market share. This result can be explained with the reasoning that superior logistics can improve the bottom line with a combination of revenue enhancements and cost savings. Due to the smaller number of studies in these subgroups, the authors are not confident in this contention, but more empirical research to investigate the specific effect will aid in clearing up this finding.

The moderator analysis revealed two main findings. The first one is that supplier self-evaluations have a considerably stronger effect than customer evaluations of their supplier. While the result that suppliers tend to overestimate their performance is not surprising, The authors draw attention to the broader implications this result has. Such a result could be caused by cognitive bias, and the value of this assessment could be questioned altogether. The other finding was that in the last period, the relationship between LCS and firm performance became stronger. This can be viewed in two ways: either management is paying more attention to the importance of service, or researchers are better at measuring the constructs and as a consequence

achieve a stronger relationship. As there was relative consistency in the way the constructs are measured, it is more likely that firms are paying more attention to service and as such the linkage has become stronger over time.

Managerial Implications There are a few takeaways from this research that managers should be aware of. First, this research establishes a significant link between better logistics customer service and higher firm performance. As this result is based on a number of samples in several industries, it is reasonable to assume that in general the relationship, the authors recognized should hold. Nevertheless, caution should be exercised when using such general evidence in a specific environment. Just as caution must be exercised when using specific evidence to make general statements, industry and product can significantly impact the relationship between LCS and firm performance. This caution is highlighted by the fact that the authors were not able to eliminate enough heterogeneity to obtain a significant Q. As such, the authors recommend that managers interested in assessing the impact of logistics customer service in their company perform their own assessment. This meta-analysis provides a general assessment and can serve as the starting point in developing a measurement system for logistic service performance in their companies. Another relevant finding for managers is the choice of outcome measures. Using financial measures to assess the linkage is more appropriate than perceptual measures, and they are easier to explain to top management.

The entire paper can be found at: http://onlinelibrary.wiley.com/ doi/10.1111/jscm.12000/pdf

08 09 10 July 2014 Pragati Maidan, New Delhi

A Global Meeting Place for Warehousing & Intralogistics Community Foundation Partner

Co-located With

Show Partners Supply Chain Asia Connect. Communicate. Collaborate.

www.IndiaWarehousingShow.com

Organised By

n ACADEMIC ADVOCACY n Knowledge n WHITEPAPER n BEST PRACTICE n HUMAN RESOURCE

18 SCMPr

February 2014

Knowledge There is a huge gap between what industry needs from their supply chains and what the industry gets. Twenty years back, it wasn’t unusual to find somebody with masters in Finance taking a detour into supply chain.

There was no definition of Supply Chain. But times have changed and today you cannot succeed globally without having talent who understand the global landscape. To take advantage of this change, the Marshall School of Business of the University of Southern California moved to take the leadership position with a Global Supply Centre. SCMPro brings you an interaction with Mr. Nick Vyas, Director, Center for Global Supply Chain Management.

T

he rapidly evolving global trade scenario is creating a need to evaluate supply chains along three dimensions - Networks, Education and Advanced Research.

Staring with networks, we need to understand that country specific initiatives do not work because today our networks are global. Simultaneously, training has to be linked to global spread of industries. At the Marshall School of Business, we calibrate our offerings to what the industry needs. Our Master of science in Global Supply Chain is offered as an online course for Working Professionals and also as a residential course for graduates with an aspiration to get in to this growth sector.

It is important that the industry participates to make sure that what we teach is what they need and what they need is what we teach. This leads to our centre for Advanced Research. We are in top 13 University in terms of research. We feel if we allow Industry and education to integrate and then we support that with research, in terms of technology, in terms of best practices, in terms of sustainability, humanitarian supply chain, core supply chain, and defence and we integrate them with academic research we could fill the gap for the industry and education. That was the concept on which we founded the centre.

One of the comments we often

hear is that India id unique. We think this is not just a statement nor is it just applicable to India... it is every where. Singapore, Indonesia, China and Malaysia the narrative is the same. Take china for example – Chinese say they are different but for a good reason. They know the speed of execution; they know when the change comes how exactly to execute the same speedily. Take Singapore - they say they are different but for good reasons - they know how to take the strategic blueprint.. three, five, ten, fifteen or fifty years into the future and know how to execute that plan. India is also a sub set of countries which is different because they tend to use excuses as a crutch - like not having the infrastructure or because customs and policies are different or the issues of redundancy or waste. All these are true but at the end of the day we can not use them as excuses. As a country if India wants to not be a mere emerging market but the top economy in the world, the industry needs to change its approach. To that extent the biggest paradigm is to challenge the status quo. The industry has to create awareness and demand, understand the risk of meeting that demands and the consequences of that. And if these two things work together then India has a tremendous opportunity.

Another defining moment for the supply chain sector is the in-

Nick Vyas

Director, Center for Global Supply Chain Management

creasing trend where the developed world sets standards for their global supply chains to adhere to. That the genie is already out of the bottle -we think the transformation and transparency across the different units of Supply Chain which are now connected globally require consistency. If a company in any part of the world would look at a consistent matrix, it does not make difference where you source or where you make or where you distribute and where your end customers are.

One has to have an understanding and standardization. We think the world will continue to drive in the direction of standardization. Can a company set those goals and benchmark to the another - we think that we need to define it clearly. Because in countries like India for example, SCMPr

February 2014

19

knowledge

Bringing SCM Education to India Infosys, the Indian IT major has taken an unprecedented step to tie up with the Marshal School of Business, University of Southern California. The tie up will bring the globally acclaimed SCM programs of the Marshall School of Business to India. SCM Pro brings you the thought process behind the tie up, in an interaction with Ms. Rakhi Makad, Industry Principal and Program Drector, Infosys.

Ms. Rakhi Makad

Industry Principal and Program Drector, Infosys.

What are the issues in SCM education in India?

Emerging economies like BRIC countries and Mexico are projected to be leading the growth in supply chain industry. To be competitive in the global markets, these economies need to quickly adopt and adapt to new technologies, use industry best practices in global supply chain management and be agile to cater to increased customer expectations. In my view, supply chain professionals in India may not have the required skills to meet these new challenges. One of the major reasons for this deficiency is that till now, the industry was sustaining itself through local growth and through a largely

20 SCMPr

February 2014

unorganized logistics sector.

Hence, there was no impetus on skill based hiring. This is one of the reasons why SCM education in India has not caught up with the rest of the world. While the supply chain industry in India has unique challenges, alignment of skills to global best practices is equally important for companies to survive and be globally competitive.

supply chain activities to more profitable and value added services there by enabling it to pay more to people with the right skill set. Finally, a close collaboration between the industry, the academia and the government is required to lead a concerted effort in driving sustainable growth in supply chain.

A career in SCM is not very attractive to the young and ambitious - how do you propose to change that perception?

Infosys has long acknowledged the surging demand in the supply chain space; we already have a large pan industry and global supply chain practice, delivering consulting and technology services across end to end supply chain functions. We want to be recognised as the thought leader in the global supply chain industry and serve our clients better by building a strong competency in the supply chain of the future. USC Marshall Business School, on the other hand, is amongst the top business schools in the world and we find that the School’s mission statement is very symbiotic with ours.

While we look to leverage the advanced research and networking of the Centre, the Centre can look to leverage our industry experience, business and technical capabilities. Infosys is also very supportive of the goals of the

Young talent is attracted to career advancement opportunities, high salaries and international exposure. The demand is definitely there, but I feel we need to create awareness about the possibilities in supply chain, which is today perceived as a low paying and low skill job. There are a whole lot of jobs in Supply chain which are linked to planning, strategy, optimisation and technology. Besides being high paying and offering a good career growth path, they provide international exposure as well. In addition to awareness there is also a need to develop skills to meet the demand and ensure that SCM students are differentiated from other disciplines. The Industry needs to move from the basic

Why did Infosys take this initiative?

Knowledge

Centre to use the supply chain research and technology to improve the humanitarian supply chain.

What is your vision for this partnership? What do you bring to the table?

Currently, our partnership with USC revolves around the Centre of Global Supply Chain Management. We are a founding member of this Centre and we envision the Centre to evolve into the top 3 research centres in the world on Global Supply Chain Management. As an anchor member of board, Infosys plays an active role in shaping the charter of the centre and the various initiatives and activities to be taken for meeting its objectives. As a part of the various activities undertaken we have planned for an annual signature conference; a round table; speaker events with the students; webinars; publications in the form of - interviews, thought papers, feature articles; blogs; advanced research; and of course bi-annual board meetings to monitor progress and take inputs from all the board members.

Having engaged with more than 300 clients in supply chain management, we bring in our wealth of industry experience to the Centre with our SCM experts contributing across the various initiatives that are planned.

Technology, today, is the key enabler in supply chain management and we would like to bring forth the perspective of how technology can help the industry innovate its supply chain function and bring business value.

We also helped shape the agen-

da and participated in US-India Summit for Global Supply Chain Management last year, where we spoke on the topic of Technology as a Supply Chain enabler.

In addition to this, we look to provide technology and infrastructure support to the various initiatives and activities planned for the centre using our world class facilities. We also look at drawing focus to APAC and specifically India as a region for growth of Supply Chain competency, focus and opportunities.

Can you provide an assessment of the career opportunities for young Indians in SCM? I believe that the supply chain industry in India is on the verge of a transformation. Even with its share of challenges and low penetration of organised sector the logistics industry is growing at around 15% per annum. With positive trends like the growth of organised retail, manufacturing and infrastructure industries, simplification of tax structures, growing consumerism of the Indian middle class we are expecting this high growth to double within the next 7 years.

Additionally, liberalisation in FDI norms and entry of multinationals would trigger companies to do away with all inefficiencies in their supply chain to remain globally competitive. In such a scenario, we would see accelerated adoption of advanced trends which are already established in the western markets and set a few trends of our own as well. This will lead to creation of a number of specialised high paying jobs in supply chain and other associated technologies.

What are the milestones you have set for yourselves?

The immediate charter for the centre includes the following four areas: Thought Leadership: To establish the centre as one of the top three centres for supply chain management globally, with cutting edge research and unparalleled industry connectivity. Here, we are working on advanced research topics and already have 18 global organizations signed up to be affiliated with the centre, the aim is to grow this to 100 in this year.

International Presence: For the centre to become worldrenowned as a global hub for supply chain management with companies from 20 countries representing the Board of Directors and students representing over 50 countries in the degree program.

Educational Excellence: The Centre will establish scholarship funds for students that have excelled despite hardships, and enable individuals with outstanding merits to receive continues education in supply chain management.

The Centre will also become a leading source of supply chain management talent and offer companies the ability to become involved through the degree program’s student industry projects.

Humanitarian Initiative: The Centre will support the advancement of sustainable supply chain management, working with NGOs to further the development and understanding of supply chain management as a means of humanitarian aid.

SCMPr

February 2014

21

knowledge

For the recent graduates we have a residential programme. We take students to Los Angeles and in one year we give them what it takes 10 years to gain through practical experience. you cannot take the transit time from point A to point B from the western world and apply it blindly.

Obviously the infrastructure is different, the policies and the procedures are different, and the local taxation and requirement are different. In India to travel 700 KM, you may have 41 different stops, while in other countries there could be only one and that too would be predecided. We need to bear in mind those differences.

This leads us to something that is close to my heart–sustainable supply chains. We realize that today CSR drives global corporations. We think it is a mandate that is driven by consumers because of rising awareness about implications of non sustainable products. We believe this is a growing trend especially with younger populations. The carbon footprint for example, is looked at by developed nations–they are looking at the carbon footprint of the products they are consuming.

Awareness about sustainability is growing. But sustainability raises the cost of the product. We think transplanting it into a country like 22 SCMPr

February 2014

India is immature - this market is not ready yet. There are two ways to look at it. One–an international company which sources from India and is obligated to report carbon footprint including the supply chain portion from India, is obligated to capture the data. But what they are not obligated today is to take that data and impose the consumption side sustainability matrix in India.

The Indian consumer is not willing to pay for it. It is pre mature to transplant those sustainability matrices to India. If on the other hand, we focus n sourcing, you may require to be more conscious about making sure that resources are reutilised and recycled right.

We at the Marshall School of Business are primarily educators and researchers. We realize that skill gap is exists across the market. It took 16 years for the current generation to understand the comprehensive landscape of global supply chain. Next generation does not have 16 yearsbecause supply chains are evolving at a fast pace. There is a talent gap that exists in India. The industry and society can no longer succeed without having the talent needed to address the gap. Look at Singapore–a small country, but they are top-notch in supply chain operations globally.

They use that as a lever to become the top player. We think every country should look to create a core competence or create a talent. We need to bridge that gap in talent. Our programs focus is on masters degreeboth residential as well as the online.

We feel online programs appeal to professionals who cannot quit jobs and attend a residential program.

We decide to create a student centric model. The students could be in Shanghai, Dubai or Mumbai. When the class starts in Los Angeles you open your laptop and participate live, ask questions.

For the recent graduates we have a residential programme. We take

students to Los Angeles and in one year we give them what it takes 10 years to gain through practical experience. We believe that’s the space where the gap is - the under graduate is a basic entry level course and we think that anybody with any under graduate degree can actually get in to the masters of Supply Chains... you can be a engineering graduate, commerce or finance major or art or History - you just need an aspiration to understand a global supply chain.

Another aspect that needs our attention is technology. Technological transformation is creating a paradigm shift in supply chain.

Look at some of the key changes in the market place–like the using drones in delivery systems. The federal aviation industry has just approved six beta site for drones–imagine a technology that allows me to buy and you can drop it off the rooftops. Other couple of trends we are tracking are 3D printing, this is a concept that will change the entire sourcing and manufacturing side of the supply chain. You have a design which you send to the regional parts manufacturing centre close to your customer, produce, package and distribute to immediately. This can be a huge game changer in supply chain. Another exciting technology is a combination of Google glasses and voice technology. The Google glasses and voice driven command integrates together almost like a sci-fi movie, where you could walk around warehouse looking to pick an item, seeing a map to the destination which informs you when you reach that location. It shows the amount in stock, and as you pick one it reduces the stock in your systems. That is exciting because now you have your hands free and it allows you to really create greater efficiencies. So those are the trends that we think top notch companies, who are winners in supply chain will get in to.

ar

s e hed able n s B il t PE e ava s e s g Lar ehou r Wa mbai Mu ICS

LO

I

OG

L HE

F CO

T GIS

GT

IN ND

PA

55 kms approx. from Mumbai Airport and JNPT. Strategically Located on Mumbai- Nashik Highway.

Bhiwandi Surrounding area / Thane / Mumbai

lead story

The Year gone by

Evolution of Indian Supply Chain Sector 24 SCMPr

February 2014

lead story

Disasters are on the rise, more complex, and donor support is increasingly unpredictable. In response to this trend humanitarian agencies are looking for more efficient and effective solutions. SCMPro looks at the evolution of supply chain management in disaster relief, Issues, Key performance area, risks and its impacts on disaster management.

F

or a year we have bringing you an in depth coverage about various aspects of supply chain management. We brought you insights into Reverse Logistics, Humanitarian Logistics, Pharma Logistics, Warehousing, Air and Shipping Logistics, Automotive logistics among others. As we wrap up our first year, we bring you an overview of three broad areas which we feel will drive the evolution of a better supply chain management process in the country.

We begin with looking at the automotive sector–a favorite of ours.

This is one sector that can learn to do with collaboration – not just to reduce costs, but for the sake of the environment. Despite the slowdown in the Indian economy, the automobile industry has managed to register a positive Y-O-Y growth of 5.12 percent in January 2014. The real push came from export sales–with exports registering a growth of 6.29 percent from April to January period. What does this mean for the auto logistics sector? SCM Pro takes a look at the Indian Auto Logistics sector.

We then move on to the Shipping sector –as green concerns grow and as costs become prohibitive, we will romance the ships again. And as we romance the seas, we will reduce costs and also our carbon footprint.

A development with the future of our world at heart. It is estimated that about 80% of the global trade moves through shipping. And as the world becomes under the twin pressures of cost reduction and green or environment friendly transport, we will see an increasing volume of goods moving by ships. Clearly the future looks like it belongs to shipping logistics. But is it all that rosy? SCM Pro takes a look at the prospects of shipping industry Finally we take a look at warehousing. From a mere storage space, warehousing has moved to value added services. Warehousing has seen an invasion of robots and other technologies. We will soon be seeing dark warehouses, where the entire stocking and picking will be carried out by robots. India has moved from godowns to warehousing. That is a significant move. Warehousing has transformed from a place to store goods to a significant contributor to the supply chain efficiency. This is not only a change in nomenclature but a fundamental change in infrastructure too. The ability of a firm to leverage its warehousing can create significant competitive advantage–that is if they understand warehousing. Executive Editor of SCM Pro–Girish V S takes a look at the warehousing scene in India.

SCMPr

February 2014

25

ISCM in Association with SCMPro Announces

SUPPLY CHAIN ZEITGEIST

The Annual Conference on Supply Chain Management and Supply Chain Awards - 2014

Theme: Exploring the Leading Edge in SCM ISCM and SCMPro’s annual Conference -“Supply Chain Zeitgeist” - brings to you an insight from leading supply chain experts who will address the field’s most critical challenges. This is an opportunity to participate in discussions on tomorrow’s supply chain issues and explore the challenges and opportunities that exist in the world of supply chain arena. The conference focuses on topics that are important to you in global supply chain - logistics, big data and analytics, business acumen, Technology and innovation. Join your peers to expand your network and learn about how to meet today’s challenges in Supply Chain Management.

CONFERENCE AGENDA The conference will cover issues related to: l SCM in the era of big data l Power of demand driven fulfillment l Exploring supply chain career potential l Supply Chain rise to prominence l Managing the Rural Supply Chain l Challenges of supply chain as Asia integrates l Learning from Humanitarian Logistics 5 REASONS WHY YOU SHOULD ATTEND THIS Relevant ISCM conference focuses on critical cutting edge topics confronting the supply chain professionals throughout the world.

Applicable Attend and gain access to best practices, globally and within India.

Innovative Hear from the top supply chain CEOs about the challenges and solutions to supply chains within India and Asian Markets.

Valuable How is ASEAN integration into the Asian Pacific community is going to change the dynamics of supply chain management and open up new opportunities.

Development This will broaden your horizon not only on a macro level but also on a micro perspective.

CONFERENCE SPEAKERS Sunil Chopra IBM Prof. of Operations Management and information Systems, Kellogg School, - Key Note Speaker Mark Goh K H Associate Prof, NUS Business School (Department of decision Sciences) Paul Gallagher Asia Pacific Supply irector, DIAGEO, Singapore

Wayne Hunt President/CEO Toll Global Logistics Division, Singapore Mahendra Singh CEO and Rector MISCI - The Impact of AEC on Supply Chains Gaurang Pandya VP Industry Strategy,JDA Soctware – Track Cloud and SMAC Pradeep Lokhande CEO Rural Relations - Reaching the last Mile Peter L. Obrien Russell Reynolds Associates, Australia Sean Rafter Head Logistics, Asia, Save the Children -valedictory FOLLOWED BY THE ISCM SCMPro SUPPLY CHAIN EXCELLENCE AWARDS Supply Chain Excellence awards To celebrate the success stories and achievements of the supply chain industry in India, ISCM has instituted an annual Awards ceremony to recognize outstanding individuals and organizations within the supply chain and logistics industry for their excellence and professional achievements. The inaugural ISCM Awards 2014 will be a special one will coincide with our inaugural conference - “Supply Chain Zeitgeist” in the day, which will then transition to the Awards ceremony in the evening. The jury for the awards consists of a set of very accomplished supply chain professionals.

AWARD CATEGORIES 1. ISCM Supply Chain Award 2. Young Supply Chain Professional

3.

4.

5.

6.

Leading Light – Supply Chain Academics Best LSP Emerging LSP Supply Chain Performance Improvement Awards 7. ISCM Innovative supply chain management Award 8. Best Practices in Supply Chain Risk Management 9. Supply Chain Partner of the Year 10.NGO in Supply Chain 11.Supply Chain woman of the year JURY MEMBERS Dr. Rakesh Singh – Chairman ISCM Dr. vaidy Jayaraman – Prof. Supply Chain, University of Miami Mr. Prem Verma – CEO TMDL Mr. Murjani – CEO Bristlecone Consulting Dr. Rajiv Aserkar - Professor & Head, Global MBA (Logistics & Supply Chain Management), S P Jain School of Global Management, Dubai Girish V S – Executive Editor SCM Pro CONFERENCE PRICING Member – INR 15,000/Early-Bird - INR 17,500/Standard Rate – INR 20,000/Discounted rates – INR 15,000 - If an institute nominates five or more persons, The above fee includes conference attendance, documentation and planned award functions. The award function will be followed by cocktails and dinner.

To book your participation, please register on-line at www.iscmindia.net For Sponsorship, Please contact 022-60020121 / 122

Limited sponsorship opportunities available.

lead story

The State of

Shipping Logistics It is estimated that about 80% of the global trade moves through shipping. And as the world becomes under the twin pressures of cost reduction and green or environment friendly transport, we will see an increasing volume of goods moving by ships. Clearly the future looks like it belongs to shipping logistics. But is it all that rosy? SCMPro takes a look at the prospects of shipping industry.

28 SCMPr

February 2014

lead story

T

he size of the logistics sector in India is estimated to be around USD 90-125 billion.

This may turn out to be a conservative estimate as the Indian economy has grown to over USD 1.8 trillion. If experts are to be believed, and the cost of logistics is around 10% for India, the industry should be around USD 180 Billion.

And to keep this trade moving, shipping is the most economical and environment friendly mode of transport when compared to any other mode. India is has over 7500 KM of coastline in addition a wide network of rivers in many parts of the country. It is estimated India has around 14,500 KM of navigable inland waterways, of which 36% of major rivers conducive to the movement of mechanized vessels. In country shipping offers significant advantages over road and rail transport including fuel and cost savings. According to various studies, it is estimated that shipping costs 21 percent of that by road and 42 percent of that by rail.

Apart from the huge coastline of 7,500 KM India also has a vast hinterland to push trade. If trade could access the huge expanse of India’s hinterland through inland waterways wherever possible, we could see considerable reduction in logistics costs. Clearly, shipping is the most economical mode of transport. An optimum mode of transport across the country can be a mix of coastal shipping with road or rail as ships cannot serve inland destinations directly. Hence there is a need to have more coordinated policy applicable across all means of transport.

The saving grace is that the global shipping industry has had a relatively steady growth. Firms are recognizing the cost and environment benefits of maritime transport – notwithstanding periodic shipping accidents. Indian trade is expanding at around 6% both for imports and exports. Transportation by sea is less

expensive than transportation by road or railways. Secondary port development requires cheaper infrastructure. Given the global scenario, that is indeed better news than expected. However, the industry does face some serious challenges: The first major challenge is the transaction costs – the high incidence of government taxes and administrative costs create a significant challenge to shipping industry. Add to it the poor connectivity between ports and the hinterlands, we have a major challenge.

Poor road infrastructure impacts delivery lead time, inventory levels as well as the total logistics cost.

Another challenge facing shipping is high turnaround times at Indian ports. Data from Indian Ports Association shows that ports in India suffer from high turnaround times for ships. Singapore ports has the ability to handle over 2,000 containers per vessel, with a turnaround time of less than 12 hours. JNPT, the premier port in India, has more than 2 times the turnaround time because of congestion on berths and slow evacuation of cargo which are unloaded at the berths.

Inadequate depth at ports: India’s ports accumulate

Share of Global Container Trade 2008

2012 19%

ROW 46%

110 Mn TEUs

21%

Intra-Asia Trans-Pacific

18%

127 Mn TEUs

Europea-Asia ROW

17%

17%

17%

Source: Wydne Shipping and Aviation Research Institute, KPMG in India analysis

SCMPr

February 2014

29

29

lead story silt quickly and require dredging throughout the year to maintain navigable depth. The depth at many ports in India is not enough - depths range from 9-12m, when the global average is 12-23m . Dredging tenders take a long time in getting awarded. As a result with the existing depths many ports are not able to attract very large vessels.

Costal shipping has not taken off since it is hampered by inadequate port and land side infrastructure which hampers large scale use of it for freight movement.

Fortunately for India, the Directorate General of Shipping and the Inland Waterways Authority of India have announced a series of measures for promotion of inland shipping as the preferred mode of transport. The port infrastructure across the Indian coastline needs to be developed so that there are a number of ports which can accommodate small vessels. Apart from the ports, across the river network, we need to develop a series of small piers capable of handling barges. Next, tariffs have to be rationalized for coast vessels so that they are able to compete with roadways. While trucks and trains run on subsidized diesel, coastal and inland waterway ships do not get any subsidy on fuel and hence operational costs are high. Such anomalies should be rectified to make shipping competitive. Finally, rivers should be dredged to have even draughts for long haul movement.

Another indicator of the growth or lack thereof of shipping is the new tonnage added every year. In the recently concluded TradeWinds Charterers Forum 2013 in Singapore, Mr.Yahya Karahasan shed some light on

Fleet Development & Order Book 2010

2013

Fleet (dwt million)

537

616

680

706

y-o-y % increase

16.9%

14.7%

10.4%

3.8%

Orderbook

302

230

140

126

Orderbook % fleet

56.2%

37.3%

20.6%

17.8%

Tankers Fleet (dwt million)

449

475

493

504

y-o-y % increase

3.9%

5.8%

3.7%

2.2%

Orderbook

127

86

59

49

Orderbook % fleet

28.3%

18.1%

12.0%

9.7%

14.2

15.3

16.2

16.9

Containerships Fleet (teu million) y-o-y % increase

9.6%

7.9%

5.9%

3.9%

Orderbook

3.9

4.4

3.4

3.4

Orderbook % fleet

27.5%

28.8%

21.0%

20.1%

n Developing secondary gateways along with the coast; hinterland to be

encouraged to use the nearest coast; developing SEZ in the immediate vicinity of these ports. Feeder cargo should be sent to the nearest main line port. As the cargo starts moving through the secondary ports, the volumes will increase and secondary ports will slowly graduate to become the main line ports. n

Size and growth rate of the Indian logistics industry is varying from USD 15 billion to USD 50 billion, with 7 % to 8 % growth per annum. n

As regards the logistics service providers, quality infrastructure support is not always available on time, due to the high pace of economic development. This includes airport infrastructure, seaports, highways and express ways. n

Cumbersome procedures lead to a lack of focus on the part of policy makers. The logistic costs in the Indian economy is higher than in other countries, due to infrastructure bottlenecks. n

The price of fuel forces the users to shift from road transport to alternative transport modes. Only a very small and limited number of logistics service providers are providing end-to-end logistics chain in a true sense. A large number of fragmented service providers aspire to cover all services.

However, an integrated approach is lacking.

February 2014

2012

Dry Bulk Vessels

Policy supporting sea transportation in the country has to take into account the following issues

30 SCMPr

2011

the slowing fleet growth, which is slated to fall down to a five year low in 2014. That will have a high impact on global tonnage. Acording to Mr. Karahasan, the impact of slower new building deliveries on net fleet growth will be blunted by a fall in demolition activity as ship values began to rise. Mr. There are a couple of factors that will affect the growth of shipping. Mr. karahasan feels non-delivery rates running at high rates in recent years but improved market conditions add incentives to deliver for both yard and owner, second new ordering will shape the outlook for 2015/16, and third yard capacity will determine the growth. In terms of demolition volumes firmer trends in second hand market may reduce incentives for owners to scrap.

The three primary causes behind renewed interest in new ship buildings could be traced to one - all new building prices still remain well below average of the last ten years. Another reason is that sentiment firming in second hand market – appear to have passed low in the cycle. For a third the eco-type designs that are attracting orders with offer of lower bunker consumption ahead of changing regulatory environment.

All this points to a salient fact - the net fleet growth is set to slow further in 2014 as annual new building deliveries fall to five year low, offering prospect of improved fleet utilisation and further freight market volatility. According to the experts at the expo, in 2014, reduced demolition plus a quickening in vessel speeds represent potential restraints on freight market recovery.

As a deterministic factor, development of eco-type order book remains key to outlook for 2015and 2016.

5

th

Edition

Global Exhibition & Conference on Cold Chain & Logistics Industry Supported By

Media Partners

Organised By

Chamber of Cold Storages Industry Andhra Pradesh

Contact Us: Prashant Narain I +91-9899622090 I prashant.narain@reedmanch.com I www.IndiaColdChainShow.com

lead story

The State of

Automotive Logistics Despite the slowdown in the Indian economy, the automobile industry has managed to register a positive Y-O-Y growth of 5.12 percent in January 2014. The real push came from export sales – with exports registering a growth of 6.29 percent from April to January period. What does this mean for the auto logistics sector? SCMPro takes a look at the Indian Auto Logistics sector.

32 SCMPr

February 2014

lead story

T

he Society for Indian Automobile Manufacturers has projected an over all growth of 6% to 8% for the auto industry in the financial year 2014. The August sales for the automobile sector saw a surge. And as the sales of the industry increases, the logistics industry too picks up.

However the going will not be smooth. The sector has to evolve if it has to keep up its growth. Changing customer preferences will continue to exert pressure on the sector. And there are signs of disruptive consumer preferences emerging.

The automotive sector in India has been seeing mixed results. Last year was not a good year for cars, but two wheelers showed good growth. The blip in August was due to the low base effect–last year, there was a strike at Maruti. Clearly the trend has been downward for cars.

The automotive sector is inter linked to the macro economic scenario of the country. Experts have an informal consensus about four major issues that face the sector. The first is infrastructure. Infrastructure is important, it is true that India needs better infrastructure. But, this is not under the control of India Inc–India Inc cannot build the infrastructure required. The second is GST–the policy makers have long threatened the roll out of GST, yet nothing has come out of it. Anecdotal evidence points that firms in India have spent more money on GST than on Y2K! And that is not a laughing matter.

The third issue is one of costs–the amount we spend on our supply chains. The figures vary from 8% of GDP to 13% of GDP. Even if we take a mid point of 10%, it still is an obnoxious figure. Basically it is money spent that does not benefit anyone! And we are not able to cut it. This is one area where nobody can do any thing – until and unless the government steps in and brings all the players together. We need huge government support. I only hope some action can take place, without that, I do not think it would be possible.

One of the biggest stumbling blocks we have in the auto logistics sector is the inability of the entities to collaborate. Take for example the case of UV’s. You cannot have two UVs in one rake. Neither can you have a UV and a car. The rake goes with a lower load.

But, we will not allow two wheelers to be sent in the same rake! Doing so can reduce our costs and more important – it can reduce the carbon foot print of the supply chain. For some reason, we do not see this hap-

pening. The industry needs to come together and collaborate to reduce the supply chain costs.

And when we talk of collaboration, are we primarily talk about collaborating for cutting costs. But that is not the real reason for collaboration. Unfortunately not many are able to see beyond cost reduction. We have still not gone to that level where we can collaborate for giving better services. And this collaboration is not restricted to transportation alone–it extends to the entire supply chain. Once we have the GST we can see some action here. Take for example stock yard. Today every manufacturer has a stockyard in every state. With GST coming in we will be able to leverage these stockyards. Maruti has a huge stock yard in Manesar, which can hold 25000 cars.

With GST, we will be able to share that. Somebody will have to take the lead. For this to happen, we need to be able to trust one another. This is where a 3PL can help.

A 3PL is a professional organization. Once you give your vehicle to a 3PL for transportation by train, , he will load a Ford, a Honda, a Tata or any other vehicle in the same rake. There is an unwritten rule that you cannot load one make of car with another make.

An example of such collaboration could be between a two wheeler manufacturer say Bajaj Auto and a LCV manufacturer–say Tata. One way to rationalize costs is by sharing a rake–otherwise, the rake that can carry 150 tonnes will have to wait either till either manufacturer gets enough orders for that destination or till they manufacture the full load. The other option for either of them is to send the products by road–and the road transport may take say 15 days. If taken by rail it will reach in four days. At the end of the day, both firms are rationalizing costs. This collaborative approach is also helping in Logistics Costs are High for India’s Automotive Supply Chain

Logistics costs as % of sales

2.5% - 3.5%

1.5% - 2.5%

1.5% - 2.5%

0.8% - 1.2%

India

China

Japan

Korea

Seven Trends will Transform India’s Automotive Supply Chain Long-term secular growth and volatolity

Increasing Escalating Growth of Product costs of exports supply chain Proliferation operation

Shortage of talent to fill key roles

Regulatory challenges and opportunities SCMPr

Fast growing aftermarket

February 2014

33

33

lead story Seven Moves Can Give India’s Automotive Industry a Competitive Advantage Trends

Actions

Long-term secular growth and volatility

Accelerate collaboration across the value chain

Escalating costs of supply chain operations

Innovate in cost management

Increasing product proliferation

Proactively manage complexity

Growth of exports

Develop tailored value chains and competencies for exports

Shortage of talent to fill key roles

Reconfigure and elevate the supply chain organization

Regulatory challenges and opportunities

Regulatory challenges and opportunities

Fast-growing aftermarket

Develop capabilities to exploit aftermarket opportunities

reducing the costs. Another fallout of such collaboration is the reduction of the carbon footprint for the firms. It is time the industry looks at the better solution.

Another aspect is that of inventory. There have been studies that say that on an average, a US dealership holds 100 day’s sales inventory. Why does someone hold an inventory? A business man’s worst nightmare is losing a customer. A dealer would want to sell something, even if he goes a bit overboard. He wants to cover risks and would like to sell something that is available with him and not recommend the buyer to the next shop. The second reason he is keeping a higher stock is because he is uncertain about the delivery pattern. The third reason would be; if there is a downturn in the market and you get stuck with the stock. As a dealer he has a certain commitment and you cannot walk out of the market. He cannot say that the sales have dipped by 30% so I will also reduce inventory by 39%. All stake holders have certain commitments which they cannot shirk.

By now it is well known that the future of Indian trade is in the Tier 2 and Tier 3 centers. We need to be really serious about the Tier 2–Tier 3 markets as they contribute around 40% of the business. There is the anecdotal story of a plastic chair manufacturer whose sale comes from rural and small towns. In these small towns/ villages, the customer who buys a chair, most probably the lady of the house, will find it difficult to carry the chairs back to their homes. Hence the dealer would tie a variety of chairs and go house to house selling them.

This way he would make a good margin and the dealer 34 SCMPr

February 2014

Optimal cost

Support growth High efficiency

High quality

too would make around 25–30% margin. This is one of the best supply chains. Hindustan Lever also did something similar years back when villages were inaccessible.

A report by Deloitte has identified several strategic and operational gaps that need to be addressed in pursuit of growth and profitability: n Selection criteria for LSPs n Collaboration between manufacturers and LSPs n Customer service n Technology n Impact of logistics on manufacturing According to the report, organizations can make strategic and operational investments in processes and technologies to drive continuous improvement across their logistics activities to address the above gaps.

First, manufacturers need to focus on a collaborative n approach to logistics strategy and planning involving the LSPs. S

n econd, while manufacturers have historically looked at transportation costs as merely the price paid to LSPs, organizations now need to move towards “value delivered”.

n Third, players need to focus and prioritize their technological investments.

Finally, as LSPs collaborate, they need to align with n the business requirements of OEMs/component manufacturers and take advantage of the growth opportunities in areas such as service parts business where the manufacturers are planning to improve the level of collaboration with LSPs.

lead story

The State of Warehousing....

Sanity Check India has moved from godowns to warehousing. That is a significant move. Warehousing has transformed from a place to store goods to a significant contributor to the supply chain efficiency.

This is not only a change in nomenclature but a fundamental change in infrastructure too. The ability of a firm to leverage its warehousing can create significant competitive advantage – that is if they understand warehousing. SCMPro takes a look at the warehousing scene in India.

SCMPr

February 2014

35

lead story

T

o get the most from the warehouse, firms need to leverage their warehousing infrastructure and a comprehensive Warehouse Management System to provide visibility that facilitates collaboration among the stakeholders and allows customer service to be proactive. For most executives, there is a temptation is to go in for the latest technology fad that they come across when it comes to automation of warehouses. The need of the hour is to borrow what is referred to in the IT industry as appropriate technology. A calibrated approach to improve the warehouse performance is better than the latest technology. As with any process, it begins at the beginning – taking stock of the current status – both in terms of technology and people skills, moves on to the business process and ends with analytics and dashboards.

There are several factors that are pushing warehouse to prominence in supply chains. Prime among them is the ever expanding SKUs handled – to provide products at appropriate price points, manufacturers are increasing their SKUs. To add to the complexity, the variants within the given SKU are increasing. These trends are exacerbated by short product life cycle, volatile customer fancy and the desire to own it now rather than later add to the rise of warehousing as a strategic tool. Shelf presence becomes very important –the customer will buy an alternate product if she does not find a particular brand. She can immediately change his decision.

These dynamics make the role of the warehouse important. The product availability, the ability to replace the material on shelf quickly and the ability to connect the supply to demand in a very short time are the hall marks of a good warehouse.

For starters, the warehouse managers need to figure out their pain points–are they worried about warehouse safety or is the fact that they handle products multiple times during its stay in the warehouse, or is it that they are not using the space available optimally or that they spend too much time on paper work. Other issues could be that inventory cannot be found in time for shipment or that they spend too much time hunting for misplaced inventory, are there issues with warehouse staff or are they facing high labor costs?

Moving on to inventory managers need to decide if they are troubled by low inventory turnover or low inventory accuracy.

The importance of the warehouse in terms of its role has gone up because of these drivers. Other 36 SCMPr

February 2014

factors which deliver much higher value are is the warehouse still run on paper based processes, why do they use paper, how they select the storage locations, and the length of time it takes an operator to store an item once it has been received. This should also throw some light on the process of preparing inventory records, view of inventory for allocation to incoming orders and the process of order release and transmission to the warehouse for picking. A few other drivers could be time taken by an operator to locate line items for order filling, handling multiple orders for the same product when demand exceeds available quantity.

The growth drivers of warehousing are customers, globalization, the short life cycles, and the variety of products. Warehouses were generally box-in and boxout. They were very simple most rudimentary inward and out ward process. As warehouses became areas for

Warehouses were generally box-in and box-out. As warehouses became areas for adding value-receiving a box, de boxing, de-palletizing, kitting, labeling, strapping, assembling, adding a manual in to a box, adding a cable to a laptop box, or putting a CD. adding value - receiving a box, de boxing, de-palletizing, kitting, labeling, strapping, assembling, adding a manual in to a box, adding a cable to a laptop box, or putting a CD-these types of minor and major value added services are taking place in warehouse. They brought the warehouse back in to mainstream.

These numbers can be used as a thumb rule for warehouse operations metrics. If they are close to or exceed those shown here, it would make sense to examine the reasons for it. If for example, the travel and search times can be reduced, more time would be available for warehouse staff to focus on primary warehousing functions like receiving, storage, crossdocking, picking, value added processing, packing and shipping. Indeed, there may be more time available to 36

The growth drivers warehousing customers, globalization, the short life cycles, and the variety of to locate line of items for orderare filling, handling multiple orders for the same product when demand products.

Warehouses were generally box-in and box-out.

They were very simple most rudimentary exceeds available quantity. inward and out ward process. As warehouses became areas for adding value - receiving a box, de Thede-palletizing, growth drivers of warehousing are customers, globalization, short life andadding the variety boxing, kitting, labeling, strapping, assembling, addingthe a manual in cycles, to a box, a of werea CD generally and box-out.

They were most cable products. to a laptopWarehouses box, or putting - thesebox-in types of minor and major value very addedsimple services arerudimentary taking and outThey ward process. warehouses areas for adding value - receiving a box, de place inward in warehouse. brought the As warehouse backbecame in to mainstream. boxing, de-palletizing, kitting, labeling, strapping, assembling, adding a manual in to a box, adding a A survey conducted by box, Georgia Tech, on the-costs various warehousing processes is veryservices illuminating it has the operations, it will be difficult to integrate cable to a laptop or putting a CD thesefor types of minor and major value added are on taking A survey conducted bybeen Georgia Tech, on we the costsit will for be various (As usual, such studies have not yet done in India, but believe more or less the same. operations.

The design has to be married to the funcplace in warehouse. They brought the warehouse back in to mainstream.

lead story

warehousing processes is very illuminating (As usual, such stud-

tion. If not, there will be no optimization, efficiency, Most of the warehouses that are currently being developed independently are a set of low to complete the tasks. The figures are self explanatory. cost- basic floor, walls and roof.

The second big challenge is infrastructure design –a poor understanding of the functions that a warehouse has to provide. A warehouse is a very functional building, it is a building which helps you improve efficiency, it helps you in facilitating your process.

But you need to understand the processes, the functions and the various nitty gritty of warehouses before beginning the design. A probable cause for the bad design could be the inability of the warehouse The same study estimated the time taken to complete the tasks. The figures are self explanatory. user to specify their requirements clearly. The right time for the user to pitch in is at the design stage–ad not at the time for occupation. To meet the uncerThe same study estimated the time taken to complete the tasks. The figures are self explanatory. tainty, the designer would try to set up a basic design that can suffice multiple needs–all of them at a basic level. Leaving the warehouse performance far below the expected levels.

One thing is certain–adopting a new performance benchmark for a warehouse is a long drawn out affair–and the warehouse managers should prepare themselves for a decline in performance as warehouse staff get used to the new routine. Managers need to be patient to avoid loss of morale in the interim. In warehousing, success begins with understanding the basics—and—on thorough preparation, rigorous athandle an increase in volume without a corresponding tention to detail, a clear vision of where the technology and system fit within the enterprise and a corincrease in labor.

If warehouses are designed with the perspective of porate wide commitment that builds organizational covering a larger area, the design would tend to sacri- ownership from the time of opportunity identificafice on economical operations. If the build focuses on tion to and through deployment, acceptance and cheapest to build warehouse irrespective of the impact beneficial operation. have not yet been done in the India, we believe it will be A ies survey conducted

by Georgia Tech, on costsbut for various warehousing processes is very illuminating standardization. more less the same.

The study estimated the time taken (As usual,or such studies have not yet same been done in India, but we believe it will be more or less the same.

www.scmp.in ...think supply chain February 2014 37 Industry Portal for SCM thePrSupply Chain Professional

n ACADEMIC ADVOCACY n Knowledge n WHITEPAPER n BEST PRACTICE n HUMAN RESOURCE

7 38 SCMPr

Reasons to Consider ERP in the Cloud

April 2013

Whitepaper

Extracted from Columbus Special Report series on ERP in 2014 And Beyond.

Find additional information here: www.columbusglobal.com 18.

B

usiness decision makers who are choosing an ERP system also have to decide whether to run their new business management solution on-premise or in the cloud. Many cloud-based ERP offerings are available today, including public, private, hybrid, and hosted solutions. What these deployment models have in common is that the ERP solution resides in a technology provider’s data center, away from the customer’s business location. Technology users access the system through the internet. Most cloud service providers manage solution upgrades and data protection for their clients.

In recent years, the adoption of cloud technology has accelerated. We expect this trend to continue in 2014 and beyond. More companies than ever decide to base their new ERP deployments in the cloud or to migrate their existing solutions to it. The market for cloud-based ERP deployments and other cloud technology services will continue to grow. How can your company take advantage of it? What are the real benefits of implementing ERP in the cloud?

1 Try Before You Buy When businesses make large investments, they run the risk of making a wrong decision The ability to try a new technology before committing to it greatly reduces this risk. When you consider a cloud-based solution, you can safely evaluate it before you make an acquisition or sign a long-term service contract. For a limited time, maybe even for a specific business group or organization, you can have your ERP solution set up in the cloud so you can test it thoroughly. The technology partner and hosting service provider you engage with will be able to work with you to establish the most

meaningful and practical parameters for a pilot project. In this way, you can see how the capabilities of the solution meet your business needs.

You also can verify what the accessibility of the solution is from a variety of locations and mobile devices. You experience firsthand how well the solution responds in a realistic working environment. Your ERP users participating in the test can provide feedback from their perspective regarding solution features and the practicality of the cloud implementation. When you make your final decision, you can do so with the assurance and comfort resulting from hands-on exposure and comprehensive experimentation with the cloud-based ERP solution.

Some other technologies, such as customer relationship management (CRM) systems, are ahead of ERP in terms of cloud deployment. Today, most companies still run their ERP solutions on-premise. As ERP in 2014 and following year’s moves into the cloud more and more, the ability to experience the solutions before purchasing them will help rule out doubts and uncertainties for those decision-makers for whom the cloud is a new and unknown territory.

2 Take Advantage of the Most Advanced Technology Cloud technology enables you to run your new ERP solution in an enterprise-class, fit-for-purpose environment. Good cloud providers invest in the latest, high-specification technology to enable your business application to run at the greatest speed, with fast, reliable access from around the globe. The cost of replicating this environment in your own operation would include significant upfront capital and resource commitments, plus SCMPr

April 2013

39

39

Whitepaper the costs and effort of staying upto-date with evolving technology, ongoing maintenance of upgrades, and support for changing usage scenarios.

Many organizations that have been running an on-premise ERP solution may have saved cost through inertia. Having stopped considering ERP as a strategic technology that plays a role in moving the business forward, they no longer invest in their solution

for ERP in the cloud, you can score a strong point with this key benefit, especially when you need to convince the CFO: On average, the costs of cloud computing are far less than those of on-premise solutions. In traditional, onsite deployments, your company incur the significant upfront costs of software licenses and new or updated servers and network equipment. When you deploy in the cloud, you do not face those ex-

When you move ERP into the cloud, you do not need to ever worry about these issues. Through your cloud service provider, you can stay current with the latest technologies. and the technology that surrounds it. Often, they are behind in terms of upgrades to newer versions or capability enhancements. This approach may have some relatively minor, short-term cost benefits, but it may have damaged the competitiveness of the business.

The costs of any future upgrades will be significantly higher, and those updates will also require more adjustments in the software products that integrate and interact with the ERP system. When you move ERP into the cloud, you do not need to ever worry about these issues. Through your cloud service provider, you can stay current with the latest technologies, including software and hardware upgrades. You can take advantage of all the business benefits of ERP at a controlled cost, usually a fixed monthly fee.

3 Generate Measurable Cost Saving When you make the business case 40 SCMPr

April 2013

penses. Cloud ERP solutions are usually billed per month and per user. You can fully finance your new solution through operational costs rather than by means of upfront capital expenditures. This cost model also helps to keep your IT budget predictable and controlled over the timeframe of the cloud-service agreement.

Let’s summarize the one-time and ongoing costs savings associated with cloud computing: n Obviously, you don’t pay software license fees. n You also do not need to purchase new servers or network infrastructure. n The physical footprint of your operation is insignificant— there is no need for rack or data center space. n Cooling and power consumption costs are less because you do not need IT hardware such as server racks. n The high flexibility of cloud services means you only pay

for actual users and applications. When business requirements change, you can adjust the number of users or the ERP modules and applications they work with. n You may be able to generate additional savings in operational costs because cloud-based ERP requires less support and maintenance from IT, so you can reassign IT staff to more business-critical tasks.

4 Run a More Effective and Scalable IT Operation Because your hosting partner assumes most of the day-to-day tasks of running your solution in the cloud, you can offload many tasks from your IT department.

The IT team no longer needs to perform a multitude of jobs that range from changing backup tapes to implementing patches to rolling out software updates. Your cloud partner will also monitor several performance indicators to ensure that your ERP system runs at an optimal level. Taking these timeconsuming tasks away from your IT department enables it to focus on the more strategic aspects of technology operation where it can drive real business benefits.

At the same time, you can extend your company’s IT resources by accessing your cloud service provider’s capabilities for certain tasks and functions. Your provider’s staff should include highly qualified IT experts who can work effectively with a number of the company’s customers. These professionals would have deep knowledge of applications and environments that it would not be cost- or resource-effective for you to support and staff. In engaging with your cloud service provider, you can pay for the specific skills that you need, when you want them.

At the same time that you gain

Whitepaper

Best-Practice Check List Before committing to a purchase, perform a cloudbased ERP pilot project.

Involve key business stakeholders and influential users in the cloud pilot.

Take the cloud vs.on-premise decision as an opportunity to lift the strategic value of ERP.

Review your cloud provider’s service commitments for software and hardware enhancements.

In comparing on-premise to cloud-based ERP, consider all one-time and ongoing costs and savings.

Project costs and savings through the contract term with your cloud service provider.

Assess the impact of cloud ERP on the productivity and resource-efficiency of your IT team.

Verify which IT skills and expertise you can access through your cloud service provider. access to advanced technical expertise and skills, you can ease the task load and reduce the resource impact on your internal IT staff.

5 Strengthen the Integrity and Security of Your ERP Solution Many business leaders experience a level of discomfort with moving ERP solutions to the cloud. They fear that one of their most valuable assets, business data, may be-

come compromised and accessible to unauthorized persons through the web. They are also often concerned about connectivity, wondering about the consequences if the company cannot access the solution because of internet connectivity problems.

We have good news. The security, availability, and integrity of cloud-based ERP and other applications has made huge advances in recent times, and we can expect

even more improvements in this area as technology providers refine their offerings in 2014.Reputable cloud providers will generally have far greater security expertise than you can afford to maintain in-house. They understand companies’ security concerns and have the insight and resources to address them. Business continuity, data protection, and disaster recovery are at the core of cloud providers’ business model. They can work with you to make recommendations and strategize the best way to protect your data against any security threat or viability challenge. They will be able to reduce your risk exposure from software-related liabilities such as viruses, phishing, or unauthorized access by using such tools as automated security packet sniffers or sophisticated firewalls. In addition, they also can safeguard the physical environment of your data and applications by using biometric control systems, CCTV cameras, and many other resources and technologies.

Our experience and industry statistics show that the availability of ERP systems in the cloud is strongly increased compared to that of on-premise solutions.

Stringent industry standards continue to improve the reliability and availability of cloud-based technology. A credible, capable cloud service provider will be able to guarantee you an extremely high percentage of solution uptime, so you can do business without interruption.

6 Enable Global User Productivity Taking your ERP solution to the cloud can help you transcend some of the limitations and challenges that can accompany on-premise implementations. When you run operations in several sites and SCMPr

April 2013

41

Whitepaper want to deploy an ERP system for the entire company, the complexity of on-premise implementation increases significantly. You need to ensure that employees at all sites can easily access the solution and work effectively with it, so the IT department or hired consultants need to create and maintain a reliable, fast communications infrastructure. Your company thereby incurs increased costs and resource overhead. As the business grows and changes, you will also need to plan to scale the communication technology the ERP system requires.

When you deploy your ERP solution in the cloud, these concerns fall aside. All of your ERP users can access the system through

your company uses, resulting in potential increases in employee productivity.

7 Accelerate Your Implementation Any ERP implementation, no matter whether it is on-premise or in the cloud, is going to take time and needs very careful planning and project management Where the cloud can help is with the IT infrastructure Because there are no additional hardware requirements, you can save time that you would otherwise spend by procuring and installing servers and network equipment, and by managing any associated issues These implementation benefits may well compound if your roll-out involves

ERP implementation in the cloud may not be the best option for all companies, but it is definitely worth your consideration. the internet, from any location in the world. That ability, in turn, can greatly help user adoption of the solution. Your cloud service provider already owns all the infrastructural resources needed to make sure the ERP system runs at optimal levels of performance and reliability.

There are other advantages when you take ERP to the cloud, depending on the capabilities of your specific ERP solution. Your employees can use their preferred, internet-connected hardware when they access the ERP system—desktop computers, laptops, tablets, and other mobile devices. What’s more, cloud technology makes it very easy to connect the ERP system with the collaboration and social-media tools 42 SCMPr

April 2013

multiple regions, subsidiaries, and locations Once your system is up and running, you will again benefit from largely care-free, fast upgrades and the ability to easily add more users as the business grows You might also want to be aware of the different cloud deployment models most commonly practiced.

Depending on your business model and requirements, each of them has its advantages in making your implementation fast and painless. Your technology partner can help you make a wise choice among these options: Software-as-a-Service (SaaS): Multiple organizations share hardware resources. Customers typically enter into a rental or subscription agreement, and may rely on shared or separate instances of

their software applications. Most of the businesses using this cloud deployment model are smaller companies.

Hosted ERP: Customers run their cloud ERP solutions on dedicated server and network hardware and typically use separate instances of their applications.

Many larger businesses prefer this model.

Hybrid ERP: Businesses maintain on-premise software and integrate it with a number of cloud-based services. Hybrid ERP provides a level of flexibility and control that some companies find valuable. In this type of deployment, they can easily migrate from one solution delivery model to the other as their business needs require, without losing data or functionality.

Conclusion In 2014, many enterprises and smaller businesses will move their ERP systems and other businesscritical applications into the cloud.

ERP implementation in the cloud may not be the best option for all companies, but it is definitely worth your consideration. If you are newly implementing an ERP solution, we recommend that you review cloud deployment options and evaluate whether the cloud is a good fit, given your organization’s business model and expectations for growth. If you already run your ERP system on-premise, it’s worth thinking about the possible savings, efficiencies, and flexibility you might achieve as you offload most of the ERP administration to a trusted provider. Your technology partner can help you determine whether a cloud deployment makes good sense for your business, help you assess any financial and operational advantages, and plan for the implementation that best fits your business.

ClubSCMPro ClubSCMPro aims to nurture an active community of Supply Chain decision makers, professionals, experts and academicians. The idea is to build a forum where the SCM stakeholders can not only share great ideas on best practices, but can also discuss issues and pain areas affecting supply chain process.

As qualified members, you can avail the following benefits: > Subscriptions to SCMPro, monthly Enterprise magazine > Regular invites to Supply Chain Workshops, Seminars, Conferences, etc > Industry Reports > White Papers > Case Studies > Exclusive invite to the elite annual Black Suit Event

ClubSCMPro m e m b e r r e g i s t r a t i o n o p e n a t w w w. s c m p. i n

n ACADEMIC ADVOCACY n Knowledge n WHITEPAPER n BEST PRACTICE n HUMAN RESOURCE

Effective supplier audit:

Protects Integrity Supply Chains

The supplier audit program is the cornerstone of supply chain integrity and most successful companies have been running the same effectively.

W

e have some well known examples of product related failures in India. To name few - “car catching fire” created major issue for a newly launched car and a chocolate company went through major damage control exercise when chocolate was found contain worms.

We read many times about product recall by different companies. There have been cases where the damage caused went well beyond product and company reputation itself was at stake.

Every company today have supplier base spread round the globe. However it is also acknowledged that we must be able to monitor /control suppliers. In a way this puts lot of emphasis on necessary audits /verification process even while selecting the suppliers.

This is equally true for various service providers as well.

Anil S. Sathe Senior General Manager, Supply Chain (Products Business), Blue Star.

44 SCMPr

February 2014

Challenges today This brings us to a point of understanding complexities and challenges we face today with reference to the whole process of audits.

It is said quite often that today one supply chain competes the other. This also means today’s audit process has to go well beyond physical verification of the supplier to the depth of the supplier selection process and controls they exert on supply chain to ensure better control on costs and risks.

Geographical spread is a challenge by itself. It manifests itself from understanding of local language, culture and travel related issues.

We must also deal with internal complexity, where multiple divisions spawn supplier quality ‘islands’, that operate in functional and data isolation. This leads to isolated pockets of activity that are neither standardized, nor coordinated.

Comprehensive audit program: An effective supplier audit program must be built on a strong, yet versatile foundation.

This foundation comprise of solid team structure, process definition, tools, data systems, and standardization which will help the audit program keep up with the supply base.

column Few important aspects to be considered are: n A comprehensive supply chain risk profile n E stablished risk tolerances by type of risk, supplier, commodity, etc. n A clear understanding of the true cost (direct plus indirect) of supply chain disruptions n L eading key risk indicators (KRIs) along with risk scoring models that give “early warning” to potential trouble n A focus on early intervention rather than crisis management

Program Foundation The program must build necessary gates / check points for new suppliers (including those who will become second tier suppliers). This essentially is an adequacy audit to ascertain whether supplier can meet all requirements consistently and must be done by cross functional team of Quality, SCM and a subject matter expert.

Audits results have to be consistent and hence we must have well laid down process covering timelines, reference check list with clarity on what is acceptable. It is crucial even to identify the nature of evidence to be collected to support the findings.

One of the expectations from audit is to be able to differentiate between good and bad. This should become basis for grading suppliers. This means, audits process /reports are standardised to ensure that individual biases are reduced to minimum, if not eliminated completely.

Effective execution

No wonder that supplier audit program is the cornerstone of supply chain integrity and most successful companies have been running the same effectively.

Prioritization, resource management and measurement of the process help maximize the output of every audit ‘event’.

Most critical part is to identify supplier with high level consideration on reputations, operations, strategy and brand.

Check List n W hat

is the risk V/s benefits of relying on this supplier? n W hich suppliers would cause critical operational problems if they were to default? n W hat would be the likely financial impact of a critical operational issue/disruption to an operations? n How many suppliers are “single source” by design and which suppliers do not have

viable alternatives?

How do the supplier operate? Does it reflect the quality and economic standard and does it align with the company goals?

More critical or strategic suppliers warrant a more in-depth audit using key program personnel. Less critical, less strategic suppliers may warrant a more high-level audit with non-program-core or even third-party audit resources.

Next step would be to have clarity on audit frequency /resource allocation. It is important to know upfront the owner of the “audit findings” both at supplier’s end and the company. The purpose is to ensure that we have necessary action plan /tracking of progress made, based on the findings.

There are 2 critical aspects of effective audit–first is to collect “objective evidence” and second is to ensure that “gap between desired status or requirements against actual” should be clearly stated.

Audit objective is to ensure the supplier would meet our requirements consistently, both in the terms of quality and quantity and hence, we need to have check list to prove demonstrated control on all aspects of business covering finance, quality, sourcing and compliance to all legal /statutory compliances.

I have been part of global sourcing teams and have been part of many “Low Cost Sourcing projects”. As a part of these projects, I have lead audits teams both within the country and abroad.

My experience shows that effective audits kill more than 70% of likely issues whether they are in delivery schedules or quality related issues. If we put in effective control plans /SLAs as reference documents consistency improves dramatically and results are there for all to see since this improves overall performance as well as cost effectiveness.

n

Summary Companies doing business in emerging markets will look sharp in the years ahead if they meet the supply chain integrity challenge now. Distantly emerging markets beckon and are likely to present even greater potential supply chain risks—and business opportunities—over time.

Feedback /suggestions /comments are most welcome on mail ID feedback_scmexcellence@yahoo.com

SCMPr

February 2014

45

45

n ACADEMIC ADVOCACY n Knowledge n WHITEPAPER n BEST PRACTICE n HUMAN RESOURCE

Welcoming Finance to the Supply Chain Fold By integrating the finance function with supply chain and therefore the rest of the organization, much greater visibility is achieved and as a result significant cost and timesaving’s can be gained.

I Darryl Judd COO, Logistics Executive darrylj@logisticsexecutve.com

46 SCMPr

February 2014

t has been mentioned time-over how the GFC completely changed the way we do business. In particular how supply chain and logistics went from being the support function back of house to its present role as a major strategic contributor with a well-earned place on the executive team.

One of the key reasons for this is the advantage that the Supply Chain and Logistics function offers. Its logical, business agility provides the real-time competitive edge when responding to market forces.

The supply chain process draws in all functions of the business at every level. In this article, we are going to look at how the finance function has been influenced

by supply chain and how this evolving partnership has accelerated the emergence of what is known as the financial supply chain to the forefront of the accounting profession.

With the supply chain lengthening as a result of globalization and offshore production, many companies experience a reduction of capital availability. In addition, the pressure faced by companies to improve cash flow since the GFC has resulted in increased pressure on their overseas suppliers. Specifically suppliers receive pressure in the form of extended payment terms or increased working capital imposed on them by large multi-national buyers. The general trend to-

talent ward open account from letters of credit has further contributed to the problem.

Particularly during the turbulence of the GFC and the proceeding years, there has been an ongoing focus on ensuring that cash flow and capital management are protected.

The reason for this according to John Mardle, Managing Director of CashPerform Limited says is simple. “Analysis of where cash is actually coming from (O2C) and where it is going to (P2P), and in particular the timing, the value and the accuracy of each cash transaction in each scenario will determine whether an organization is sustainable by way of cash in the future”.

Obviously, this information, which amounts to the health check of the business, was as critical at the time of the GFC as it is today.

Since the GFC, businesses have also realized that the financial supply chain can provide invaluable analysis and depth to issues like: n Strategy regarding customers, suppliers, stakeholders and employees when delivering cash conversion cycle efficiency n Operational metrics that reflect the real drivers of working capital. n Alignment and cross-functional team working required delivering a sustainable financial supply chain.

The opportunities for global supply chain finance solutions are significant. The total worldwide market for receivables management is US$1.4 trillion. Payables discounting and asset-based lending add an additional US$100 billion and $350 billion, respectively.

Only a small percentage of companies are currently using supply chain finance techniques, but more than half have plans or are investigating options to improve supply chain finance techniques.

While buyers are extending payment terms to their suppliers, the suppliers often have limited access to short-term financing and, therefore, a higher cost of money. This cost-shifting to suppliers results in a financially unstable and higher-risk supply base. Overall, the benchmark reports showed that companies should be pursuing three key areas of improvement: global supply chain financing; supply chain technology; and upstream and downstream supply chain visibility.

the new most sort after non traditional traits recruiting managers are now looking for in finance and accounting professionals” said Carmel Perales, South East Asia Head of Logistics Executive. There needs to be a human oversight that can manage and counter balance the impact and flow on of information and strategy shifts to the business as a whole.

Since the GFC the supply chain accounting process has perfected many techniques to optimize re-

General business knowledge, leadership aptitude and strong interpersonal skills are the new most sort after non traditional traits recruiting managers are now looking for in finance and accounting professionals.

However, for an organization to successfully integrate their supply chain and finance functions they need to employ the use of good system integration and excellent leadership and people management skills.

In terms of systems, there needs to be an enhancement of the realtime advantage of enterprise resource systems and customer relationship management systems to build in as much automation to the financial process as possible. One of the ways to achieve this is through a simple scanning process. Automating the debt and billing processes as well as creating business intelligence tools to monitor company performance all contribute to the increased visibility of company performance.

Of course, the human factor is also critical. “General business knowledge, leadership aptitude and strong interpersonal skills are

sources within the supply chain model. These extend to areas such as: costing, benchmarking, outsourcing and performance measurement, which range well beyond the scope of traditional accounting.

The incentive for finance to collaborate with its supply chain partners in the financial process is clearly obvious. It lies in the challenge to drive the change process in support of the organization’s strategic intentions. To gain commercial visibility in an organization at all levels, there needs to be cooperation amongst all functional silos.

All touch points and perspectives, including financial, customer and internal need to be investigated in order to get an understanding of the organization as a whole.

Financial Supply Chain professionals can combine a variety of systems, accounting tools and business nuance to devise tailored SCMPr

February 2014

47

47

talent solutions for individual commercial circumstances.

An example of how Financial Supply Chain can be tailored is Sainsbury’s use of activity based costing for benchmarking suppliers as part of a value chain analysis.

They analysed suppliers into three categories depending on the volume they delivered and the strategic importance of their products to Sainsbury’s. The three categories were suppliers, middle to large suppliers, and small suppliers. Activity based costing information was developed–mainly with core suppliers–to provide benchmarking data and to identify development opportunities. There are many examples like this in which Financial Supply Chain can apply accounting techniques to create commercial value.

Physical and informational control are the keys to a robust global supply chain finance solution. Closer collaboration between logistics providers and financial services firms will in future assist developing precise visibility tools

that provide CFOs and global supply chain managers with the data they need and lenders with the collateral security required to provide capital.

The starting point for information about goods being transported must be the entity that is transporting the goods – the supply chain services provider, transportation company, and/or logistics partner.

These are the entities that have the physical control of the goods while in the supply chain. Access to this information is a must from a demand planning perspective. Knowing where the goods are in transit, the financial services provider can more confidently extend financing at various milestones within the supply chain.

There the critical role to this equation is that of the supply chain finance “translator” –the department or entity responsible (and experienced) in both logistics/transportation and financial services.

The translator is the subject matter expert that can bring all entities to

the table – transportation and logistics; banks; buyers; and sellers and speak the various languages and understand the needs of each party. Thus evolves the role of Supply Chain Finance and whom can help bridge the information divide between the physical and financial worlds, providing critical analysis about the information being collected from the supply chain.

In conclusion, the financial supply chain is unique to every organisation and requires a complete understanding of the processes in each part of the chain. This will deliver the robust cash strategy that supports the organisation’s ability to service its debt and to gain competitive advantage.

In today’s global markets, it is more crucial than every to have this competitive advantage.

Everyday business activities can involve thousands of processes, systems and individuals. When these activities are efficiently managed and coordinated across the enterprise, powerful synergy results.

www.scmp.in ...live supply chain Industry Portal for the Supply Chain Professional 48 SCMPr

February 2014

subscription form

SCMPrSCM r P M P SC An U Agenda for r actice

n pr ends n tr dge owle n kn per te pa urce n whi reso man No.4 n hu Vol. 1— 0

n KNOWLEDGE n STRATEGY n BEST PRACTICE n TRENDS n humAN RESOuRCE

`15

13 May 20

al Supply Supp fessionChain Management Professional ly Ch ent Pro a in M g a n a g em

July 2013

it 2013

Summ

ly Chain

c k intial n th U n lo Porte Grow a Supp

the

Pharm

ing: hous ware

of the in t r a e H ly Cha Supp

Vol. 1—No. 5 `150

a na g

Phar emen t Pro ma S fessio uPPl na l y Ch ain

nlChan the Pockinge oten g tial

Highe 2013, Mumbai

for

C Supply

hain M

ted receden from of unp midst varying vators in the e options inno ay is , and tipl ring withtheir own stry tod with mul partne rma induies faced ment, kets with an Pha pan develop ng new mar The Indi with com ecule Supply turi growth for new mol ts to cap s on the never – ed focu and ng righ going . anc keti ent ions and enh ver consist for mar formulat a new service deli existing brings lore and s and s DAT E user ario exp 3 ortunitie together This scenforcing to E 201 TH brings ges and opp – in cies.

2013 Chain 14 JUNING llen ply cha efficien Summit te the cha TIM by sup before Chain bera 0 pm adapted Supply to 5:0 and deli tegies Pharma to discuss 9:30 am UE the stra s re to VEN provider exposu erts in the LIT Chain and get stry exp Drivers ply age T H E LA indu y Sup Eng AI rma Visibilit onal and MU MB Chain es in Pha professi Skill Set Supply ign Issu

14th

Optimiz

it Focus

Summ

FOR

By:

tegic

and Des in ply Cha

Stra es for Chain Strategi led Sup Supply Control ceutical Pharma perature g Tem sor: Managin Spon ciate Associate

d Organise

ation

June

Partner:

HID TO: RAS

gy &

Media

Partner:

Partner:

/ 122

0121

AL@

SCM

- 6002 ON 022 L US KERS OR CAL I O N M A P.IN ECIS

WITH E RA CT

.IQB

NT WRI TE I TY TO I ASE RT U N N PLE ATIO OPPO ISTR KING TE REG E TW O R DEL EGA H I G H N A

Technolo

ledge

Know

Asso

THE

D

Ports as an Economic Unit on its own, provides lifeline for trade in the country.

Pg.14

In Thise Issu

speaK guru ui: Siddiq Arif A. mpetitive For Co ouse Wareh 1 Page..1

Ware Fe hous In ThIs ing AFI srsou entie ature: utom rs in ation P

CUS LSP FO w: Inter viene, Saha mn Milind & CEO , colu InsI tor ec AcAdemic the: gh Dir DIESLcolumn t ve uti ThEx Anil Sa s in AdvocAcy e Precom 2 ge Competitive allen ain Pitfalls ise an Page...4 ModellingChSupply Ch Strategy for Data of Big d Supply Chain Dynamics Future Today ...38 LsP Page...8 Page Fo Page Page...36 Pirojsh cus ...07 CEO, aw Sarkar i Mah indra Logi stics Page ...36

FeAture Frontiers in Supply Chain Educatione

Page...46

g.40

In I s sThIs ue

hR Empl Enga oyee Step ement: Fi s to Read ve iness Page ...46

n B ES n R T PRACTI ES CE n Sk PonSE Il n R lS ESEA RCh n h u m

An R Augu ESo st 20 uRC 13 E Vol. 1—N o. 6 `150

SCMP is a monthly magazine for Supply Chain Professionals for Enterprise Users as well as Service Providers. The magazine contains specialist artcles, news and information designed to update the readers on the developments in supply chain industry. Specialised articles are contributed by the Industry Leaders and Academicians. Besides, there are other updates published to keep the readers keep pace with the Industry. Published in the 1st week of the month, the magazine is distributed to the readers through courier.

Currentxly the print copy of the issue is available only for readers based in India. cover Price `150/-

Get Your Subscription Now! One year Subscription Rs.1,500/- Two Years Subscription Rs.2,850/Name: . ..........................................................................................Designation.....................................................................

Company Name:...............................................................................Industry...........................................................................

Address ................................................................................................................................................................................ .............................................................................................................City: . .............................................................................

State:........................................... PIN Code: .......................................................... Country: .....................................................................

Tel: ................................................... Mob. .......................................... E-mail:.......................................................................................

DD/Cheque No. ........................................ Bank ..........................................Dated .............................For

`...............................................

Your DD/Cheque should be drawn in favour of B2B Media Group Subscription form alongwith your payment should be sent to:

, 211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai-400 069.

Tel: + 91 22 60020121 / 122

SPECIAL FOCUS ON

Supported By

Automotive Components, Accessories & Equipments

Magazine Partner

Organised By

All India Transporters Welfare Asso.

Media Partners

Contact Us: Mohit Budhija +91 9999689225 I mohit.budhija@reedmanch.com I www.CommercialTransportShow.com

y t l u c a F r o f g n i k o o L s i M

ISC

nals Chain professio ly p p Su e th p hel s you eep insights to agement invite d an ed M ir & u q n ai ac h e C hav itute of Supply If you feel you ledge, the Inst w o kn r ei th of: bootstrap lty in the areas cu Fa e at ci o ss to join us as A Supply Chain M Agri Business

• •

anagement ing

ing & Forecast

Demand Plann Warehousing

• •

Transportation udit Supply Chain A

• •

gistics Shipping & Lo etwork Design Supply Chain N

• • • •

Retail Logistics Sustainability

Logistics Humanitarian e above us in any of th h it w ed at ci e to be asso If you would lik you. e to hear from lik ld u o w e w areas,

•

Please Contact: girish.vs@iscmindia.net with your area of interest About ISCM: The Institute of Supply Chain & Management (ISCM) is the leading forum for supply chain professionals to share best practices, strategic insights and business challenges and explore the innovations in Supply Chain Management in India. ISCM is one of the leading institutes in the area of Supply Chain Management in India. It offers full time and part-time post graduate programs and specialized management development programs in the area of supply chain and business forecasting. The programs offered by ISCM are highly respected and recognized in corporate sector for employment.

C/o. Durgadevi Saraf Institute of Management Studies, R. S. Campus, S. V. Road, Malad (W), Mumbai – 400 064 Email:info@iscmindia.net Website:www.iscmindia.net

High density storage achieved with Schaefer Orbiter System.

Many logistics managers are unaware of the potential optimisation and streamlining of homogenous goods storage that modern warehouse systems can offer. The Schaefer Orbiter System allows you to compress your storage and speed up operations with storage and retrieval speed at 1m/second. Contact us today, we can show you how you can achieve effective storage needs.

P: +91/22/6111 4700 路 E: schaefer@ssi-schaefer.in 路 www.ssi-schaefer.in