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From the Editor's Desk


We are what we repeatedly do. Excellence, then, is not an act,

Senior Genesis Team

but a habit. – Aristotle

Ambuj Welcome to the inaugural edition of “Opsessia”- the Biannual


Operations magazine of IMI. It gives us immense pleasure to


bring out this issue, which is dedicated to the world of Operations


management. This magazine is inspiredby the insightful thoughts of highly intellectual professors and inquisitive students


studying across B-schools in India, thus blending experience and

Junior Genesis Team

new thinking from the future leaders.

Alisha The articles in this issue are on different aspects of Operations Management and cover a myriad of topics like Build-OperateTransfer, Sales and Operations planning, Green Strategy, JIT,

Anubhav Jai Shivam

Impact of GST on SCM, changing trends in Global SCM and


achieving operational excellence through Financial Instruments.


This is just a glimpse of what we aim to bring to you in the future. I


hope that “Opsessia” will help you gain more insight into major developments in the field of Operations Management across the globe. Wishing you all an exciting reading experience.

Shishir Srikant Sumant Tarun

Team Genesis.

Looking forward for to your feedback and suggestions at

For more information on Genesis, the operations club of IMI visit our website


Opsessia A Word from the Director General

Dear Friends, It gives me immense pleasure to pen down my thoughts for the inaugural issue of “Opsessia-obsessed with operations” magazine. This initiative taken by Team Genesis, the Operations Club of IMI, will provide a forum for dissemination of ideas and best practices in Operations Management. Ever since its inception, International Management Institute (IMI) has been a centre for nurturing the very best of the managerial talent in the country. To achieve this, the Institute has taken a number of initiatives to groom future leaders who are valuedriven and yet conscious of the fact that to achieve sustainable organisational growth, one cannot overlook the societal and environmental concerns. As part of these initiatives, students are encouraged to come forward to implement ideas which can help them in exercising their managerial talent and at the same time provide value addition to management education. The progress of IMI has been noteworthy, with its students performing remarkably well in the corporate world. I believe “Opsessia” is a platform where students can share their views and come up with novel ideas to contribute to the all pervasive world of Operations Management. This will enhance the awareness regarding this subject and will enthuse the readers to be part of Operations function of an organization. It is a manifestation of the students' creative ability and their unfettered ambitions. Entirely a student-driven initiative, it displays the potential of young innovative minds that are always searching for newer horizons to explore. I wish the young, enterprising minds a bright and rewarding future.

Dr.Pritam Singh (Padma Shree) Director General International Management Institute


Opsessia A Word from the Prof P.K Bhaumik

Team Genesis, the Operations Club of IMI has taken the initiative to come up with the very first issue of “Opsessia� a magazine dedicated to the field of Operations Management. In today's dynamic global environment, operations management has assumed centre stage as every firm tries to achieve Operational excellence to reduce cost, improve quality and achieve efficient delivery. This is the inaugural issue of a proposed Biannual Operations magazine. The Genesis team had held a competition calling for articles from the MBA student fraternity to contribute towards making of this inaugural edition of the magazine a success. The response was overwhelming and the quality of articles received was brilliant. However due to space constraints we have not been able to print all the received articles in our magazine. This inaugural issue contains the Top 8 articles which were meticulously selected by the Genesis team members assessing the quality of content and style of presentation. The magazine contains articles and write-ups relevant to the field of Operations written by students from across the top business schools in India. Time and again it proves the enthusiasm of the students toward the field of Operations management and clearly emphasizes the importance of Operations Management in the current business scenario. This issue also contains some articles written by our distinguished faculty from the field of Operations Management and a few written by our Genesis club members. I am glad to present to you this magazine and hope that you will have a pleasant reading experience as you go through its pages.

Pradip K Bhaumik, Professor, Quantitative Techniques and Operations Management & Former Acting Director International Management Institute.



In this Issue Faculty Room : Relevance of Operations Management to Management Education - 5

Club Room : India: An emerging face as a Global Supply Chain Management Hub - 7

Class Room : Achieving Operational Excellence through Financial Instruments - 11 ADAPT TO THRIVE Mass-Lean-Agile-RAM - 15 Build Operate Transfer- A new schema in Infrastructure Development - 18 “Going Green� Operational Strategy of European Airlines a lesson for theIndia's Airline Industry - 21 Impact of GST on Supply Chain Industry - 25 Role of Information Technology in Supply Chain - 28 JIT and supply chain disruptions - 31 Improvement of S&OP and its Synchronization with advanced functionsA key to sustainable operations management - 33


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Relevance of Operations Management to Management Education All activities which convert input resources into useful outputs, either goods or services, are termed as operations. It is obvious that operations would be required in any business organization (or for that matter any organization!) which intends to produce useful products or services. Operations Management is taught in B-schools worldwide as a core subject along with other core subjects which cover Marketing, Finance and Human Resources. Even though operations are required in service organizations as much as they are in manufacturing organizations, the syllabus for the core subject is often inclined more towards manufacturing. The relevance of studying Operations Management can be discussed both at nation level and the firm level. Nation Level The importance of studying Operations Management as part of management education can be appreciated considering the role of Operations / Manufacturing in the economy of any country. Manufacturing contributes to about 15% of our GDP. Despite the fact that the service sector is growing manufacturing has a crucial role to play in the growth of the economy. The Industrial Production Index is considered an important parameter for measuring the economic growth of the country. A drop in Industrial Production Index is always a matter of concern for our Finance Minister.Needless to say, manufacturing holds the key to economic growth of our country. The role that manufacturing can play in the economy of any country becomes obvious when we look at the two countries: China and the USA. China is now universally accepted as an economic superpower (apart from it being a military superpower). The growth of China into such a strong economy has largely been due to the fact that it has developed excellence in manufacturing and now dominates the world markets, be it developed economies in the West or developing economies like India. Thus, Operations Management has contributed to the rise of China as much as it has been the reason for the fall of the US economy. The USA allowed manufacturing to move out to developing countries, specially to China resulting in the current state of affairs. It not only made the US indebted to China for billions of Dollars but also brought in the high unemployment rate which is a major cause of concern for President Barack Obama. In 2007 alone, USA lost 374,00 jobs based on goods producing industries

( .On the other hand, China did everything it could to promote manufacturing and exports in the country. It could attract huge foreign direct investments and companies moved their production base to China attracted by the low wages and incentives provided by the Chinese government.As a result, the balance of trade is skewed unfavorably towards the US. If the American economy could do well by merely focusing on services it would have done so. Unfortunately, this is not the case. Growth of manufacturing not only contributes directly to the economy but also creates services, thus, indirectly bringing about a growth in services sector too. If a factory is set up for manufacturing a product it automatically creates a demand for providing services like transportation and warehousing. The US probably failed to realize this. In India, the government has realized the importance of manufacturing and formulated a Manufacturing Policy for the country.

Firm Level Apart from the role of Operations Management at the level of economy of a country, its role at the level of business organizations is not difficult to understand. The relevance of studying Operations Management at firm level can be studies with respect to factors which are internal to the firm and those factors external to the firm. Internal to the firm: Michael Porter, in his Value Chain Model, has divided activities in business organizations into Primary and Secondary activities and he has included Operations among the Primary activities. Since Operations creates products or services it is actually the backbone of any business firm. It is the reason for existence for Finance, Marketing and Human Resources functions. It would be strange if the students of business management did not understand basic operations of a firm. Operations of a firm require huge investment both in terms of fixed costs as well as working capital. Understanding these operations and improving them can substantially affect the bottom line of a company. The concepts taught in Operations Management find application in other functions too. Take for example, the concept of process management. Processes exist in all departments of a firm, not only in Operations. A



Faculty Room good Finance Manager or a good Marketing Manager should also be a good process manager. However, senior people in Finance or Marketing may know a lot about their respective fields but are not very good at managing processes. Similarly, the concept of bottlenecks can be applied to improve the functioning of any department. Sadly enough, the application often remains limited to the Operations function where people are more aware of the concept. A third concept is quality management. Quality is not only required in the final product or service but also in the way bills are passed by Finance function or the way orders are processed by Marketing function. External to the firm: Firms need to have a strategy to handle competition. An operations based strategy can help a firm to not only establish itself but also take competition head on. According to Hayes and Upton (1998) superior operations effectiveness based on capabilities that are embedded in the people or processes, becomes inherently difficult to imitate. Firstly, an operations based strategy is not very obvious to competitors for quite some time. Secondly, by the time the competitors come to know of the strategy the firm has already gone down the learning curve and developed capabilities which make imitation difficult. Thus, it provides sustained competitive advantage to the firm. Upton and Hayes provide many examples how small companies have successfully taken on competition in their fieldsby having an operations based strategy. Two such prominent examples are those of South West Airlines and Wal Mart. South West Airlines began operations in 1971. With a clear operations strategy focused on customer service, gating operations and human resources the airlines developed superior operations and in 1992 it was the only American airlines which was making profit. Any attempt by competitors to imitate its operations based strategy failed. Similarly, Wal Mart became a public company in 1972 with just 30 stores. With an operations based strategy, it grew to about 650 stores in a little over ten years. It used computers to track sales and co-ordinate replenishments. Rival firm K Mart,which at one time was much larger than Wal Mart, attempted to imitate this strategybut failed.


Operations form an integral part of any firm. In fact, it is the very reason for other functions to exist in the business world. Finance, Marketing and Human Resource strategies are meant to compliment an Operations strategy and not vice versa. It is high time that our B-schools as well as the students studying in these schools realize the importance of this subject so that the country moves towards excellence in firm based operations which can fuel the growth of the economy of our country. References 1. Hayes, Robert H and Upton, David M (1998), “Operations based strategy�, California Management Review, Volume 40, No. 4, pp. 8-25 2.

Dr. SiddharthVarma Professor, IMI


Quantitative Techniques & Operations Management Educational Qualifications

B. E, M Tech, MBA, Ph.D Interest Area

Supply Chain Management, Technology Management Faculty Profile

Professor SiddharthVarma did his B. E. in Mechanical Engineering from the erstwhile University of Roorkee (now IIT, Roorkee) in 1985. He did his M Tech from Indian Institute of Technology, Delhi in 1987 and completed his Masters in Business Administration from Asian Institute of Technology, Bangkok in 1993. He obtained his Ph D from IIT, Delhi in 2008 in the area of supply chain management.

Club Room


India: An emerging face as a Global Supply Chain Management Hub When it comes to producing products at low cost and higher quality, it's a common notion for manufacturing firms to think of Japan or China. While manufacturing products, the three important aspects on which a plant location is decided is the cost, quality and delivery. China and Japan has proved their leadership in producing high quality goods at a lower cost and maintaining a stringent timeline. All this has been made possible through years of research, fine tuning in Operations and Supply Chain Management, through initiatives like TQM, Kaizen, Six Sigma, Lean manufacturing and many other operational excellence practices. As a result these countries have emerged as a preferred destination for manufacturing firms and have emerged as the leading exporters in the world along with other developed nations like Germany, USA and European Union. In 2010, India ranked 17th overall in total exports to the world. However, India ranked 7th in the world for total vehicle production in year 2010.

The prime reason for India being on the top of the charts in Automobile production is the increasing demand for 2 and 4-wheelers in India. However traditionally in Automobile sector India was never considered as an exporting country. All the indigenous automobile manufacturers usually used to cater to the domestic demand and designtheir Operations and Supply Chain management accordingly. However this scene is changing and that too rapidly. With improvement in Infrastructure, favourable central and state government policies and the opening up of the economy has caused many firms to rethink their supply chain management strategies. The following two articles which appeared in the Economic Times on the same day (dated 3rd Oct 2011) are the proof of the new supply chain management strategies adopted by Global Automobile manufacturer in India. The New Operations Strategy The automobile demand for 4-wheelers and commercial vehicles like trucks and goods carrier are increased manifold in India. The Automobile industry in India is one of the largest in the world and is also one of the fastest growing industry globally. India's passenger car and commercial vehicle manufacturingindustry is the 7th largest in the world, with an annual production of more than 3.7 million units in 2010*. According to recent reports, India is set to overtake Brazil to become the sixth largest passenger vehicle producer in the world, growing 1618 per cent to sell around three million units in the course of 201112*. In 2010, India emerged as Asia's fourth largest exporter of passenger cars, behind Japan, South Korea, and Thailand. With increase in domestic demand, global automobile manufacturers are rethinking their Supply chain strategy and are searching for innovative techniques to take advantage of


Club Room



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the Indian experience in automobile manufacturing and favourable government policies by entering into JV with Indian partners. With over 23 companies producing over 98 brands/models of passenger vehicles in India and 23 companies producing commercial vehicles in India, the competition in Indian market is fierce. As a result of such large number of brands coupled with lower aggregate domestic demand (even though % growth is higher) the demand of automobiles per brand gets distributed, with domestic brands enjoying a higher market share due to higher penetration and customer confidence. For foreign brands to cater to the small but ever growing customer demand, setting a small to medium scale plant would be considered as a viable option in a short run. However setting a small to medium scale output plant to meet its current mediocre demand fo r m e d i u m to h i g h p r i c e d ve h i c l e s wo u l d


jeopardisecompany's long term plans and objectives of growth. On the contrary setting a large scale manufacturing plant with large production capacity would result in higher initial cost and excess production. In such difficult situation, Operations Manager went beyond the obvious and sought to take advantage of liberal Indian Export policies and liberal import policies of countries like those in Middle East, Africa, South East Asia and South Asian regions. Companies like Nissan and VE (Volvo-Eicher Motors JV) have setup their large scale production plants in India to cater for future rise in domestic demand for automobiles and anticipating growth in domestic automobile market. At the same time, the current excessfrom the production was exported to the countries like those in Africa, Middle East, South Asia regions. These companies have worked to develop India as a supply chain management and export hub apart from countries like Japan and China.



Club Room Manufacturer Indian Automotive Companies Chinkara Motors Hindustan Motors ICML Mahindra Premier Automobiles Limited San Motors Tata Motors Foreign Automotive Companies BMW India Fiat India Ford India Chevrolet Honda Siel Hyundai Motor India Land Rover Maruti Suzuki Mercedes-Benz India Mitsubishi Nissan Motor India Renault India Toyota Kirloskar Audi India Ĺ koda Auto India Volkswagen India

Model Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster Ambassador Rhino Rx Major, Xylo, Scorpio, Bolero, Thar, Verito, Genio, XUV500 Sigma, RiO Storm Nano, Indica, Vista, Indigo, Manza, Indigo CS, Sumo, Grande, Venture, Safari, Xenon, Aria 3 Series, 5 Series, X1, X3. Grande Punto, Linea Figo, Fiesta Classic, Fiesta, Endeavour. Spark, Beat, Aveo U-VA, Aveo, Optra, Cruze, Tavera Brio, Jazz, City, Civic, Accord. Eon, Santro, i10, i20, Accent, Verna, Sonata Transform. Freelander 2 800, Alto, WagonR, Estilo, A-star, Ritz, Swift, Swift DZire, SX4, Omni, Eeco, Gypsy C-Class, E-Class Lancer, Lancer Cedia, Pajero Micra, Sunny Fluence, Koleos Etios Liva Etios, Corolla Altis, Innova, Fortuner A4, A6, Q5 Fabia, Laura, Superb, Yeti Polo, Vento, Jetta, Passat

Moving forward we would expect to see many such examples from other sectors of Industry, where References Operations Managers would consider India as a missing # link in their Global Supply Chain management and India * would emerge a leading Exporter of the world.

By Mithilesh Borgaonkar He has completed his BE Electronics, from Sardar Patel College of Engineering, Mumbai University. He has a work experience of 27 months with MindTree Ltd. after that he joined IMI & is currently in 1st year PGDM, IMI, Delhi. He is also a member of Genesis, the operations club of IMI.



Class Room

Achieving Operational Excellence through Financial Instruments In an open economy, production firms are highly susceptible to the variation in cost of raw materials and other direct costs. With inflation rate soaring at 9-10% per annum, it is a difficult task for Indian production firms to maintain a stable input cost. As a result, there is constant pressure on the margins of the firms. Achieving a constant supply of raw materials over a period of time at a stable cost is the most difficult task for purchasing managers. Advanced tools like Inventory Management, Warehousing or Price Forecasting may be used to control prices of inputs upto a certain level. However even all these methods do not ensure 100% surety of providing raw materials and direct inputs at a constant price. In such an environment, Operations Manager has very few options from their field of specialisation to keep the margins stable. Capital Intensive methods may be employed to achieve economies of scale and reduce the fixed cost. However the initial cash outlays would take the cash out of the business making the firm more susceptible to price fluctuations. Therefore it becomes a mammoth task for the Operations Manager to seek methods or make provisions for increase in the direct cost involved in production. Historically it has been observed that Indian firms spend on average 7-9% of the selling price on transportation cost as against 2.5% in USA. In case of heavy materials like Steel or Iron, the transportation cost can be as high as 33%. The reason for such high cost can be attributed to many factors like state taxes, Toll tax, lack of proper infrastructure like highways or speedways, government policies etc. The implication of such high proportion of transportation cost in the final price is that, a small increase in transportation cost can cause an increase in overall cost of the product and a large decrease in margin. Consider an example where selling price of a product is Rs.100 with a planned

Head Selling price Direct material Indirect material Labour (both direct and indirect) Miscellaneous cost Transportation cost Margin

profit margin of 10%. Raw material and direct and indirect cost would be around 80% of selling price and transportation cost around 10% in Indian context. Take a hypothetical situation in which the petrol and diesel price have gone up by 50% over a period of time (as it has happened over last few years in India). As a result the transportation cost would increase by 50%. Even the cost of direct and indirect materials would rise as a result of rise in transportation cost to the raw material supplying firm. Considering that 10% of the price is spent on transportation by the raw material supplying firm, a 50% increase in petrol price would lead to 5% increase in cost of direct and indirect material. Thus with 50% increase in petrol price, there is 75% decrease in margin of the firm if selling price is kept constant. If Operations Manager wants to respond to this huge decrease in margins, he may have to increase the selling price or reduce cost under other heads by some way. If he resorts to increase in selling price and if there are too many other competitors offering similar product and at similar price, the demand for the product would go down further adding to downward pressure not only to profits, but also the Topline. If Operations Manager decides to reduce the cost of raw materials, it can be achieved through three ways By reducing the quality of raw materials thereby compromising the entire product quality OR By further negotiating prices from suppliers. OR Looking for alternative materials which could be used as raw materials. However these may involve increased R&D cost and a complete process reengineering which could be costly and adding higher initial outlays. OR Combination of any of them Thus just by rise in petrol price, the company's margin is jeopardised. However with inflation

% of selling price 100% 40% 10% 20% 10% 10% 10%

Actual Amount Rs 100 Rs 40 Rs 10 Rs 20 Rs 10 Rs 10 Rs 10 11


Class Room However with inflation not only the petrol price, but also the prices of all the goods and services (labour) goes up which may put extreme pressures on the firm to maintain margins at a constant selling price. As the options for Operations manager are few and difficult, is there any other easier way in which firms can protect their margins without having to bother about the rising cost of inputs? Yes! There is a way to protect margins without controlling actual input cost. But for this Operation Managers have to think out of the field of Operations management and enter into a world of speculation and hedging. Operations manager can use financial instruments like options and futures as a hedging tool to reduce or at minimum to maintain the input cost and thus maintain margins. A brief overview about Futures and Options *

futures market is called 'Basis'. (As 'spot market' is a

A call option gives the buyer, the right to buy the asset at a


given price. This 'given price' is called 'strike price'. It

market for immediate delivery) The basis is usually negative, which means that the price of the asset in the futures market is more than the price in the spot market. This is because of the interest cost, storage cost, insurance premium etc., That is, if you buy the asset in the spot market, you will be incurring all these expenses, which are not needed if you buy a futures contract. Options Options contracts are instruments that give the holder of the instrument the right to buy or sell the underlying asset at a predetermined price. An option can be a 'call' option or a 'put' option.

should be noted that while the holder of the call option A 'Future' is a contract to buy or sell the underlying asset

has a right to demand sale of asset from the seller, the

for a specific price at a pre-determined time. If you buy a

seller has only the obligation and not the right. For eg: if

futures contract, it means that you promise to pay the

the buyer wants to buy the asset, the seller has to sell it. He

price of the asset at a specified time. If you sell a future,

does not have a right.

you effectively make a promise to transfer the asset to

Similarly a 'put' option gives the buyer a right to sell the

the buyer of the future at a specified price at a particular

asset at the 'strike price' to the buyer. Here the buyer has

time. Every futures contract has the following features:

the right to sell and the seller has the obligation to buy.


So in any options contract, the right to exercise the option


is vested with the buyer of the contract. The seller of the



contract has only the obligation and no right. As the seller of the contract bears the obligation, he is paid a price

Some of the most popular assets on which futures contracts are available are equity stocks, indices, commodities and currency. The difference between the price of the underlying asset in the spot market and the

Head Selling price Direct material Indirect material Labour (both direct and indirect) Miscellaneous cost Transportation cost Margin 12

% of selling price 100% 40% 10% 20% 10% 10% 10%

called as 'premium'. Therefore the price that is paid for buying an option contract is called as premium. The buyer of a call option will not exercise his option (to buy) if, on expiry, the price of the asset in the spot market is less than the strike price of the call. For example: Vikas

Increase in cost % 0% 5% 5% 0% 0% 50% (75%)

New Amount Rs 100 Rs 42 Rs 10.5 Rs 20 Rs 10 Rs 15 Rs 2.5

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bought a call at a strike price of Rs 500. On expiry the price of the asset is Rs 450. Vikas will not exercise his call. Because he can buy the same asset from the market at Rs 450, rather than paying Rs 500 to the seller of the option. However if the price of asset on expiry is more than Rs 500 (say Rs 600), Vikas can exercise his call option and buy the asset worth Rs 600 at Rs 500 and thus earn a discount of Rs 100 if the asset was purchased at market price. The buyer of a put option will not exercise his option (to sell) if, on expiry, the price of the asset in the spot market is more than the strike price of the call. For e.g.: Sharad bought a put at a strike price of Rs 600. On expiry the price of the asset is Rs 619. Sharad will not exercise his put option. Because he can sell the same asset in the market at Rs 619, rather than giving it to the seller of the put option for Rs 600. On the contrary if the price on expiry is less than Rs 600 (say Rs 550), Sharad can sell the asset at Rs 600 and earn a profit of Rs 50 if the asset was sold at market price Hedging and Operations Management With the use of Futures and Options, Operations manager can hedge against future probable rise in input cost by trading in Options and futures of the related commodities


which go as an input in production cost. Even Operations managers can trade in futures and Options of Crude oil in commodity market to provide a cushion for effect of petrol/ diesel price rise on transportation cost. If Operations Manager expects a rise in cost of certain raw materials, he can use futures and Option to negotiate a price for future uncertain environment and control the input cost for production. It will also help to reduce inventory holding and storing cost as the firm may longer need to have huge pile of inventory to cushion itself from external uncertainties. Apart from trading on commodities which are used as raw materials, it would be wise for the Operations Manager to also trade in Crude Oil, as it will help provide cushion for transportation cost in case of oil price rise. In many cases, firms do not directly buy raw materials which are traded on Commodity exchange, but buy a certain processed good from other industry as raw materials. For example plastic polymer is not traded on the commodity exchange. However Plastic product manufacturing firms (say firm A) using plastic polymer as a raw material in production of Plastic goods, can hedge on crude Oil which is the major ingredient used to produce plastic polymer. Thus as crude oil price rises, with a certain market delay (cycle time), the price of polymer will go up. However though many industries are immune to temporary shocks due to their large inventories, long



Class Room lasting price shocks can change the price of the final product. In such case (long lasting price shock) firm 'A' which uses plastic polymer as a raw mater ial can succ

Financial Management

Operations Management

Marketing Management

ess fully u s e Options and futures to nullify the effect of increase in raw material prices.

HRM & other allied branches

From the above chart, it is surprising to see that the margins of the plastic product manufacturing firm hedging against petroleum prices have in-fact increased with the increase in oil prices after period T0. Oil forms an important component in manufacturing polymer used in plastic. However the firm producing polymer passes on this cost to plastic good manufacturer after time T1. This T1-T0 is the cycle time of inventory replenishment for the polymer manufacturer. The price of actual polymer used to produce plastic goods increases after time T2. The time T2-T1 is the inventory replenishment time of the plastic product manufacturer. However because of hedging, the plastic manufacturer had the instantaneous advantage of rise in crude price in the future/options market, which increases the margins of plastic good manufacturer (firm A) after T0. However the effect of increased margin was nullified after T2, when the inputs cost increased. Thus the Operations Manager could control the price of raw materials used in processing and in addition was able to reap temporary benefits of oil price rise by hedging.

could provide important insights to Operations Manager to help the firm sail through tough times through a symbiotic amalgamation of tools of Operations Management, Financial Management and other branches of management. References: 路*

Thus financial instruments when used for Operations Planning and management can prove as a perfect tool for cost optimization and margin maintenance. The field of Operations Management and the experts in the Operations Management should not just restrict their focus on improving Operations process to control cost, but also on allied branches like Finance and Marketing which


Mohit Khera PGDM 2011-13 IMI, New Delhi

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ADAPT TO THRIVE Mass-Lean-Agile-RAM Making the right product at the right time and at the right price requires adaptable manufacturing operations management. With success in manufacturing, indeed even survival has become increasingly difficult. Competition has intensified from a national arena to a global scale. Product life cycles have shrunk, yet there is an escalating requirement to satisfy the specific and individual needs of customers. Hence a need for Agile Manufacturing is on the cards. Thus where once a manufacturer's success could be measured by their ability to cost effectively produce a single product; success now seems to be measured in terms of flexibility, agility and versatility. That is, by the ability to handle continuous improvements and change. Consequently the changes in markets, customer requirements technology have become the competition criteria, and are now the critical factors in determining manufacturing success. These raid environmental changes have forced companies to improve their manufacturing performance in conditions of increasing uncertainty. Significantly such changes are occurring faster and more unexpectedly than ever before. An enterprise is confronted with a continuously changing and unpredictable environment. Management has responded to these competitive environmental pressures, in particular to ensuing uncertainty and volatility by developing new approaches, concept and methods. As Sharp et al. (1999) put it, “there are many manufacturing panaceas” Research by Womack et al. (1990), has demonstrated that there are many different views about the ways companies can improve their manufacturing function to enhance their competitive advantage. Yet, despite the resultant variety in manufacturing research some recognizable tendencies are emerging. For example, in production systems, rigid manufacturing systems are changing to flexible manufacturing to improve the system's ability to respond to consumers' needs. In organization structures, large multi-level organization structures have been reduced to single level network structures. Concurrent engineering and virtual have been introduced. In computer management, single task applications have been transformed into computer integrated manufacturing systems (CIMS). The driver of these changes is the unrelenting evolution of competition. Competitive advantage is soon lost and newer, sharer techniques and technologies are honed to provide a new

competitive edge. Real Agile Manufacturing It is the strategic process of responding to the competitive environment of continuous and unpredictable change by reacting quickly and effectively to changing markets. It takes multiple winners as an objective, integration as the means with IT as an essential condition and core competency as the key.

Agility is driven by competition; fragmentation of mass markets; cooperative production relationship; evolving customer expectations and increasing social pressures. The core of any change includes consumer, competitor, technology and resources. Accordingly Agile Manufacturing has been defined in terms of the agile enterprise, Products, workforce, capabilities and he environment which gives impetus to the development of the agile paradigm. The principal elements of the definitions presented can be summarized as follows. · Response to change and uncertainty · Building core competencies · Supply highly customized products · Synthesis of diverse technologies · Intra enterprise and inter enterprise integration Agile manufacturing embodies the ability to cope with change by the application of partners' core competencies to supply customized products. It requires the synthesis of diverse technologies within an integrated system. Agile manufacturing is strategic processing in that it must be deeply incorporated in the organizations development. However different firms will vary in how they may strategically respond to the changing business environment. One consequence of this is that they may use different levels of agility. From our synthesis of the elements of agility we can recognize that here are three distinctive levels of agility, which can be described as elemental, micro-agile and macro-agile.



Class Room The elemental agility uses basic resources and remains at an individual level; micro agile crosses the organizations involved. But organizations forms can also be viewed at different levels, the individual level, the enterprise level and the inter enterprise level. But our interest lies with the most advanced form of agile manufacturing which crosses the boundaries of the organization. It emphasises the building of core competence to enable the agile organization to supply highly customized products. Figure illustrates the relationship across the three organizational levels emphasizing the aspects of resource competence to demonstrate the degree of agility. There are categorical difference between mass production, lean production and Agile manufacturing. Lean manufacturing which emphasis the efficient use of resources is simply an enhancement of old mass production methods. In contrast new Agile manufacturing systems break out of the mass production mold to produce highly customized products. · Lean production is regarded by many as simply an enhancement of mass production methods whereas agility implies breaking out of the mass production mold and producing much more highly customized products. · In a product line context, Agile manufacturing amounts to striving for economies of scope rather than economies of scale. Ideally serving ever smaller niche markets but without the high cost traditionally associated with customization · Agile embodies such concepts as rapid formation of multi-company alliances or ever virtual companies to introduce new products to the




market. A lean company may b thought of as a very productive and cost efficient producer of goods and services Agile company is primarily characterized bas a very fast and efficient learning organization.

Core competency is the key Resources of single companies are no longer sufficient or adequate for each step of the value creation process. Thus the traditional value added chain is reshaped, so that companies now concentrate on their core competence (those aspects which they can do very well), while other functions or services are produced by their partners. Different sorts of core competencies are combined by a specific bundling of success-critical abilities. Prahalad and Hamel (1990) defined core competence as “the collective learning focused on developing and coordinating a diverse range of skills and capabilities. These are like the hidden roots of a tree, giving corporations their strength. Integrating core competencies requires collective organizational learning, deep involvement and commitment to cross the enterprise boundary. Short life of modern enterprises can be attributed to weakness in learning competence of any organization. Conclusion With rapid changes taking place in the global market, it becomes clear that manufacturing enterprises working on a base of Agile manufacturing become leaders but, the effect of this new managerial system, new approaches to technology and new ideas need to be continuously developed. Manufacturing has evolved from Mass manufacturing , lean manufacturing to Agile


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Manufacturing and now the world prepares itself for Real Agile Manufacturing which focuses on investing in core competencies, virtual organizations and sharing all types of resources and to satisfy customers in terms of service and quality. Hence IT is an essential condition and the key to many problems faced. For the experts developing Real Agile Manufacturing may focus on the following major issues · A methodology for evaluating potential partner for RAM based on core competencies and market forces needs to be developed · Managerial model and organizational characteristics of RAM · Importance of Social Capital under the new technique of RAM · Development of new supply chain models and to create techniques for measuring performance and evaluating risk in the new agile systems. References: ·


Small, A.W. and Downey, A.E., (1996), ``Orchestrating multiple changes: a framework for managing concurrent changes of varied type and scope'', Proceedings of IEMC 1996 Conference on Managing Virtual Enterprise, Canada, pp. 627-34. Thompson, J. (1967), Organisation in Action, McGraw-


· · ·


Hill, New York, NY. Sharifi, H. and Zhang, Z. (1998b), ``Enabling practices assisting achievement of agile manufacturing'', Proceedings of the Sixth IASTED International Conference, Robotics and Manufacturing, July 26-31, Banff. Drucker, P.F. (1968), ``Comeback of the entrepreneur'', Management Today, April, pp. 23-30. Kidd, P.T. (1995), Agile Manufacturing, Forging New Frontiers, Addison-Wesley, London. Dove, R. (1994-1996), ``Agile and otherwise'', series of articles on agile manufacturing, Production Magazine, November to July. Hamel, G. and Prahalad, C.K. ( 1 9 9 4 ) , ``Competing for the future'', H a r v a r d B u s i n e s s Review, JulyAugust, pp. 1228.

Abhinav Singla IMI, New Delhi


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Build Operate Transfer- A new schema in Infrastructure Development Millions of vehicles ply the Delhi Noida Toll Bridge everyday but few people are aware of the operating structure behind the development of such a humongous flyover. Delhi Noida Toll Bridge was the first BOT (Build- Operate- Transfer) project undertaken in India. Build-Operate-Transfer is a type of Public Private Partnership (PPP) of finance and operating approach that has become popular mainly in the privatization of infrastructure in the developing countries. In India and other developing countries, rapid economic growth is more than infrastructure supply. Governments of these countries are unable to fund vital infrastructure development, so they are increasingly turning to large international firms for finance through concession contracts such as BuildOwn-Transfer (BOT). Such firms generally have a greater credit rating and financial capability to finance the large scale projects. If executed properly, BOT results in a win-win-win solution for governments, private sector firms, and the community at large. From the perspective of the government, private sector participation offers off balance-sheet funding at the same time bringing the advantage of cost and resource efficiency to the project. As far as private players are concerned, BOT projects help them to expand market share and earn higher returns. Finally, because there exists a user -payer system, the common man does not have to bear the burden of increased taxes. The globalization of trade has compelled countries to have adequate infrastructure in order to keep pace with other growing nations. Inefficient infrastructure


becomes a bottleneck and thus creates a need to meet the infrastructure chasm or to turn existing infrastructure more efficient in many developing countries. Canning and Pedroni have studied the effects of efficient infrastructure on per capita income of countries over the period 1950-1992. The results of this study provide clear link between infrastructure and long run growth. What are the critical factors with BOT?? As BOT projects are high risk investments, may result in political and economic instability, social, technological and other non-financial factors can have implications on the financial viability of the project over the long term of investment. Hence a holistic assessment of the financial as well as non- financial factors of the concerned project needs to be undertaken for effective decision making. Selection of BOT projects is critical. If the preplanning stage of the project is done inaccurately, the consequences may prove to be disastrous. Such as Chinese first water supply BOT projects – No.6 Branch of Chengdu Water Supply Factory, the inaccurate forecast of the market demand in project planning process led to the oversupply. However, according to the agreement between the government and the project company, the government had no choice but to accept all water, which brought phenomenal loss to the government. The most important factor in the BOT projects is to perform a project feasibility study and evaluation thoughtfully, which may include economy, conditions of construction and production, market, law, technology, environment etc. The study of BOT projects is different from others. Besides the law permission, the most crucial thing is the evaluation of finance and of the national economy. The BOT project is approved by the government if such evaluations are satisfactory and acceptable.

Class Room Value Engineering is an important means of quality improvement. Value Engineering analyzes the function and the cost of the project systematically. The basic formula of Value Engineering:V= F/C WhereF=Function C= Cost It is difficult to reach the goal of the construction project because of the large scale, big ticket investment, long period of construction, technical complexity and implementation difficulties etc. Project Controlling is a management-organization model which can prove to be helpful here. With the modern information technology, it conducts information collection, processing and transmission, which can guide and control the material flow of the project construction, and hence support the top management in decision making to plan, coordinate and control the project.

Model for Project Controlling The following figure explains how an infrastructure construction project in India is undertaken-

Opsessia THE CHALLENGES FOR INDIA IN INFRASTRUCTURE DEVELOPMENT 1. India's banking system is regulated Reserve Bank of India, which sets interest rates. The financial condition of the country prevents the Indian government from opening the sector to foreign competition. Moreover, loans are often sanctioned on the basis of political connections. In many cases, bank branches extend loans to firms controlled by local officials, even during periods when the central government is attempting to limit credit. Such a system promotes widespread inefficiency in the economy because savings are generally not allocated on the basis of obtaining the highest possible returns. 2. Rapid economic growth cannot be sustained without proper transportation and reduction in pollution level. Also India's investment in infrastructure development has not been able to keep pace with its economic growth. 3.The legal issues in India also pose a problem as widespread government corruption, financial speculation, and misallocation of investment funds. In many cases, government 'connections', not market forces, are the main determinant of successful firms in. Many foreign firms find it unviable to do business in India because rules and regulations are not transparent, contracts take time to get enforced, and intellectual property rights are not protected because of the lack of an independent judicial system. The lack of effective rule of law, current ownership of land, and widespread local

FinMin to monitor large RBI Allows infrastructure

Banks & NBFCs PPP To Sponsor Infrastructure Debt Funds



Class Room India needs are more than Rs.145000 crore for the next 5 years to meet its infrastructure needs. To fund this growth, India needs to encourage foreign participation besides domestic private investment. POLICY can play a major role in this regard. Indian government has come u with its new PPP draft policy. The major initiatives undertaken in this policy are

What should Indian government do to enhance the participation of private players?

emerge as a developed country. References

Develop the domestic debt capital market-

Infrastructure development is constrained by


insufficient funding. Therefore taking key initiatives to open the domestic debt market by making it more

attractive to private investors can create a multiplier effect on the infrastructure front. Utilizing the

potential of insurance sector fro risk mitigation can


play an important role in inducing private players to


invest in infrastructure development. Initiation of FDI in infrastructure development of India should be done immediately to overcome the shortage of funds. If these measures including certain non financial factors are taken are of, India will soon



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“Going Green” Operational Strategy of European Airlines – a lesson for the India's Airline Industry Introduction The aviation sector is a growing field globally. The growth is very high in emerging markets especially Asia and low in the developed countries. However, the growth in the developed countries is not insignificant. With a high growing potential of this sector, it is expected that the global growth will sustain at 4.5% till 20501. With such a growth rate, the CO2 emissions are also expected to increase substantially. To address this issue, aviation sector has started to rejuvenate their operations, improve old fleet, and procure fuel efficient aircraft. These measures can only address the emission issues to some extent but still the carbon emissions are considered to increase to three times that of current figures by 20501. European Union legislation has recently taken the initiative of reducing the carbon emissions in the European aviation sector and hence has included aviation in the Emission Trading Scheme (ETS) to be initiated from 2012. This has been implemented amid numerous protests coming especially from the airlines operating outside Europe but those who have a substantial number of destinations in Europe. This means that all the Airlines having current and future operations in Europe will be subjected to ETS and hence improvements must be brought in its current operations to reduce carbon emissions to the lowest level possible. The following European Airline groups were studied for this purpose: Lufthansa Group, Air France – KLM Group and International Airlines Group.

reduce the consumption of Jet Fuel by adding 10% Biofuel to the Jet fuel consumption till 2020. The Fuel consumption of the German Airline major, Lufthansa Group for the year 2010 was 8,459,255 tonnes3,4. In the year 2020, the Jet fuel requirement as per estimate will stand at 11.368 million tonnes. For a target of 10% Biofuel, the requirement of Biofuel would be 1.137 million tonnes for Lufthansa alone. Lufthansa has been the pioneer to set an example by undergoing through a contract of procuring aviation grade Biofuel from Finland's Neste Oil. Neste Oil has commercialized the production of aviation grade biofuel using its innovative process named as NExBTL. Neste Oil has a current production capacity of 380,000 TPA from its Finland plants.

1. Use of Biofuel Aviation Biofuel has been found out to be the most appropriate clean fuel to replace the currently used Aviation turbine Fuel (ATF). European Union, the pioneer in including Airlines industry in ETS has suggested the subsequent use of Biofuel in the daily operations of Airlines. Many big airline companies, namely Lufthansa, Air France, Continental Airlines, and Alaska Airlines etc have successfully tested the use of Biofuel and are also mixing it with conventional fuel in regular flights. Fig. 1 depicts the long–term strategy undertaken by some airlines to replace the use of conventional ATF.

1.1 Strategic Sourcing of Biofuel A primary objective of EU's major airline companies is to

Fig. 1: Strategy of European Airlines for implementing the use of Biofuel The new Singapore Plant, the largest production facility of Biofuel with an annual production capacity of 800,000 TPA and an upcoming facility with a similar capacity in Rotterdam, Netherlands will take the total production level of Neste Oil to around 2 million TPA. This capacity of Neste Oil will be sufficient to fulfill the demand of Lufthansa. However, the scenario is not the same for all the other Airlines. Besides procuring the biofuel locally it is highly advised to collaborate with international biofuel producers. Most of the major Global airline companies have operations worldwide in almost all major countries.



Class Room Consequent to the high prices of biofuel currently, if the same quality of required biofuel can be procured from low cost countries matching with the destination of the flight, it will add cost benefit to the bottom line. The below diagram, Fig. 2 shows a depiction of probable collaboration with international producers. India lags behing in the research and development of producing aviation grade biofuel. Not only is the technology missing but also the current production capacity of biofuel is suited only for research needs and cannot be commercialized.

Risks Bargaining power of suppliers

· ·

Increasing demand


Less number of suppliers


Uncertainty of biofuel prices


Issues raised by Activist groups towards indirect impact on agriculture for using biofuel


Supply and Demand gap


Government policies and regulations

1.2 Risks and Opportunities Though this is a very viable option towards a greener and

sustainable future, however it has some challeneges which needs to be handled and overcome carefully.

2. Next Generation Check-In: Smart Cards instead of Boarding Passes All the airlines currently use paper boarding passes including some which provide mobile check-ins for its customers. It can be proposed to implement use of Smart Cards instead of paper based boarding passes for Frequent Flyers of the specific airlines for domestic services. A smart card reader will be installed at airports enabling customers to automatically check in at the airport by tapping their frequent flyer smart card on the reader. The card reader will use Near Field Communication technology so that installation is smooth and less disruptive.


Opportunities ·

Most viable way to reduce carbon footprint


Portray as a Green Brand among customers


Save Costs from buying additional Carbon Credits


Extra Carbon Credits can be traded at profitable prices


Creation of Goodwill to the society and Governement


Collaborate with international biofuel producers


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3. Waste Management 3.1 In-Flight Waste: Numbers tell the whole story The average airline passenger generates 1.3 lbs. of waste per flight8,9. There are many items in the current in-flight services' waste streams that can be minimised and recycled. Following is the breakdown of the types of waste, which came to light after a study, which was conducted on Cathay Pacific flights9. Based on current recycling opportunities, clean paper items, transparent Polystyrene (PS) items and aluminium cans have been identified as the most feasible recyclable materials. These materials can be separately collected on board for the recycling programme. The recyclable items can account for up to 45-58% of the total galley and cabin waste from in-flight services. The waste reduction and recycling programme has the potential to contribute greatly to local and global environmental protection, and to save substantial operation costs for the airline industry.

3.2 Operational Aspects According to “A Green America” report, no airline provides good public information about its recycling programs. Their websites, sustainability and annual reports all lack transparency and details about the waste they generate and how they are addressing it. Major Airlines should take the first step in this regard and

differentiate itself from its competitors by providing a regular report showing metrics on how it is progressing toward its recycling goals. Airlines can overcome any of the challenges by creating inflight recycling programs, including employee education and involvement, knowledge of the type of waste produced, and a time and space efficient system. Additionally, they should increase the awareness about recycling among the passengers. A video could be shown to passengers about recycling, hoping that it will spur participation in onboard recycling. The menus to be used on flights can be printed on recycled paper with soy ink and coffee can be served in cups made of post–consumed recyclable paper. It can also offer local, organic, and sustainable foods on flights.

Conclusions We observed from the study of European Airlines that they are doing everything possible to account for lowering their carbon emissions consequent to the introduction of airlines industry in ETS policy. Biofuel can be considered as the most significant of them all. India is growing fast in the Carbon Trading sector, which is even traded in the Multi Commodity Exchange. It is also the first exchange in Asia to trade Carbon credits. Hence reduction of Carbon emissions is soon to catch attention for all the Indian industries. At present times, the Airline industry in India is



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going through a gloomy phase with many major companies incurring losses and defaulting on dues. To invest in advanced technology may seem like a luxury to them in these turbulent times. However, it should be understood that these Green initiatives are for the long term and for a better future, both for the industry and for the society as a whole. This paper identifies some key operational strategies and methods to address the issue of the transformational initiative of going green. It should be understood that the best place to improve and implement changes is in the core operations of the particular Airline corporation and the Industry as a whole. The need for researchers and producers in the field of renewable energy especially aviation grade biofuel also calls for utmost attention.




Deutsche Lufthansa AG in Travel and Tourism (World). (04/2011). Retrieved 08/05/2011, from 4. Deutsche Lufthansa AG: Company Profile. (7/27/11). Retrieved 8/3/11, from t/deutsche_lufthansa_ag?productid=81313 A31-5353-4DF7-9388-B6DE7B935749 5. Barbout, C (2006). Trends in European Airline Markets: Competition, Concentration and Strategic Behaviour. Journal of the Brazilian Air Transportation Research Society, 2(2), 6. Clement, S, Wilkins, M, & Beyzh, M (02/18/2011). Airline Carbon Costs Take Off As EU Emissions Regulations Reach For The Skies. Retrieved 08/23/2011, from fb8/Airline%20Carbon%20Costs%20take%20Off. pdf Mayor, K, & Tol, R S J (2010). Scenarios of carbon dioxide emissions from aviation. Global Environment Change, 20, 65-73. Miyoshi, C, & Mason, K J (2009). The carbon emissions of selected airlines and aircraft types in three geographic markets. Journal of Air Transport Management, 15, 138-147. X.D. Li, C.S. Poon, S.C. Lee, S.S. Chung and F. Luk (2003). Waste reduction and recycling strategies for the in-flight services in the airline industry. Resources, Conservation and Recycling, 37, 87-99.

References 1.



2 million tons per year: A performing biofuels supply chain for EU aviation. (2011). Retrieved 08/07/2011, from /doc/20110622_biofuels_flight_path_technical_pa per.pdf Advanced Biofuels Project Database. (5/3/2011). Retrieved 7/22/11, from anced-biofuels-capacity-to-reach-4-3b-gallonsby-2015-128-projects-latest-database/

Joydeep Barman IIM - Lucknow

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Impact of GST on Supply Chain Industry According to the concepts of the operations, the design of distribution network for a logistics company is a network design problem. That network has to be optimized to meet the demand at different nodes of the network for the given distance between the nodes, cost of goods transfer in the pipeline and cost of warehousing. But, in India, historically, the supply chain or logistics of any organizations are driven by tax considerations rather than the operational efficiency. Introduction of Goods and Services Tax (GST) will change the situation and the logistics industry is expected to go through a major transformation providing opportunities for new players and new business models. Current scenario The current tax structure is quite complex - there are central level taxes in form of excise, customs duty and Central Sales Tax (CST@4%), and then there are varying state level taxes in form of VAT and other levies like cess etc. The problem is that, state level taxes are applicable on top of central taxes which mean the supplier is paying taxes on taxes. Tax structure has created an interesting exemption from central tax if there is a stock transfer between the states where as any inter-state sale is taxable. For example, an organization having warehouses in two different states can transfer the stock between the two warehouses without paying CST and get away by paying only state taxes after selling the goods in that state. But any sale between the two states will be taxable under CST and state taxes are applied over the CST. Now, the only way to avoid this double taxation is to create

warehouses in every state and perform stock transfer between inventory stocking points. Hence, most industries - like manufacturing, FMCG and third party logistics players - generally have warehouses/offices in each state to reduce tax burden of Central Service Tax (CST). Thus, distribution network planning is more driven by logic of saving taxes, rather than achieving operational efficiency. The network planning is divided into two stages where you first decide whether to have a warehouse in that state or not and if yes, then decide where to setup the warehouse in the state. The decision of whether to have a warehouse in a particular state or not is simply a trade off between the CST incurred if there is no warehouse and inventory costs incurred if there is a warehouse. Both the tax payable and the inventory costs are driven by the demand in that particular state. As shown in the figure, only if the total demand in the state is greater than d*, it is profitable to setup a warehouse in that state. When the demand is less than d*, it is profitable not to have a warehouse in that state as the cost of tax is less than the inventory cost.

After deciding to setup a warehouse in a state, now the decision of where to setup in that state should be addressed. As shown in the figure, majorly two strategies are followed for this problem namely, entry point strategy or centre of gravity strategy. Primary shipping cost (shipping from factory to warehouse), warehousing cost and secondary shipping cost (shipping from warehouse to retailer) are the decision variables here. The total weighted average cost of shipping (demand at retailers are the weights) determines the strategy to be followed. Entry point strategy is profitable if the secondary shipping cost is less than primary shipping cost and centre of gravity is


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profitable if secondary shipping cost is more than primary shipping cost. With 28 states and 7 union territories in India, that accounts to 25-40 small warehouses (depending on trade off explained above and scale of operations) instead of 6-8 large warehouses which would be needed for geography of this size. For some manufacturers with countrywide operations, the warehouses are as high as 55 – 60 in number. Introduction to GST From the newly proposed tax structure (GST) which treats goods and services alike, only the inputs that affect supply chain are reproduced here. GST is a comprehensive value added tax on goods and services where the tax is levied on 'value added' at each stage of supply chain and provides seamless input tax credit throughout the supply chain. GST does not distinguish between goods and services and the tax is collected at the point of consumption. Same taxable value base for computing Central and State GST hence no cascading impact of tax. There is no cascading effect of tax on cost under GST and the tax incidence is fully transparent. Hence the present taxable events such as “Manufacture” in case of Central Excise and “Sale” in case of VAT or CST will lose relevance. Changes in supply chain due to GST Under the tax structure proposed by GST, the tax is levied only at the point of sale irrespective of whether it is interstate sale or intra-state and both the state and central taxes are collected on the same base. The final tax on a product would be the same, irrespective of the structure or location of its production, procurement of inputs and the nature and complexity of the distribution chain. This primarily eliminates the need for having warehouses in



different states. Hence the supply chain would be undergoing a drastic shift towards re-aligning/merging the smaller warehouses to most productive and logical locations - without having to think of tax burden. With GST, the decision of where to setup the warehouse will be guided by the distance between the manufacturing unit & demand centres, service levels to be satisfied, primary shipping costs, warehouse costs and secondary shipping costs. As shown in the below figure, the primary shipping cost is the cost of shipping goods from manufacturing unit to the warehouse where the secondary shipping cost is the cost of shipping from warehouse to the retailer. Distribution network should be designed in such a way that, the sum of primary shipping cost, inventory cost and secondary shipping cost should not exceed direct shipping cost from supplier to retailer. If a warehouse is shipping to multiple retailers, then the weighted average cost at that warehouse should be minimized to get the optimum distribution network. In general, the primary shipping cost per unit is less than the secondary shipping cost per unit because of the good quality of road transport infrastructure between cities and the economies of scale. In general, there should be a warehouse within 600Kms of any demand centre (city) to meet the service level of delivery within two days of order (industry norm). Impact of GST GST would force the suppliers to optimize the supply chain and gain cost advantage. The optimization would impact many areas and few of them are discussed here. Cost reduction: Due to the optimization of distribution network, the overall shipping cost of the product would be reduced and the profit margins of the supplier would


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increase. Some part of these cost reductions will be passed on to the customers and there by impacting the demand for the product. Automation: In addition to the inefficiency of the existing distribution network, Indian logistics industry is highly fragmented resulting in extreme competition and low margins. Due to the small size, using any ERP solutions for effective demand prediction would be costly affair. Hence, most of the small & medium businesses have stayed away from technology implementations. This impact of inefficiency and cost burden is passed to end consumer, either in terms of quality; SLAs or in terms of cost. With GST, the number of warehouses will be reduced and the suppliers would be able to think of using automation which will deliver efficient operations and cost benefits. Service levels: In the distribution network, service levels will be specified in terms of number of days required to deliver an order. Generally accepted norm is 2 days and to meet this service level, warehouses are ensured to be within 600Kms of distance from demand centres. Before the introduction of GST, a demand centre very remote in a state 'A' which is not within the acceptable distance to meet the service level could not be served in time by the warehouse in state A(see the figure). Because of CST, that particular city cannot be served by the warehouse in state 'B' even though it is very near. This leads to sacrificing the service levels at some places. With GST, this problem can be resolved and that remote city can be served by warehouse in the adjacent state and meet the service levels. Overall, introduction of GST would impact the supply chain industry in a positive way and the organizations which change themselves to the new structure very

quickly will have competitive advantage. Especially this is a major opportunity for 3PL firms to gain early market and establish themselves. References: 1. Class notes of Logistics Management on 25-102011, an elective by Prof G. Raghuram, Public systems group, IIM Ahmedabad\ 2. t_impact_on_logistics_indust.html

About the authors: This article is written by P. Babu Ravi Kumar, Ravi Kumar Yadavalli & Ajay Miryala. The three authors of this article are the second year students of IIM Ahmedabad and have written this article based on some class notes of an elective called Logistics Management and few simulation games.


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Role of Information Technology in Supply Chain Supply chain: A chain of supplier and customer 'Flow of products from suppliers to customers and flow of information from customer to supplier' this is what we call as supply chain. Whenever we talk about suppliers and customers, we incline to think about supply and demand. We can say Supply chain is a complex and dynamic supply and demand network. The word “dynamic” becomes important here due to several reasons.

[Picture: Circles A, B…, E are points where they act as supplier for later circle and customer for earlier circle] Information Technology and Supply Chain network optimization Optimization of supply chain network has become resurgent because of the kind of tools and technology available these days. Existing Information and communication tools can model any complex network much better than ever before. In recent times, companies are facing problems not in the designing of the network but in the optimization of networks for cost minimization, efficiency and efficacy. This neck to neck competition has compelled companies to refine and fine tune their past ad-hoc network. To optimize a network, some of the critical steps to be taken are: 1. Sources of supply need to square 2. Customer contracts and service levels to be reviewed 3. Product mix should be optimized 4. Location, efficiency and duplication of facilities needs to be addressed 5. Software and technology tools being used needs to be addressed


Trends in Supply Chain management with engrossment of IT A. Lean system and Value Stream Elimination of waste and concept of JIT (Just in time) comes into picture by changing the style of supply chain management. Lean principles focus on creating value by specifying value added activities from the perspectives of the end customer as well as the company. Values are determined by: 1. Identifying all the steps required to create value 2. Mapping the value stream 3. Challenging every step by repeated probing 4. Lining up value, creating steps so they occur in rapid sequence 5. Creating flow with capable, available, and adequate processes 6. Pulling materials, parts, products, and information from customers 7. Continuously improving to reduce and eliminate waste

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Value stream consists of the value-adding activities required to design, order, and provide a product from concept to launch, order to delivery, and raw materials to customers. Value stream contains several mapping tools which are named as waste visualization tools. A company can reduce all 7 kinds of wastes by using these value stream mapping tools. B. Mass customization Mass Customization is an operational strategy with extensive use of information technology tools and applications which are focused on velocity and tractability in a make-to-order process of operation, with the aim of producing large quantities with minimal changeovers and interruptions. Mass Customization products are standard products, providing a company a competitive edge by having the capability to manufacture specialized or custom products at the speed, volume, cost, and quality of standard products. Mass Customization is different from lean system; lean system focuses on repetitive manufacturing on the make to stock process of operation. Mass customization is oriented towards high-volume, product mix, adding velocity and flexibility in the production process. It relates to environments where a large degree of customized, or specialized orders, offer a competitive advantage to the company.

C. Advance planning and scheduling (APS) An enterprise planning system utilizes planning and

scheduling techniques that consider a wide range of constraints to produce and optimize plans based on mathematical modeling under demand and supply limitations and perform finite scheduling by analytical tools to come up with a realistic plan. It is flexible and integrated with implications of alternative options so that the execution of plan becomes easier and supportive to the real time decisions. It involves advanced information technology knowledge, programming techniques like linear and dynamic programming and heuristic and fuzzy based techniques for optimal solutions. The core benefits of APS are1. Increase accuracy of supply chain performance, 2. Operate as a real-time system 3. Increases utilization of resources, 4. Enhance efficiency of asset deployment

IT applications and integration with Supply chain IT applications with integration of core supply chain activities are playing major role in supply chain management. Development of various tools and software system for warehousing, customer relationship management, material planning and forecasting, Resource planning, Tracking, Customer data collection has tremendously changed the managing style of supply chain of organization. [Image Source:] A. Cross docking and Vender Management Inventory Cross-docking is a technique whereby venders are able


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to reduce their inventory stock significantly. It has helped in achieving a continuous and smooth flow between manufacturers' deliveries and store replenishment without buffer stock at Retail distribution center. For a successful cross docking these things are essential1. Supply chain partners must be linked with advanced information systems for coordination 2. A fast and responsive transportation system 3. Forecasts should be much accurate, requiring the sharing of information

B. RFID system RFID system consists of readers and tags capable of storing and transmitting information, a RFID tag is designed itself as a microchip with an antenna. This tag is labeled to the products which are going to be shipped. When the tag comes within the close range of the reader, the data is captured and redirected to the workstation computer. RFID technology has been instrumental in improving supply chain visibility and reducing theft and counterfeiting. Tracking the products through supply chain has reduced the uncertainty risk and bullwhip effect, improved collaboration among partners, fewer stock-out



situations, reduced inventory stocks and ultimately increased the profit by reducing cost. Reference 1. Srivastava/radio frequency identification technology: The next revolution in SCM 2. Rockfordconsulting group university/ mass customization 3. Anand Subramanyam/advance planning and scheduling

Umesh C.S. Arya IIM -Kozhikode


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JIT and supply chain disruptions The recent natural calamities in the Asia Pacific have put up a question mark on the very validity of JIT. Organizations who swore by JIT for more than three decades, reaped immense benefits from it are now questioning the applicability and future of JIT. Is JIT the real reason for these losses? Should an approach that has proven immensely profitable in the past be done away with? Is JIT past its duedate? One of the biggest victims of the recent catastrophe in the ASEAN countries was automotive industry - which has JIT imbibed in its DNA. A Hitachi factory north of Tokyo that makes 60% of the world's supply of airflow sensors was shut down. This caused General Motors to shut a plant in Shreveport, Louisiana for a week and Peugeot-Citroen to cut back production at most of its European plants. Nissan also encountered a similar problem when it had to cut back production by almost 12% due to stock-out of engines. Similar story was repeated due to Thailand floods which are a major supplier of auto ancillary. Frost and Sullivan report gives a picture of the impact of floods on different OEMs.

JIT methods followed currently. Some analysts are even speculating it to be the end of road for JIT. However, before making any decision or reaching any conclusion one should go down to the very fundamentals of JIT, why did it come into being, how it made so big? JIT has been there since more than three decades now, much before the advent of globalization. It is a time proven system that enables an organisation to reap immediate benefits of its actions. Back in the early 80's, a number of American firms started adopting JIT manufacturing in an attempt to reshape their manufacturing environment. An immediate outcome of order based or pull based systems was reduction in inventories and saved costs. This further encouraged other organizations to adopt JIT. Apart from this, JIT came with numerous benefits like reduction in setup time, elimination of waste, cut down in production times and more importantly better supplier relationships. Companies started seeing JIT as a competitive advantage. In the early 90's development of EDI further improved communication between organizations making supply chains more agile and more responsive. IT tools started becoming more powerful, making supply chains more agile and efficient. In modern times, as product demand lifecycles started shrinking, just in time offered a viable alternative that could significantly reduce financial risk by postponing final assembly of the components as well as reducing inventory levels. DELL's supply chain which emerged during this time was looked upon for its flexibility and efficiency. Just to have a glimpse of the benefits that the automotive sector reaped because of JIT implementation, we can look at the following exhibit. Measures of inventory management performance used in the analysis (Source: John F. Kros, Mauro Falasca, S. Scott Nadler, (2006) "Impact of just-in-time inventory systems on OEM

The electronics industry hasn't been an exception to this case. Dell is facing shortages in HDDs supplied by Thailand manufacturers. Apple and Lenovo had anxious moments in 2010 when uncertainty loomed over supply of DRAMs for their computers. All these losses have forced companies to rethink on their



Class Room suppliers") Clearly, the benefits provided by JIT outweigh its risks by a huge margin, so how can one think of eliminating JIT as a system? However, the current set up cannot continue and organizations need to relook at their operation. The reason lies in the history of globalization. Through globalization, organizations now could exploit an opportunity to manufacture in low cost regions at a fraction of the cost which they would have otherwise incurred. Supply chains were now stretched to enable organizations to source components from different vendors across the globe and assemble them at the very end. Very soon this created concentrated manufacturing hubs on the world Map, especially in case of components. E.g.: the Guangdong province in China is responsible for 80% of the world's production of basic electronic components. Similarly Hitachi Chemicals produces 70% of the slurry used by the entire world's chipmaker's to polish their wafers. A just in time approach combined with this globalization exposes organizations to catastrophic risks as can be seen during the recent times. We need to come up with a solution that could mitigate these risks and yet enable organizations to continue reaping these benefits.

Emergency Stocks It is necessary for companies to start reconsidering their emergency stocks. It is necessary to decouple supply chains at certain levels. Consider the case of emergency stocks of medicines in case of an epidemic. A pharmaceutical company is expected to ramp up its supplies by several times to be able to contain an epidemic outbreak. However, the government maintains a safety stock to ensure that enough medicines are available during this ramp up. Organizations too must start thinking in terms of these emergency stocks at least in case of certain critical components. So, rather than having rigid supply chain following classical JIT approach, organizations need to come up with innovative customizations in JIT to counter such disruptions in supply chain.

Multi-sourcing During the course of time, companies started misinterpreting the JIT philosophy of reducing the suppliers. Companies started the practice of having sole suppliers to achieve economies of scale and build stronger relationships with suppliers. However, this made them vulnerable to such shocks and took away their flexibility. This also led to what is known as reverse bullwhip effect. It has become highly imperative for such companies to increase the certainty in supply by maintaining two or more suppliers which is known as multi sourcing approach. Again, multi sourcing is a strategic decision where the location of two suppliers also matters a lot in such situations of calamities. In case of Japan crisis, some companies with multiple suppliers also failed as both of the suppliers belonged to the same geographic region. De-risking can be done by having supplies from different geographic regions. Honda is a good example of such approach as they have already started expanding their base in India.

Gaurav Kawale SJMSOM , IIT Bombay

Product Configurations and marketing With a move towards modularization and mass customization, organizations are now capable of offering a variety of product configurations without making huge changes to their operations. Dynamic pricing and flexible product portfolios could help companies such disruptions in certain cases. However, this approach finds limitations in case of critical components and products.


Sandeep Borkar SJMSOM , IIT Bombay

Class Room


Improvement of S&OP and its Synchronization with advanced functions: A key to sustainable operations management Abstract: Supply chain does not sustain only on the coherence and synergies between the external parties engaged in the value chain. The understanding of the various department oriented issues need to be considered to unlock the potential of the organizational efficiency and productivity. The intra-organizational balance pertaining to the issues of the operations in the organization can never be handled without the effective integration and cross-functional teams (Oliva, 2006). Sales and Operations Planning makes it possible to unleash the organizational power of handling the problems effectively for excellent demand-supply management. A study done by Aberdeen Group in 2008 suggests that the best in class companies implementing S&OP, were having 2.5 or 6 times better KPIs than that of the other companies. Paper uses concepts and small cases to discuss how Sales and Operations Planning is a fundamental that still works best (Stahl, 1999) and can be greatly improved with the advanced functions & tools like CPFR& BI. Are you doing S&OP properly? Nowadays, nearly every successful company working with excellence in the Supply chain management performs Sales and Operations Planning (S&OP). S&OP is the single most critical competitive weapon that can ensure profitability with right selection of the channels and products for the right customers. But often it is found that the S&OP is not prepared or improved in the way it should be. Sometimes it may be because of

inappropriate ways or improper choice of the tools used to prepare S&OP making it more cumbersome and laborious. The research (Joseph, 2009) shows that 70% of the organizations will be changing their technology and are on the verge of enhancing their S&OP process in near future. It indicates that the S&OP needs to be improved and enhanced continuously and is necessary for the organization. At the same time, the opportunities and threats related to S&OP should not be overlooked. The case Elkay Manufacturing (Cary Wood, 2002) studies the adverse effects of competitive environment in the market. The need for improvement made the Elkay managers think about the alternate ways to improve the organizational performance in the market by increasing the involvement of the top management. Finally it was revealed that S&OP provided Elkay a “one-plan process� which was the key for the success revealing the important principles for S&OP, which can be followed by an organization to strengthen existing S&OP as follows1) Top management is the one who should lead the S&OP implementation and assessment. Employees in the organization must be aware of S&OP & their roles. Executive S&OP champion must be an influential personality and must have experience in demand or supply management at higher level in the organization. 2) Resource effectiveness must be based on the multi SBU combination consisting of supply chains with the focus on the profit


Class Room optimization. 3) S&OP document must be used for each and every process requiring the data about sales/operations or financial plans. It must be used as a master document in the organization. It should not be redundant or substitutable. 4) Every employee in the organization must participate towards the development of S&OP if a specified process is supposed to be done by him/her. Right people must present right work at the right time with clarity about their activities and roles. 5) Accurate data must be used or obtained by using formatted data obtained from shipping schedules, forecasted sales, warehousing, production or from other operational management processes in the organization. 6) Use of collaborative platforms increasing the frequency of the interaction between the people to share the structured information is necessary for success of S&OP and proper maintenance of master data for getting accurate output. S&OP & other advanced functions and tools With the advent of the technology and revolution in distribution and logistics, Sales and Operation Planning needs to be combined with other application functions to improve the performance of the organization in the view of the increasing competition. Synchronization with CPFR The famous Collaborative Planning, Forecasting and


Opsessia Replenishment (CPFR) concept used by Wal-Mart (1995), P&G and others, is a function that has potential to streamline the organizational forecasting and eventually helping S&OP to increase the clarity and performance through different ways. In CPFR the burden of replenishment is on the collaborative partnership of the customer and the supplier. Thus, the retailer's point-of-sales data (POS) data is used for forecasting. Promotions on sales, exception items, major customer relationship maintenance, etc. issues are handled collaboratively & resolved. When it comes to organization of supplier we can say that S&OP plays a major role in breaking down internal barriers. Thus these two functions can work simultaneously to increase the Supply chain efficiency. Synchronizing CPFR and S&OP activities will lead to the sharing of information from both the functions and input to each other for better performance. The accurate forecasts using POS data and periodic update about inventory from CPFR function is used as input for the S&OP activities. The market trends can be studied at CPFR end to use it as the indicator of market conditions. The decisions taken at the S&OP are then implemented at retailer levels like promotions, operations management related decisions, etc. The monthly schedule of CPFR and S&OP must be tightly coordinated and coherently maintained by adhering them together. Week 1 activities of CPFR activities must adhere to week 1 activities of S&OP also Week 2 activities of CPFR activities must adhere to week 2 activities of S&OP and so on. The schedules of both functions must be aggressively adhered to get efficient output. The demand planners who are involved in the CPFR process and dealing with different chains or

Class Room customer group have to participate in the joint responsibility of S&OP so that the data collection for demand management is uniform for a particular segment with no variations and can be aggregated to calculate the aggregate demand and

corresponding supply capacity at S&OP level as shown in fig.1.

Opsessia Optimization of Output using BI tool Business intelligence/ Analytics collect the information from all the parts of an organization and allow top management executives to get the required analysis reports using data mining. Following features make BI a tool that could be used by executives involved in S&OP process for the efficient use of data spread in the organization by analyzing it. Advantage of BI over ERP: Unlike the occurrence of the different number under the same heading in ERP, BI assures that the data used across the organization is same. Importantly the use of single value of a KPI or component helps the organization to reduce the conflicts during S&OP. Multiple values in ERP may have a negative effect on the improvement efforts of S&OP by the organization. Also ERP does not provide the options such as

The study conducted (Williams) on CPFR and S&OP synchronization suggests that in only 10 months, the forecast accuracy was improved from 27% to 70%. It suggests that the efficiency of the organization increases with this potent combination of CPFR and S&OP. Figure. 2. Using BI for S&OP and its improvement



Class Room slicing and dicing, drilling down and across the wide database to filter out the information and generate the useful reports. These options are provided in the BI tool. Visualizations in the dashboards makes BI more useful tools for managers preparing for S&OP meetings. BI allows communicating and helping people; the most important part of the S&OP. Business intelligence empowers employees who are involved in the S&OP process. It eventually suggests fewer problems for S&OP interlock making it easier to arrive at consensus during S&OP. Framework for implementation of CPFR and BI in combination with S&OP: The system with the S&OP can be improved greatly with the implementation of the CPFR and BI. Quite a few researches have been done on the synchronization of the CPFR and S&OP. At the same time synchronization of BI tool with these functions increases the efficiency of the system impressively. The suggested framework is as shown in figure. Consensus Demand Plan S & OP Finance Pre S&OP Sales


Demand Planning

Product/ Brand Management

Business Intelligence CPFR Customer trends of POS Data representing Demand

Demand Planner

Demand Planner

Demand Planner

Customer Segment 1

Customer Segment 2

Customer Segment n

Figure. 3. Monthly Synchronized Schedule of S&OP & CPFR with the help of BI 36

CPFR schedules must be in sync with the monthly cycles of the S&OP meeting and demand-supply management. The demand planning for each customer segment should be taken into consideration using the CPFR collaboration with Retailers. POS data should form the basis of the forecasts. Business Intelligence tool should be implemented to collect the data (online servers). Functional divisions like marketing, operations, Demand Planning, etc. should use the same data obtained by BI system. The Finance Pre-S&OP should be carried out for the reconciliation purpose. The formal S&OP meeting and aggregate level demand representation will make the organization capable of generating the consensus demand plan which can be used for the further MRP (Material Resource) Planning Procedures. Conclusion S&OP is crucially important process for every organization. Nearly every successful organization follows it. But if it is not carried out properly and hidden challenges are ignored then it becomes difficult to achieve the desired results. So the improvement of the S&OP process must be continuous for the sustainable operational management. At the same time various functions that can be integrated with S&OP for improvement in the performance of the organization must be combined and synchronized with S&OP. This will make sure that with the change in the technology the organization is changing & is capable of enhancing its S&OP process for better & sustainable performance.

References Bower, P. (2005). 12 Most Common Threats to Sales and Operations Planning Process. Journal of Business Forecasting

Class Room Methods & Systems, Vol. 24, No. 3.pp.4-14. David, A. (2007). Planning process particulars : Meeting your just-in-time customers' demand. APICS magazine. Gips, J. (2002). Sales and operations planning across the supply chain. APICS International Conference Proceedings

Opsessia Transformation. (2008, February). Research Brief, Aberdeen Group. McCarthy, T. and Golicic, S. (2002), “Implementing Collaborative Forecasting to Improve Supply Chain Performance,” International Journal of Physical Distribution & Logistics Management. 32:6, p. 43145

Raekar, R.H. (2002). Marketing : a key collaboration for effective sales and operations planning. APICS International Conference Proceedings Stahl, R.A. (1999), Sales And Operations Planning – A Fundamental That Still Works. APICS International Conference Proceedings Wood, C.B., & Boyer, J.E. Jr. (2002). Sales and Operations Planning at Elkay Maufacturing: A Case Study. APICS International Conference Proceedings Oliva, R., & Watson, N. (2006). Cross-Functional Alignment in Supply Chain Planning: A Case Study of Sales and Operations Planning. Harvard Business Working Paper. No. 07-058

Akshay Jadhao IIM Kozhikode

Mazel, J. (2009). New research tells how to put muscle into S&OP Process, Supply chain strategy Williams, M.K., Combining CPFR with S&OP to attain optimum customer service. Williams supply chain group Hymanson, J., Whitepaper on Enhancing Sales and Operations Planning with Forecasting Analytics and Business Intelligence

Sneha Ramteke IIM Kozhikode

A Guide to CPFR Implementation. (2001, April). Report by Accenture, ECR Europe. S&OP Process is a Strategic Driver for Improving Business Performance. (2008, December). Research Brief, Aberdeen Group. S&OP's Impact on Global Supply Chain



Strategy Room Ranneeti 2011 Strategy “The best CEOs I know are teachers, and at the core of what they teach is strategy”

--------------------------------------------------------------------- Michael Porter [Harvard Professor] 650 students....250 teams.... 38 top B-schools....Seven rounds........120 Hours..........and finally teams from IMI and SPJMIR battled it out in a mind boggling game of strategy –Ranneeti, designed and executed by Genesis, The Operations Club of IMI.It was a one of its kind online event that kicked off on 19th October and concluded th on 4 of November. Ranneeti created much buzz in the B-school events arena and saw participation from top B-schools like IIMA,IIMC,FMS,XLRI ,JBIMS,IIMK,NITIE,MICA,IIFT,IIMR and SJMSOMto name a few. “All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved”-------------------------------------------------Sun


The importance of strategy in business cannot be overemphasized.This was the driving force behind our effortsto develop astrategy game, which is based on game theory. The event was an online simulation that tested one's capabilities in areas like planning, futuristic thinking, creativity and patience. Each team had a maximum of three members and had to place their warriors in the battlefield which was a 6 X 6 matrix (provided in an excel file).The warriors included Snipers, Bombers, Commandersand Soldiers each with different skill sets. It was an intensely interactive game that tested one's strategic skills through combats between warriors. Initially teams were given a sum of money, and a pool of warriors.Teams had to recruit their own army choosing from soldiers, snipers, bombers and commanders. With its sheer energy and twists lurking at every corner, Ranneeti11' did manage to sweep the participants off their feet. The one team that survived till last would be christened the 'Lord of Strategy'. With each round, the difficulty level increased and so did the excitement. In theinitial two rounds,Commanders and Bombers were the most powerful units, in thelater stages, Snipers and finally in the knockout stages the Soldiers reigned supreme. Constraints were introduced in the form of walls inside the battlefield in order to enhance the difficulty with each successive round. The idea was to give the players a feel of real life warfare where not only rules but also the game changes. Real business world is dynamic and shoots up new challenges, reverses the conventions and again brings them back and tests your strategic and intuitive abilities. The following is the list of colleges whomade it tothe top 16: XLRI,SPJIMR,IMI,XIMB,IIM Calcutta,BIM Trichy,MDI,IIT Delhi and IIT Madras. Eventually, team 'Chanakya' from SPJIMR emerged as deserving winners of a close fight against team 'Whistleblowers' from IMI and took the crown of 'Lord of Strategy' in the finals.


Strategy Room



Top Line (Left to Right) : Vijish, Tarun, Atreya, Ambuj, Mithilesh, Ratan, Alisha, Bottom Line (Left to Right) : Richa, Sonali, Srikant, Shishir, Anubhav, Sumant, Shilpa Not in the Pic : Jai Shivam


Opsessia Genesis Room

IMI Opsessia  

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