IMTS Opration Management (Supply chain management) by IMTS INSTITUTE

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SUPPLYCHAI N MANAGEMENT

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IMTS (ISO 9001-2008 Internationally Certified) SUPPLY CHAIN MANAGEMENT

SUPPLY CHAIN MANAGEMENT

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SUPPLY CHANIN MANAGEMENT CONTENTS:

UNIT 1 MODELS FOR SCM INTEGRATION

01-21

Introduction,Integrated Supply Chain/ Value Chain,Supply Chain Strategies,Push Based Supply Chain,Pull Based Supply Chain,Push-Pull Strategy Demand Management,Internet and SCM,Physical Goods Flow, Virtual Flow and Cash Flow,Bullwhip Effect,A New Perspective to Counter Bullwhip Effect,Drivers of SCM,LSummary,Self Assessment Questions,References and Suggested Further Readings

UNIT -2 STRATEGIC SUPPLY CHAIN Markets MANAGEMENT

22-41

Introduction,Supply Chain: Growth,Trends in SCM Strategic

Decisions,Strategic

Alliances,Developing

and

Supply

Managing

Management the

Activities,Supply

Relationship,Supplier

Quality

Management,Problems of Quality,How to Find the Qualified Supplier?,Quantity Survey of

Suppliers,Supply

Chain

Re-engineering,Summary,Self

Assessment

Questions,References and Suggested Further Readings

UNIT-3 INFORMATION TECHNOLOGY: A KEYENABLER OF SCM

42-60

Introduction,Information and Technology in the Integrated Supply Chain,Importance of,Information

Integrated

Business,Inter Organizational Information Systems

(IOIS),Information Requirements Determination for a Supply Chain,Information and Technology Applications for SCM,Summary,Self Assessment Questions,References and Suggested Further Readings FOR MORE DETAILS VISIT US ON WWW.IMTSINSTITUTE.COM OR CALL ON +91-9999554621

UNIT-4 IT PACKAGES IN SCM

61-85

Introduction,Role, Advantages and Limitations of Software Packages,Architecture of ‘SAP

R/3

ERP’

Solution,Architecture

BaaN

ERP

Solution,BaaN

IV,BaaN

ERP,Selecting the Right ERP Package,Technology,Contribution of the Software Packages

the

SCM,Summary,Self

–Assessment

Questions,References

and

Suggested Further Readings

UNIT-5 PERFORMANCE MEASUREMENT AND Measurement

86-101

EVALUATION OF SCM Introduction,Need

For

Supply

Chain

Performance

Measures,Measurement

Systems,Supply Chain Performance Measurement Systems,Supply Chain Balanced Scorecard,Hierarchy Based Measurement System,Function Based Measurement System,Perspectives Based Measurement System,Supply Chain Operations Reference Model,Dimension Based Measurement System Interface

Based

Measurement

System,A

Comparison

Measurement

Systems,Selecting Measures,Methods for Setting Performance Targets,Total Cost of Ownership,Self-Assessment Questions,References and Suggested Further Readings

UNIT -6 LOGISTICS AND SCM ENVIRONMENT

102-152

Introduction,An Illustration,Preventing Litigation,Sales Law: An Overview,Environmental Realities:

Implications

Supply

Chain,Warehouse

Operations,Warehouse

Jurisdiction,Wages, Earnings and Hours of Work,Documentation: Insurance & Sales Tax,Introduction

Sales

Tax,A

Case

Study,Summary,Self

Assessment

Questions,References and Suggested Further Readings

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UNIT 1 MODELS FOR SCM INTEGRATION Objectives

w and cashflow; and

Structure Introduction Integrated Supply Chain/ Value Chain Supply Chain Strategies Push Based Supply Chain Pull Based Supply Chain Push-Pull Strategy Demand Management Internet and SCM Physical Goods Flow, Virtual Flow and Cash Flow Bullwhip Effect A New Perspective to Counter Bullwhip Effect Drivers of SCM Summary Self Assessment Questions References and Suggested Further Readings

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HOW DOES SCM WORK? The supply chain management (SCM) is viewed as a system that links an enterprise with its customer and suppliers. As shown in Figure 2.1 information flows from customer in the form of forecast and orders to both the enterprise and suppliers. This information is refined through planning into specific manufacturing and purchasing objectives. As materials and products are purchased, a value added inventory flow is initiated which ultimately results in ownership transfer of finished product to customers. SCM is an integrated approach that is highly interactive and complex and requires simultaneous consideration of many trade-offs. SCM is the management of all key business process across a number of the supply chains. Successful SCM requires a change from managing individual function to integrating activities into key supply chain processes. Operating an integrated supply chain requires continuous information flows, which in turn helps to create the best product flows.

Logistics and SCM : An Overview The customer remains the primary focus of the process. However, improved linkages with supplies are necessary because controlling uncertainty in customer demand, manufacturing processes and supplier performances are critical for effective SCM. The key processes for the integrated SCM (Figure 2.2) are as follows:

Customer Relationship Management This is the process to identify the key customers. With customer moving to centre stage, more companies have begun to treat a customer as a value independent entity. The companies no longer view sales as selling of their products, but as selling of relationships, solutions, support and care. Customer relationship teams develop and implement partnering program with key customer. Product and service agreements specifying the level of performance are established with these key customers.

Demand Management Customer Service Managemen Order Fulfillment Manufacturing Flow Managem Procurement Product Development and Commerci Return Channel Performance Metrics VALUE ADDE INVENTORY FL Enterprise

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Customers Physical Distribution REQUIREMEN INFORMATION F Manufacturing Support

Logistics and SCM : An Introduction

Customer Service Management Increased and intense competitions all around have made customer service as the key differentiator in a marketing system. Customer service provides the single source of customer information. It provides the customer with real time information on promised shipping dates and product availability. Customer service is a valuable business activity governing both resources and top management attention. Customer service is being offered in many forms such as post warranty support, fast repairs, speedy response to service calls from customers, easy availability of spares, qualified, competent and customer friendly technicians.

Demand Management Customer demand in the form of irregular order pattern is the largest source of variability. Given this variability in customer ordering, demand management is a key to an effective SCM process. Manufacturers are moving from a push system to make to order mode, in such case predicting or forecasting demand is the key driver on which all of the supply related decision will depend. The demand management process must balance the customer’s requirement with the firm’s supply capabilities. A good demand management system uses point of sales and “key” customer data to reduce uncertainty and provide efficient information flows through out the supply chain.

Customer Order Fulfillment The key to effective SCM is to achieve high order fill rate. Order fill rate can be defined as % of order fulfilled before or on the due date set by the customer. Performing the order fulfillment process effectively requires integration of firms manufacturing, distribution and transportation plans.

Manufacturing Flow Management This functional area decides how production should be organized and managed. Traditionally production system uses push strategy but in a customer focus

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environment pull strategy is more effective. To implement pull system, manufacturing process must be flexible to respond to market changes. This requires the flexibility to perform rapid change over to accommodate mass customization; orders are processed on a just in time basis in minimum lot size. In a customer focused business world, production process has to optimize balance between customer satisfaction and efficiency.

Procurement Procurement is concerned with buying and movement of materials, parts or finished inventory from supplier location to manufacturing or assembly plants, warehouse or retail stores. Traditionally procurement is carried out on the basis of bid and buys system whereas in new integrated concept longterm partnerships are developed with core group of suppliers. Suppliers are involved at the early design stage which can lead to reduction in product development cycle times. For quick response to customer demand purchasing activities are carried out with rapid communication mechanism such as EDI and interest linkages. This reduces the cost and time on the transaction portion of the purchase.

Product Development and Commercialization In todayâ&#x20AC;&#x2122;s fast changing environment new products are life bloods of a company. For the firm to remain competitive it has to sharpen its product development times. This requires that customer and suppliers must be integrated into product development process.

Return Channel Managing the return channel as a business process offers the same opportunity to achieve a sustainable competitive advantage as managing the supply chain from an

Logistics and SCM : An Overview out-bound perspective. Effective process management of return channel enables the identification of productivity improvement opportunities and break through projects. Focusing effort on improvement in key business process is the foundation of SCM philosophy. Thus the goals of these processes are to:

a) Develop customer focused teams that provide beneficial product and service agreement to strategically significant customers b) Provide a permit of contact for all customers, which efficiently handle their inquiries. c) Continually gather, compile and update customer demand to match requirement with supply. d) Develop flexible manufacturing system that responds quickly to changing market conditions. e) Manage supplier partnership that allows for quick response and continuous

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improvement. f) Fill 100% of customer order accurately and on time g) Enhance profitability by managing the return channel (reverse logistics)

Activity 1 Take the case of an organization where you are working or about which you know of and identify the key processes within that organization vis-Ă -vis those proposed by Lambert. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. LOGISTICS-MARKETING INTERFACE Traditionally logistics group assumed primary responsibility for warehousing, inventory and transportation within many organizations while marketing group is responsible for negotiation, promotion and selling. As neither group had responsibility for over all channel management, conflicts arose at the expense of overall organization goal. The organizations had realized that functional interdependence, not internecine conflicts, is the key to satisfy customer needs. Despite the realization by logistics and marketing manager that cooperation is essential marketers often criticize logistics department for being cost minimizers having no concern for customer needs while logistics department accuses marketers of chasing sale at any cost. Therefore it is essential that organizations identify area of agreement and potential conflict. Senior management must be keen to actively support cooperation between the two groups. This can be assisted by performance measurement that rewards cooperation and a spirit of interdependence that actively discourages parochial behaviour.

Logistics and Product Life Cycle Product life cycle (PLC) is a key marketing concept that affects the relationship between logistics and marketing. For different stages of PLC i.e., introduction, growth, maturity and decline, different level of logistics support is required by marketing. In the introduction and growth stage timely cost effective fulfillment of order is a major requirement in ensuring initial acceptance of the product. Later as sales slow down and the product moves into the maturity and decline stages, the company changes to trimming cost as the product faces stiff price competition and consequent pressure on margins. Hence there is

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need for a logistics manager to understand what marketing is trying to achieve with each product and what appropriate level of logistics support is required accordingly.

Areas of Logistics and Marketing Interaction In today’s competitive environment organizations are utilizing the benefits of their established logistics/marketing interface to be competitive not in terms of product and price but also logistics services tailored to meet individual customer needs. These organizations are able to differentiate themselves from their competitors by offering a total service with logistics forming an essential part of the total value chain. The major area of interaction between logistics and marketing includes (Gattorna 1995):

Product Design: This can have a major effect on warehouse and transportation utilization (and therefore costs).

Pricing: This is the means by which logistics services customer demand affects the overall cost of the product and in turn the organization’s pricing policies.

Market and Sales Forecasts: Marketing forecasts will largely dictate the level of logistics resources needed to move products to customers.

Customer Service Policies: If marketing opts to offer a very responsive level of service to customer, logistics resources, in the form of facilities and inventory, will need to be very considerable.

Number and Location of Warehouses: This is one of the greatest areas of contention and can only be satisfactorily resolved if marketing and logistics develop the policy jointly.

Inventory Policies: This is another area of contention, as these decisions have a significant bearing on operational costs and the extent to which desired levels of customer service are achieved. It is another key area where policy should be developed jointly. Order Processing: Responsibility for who receives customer’s orders and the speed and efficiency with which they are processed has a major impact on operational costs and customer’s perceptions of service levels. This is another area where joint policy-making is preferable.

Channels of Distribution: Decisions to deliver direct to the customer or through intermediaries will greatly influence the level of logistics resources required. As channels change, so will the resources required. Marketing should definitely consult with logistics when making channel decisions.

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INTRODUCTION The main objective of the supply chain concept is to integrate and synchronize the service requirements of the consumer/customer with the flow of materials from suppliers in such a way that any conflicting or contradictory situation rising can be balanced out. These conflicts could be like, high customer service, low inventory investment and low operating cost. These have to be balanced or optimized, and therefore, various models have been proposed over the years in order to integrate the SCM systems, for example Stevens Model (1989), which proposes a balance in the supply chain involving functional trade-off. Supply chain management revolves around efficient integration of suppliers, manufacturers, warehouses and stores. The main challenge being coordination of the activities within the chain and across it for improved performance, reduced costs, increased service level, reduced bullwhip effect, resource utilization, and effective response to market changes. Companies have realized over a period of time that integrating the front-end of supply chain, customer requirements/demands, to the back-end of the supply chain, the production and manufacturing portions of the supply chain.1 1 Designing and managing the Supply Chain by Simchi Levi etal, TMH, p. 120

Design and Management of SCM Development of an integrated supply chain requires management of material and information flows to be viewed from three perspectives:

At each of these levels, there has to be utmost coordination and harmonization between the finance, information, material, facilities, people and the system as a whole. Let us see these perspectives one by one.

INTEGRATED SUPPLY CHAIN/VALUE CHAIN Integration of Supply Chain & Demand Chain can be seen from three angles as follows:

Strategic Level: What should be the focus at the strategic level? be developed to achieve competitive superiority?

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product market, customer group or by a large customer?

Purchasing Material Flow Material control Production Material Management Manufacturin Material Flow Material Flow Material Management Manufacturin Material Flow Suppliers Internal Su

for Global Markets hurdles, thereby ensuring an integrated value delivery based supply chain.

Tactical Level: This focuses on the means by which the strategic objectives could be achieved. The various objectives for each element in the supply chain provide the directions for achieving the balance within the supply chain. It involves identifying the necessary resources with which the balance could be achieved.

Operational Level: the implementation level in the model, and aims at converting the objectives and policies so formulated into workable solutions. This is also the supply chain development phase and the strategy and plans for implementation are evolved. Implementation plans require a time-phased program for allocation of resources all through the supply chain. ( Stevenâ&#x20AC;&#x2122;s comment concerning supply chain development is equally interesting, which says while the impetus for the development of the strategy may be a topdown approach; its success is likely to be achieved by a bottom-up approach.

Stage 1 is a situation in which the company approaches the supply chain tasks in discrete decisions with a responsibility lodged in each of the task centers. The result is usually a lack of control across the supply chain function because of organizational boundaries preventing the coordinated decisions from achieving an overall customer service objective.

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Stage 2 of development is denoted by the functional integration of the inward flow of goods through material management, manufacturing management and distribution. The emphasis is mainly on cost reduction rather than on performance achievement and is focused on the discrete business functions with certain attempts at achieving internal trade-off between purchasing discounts and inventory investment, and also plant operating costs and batch volumes. Customer service is reactive in this case.

Stage 3 accepts the necessity of managing the flow of goods to the customer by integrating the internal activities. In this stage, the integrated planning is achieved by using the distribution requirement planning (DRP), JIT (just in time), manufacturing techniques, etc. This stage is essential before the company can consider integrating customer demand in an overall demand management activity. IT is an effective enabler for this process.

Stage 4 extends the integration to external activities. While doing so, the company becomes customer oriented by linking the customer procurement activities with its own procurement and marketing activities.2 The concept of value chain/supply chain management approach enables a company to react effectively to market swings and changes. However, in order to get the optimum potential, a connection and inter-relationship between the components of the supply chain has to be established and an integrated chain formed for utmost customer satisfaction, i.e. cost-effective product.

SUPPLY CHAIN STRATEGIES The various strategies that has to be followed for an effective integration are:

-pull 2 Mohanty & Deshmukh in Essentials of SCM, JAICO, 2004, pp. 8-10. 3 Supply chain integration by Kaminsky, TMH pp. 120-122

.3.1 Push Based Supply Chain Long-term forecasts are the backbone of a push-based supply chain model, as regards the production and the distribution decisions are concerned. Typically though, the manufacturer bases demand forecasts in orders received from the retailerâ&#x20AC;&#x2122;s warehouses. Therefore, it takes much longer for the push based supply chain to react to the changing marketplace, which may lead to3

disappears. Actually, the bullwhip effect leads to under utilization of resources, because

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planning and managing is (to be discussed later in this block) more difficult. Forexample a production manager is in quandary as to how to discern production capacity. Should it be based on peak demand or average demand? Similarly it is not clear as to how to determine the transportation aspects, based on average or peak demand? Therefore, a push based chain we find extra transportation costs, higher inventory levels and higher manufacturing costs, due to need for emergency production change-overs.

Pull Based Supply Chain In this type of supply chain the production and distribution is based on demands so that it can be effectively coordinated with true customer requirements rather

than forecasts. Inventory in on firms

following the pull system is negligible and it responds only to orders per se. This is further coupled with fast information flow mechanisms on customer demands to the various components of the supply chain. This system is more attractive in nature because, it leads to: -time, since better anticipation is made on customer demands and the retailers

-time ility. In a pull based supply chain there is considerable reduction in inventory, enhanced resource management and a comparable reduction in system costs to push based system. At the same time, pull based systems are difficult to implement when lead-time are long and it is not practical to react to the demand information. Moreover, since the systems are not planned well in time itâ&#x20AC;&#x2122;s difficult to take advantage of economics of scale in manufacturing and transportation. Taking these advantages and disadvantages into consideration the companies have formulated a new system â&#x20AC;&#x2DC;the push-pullâ&#x20AC;&#x2122; system, i.e. an integration of push and pull system.

Push-pull Strategy This is an ideal mix of both push and pull strategy in which the first half of the system is based on push method and the remaining half as pull based. The interface between the two models is push-pull boundary. In order to comprehend the strategy better you have to consider the supply chain time line, that is, the time that elapses between procurement of raw materials and the delivery to the customer, the end of the time line. The push-pull boundary, exists somewhere in between this time line and denotes the time when the company switches from one strategy to the other as illustrated in figure Supply chain integration by Simchi Levi etal, TMH pp. 120-122

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Organizing for Global Markets Consider a computer manufacturer, who builds to stock and thus makes all production and distribution decisions based on forecast. This is a push system. Whereas, push-pull strategy is one in which manufacturer builds to order, which implies that component inventory is based on forecast and final assembly is in response to specific customer request. Therefore, the push system is prior to assembly and the pull system starts with assembling till delivery of the product. The push-pull boundary is prior to assembly.

Activity 1 Visit a company and analyze the SCM strategy being followed in the light of present trends worldwide and justify your observation, with suitable case studies. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. .............................................................................................................................

DEMAND MANAGEMENT Why do we require demand management? It’s primarily required since accumulation of inventories amounting to millions in the supply chain shows absence of demand management in the total system. “Demand management’s imperative of forecast error reconciliation with the actual order rate of an enterprise is one of the most overlooked potentials in the successful management of inventory levels, customer satisfaction, staffing strategies and facilities expansion or contraction”.4 An Example to Elucidate Forecast Accuracy You are part of a counseling class on SCM at IGNOU that meets every day between 1800 hours to 2000 hours. Let the topic of discussion be forecast accuracy. The counselor asks you approximately as to where will you be one week from now at 2130 hours. You respond by saying 90% you will be here for the class, with a 10% possibility of getting tied down to family commitments. 4 WCDM, from World Class Supply Management by Burt, Dobler & Starling, TMH, Chapter 8, pp. 624-

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The next question of the counselor will be, with that in mind where will you be 4 years from now, at the same time? You are partly speechless, and say “well one cannot be too sure and probably I will graduate from IGNOU with a degree in SCM and will be trying to cope with a job in hand.” The counselor adds on by saying, how sure can you be of that? “ Not to sure perhaps I will be where I presume to be at that point in time.” So that is what it is just try and visualize how difficult it is for the firms to forecast future demand for their product and services. It is quite akin to the policy on trees plantation adopted by certain firms a few years back, where you purchased trees today and expect a hike 20 years from now, without actually forecasting what is going to be the condition of the sapling planted today after 20 years. The firms actually utilized the concept of forecast demand in a reversing order and made the consumer/customer go in circles over own probability errors, which they miscalculated. The company had done their homework pretty well to convince you on this aspect, but you as the customer didn’t predict the future too well. That is forecast accuracy, very difficult to predict in actuality but easy to talk appreciate, with a may/could be factor, a gamble better avoided.

What is Demand Management? Let us now see what is demand management per se? “It seeks to estimate, control, smooth, coordinate, balance and influence the demand and supply for a firm’s products and services in an effort to reduce total costs for the firm and its supply chain.”5 It recognizes that forecasts are developed at several points through out an organization, but doesn’t develop forecast. It accepts forecast from other functions and updates these based on real time demand. It is also directly related to supply in order to adjust the flow of raw materials and services. So, how can we establish control in demand management? By:

It is also responsible for smoothing and streamlining production after the master production schedule is in place and been released to internal production and external suppliers. Demand keeps on changing on a day-to-day basis. Therefore the demand managers should have contingencies in place in coordination with the supply chain members so that necessary modifications could be affected well in time. “Demand management also balances the total costs of not meeting the demand against the total costs of adding additional resources required to meet the growing demand,” says Burt in his book WCSM. Actually, without a forecast of

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demand, supply channels tends to get cluttered and all this can effectively be overcome through a comprehensive demand management.

Demand Driven Strategies Demands forecast and demand shaping are the two different processes, which helps in generating information for integrating demand information into the supply chain planning process, as enumerated below:

develop long-term estimates of expected demand, that is, forecast.6 5 Demand Management from WCSM by Burt, TMH, pp. 326. 6 Demand driven strategies in designing and managing supply chain, Simchi Levi et. al,

Organizing for Global Markets various marketing plans such as promotions, pricing discounts, rebates, new product introduction and product withdrawal on demand forecasts. In either case, the forecast is not completely accurate, and hence an important output from demand forecast and demands shaping processes is an estimate of the accuracy of the forecast, the so called forecast error, measured according to standard deviation. This information provides insight into the likelihood that demand will be higher (or lower) than the forecast. High demand forecast error has a negative impact on supply chain performance, resulting in obsolete inventory and underutilization of resources. Therefore, can the firm employ supply chain strategies to increase forecast accuracy and thus decrease error? Let us see with the following approaches:

-pull boundary so that demand is aggregated over one or more of the following dimensions:

The objective is clear. Since aggregate forecasts are more accurate, the result is improved forecast accuracy. market research, demographic and economic trends to improve forecast accuracy

customers for better understanding of demands as to reduce the number of SKUs competing in the same market

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At the end of it the firm has a demand forecast by SKU by location. The next is to analyze the supply chain and see if it can support these forecasts. This process, called supply and demand management, involves matching supply and demand by identifying a strategy that maximizes profit or minimizes transportation costs, inventory costs and production costs. The firm also determines the best possible way to handle volatility and risks in supply chain. This is tactical planning, which is impact to demand planning. Therefore an iterative process must be used to identify the following:

resources ecast demand -times

chain strategies

INTERNET AND SCM

The influence of Internet has been tremendous over a very short period of time. Changes are taking place rapidly and the emerging e-business has its inherent advantages and disadvantages. E-business strategies supposedly reduce costs, increase service level, increase flexibility and increase profits. But in reality very few have been successful. Many Internet companies have crashed due to their individual logistic gray areas. On the other hand some of them have been successful in developing new business models and profited significantly by capturing a sizable market share. These companies use the Internet as the driver of business changes. Next is e-business and e-commerce. Now what is ebusiness? It is a collection of business models and processes motivated by the Internet technology and focuses on improvement of extended enterprise performance. E-commerce is the ability to perform major commerce transactions electronically, and it forms the integral part of e-business. Companies have realized over a period of time that Internet can have a huge impact on supply chain performance. Internet can help in a big way to move away from the traditional push strategies to the pull system, but eventually most of the companies have landed up with the push-pull strategy. The Bottom Line Recently, many companies have improved performance, reduced costs, increased service levels, reduced bullwhip effect and improved responsiveness to changes in marketplace by integrating the supply chain. In most cases, this was facilitated by the push-pull model and by a focus on demand driven strategies, however, in effect the Internet has created a revolution in integrating the SCM and evolving supply chain strategies. At the same time the collapse of many such internet companies does send an alarm that e-business not only makes business but break them too. The key to these challenges lies in identifying the appropriate strategies for a particular company and individual product. The new supply chain paradigm,

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push-pull strategy, advocates holding inventory, though it pushes the inventory upstream. Most important is that the traditional companies are required to maintain and effective distribution system depending on environmental factors, warehouses, direct shipment, transshipment so as to ensure effective management of inventory and reduction of distribution costs.

PHYSICAL GOODS FLOW, VIRTUAL FLOW AND CASH FLOW

Related to what we have studied earlier in integration of Supply chain, physical flow, virtual flow and cash flow could be seen in more detail. David N Burt in his book World Class Supply management says ‘the supply chain extends from the ultimate consumer to the mother earth’ and has explained the same with an illustration, which we shall see later. “The chain is viewed as a whole, a single entity rather than fragmented groups, each performing its own function”.7 Only when an ultimate customer buys a product does the money enter the supply chain. Transactions help in allocating the customer’s money among the members of the chain. “A firm’s supply system includes all the internal functions plus external suppliers involved in the identification and fulfillment of needs for materials, equipment and services in an optimized fashion”.8 Supply system plays a key role in helping the firm satisfy its role in supply chain. Professor Charles of MIT writes, “Supply chain design is the meta-core competency for organizations”

Organizing for Global Markets

Success of an organization in the near future will be driven by its ability to compete effectively as a contributing member of a dynamically connected supply chain management and not in isolation. Connectivity with customers, suppliers and other partners and be able to interact quickly is critical to survival. Tomorrow, a tightly connected e-chain will be a necessity.”10 the terminology is already dated. “Traditionally, companies have connected with one another in simple, linear chains, running from raw material producers to distributors to retailers.”11 But the day is not far off that most companies will be an integral part of the supply networks worldwide. Networks optimize the flow of goods (physical flow) and services, virtual flow (information) and money (cash flow). It focuses on the ultimate customer, who is once again the generator of funds. They are so designed that one member doesn’t benefit at the cost of the other,

the networks are therefore:

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SCM in essence is based on creation of values. It is a network of business processes used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution and cash flow. It oversees the organizational relationships in order to get the information necessary (virtual flow) to run the business, to get the productsdelivered (physical flow) and get the finances that generate the business profits 10 Lisa L. Henriott, “Transforming Supply Chains into e-chains,” Supply chain management supplement, Spring 1999, p.16 (Burt and Dobler in WCSM Tata Mc Graw-Hill pp. 7-9.) 11 Kevin Werbach, “Syndication: The emerging model for business in Internet era”, Harvard Business Review, May-June 2000, pp. 85-93.

(cash flow). This is an integrated and extended enterprise concept and includes not only relationships with internal business functions, but also with those outside the firm. What has been explained above is just the tip of the iceberg, since SCM strategies are changing rapidly with growing involvement of IT and electronic media.

With this as a backdrop we come to bullwhip effect, which happens to be the basic benchmark in understanding the supply, demand and inventory management, and reasons why companies fall pray to this effect and how best can they reduce it if not eliminate.

BULLWHIP EFFECT “Failure to accurately estimate demand and share information among supply chain entities can result in bloated inventory levels due to cumulative effect of poor information cascading up through a supply chain12 , says Burt in his book WCSM. This is in fact quite natural in a way. If a firm doesn’t have information of the demand it will unnecessary carry a load of additional inventory or even increase the lead-time to cater for the uncertainty. Either ways the inventory gets bloated, if the lead-time increases so will the buyer increase order quantities (based on conventional recorder point calculations). This will result in the supplier interpreting this to be growing customer demand, with a cascading effect on the

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supplier who feels the necessity to increase capacity to meet the trend. To add fuel to the fire, just as supplier has added additional capacity to meet the increase in demand, demand falls off because the buying firm has excessive stock available. The resultant is firing of employees, selling of assets in order to reduce the capacity. This â&#x20AC;&#x2DC;phantomâ&#x20AC;&#x2122; demand in SCM is called as bullwhip effect. In other words, â&#x20AC;&#x2DC;the increase in variability as we travel upwards in the supply chain is referred to as the bullwhip effect.13

Organizing for Global Markets Therefore, in order to identify and control the bullwhip effect its pertinent to understand the main factors that contribute towards increase in variability in the

Demand forecasting: Traditional inventory management techniques practiced at each level in the supply chain lead to the bullwhip effect. As discussed earlier in unit 5, managers generally use standard forecast smoothing techniques to estimate average demand and demand variability. The important characteristics of forecasting are that as more data are observed, the more we modify the estimates of the mean and standard deviation in customer demands. Since safety stocks strongly depend on these estimates, the user is forced to change the order quantities, thereby increasing variables.

Lead Time: Increase in variability is magnified with increase in lead-time. In order to calculate safety stock levels and recorder points, we in effect multiply the estimates of the average and standard deviation of the daily customer demands by the lead-time. Thus, with longer lead-times, a small change in estimate of demand variability implies a significant change in safety stock and recorder level, leading to a significant change in order quantities, which in effect leads to increase in variability.

Batch Ordering: The impact of batch ordering is simple to understand. If batch ordering is used by the retailer, as happens while using min-max inventory policy, then the wholesaler will observe a large order, followed by several period of no orders, followed by another large order, and so on. Therefore, the wholesaler sees a distorted and highly variable pattern of orders.

Price Fluctuation: This can also lead to bullwhip effect. If prices fluctuate the retailers tend to stock up when the prices are lower. That is another reason why stocks vanish from the market prior to budget month. This is accentuated by certain manufacturers and companies of offering promotions and discounts at certain times on certain commodities.

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Inflated Orders: Inflated orders placed by the retailers during storage periods increase the bullwhip effect. Such orders are common when retailers and distributors suspect that a product will be in short supply, and therefore anticipate receiving supply proportional to the amount ordered. When the shortage period is over, the retailer goes back to the standard orders, leading to all kinds of distortions and variations in demand estimates. After having seen the factors leading to the bullwhip effect we now go on to how to reduce the bullwhip effect by centralized information.

Impact of Centralized Demand Information Centralizing demand information within a supply chain can reduce bullwhip effect considerably. This would entail providing information on customer demand in eachstage of the supply chain. How and why? If demand information is centralized, each stage of the supply chain can use the actual customer demand data to create more accurate forecasts, rather than relying on the orders received from the previous stage, which can vary significantly more than the actual customer demand. To determine the impact of centralized demand information on the bullwhip effect, we have to distinguish between two types of supply chains: one with centralized demand information and a second with decentralized demand information, as described below. 14 Value of Information in Designing & Managing Supply Chain, pp.

Supply Chain with Centralized Demand Information: In this type of supply chain the retailer (who is the first stage) observes customer demands and forecasts his demands with moving average method finds his target inventory level on the forecast mean demand, and places orders to the wholesaler. The wholesaler who forms the second stage of the supply chain, receives the order along with the retailers forecast mean demand, uses this forecast to determine its target inventory level, and places the order to the distributor. The distributor who finally places the demand to the factory, the fourth stage in the supply chain, follows the same process. In this particular chain, each stage of the supply chain receives the retailers forecast demand and follows an order-up-to inventory policy based on this demand. Therefore, the demand information, forecast technique and inventory policy in this case has been centralized.

decentralized system where only the retailer knows the customer demand can lead to higher variability than a centralized one, in which the customer demand is available at each stage, particularly when the lead times are large. Therefore more often than not the centralized system can effectively reduce the bullwhip effect.

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It’s also important to note that even with the centralized system the bullwhip effect remains, since the complete system is based on demand predictions and this is a variable factor. Therefore, it will be correct to say that it can only reduce the effect but not eliminate it completely. Activity 2 Understand the aspects of Bullwhip effect and analyze the same with a practical case study. Try and visit a firm to understand the effect of Bullwhip on SCM systems and how does the company plan to negate the effect to some extent. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. A NEW PERSPECTIVE TO COUNTER BULLWHIP EFFECT We have seen that bullwhip effect continues to stay in spite of our relentless efforts. Hence, why don’t we put our minds together to find some solution to counter this effect and remove it almost completely? It can be considerably reduced, if we gave it a fair try. Let us take into cognizance of the various environmental factors, consumer behavior, market research and area study into effect to counter this problem. For a moment let us get into a model called direct information system (DIS), in which we allow the manufacturer to get direct information from the consumer bases rather than the retailers and wholesalers or the distributors. It will require the following:

peculiar habits as available in the Indian context and differs state-to-state, region-to-region

out transportation, warehousing and material handling activities

head the DIS. Let us see this with a live example An area ‘X’ has a vibrant population and uses 2 popular brands of toothpaste ‘Y’ & ‘Z’. Say 50% uses ‘Y’ and the other 50% uses ‘Z’. Keeping the trends of our present day advertisements people can sway from Y to Z and vice versa. How do you find that out? Through your retailers/wholesalers who tell you this month people are asking for more number of Y to Z? Can you actually believe them? Since you believe them you aggravate your problems of existing Bullwhip

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effect. Resultant to this is over stocking and if not sold you land up with a clogged inventory, since the demands were more predictive than actuality. Inorder to nullify this effect you could get your DIS activated and find out the actual on ground situation and believe your ‘eyes to the ears’. Let us see this mathematically. Out of 1000 customers in an area, 700 under presumed ideal conditions uses ‘Y’ and the balance 300 uses ‘Z’. That has been the trend for the last 3 months plus minus 10% here and there. This month things were different and you find your brand ‘Y’ has dipped to a low of 300, i.e. this month you got 400 toothpastes that never sold. What do you do now? Think of a sale gimmick and rush out your stock? Under ideal conditions, Yes! But how long could you afford to do that? Another 3 months? It’s better you tide over this persistent problem once for all by activating the DTC (direct to consumers) method, wherein your own representatives are on the move continuously taking direct feedback from the consumers, in site. This will give a more realistic figure than a predictive one. These inputs can then be compared with that you received from the retailers/wholesalers/distributors, and you reach a common average of demands from one particular area. Looks simple on paper, requires tremendous coordination to implement. Let us see this with a figure to remove any ambiguity of sorts.

DRIVERS OF SCM SCM is indeed the most dominating paradigm in contemporary business and is century, the rapidly exploding liberalized global market is creating enormously diversified customers, products and services. Organizational, informational and managerial demands are being redefined. The new millennium is creating conditions and an entirely different type of challenge, which are being manifested in innovative supply chain developments. The first driver is the behavioural changes in the top management of global companies. This has dramatically

Organizing for Global Markets altered the way people think, learn, decide, act and believe in how they can improve their responsiveness towards their clientele groups. The second is concerned with making quality products to retain customers, the third driver is discipline of supply chain cost economics, fourthly is creation of a value innovation process and fifth the decision making process, so as to make every stage of the management accountable and responsive.

5.10 SUMMARY In this unit we have focused on the concepts like models for SCM. You have learnt about value chain system. You deliberated the stages of integration of supply chain and learnt about integrating supply and demand chain to include demand management. You discussed the relationship of goods flow, information and cash flow. Bullwhip effect and measures to reduce this effect were also deliberated.

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5.11 SELF ASSESSMENT QUESTIONS 1) Integration of supply and demand chain will go a long way to build and effective SCM system. Discuss with examples. 2) Explain with examples demand and demand management. 3) Explain the various models of SCM. 4) Explain push-pull model with relevant examples. 5) Discuss the role of Internet in SCM. Explain e-business and e-commerce. 6) What is Bullwhip effect? Explain the various permutations and combinations to reduce this effect in SCM. 7) What are the reasons for variability in the supply chain? Explain in detail with relevant examples. 8) How do you link goods flow, information flow and cash flow in SC integration? Explain with appropriate diagram.

5.12 REFERENCES AND SUGGESTED FURTHER READINGS 1) Burt, Dobler & Starling, World Class Supply Management, Tata Mc GrawHill 2) Deshmukh & Mohanty (2004), Essentials of SCM, Jaico Publishing House, Mumbai-23 (should be included in compulsory reading, since the text pertains to Indian context, simple and easy to comprehend) 3) Simchi-Levi, David Kaminsky, Philipsimchi-Levi, Edited (2004), Designing And Managing The Supply Chain, Tata McGraw-Hill 4) Mentzer, Fundamentals of Supply Chain Management, Sage India Publishers 5) Gentry, J. J,(1999), “The role of Carriers in buyer-supplier strategic partnerships: a supply chain management approach,” Journal Of Business Logistics pp. 35-53, cited in Amelia S. Carr & Larry Smeltzer, “The relationship of strategic purchasing to supply management”, European Journal of Purchasing and Supply Management 5 (1999) p. 44. 6) Kevin Werbach, “Syndication: The emerging model for business in Internet era”, Harvard Business Review, May-June 2000, pp. 85-93.

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UNIT -2 STRATEGIC SUPPLY CHAIN Markets MANAGEMENT Objectives After reading this unit you would be able to:

in the supply chain;

s; and -engineering. Structure Introduction Supply Chain: Growth Trends in SCM Strategic Decisions Strategic Supply Management Activities Supply Alliances Developing and Managing the Relationship Supplier Quality Management Problems of Quality How to Find the Qualified Supplier? Quantity Survey of Suppliers Supply Chain Re-engineering Summary Self Assessment Questions References and Suggested Further Readings

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6.1 INTRODUCTION After having seen the various models for SCM integration, integration of supply and demand chain, let us now take a closer look at the strategic supply chain management. The successes in the manufacturers of today revolve around certain basic services related to both product management and consumer satisfaction. The imperatives are:

The imperatives above create a continuous pressure on the companies for frequent changes, both in terms of policies and strategies, and in a way force the companies to stay abreast of the latest. According to the world competitiveness report competitiveness is equal to multiplication of competitive assets and competitive process (Deshmukh & Mohanty).

Where, competitive assets include technology,

infrastructure, people and government institutions, and competitive process include quality, speed, customization and services.1 Logistics has always been the backbone to infrastructure for the manufacturers. Within the purview of SCM logistics has been the art and science of procuring, producing and delivering products and services at the right time, in right quantity and at the appropriate place. As we have seen earlier, SCM involves planning, implementation, controlling, storage, and transportation and end delivery from the point of origin to the point of consumption as part of consumer/customer requirements. It is a network of facilities that perform the tasks of procuring the raw materials, transport them, transformation of materials to finished products and further distribution of goods to the end user, the customers. During initial evolution it was felt that logistics that involved transporting and warehousing couldnâ&#x20AC;&#x2122;t effectively influence the strategic goals and hence, extensive investment neednâ&#x20AC;&#x2122;t be done. Activities relating to customer services, warehousing, order processing, inventories and sales were also ignored. Production, marketing and finance operated independently, and inventories and sales ignored. It was in the seventies that the management explored the scope of reducing the distribution costs. The concept of total cost management was evolved in order to optimize the total costs rather than costs of activities taken in isolation. A centralized logistics function was given the responsibility of controlling costs with emphasis on maximization of service level. Slowly but steadily the aspects of logistics got integrated with the other functional activities of the supply chain, and the functional chain emanating from supplier to the delivery options to the end user, were formulated and incorporated with the operational and strategic plans. In the final stage logistics were accorded due importance in the strategic planning. The imperatives for supply chain strategy are:

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goal for competitive advantage

SUPPLY CHAIN: GROWTH According to Hicks, the imperatives for growth of supply chain are: Enhanced customer expectation: Competition worldwide has led to maximum emphasis on customer service over the years. The value of the product can only be determined when the product reaches the customer in time and at the required place. The value of customer service has acquired such dimension that, if the product doesnâ&#x20AC;&#x2122;t reach in time, the sale will be lost to a competitor who offers in time, an ideal substitute. This can further be classified under:

Pre-transaction Elements: Relating to corporate policies and program. 1 Deshmukh & Mohanty in Essentials of Supply Chain Management, p 13

Organizing for Global Markets

Transaction Elements: These are those variables involved directly in physical distribution, i.e. product and delivery reliability. Post-transaction Elements: These are those aspects dealing with after sales service, warranty, repair, customer complaints and replacements. Pressure for Quick Response: Customers today expect a better and quicker response owing to the value added services being provided by the manufacturers. This is mainly due to shortened product life cycles, consumerâ&#x20AC;&#x2122;s drive and volatile markets, making reliance on forecasts difficult and dangerous. The key to quick response is pipeline management, i.e. a process where manufacturing and procurement procedures are linked to requirements of the market. It seeks to meet the competitive challenges of increasing the speed of response to the market needs.

Impact of Globalization: Present global environment is forcing the organizations to incorporate the world in their strategies and analysis. Certain key factors like, economic trends, competitiveness, technological advances, the firms today cannot ignore them. Companies therefore must identify and

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analyse factors that differ across nations and determine the impact on the operations functions. Transportation and distribution therefore assumes greater importance in such scenario, and the companies have to rightfully integrate and manage the facilities and markets available in this backdrop. Logistics, therefore, assumes greater strategic significance.

Organizational Integration: Organizations today need to be broad-based integrators, inclined towards the achievements of market place successes, based on managing systems and people that deliver the service. Generalists, therefore, assume greater importance to specialists to integrate materials and operation management with delivery. Today, IT is slowly proving to be a great integrator for various functions, spanning from supplier to the customers.

Trends in SCM The major trends in SCM are: Co-maker Ship: It is defined as the development of a long-term relationship with limited number of suppliers on the basis of mutual confidence.2 The benefits are:

sser quality problems

The basic philosophy of this alliance is that the supplier is considered to be the extension of customer relationship, with emphasis on continuity and a seamless end-to-end pipeline. With growth in outsourcing the trend towards co-maker ship also increases manifold. This principle can be extended both ways in the supply chain-upstream to customers and downstream to distributor, retailer and users.

Third Party Logistics: Outsourcing operations like storage, transportation and delivery, improve service levels, reduce costs and increase flexibility. It 2 Essentials of SCM by Deshmukh & Mohanty pp. 16-18

also helps in reducing costs on trucks, warehouses and certain infrastructure requirements, and allows firms to acquire new technologies and enter newer markets. Yet, certain aspect does merit attention. These outside service providers may not at times perform up to the requirements of the manufacturer and would result in loss of image of the firm. Therefore though third party logistics could be cost effective, at times the firm should use these depending upon the organizationâ&#x20AC;&#x2122;s needs, capabilities of the service

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provider and the resulting pay off.

Principle of Postponement: The time when the product is ready for sale is known to the organisation, and consequent delay in labeling, packaging and pricing till the last moment is called principle of postponement. The sole objective is to minimize the risk of carrying finished product to the various points of the supply chain by delaying the product differentiation to the latest possible moment before customer purchase. The cost savings on transportation and storage are attained by keeping products at the highest level and by moving goods through the supply chain in large, generic quantities (Deshmukh & Mohanty 2004). Examples of postponement are:

nblended state However, it has to be noted that postponement shouldnâ&#x20AC;&#x2122;t compromise the desired service level.

Enterprise Resource Planning (ERP) & DRP: ERP systems are basically information integrators and they help in binding various business processes in an enterprise. It also helps in streamlining and reengineering of various processes, focusing on value activities and eliminating non-value added activities. Due to influx of IT, ERP has been able to provide a wide information base with an aim to optimize resources. This has further helped in in-bound logistics, transportation, material management and accounting at large. DRP on the other hand helps in estimating inventory requirements at stocking areas and ensures supply sources are able to meet the demand. It incorporates policies on safety stocks, information and relation between demand forecasts, inventory levels, manufacturing and distribution schedules. DRP helps in both short term and future production and distribution resources, in order to match both supply and demand. Because of minimal inventory that is held, DRP can be called the key to logistics and JIT productions.

Strategic Decisions Strategies are a set of important decisions derived from a decision making process of the top management in the organization. In order to ensure success, the strategic changes that are being incorporated in the supply chain, has to conform to well defined strategies formulated by the company from time to time. The top management in the company forms the strategic decisions and successful execution of these decisions should provide a cutting edge to the organization. Areas that require strategic decisions are warehousing, transportation, IT, and

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make versus buy. We have already seen warehousing and transportation in detail in unit-4 and 5, and hence will dwell on IT and makers versus buy. IT Solutions and Integration: IT solutions will play a significant role in information building all through the supply chain. However, companies should 5 Organizing for Global Markets address several queries centered on proper alignment of information technology tools and the expected increase in productivity and services. Identifying the very scope of the business problem that is to be addressed is the most important in this complete exercise. This effort will help in identifying the best course available to the manufacturer and the area that it is to be applied, the core business issues. At the same time, it is also important to assess the effect of IT on the organization as a whole and its capabilities. More often than not, IT affects the business in 3 ways:3

and capabilities on values providing continuous improvement and teamwork. zation not only to rethink but also leverage new information, like graphics, computer integration and workstation technology. the enterpriseâ&#x20AC;&#x2122;s people resources. The response to the issue of managing the supply chain included having a fully integrated business, and some of the vehicle manufacturing companies were structured in a way where the input were raw materials and output the finished product. However, the driving forces for global manufacturers have ranged from becoming a tiered global supply system in the West to the Japanese Kereitsu based company supply system, although there are quite a few near fully integrated companies in the developing nations till date. The following are the reasons propounded by Christopher (1992) for not following the integrated supply chain:

the other. As a result, the way things get done can reflect convenience for doers, a desire to protect functional boundaries and a lack of understanding the related consequences, both up and down streams of individual processes.

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of the system. as a means of providing breathing space and as ways of providing some hidden flexibility respond to protect lead times. The individual functional lead times contain slack and where these become embodied in a processing system, they are institutionalized. Actually, companies that have benefited from integration are pacing ahead with confidence, and IT as a whole have further aided in integration vigorously. Make versus Buy: The main organization focus today is on outsourcing of non-critical components. These decisions are arrived at after considering the factors like, capacity, leverage an organization gets and the quality and confidence in working with the vendor. Make buy decision is a strategic decision and the area that has to addressed in this is development of the total cost model (Deshmukh & Mohanty). It has been seen that having a supplier that can work in a simultaneous engineering way with the company is the main aspect in order to avoid costs associated with unnecessary design complexity. This may also mean having a supplier who can provide the same support through IT rather than having an engineer in site, and achieve the same result. The next consideration is the aspect of labour 3 Deshmukh & Mohanty in Essentials of supply chain management, pp. 20

elements. Here, once again the need for simultaneous engineering is required mainly in those off-shore areas with low labour rates, over and above issues like labour rate inflation and challenges of overseas sourcing. All these have to be considered in a structured manner and not in isolation.

Strategic Supply Management Activities As per Burt and Dobler, supply management focus on ten strategic activities: Environment Monitoring: Monitoring the supply environments to identify threats and opportunities, is an important task of supply managements, to include material shortages affecting both price and availability of purchased materials and services. They can further be classified as:

price and availability.

price increase.

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to the extent of monopoly. A firm should change its strategy based on such changes. Integrated Supply Strategy: Supply management should develop and manage the firm’s supply strategy based on wholesome integration strategy and not in isolated strategies. Commodity Strategy: Must develop and update sound commodity supply strategy. The following activities have to be performed to ensure effectiveness of the strategies: Strategy Updating: Commodity teams must identify materials, items of equipment and services that are strategic in nature or should formulate a strategic plan for obtaining them. Technology Access Control: All supply management organization’s develop and update technology road maps, which lists critical current and future technologies to be pursued. Action should be at hand to protect these technologies that yield a competitive edge and ensure are not transferred to competitors. Supply Management Organization: The organization of the supply management system must enhance the effectiveness and efficiency of the system in attaining the primary objective. Risk Management: Actions should be taken to ensure minimum disruption of supplies and price increase. Data Management: Supply management, accounting and information technology must cooperate in the collection and application of supply data to facilitate the strategic supply planning. Corporate Strategic Plan: Supply management should join the marketing and operations as the key players in development of each of the firm’s corporate strategic plan. Supply management provides input to the strategic planning process on threats and opportunities in the supply world. It also provides inputs on constraints that may affect strategic initiatives. Its knowledge of the firm’s supply world may be a vital source of input for strategic planning. Strategic Sourcing: The firm should manage and develop its supply base in line with firm’s strategic objectives. Several actions that should be taken are:

ctional, collaborative or alliance) for each commodity class. 7

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with several forces to increase the importance of the firm’s supply base. Strategic Supply Alliances: Developing and managing the supply alliances frequently are two of the most crucial and most strategic activities undertaken by any firm. Institutional trust is a key prerequisite to supply alliances. Rapid growth of American society of Alliance Professionals is a testimony to the industry’s recognition of importance of these activities.

SCM Supply Chain/Networks: These help in developing and managing of supply alliances, but is more complex. IT & relationship skills are essential prerequisite for personnel assigned to the task. Charles Fine in his book Clock speed writes, ‘ the farther you look upstream in your technology supply chain, the more volatility you see. Customers are foolish if they don’t spend any time or resources thinking of the health, survival, and possible independence of their core technology suppliers’.4 Social Responsibilities: Supply management must develop and implement programs that will protect the environment, facilitating the inclusion of woman-owned, minority based and small business in our economy to promote values in the workplace. Understand Key Supply Industry: Its impact is directly proportional to the knowledge of related industries in which it buys. They study and understand the industries that provide the key materials, equipment, and services, cost structures, technologies, competitive nature and culture. The above provides the understanding of supply managements responsibilities both strategic and tactical, which if executed effectively and efficiently will be a key to the firm’s success and survival, fig 6.1.

Activity 1 Understand the difference in strategies in supply managements and how it builds up a company to be successful in the international arena? .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. ..............................................................................................................................

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SUPPLY ALLIANCES As seen above supplier alliances plays a key role in strategic supply chain management activities across the board. Therefore in order to develop and manage these relationship and alliances a firm has to continuously endeavor to identify methods to facilitate these relations. Supplier is as important as the customer and that has to be realised in the true sense. Riggs & Robbins spelt out these relations in their book ‘The Executive Guide to Supply Management Strategies’, they are:

Annual Supplier Meetings: Annual supplier meeting is a common phenomenon in maintaining direct relationship with the suppliers by the buyer firm. It is used both as a teaching and learning platform as well as the opportunity to distinguish one’s organisation as a supply management leader. It dwells on the buyer’s management performance, learning and future goals. The main objective being learning of key strategies to support the buyer’s business. It requires extensive planning and is expensive, but it lays the foundation of a buyer supplier relationship in the long run. Supplier Discussions: It’s an informal forum for gaining and sharing learning, between the representatives, like the chief executive, chief operating officer, and representatives from marketing, supply management and research divisions. It reviews the buyer’s progress and goals in the backdrop of shift in strategies and policies. It’s a forum that builds trust and respect, towards a successful supplier relationship.

Workshops and Seminars: These are aimed at creating opportunities for supply-stream innovations, which will benefit all the participants. It composes of members of supplier participants who provide material and services that are critical to the products made available at the marketplace. Such discussions open the door for newer set of goals and collaborations. It provides the base for continual improvement, concepts and innovations required to guide and organize discussion and work sessions.

Collaborations/Partnership: This is supposed to be the most successful supplier buyer relationship in recent times. These are based on mutual interdependence and respect. These alliances begin with careful selection of source during the product design process. This is the time when the buyer requires a dependable supplier who can provide the required process, design and technological support for a successful product. The supplier at the same time requires a responsible customer for its product and services. They both require each other and have to work hand in glove. Unexpected criticalities that may arise can be sorted out with a ‘we shall overcome’ attitude. The most important in these relationships is the integration of the buyer andsupplier as long as the relationship is beneficial to each other.

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Developing and Managing the Relationship Supply managers at all levels should ensure and tailor appropriate actions during the planning and management of such alliances mentioned above. Like:

Instituting a Cross-Functional Team: A team so designated should be in place to handle such alliances, which is responsible for development, integration, and develop and manage appropriate measures for the alliance to be successful.

Training: Teams from both sides as designated should undergo appropriate training in being constructive team players, and also in cross-functional team skills. Communication System: The teams should develop and integrate an effective communication system responsive to the needs and requirements of both the firms. Trust Building: Measures to improve trust between the two organizations have to be developed and implemented too. Visits: Periodic visits by the respective team members to each others site has to be resorted to for confidence building and co-location of key technical persons. Specialized Training: Plans have to be evolved and developed for specialized training involving variance of products, designing, value analyses, engineering, cost analysis and cost management. Objectives: Certain objectives have to be established in areas, including quality, cost and time aspects. Monitoring: Results have to be continuously monitored and reported to the management level. Supportive: Inter-firm team members should realize the importance of such alliances and support the alliance goal in letter and spirit. Itâ&#x20AC;&#x2122;s in the interest of both the firms to support each otherâ&#x20AC;&#x2122;s operations and their respective goals, ethics over expediency.

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Management of supply contract is a challenging responsibility and a critical too. Companies have to continuously generate and develop newer ideas and innovations to maintain these relations and work in unison to a common goal without jeopardizing each other’s interest in the overall gambit of supplier buyer alliances and relationship.

SUPPLIER QUALITY MANAGEMENT After having seen the supplier-buyer relationship, we will now see the quality control aspects of supplier units. Quality management dates back to the 80’s, wherein the Japanese companies developed a zerodefect program for their products, primarily based on quality of the raw materials they procured. This was resorted to by traditional methods of sampling of the incoming raw materials, which implicitly inferred that there will be some non-conforming parts, that will be used in the manufacturing operations resulting in lower material productivity and higher manufacturing costs. This was never a full proof system and the lacunas were too many, and resulted in longer lead-time to correct the specific problems or adjustments to the operating systems. This would generally lead to longer customer delivery time and cascading decrease in profits. The main objective of this unit is to discuss the problems of quality and how to generally overcome these issues. In every organization there is a wide diversity of functions and structures for quality planning and control, and hence the first step to quality assurance is a structural basis for the procurement system that should be organic in character and reflect the concern for quality control in developing the relationship of the interdependent organization throughout the supply chain. With this as a preamble let us see the problems of vendor / supplier quality.

Problems of Quality The suppliers till late had been providing natural/semi-processed materials to the manufacturers for their finished products. Under such circumstances, quality control was never a problem since it was dependent on the quality of raw materials. “The buyer and suppliers were almost quasi-independent and had little interaction between them” (Deshmukh & Mohanty, 2004). Today things have changed considerably and most of the companies are engaged in different type of purchases and procurements, particularly very complex and highly engineered subsystems with critical interfacing with other components. Therefore, some key features have to be evolved for a better buyer-supplier relationship and its effect on the quality assurances on the whole (we have seen this in the last unit of buyer-supplier relationship/alliances). However, for quality assurance, some activities that are to be followed are:

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Mission: The company’s mission and policies on supplier quality relations have to be spelt out clearly (as for ISO-9000). Identification: Identify and develop qualified and capable suppliers who can assure of quality, and weeding out the lesser variants. Communication: Communicating essential and helpful information, designs, and specifications and also engineering changes promptly. Development: Developing methods for detecting the deviations through reproduction and trials. Assistance: Provide assistance to the supplier on quality related problems and overcome them.

Review: Periodic review of the performance of the supplier through supplies rating and follow up actions against poor suppliers. These activities are not sacrosanct and depend on the following:

How to Find the Qualified Supplier? A very tedious process and action at hand by the buyer firm is to find a suitable supplier who can generally meet the benchmark of the purchaser, i.e. ‘the best from the best within the cost’, under ideal conditions of course. However the following evaluation methods could be used to get the best from the best:

Reputation: This is a variable factor and differs from company to company, big and small. For a big company it is of significance and for a smaller company it’s almost obscure. A detailed survey and market search will help in identifying the best that can deliver the best within the cost per se. The buyers’ generally maintain database on prior performance of these companies. Database: Maintaining a database in financial function has been very effective, however, it is in development stage for use in quality functions (Desmukh & Mohanty, 2004). Surveys: The purchasing and procurement division of a company is carrying out the selection of the appropriate supplier. Clarity of information is an important factor in this selection process, and such information on the supplier will provide the right weightage for the supplier selection. Trial & Error: Sometimes this procedure will also help in choosing the correct supplier for the manufacturer. At times certain obscure suppliers qualify to the requirements of the manufacturer and provide the goods as required. The limiting factor is the right chance at the right time.

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Faith & Reliance: This is another aspect that will help in getting the right supplier when the company requires the most. No supplier would like to loose out/compromise on the aspects of faith and reliability that has been bestowed on it by the buyer unit. Opportunity: This is another factor because of which many small suppliers loose out on a buyer’s search radar. The buyer should carry out an in-depth selection of the supplier and provide a fair opportunity to even the smallest to prove its worth, sometimes, it does pay huge benefits in the long run.

Quality Survey of Suppliers It’s an evaluation process, which enables the buyer to select the appropriate supplier conforming to the buyer’s requirements. Does the supplier have the ability to respond to the buyer’s requirements? Does he require assistance in any form? This and many, can be answered by help of visits to the supplier’s site by a team of specialists or through a balanced questionnaire. The following are the survey evaluation on the supplier:5 5 Assuring the Quality Procurement System in Essentials of SCM by Desmukh & Mohanty

Policies/Practices on Quality: These are the basic guidelines based on which the quality assurance of the supplier can be determined. They are the real intentions that are to be implemented in a variety of degrees, the main problem is to evaluate the policies and determine the degree to which they are to be implemented. Facilities: These are related to tests and inspection that meet the quality requirement of the purchased product. Samples are taken and checked with the vendor and buyer’s gauge to compare the gauging systems. This kind of checking reduces the risk to both the supplier and the buyer. Procedures and Actions: These are the procedures for handling quality problems like gauge control deviations from existing specifications. The aim of the survey is to determine whether the procedures are in vogue or not. Appraisal: Appraisal of personnel from viewpoint of quality is very difficult, but discovering the technical competence and attitude to quality can be established. But, this could be just subjective at times, due to turnover of key personnel. Yet, a general attitude of quality control can be found out through auditing, discipline, and maintenance and housekeeping records.

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For a new product line searching for a capable supplier is indeed a difficult task and this can well spell the difference between success and failure of any newproduct. Geographical location and close proximity is a reason to search for a supplier closer home, without a rating of sorts, but selection for a long-term supplier in high volumes is a tedious process and should start early. The prospective suppliers can be located by any methods, but the pertinent questions that should be addressed are:

needs? objectives? The objective of this evaluation is to arrive at a judgment of how well supplier’s programme operates, neither to tabulate the efficiencies nor rationalize the Mshortcomings. The areas for evaluation are:

A supplier survey is analogous to a profit and loss statement, that is, it speaks of the status at any one point in time and will not guarantee of the status at any other time. Therefore, the communication of the survey must continue for a long time towards a good partnership. Increased competition in the economic scene worldwide results in heavy dependence on quality as both an endogenous and exogenous factor. This results in the other elements that aid in quality control to have an ever-expanding role. Procurement function therefore plays a key role in getting the best from the best available in the open market. It plays a predominant role in the in ensuring quality in an organization. Improving quality therefore should shift from desire tocompulsion in the quality assurance of supply agencies.

SUPPLY CHAIN RE-ENGINEERING Markets Business structure is continuously changing from one phase to another, and today has reached the stage of professionalism where it is revolving around customer focus in a big way. These changes have shown remarkable improvement inM company performance measures such as quality, costs, services and lead times. Hammer & Champy in 1993 identified these changes and improvements and packaged these ideas into concept of ‘business re-engineering’, which was later termed as ‘business process reengineering’ (BPR). The areas in common between BPR and SCM seems to be very few at a cursory glance, but SCM is not a traditional improvement technique, but a philosophy that helps in improvement not involved with functional reviews, as highlighted by Stevens’ model of supply chain integration, which we have seen in our earlier units. However, in an introspection of BPR & SCM reveals that there

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is more than one common link between the two. Business transformation from the concept ‘what we make we sell’ to a more flexible concept of ‘what the market want us to sell’ can effectively be achieved after a competitive analysis and a supply chain diagnostic review. It is well understood, that effective transformation is only possible after a series of phased step involving technological reorganization, attitudinal and organizational attribute, and integration between the competition and customer demands. The comparison between SCM & BPR is as shown in the table 6.1 Achieving internal integration is a desirable stage, however, performance of pockets of excellence is generally downgraded (from customer’s viewpoint) due Mto poorly performing suppliers and customers in the supply chain. In order to understand this further a wider perspective of the supply chain needs to be taken keeping in mind the 12 steps of BPI, as evolved by Harrington, to streamline the process. They are:

utomation

The fundamental rethinking and radical redesign of business process to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed. The management of material suppliers, production facilities, and distribution services and customer linked together via the feed forward flow of material and the feedback flow of information. From the above its evident that the first 9 steps are operational, step 10 is forsupplier side, and step 11 is for the customer satisfaction. Therefore, to attain this step, if a radical redesign is taken, business process integration turns to business process re-engineering, in the supply chain scenario. Side by side in the Stevens’ model step 3 moves to step 4, i.e. full integration is achieved. Therefore, this integration involves extending the internal management to supplier focus and customer orientation in order to create a strategic partnership, by reducing the suppliers. Customer understanding will in a big way change the entire philosophy from pushing products to selling goods as

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per customer requirements. Backward integration is a very difficult process in supply chain integration, since; it involves a change in inter-company attitudes from adversarial to that of mutual support, which is in fact very crucial to a successful supply chain integration. We should as a matter of fact, never lose sight of the fact that business in the supply chain, is directly dependent on customer finances which enables the continuity of the supply chain. Therefore, the strategies in the supply chain should have common aim of improving the performance of the chain from the perspective of the consumer/customer. Stevens’ integration, in stage 4 of the supply chain is generally successful because of the financial position enjoyed bythe big companies. Such companies generally bend rules of supply chain integration and manipulate smaller members of the chain to their financial ends, in order to benefit the most. Therefore, backward integration is a contentious issue. Both internal and external integration is required to be achieved for improving performance in the supply chain management, under ideal conditions. Yet, internal or external or a combination approach may be the goal depending upon product, industry, market conditions or where advantage could be gained for the supply chain. Though, Stevens’ model suggests that external integration, without internal reorganization does not exploit all the benefits of true supply chain integration. Now, let us see whether BPR internal reengineering is equivalent to the functional and internal integration stages in the Stevens’ model? Actually, the first and the final stages are similar in both BPR & Stevens’ model. Initially, nonexistent planning and control structures across departments are optimized to departmental goals resulting in customer necessities not being catered to, but the final structure is customer centric with major changes in culture, structure and technology. The intermediate steps are different, since BPR calls for one-leap changes on a process-by-process basis. Whereas, Stevens’ model opts for functional integration, followed by internal integration. Functional integration in BPR is not necessary, only the process should be sought and redesigned. Efforts to optimize a function are considered a waste in this system. The functional integration stage, does bring together a trans-departmental view which, if performed correctly, will lead to improved operating performance (Deshmukh & Mohanty). Improvement in the overall performance level and integrating of the core functional areas as one single function does negate the poor performance of the surrounding functions. Therefore, It is mandatory to initially bind the functions along a process line, and then integrate the appropriate cross-functional processes at a later stage. Therefore in spite of BPR being a later model, Stevens’ model is still valid in the light of BPR concept, though more details of reorganization stages are required. Therefore, crossrelationship between both the stages is to be highlighted more vigorously. This can be achieved by examining the pre-requisites and techniques used in integration stages of SCM and in virtuality, i.e. by philosophy. Let us now see the various categories covering the parallels of essentials between SCM & BPR, through this table:

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SUMMARY This unit highlights the common foundations, which underlie both SCM & BPR philosophies, which are indicative of the important difference between the two, the drive for improved business operations. Those who follow the SCM philosophy would have traversed the path as BPR after having re-engineered own processes. The existing philosophies such as SCM (integrated) as mentioned in this unit covers a large portion of the BPR ideas, yet a few ideas have to be added to the model:

these ideas on the marketplace. The various points for learning in SCM re-engineering are:

que but that which facilitates improvement, not associated with functional/departmental reviews that focus internally.

. -engineering. perspective, seeking core processes and creating leaner structures, a must for SCM integration through re-engineering. -engineering has to be handled smoothly and skillfully. Sustaining the spirit of re-engineering throughout the corporate culture is a big issue that requires serious attention. Continual re-engineering allows a companyâ&#x20AC;&#x2122;s quality initiatives and re-engineering to be completely and effectively integrated, with an added advantage of the involvements of the high teams for continual reengineering.

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BPR (Business Process Reengineering) mination of wastes

processes

-skilled workforce

e rule

beneficial

-value added activities

each firm to do what it does best

logistics champion at board

-skilled workforce

sourcing

bases

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interfaces of the company

SELF ASSESSMENT QUESTIONS 1) Explain in detail the process of re-engineering. 2) What are the benefits of re-engineering in supply chain? 3) Explain the benefits of integrated approach for implementation of SCM. 4) It is a fact; SCM and BPR have a common goal and are interrelated. Explain the sentence with examples. 5) Explain the parallels between the BPR & SCM philosophy.

REFERENCES AND SUGGESTED FURTHER READINGS Burt, Dobler & Starling, World Class Supply Management, Tata Mc Graw-Hill Deshmukh & Mohanty (2004), Essentials of SCM, Jaico Publishing House, Mumbai-23. Simchi-Levi, David Kaminsky, Philipsimchi-Levi, Edith(2004), Designing And Managing The Supply Chain, Tata McGraw-Hill Mentzer, Fundamentals of Supply Chain Management, Sage India Publishers

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UNIT-3 INFORMATION TECHNOLOGY: A KEY ENABLER OF SCM Objectives After reading this unit you would be able to:

Management;

setup;

supply chain; and

Chain Management for increasing efficiency.

Structure Introduction Information and Technology in the Integrated Supply Chain Importance of Information in Integrated Business Inter Organizational Information Systems (IOIS) Information Requirements Determination for a Supply Chain Information and Technology Applications for SCM Summary Self Assessment Questions References and Suggested Further Readings

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8.1 INTRODUCTION To survive, thrive and beat the competition in today’s brutally competitive world, one has to manage the future. Managing the future means managing information. In order to deliver quality information to the decision-maker at the right time and in order to automate the process of data collection, collation and refinement, organizations have to make Information Technology an ally, harness its full potential and use it in the best possible way. Information technology is revolutionizing the way, in which we live and work. It is changing all aspects of our life style. The digital revolution has given mankind the ability to treat information with mathematical precision, to transmit it with high accuracy and to manipulate it at will. These capabilities are bringing into being, a whole world within and around the physical world. The amount of calculation power that is available to mankind is increasing at an exceptional rate. Computers and communication are becoming integral parts of our lives. IT has a major role to play in any organization. All organizations have certain objectives and goals to achieve. For any organization to succeed, all business units should work towards this common goal. But each department or business function in the organization will have its own goals and procedures. The success of an organization rests in resolving the conflicts between the various business functions and making them do what is good for the organization as a whole. For this, information is critical. Everybody should know what is happening in other parts of the organization.

IT Enabled SCM IT has a major role to play both at the organizational level and at the departmental level. At the organizational level, IT should assist in specifying the objectives and strategies of the organization. IT should also aid in developing and supporting, and procedures to achieve them. At the departmental level, IT must ensure a smooth flow of information across departments, and should guide organization to adopt the most viable business practices. At this level, IT ensures seamless flow of information across the different departments and develops and maintains an enterprise – wide database. This database will eliminate the need of the isolated data islands that existed and in each department and make the organization’s data accessible across the departmental boundaries. This enterprise– wide sharing has many benefits likes automation of procedures, availability of high quality information for better decisionmaking and faster response times. In this unit, we will learn the importance of the information required for effective supply chain management and a number of information technologies and the application of the information that organizations are using to make information readily available across the supply chain.

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INFORMATION AND TECHNOLOGY IN THE INTEGRATED SUPPLY CHAIN

As discussed in the earlier Blocks, the supply chain management is concerned with the flow of products and information between the supply chain members that encompasses all of those organizations such as suppliers, producers, service providers and customers (See Figure 8.1). These organizations linked together to acquire, purchase, convert/manufacture, assemble, and distribute goods and services, from suppliers to the ultimate and users. By 1980, the information revolution was well accepted in the world’s advanced

IT Packages in SCM economics. During this period, many standard business processes and functions such as customer order processing, inventory management, and purchasing were altered through the use of computer technology. These technologies and capabilities began to grow exponentially since 1985, providing means for multiple organizations to coordinate their activities in an effort to truly manage a supply chain. Today, information and technology must be conceived of broadly to encompass the information that businesses create and use as well as a wide spectrum of increasingly convergent and linked technologies that process the information with the emergence of the personal computer, optical fiber networks, the explosion of the Internet and the world wide web. The cost and availability of information supply chain network. This means that organizations are moving toward a concept known as Electronic Commerce, where transactions are completed via a variety of electronic media, including electronic data interchange (EDI), electronic funds transfer (EFT), bar codes, fax, automated voice mail, CD-ROM catalogs, and a variety of others. The old “paper” type transactions are becoming increasingly obsolete. Leading-edge organizations no longer require paper purchase requisitions; purchase orders, invoices, receiving forms, and manual accounts payable “matching” process. All required information is recorded electronically, and associated transactions are performed with the minimum amount of human intervention. Recent developments in database structures allowed part numbers to be accumulated, coded, and stored in databases, and electronically ordered. With the application of the appropriate information systems, the need to constantly monitor inventory levels, place orders, and expedite orders will soon become a thing of the past.

IMPORTANCE OF INFORMATION IN INTEGRATED BUSINESS Information is the key to the decision making in Business. Prior to the 1980s, asignificant portion of the information used to flow between functional areas within an organization, and between supply chain member organizations, were paperbased. In many instances, these paper-based transactions and communications were slow, unreliable, and error prone. Conducting business in this manner was

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costly because it decreased firms’ effectiveness in being able to design, develop, procure, manufacture, and distribute their products. During this period, information was often overlooked as a critical competitive resource because its value to supply chain members was not clearly understood. However, firms that are embarking upon supply chain management initiatives now recognize the vital importance of information and the technologies that make this information available. In a sense, the information systems and the technologies utilized in the supply chain represent one of the fundamental elements that link the organizations into a unified and coordinated system. In the current competitive climate, little doubt remains about the importance of information and information technology to the ultimate success, and perhaps even the survival, of any supply chain management initiative. Cycle time reduction, implementing redesigned cross-functional processes, utilizing cross-selling opportunities and capturing the channel to the customer underpin the competitive positioning of business. Timely and accurate information is more critical now than at anytime. Three factors have strongly impacted this change in the importance of information.

IT Enabled SCM

1) Satisfying, in fact pleasing, customers have become something of a corporate obsession. Serving the customer in the best, most efficient, and effective manner has become critical, and information about issues such as order status, product availability, delivery schedules, and invoices has become a necessary part of the total customer service experience. 2) Information is a crucial factor in the managers’ abilities to reduce inventory and human resources requirements to a competitive level. 3) Information flows play an essential role in the strategic planning for and deployment of resources. The need for virtually seamless bonds within and between organizations is a key notion in the essential nature of information systems in the development and maintenance of successful supply chain. That is, creating inter-organizational processes and link to facilitate delivery of seamless information between marketing, sales, purchasing, finance, manufacturing, distribution and transportation internally, as well as inter organizationally, to customers, suppliers, carriers, and retailers across the supply chain will improve fill rates of the customers service, increase forecast accuracy, reduction in the total inventory and savings in the company’s’ transportation costs - goals which need to be achieved. Clearly, the need to share information across the supply chain is of paramount importance. In fact, inaccurate or distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies such as excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules. This is termed

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to be bullwhip effect, which is commonly being experienced by the consumer goods industries. Suitable technologies such as bar codes and scanners have been developed and applied in the portions of supply chain and remove inaccurate or distorted information.

Activity 1 Develop procedures to elicit and define information needs for making a decision for an organization of your choice. How would you implement your plan? What are the problems? ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. .............................................................................................................................

INTER ORGANIZATIONAL INFORMATION SYSTEM In supply chain management, the suppliers, producers, retailers, customers, and service providers are the members and are linked through the ultimate level of integration. These members are continuously supplied with information in real time. The foundation of the ability to share information is the effective use of Information Technology within the supply chain. Appropriate application of these technologies provides decision makers with timely access to all required information from any location within the supply chain. Recognizing the critical importance of information in an integrated supply chain environment, many organizations are implementing some form of an inter-organizational information system (IOIS). IOISs are the systems based on information technologies that

cross organization

boundaries. An IOIS is an integrated data-processing/data-communication system utilized by two or more separate organizations. These organizations may (buyer-supplier) or may not (credit clearing house) have a preexisting business relationship. What must exist is a computer-based electronic link between the two organizations that automates some element of work, such as order processing, order-status checking, inventory-level review, shipment tracking information or, minimally, transaction transfer, which would previously have been performed manually or through other media, such as the mail. Among the earliest forms of IOISs were those developed by time-sharing services and on-line database vendors. The potential impact of such systems on the way business is conducted was recognized as early as the 1960s. Since that time, new technologies have been integrated to produce systems of increasing capability. Examples of such implementations include electronic funds transfer (EFT) systems, the Treasury Departmentâ&#x20AC;&#x2122;s decision support system, a variety of buyer-supplier order-processing

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systems, and on-line professional tool support systems. Existing implementations serve the grocery industry, the drug wholesaling industry, the insurance industry, and the transportation industry, with more systems coming into existence each year. The development of an IOIS for the supply chain has three

distinct advantages:

cost reductions, productivity improvements, and product/market strategy. Five basic levels of participation for individual firms within inter organizational system are: 1) Remote I/O node, in which the member participates from a remote location within the application system supported by one or more higher-level participants; 2) Application processing node, in which the member develops and shares a single application such as an inventory-query or order-processing systems; 3) Multi participant exchange node, in which the member develops and shares a network inter-linking itself and any number of lower-level participants with whom it has an established business relationship; 4) Network control node, in which the member develops and shares a network with diverse applications that may be used by many different types of lowerlevel participants; and finally 5) Integrating network node, in which the member literally becomes a datacommunications/ data processing utility that integrates any number of lowerlevel participants and applications in real time. The participant shares a network of diverse applications with any number of participants with whom it has an established business relationship. IOIS participants may therefore be at a level lower, higher, or equal to the IOIS sharing organizations. As organizations explore development of IOISs to support their supply chain management efforts, they will be faced with several challenges. Developing a common language in terms of planning, format, and priority across several vastly different constituencies. Information sharing requirements are well beyond those of a manufacturer, and its distributorâ&#x20AC;&#x2122;s need to process orders in a consistent way. All relevant information ultimately must circulate to and among all organizations between the supply chainâ&#x20AC;&#x2122;s point of origin and its point of consumption, such as ordering (i.e., orders for component parts, services, and finished products), inbound transportation, manufacturing, warehousing, inventory management, outbound transportation, sales, marketing, forecasts, and customerservice information. Although organizations recognize the importance of an IOIS for effective supply chain management, no one standard approach is being utilized in terms of technology or information.

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Activity 2 Consider your organization or an organization with which you can freely access for information. What are the most frequent indicators for evaluating the performance of lower, middle, and top managers in the considered organization? Compare these indicators with that of another organization. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. INFORMATION REQUIREMENTS DETERMINATION FOR A SUPPLY CHAIN It is important to ensure that the right information are captured and used to manage the supply chains effectively (doing right things) and efficiently (doing these things well). Four fundamental mistakes are commonly made when determining information requirements and these are: 1) Viewing systems as functional instead of cross-functional 2) Interviewing managers individually instead of jointly 3) Not allowing for trial and error in the detail design process 4) Asking the wrong questions during the interview. Viewing systems as functional instead of cross functional is a very narrow and inappropriate perspective to take in the information requirements determination process. Much of the information needed to make decisions within a given function will come from sources outside the function. Therefore, it is necessary to include all of the functions involved in an information system in order to facilitate the development of the system that allows information to flow crossfunctionally. When developing information systems to support an integrated supply chain, this cross-functional perspective needs to be extended to be crossfunctional and inter-organizational, because the information required to make decisions within one organization may come from another supply chain member. To properly determine information requirements across organizations, it is important to use appropriate method that ensure all information requirements are identified. Therefore, a cross-organizational session using several structuralinterviewing techniques, including business systems planning, critical success factors, and ends/means analysis are suggested for this purpose.

1) Business Systems Planning (BSP) is a structured interview technique developed by IBM. It focusses on the identification of problems and decisions associated with an organizational process and determine what information is needed to address them. For a supply chain management, analysts must identify supply chain management problems and decisions for the member organizations. The result of this

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process is a set of tables listing the problems that must be addressed, the decisions that must be made across the supply chain, and the information required to address them.

Problems Solutions Information cycle times between supply order fulfillment performance for each organization chain member organizations between while maintaining or reducing members and logistics logistics cost total supply chain logistics cost/performance trade-

cost. across the supply

chain. supply chain members item for each organization st and lead times by different modes and carriers.

Decisions Information

and carriers.

2) Critical Success Factors (CSF) focus on key performance areas that must function effectively for the organization to be successful and associated information requirements. For the supply chain, CSFs have to be identified for each of the member organizations. As one might imagine, most of the organizations have common CSFs. Once the CSFs are determined, the information needed to address the CSFs is then identified. Table 8.3 presents critical success factors (CSF) example.

Critical Success Factors Information measurement system chain. organization. organizational measures. easures.

3) Ends/Means (E/M) analysis focuses on what it takes for an organization to be both effective (doing the â&#x20AC;&#x2DC;rightâ&#x20AC;&#x2122; things) and efficient (doing these things well) and on the information needed to manage it. This interview technique consists of two phases. First, the analyst identifies the ends that the supply chain members consider important, the effectiveness issues associated with the ends, and the information needed to address them. The second phase deals with means, their associated efficiency issues, and the informationneeded to address them.

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Ends Effectiveness Information -

cycle times across the chain

logistics cost (features, cost, time)

that

improves customer accounting information member organization (order fulfillment cycle time, inventory levels, capacity, customer satisfaction).

Means Efficiency Information measuring performance: to measure inventory each factor - Total supply chain performance inventory levels (days, Rs.) - Organization inventory levels (days, Rs.) â&#x20AC;&#x201C; Turns - Service levels - Costs. The result of each of the structured interview techniques is a set of tables that identifies areas of concerns across the organizations and the associated information needed to address these concerns. There will be some redundancy in the information requirements identified when using multiple structured interview techniques. This helps to ensure that the analyst has a comprehensive and accurate set of information requirements. Traditional systems development also does not allow for trial and error when designing information systems. The outcome of this approach to systems development has resulted in systems that need to be changed the day they are implemented and, in a worst-case serve as systems that are totally unusable. Prototyping was introduced as a way to overcome these problems by validating systems requirements through experimenting, refining, and testing the system until the development team and users are satisfied that they have identified all of the information requirements for the system being developed. The specific information identified for the supply chain consists of ten primary categories. These categories and examples of information contained.

Information Categories Examples of Information contained in Categories 1. Production information Product specifications, price/cost, product sales history 2. Customer information Customer forecasts, customer sales history, management team 3. Supplier information Product line, product lead times, sales term & conditions. 4. Production Process information Capacities, Commitments, production plans. 5. Transportation information Carriers, lead times, cost 6. Inventory information Inventory levels, inventory-carrying costs, inventory locations. 7. Supply chain alliance information Key contacts for each organization, partner roles and responsibilities, meeting schedules.

8. Competitive information Benchmarking information, competitive product offering, market share information. 9. Sales and marketing information Point of-sale information, promotional plans.

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10.Supply chain process and Process descriptions, performance measures, cost, quality, performance information delivery, time, customers’ satisfaction, etc.

Activity 3 Select a typical manufacturing organization and describe the dependencies that exist among the departments. Prepare a dependency chart showing information and material flows. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. .............................................................................................................................

INFORMATION AND TECHNOLOGY APPLICATIONS FOR SCM Many innovations on technology-based approaches are well suited to the enhancement of supply chain management, including Just-in-Time, Quick Response, Efficient Consumer Response, and Continuous Replenishment – all rely heavily on the information made available through the latest technological advances. In the development and maintenance of the supply chain’s information systems, both hardware and software must be addressed. Hardware includes computers, input/output devices, and storage media. Software includes all of the system and application programs used for processing transactions, management control, decision-making, and strategic planning. A few examples of software titles that address some aspect of supply chain management are presented below:

1) Base Rate, Carrier Select, and Match Pay (Version 2.0) developed by Distribution Sciences, Inc., with which users can compute freight costs, compare transportation mode rates, analyze cost and service effectiveness of carriers, and audit and pay freight bills;

2) A new software program developed by Ross Systems, Inc., called Supply Chain Planning is an integrated suite of constraint-based planning tools that provide demand, replenishment, and manufacturing tools for accurate planning and scheduling of those activities. This software provides an end-toend enterprise-resource planning solution incorporating the most advanced supply chain planning capabilities available.

3) A technology partnership between Procter & Gamble Distributing Co. And Sabre Decision Technologies resulted in a software system called Transportation Network optimization, which allows shippers to give bidding, in twin streamlining the bidding and award process.

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4) Logistility Planning Solutions was recently introduced to provide a program apable of managing the entire supply chain from demand to supply by synchronizing customer demand and supply constraints through the provision of Internet enabled communications about forecasts, inventory, and replenishments for all members of the chain. Several technologies have gained popularity recently, due to their ability to facilitate the flow of information across the supply chain. Electronic commerce, Electronic Data Interchange, Bar coding and Scanning, Data Warehouse, Internet, Intranet/Extranet, World wide Web, Decision Support systems are a relatively recent phenomenon for supply chain management applications. These are discussed in the following sections.

Electronic Commerce Electronic Commerce is the term used to describe the wide range of tools and techniques utilized to conduct business in a paperless environment. Electronic commerce therefore includes electronic data interchange (EDI), e-mail, electronic founds transfers, electronic publishing, image processing, electronic bulletin boards, shared databases, and magnetic/optical data capture (such as bar coding), the Internet, and Web sites. Electronic commerce is having a significant effect on how organizations conduct business. Companies are able to automate the process of moving documents electronically between suppliers and customers in such a manner that the entire process is handled electronically; no paperwork is involved. With the rise of the Internet and the ability to transfer information cheaply and effectively over the whole world, electronic commerce is becoming a major focus or many organizations and represents a significant opportunity for integrated supply chain management efforts.

Electronic Data Interchange Electronic data interchange, commonly referred to â&#x20AC;&#x153;EDIâ&#x20AC;?, is the computer to computer interchange of business documents and/or information between trading partners in standard data format. Where, trading partners means, cooperation between companies is required to get the EDI systems running properly. Computer-to-computer and standard data format mean information must be precisely formated so that a computer can process the information without human assistance. EDI replaces the traditional forms of mail, courier, or fax. It is being utilized to link supply chain members together in terms of order processing, production, inventory, accounting, and transportation. It allows members of the supply chain to reduce paperworks and share information on invoices, orders, payments, inquiries, and scheduling among all channel members. The benefits of EDI are numerous: quick access to information, better customer service, reduced paperwork, better communications, increased productivity, improved tracing and expediting, cost efficiency, competitive advantage, and improved billing. EDI improves productivity through faster information transmission as well as reduced information entry redundancy. Accuracy is improved by reducing the number of times an individual is involved in data entry. The use of EDI results in reduced costs on several levels, including:

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1) Reduced labour and material cost associated with printing, mailing, and handling paper-based transactions; 2) Reduced telephone and fax transmissions; and 3) Reduced clerical costs. EDI is also tremendously beneficial in counteracting the bull whip effect described earlier in this unit. Through the use of EDI, supply chain partners can overcome the distortions and exaggerations in supply and demand information by using technology to facilitate real-time sharing of actual demand and supply information. Although about 20 percent of all retailer orders for consumer products were placed via EDI in 1990, that percentage had grown to well over 60 percent by the end of 1995. Clearly, firms are realizing that the use of EDI to facilitate information sharing throughout the supply chain is beneficial. In general, EDI is used for communication of business information such as purchase orders, invoices, bills of lading, shipping instructions, production sequences, inventory or order status, fund remittances, and point-of-sale information (in the case of retailers).

EDI cuts down time delays, labor costs, errors, inventory and uncertainty. Business with EDI reduces the paper work, which is about 4 to 7% of the value of the goods traded. The EDI activities are the following: 1) Sales return could be analyzed and fed into the ordering process; 2) Orders could be raised to reflect both demand and known stock availability; 3) Instruction could be sent to distributors in parallel with the orders to ensure fast delivery; 4) Carriage by road, rail, sea, or air could be booked simultaneously; 5) Customs clearance documents could be available in advance of goodsarriving, avoiding hold ups; 6) Payment instructions could be issued to banks to ensure prompt payment.

Bar Coding and Scanning At its most basic level, bar coding refers to the placement of computer readable codes on items, cartons, containers, and even railcars. This particular technology application drastically influenced the flows of product and information within thesupply chain. As noted throughout this unit, information exchange is critical to the success of supply chain management. In the past, this exchange was conducted manually, with error-prone and time-consuming paper-based procedures. Bar coding and electronic scanning are identification technologies that facilitate information collection and exchange, allowing supply chain members to track and communicate movement details quickly with a greatly reduced probability of error. The critical point-of-sale data that organizations such as Wal-Mart provide to their supply chain partners is made possible through the use of bar coding and scanning technology. This same technology is critical to transportation companies, such as FedEx, by enabling them to provide their customers with detailed tracking information in a matter of seconds. Bar code scanners are most visible in the checkout counters of the supermarket. They scan the black-and-

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white bars of the Universal Product Code (UPC). This code specifies the name of the product and its manufacturer. Bar codes are used in hundreds of situations, ranging from airline stickers on luggage to blood samples in laboratories. They are especially useful in high-volume tracking where keyboard entry is too slow and/or inaccurate. Other applications are the tracking of moving items, such as components in PC assembly operations, railroad cars at various locations, and automobile in assembly plants. The general benefits of Bar Code technology in the supply chain environment are: Speeds data entry, Enhances data accuracy, Reduces material-handling labour, Minimizes on-hand inventory, Monitors labour efficiency, Improves customer service, Reduces product recall, Verifies orders at receiving and shipping, Reduces work-in-process idle time, Monitors and controls shop floor activity, Improves shop floor scheduling, Optimizes floor space, and Improves product yield/reduces scrap.

Data Warehouse Generally, a data warehouse is a decision support tool for collecting information from multiple sources and making these information available to end users in a consolidated, consistent manner. The concept originated in the 1970s, when corporations realized they had many isolated information systems â&#x20AC;&#x153;islandsâ&#x20AC;? that could neither share information nor provide an enterprise-wide picture of corporate activities. Recently, there has been a renewed interest in this concept, as organizations adopt distributed computing architectures while they leverage their isolated legacy systems. Rather than trying to develop one unified system or linking all systems in terms of processing, a data warehouse provides a means to combine the data in one place and make it available to all of the systems.

In most cases, a data warehouse is a consolidated database maintained separately from an organizationâ&#x20AC;&#x2122;s production system databases. It is significantly different

rom a design standpoint.

Production databases are organized around business unctions or processes such as payroll and order processing. Many organizations have multiple databases, often containing duplicate data. A data warehouse, in contrast, is organized around informational subjects rather than specific business processes. The data warehouse, then, is used to store data fed to it from multiple production databases in a format that is readily accessible by end users. Data held in data warehouses are time-dependent, historical data and may also be aggregated.

For example, separate production systems may track sales and coupon mailings. Combining data from these different systems may yield insights into the effectiveness of coupon sales promotions that would not be immediately evident from the output data of either system alone. Integrated within a data warehouse, however, such information could be easily extracted. One immediate benefit of data warehousing is the one previously described in the example about sales and marketing data. Providing a consolidated view of corporate data is better than many smaller (and

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differently

formatted)

views.

Another

benefit,

however,

that

data

warehousing

allows

informationprocessing to be off-loaded from individual (legacy) systems onto lower-cost servers. Once done, a significant number of end-user information requests can be handled by the end users themselves, using graphical interfaces and easy-to-use query and analysis tools. Accessing data from an updated information warehouse should be much easier than doing the same thing with older, separate systems. Furthermore, some production system reporting requirements can be moved to decision support systems – thus freeing up production processing.

Internet In terms of advancement in technology and communications capabilities, perhaps the most influential development over the past decade has been the adaptation of the Internet from strictly government and research applications into the areas of commerce and mass communications. At the most basic level, a network of networks, the Internet provides instant and global access to an amazing number of organizations, individuals, and information sources. Through systems like the popular World Wide Web (the web), Internet users are able to conduct organized searches on specific topics as well as browse various web sites to discover the vast resources available to them through their computer. The Internet offers tremendous potential for supply chain members to share information in a timely and cost-effective manner, with relative case. Many organizations are now exploring the numerous opportunities provided by the Internet. For example, the Internet provides opportunities for the development of EDI systems. It also provides an incredible source of information about potential suppliers of products and services. A few examples of the type ofinformation available on the Internet are provided under the World Wide Web heading. Although the potential benefits of supply chain applications on the Internet are substantial, as with any emergent technology, certain issues must be resolved. A key Internet concern is the issue of privacy, the level of security for information. Privacy of information transmitted on the Internet is an issue for all users, particularly in the use of creditcard members and other sensitive information. For supply chain members already struggling with the challenge of freely sharing information, these issues only add to their concerns. These issues may soon be resolved. Currently, web software called ‘merchant’ server is in advanced stages of development. Although present applications are being developed to assist with consumer transactions, such as providing secure conduits for payment information and transactions, other applications are not far behind. One approach for such security problems is the development of the supply chain’s own Internet.

Intranet/Extranet Intranets are networks internal to an organization that use the same technology that is the foundation of the global Internet. Many industry analysts expect such corporate networks to provide most of the

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revenue for computer hardware and software vendors over the next few years as an increasing number of business expand their internal networks to improve efficiency. By using Web browsers and server software with their own internal systems, organizations can improve internal information systems and link otherwise incompatible groups of computers. Internal networks often start out as ways to link employees to company information, such as lists, product prices, or benefits. Because internal networks use the same language and seamlessly connect to the public Internet, they can easily be extended to include customers and suppliers, forming a supply chain “Extranet” at far less cost than a proprietary network.

World wide Web The World Wide Web is the Internet system for hypertext linking of multimedia documents, allowing users to move from one Internet site to another and to inspect the information available without having to use complicated commands and protocols. The implications of the Web for business applications are obvious and farreaching. Web-based technology and tools have been developed in virtually every industry and forms of commerce. Supply chain functions are no exception. For instance, Enterprise Transportation management was recently launched by Metasys Inc. through the Oracle Web Applications Server; this system deploys a variety of critical information about transportation and distribution applications throughout the supply chain. Further, the system can be accessed with any Javaenabled browser. Access may be controlled through a corporate network, via the Internet or an Intranet Web site. The number of Web sites relevant to supply chain management is growing at a rapid pace. From specific sites providing information about the capabilities and fees of potential supply chain partners to educational sites developed primarily on reference tools, the number of sites and variety of information available on the Web is impressive. Examples of the Web sites available include the following:

1) www.con-waynow.com provides information about the expedited motorcarrier arm of Con-Way Transportation Services, providing information about the company’s services, market coverage, and truck fleets, as well as direct e-mail links to Con-Way NOW’s sales, operations, and human resources departments.

2) www.gebn.bus.msu.edu provides access to Global Procurement and Supply Chain Benchmarking Initiative home page. The Global Procurement and Supply Chain Benchmarking Initiative is a third-party procurement and supply chain benchmarking effort housed in The Eli Board Graduate School of Management at Michigan State University. The primary mission of this group is to collect and disseminate information concerning the best

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procurement and supply chain strategies, practices, and processes being employed by companies across a wide range of industries worldwide.

3) www.supply-chain.com developed by the Supply Chain Council provides a valuable reference source introducing shippers to the Council’s mission and supply-chain reference model, a leading edge benchmarking tool being developed for specific supply chain applications. Most of the supply chain related professional societies have highly informative home pages. These Web sites typically provide information about the organization’s objectives, educational and training opportunities, educational products, reference libraries, job placement services, discussion forums, conferences, and membership requirements.

Decision Support Systems By the early 1970’s the demand for all types of Industrial Software started to accelerate. The increased capabilities and reduced costs justified computerized support for an increased number of non-routine applications. At that time, the discipline of decision support systems (DSS) was initiated. The basic objective of a DSS is to provide computerized support to complex non-routine and partially structured decisions. At first, the cost of building a DSS prohibited its widespread use. However, the availability of low-cost personal computer around 1980 changed this situation. Desktop PCs, which are easily programmable, made it possible for a person with limited programming ability to build useful DSS applications (e.g., spreadsheets with built-in-macros). This was the beginning of the era of end-user computing. Analysts, Managers, many other professionals, and Secretaries began building their own systems. Given the complexity of supply chains, development of DSS to assist decisionmakers in terms of both the design and operation of integrated supply chains is ikely to increase. These DSS will help decision-makers identify opportunities for improvements across the supply chain, far beyond what even the most experienced manager could provide through intuitive insight. Supply chain-wide DSS will allows management to look at the relationships across the supply chain, including suppliers, manufacturing plants, distribution centers, transportation options, product demand, relationships among product families, and a host of other factors to optimize supply chain performance at a strategic level. Supply chain DSS requires large amounts of both static and dynamic information from the member organizations. The static information includes production rates and capabilities for all supply chain entities, bills of material, routings, and facility preference. The dynamic information includes forecasts, orders, and current deliveries. Using all of this information to solve, for

example, a quick-response

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scheduling problem across the supply chain is virtually impossible with a single technology. However, all the data can be readily obtained from existing information systems through Structured Query Language (SQL) using various relational databases or the “supply chain data warehouse” if one exists. Specific technologies that may be utilized for an effective supply chain management DSS include: SQL interface, Expert system rules, Scheduling algorithms, optimization (Linear programming capabilities), Blocked scheduling, Multisite/multistage scheduling, Graphical user interface, User definable database, Availableto-promise, and Demand management.

Activity 4 Examine the suitability of e-commerce, Electronic Data Interchange and Bar Code System practices of Indian Organizations. For this, refer National/ International Journals or select an organization known to you. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. ..............................................................................................................................

SUMMARY The sharing of information among supply chain members is a fundamental requirement for effective supply chain management. At the ultimate level of integration, decision makers at all levels within the supply chain members organizations are provided with the information they need, in the desired format, when they need it, regardless of where within the supply chain this information originates. Providing the decision-makers within the supply chain with the ‘right’ information, in the necessary format, and in a timely manner is a major challenge. The information requirements determination approaches presented in this unit have been effective in ensuring that these information requirements are met. The information systems and the technologies utilized in these systems represent one of the fundamental elements that “link” the organizations of a supply chain. The range of technologies available to support supply chain management efforts is vast and ever changing. Unfortunately, there is not a single “right” IT solution to supply chain management. Organizations need to explore various options to arrive at a solution that provides the functionality required for their specific supply chain management initiative. Towards this end, benchmarking integrated supply chain efforts to identify “best practices” is essential. Supply Chain Management initiatives are unlikely to succeed without the appropriate information systems and the technology required to support them. These important decisions should be made by a cross-functional, inter organizational management group that can afford to manage the constraints

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related to the time and resources required to develop a supply chain information systems strategy. The team should implement the strategy, and ever see its ongoing performance.

SELF-ASSESSMENT QUESTIONS

1) Define Information Technology. What are the advantages and disadvantages of adoption of IT in Indian Manufacturing Organizations? 2) What is the value of information? How would you try to assess the value of information to a decisionmaker? 3) Explain briefly the Inter Organizational Information system. How is IOIS important for effective supply chain management? 4) What are the fundamental mistakes commonly made while capturing information? How would these mistakes be eliminated in SCM?

5) Give various supply chain information categories. Give examples of information contained in these categories. 6) What are the major advantages and disadvantages of inquiry systems in which data are captured online but files are updated later â&#x20AC;&#x201C; say at night? 7) How would you measure the extent of unemployment created by the implementation of IT? What factors tend to mitigate the problem of increased unemployment if it actually occurs?

8) Does IT have an impact beyond the organization, for example, on stockholders or customers? What kinds of effect occur and what problems are created for these groups? 9) What is the IT enabled organization design variables? How do they supplement or replace conventional design variables? 10) What are the risks for a small company connecting itself electronically with major customers? 11) What kinds of employees are most likely to be replaced by Information Technology? Does your answer depend on the type of system? Are the decision levels affected? 12) Write a brief note on the following: i) Electronic commerce ii) Electronic Data Interchange iii) Bar Coding and Scanning iv) Data Warehouse v) Internet vi) Intranet/Extranet vii) World Wide Web viii) Decision Support System

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13) What are the advantages and disadvantages of using Bar Code and Scanning System in the Manufacturing Organizations? 14) Give a list of potential benefits of using Electronic Data Interchange (EDI). Who are the service providers of EDI in India and their terms and conditions? 15) Compare and contrast EDI, Internet, and Intranet/Extranet. How are they applied in SCM?

REFERENCES AND SUGGESTED FURTHER READINGS 1) CAPS Logistics, Inc., Atlanta, Georgia, USA, or http://www.Caps.com, 1999. 2) Copacino, W.C., : Supply Chain Management: The basics and beyond, St. Lucie Press, 1997. 3) Handfield, R.B. and Nichols, E.L. Jr., : Introduction to Supply Chain Management, Prentice Hall, 1999. 4) Jonathan Blain, et. al., : Using SAP R/3, Prentice-Hall of India Pvt. Ltd., 1998. 5) Lambert, D.M., Stock, J.R., and Ellram L.M., : ‘Fundamentals of Logistics Management’ Mc-Graw Hill- Irwin, 1998. 6) Lucas, H.C., Jr., : ‘Information Technology for Management’, The IT Packages in SCM McGraw-Hill Companies, Inc. 1997. 7) Martinich J.S., : ‘Production and Operations Management: An Applied Modern Approach’, John Wiley & Sons, Inc., 1999. 8) Oden, H.W., Langen Walter, G.A., and Lucier, R.A., Hand Book of Material and Capacity Requirement Planning, McGraw Hill, Inc., 1993. 9) Pressman, R.S., : ‘Software Engineering: A Practitioner’s Approach’, Mc-Graw Hill, Inc., 1992. 10) Rosen, K.T. and Howard A.L., : E-Retail: Gold Rush or Fool’s Gold?, E-Commerce, California Management Review, Vol.42, No.3, Spring, 2000. 11) Senn, J.A., : ‘Information Systems in Management’, Wadsworth Publishing Co., 1990. 12) Stevens, G.C., : Integrating the Supply Chain, International Journal of Physical Distribution and Materials Management, Vol.19, No.8, 1989.

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UNIT-4 IT PACKAGES IN SCM Objectives The objectives of this unit are to enable you:

the advantages and limitations of software packages of SCM;

Structure Introduction Role, Advantages and Limitations of Software Packages Architecture of ‘SAP R/3 ERP’ Solution Architecture of BaaN ERP Solution BaaN IV BaaN ERP Selecting the Right ERP Package Technology Contribution of the Software Packages to the SCM Summary Self –Assessment Questions References and Suggested Further Readings

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10.1 INTRODUCTION Organizations have the opportunity to become more efficient and competitive. Skilled and creative managers are required to accomplish these goals. Todayâ&#x20AC;&#x2122;s MBAs need the knowledge and confidence to deal with issues related to technology. They must apply technology aggressively if they are to compete successfully in our global economy. They must take advantage of the ability that Manufacturing and Information Technology give them to change the way work is done. During the past five years computers and communications technologies have proliferated in offices and homes. Organization distributes the responsibility for technology to all levels of management and to different geographic locations. As a result, managers from supervisor to CEO encounter information technology on a daily basis. Managers have to take advantages of the technology; they must make decisions about how to use the technology. One of the most important parts of using the technology is the design of information systems. Much of the distribution of technology to end-users results from the rapid diffusion of personal computers or workstations. Users now would like to access a number of different applications on different computers through a LAN and probably the Internet as well. Users may design systems for themselves alone, or they may be one of many users of a system designed by others. The design of multi-user applications is much more complex than the design of a personal computer system for an individual user. Many more people are involved in the process, .

ROLE, ADVANTAGES AND LIMITATIONS OF SOFTWARE PACKAGES The context in which software has been developed is closely coupled to almost Mfive decades of computer system evolution. Better hardware performance, smaller size, and lower cost have precipitated more sophisticated computer-based systems. We have moved from vacuum tube processors to micro-electronic devices that are capable of processing 200 million instructions per second. Computer users as well as computer specialists often refer to software packages when they discuss how a system will be used. Software is the general term describing programs of instructions, languages, and routines or procedures that make it possible for an individual to use the computer. In a general sense, software is any prepared set of instructions that controls the operation of computer system for computation and processing. The term is often applied only to commercially prepared packages, as opposed

user-prepared

instructions.

Commercially

prepared

programs

are

developed

manufacturers or companies that specialize in software. Their primary purpose is to control all processing activities and to make sure that the resources and power of the computer are Mused in the most efficient manner. Computer programs are sets of coded instructions that cause the computer to perform a series of operations that accomplishes a specific purpose. The programs are written in programming languages specially developed languages or commands that make it possible to specify calculations and other processing in terminology that can be converted to particular operations by the computer system. Fourth-

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generation languages are in wide spread use to supplement procedure oriented programming languages. Such language allows users to develop sophisticated programs for retrieval of data with only a fraction of the instructions needed when programs are written in procedure-oriented languages. Because they are much easier to use them traditional programming languages, fourth-generation languages are frequently utilized by non-programmers (such as managers). As we approach the year 2000 plus, we can no longer look to the past as a guide to the future. In the face of strong market forces created by electronic commerce and mounting competition, corporations can no longer plod along historical tracks or seek the preservation of the status-quos. Companies are discovering that old solutions do not work with new problems. The business parameters have changed, and so have the risks and payoffs. A new computing paradigm is quickly emerging. It is called networkcentric computing, Intranets, or distributed objects. The aim of it is to provide highly configurable, more faulttolerant, more scalable, and more easily used solutions for enterprises than traditional client/server systems that have been able to deliver. Despite its promise, supply-chain application software implementation is accompanied by the confusion and misconception that is inherent in any software and business method.

The questions range from:

estimated?

be aligned to gain the maximum value? Of these, the most pressing question-facing companies is: what is the right technology that protects investment in a changing environment? The answer appears to lie in network-centric computing discussed in the following sections.

Activity 1 Get access to the following Web sites in the Internet and update your Knowledge on IT software packages in Supply Chain Management:

-e-business.com ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. .............................................................................................................................

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............................................................................................................................. ARCHITECTURE OF â&#x20AC;&#x2DC;SAP R/3 ERPâ&#x20AC;&#x2122; SOLUTION A SAP product is a suite of standard software made up of individual programs that have been written to carry out computing tasks in the most efficient manner possible. SAP R/2 is a system for mainframes. The SAP R/3 has open system architecture and applies the client/server concept across multiple levels.

The SAP R/3 Basis (R/3 Standard System) All R/3 installations include a set of components that form the core of the system and are referred to as R/3 Basis. It provides the users with a set of tools to build a suite of integrated programs that can be fitted exactly to the requirements of the company and modified as the company develops. Every implementation will need a SAP R/3 Basis module that provides the elements of the SAP R/3 runtime system. It includes the fundamental tools and functions of the R/3 Data Dictionary, the SAP R/3 Reference Model. The ABAP/4 Development Workbench and R/3 Customizing Component. When designing an implementation, the R/3 Reference Model is used to select which module components will be needed in the target system.

The SAP R/3 Applications A SAP R/3 application is a set of programs that has been designed for a specific types of business data processing. Each application addresses a main sector of business activity, ranging from financial accounting to human resources. Under each application are grouped the modules most likely to be associated with the title of the application. However, the fully integrated design of all SAP

IsTta Endnaarbdle db uSsCinMess programs allows great flexibility in the assembly of modules to form a specific implementation.

Major SAP Application Each application is fully integrated with the R/3 Basis. This allows each application to communicate with any other application. Some application modules depend on other applications. For example, the Controlling (CO) module depends on the Financial Accounting (FI) module. Some of the components of a module may be optional. Some of the functions within a component may be optional. This flexibility allows each R/3 installation to be built to fit exactly the unique requirements of the Client Company.

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MAJOR R/3 APPLICATIONS AND THEIR MODULES

1) Financial Accounting (FI) -

-LC) FI-

-SL)

-AP) 2) Controlling (CO) -

-PA) -

-PRO)

-Based Costing (CO-ABC) SD Sales and Distribution MM Materials Management HR Human Resources PM Plant Maintenance PP Production Planning QM Quality Management R/3 B CLIENT/ ABA

3) Fixed Asset Management (AM) IT Packages in SCM 4) Project System (PS) -

(PS-APP) -

-EXE) -IS)

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5) Workflow Workflow refers to the movement of work items through a series of operations that add value to these items. It also refers to the flows of information that must take place if this added value is to be optimized. A workflow management system is intended to manage business processes automatically or semiautomatically by controlling the sequence of activities. It should ensure that the appropriate steps are carried out at the right moment by specific people or groups, or by particular data processing programs and the machinery they control. SAP Business Workflow is devoted to developing and managing the flows of work and information that will make a business as effective and efficient as possible.

6) Industry Solutions (IS) An Industry Solution is an enhancement of the standard R/3 system that may include some or all of the components of any R/3 applications, according to the sector of industry for which it has been designed. Some of the industry solutions offered by SAP are for the following sectors: -

-B) -IS)

7) Human Resources (HR) This application provide an integrated human resource management system through the use of the components of the Personnel Planning and Development (PD) module and Personnel Administration (PA) module.

Personnel Planning and Development (HR-PD) Personnel Administration (HR-PA) -

-EMP)

ntion Management (PD-

-BEN)

-COM) -APP)

Personnel Planning and Development (HR-PD) Personnel Administration (HR-PA) om Reservation Planning (PD-

-TIM)

-INW) -TRV) -PAY)

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8) Plant Maintenance (PM) -PRO) (PM-PRM) nance (PM-

-SMA)

(PM-WOC) System (PM-IS) 9) Quality Management (QM) -

-CA) -

Notifications (QM-QN)

IT1 0E)nabPlredod SuCcMtion Planning (PP) -

-KAB) (PP-SOP) (PP-REM) -

-ATO) (PP-CRP) Industries (PP-PI) -PDC) (PP-MRP) -

-IS)

-PC)

11) Materials Management (MM) -IV) (MM-MRP) -

-IS) -

(MM-EDI) -WM)

12) Sales and Distribution (SD) -

-BIL) -

-CAS) -IS)

(SD-EDI)

SAP Configuration and Customization by Applications Programmes By itself the SAP program will not be very friendly to an individual user. It will not know what sort of business is to be conducted or exactly how the User Company wants to invoice and conduct other interactions with its customers. If the SAP implementation is to look and behave as if it really understands the company it is working for, it will have to be configured and customized. Naturally the SAP software expects to be told how to behave in a specific company and has standard routines, which help the

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company experts to set out what has to be done in a format that SAP can accept. The experts who do this are referred to as Applications Programmers or Applications Developers.

Development of SAP Product Range in Three Directions 1) A function within a SAP component may be elaborated so as to become a complex module. For example, the requirements of enterprise controlling can be met by the components of the Controlling (CO) module, but in addition, the Enterprise Controlling (EC) product is available as a separate module and includes functions not available in the Controlling (CO) module.

2) Extra integrating functions can be provided to interact with a group of SAP application modules. For example, the Logistics General (LO) module is designed to provide integrating functions for the following modules:

3) Where there are many companies in a particular sector of business that share a specialized requirement, a SAP partner may develop a specialized enhancement of the R/3 system that can be marketed as an “Industry Solution”. IT Packages in SCM 10.4 ARCHITECTURE OF ‘BAAN’ ERP SOLUTION Baan company’s ERP solutions are available as BaaN IV (the older version) and BaanERP (the latest version). The architecture of both versions is described here.

10.4.1 BaaN IV The BaaN IV software can run on many platforms, for example, it can run on various UNIX platforms supplied by HP, IBM, Sun, Digital, etc. It is also available on Windows NT. The software can use database provided by the software manufacturer, or, third-party databases such as Oracle or Ingress can also be used. Figure 10.2 shows the menu browser displayed to the user having access to all the packages of BaaN IV. Menu Browser [User:]

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ning

BaaN IV Common The BaaN IV common package allows you to maintain the common master data. This data is used by all the BaaN IV packages. All the files that are used in more than one module are stored in this package. The BaaN IV common contains the following tables: 1. Logistic Tables 4. Customer Master 2. Financial Tables 5. Supplier Master 3. Employee Master

BaaN IV Finance The finance package allows users to extract financial transactions from the sales and manufacturingareas and post them to the general ledger without having to key any transaction. It also has a budget system, and an activity base module. Following modules are included in the finance package:

IT. EnGabenleedr aSlC MLedger

6. Financial Statement 2. Accounts Receivable 7. Financial Budget System 3. Accounts Payable 8. Cost Allocation 4. Cash Management 9. Electronic Data Interchange (EDI) 5. Fixed Assets

BaaN IV Project BaaN IV project is designed to support the management of projects through all stages, from estimating tenders to delivery and throughout the guarantee period. It is especially suited to project-driven companies for the coordination of multiple projects. The goal is cost-effective management of each project according to the time schedule, within the specified budget and to the required quality. Furthermore, allocation of personnel and equipment to projects is critical in costeffective

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operation, which will maximize company profits. The project package provides all the tools necessary to control project accounting and planning. A planning requirement process accurately tracks costs for the project-related industries. This package is linked with all the softwareâ&#x20AC;&#x2122;s other functions to provide the information necessary to successfully manage the project within the enterprise environment. It includes following modules: 1. Project Estimating 6. Hours Accounting 2. Project Definition 7. Project Progress 3. Project Budget 8. Project Monitoring 4. Project Planning 9. Project Invoicing 5. Project Requirements

BaaN IV Manufacturing The manufacturing package provides all the manufacturing planning functions such as, MPS, MRP-I, and CRP. It can also provide control for all operations related to productâ&#x20AC;&#x2122;s fabrication, labour management, and capacity required. The following modules are included:

1. Engineering Data Management 9. Repetitive Manufacturing 2. Item Control 10. Shop Floor Control 3. Bill of Material Control 11. Hours Accounting 4. Routing 12. Project Budget 5. Cost Accounting 13. Product Configuration 6. Master Production Schedule (MPS) 14. Product Classification 7. Material Requirements Planning (MRP) 15. Project Control 8. Capacity Requirements Planning (CRP) 16. Quality Management System

BaaN IV Distribution The Distribution package is designed to take care of day-to-day logistical management in production and trade companies. The package is fully integrated with all other packages of BaaN IV. This package contains all the programs to create and manage the sales orders. It is a reliable source of information on market trends and developments. It also includes all the inventory related functions such as inventory control, location control, distribution requirements planning (DRP I), and replenishment control.

BaaN IV Distribution Package Contains the following ModIuTl ePsa:ckages in SCM 1. Item Control 8. Inventory Control 2. Cost Accounting 9. Lot Control 3. Purchase Control 10. Location Control 4. Sales Control 11. Distribution Requirements Planning

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5. Sales and Marketing Information 12. Tables 6. Electronic Data Interchange (EDI) 13. Common Data 7. Replenishment Order Control 14. Distribution Parameters Characteristics of BaaN IV Distribution 1. Simple and fast data input and control 2. Extensive purchase and sales statistics 3. Comprehensive forecasts and planning techniques 4. Interface with the graphical module enterprise performance manager 5. Interface with EDI 6. Use of multiple currencies 7. Use of multiple warehouses 8. Multi-company solution including supply chain management.

BaaN IV Process The Process package is designed to help manage the entire supply chain of any company operating in a process environment, such as the chemical industry. It helps manufacturers of identical product in different containers. It also helps to keep track of the various batches processed. It is able to account for the potency, the acidity, and the grade of items. Following are the modules provided in the process package: 1. Item Control 5. Capacity Requirements Planning 2. Formula Management 6. Production Management 3. Routing 7. Hours Accounting 4. Cost Accounting 8. Quality Management System

BaaN IV Transportation The Transportation package helps in managing transportation orders and to maximize equipment use. It can handle all types of transportation modes. It has powerful modules for managing warehousing and packaging. It keeps track of transportation costs and determines cost trends. It includes the following modules: 1. Employee Control 7. Transport Control 2. Address Control 8. Invoicing Control 3. Transport Fleet Management 9. Packing Control 4. Transport Fuel Control 10. Electronic Data Interchange 5. Hours and Expense Control 11. Warehouse Control 6. Central Data Entry 12. Distribution Requirements Planning

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IBTa EanNa bIleVd SSCeMrvice The Service package can be used to manage all the repair and warranty for supporting installations in the field. With this package: 1) You can register at which customers and locations specific installations are situated. 2) An installation bill of material that lists the components requiring servicing including their serial numbers and service history can be linked to each installation.

3) This data helps in analyzing the causes of malfunction in the fastest possible way. 4) You can create maintenance contracts and record warranties together with associated warranty terms for each customer. 5) Calls reporting malfunctions can be recorded even as you are on the phone. 6) Based on periodic maintenance obligations and calls a service plan is drawn and service job sheets are printed. 7) Finally, the service activities can be invoiced and a detailed service history is built up.

The modules included in this package are: 1. Service Tables 5. Service Analysis Control 2. Installation Control 6. Item Control 3. Contract Control 7. Cost Accounting 4. Service Order Control 8. Inventory Control

BaaN IV Enterprise Performance Manager The enterprise performance manager (EIS) incorporates tools that are designed to given various levels of management access to the data in the BaaN IV tables. The data of the distribution, finance, and manufacturing modules are available in this module and they can be displayed using various formats.

performance by using Ishikawa fishbone diagrams. down to the basic figures. These figures can be fetched from the integrated BaaN IV repository and can be linked to the persons responsible in the organization. A set of predefined performance indicators is available and new indicators can be defined very easily. The EIS module is fully integrated with the manufacturing, finance, and distribution modules.

management. It can be used as a business-benchmarking tool during BaaN IV implementation and optimization cycles (business process reengineering) and as a management and reporting tool at tactical and strategic level.

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BaaN IV Enterprise Modeler (formerly known as Orgware) Enterprise modeling is a process in which customers can map all the processes used and then develop an accurate and complete implementation plan. BaaN IV Constraint Planning The constraint-planning package provides planning functionality that takes into account capacity and materials constraints. This package currently provides MPS functionality with both finite and infinite planning methods.

BaaN IV Tool IT Packages in SCM The Tools package consists of all the programs designed to maintain and customize the application. The form manager, report writer, and sessions manager are the options that allow the developers to tailor BaaN IV to userâ&#x20AC;&#x2122;s needs. It also includes programs to manage the database, devices, and user profiles. Following modules are included in the Tools package: 1. Software Installation 11. Business Objects 2. Application Configuration 12. Application Customization 3. User Management 13. Application Development 4. Device Management 14. Terms and Definitions 5. Job Management 15. Translation 6. Database Management 16. Documentation 7. Audit Management 17. Conversion 8. Text Management 18. Software Distribution 9. Menu Management 19. Desktop Management 10. SQL Queries

BaaN IV Utilities The existing utilities allow users to easily import or export information between BaaN IV and any other system. This package facilitates the implementation of the software by helping in creation of master files imported from other software. This package has tools to facilitate the communication between BaaN IV and other databases, spreadsheets, etc. This module can also be used to convert data of older versions of the application to new versions. The exchange module can be very useful for multi-site applications as it facilitates the communication between two sites. In short this package provides the needed bridge between all other sources and BaaN IV and includes following modules: 1. Import Module 2. Export Module 3. Generate Exchange Scheme

Distributed Data Collection This package allows the users to interface between BaaN IV and third party data collection such as vendorâ&#x20AC;&#x2122;s data collection systems. This allows for the collection of data through the use of devices such as

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laser scanners etc. with the real time update of the interfacing BaaN IV module. The data collection vendor must supply an interface to BaaN IV to create a functional solution.

BaaN ERP Baan ERP, the successor to BaaN IV has the following enhancements, as claimed by Baan Co., over the older version: 1) Order to Cash foundation for all Baan business solutions. 2) Open Component Architecture 3) Fully integrated allowing for consistency and visibility across the enterprise 4) Comprehensive international capabilities, supporting multiple languages, tax structures and currencies including the Euro. 5) Modular components that allow for incremental implementation and migration.

IBTa EanNa bEleRd PSC MIncludes the Following five Components:

(a) Manufacturing (b) Finance (c) Project (d) Distribution, and (e) Tools.

BaaN Manufacturing BaaN ERP Manufacturing Module Includes: 1. Bills of Material 10. Project Budgeting 2. Cost Price Calculation 11. Project Control 3. Engineering Change Control 12. Repetitive Manufacturing 4. Engineering Data Management 13. Routings 5. Hours Accounting 14. Shop Floor Control 6. Product Classification 15. Tool Requirements, Planning and Control 7. Product Configuration 16. Capacity Requirements Planning* 8. Production Control 17. Master Production Scheduling* 9. Production Planning 18. Material Requirements Planning* 10.These modules come with extensive enterprise planning capabilities

Benefits 1) Open architecture design allows for a seamless and simplified integration with popular CAD packages via “BaanEngineering” elements. 2) Graphical simulations help analyze a ‘what if’ impact on financial requirements, capacity and inventory. 3) The system’s object orientated configurator supports different production strategies.

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4) Planning is integrated at every level and across multiple sites allowing smooth and consistent operational activity. 5) Within a dynamic environment, enterprise planning simulates alternative plans and reactive planning. 6) Planning and tracking capabilities are extended to improve production resource management issues such as inventory. 7) The integrated quality management tool enables a wide range of statistics (from raw material to finished goods) to be monitored resulting in continuous improvement in manufacturing quality. 8) Multiple valuation methods help the company identify cost drivers and reduce product costs.

B. BaaN Finance BaaNERP Finance module is designed to meet dynamic financial management and reporting requirements around the world. It includes: 1. Accounts Payable 6. Fixed Assets 2. Accounts Receivable 7. General Ledger 3. Financial Budgets System 8. Cost Accounting 4. Cash Management 9. Sales Invoicing 5. Financial Reporting System

Benefits IT Packages in SCM 1) This independent system allows for easy solution configuration to meet changing business strategies. 2) Integration with Hyperion financial software provides advanced budgeting, consolidation, reporting and analysis. 3) BaaN Accounts Payable streamlines vendor payments. It supports checks, electronic banking and payment on consumption. 4) Accounting operations are simplified and duplicate data entry is eliminated with parameter-driven posting and updating tools. 5) Superior visibility enables the company to immediately focus and act on financial information to help increase margins, revenue and cash flows. 6) International business requirements are met with the use of multi-dimensional ledger and dual sets of books. 7) Provides cost analysis and cost allocation functionality on both at detailed and summarized levels. 8) Costs can be proactively tracked via budget links. 9) Multi-currency functionality allows the company to hold up to 3.home currencies therefore complementing and complying with the Euro regulations.

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10) Central point invoicing.

C. BaaN Project The project module provides the control and visibility the company needs for profitable operations from estimates and bids through site installation and maintenance. In addition the system supports project invoicing for all the different contractual agreements found in project environments. Baan Project Module includes: 1. Project Budget 5. Project Monitoring 2. Project Definition 6. Project Planning 3. Project Estimation 7. Project Progress 4. Project Invoicing 8. Project Requirements Planning

Benefits 1) Real time control of all aspects of project management 2) Integration of project management and manufacturing resource enhancing visibility and timely consolidated reporting. 3) The link with Baan Manufacturing allows all the relevant, cross functional information about each project to be easily accessible for effective enterprise resource management. 4) An integrated planning and scheduling system environment results in activity networks to be defined, resources to be allocated, and â&#x20AC;&#x2DC;what ifâ&#x20AC;&#x2122; analysis to be conducted. 5) Organizational, logistical and contractual structures can be modeled and the resulting project activities report, which results in effective cross-functional management.

D. BaaN Distribution To help develop the best solution for meeting customer requirements and balancing business constraints, this component manages the entire spectrum of

IdTis Etrnibaublteiodn S,C sMales, and logistics for manufacturers and distributors. BaaNERP Distribution modules includes: 1. Sales Management 2. Purchase Management 3. Warehouse Management

Benefits 1) Extensive simulation capabilities optimize purchasing and internal inventory decision making. 2) Top-down planning supports any distribution strategy. 3) With integrated workflow management and order templates, order processing is speeded up. 4) Shipping constraints, order blocking algorithms and multi-level ATP component checks are supported by the system.

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5) Integration with the Aurum Front-Office suite enhances the capabilities of Baan Sales solution. 6) Purchasing is simplified with online requisitioning. 7) Sophisticated supplier contract and release management enable your company to take advantage of economies of scale. 8) EDI is key in enhancing the speeds of communication with trading partners as well as providing a solid link between distribution operations and manufacturing planning.

E. BaaN ERP Tools All Baan applications are built using flexible BaaNERP Tools to handle business needs that require software or configuration changes. BaaNERP Tools includes: 1. Open System Tools 2. Client/Server Tools 3. End User Tools 4. Developer Tools 5. Documentation Tools 6. Translation Tools 7. Software Distribution 8. Implementation Tools

Benefits 1) BaaNERP enables quick reaction to new trends in the marketplace that require software or software configuration changes. 2) Helps in developing the Baan applications in such a way that they are kept independent of third party products. 3) Helps create tailored applications to meet special requirements. 4) Facilitates integration of Baan applications with third-party products.

SELECTING THE RIGHT ERP PACKAGE 1. The selection and implementation of ERP is primarily an operations management initiative and decision, not an IT or MIS project, hence it is critical that the chief executive officer (CEO), the vice president of manufacturing, and other key players be involved and support the chief information officer (CIO) in the ERP selection and implementation process. The selection team must have top-level representation from all major functional areas including production, distribution, finance and accounting, human resources, sales, marketing, customer service, and information systems. 2. A project leader must be selected from among the team meImTb Pearcsk.ages in SCM 3. The team must develop consensus on several critical issues that will shape the entire project budget, time frames, goals, and deliverables. 4. A tentative schedule should be prepared for the selection process and implementation. 5. The team should determine what critical business needs/problems the company is trying to address and what benefits are to be gained from ERP, some possible needs, problems, and benefits are:

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tion

or markets

6) The team should then develop a document containing: business process – areas conducts its business that set it apart 7) By putting these business processes in the form of key (transaction) scenarios, potential vendors can prepare scripted demonstrations. This document helps in focusing the internal team’s efforts and also becomes a valuable tool for potential ERP provides to understand the business and its needs. 8) The project team must determine its differentiating points to ensure that a vendor’s product plays to those strengths. 9) The team should also find out which ERP packages the competitors are using or implementing. 10) After narrowing down the choices, the top two or three vendors should be invited to demonstrate how their products could be tailored to the specific work environment. The vendor should be asked to build and demonstrate business processes and transaction scenarios based upon the company needs. 11) Once the scripted demos narrow down the alternatives, team members must conduct site visits of the top ERP candidates’ solutions to see the vendors working environments, gauge the vendors’ commitment to training and customer services, and get a sense of their overall business philosophies.

12) Finally the project team must visit the sites of other companies that are using the particular ERP product to see how the software system functions in actual applications and assess vendor support, both during and after initial implementation.

TECHNOLOGY i2 Technology is the recognized leader in supply chain planning and optimization with more than ten years of experience in optimizing business process. i2 emerged in 1988 as a supply chain management leader with innovative new products that streamlined the entire supply chain management process. Through consistant innovation and dedication to providing value, i2 has created the latest

IbTu sEinnaebssle dto S CbMusiness e-commerce applications that have changed the way companies are doing business. i2 is the established leader in SCM and intelligent eBusiness. For the second consecutive year, i2 has been named one of Forbes

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ASAP’s Dynamic 100 software companies. i2 is the only company in the Leader’s Quadrant in Gartner Group’s “Supply Chain Planning Magic Quadrant. i2’s forward-thinking solutions consider the real conditions of companies to optimize every key business process-from product design to customer relationships. With industry leading customers and partners; i2 recently launched TradeMatrix, a collection of electronic market places dedicated to delivering advanced Business to Business solutions. TradeMatrix offers a full breadth of services that range from procurement, commerce, fulfillment, customer care, retail, product development and planning. i2’s mission is to create $50 billion in audited value and serving for its customers by the year 2005. The organization is well on its way to meeting its goal of $50 billion in value, with an audited $7 billion of value already documented as of October 1999. With i2 solutions, customers are able to attract and retain new clients, bringing the right products to market quickly and efficiently, and streamlining their entire supply chain.

Rhythm Solutions i2 RHYTHM solutions offer the intelligent answer for decision-making across the enterprises. RHYTHM software optimizes and integrates Key business processes, while delivering intelligent e-Business through collaboration with trading partners. RHYTHM offers a complete solution for Business Process Optimization (BPO) by offering the optimization, integration, and forward visibility required for highvelocity business. The RHYTHM solution has delivered billions of dollars in measurable value for major companies in a wide range of industries. Historically, leading companies have achieved success by mastering one of the three core business disciplines: i) Product Leadership: Developing and launching innovative products at the right time, while managing the product life cycle from concept to phase-out. ii) Operational Excellence: Manufacturing and delivering the right products at the right time, while collaborating with trading partners at maximum efficiency. iii) Customer Intimacy: Engaging the right customers, managing their relationships and providing superior customer service. In the past, a company could succeed by pursuing excellence in just one of these areas. Most e-Business solutions today focus on making promises with little or no consideration of integration across business process.

Rhythm Software Solutions i2 consistently creates the standards that others adopt. Their thought leadership is evident in the innovations they have established over last decade. RHYTHM’s holistic end-to-end solution provides the ability to segment the market on a product level, help buyers make sound decisions based on real-time availability of information, as well as personalize the entire shopping experience. These aspects, combined with i2’s proven supply chain planning and optimization solutions, can transform any organization into a high-velocity eBusiness enterprise.However, the terms of engagement have changed. Globalization, increasing

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competition and the Internet have added incredible velocity and complexity to today’s business landscape. Velocity, or the ability to make intelligent decisions at high speed, is necessary in this realtime economy. What type of decision intelligence will give your company the velocity to achieve excellence in all areas . Representing a natural extension of i2’s recogITni zPeadck alegaeds einr sShCipM in optimizing business processes RHYTHM provides advanced planning and optimization of the following key processes:

i) Product Life Cycle Management: Rhythm product life-cycle management solution ensures product innovation for maximum market share and profitability. Companies that use their product lifecycle management solution will increase market share, increase profit margins and will reduce research and development costs. ii) Supply Chain Management: Rhythm’s supply planning optimizes the match of supply to demand. Their SCM customers are able to reduce unnecessary expenses, improve revenue and meet fulfillment commitments. iii) Customer Management: Rhythm’s customer management enables personalized, full-service eBusiness by managing all customer issues through one solution. Customer management offers companies the opportunity to maximize revenue, increase market share, reduce cost-of-sale and increase customer satisfaction. iv) Inter Process Planning: to integrate the above three processes, maximizing resource utilization and profitability. v) Strategic Planning: for accurate long-term decision-making and scenariobased analysis of competitors. Tradematrix Solutions Success in connecting the participants in a supply chain has been the driving force behind i2’s most exciting solutions. TradeMatrix participants are able to harness the power of the Internet, create a competitive advantage and deliver on their promises to the customer. With innovative solutions and core competencies, i2 is uniquely qualified to deliver the most robust eMarket places to the industry. TradeMatrix offers the following

solutions. 1) TradeMatrix Procurement Solutions TradeMatrix Procurement services is a hosted procurement service that reduces the cost of purchasing and procurement effort, while lowering inventory and decreasing the time-to-market for new products.

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2) TradeMatrix Commerce Solutions

TradeMatrix commerce service enables personalized service. eBusiness by managing all customer issues through one solution. The commerce service allows participants to maximize revenue, increase market share, reduce cost-of-sale and ensure customer satisfaction.

3) TradeMatrix Fulfillment Solutions TradeMatrix Fulfillment solution optimally responds to customer requests and intelligently manages customer orders. Its fulfillment solution allows participants to improve customer service and increase margins and profitability.

4) TradeMatrix Customer Care Solutions The TradeMatrix Customer Care solution allows participantsâ&#x20AC;&#x2122; customer to assess information quickly, resolve problems and receive support instantly.

5) EnTarbaledde SMCaMtrix Retail Solutions The TradeMatrix retail solution gives companies an opportunity to capture more demand, minimize product obsolescence and maximize storage effectiveness.

6) TradeMatrix Planning Solutions TradeMatrix Planning solution is a service that enables companies to make better decisions across the entire value chain, increase revenues, decrease costs and improve ROA.

7) TradeMatrix Product Development Solutions TradeMatrix Product Development solution allows companies to accelerate product innovation for maximum market share and profitability. Companies gain product margins, increase market share and show a reduction in R&D costs.

Activity 2 Fix an appointment with marketing personnel of either SAP, BaaN, or TCS software companies. Discuss in detail about ERP, i2, and SCM software products. This discussion may enlighten your knowledge on the price, implementation strategies, training, features and limitations of the software packages, and hardware requirements to run the applications for a company. Now, prepare a report on how to select software for a companyâ&#x20AC;&#x2122;s applications? .............................................................................................................................. .............................................................................................................................. ..............................................................................................................................

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.............................................................................................................................. .............................................................................................................................. CONTRIBUTION OF THE SOFTWARE PACKAGES TO THE SCM On the front lines between manufacturers and their customers, competition for market share has never been fiercer. In the past, strategies for improving corporate profitability and competitiveness have shifted from marketing-focused (1960’s) to finance-focused (1970’s) to operationsfocused (1980’s) methods. But in each case, as these methods were adopted and gained widespread acceptance, companies gradually reached parity, and these methods generated diminishing returns. Today, corporations are looking beyond their “internal enterprise” to the extended “virtual enterprise” – the collection of trading partners who cooperate to provide products to customers – as the new frontier for improving responsiveness to customers and increasing market share. Pioneering efforts adopted in the early 1990’s in the apparel industry (Quick Response) and grocery industry (Efficient Consumer Response) are now being applied in other industry segments, such as industrial machinery, metals, paper, automotive, and consumer electronics. Competitive initiatives are being formed between the members of extended supply channels to protect their position against alternative competing channels. In order to enhance the competitiveness of its customers, the software developing companies intend to establish a leadership position as the premier provider of supply chain management software. Among many, i2, BaaN, SAP, etc. are the few companies committed for the contribution of the software SCM. For example, BaaN’s vision of supply chain management extends for beyond traditional enterprise requirements planning (ERP) or advanced planning and scheduling (APS) capabilities, and includes customer interaction, sales force automation, demand management, vendor managed inventory (VMI), transportation planning, and web enablement applications. It may therefore, be expected that the supply chain solutions provides the ability to optimize supply chain activities, monitor events based on actual execution, proactively visualize potential problems, and determine corrective action using advanced simulation and evaluation capabilities. The results of this analysis are then propogated upstream and downstream throughout the supply chain to keep material, production and transportation resources synchronized.

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Activity 3 Visit any Manufacturing Organization, which proposes to go for ERP or equivalent software package. Discuss with the systems Manager to find out what preparations are required before implementation of software package. Prepare a report of your discussion. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. .............................................................................................................................. 10.8 SUMMARY For a company experiencing accelerated growth, increasing the efficiency and visibility of the supply chain is the key to increasing productivity. Company pressures are creating significant impact on today’s manufacturer. There are concerns for providing the customer with quality service, competitive prices, and timely product. More than ever, the company’s competition is driving to find alternative ways to achieve these goals without sacrificing the quality of product. The supply chain solutions discussed in this unit will completely integrate multiplant planning and scheduling, and provide the ability for both centralized and collaborative planning and scheduling. This will enable supply-chain planning to exceed beyond the boundaries of a single corporation, and will feature “total scalability and configurability” which will address in a single solution the requirements of large manufacturers as well as those of mid-tier and small manufacturers. Technologies such as publish-and-subscribe over the Internet, as well as message passing are utilized. Finally, the anticipated benefits of IT packages in SCM include:

1. Enterprise Benefits:

-term capacity planning and capital investment.2. I2. EnFabinleadn SciCaMl Benefits:

hrough better utilization of resources.

3. Shop floor Benefits:

runs and fewer changeovers.

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SELF ASSESSMENT QUESTIONS 1) What are the deciding factors for a manufacturing organization to switch from the current work practice to that of IT based? 2) What is the right technology that protects investment in a changing environment? Give your answer specific to an Indian Manufacturing Organization. 3) Identify suitable IT packages to suit small, medium, and large manufacturing organizations. Give your choices with justifications â&#x20AC;&#x201C; both technical and economical. 4) What are the various modules of SAP R/3? Briefly discuss the content of each module. 5) Explain briefly each module of BaaN IV. 6) Compare and contrast ERP software products of at least two established brands. 7) Give important benefits of Manufacturing, Finance, and Distribution modules of BaaN IV. 8) How is the Project module of SAP R/3 comparable to that of BaaN IV? 9) How is the right ERP Package selected for a medium sized manufacturing organization? 10) Can ERP software package be applied in (i) Process Industry (ii) Service Industry? Why and why not? 11) Discuss i2 Technology software products for manufacturing applications. What salient features are found in i2 products? 12) Compare and contrast ERP software package of either SAP or BaaN with i2 package. 13) BaaN and SAP have ventured to enhance their software products for supply chain management environment. Is this a right approach? Why and why not? 14) What steps are to be followed while implementing IT software packages for supply chain management? Do these steps vary from package to package? How are they standardized? 15) In the IT based supply chain management, what criteria can be recommended to measure the performance of manufacturing organization? Explain the merits and demerits of your recommendations.

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REFERENCES AND SUGGESTED FURTHER READINGS 1) CAPS Logistics, Inc., Atlanta, Georgia, USA, or http://www.Caps.com, 1999. 2) Copacino, W.C.: Supply Chain Management: The basics and beyond, St. Lucie Press, 1997. 3) Dave Garwood: Bills of Material: Structured for Excellence, Dogwood Publishing Company, Inc., 1997. 4) Handfield, R.B. and Nichols, E.L. Jr., : Introduction to Supply Chain Management, Prentice Hall, 1999. 5) Jonathan Blain, et. al., : Using SAP R/3, Prentice-Hall of India Pvt. Ltd., 1998. 6) Lambert, D.M., Stock, J.R., and Ellram L.M.: ‘Fundamentals of Logistics Management’ Mc-Graw Hill- Irwin, 1998. 7) Lucas, H.C., Jr.: ‘Information Technology for Management’, The McGraw-Hill Companies, Inc. 1997. 8) Martin, A.J.: ‘Distribution Resource Planning: The Gateway to true Quick response and continual replenishment’, John Wiley and Sons, Inc., 1995. 9) Martinich J.S., : ‘Production and Operations Management: An Applied Modern Approach’, John Wiley & Sons, Inc., 1999. 10) Oden, H.W., Langen Walter, G.A., and Lucier, R.A., Hand Book of Material and Capacity Requirement Planning, McGraw Hill, Inc., 1993. 11) Pressman, R.S., : ‘Software Engineering: A Practitioner’s Approach’, Mc-Graw Hill, Inc., 1992. 12) Rosen, K.T. and Howard A.L., : E-Retail: Gold Rush or Fool’s Gold?, E-Commerce, California Management Review, Vol.42, No.3, Spring, 2000. 13) Senn, J.A., : ‘Information Systems in Management’, Wadsworth Publishing Co., 1990. 14) Stevens, G.C., : Integrating the Supply Chain, International Journal of Physical Distribution and Materials Management, Vol.19, No.8, 1989.

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UNIT-5 PERFORMANCE MEASUREMENT AND Measurement EVALUATION OF SCM Objectives After reading this unit you would be able to:

Structure Introduction Need For Supply Chain Performance Measures Measurement Systems Supply Chain Performance Measurement Systems Supply Chain Balanced Scorecard Hierarchy Based Measurement System Function Based Measurement System Perspectives Based Measurement System Supply Chain Operations Reference Model Dimension Based Measurement System Interface Based Measurement System A Comparison of Measurement Systems Selecting Measures Methods for Setting Performance Targets Total Cost of Ownership Self-Assessment Questions References and Suggested Further Readings

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INTRODUCTION In today’s world, Supply Chain Management (SCM) plays a key strategic role in increasing organizational effectiveness and accomplishment of organizational goals such as enhanced competitiveness, better customer service and increased profitability. Today’s management can’t afford to focus only on company’s performance in a vacuum; there is an emerging requirement to focus on the performance of the extended supply chain or network in which company is a partner. An extended supply chain is one that involves not only tier one buyers and suppliers, but also the end supplier (suppliers’ suppliers) to end buyers (buyers’ buyers). The competition is at a chain or network level, i.e. supply chain vs. supply chain, with emphasis on continuous improvement across the extended supply chain. There is a shift in focus from an intra organizational performance to inter organizational integrated supply chain performance. Firms have now realized the potential of SCM, but many of them still lack in selecting the proper performance measures for a fully integrated supply chain.

Cost and Performance Measurement in SCM In a supply chain the problem lies at the interfaces that is at the boundary of two organizations. The reason for this is the high level of interdependence intermingled with independence and autonomy of the firms in an integrated SC. Every member is fully autonomous but highly dependent on the performance of other members. Supply chain performance measures differ from traditional performance measures as it crosses company boundaries i.e. it includes suppliers and distributors. Supply chain performance also crosses all functional links like procurement, manufacturing, sales and distribution etc. This makes the choice of supply chain performance measure(s) difficult. Single performance measure for entire supply chain is not adequate for effective supply chain because it will not cover all pertinent aspects of the supply chain. In many companies, the metrics that management refers to, as supply chain metrics are primarily internally focused functional measures like lead-time, inventory levels etc. In many instances, these measures are purely financial (for example return on assets, overall profits etc.), but they do not indicate how well key processes have been performed or how effective the supply chain is in meeting the primary objective like customer satisfaction. In an increasing number of instances, the organizations have started measuring performance beyond the traditional boundaries of firm, but it is limited to measuring the performance of immediate SC i.e. tier one buyers and suppliers. These measures do not capture how the extended supply chain has performed and fail to identify areas of improvement in competitiveness, stakeholders’ value for each firm in the extended supply chain. Like in any other case, in order to evolve an efficient and effective supply chain, SCM needs to be assessed for its performance. However, there is often lack of insight for the development of effective performance measures and measurement system needed to achieve a fully integrated extended supply chain. The process

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of choosing appropriate supply chain performance is difficult due to the complexities of supply chain. This complexity is due to many factors and one of them is the objective of SC itself. The objective of managing the supply chain is to synchronize the needs or demands of the customers with the flow of materials from suppliers to achieve a balance between the conflicting goals of customer service and satisfaction and low supply chain cost. These conflicting goals cannot be accomplished together at a time and hence there is a need to strike a balance between them, which makes the decision of selecting the right performance measures more difficult. Supply Chain Performance refers to the extended supply chain’s activities in meeting end-customer requirements, including product availability, on-time delivery, and all the necessary inventory and capacity in the supply chain to deliver that performance in a responsive manner. Supply chain performance crosses organizational boundaries since it include raw material components, subassemblies and finished products and distribution through various channel to the end customer. Supply chain performance also crosses traditional functional linkages such as procurement, manufacturing, distribution, marketing &sales and R&D etc. Figure 13.1 shows the evolution of performance measures for SC from single enterprise single measure to multiple enterprises multiple measures.

NEED FOR SUPPLY CHAIN PERFORMANCE MEASURES To excel and win in the today’s competitive environment, supply chain need continuous improvements. To achieve this goal, performance measures that support global supply chain performance measurement and improvement are needed, rather than narrow company-specific or function-specific measures, which inhibit chainwide improvement. Several factors that contribute to management’s need for new types of measures for managing the supply chain include:

perspective. performance.

information to implement strategy that achieves supply chain objectives. supply chain. within the supply chain.

corporate functions and across firms in the supply chain.

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Cost and Performance Measurement in SCM Recent studies indicate that supply chain performance affects more than 85 percent of a manufacturer’s costs and a large percent of its revenues (Supply chain council 1998). Monitoring SC performance through proper measurements is, therefore, necessary and can help the organizations to identify opportunities for optimization. The successful companies are reengineering their supply chains to decrease costs and improve customer satisfaction. Effective reengineering requires an in-depth understanding of the supply chain processes and their linkages. An in-depth understanding can only permit the development of a performance system and the setting of improvement goals against benchmarks.

MEASUREMENT SYSTEMS Management veterans argue that measurement is a key to continuous improvement. And this lead to variety of maxims like “ you can’t manage what you don’t measure “ and “anything that gets measured gets done”. Measurement systems have been used in process management, and Ljungberg (1994), who focused on the order process in his work, has suggested the following definition of a measurement system: A set of related measures – described by rules and procedures for the collection, compilation and communication of data—that in combination reflect key performance aspects and characteristics of the process in question effectively enough to admit intelligent analysis, if called for to action. Characteristics of effective measurement system An effective measurement system is one that has following characteristics (Beamon 1996):

required are measurable

SUPPLY CHAIN PERFORMANCE MEASUREMENT SYSTEMS A performance measurement system can be defined as the set of metrics used to quantify both the efficiency and effectiveness of action. Following questions must be addressed to create a sound performance measurement system.

-evaluated?

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In recent past quite a few supply chain performance measurement system are reported in literature, some of the important ones are discussed in the next section.

Supply Chain Balanced Scorecard A measurement system based on balance scorecard (Kaplan and Norton 1992) uses four perspectives, namely financial perspective, customer perspective, innovation and learning perspective, internal business perspective.

Cost Analyses Measurement When a supply chain point of view is embedded within the balance scorecard framework the internal perspective of the scorecard is extended to include both the inter-functional and inter-organizational partnership perspectives. The balance scorecard incorporates integrated measures, in addition to nonintegrated measure, that motivate employees to view their firmâ&#x20AC;&#x2122;s success as dependent upon the success of entire supply chain of which they are part, rather then solely upon their firm itself. SC balance scorecard emphasizes the interdependent as well as independent nature of supply chain and reorganizes the need to ascertain the extent to which firms effectively work together and functions are coordinated and integrated. It also stimulates management to create other measures appropriate to their unique circumstances but it lacks in aligning overall supply chain objectives with objectives for companies. Brewer and Speh (2000) have developed a model for a balance scorecard in the supply chain context, which is shown in figure 13.2. This model describes the links of different perspective to goals of SCM and then what are the measures to be adopted in each perspective.

Customer Perspective Goals Measure 1) Customer view of 1) Number of customer product/services contact points 2) Customer view of 2) Relative customer timeliness order response time 3) Customer view of 3) Customer perception of flexibility flexible response 4) Customer values 4) Customer value ratio 1) Waste reduction 1) Supply chain 1) Product/process 1) Product finalization Cost of ownership innovation Point 2) Time compression 2) SC cycle efficiency 2) Partnership 2) Product category 3) Flexible response 3) No. of choices/ management commitment ratio avg response time 3) Information flows 3) No. of shared data

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4) Unit cost reduction 4) % of SC target set/ total data set 4)Threats and 4) Performance trajectories Cost achieved of competing substitutes technologies

Financial Perspective Goals Measure 1) Profit Margin 1) Profit margin by SC partner 2) Cash flow 2) Cash to cash cycle 3) Revenue growth 3) Customer growth, and profitability 4) Return on assets 4) Return on SC assets

Hierarchy Based Measurement System Under hierarchical framework measures are classified into strategic, tactical and operational levels of management. This is done to assign them where they can be best dealt with by the appropriate management level, and fair decisions can be made. As shown in table 13.1, the accuracy of forecasting techniques, assigned to the tactical level based on an overall system decision in a supply chain, can be used and managed by the middle management. A similar explanation can be given for the rest of the metrics given in table 13.1.

Level Performance metrics Financial Nonfinancial Strategic Total supply chain cycle time * Total cash flow time * * Customer query time * * Level of customer perceived value of product * Net profit vs. productivity ratio * Rate of return on investment * Range of product and services * Variations against budget * Order lead time * Flexibility of service systems to meet particular customer needs * Buyer supplier partnership level * * Supplier lead time against industry norm * Level of supplierâ&#x20AC;&#x2122;s defect free deliveries * Delivery lead time * Delivery performance * * Tactical Accuracy of forecasting techniques *

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Product development cycle time * Order entry methods * Effectiveness of delivery invoice methods * Purchase order cycle time * Planned process cycle time * Effectiveness of master production schedule * Supplier assistance in solving technical problems * Supplier ability to respond o quality problems * Supplier cost saving initiatives * Supplierâ&#x20AC;&#x2122;s booking in procedures * Delivery reliability * * Responsiveness to urgent deliveries * Effectiveness of distribution planning schedule * Operational Cost per operation hour * Information carrying cost * * Capacity utilization * Total inventory as: - Incoming stock level - Work in progress -Scrap level -Finished goods in transit * Supplier rejection rate * * Quality of delivery documentation * Efficiency of purchase order cycle time * Frequency of delivery * Driver reliability for performance * Quality of delivered goods * Achievement of defect free deliveries * The metrics are further distinguished as financial and non-financial so that a suitable costing method based on activity analysis can be applied. In some cases, a metric is classified as both financial and non-financial. For example, the buyer-supplier relationship can be quantified in terms of financial performance achieved, such as cost savings, and in terms of tangible and intangible benefits, like improved quality, flexibility and deliverability.

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Function Based Measurement System In this system the measures are aggregate to cover the different processes in the supply chain. The figure 13.3 below shows the customer order path and then it ,covers what are the measure available in each process. Function based measurement system covers the detailed performance measures applicable at different linkages of supply chain. Approach is easy to implement and targets can be dedicated to individual departments. It doesnâ&#x20AC;&#x2122;t provide the top-level measures to cover the entire supply chain with the company strategy. Looks at the entire chain in isolation, which gives the localized benefits that may harm the total supply chain benefits.

Perspectives Based Measurement System This system presents six unique sets of metrics to measure performance of SCM. The different approaches to SCM lead to different awareness of what should be measured to assess performance. The

Perspective Purpose of SCM Performance measures System Dynamics Managing the trade-offs along Capacity utilization, inventory level, the complete supply chain. stock-outs, time lag for demand information, time to adapt change in Demand Operation Research Calculating optimal solutions with Logistics cost per unit, service level, a given set of degree of freedom time to deliver Logistics Integrating generic processes Integration, lead times, order cycle time, sequentially, vertically and flexibility Horizontally Marketing Segmenting products and markets Customer satisfaction, distribution cost and combine both using the right per unit, market share, channel cost distribution channel. Organization Determining and mastering the need Transaction cost, density of to coordinate and manage relationship relationships Strategy Merging Competencies and ROI, Time to market relocating into the deepest segment of the profit pool Perspective based measurement system looks the supply chain in all possible perspectives and provides measures to evaluate each perspective. It also provide a different vision to look supply chain .How to link different perspective to optimize global supply chain perspectives and there can be trade off exist between measure of one perspective with the measure of other perspectives. Supply Chain Operations Reference Model One way to understand a supply chain is to use a process model. The Supply Chain Council created the SCOR model which is a framework for examining a supply chain in detail, defining and categorizing the processes that make up the supply chain, assigning metrics to the processes, and reviewing comparable benchmarks. Many companies use the SCOR model to understand and improve their supply chains. These companies include aerospace and defense manufacturers, large consumer product manufacturers, and third-party logistics providers. The SCOR model is the only supply chain framework that links performance measures, best practices, and software requirements to a detailed business process model. SCOR models integrate the well-known concepts of business process reengineering,

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benchmarking, and process measurement into a cross-functional framework. SCOR defines supply chain as the integrated process of plan, source, make, deliver and return spanning suppliers’ supplier to customers’ customer, aligned with operational strategy, material, work and information flows. The heart of the SCOR system is a pyramid of four levels (Figure 13.4) that represent the path a company takes on the road to supply-chain improvement.

SCOR spans: _ All customer interactions, from order entry through paid invoice _ All product (physical material and service) transactions, from your supplier’s supplier to your customer’s customer, including equipment, supplies, spare parts, bulk product, software, etc. _ All market interactions, from the understanding of aggregate demand to the fulfillment of each order

SCOR does not attempt to describe following business process or activities:

-delivery customer support product development etc.

SCOR assumes but does not explicitly address:

SCOR provide the detailed and exhaustive list of performance measure for each activity and process, aligns the detailed performance measures with the strategic objectives and provides the best practices and IT sources for each measurement. It requires a well-defined infrastructure, resources and project based completion approach. Implementation of such an exhaustive system requires fully dedicated managerial resources and continuous business process reengineering to align the business with the best practices.

Comments Level 1 defines the scope and content for the Supply Chain Operations Reference-model. Here basis of competition performance targets are set. A company’s supply chain can be “configured-to-order” at Level

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2 from ,core “process categories”. Companies implement their operations strategy through the configuration they choose for their supply chain.

Level 3 defines a company’s ability to compete successfully in its chosen markets, and consists of:

and outputs

support best practices

Operations Strategy at Level 3 Companies implement specific supplychain management practices at this level. Level 4 defines practices to achieve competitive advantage and to adapt to changing business conditions.

Dimension Based Measurement System This system suggests that any supply chain can be measured on three key dimensions (source: Hausman 2000) A) Service B) Assets C) Speed Service relates to the ability to anticipate, capture and fulfill customer demand with personalized products and on-time delivery; Assets involve anything with commercial value, primarily inventory and cash; and Speed includes metrics which are time related, they track responsiveness and velocity of execution. Every supply chain should have at least one performance measure on each of these three critical dimensions. A) Service Metrics The basic premise for service metrics is to measure how well the company is serving (or not serving) its customers. Generally it is difficult to quantify the cost of stock outs or late deliveries, so the targets are set on customer service metrics. Also, the build-to stock situation differs from the build-to-order situation, so related but different metrics are used in these environments. Table 13.3 contains some common service metrics used in these two environments. These are time-tested measures, which continue to be valuable customer service metrics for supply chains. The Line Item Fill Rate is the percentage of individual “lines” on all customer orders, which are filled immediately, while the Order Fill Rate counts as a success only those customer orders in which all “lines” have been filled.

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â&#x20AC;&#x153;Agingâ&#x20AC;? refers to maintaining data on how long it takes to fill a backorder, or how long it takes to complete an order, which is late. Tracking this data and maintaining it in an accessible database enables its periodic recall.

Interface Based Measurement System This framework aligns performance at each link (supplier customer pair) within the supply chain. The framework begins with the linkages at the focal company and moves outward a link at a time. The link-by-link approach provides a means for aligning performance from point-of-origin to point-of-consumption with the overall objective of maximizing shareholder value for the total supply chain as well as for each company. (Pohlen and Lambert 2001) The framework consists of seven steps: -of-origin to point-of-consumption to identify where key linkages exist.

management processes to analyze each link (customer supplier pair) and determine where additional value can be created for the supply chain. Cost and Performance Measurement in SCM

effect of the relationship on profitability and shareholder value of the two firms.

-financial performance measures that align individual behavior with supply chain process objectives and financial goals. d market capitalization across firms with supply chain objectives and revise process and performance measures as necessary.

Interface based measurement system looks at the supply chain as a series of different links and to optimize the total supply chain a win-win approach is required at all linkages. Conceptually it looks good but in actual business setting it requires openness and total sharing of information at every link of the chain, which seem to be difficult to implement. COMPARISON OF MEASUREMENT SYSTEMS Different measurement systems described above have different views for integrating the supply chain performance measures. These systems can be compared using five dimensions (1) Hierarchy (Strategic, Tactical and Operational), (2) Results (Financial and Non-financial), (3) Linkages (Integrated and Isolated), (4) Determinants (Quality,

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Flexibility and Time), and (5) Stability (Static and Dynamic). It is evident from the above explanations that supply chain balanced scorecard covers all the parameters. The system is easy to implement if the company strategy is well defined. Hierarchical based measurement system encompasses all parameters but at one time it tries to cover only one perspective, so a hybrid model of balance score card and hierarchical can be an another alternative i.e. at each hierarchical level we define the measure for each perspective. Perspective based system also sees the measures in isolated manner but it covers some unique perspectives which are not covered in balance scorecard like system dynamics and operation research which provides a great help in measuring dynamic capability of supply chain. SCOR covers all relevant parameters required in the system and tries to cover the whole supply chain in standard set of processes. It also covers the different dimensions at each level of the supply chain. The model applicability is easier where ERP and BPR practices are in progress and large set of data collection softwareâ&#x20AC;&#x2122;s are already in place. In SMEs and especially in Indian context applicability is questionable due to extra cost of maintaining such an exhaustive system. Interface based measurement system doesnâ&#x20AC;&#x2122;t cover the non-financial measures and strategic links to different linkages is not possible. The system gives more emphasis on strengthening the internal and external linkage to improve the overall supply chain.

SELECTING MEASURES While the approaches described above provide guidance for supply chain measurement, they provide less help in assessing specific metrics to be used. In this regard, a key driving principle is that measures should be aligned to strategic objectives. Supply chain strategy depends upon its current competencies and strategic direction, which differs for every company. Companies, for example, can generally fall into the following developmental stages that will dictate the types of measures and the degrees to which they will need to focus: - a stage in which a company needs to develop excellence within each of its operating units such as the manufacturing, customer service, or logistics departments. Metrics for a company in this stage will need to focus on individual functional departments. -Wide Integration - a stage in which a company needs to develop excellence in its cross-functional processes rather than within its individual functional departments. Metrics for a company in this stage will need to focus on cross-functional processes. - a stage in which a company needs to develop

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excellence in inter-enterprise processes. Metrics for a company in this stage will focus on external and cross-enterprise metrics. Most companies have focused their performance measurement on achieving functional excellence. With the advent of Supply Chain Management (SCM) principles aimed at integrating their supply chains, many have objectives to increase their degree of enterprise-wide integration and extended enterprise integration. In order to achieve these types of objectives, their performance measurement systems will need to align to them.

METHODS FOR SETTING PERFORMANCE TARGETS An important issue in performance measurement is how a company can use measures to gauge its supply chainâ&#x20AC;&#x2122;s performance. To do this effectively, a target for each measure needs to be established, providing the framework for determining the answer to three questions that arise when evaluating a performance metric:

In order to make this evaluation more meaningful the direction of improvement needs to be established. Also, performance targets need to be jointly, not individually, developed. To achieve objectives some metrics may need to increase and others may need to decrease. Each metric in the set has to be viewed in relation with the others to determine its proper target. Hence, while there a variety of ways in which performance targets can be set, they should always be jointly set in the context of strategic objectives. Generally, there are four methods that can be used to set performance targets (1) Historically based targets, (2) External benchmarks, (3) Internal benchmarks, (4) Theoretical targets.

TOTAL COST OF OWNERSHIP The concepts of total cost, life cycle costing, product life cycle costs, and total cost of ownership are all related constructs for procurement valuation, which suggest that supply managers adopt a long-term perspective, not a short-term, initial-price perspective, for the accurate valuation of buying situations. There are three ideas that support all of these procurement valuation constructs. First, cost must be examined from a long-term perspective and should include elements other than initial purchase price. Second, supply managers must consider the impact of other business functions on the valuation of a specific purchase. Third, to value a purchase situation accurately, a supply manager must understand, and measure, the cost impact of all the activities associated with the purchase. (Ferrin and Plank 2002)

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Measurement in SCM Total cost of ownership (TCO) was originally developed in the late 1980s by the\research firm Gartner to determine the cost of owning and deploying personal computers. Their initial findings, that PCs cost an enterprise nearly $10,000 per year, raised a serious concern in the technology community and among CFOs. Their methodology was carefully examined and has now been accepted as a standard method of evaluating costs. In simpler words, TCO consists of the costs (direct as well as indirect), incurred throughout the life cycle of an asset, including acquisition, deployment, operation, support and retirement.

TCO in Supply Chain Cavinato (1991, 1992) used the total cost concept to examine cost structures across the supply chain. Ferrin and Plank (2002) examined cost indicators and suggested 13 cost driver categories (shown in bold words in figure 13.8). Comparing supply chain entities based on these cost indicators can provide a basis for assigning specific supply chain processes and the firms can reduce their total supply chain costs by assigning specific supply chain processes to those firms in the supply chain whose cost structures are well suited to support the assigned processes.

SUMMARY In this unit, the performance measurement and evaluation of SCM has been discussed with special focus on various common SC measurement systems used in practice. The discussion brings out the need for SC performance measurement and shows that managers need to understand the SCM properly in order to choose and adapt a particular measurement system and the performance metrics. A short comparison of various methods is also given along with a guideline to select measures and set performance targets. Finally the concept of TCO as applied to SC is discussed. Miscellaneous Taxes Salary, benefits Installation Total installed price Value chain Indirect labor Ease of operation Lease rate factors Warranty Product use Noise level Flexibility of the supplier Product design Depreciation Technical support Tooling and fixtures Availability Lease or buy Validation/registration Environmental issues from supplier cost Disposal costs Supplier cost Overall competition drivers (from requisition to receipt) Liability and Safety Service cost indemnification Obsolescence cost Support costs Disposal value Utility costs Currency exchange rates Direct labor

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SELF-ASSESSMENT QUESTIONS 1) Why is Supply Chain Performance required to be measured? 2) “Today’s management can’t afford to focus only on company’s performance in a vacuum; there is an emerging requirement to focus on the performance of the extended supply chain or network in which company is a partner”. Comment! 3) What is the need for Supply Chain Performance Measures? What are the factors that contribute to management’s need for new types of measures for managing the supply chain? 4) Discuss in detail about the supply chain performance measurement system. Highlight the similarities/ dissimilarities in any two of these measures.

5) What is the essence of the Balance Scorecard method of Performance Measurement? 6) Compare different measurement systems described in the unit by using five dimensions discussed in

REFERENCES AND SUGGESTED FURTHER READINGS 1) Andreas Otto and Herbert Kotzab (2002), “Does supply chain management really pay? Six perspectives to measure the performance of managing a supply chain”, European Journal of Operational Research, Volume 144, Issue 2, Pages 306-320. 2) Beamon, B.M. (1996), “Performance measures in supply chain management ”, Proceeding of the 1996 conference on agile and intelligent manufacturing systems, Rensselaer Polytechnic Institute, Troy, New York, NY, 2-3 October. 3) Beamon, B.M. (1998), “Supply Chain Design and Analysis: Models and Methods”, International Journal of Production Economics, 55, pp.281-294. 4) Brewer P. C. and Speh T. W. (2001), “Adapting the Balanced Scorecard to Supply Chain Management,” Supply Chain Management Review. 5) Brewer, P. C. and Speh T.W. (2002), “Using the Balanced Scorecard to Measure Supply Chain Performance”, Journal of Business Logistics, Vol.21, No.1, No. 1, PP. 75-93. 6) Cavinato, J.(1991), “Identifying interfirm total cost advantages for supply chain competitiveness”, International Journal of Purchasing and Materials Management, 27 (4), pp. 10-15. 7) Cavinato J. (1992), “A total cost/value model for supply chain competitiveness” Journal of Business Logistics, Vol. 13, No. 2, pp. 285–301. 8) Christopher, M. (1992), “Logistics and Supply Chain Management”, Pitman Publishing, London.

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9) Christopher M (1999), “Logistics & supply chain management strategies for reducing cost and improving performance”, 2nd edition , Pitman Publishing, London. 10) Ferrin, Bruce G. and Plank, Richard E. (2002), “Total Cost of Ownership Models: An Exploratory Study”, The Journal of Supply Chain Management: A Global Review of Purchasing and Supply, Volume 38, Number 3, pp. 18-29. 11) Forrester Jay W. (1958), “Industrial dynamics – a major breakthrough for decision makers”, Harvard Business Review, July-August, pp 37-66. 12) Gunasekaran A. (2001), “Performance measurement and metrics in a supply chain environment”, International journal of operations and production management, Vol 21,No 1/2, pp71-87. 13) Kaplan, R.S. and Norton, P.D. (1992), “The balanced scoreboard-measures that drives performance’’, Harvard Business Review, January-February, pp. 71-9. 14) Ljungberg A., (1994), “Measurement of Service and Quality in the Order Process thesis for the degree Licentiate in Engineering”, Department of Engineering logistics, Lund University, p. 56. 15) Mapes, J., New, C. and Szwejczewski, M. (1997), “Performance trade-offs in manufacturing plants”, International Journal of Operations and Production Management, Vol. 17 No. 10, pp. 1020-33. 16) Neely A.D. (1995), “Performance measurement system design”, International Journal of Operations and Production Management, vol No.15, No.4, pp 8017) Pohlen, Torrence L. and Lambert, Douglas M. (2001), “Supply chain metrics”, International Journal of Logistics Management, Volume 12. No.1. 18) Slack, N., Chambers, S., Harland, C., Harrison, A. and Johnston, R. (1995), “Operations Management”, Pitman Publishing, London. 19) Stevens (1989), “Integrating the supply chain”, International Journal of Physical Distribution and Materials Management, Vol 19, No. (8), pp3-8. 20) Stewart, G. (1995), “Supply chain performance benchmarking study reveals keys to supply chain excellence”, Logistics Information Management, Vol. 8 No. 2, pp. 38-44. 21) Warren H. Hausman (2000), “Supply chain performance metrics”, The Practice of Supply Chain Management, Dec. 22) Wild, R. (1995), “Production and Operations Management”, Cassell Educational Limited, London. 23) “Supply Chain Operations Reference Mode (SCOR)”, Supply Chain Council, http://www.supply-chain.org/public/scorbasics.asp

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UNIT -6 LOGISTICS AND SCM ENVIRONMENT Objectives

Structure Introduction An Illustration Preventing Litigation Sales Law: An Overview Environmental Realities: Implications on Supply Chain Warehouse Operations Warehouse Jurisdiction Wages, Earnings and Hours of Work Documentation: Insurance & Sales Tax Introduction to Sales Tax A Case Study Summary Self Assessment Questions References and Suggested Further Readings

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INTRODUCTION We have learnt in detail that logistics forms a key to SCM, and happens to be the most important component in the entire channel. There are however, certain environmental realities that govern the smooth running of this SCM system and it’s imperative for every manager dealing with it to learn and know about it. Legal issues concerning the movement, storage and shipment of materials, insurance coverage, payment of taxes, Octroi and sales taxes are important part of documentation process. In the Indian context it is also referred as consignor note (Challan), delivery note, (delivery challan) etc. Legal issues play a very important role in SCM, though the best one can do is to avoid legal disputes at all costs, based on the adage, one ounce of prevention is worth a pound of cure. Though, supply management professionals deal with two major aspects of law; the law of agency and law of contracts, yet, they seldom get involved in litigation, provided they are fortunate. With this as a backdrop let us see an illustration, which will generally explain the entire process of SCM in which a supply manager is likely to get involved in law suits, legal hassles and how can he overcome or avoid it.

AN ILLUSTRATION Let us take a company ‘A’, manufacturing soaps somewhere in outskirts of Mangalore. Whatever raw material it requires comes from areas around it, and its main constituent Caustic (sodium hydro-oxide or potassium hydro-oxide) is being supplied by a chemical plant located in Kerala. The fat constituent is also available

main supplier of the constituents to ‘A’ and is hence

governed by some legal issues and laws of the SCM. ‘A’ can file a suit of litigation on ‘X’ for supplying lower graded materials, for delay in dispatch of material, or unable to supply the goods after initial payment has been done and the contract signed. The companies can also be in litigation with each other, in case there are disputes or complaints related to quality of the finished product from the consumers enmass. At the same time any consumer can sue a company in the court of law or in consumer forum for necessary demurrages accrued on usage of a particular soap, on health related matters, or say in case if the quantity specified on the pack don’t match the actual weight, or even the advertisement theme and slogans don’t match the product quality. Actually, there are number of places where a company could falter and be charged by law. Companies generally avoid this aspect, and go in for an out of court settlement with such consumers. Similarly, there are other areas where legal aspects come into play like delayed payments or non-payments. Well, this is better sorted out during the signing of initial contracts and supplier selection processes. Next comes the transportation aspects, wherein insurance has to be catered to for the consignment against theft, loss, damages, fire etc. Sales tax for the goods and Octroi for utilizing the services and infrastructure, differs from state to state. There are also various weighbridges where the vehicles are checked for the load being carried, and in case of discrepancies the companies are charged penalty for

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non-payment of taxes/less payment/fraudulent. This illustration has purposely been included, just to make you understand, where and how we can go wrong and how best can we sort out these differences, either by law or through negotiation. We will see all this and many such related aspects as we go through the unit. The first step for all this is to prevent litigation, and how can we achieve this? Let us see.

PREVENTING LITIGATION The basic relationship between the supply manager and the buyer is like an agent for his/her firm, and legally this is defined and governed by the law of agency.1 A purchase represent formation of a purchase contract between the buyer and the seller, and any dispute resulting from this the dispute may enter the realm of dispute resolution governed by the laws of contract, and can be categorized as under:

The basic responsibility of a firm is to ensure smooth procurement based on business requirements and judgments, rather than on legal considerations. Getting into litigation not only alienates a good supplier but leaves a scar on the buyer firm too. As a matter of fact litigation is generally the last order of the day, since most of the outcome of court cases are uncertain and delays the complete process. The very purpose of this unit is to give you a brief insight into legal concepts, as they relate to supply chain professionals across the board in just a nutshell. You should acquire in-depth knowledge of the commercial laws, as applicable both in India and internationally.

Negotiation Disputes can best be resolved through negotiation and compromise to avoid further confrontation, costs, complication, stress and damaging relationships Mediation This is the next step to negotiation, and mediation involves introducing a third party to resolve the issue. The mediator is expected to listen, sympathize, coax, cajole and persuade. He/she could also render suggestion or encourage suggested solutions. A mediator could do anything other than deciding, which is actually arbitration the next step to mediation. Arbitration In this process the output of the dispute goes to the third party an arbitrator. Arbitration vests the decision-making authority with the arbitrator wherein he would hear the testimony and study the evidences from both sides, and then take a decision based on facts and law. Litigation This is the last stage of the process where the disputants have already lost the battle. In fact, wastages tend to be maximized in this stage relating to time, effort, money, stress and damages to relationship. Knowing and understanding fundamental legal principles better, could help in avoiding such a stage. Let us now see how the development of commercial laws took place across the world with special reference to USA.

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SALES LAW: AN OVERVIEW Most of these are academic in nature and you, as a supply chain manager should know them thoroughly. But, in practicality one must understand these aspects before venturing to SCM. Historically, USA developed its own body of status and a common law for all states to deal with the problem of dispute resolution and prevail uniformity. The transactions for the sale (and leasing) of goods are governed mainly by sales laws of each state. Every state, with the exception of Louisiana, has adopted, Article Two of the Uniform Commercial Code (UCC) as the main body of law regulating transactions in goods. Goods are defined as all things movable and identified to the contract of the sale. It does not include secured transactions, leases, money exchanged as the price, or real property (land and property permanently attached to a piece of land). To be identified to the contract a good must exist and one of the objects will be exchanged. Transactions between merchants and consumers and those solely between merchants are regulated by Part Two. All transactions that are for more that $500 must be in writing. Article 2 regulates every phase of a transaction for the sale of goods and provides remedies for problems that may arise. It provides for implied warranties of merchantability and fitness. There is also a duty of good faith in the UCC that is applicable to all the sections. If a contract contains unconscionable provisions a court may discard the contract or the provisions. Leases were traditionally governed by Article 2 or Article 9 (secured transactions) of the UCC. This caused confusion and disparate application of the law to leases. In 1987 Article 2A was added to the UCC to regulate leases for goods. It has been adopted, or is being considered for adoption, in a number of states. 1 WCSCM by TMH, Relationship management, chapter VI, pp. 555-557

Federal law has a limited impact on transactions for the sale of goods. The Bankruptcy Code regulates claims arising from sales transactions in bankruptcy cases. The Magnuson-Moss Warranty, Act regulates explicit and implied warranties. The Consumer Credit Protection Act provides protection to consumers entering into leases. In 1988, the United States joined the United Nations Convention on Contracts for the International Sale of Goods.

ENVIRONMENTAL REALITIES: IMPLICATIONS ON SUPPLY CHAIN The significant impact that members of the supply chain have on organizationsâ&#x20AC;&#x2122; environmental performance, either through their actions or the products they supply, is increasingly becoming recognized throughout business. Examples of organizations, which have faced legal action, financial loss, and damage to corporate image as a result of their supply chain partnersâ&#x20AC;&#x2122; activities, are numerous, and as environmental protection climbs the social and political agenda so the risks will increase. In many cases action has been driven in response to specific events or pressure from stakeholders (and

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commonly both) with the full value to the business of this action only being realised subsequently. To exert some influence over supply chain partnersâ&#x20AC;&#x2122; approaches to environmental issues, control the associated risks, and realise further potential benefits, companies have developed proactive environmental supply chain management (ESCM) programmes to complement existing supply chain and environmental management activity. However, it is not enough to blindly trust that general improvements in the environmental performance of supply chain partners will in turn improve the organizationâ&#x20AC;&#x2122;s environmental performance. Furthermore, the methodology employed so far is diverse in design and application, and the focus of initiatives is sometimes open to question. The ESCM process must be structured, and concentrate on delivering benefit for the initiating organization, while a commonly demonstrated byproduct of this activity is the strengthening of supply chain partners, and the relationships with them.

Extent of Involvement The extent of engagement in ESCM activity varies greatly across commercial organizations and industrial sectors. It would be fair to say that many organizations have demonstrated good ESCM practice within individual projects without recognizing it as such, while others have realised environmental benefits throughgeneral SCM initiatives.

Business in the Environment (1999) have attempted to gauge environmental engagement among the top 100 quoted companies in the UK since 1996 (and including the mid 250 quoted UK companies since 1998), across a range of environmental management parameters. Supplier focused initiatives represent one of the parameters surveyed. The results of this survey have consistently shown supplier focused initiatives to be the weakest parameter, that is, the least adopted (see table

Given the response rate to this survey, the true percentage involvement is probably lower than that stated, assuming that companies who have not responded are likely to be less environmentally engaged on the whole. Organizations can be categorized into five types when relating to ESCM involvement,namely:

Through the Motions

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State of the art and groundbreaking organizations are few in number with the blissfully ignorant accounting for the majority. However, larger organizations are beginning to respond to the need for ESCM programmes in increasing numbers and the standard is steadily shifting up the scale.

Trends Much of the work on ESCM conducted to date has concentrated on the upstream (supply side) relationships. This is as a consequence of a number of factors, namely: versa).

corporate image) but tend to posses the most influence over the supply chain, both upstream and downstream. are to the end user. ity among smaller enterprises by governments. over the environmental probity of their products outside of a focused environmental marketing strategy. Given some of the demands made by buying organizations on their suppliers to demonstrate environmental probity however, a proactive approach could well be advantageous by:

Creating new criteria and standards for the sector/competitors.

The techniques applied in ESCM vary greatly in their sophistication and resource requirement. At the most basic level organizations tend to initiate activity on a reactive basis dealing with a specific issue in response to legislative, financial or moral pressures or crisis. The first stages of ESCM are typified by environmental surveys and questionnaires of varying sophistication and levels of required detail. While potentially useful for assessment purposes the questionnaire has limitations and requires careful design and evaluation. In the majority of cases questionnaires concentrate almost exclusively on environmental management activity, ignoring actual performance, aspects or impacts. The use of ISO14001 accreditation as a proxy for environmental probity in supply has become popular due to its international recognition and independent verification. However, the shortcomings of this approach are becoming realised and ESCM systems are being developed to move away from ISO14001 or EMAS as an allencompassing measure. It is worth noting that this change is only just beginning and

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some industry sectors (e.g. the motor industry) are still requesting (and starting to request) accreditation to a formal EMS standard. Audit and independent verification of supply chain partners is commonly applied to substantiate information gathered, albeit that the extent of this activity will be governed by the level of perceived risk, and the availability of resources and competencies. Some organizations have built this process into existing health safety and quality audit processes to reduce resources requirements with varying degrees of success. This ,approach is highly resource intensive and not always practical or judicious. Beyond the techniques mentioned above some organizations are beginning to develop partnerships with key suppliers in line with the current supply chain management vogue. The thrust of these partnerships is to improve stability and understanding in the relationship linking to risk reduction and financial performance improvement. Meetings and seminars can prove useful tools for developing the partnership approach and facilitating subsequent action. There is evidence however that the tendency to develop partnership approaches is beginning to revert to more adversarial ones, particularly in the most competitive markets. This could well set the tone for ESCM strategy also. The most advanced organizations have taken ESCM beyond addressing purely commercial drivers in favour of looking at sustainability issues as embodied through product stewardship, life cycle thinking, and design for the environment. The initiatives of such â&#x20AC;&#x153;ground breakingâ&#x20AC;? organizations encompass social and ethical issues along with the environment, and support clearly defined corporate values relating to these issues.

Future Developments ESCM has presented difficulties for many organizations with regard to finding a practical and cost effective way of managing out the environmental risks and improving performance. The use of environmental performance indicators for supplier, service or product evaluation has, arguably, always been prTesraennstp. selection, and analysis of the indicators which truly reflect performance though, has been lacking and as such has left a hole in any risk assessment process. The publication ISO14031 (international standard for environmental performance evaluation) does provide a framework that could be applied to the selection of indicators by which to evaluate supplier environmental (and potentially ethical) probity. In view of this, a UK government sponsored ISO 14031-demonstration project is currently under way to assess the feasibility of this approach to ESCM, under the management of 14000 & ONE Solutions Ltd. The use of performance indicators will provide a more cost effective supplier evaluation tool than has generally been applied, as well as allowing for the measurement of tangible and significant aspects of environmental performance, at a point or over time, by the assessor and the supplier. Indicators will also allow for benchmarking between suppliers and bolster overall company data availability. In

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addition it is likely that the introduction of environmental performance indicators will encourage wider use and allow for the tailoring of indicator sets as appropriate to the supplierâ&#x20AC;&#x2122;s resources and capabilities, an issue currently overlooked by many ESCM initiatives. Social and ethical issues are commonly intertwined with environmental issues as demonstrated in sustainability thinking. In view of this there is a growing trend to incorporate ethical and environmental issues together in ESCM activity. Health and safety issues are also being brought in, but recent experiences with introducing quality issues has prompted many companies to resist this. 16.6 WAREHOUSE OPERATIONS ehousing is a very important operation of SCM system and without correct understanding of this you as a supply chain manager will often find it difficult to coordinate both ends. Today, under the influence of e-commerce, supply chain collaborations, globalization, quick response and just in time, warehouses today are being asked to2

onal orders But, the warehouses today have

A warehouse manager today has to do more with a resource crunch. The environment is changing rapidly and is almost difficult to keep pace with the changing scenario. With this as a backdrop let us see in nutshell the various warehouse fundamentals.

16.6.1 Warehouse Fundamentals The missions of warehouses are:

the consumer markets.

the assembly lines. the time variation between the

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production schedule and demand.

firm or many firms but for a common customer. individual consumers.

response to customer demands. In a nutshell the various functions are:

assurance and disbursing of materials to appropriate places.

quantities with other parts to form assortments.

al containment of merchandise.

more than one item and accumulation is not done as the picks are made.

checking for completeness, containerization, documentation, weighing, accumulating orders for outbound carrier, and loading of trucks.

WAREHOUSE JURISDICTION The dictionary meaning of the word jurisdiction is ‘the area over which the legal authority of a court or other institution extends’. Be it warehouse or any immovable property they are governed by a set of taxable laws governed by the individual state and differs from one country to the other. At times the countries get into a joint tie/ league with each other in order to facilitate easy import and export activities and warehouse activities. These are once again very academic in nature, and as a supply manager you will have to be in the know of these aspects in order to avoid legal hassles at a later time. Some of these are as listed below. India and Netherlands Article 5 Permanent Establishment 1) For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2) The term “permanent establishment” includes especially: a) A place of management;

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b) A branch; c) An office; d) A factory; e) A workshop; f) A mine, an oil or gas well, a quarry or any other place of extraction of natural resources; g) A warehouse in relation to a person providing storage facilities for others; h) A premises used as a sales outlet; i) An installation or structure used for the exploration of natural resources provided that the activities continue for more than 183 days. 3) A building site or construction, installation or assembly project constitutes a permanent establishment only where such site or project continues for a period of more than six months. 4) Notwithstanding the preceding provisions of this Article, the term â&#x20AC;&#x153;permanent establishmentâ&#x20AC;? shall be deemed not to include: a) The use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise; b) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; c) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; d) The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise; e) The maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research, or for other activities which have a preparatory or auxiliary character, for the enterprise;

f) The maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. 5) Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 applies - is acting in one of the States on behalf of an enterprise of the other State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if -

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a) He has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; or b) He has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise.

6) An enterprise of one of the States shall not be deemed to have a permanent establishment in the other State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made underat arm’s-length conditions.

7) The fact that a company which is a resident of one of the States controls or is controlled by a company which is a resident of the other State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

With South Africa & India Article 5: Permanent establishment 1) For the purposes of this agreement, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2) The term “permanent establishment” includes especially, a) A place of management; b) A branch; c) An office; d) A factory; e) A workshop; f) A mine, an oil or gas well, a quarry or any other place of extraction of natural resources, including an installation or structure used for the exploration or exploitation of natural resources; and g) A warehouse, in relation to a person providing storage facilities for others.

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3) A building site, a construction, installation or assembly project or any supervisory activity in connection with such site or project constitutes a permanent establishment only if it lasts more than six months. 4) Notwithstanding the preceding provisions of this Article, the term â&#x20AC;&#x153;permanent establishmentâ&#x20AC;? shall be deemed not to include, a) The use of facilities solely for the purpose of storage, displaTyr aonrs dpeolritvateiroy goods or merchandise belonging to the enterprise; b) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; c) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; d) The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise; e) The maintenance of a fixed place of business solely for the purposes of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character, and f) The maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. 5) Notwithstanding the provisions of paragraphs 1 and 2, where a person other than an agent of an independent status to whom paragraph 6 applies is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph. 6) An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. 7) The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent

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establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other. Article 6: Income from immovable property 1) Income derived by a resident of a Contracting State from immovable property, including income from agriculture or forestry, situated in the other Contracting State may be taxed in that other State. 2) The term â&#x20AC;&#x153;immovable propertyâ&#x20AC;? shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of the general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships, boats and aircraft shall not be regarded as immovable property. 3) The provisions of paragraphs 1 shall apply to income derived from the direct use, letting or use in any other form of immovable property. 4) The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7: Business profits 1) The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. 2) Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. 3) In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting State in which the permanent establishment

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is situated or elsewhere, in accordance with and subject to the limitations prescribed in the taxation laws in that Contracting State. 4) As it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary. The method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this article. 5) No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. 6) For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. 7) Where profits include items of income, which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article. Article 8: Shipping and air transport 1) Profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State. 2) For the purposes of this Article, profits from the operation of ships aircraft in international traffic shall include: a) Profits derived from the rental on a bare boat basis of ships or aircraft used in international traffic, b) Profits derived from the use or rental of containers, if such profits are incidental to the profits to which the provisions of paragraph 1 apply. 3) For the purposes of this Article, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of ships or aircraft and the provisions of Article 11 shall not apply in relation to such interest. 4) The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

Article 9: Associated enterprises Transportation Mix 1) Where, a) An enterprise of a Contracting State participates directly or indirectly in the

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management, control or capital of an enterprise of the other Contracting State; or b) The same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly. 2) Where a Contracting State includes in the profits of an enterprise of that State â&#x20AC;&#x201C; and taxes accordingly â&#x20AC;&#x201C; profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits if that other State considers the adjustment justified. In determining such adjustment, due regard shall be had to the other provisions of this Agreement and the competent authorities of the Contracting States shall if necessary consult each other.

WAGES, EARNINGS AND HOURS OF WORK A discussion on daily wagers is very important since such activities are very common in SCM and warehouse handling. As a responsible supply chain manager you must be aware of the rules and regulations in handling the wages of workers and keep yourself updated on this count regularly. This will help you in negotiating any kind of litigations at a later date. The Minimum Wages Act, 1948 is both a protective and beneficial legislation guaranteeing the payment of minimum rates of wages to the workers in the various Scheduled Employments scattered over different parts of the country. Although the Act does not provide for registration of establishments, yet it is applicable to employments where the workers are particularly vulnerable to exploitation, due to ignorance, poverty, illiteracy and lack of bargaining power. The workers in bidi industry are scattered over large areas and do not have collective bargaining power.

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Therefore, they are in need of protection. The Act empowers both the Central and the State Governments to fix and revise the minimum rates of wages in the Scheduled Employments falling under their respective jurisdictions. The bidi making establishments, fall under the Scheduled Employment â&#x20AC;&#x153;Tobaccoâ&#x20AC;?, (including Bidi Making) manufacturing in the State Sphere. Therefore, the responsibility for implementation of the provisions of the Minimum Wages Act, 1948 rests with the State Governments. They notify the minimum wages for bidi workers within their jurisdiction. In Madhya Pradesh, the rates of minimum wages for Bidi Rollers are fixed on a piece rate basis (number of bidis rolled), the traditional measure being per thousand bidis. However, fixation and revision of minimum wages is of no consequence unless these are actually paid to them.The problems of the bidi workers continue to be a

cause of concern for the labor administrators and enforcement authorities as the workers often complain of the unfair treatment at the hands of manufacturers, contractors and agents in matters of rejection of finished products, issue of inadequate quantity and poor quality of raw material (tendu leaves, tobacco, thread, etc.) as well as the violation of the provisions of the Bidi and Cigar Workers (Conditions of Employment) Act, 1966, the Minimum Wages Act, 1948 and the Equal Remuneration Act, 1976.The Regional Labor Ministers Conference held during 199495 had endorsed the recommendations of the Ministry of Labor for the Constitution of a Tripartite Standardization and District Level Vigilance Committee and had made the following recommendations in respect of bidi workers:-

leaf of standard average quality and 300 grams of tobacco for 1000 bidis of standard size.

5 percent.

proportionate cost of tendu leaf and tobacco issued to them at the rates to be fixed by the State Governments from time to time alongwith wages.

to give wide publicity to the statutory provisions of the Bidi and Cigar Workers (Conditions of Employment) Act, 1966, pertaining to rejection of not more than 2.5 percent bidis of sub-standard quality and ensure that employer/Contractor supplies tendu leaf of the optimum quality to the workers. * Prescribed rates of Minimum Wages

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‘Tobacco (including bidi making) Manufactories’ is a Scheduled Employment originally included in Part-I of the Schedule appended to the Act. The minimum wages applicable to the bidi workers at the time of the Study were notified by the State Government of Madhya Pradesh as provided under Section 3(1)(b) and Section 5 of the Minimum Wages Act, 1948.prior to 1953, Minimum Wages were fixed at Re. 0.62 to Rs. 1.37 per thousand bidis. These wages were revised to Rs. 2.00-2.25 for the first time in 1966.Since then they have been revised several times. The latest wage revision, which was in force at the time of the study, had become effective from 1st October, 2000 vide notification No. 1/9/A/5/97/32759-33288 dated 12-10- 2000.The minimum rates of wages for various categories of employees in Tobacco (including Bidi Making) Manufactories appearing in Part I of the Schedule were linked to the Consumer Price Index Numbers (Industrial Workers). The revised rates of minimum wages applicable during the period of study are given below: -

c) Wrapping on 1000 bundle (each bundle of 25 bidis) i) Wrapping of Horizontal & Vertical Strips Rs. 68.35 per lakh bidis ii) Wrapping/Pasting of paper Rs. 81.05 per lakh bidis iii) Wrapping and Pasting of Trade Mark Rs. 81.05 per lakh bidis In Bidi making industry all the time-rated (monthly/daily paid) workers other than the above-mentioned piece rated categories have been classified into three broad categories as Skilled, Semi-skilled and Unskilled workers. The occupations’, which comprise these three skill categories, are as under (Table 16.4):

1. Skilled Driver (Heavy Vehicle), Accountant, Munim, Cashier, Store Keeper, Head Clerk, Godown keeper 2. Semi-Skilled Sorter/Checker, Bhattiwala, Driver (Light Vehicle), Typist, Billman, Clerk 3. Unskilled Loader, Un-loader, Puda Maker and Chowkidar. Prescribed rates of Minimum Wages (including V.D.A.) for time rated employees were as below: Sl. No. Skill Category Monthly Wages (Rs.) Daily Wages (Rs.) 1. Skilled 1995.44 76.75 2. Semi-Skilled 1828.30 70.32 3. Unskilled. 1662.80 63.95 N.B.- The wages includes the variable dearness allowance. These wages have been linked to 1206 points of the Labour Bureau Series of AllIndia Consumer Price Index Numbers for Industrial Workers (Base 1960=100).The Variable Dearness Allowance (VDA) is payable at the rate of 1 paisa per point for

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an increase of 930 points over 1206 points upto 30.09.2001. The revised rates of minimum wages are subject to the following conditions:dearness allowances shall be calculated on 1st October of every year on the basis of the average indices for twelve months i.e., July to June of the preceding year.

rates by 26 days.

adverse effect on any employee in any case and the higher rates shall continue to be paid.

case the employer fails to supply sufficient quantity of raw material for rolling 5600 bidis per week.

employee during a week from the raw material supplied to him. t be entitled to the guaranteed wages if he fails to make full use of the raw material supplied to him while the raw material so supplied is sufficient for rolling 5600 bidis per week. In case an employer fails to supply raw material due to certain conditions like fire, distress, epidemic etc., which are not under his control, an employee shall not be entitled to the guaranteed wages.

DOCUMENTATION: INSURANCE & SALES TAX Everything under the sun can be insured today, thanks to the various insurance companies that have reached out to the environment in a big way. The age-old adage, ‘a stitch in time saves nine’ is very important for us to follow in letter and spirit. Why should we insure? Very simple indeed, because a material/product that is insured comes under the purview of Insurance act of 1938 (we will see later) and that enables the consignor to claim the cost of the product in the event of any damage to the product, which may occur, either during storage or transit. Every supply chain manager should therefore understand the nuances of insurance, the risk covered and the benefits accrued of insurance, unless you believe in, ‘penny wise and poundfoolish’. Risk factor has enhanced tremendously with the turn of the century and therefore remains covered under the protected wings of insurance and achieve the maximum benefit that is available to you and your company. Let us see them as we progress through the unit.

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The Insurance Act, 1938 had provided for setting up of the Controller of Insurance to act as a strong and powerful supervisory and regulatory authority for insurance. Post nationalization, the role of Controller of Insurance diminished considerably in significance since the Government owned the insurance companies. With the opening up of the insurance industry to the private sector, the need for a strong, independent and autonomous Insurance Regulatory Authority was felt. As the enacting of legislation would have taken time, the then Government constituted through a Government resolution an Interim Insurance Regulatory Authority pending the enactment of a comprehensive legislation.

The Insurance Regulatory and Development Authority Act, 1999 is an act to provide for the establishment of an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance

industry and for matters connected

therewith or incidental thereto and further to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General insurance Business (Nationalization) Act, 1972 to end the monopoly of the Life Insurance Corporation of India (for life insurance business) and General Insurance Corporation and its subsidiaries (for general insurance business). The act extends to the whole of India and will come into force on such date as the Central Government may, by notification in the Official Gazette specify. Different dates may be appointed for different provisions of this Act. The Act has defined certain terms, some of the most important ones are as follows: - Appointed day means the date on which the Authority is established under the act. Authority means the established under this Act.

Interim Insurance Regulatory Authority means the Insurance Regulatory Authority set up by the Central Government through Resolution No. 17(2)/ 94-lns-V dated the 23rd January, 1996. Words and expressions used and not defined in this Act but defined in the Insurance Act, 1938 or the Life Insurance Corporation Act, 1956 or the General Insurance Business (Nationalization) Act, 1972 shall have the meanings respectively assigned to them in those Acts. Insurance Regulatory Authority Establishment and incorporation of Authority With effect from such date as the Central Government may, by notification, appoint, the Insurance Regulatory and Develop is to be constituted. The Authority shall be a body corporate, having perpetual succession and a common seal withT to the provisions of this Act, to acquire, hold and dispose of property, and to contract and can be sue or be sued in its own name. The head office of the Authority shall be

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at such place as the Central Government may decide from time to time and it may establish offices at other places in India. Composition of Authority The Authority shall consist of the following members, namely a) A Chairperson; b) not more than five whole-time members; c) not more than four part-time members, to be appointed by the Central Government from amongst persons of ability, integrity and standing who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration or any other discipline which would, in the opinion of the Central Government, be useful to the Authority: The Central Government while appointing the Chairperson and the whole-time members must ensure that at least one person each is a person having knowledge or experience in life insurance, general insurance or actuarial science respectively. Tenure of office of Chairperson and other members The Chairperson and every other whole-time member shall hold office for a term of five years from the date on which he enters upon his office and shall be eligible for reappointment. However, no person shall hold office as such Chairperson after he has attained the age of sixty-five years and no person shall hold office as such whole-time member after he has attained the age of sixty-two years. A part-time member shall hold office for a term not exceeding five years from the date on which he enters upon his office. A member may: a) Relinquish his office by giving in writing to the Central Government notice of not less than three months; or be removed from his office in accordance with the following provisions. Removal from Office The Central Government may remove from office any member who: a) is, or at any time has been, adjudged as insolvent; b) has become physically or mentally incapable of acting as a member; c) has been convicted of any offence which, in the opinion of the Central Government, involves moral turpitude; d) has acquired such financial or other interest as is likely to affect prejudicially his functions as a member; e) has so abused his position as to render his continuation in office detrimental to the public interest.

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No such member shall be removed under clause (d) or clause (e) unless he has been given a reasonable opportunity of being heard in the matter. Comprehensive Policy This insurance policy also known as a Comprehensive policy covers all the liabilities of the insured vehicle under the Motor Insurance Act. No vehicle can be used without insurance cover. Use of the vehicle without insurance cover is a penal offence. This insurance policy protects the motor vehicle owners from these liabilities: -Ignition and Lightning. urglary, Housebreaking and Theft.

or or air. covered. From the above coverage, for all classes of vehicles, the risks of riot, strike, malicious and terrorism damage, earthquake, flood and storm can be opted out of with a consequent discount in premium. In addition to these, cover is also available for protection, removal costs and authorization of repairs. Section II covers the liabilities towards third parties, i.e. liabilities of bodily injuries and property damage. For commercial vehicles, however, an additional Section III covers the vehicle while it is being used for the purpose of towing disabled vehicles. This section covers third party liabilities that the insured vehicle or the one being towed may incur as a result of an accident. This is provided the towed vehicle is not towed for reward/ remuneration. Further, the insurance company is also not liable for damages to the towed vehicle or any property being conveyed thereby.

Compensation Offered This insurance policy would provide compensation for the motor vehicle owners from these liabilities unlimited liability towards bodily

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the nearest repairer and the cost of redelivery to the owner/insured subject to a maximum limit, in respect of any one accident. The limits for various classes of vehicles are as follows:

Motor Vehicle Insurance Act This insurance policy is essential for all motor vehicle owners since it protects them from legal liabilities that might arise during their vehicle operation. This insurance policy also known as the Act Only policy covers the act liability of the insured vehicle that forms a compulsory requirement of the Motor Insurance Act. No vehicle can be used without this insurance cover and use of the vehicle without this insurance cover is a penal offence.

Risks Covered Transportation Mix This insurance policy protects the motor vehicle owners from the risks of: -Ignition and Lightning.

ransit by road, rail, inland waterway, lift, elevator or air.

covered. From the above coverage, for all classes of vehicles, the risks of riot, strike, malicious and terrorism damage, earthquake, flood and storm can be opted out of with a consequent discount in premium. In addition to these, cover is also available for protection, removal costs and authorization of repairs. Section II covers the liabilities towards third parties, i.e. liabilities of bodily injuries and property damage. For commercial vehicles, however, an additional Section III covers the vehicle while it is being used for the purpose of towing disabled vehicles. This section covers third party liabilities that the insured vehicle or the one being towed may incur as a result of an accident. This is provided the towed vehicle is not towed for reward/ remuneration. Further, the insurance company is also not liable for damages to the towed vehicle or any property being conveyed thereby.

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Compensation Offered This insurance policy would provide compensation for the motor vehicle owners from these liabilities Unlimited liability towards bodily

- only. elling or using it, against bodily injury to the extent required by the Workmenâ&#x20AC;&#x2122;s Compensation Act. If a motor vehicle is disabled as a result of loss or damage due to the perils mentioned above, the insurance company bears the reasonable cost of protection and removal to the nearest repairer and the cost of redelivery to the owner/insured subject to a maximum limit, in respect of any one accident. The limits for various classes of vehicles are as follows:

INTRODUCTION TO SALES TAX Sales tax is a tax on sale of goods. The liability to pay sales tax arises on making sales of goods. In India, the law for levying sales tax is provided in the Central Sales

Distribution Network Planning Tax Act, 1966. This act was passed by the Parliament and applies to the entire country. The main objects of this act are: -3 1) To formulate the principles for determining as to when sale or purchase of goods takes place (i) in the course of inter-state trade or commerce or (ii) outside a state or (iii) in the course of import into or export from India. 2) To provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-state trade or commerce. 3) To declare certain goods to be of special importance in interstate trade or commerce. 4) To specify the restrictions and conditions in respect of State laws which impose taxes on the sale or purchase of such goods of special importance. The CST Act, being a Central Act passed by the Parliament regulates and provides for levy of sales tax on the sale and purchase of goods made in the course of interstate

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trade or commerce. The sales tax law of each individual State regulates sales and purchases made within a State, e.g., in the State of Maharashtra, the Bombay Sales Tax Act, 1959 provides for the levy of sales tax on sales made within the State of Maharashtra. Similarly, other States will also have their own sales tax laws for levying sales tax on intra-state sales or purchases of goods. Generally the CST Act does not deal with sales made intra-state. However, in respect of certain declared goods oil seeds, sugar, pulses, crude oil, etc, the CST Act imposes restrictions on the powers of State Governments to levy sales tax even in respect of intra-state sales. Accordingly, Sales can broadly be classified into 3 categories -state sales i.e. sales within the state

r-state sales The provisions of the CST Act apply only in respect of inter-state sales and not intrastate sales or import or export sales. Definitions It is essential to understand the meaning of certain terms used in the CST Act. For the purposes of the Act, certain terms have been defined in the Act itself and the meaning of these terms will be as per the definition only and not as per the ordinary meaning of the term. However, where a particular term has not been defined, it will have the same meaning as ordinarily understood. Business includes

trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried out with the motive to make gain or profit and whether or not, any gain or profit accrues from such trade, commerce, manufacture, adventure or concern.

commerce, manufacture, adventure or concern. Dealer means any person who carries on, whether regularly or otherwise, the business of buying, selling, supplying or distributing goods, directly or indirectly, for cash or for deferred payment or for commission, remuneration or for other valuable consideration and includes: -operative society or other society, club, firm, Hindu Undivided Family (HUF) or other Association of Persons (AOP) which carries on such business. 3 Shilpa Pandey in Indian sales tax site downloaded from the website www.salestax.com

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Thraatnesvpeorr tnataimone Mix called and whether of the same description as herein before mentioned or not, who carries on the business of buying, selling, supplying or distributing goods belonging to any principal, whether disclosed or not. An auctioneer who carries on the business of selling or auctioning goods belonging to any principal, whether disclosed or not and whether offers of the intending purchaser is accepted by him or by the principal or by the nominee of the principal.

distributes goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration shall except in relation to any sale, supply or distribution of surplus, unserviceable or old stores or materials or waste products or absolute or discarded machinery or parts or accessories thereof is deemed to be a dealer for the purposes of this Act. Sale means any transfer of any property or goods from one person to another for cash or for deferred payment or for any other valuable consideration and includes the transfer of goods on hire purchase or other system of payment by installments but does not include a mortgage or hypothecation or charge or pledge on goods. Accordingly, consignments to agents or transfers of goods to branch or other offices do not amount to sale for the purposes of the CST Act. Sale Price means an amount payable to a dealer as consideration for the sale of any good less any sum allowed as cash discount according to the practices normally prevailing in the trade but inclusive of any sum charged for anything done by the dealer in respect of goods at the time of or before the delivery thereof. However, it does not include freight or delivery cost or cost of installation where such cost is separately charged. Declared Goods means goods declared under section 14 to be of special importance in inter-state trade or commerce. In section 14 there is a list of goods of special importance, which are often called, declared goods. The important ones among them are: Cereals Coal in all forms excluding charcoal Cotton in un-manufactured form Cotton fabrics and cotton yarn Crude oil Hides and skin Iron and steel Jute Oil seeds

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Sale or purchase in the course of inter-state trade or commerce A sale or purchase of goods shall be deemed to take place in the course on inter-state trade or commerce if the sale or purchase occasionâ&#x20AC;&#x2122;s movement of goods from one state to another or is effected by the transfer of documents of title to the goods during their movement from one state to another. Explanation 1 Where the goods are delivered to a carrier or other bailer for transmission, the movement of goods shall, for the purpose of clause 2 above, be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailer. Explanation 2 Where that movement of goods commences and terminates in the same state, it shall not be deemed to be a movement of goods from one state to another by reason merely of the fact that in the course of such movements, goods pass through the territory of any other state. An Illustration X of Ambala sells goods to Y of Bangalore in Ambala. Such sale is not an inter-state sale since the goods do not move from one state to another. X of Mumbai sells and dispatches goods to Y of Calcutta. This is inter state sales of goods since goods move from one state to another under the contract of sales. X of Delhi sends goods by railways to Y of Mumbai. Y sells the goods to Z of Mumbai and transfers the document of title (railway receipt) during their movement from Delhi to the state of Maharashtra. This is inter state sales since documents of title are transferred while the goods are being moved from one state to another. Sale or purchase inside the state A sale or purchase of goods shall be deemed to take place inside the state if the goods are within the state. of sale is made (Specific or ascertained goods means goods which are identified and agreed upon at the time when contract of (sale is made) and

of sale by the seller or by the buyer, whether the ascent of the other party is prior or subsequent to such appropriation.(eg agreement to buy mangoes which are still growing on the trees at a future date )

Explanation: Where there is a single contract of sale or purchase of goods situated at one or more places the provisions of this subsection shall apply as if there were separate contracts in respect of the goods at each of such places.

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A sale or purchase of goods, which is not within the state as per the above provisions, will be treated as taking place outside the state. The purpose of determining whether the sales have taken place within the state or outside the state is very important for levying central sales tax since under the CST Act, tax is leviable only on sales in the course of inter-state trade or commerce. Inter-state sales involve two or more states. It is necessary to determine the state in which the sale or purchase of goods takes place since that becomes the appropriate state for the purpose of levying and collecting central sales tax. Sale or purchase of goods in the course of import or export A sale or purchase of goods shall be deemed to take place in the course of exports of goods out of the territory of India only if:1) The sale or purchase results in such exports; or 2) Is effected by the transfer of documents of title after the goods Thraavnesp corrotastsioend Mthiex customs of India. A sale or purchase of goods shall be deemed to take place in the course of import of goods into the territory of India only if:1) The sale or purchase either results into such imports; or 2) Is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. In other words, location of goods when contract of sales is made is very important for determining where the sale took place.

Types of excise duties Under the excise laws, the following are the various types of duties, which are levied: Basic duty: This is the basic duty levied under the Central Excise Act. Special excise duty: This special duty is levied under special circumstances where the levy of such additional duty is justifiable or found necessary to protect other industries. Additional Duty in lieu of Sales Tax: It can be charged on all goods by the central government to counter balance exemptions from sales tax granted by various State Governments to the detriment of industries in other States. Additional Duty on specified items under the Act: If the Tariff Commission set up by law recommends that in order to protect the interests of industry, the Central Government may levy additional duties at the rate recommended on specified goods. The notification for levy of such duties must be introduced in the Parliament in the next session by way of a bill or in the same session, if the Parliament is in session. If the bill is not passed within six months of introduction in Parliament, the notification ceases to have force but the action already undertaken under the notification remains

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valid. Such duty will be payable upto the date specified in the notification. Such duty may be cancelled or varied by notification. Such notification must also be placed before Parliament for approval as above. It is noteworthy that “basic excise duty” is different from “special excise duty” or “additional duty of excise”. Therefore an exemption from basic duty does not mean that exemption from special duty or additional duty has also been granted unless there is an express provision to that effect regarding the exemption in the notification.

Important definitions Excisable Goods means goods specified in the schedule to the Central Tariff Act, 1985 as being subject to a duty of excise. The basic conditions to be satisfied by any goods to be called excisable goods are:vable.

sale of goods in the market is not necessary because excise duty is chargeable on manufacture and not on sales. ff Act Factory means any premises including the precincts thereof, wherein excisable goods other than salt are manufactured or wherein any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on. Manufacture includes any process:

Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labor in the production of manufacture of excisable goods but also any person who engages in their production and manufacture on his own account such as on contract basis or job work basis. Once manufacture of goods is complete, excise duty is payable, whether the goods are sold or self-consumed. Excise duty does not depend on the end use of the goods. Sometimes, a particular process may not actually amount to manufacture but if it has been specified that it amount to manufacture in the Schedule to the CETA, it will be deemed to be manufacture and all the provisions applicable to manufacture will apply to such process. Like repackaging of goods from bulk packing to small packing units does not normally amount to manufacture. However, repackaging from bulk packing to retail pack of pan masala will amount to manufacture on which excise duty has to be paid.

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Basis of charge and classification

Excise Duty is a tax on manufacture of goods but for the sake of administrative convenience, it is collected only on removable of goods from the factory. Excise duty may be levied in any of the following manner:-

Ad-valorem Duty: is levied as a percentage of value of the commodity manufactured. For example excise duty could be 10 per cent of the cost of goods Most of the excise duty is levied on ad-valorem basis.

Slab System: Under this system, duty varies with the change of the value from one slab to another. Thus for the first 1,000 kg, excise duty is Rs500, for next 1,000 kg it is Rs750 and for production in excess, it is Rs1, 000 for every 1,000 kg manufactured. Specific Duty Under this system, a specific rate of duty is fixed per unit rate or per quantity item of the product manufactured, for example Rs10 per unit manufactured. Compounded Duty: Under this system, Duty is levied on productive capacity irrespective of the actual production. For example if a unit has installed capacity to manufacture 10,000 ton, excise duty is Rs50, 000, whatever be the number of units produced. Once the liability to pay excise duty has been established on manufacture of excisable goods, it is necessary to quantify the amount of excise duty payable. For this purpose, it is necessary to find out, under which particular sub-group heading of CETA do the goods in question actually fall. Since the rates of duty for each subgroup are given in CETA the categorization of goods into sub-group headings is known as classification of goods. The Central Excise Tariff Act, 1985 (CETA) classifies all the goods under 20 sections and 96 chapters. Each of these sections is related to a particular class of goods. Thus section 1 is on animal products, section 2 on vegetable products, so on and so forth. Each section is divided into chapters and each chapter is sub-divided into groups and sub-groups of excisable goods. This tariff schedule is based on the internationally followed product coding system â&#x20AC;&#x153;Harmonised System of Nonclementureâ&#x20AC;? (HSN) Excise Duty is payable at the rate specified in CETA against the sub-group heading under which the product falls. However, benefit of exemptions or concessions may be claimed under various notifications if the conditions specified in the notification are satisfied.

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Valuation Transportation Mix Since most of the excise duty is levied on ad-valorem basis i.e. at a percentage of value of goods, the value of goods must be determined. Section 4 of the Central Excise Act, 1944 provides for the determination of the value of goods for excise purposes. The following are the provisions in this connection:-

goods means the price of goods at which the goods are normally sold in the course of wholesale trade. However recent provisions have been introduced in the Central Excise Act wherein certain specified articles are to be taxed on the basis of the maximum retail price and not the wholesale price. Wholesale trade means sales to dealer, industrial consumers, Governments, Local Authorities and other buyers who purchase their requirements in bulk and not on retail basis.

related person and the sale is for delivery at the time and place of removal. If the buyer is a related person and this relationship has affected the price for sale, suitable adjustments are to be made in arriving at the fair price. Similarly, if the sale is not for delivery at the time and place of removal of goods, suitable adjustments for other expenses such as freight and insurance of goods while in transit from the place of removal to the place of sale must be made. Related persons means a person who is so associated with the assessee that they have interest, directly or indirectly in the business of each other and includes a holding company, subsidiary company a relative and a distributor of the assessee and any sub-distributor of such distributor.

for the sale, suitable adjustments must be done in order to arrive at the assessable value.

being related persons), each such wholesale price is deemed to be assessable value. Therefore excisable goods can have more than one assessable value. d in the course of wholesale trade at prices fixed by law or at prices being the maximum chargeable under any law, such fixed price is taken as the assessable value.

wholesale trade except to or through a related person, the price at which such related person sells the goods is taken as assessable value.

actually saleable in the market are part of the assessable value. However the

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packing expense on secondary or special packing or on durable packs, which are returnable by the buyer, is not to be included in the value of the goods for the purpose of calculation of excise duty. ds is not ascertainable because such goods are not sold or for any other reason, the nearest equivalent price will be determined in the manner provided in the Central Excise Valuation Rules, 1975. tory is not known but it is dependent on the time and place of delivery, such price less cost of transportation from the place of removal to the place of delivery will be take to be the assessable value. , the value of comparable goods produced by another person or the normal wholesale price of such goods will be treated as assessable value.

other taxes, if any, payable on such goods and subject to rules made in this behalf, the trade discount allowed under normal wholesale business practices at the time of removal.

on the basis of such tariff rate.

percent. Cost of production is Rs10, 000 and profit margin is Rs1,000. Sales tax is five percent. In this situation, excise duty is Rs1,100 ie 10 percent of Rs11,000. Sales tax is included for the purpose of excise duty.

Valuation on retail price basis The Central Government may notify goods by publication in the OFFICIAL Gazette on which duty will be payable on the basis of the retail selling price. The following are the provisions in this connection: 1) The goods should be covered by the provisions of Standard of Weights and Measures Act. 2) The Central Government may permit reasonable deductions from the “retail sale price”. The Central Government takes into account excise duty, sales tax and other taxes payable on the goods for allowing such reductions. 3) If more than one “retail sale price” is printed on the same packing, the maximum of such retail price will be considered. 4) The “retail sale price” must be the maximum price at which excisable goods in

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packaged forms are sold to the ultimate consumer. The retail sale price includes all taxes, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding charges, etc. 5) The price is the sole consideration for the sale. e.g. Notification Nos. 18/97-CE(NT) and 19/97-CE(NT) both dt. 19-6-97 state that excise duty on “cosmetics and toilet preparations” will be payable on the basis of Maximum Retail Price printed on retail carton after allowing a deduction of 50%. The following excisable goods have been covered under this scheme: - deduction 50% - deduction 40% - deduction 40% - deduction 50% - deduction 30% - deduction 30% s, Soaps etc - deduction 35% - deduction - 35% - deduction 35% - deduction 50% - deduction 35% uty preparations, shaving preparations deduction 50% - deduction 50% - deduction 40% Transportation Mix - deduction 40% - deduction 40%

electric motor - deduction 40% - deduction 40% - deduction 40%

Modvat Modvat stands for “Modified Value Added Tax”. It is a scheme for allowing relief to final manufacturers on the excise duty borne by their suppliers in respect of goods manufactured by them. For example, ABC Ltd is a manufacturer and it purchases certain components from PQR Ltd for use in manufacture. POR Ltd would have paid excise duty on components manufactured by it and it would have recovered that excise duty in its sales price from ABC Ltd. Now, ABC Ltd has to pay excise duty

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on toys manufactured by it as well as bear the excise duty paid by its supplier, PQR Ltd. This amounts to multiple taxation. Modvat is a scheme where ABC Ltd can take credit for excise duty paid by PQR Ltd so that lower excise duty is payable by ABC Ltd. The scheme was first introduced with effect from 1 March 1986. Under this scheme, a manufacturer can take credit of excise duty paid on raw materials and components used by him in his manufacture. Accordingly, every intermediate manufacturer can take credit for the excise element on raw materials and components used by him in his manufacture. Since it amounts to excise duty only on additions in value by each manufacturer at each stage, it is called value-added-tax (VAT) The modvat credit can be utilized towards payment of excise duty on the final product. When the scheme was first introduced, it covered only some excisable goods. Gradually, the scope of the modvat scheme has been enlarged from time to time under various notifications. From 16 March 1995, all excisable goods can take the benefit of the scheme except those mentioned below:In case of inputs

l products

fabrics, man made fibre fabrics and filament yarn fabrics Advantages of Modvat

Disadvantages of Modvat ltiplicity of records.

The modvat scheme is regulated by Rules 57A and 57U of the Central Excise Rules

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and the notifications issued thereunder. Rule 57A This rule specifies the scope and applicability of the modvat. The modvat scheme applies to all finished excisable goods which have been notified by the Central Government in the Official Gazette for this purpose. The modvat scheme may be made applicable in respect of certain goods or classes of goods with restrictions and conditions. For the purposes of the modvat scheme, input includes:-

relation to the manufacture of the final product.

y of production for manufacturing of final products or for any other purpose, but does not include:Machines, machinery, plant, equipments, apparatus, tools or appliances which are used for production or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products. However, on and from 1994-95, the benefit of modvat has been extended to excise duty paid on several capital goods like plant, machinery, equipments, etc which are used for the manufacture of the finished product. As long as the capital goods are used in the factory of production, credit of modvat will be allowed. No modvat is available in respect of capital goods not used within the factory of production. in respect of which any exemption to the extent of excise duty payable on the value of packing material is being availed of for packaging of final products.

during the preceding financial year in the assessable value of the final products.

to the extent of specified duties paid on the inputs. The benefit of modvat will be available only if the final product is an excisable goods. Modvat credit will not be available if the final good is not an excisable goods or is exempt from duty or is chargeable at nil rate of duty. However, benefit of modvat will be available to the final goods manufactured by a unit in a Free Trade Zone or in an 100 percent EOU where no excise duty is payable on final goods which are exported. For example ABC Ltd purchased raw materials of Rs9,900 inclusive of excise duty @ nine per cent and sales tax @ 10 percent. Modvat credit available will be Rs743

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(Cost excluding sales tax will be Rs9,000 out of which excise duty will be Rs743 ie 9000/109*9) Rule 57D Modvat credit will not be denied or varied just because some of the raw materials and other inputs in respect of which excise has been paid become waste or scrap in the course of the manufacturing process. Similarly, modvat credit will not be denied or varied just because in tThrea ncospuorrstea toiofn t hMeix manufacturing process of an excisable final product, an intermediate product which is non-excisable or which is chargeable to excise at nil rate of duty or which is exempt from excise duty is created. Intermediate products are those products which get produced in the course of manufacture of the final product. e.g. in the manufacture of alcohol from sugarcane, first molasses are produced from which alcohol is produced. In such a situation, molasses are an intermediate product, which are charged to excise duty. The benefit of modvat will not be withdrawn if the intermediate product created is non-excisable or is chargeable to excise at nil rate of duty or is exempt from excise duty. Whether a product is an intermediate product or a final product depends on the facts and circumstances of each case. The product may be intermediate so far as a particular process of manufacturing is concerned but may be a final product for another manufacturing process.

Rule 57E If the excise duty paid on modvatable inputs is subsequently increased or refunded, the modvat claimed on the basis of those inputs will also be increased or reduced, as the case may be. If any amount is found due as a result of such increase, he with the excise authorities or in cash shall recover it from the manufacturer either from the balance maintained.

Rule 57F The modvatable inputs must be used in or in relation to the manufacture of final products for which they have been brought into the factory. However, the inputs may be removed from the factory for home consumption or for export under bond but only after intimating the Assistant Collector having jurisdiction over the factory and obtaining a dated acknowledgement of the same. Where the inputs are removed for home consumption, excise duty must be paid, at least of an amount equal to the modvat credit claimed in respect of such inputs. The modvatable inputs can also be removed from the factory to a place outside either, as such or after they have been partially processed in the course of manufacture but only after intimating the Assistant Collector having jurisdiction over following purposes:-

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required for the manufacture of final product provided that after such work, the inputs are returned to the factory to be further used in the manufacture of final product. The waste generated in such operation must also be returned to the factory.

ermediate products necessary for the manufacture of final products provided that after such manufacture, the intermediate product is brought back to the factory to be further used in the manufacture of final product. The waste generated in such operation must also be returned to the factory.

duty.

However, waste is not required to be returned in case appropriate excise duty is paid on the waste The main manufacturer as well as job worker are required to maintain register giving details of materials sent, challan number, etc. similar to a stock register showing goods lying with the job worker, goods returned by the job worker, etc. Generally, the goods sent must be returned to the main manufacturer within 60 days. If the job is not completed within 60 days, the period may be extended for another 60 days. The benefit of this rule is available only if the main manufacturer does a certain amount of processing or value addition to make the final product. There must not be complete manufacturing outside the factory by the job worker. Modvat credit can be utilized for the following purposes:

Towards payment of excise duty on waste arising in the course of manufacture of final product.

for home consumption. ut payment of duty (like goods manufactured by units in a Free Trade Zone or by 100 percent EOUs or by units in an Electronic Hardware Technology Park or by units in a Software Technology Park) may be utilized for discharging duty liability on similar final products cleared for home consumption. If the manufacturer does not have any excise liability, the modvat credit may be refunded to him provided he has not availed claimed drawback of duty under the Central Excise Rules.

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Any waste arising from processing of modvatable inputs in respect of which credit has been availed may:-

government. e of a proper officer on application made by the manufacturer and if found unfit for further use or not worth the duty payable thereon provided the manufacturer informs the appropriate authorities at least 7 days in advance in writing as regards the quantity of waste and the date on which it is supposed to be destroyed and after complying with all the conditions as may be prescribed by the Collector of Central Excise in this behalf. The manufacturer may transfer or utilize modvat credit from one of his factories to another with approval from the Collector of Central Excise provided application is made by him in this behalf and all conditions imposed by the Collector are satisfied. Rule 57G For availing the benefit of modvat, the manufacturer must carry out certain procedures. He must file a declaration with the Assistant Collector of Central Excise having jurisdiction over his factory indicating the description of final product manufactured in the factory giving details of the inputs used for such purpose in each of the said products. He must also give detailed information required by the Assistant Collector of Central Excise and must obtain dated acknowledgement for such declaration. The manufacturer may avail of modvat credit only after he files the above declaration. However, he cannot take credit unless the inputs are accompanied with an invoice prepared as per Central Excise Rules, Form AR-1. In case of imported goods it must be accompanied with triplicate copy of Bill of Entry or Certificate of Appraisal by Custom posted in a foreign post office. In other words, the goods must be accompanied with proof that duty has been paid on them. The Central Government has the power to direct that modvat credit on specified inputs may be allowed at such rate and subject to such conditions as it may direct without production of documents evidencing the payment of duty. 31 Where copy of invoice meant for the purpose of claiming modvat is lTorsatn ospr omrtiastpiolanc Medi,x the manufacturer can claim modvat credit on the basis of or misplaced, the manufacturer may claim modvat credit on the basis of the original invoice subject to the satisfaction of central excise authorities. A manufacturer of final products shall maintain:- Part I and Part II in respect of duty payable on

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final product. Part I is a record of inputs and subsequent utilization in the manufacturing process. Part II is a record of modvat credit pertaining to such inputs. on the final product cleared at any time.

each month to the Superintendent of Central Excise, the following documents:-

ract of RG 23A Part I and Part II After verifying their genuineness, the Superintendent shall deface the documents and return them to the manufacturer. The Collector may, having regard to the nature, variety and extent of production or frequency of removal provide for a period shorter than 1 month for submission of such return in respect of any assessee or class of assessees. He may also permit filing of the aforesaid return by an assessee within a period not exceeding 21 days after the close of each month. He may also permit filing of the aforesaid return by an assessee within a period not exceeding 21 days after the close of each quarter where the assessee is availing of an exemption based on the quantity of clearances during a financial year. In case the manufacturer is not in a position to file the aforesaid return on time for sufficient cause, the Assistant Collector may allow the manufacture to take credit of duty paid on inputs, condoning the delay and giving reasons in writing for such condonation. The Assistant Collector must see that the following conditions are satisfied before giving allowing such modvat credit: -

before six months from the date of filing declaration and not before date of eligibility for modvat credit. paid on these inputs.

products.

procedures and must get registered with the Central Excise authorities. He must maintain stock account in the RG 23D. He shall make entries in RG 23D at the end of the day of receipt and issue of excisable good and:-

cancel, obliterate or alter any entry therein except for correction of errors

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authorities and allow such inspection the records to the concerned officer. Such person shall issue serial-wise invoice containing details as prescribed by the Central Board of Excise and Customs or by the Collector of Central Excise in quadruplicate as follows:er.

The invoice contains the following details:

of duty, duty debit entry in the PLA, date and number of such entry. manufacturer falls, name and address and code number, excise registration number of the factory and also the name and address of the consignee, description and certification of goods, number of packages, total quantity of goods, total price of goods, total assessable value, rate of duty, total duty paid, serial number of debit entry in the personal ledger account, date and time of removal of goods, mode of transport, motor vehicles registration number and certificate duly signed by authorized person stating that what is stated above is True.

invoice book.

year beginning on the 1st. April each year. The registered person for removal of excisable goods at any one time shall use only one invoice book of each type unless otherwise specially permitted by the collector in writing.

secretary shall authenticate each foil of the invoice book, as the case may be, before being brought into use by the registered person. The serial number of the invoice before being brought into use shall be intimated to the Assistant Collector of Central Excise and the registered person shall retain dated acknowledgement of receipt of such intimation. When the invoice is generated through computer, serial number likely to be used in the forth-coming quarter shall be intimated to the Assistant Collector of Central Excise and as soon as the same is exhausted, a revised intimation must be send. Records and invoices generated through computer are also recognized. Such registered dealer shall send details in software used including the format for information to the Assistant Collector of

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Central Excise. Rule 57I The excise authority may disallow modvat credit, which has been wrongly availed or incorrectly utilized. In case modvat credit has been taken on account of error or misconstruction, the proper officer may send notice to the manufacturer within 6 months from the date of filing of return to show cause why such modvat credit should not be disallowed. In such cases, where modvat credit has already been utilized, show cause notice must state the utlized amount must not be recovered from the assessee. In case such wrong modvat credit is on account of willful mis-statement, collusion or suppression of facts on the part of manufacturer, instead of the aforesaid period of 6 months, notices may be sent for a period within 5 years from date of availment of modvat credit. The period of stay by court order will not be considered while determining the aforesaid period. The proper officer must consider the representation of the manufactTurraen wspiotrht arteiogna rMd ix to the show cause notice and thereafter to determine the amount of disallowance, if any. Introduction of the Cenvat Scheme The Modvat system, which has been operating in the country, has now become the Cenvat Credit Scheme and the Modvat Rules have been replaced with a new set of Cenvat Rules, combined for inputs and capital goods effective from 1.4.2000. The scope of definition of inputs/capital goods has been widened. A major disappointment of industry is that H.S.Diesel has been specifically kept outside the purview of the Cenvat Scheme. Cenvat credit on capital goods imported under Project Imports are now allowed @ 100 % full instead of 75%. However, this credit can be claimed in a phased manner of more than 1 year, provided the capital goods are still in the possession and use of the manufacturer. It is not necessary to avail Cenvat Credit only after installation of the capital goods. Cenvat Credit on capital goods received after 1.4.2000 will be allowed only to the extent of 50% of the duty paid. The balance credit can be availed in any subsequent financial year, provided the capital goods are still in the possession and use of the manufacturer. In case of capital goods which have been received prior to 1.4.2000 but have not been installed prior to 1.4.2000, Cenvat Credit @ 50% can be claimed in the financial year 2000-2001 and balance in subsequent financial years. The Modvat Credit on inputs or capital goods accrued prior to 1.4.2000 and remaining unutilized on 1.4.2000 can be carried forward as Cenvat Credit. Cenvat credit on items such as lubricating oils / grease, coolants are now covered in the definition of inputs.

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The procedure for defacing of the duty paying documents by the Central Excise officers has been dispensed with, thereby giving assessees administrative ,convenience. The procedure for maintaining RG-23A Part-I Register has been dispensed with, provided the assessee maintains all the required records as part of his normal accounting system in a manner in which he finds suitable and all the relevant information is contained in the records. Inputs and semi-finished goods can be removed from the factory for further processing or sub-contracting without debiting duty @ 10% of value of the inputs. Such goods must however, be received back within 180 days. Otherwise, the entire Cenvat Credit claimed will have to be reversed. The Cenvat Credit can be claimed again when the goods are received back. The scheme for issue of invoices by registered dealers upto second stage dealers has been continued. However, the procedure for authentication of the invoices by Central Excise Officers in case of importers has been dispensed with. The procedure of authentication of invoices issued by the second stage dealer or an by first stage dealer in respect of the imported materials has also been continued. The procedure for filing Modvat Declaration under rule 57G and rule 57T(1) has been dispensed with. However, the onus of proving admissibility of Cenvat Credit is now on the assessee. The procedure for movement of the inputs under the existing rule 57 f(4) and for movement of capital goods under rule 57S has been dispensed with. The assessee can now use his own challans, memos or any other document evidencing that the goods sent to job-workers have been received back. A Manufacturer of the goods failing under Ch.39 of Central Excise Tariff Act and manufacturing the dutiable goods as well as exempted goods will now be required to: i) Either maintain separate accounts for receipt, consumption and inventory of inputs used in the manufacture of exempted goods and exempted goods and take credit only for those inputs used in the manufacture of dutiable goods ;or ii) To debit 8% of the value of exempted goods at the time of clearance of such exempted goods. Cenvat Credit may be claimed on the basis of invoice, bill of entry or any other prescribed document indicating payment of duty. Service Tax The major change as far as service tax is concerned is that the Supreme Court Judgement has now been over ruled by amending the law with retrospective effect. The Central Excise Department can now recover service-tax collected by the users of the services. With the result no refund of service-tax paid on the services of goods transport operators and clearing and forwarding agent would be granted. Customs Duty The peak rate of Customs Duty has been reduced from 40% to 35%. Special Custom Duty of 10% of basic Custom Duty is being continued with and it is applicable to the peak rate of 35% also. SAD @ 4 % is now being made applicable to imports of goods by traders also.

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In this year’s Budget the Finance Minister has attempted to make several changes in the Modvat Scheme, firstly calling it “Cenvat” (Central Value Added Taxes), and these new set of Rule 57A to 57I were introduced in Budget 2000 vide Notification 11/2000 (N.T.) dated 1.3.2000, which now are suddenly replaced vide an entirely new set of Rule from 57AA to 57AK vide Notification No. 27/2000 (N.T.) dated 1.3.2000. It is rather unfortunate that this notification was released just one day before the rules become applicable due to which many of the assessees were not even aware of such amendments. Even now, the industries are so confused that they are yet to get the hang of all the procedures and documentations to actually say the procedures are easy. These new set of rules are welcome to the industry as they are based on the various representations to remove the lacunas in the earlier rules but unfortunately still some of the major procedures present under the Modvat Scheme were missing in these new set of rules. Under this new Cenvat Scheme, the assessee need not file any declaration to department and he can now avail credit under Rule 57AB for the goods ie. Inputs and capital goods as mentioned in the list, thus making only one set of rules for inputs as well as for capital goods. Moreover there are no prescribed documents and records to be maintained. This was a welcome scenario but soon it is realised that this is a rather dangerous situation as each one will have different types of records and each one will call it with a different name. Hence the entire onus it is on the assessee, regarding correct documentation. According to me this will lead to a very strict audit by the department and there are more chances of flaws now than earlier, as these audits are not only restricted to Excise but also all the related areas. The new Cenvat rules have been amended such that the earlier crucial rules, which were not included, are included now. But, still there remain some gray areas which are not yet covered under the revised Cenvat rules like, there is no mention of the words waste and scrap, even when it arises during the course if manufacture of the final products; or in respect of waste and scrap arising during jobwork. There is no mention of intermediate product as the earlier Modvat Rule 57D. Even adjustment of credit under Rule 57E is not provided, where if the differential duty is paid, whether the assessee is allowed to avail Cenvat or not is not clear. Though under the new Cenvat Rule 57AG(2), it is mentioned that when the manufacturer upto for exemption from whole of the duty in respect of goods manufactured under any notification based on value or quantity of clearances in a financial year, and if is availing credit of duty paid on inputs before such option is

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exercised, he has to pay an amount equivalent to credit allowed to him in respect of inputs lying in stock or used in any excisable goods lying in stock on the date of such option and excess credit if any shall lapse. However, no provision is made to take credit when the manufacturer opts for Cenvat Scheme for the first time or at any time during the financial year in respect of inputs lying in stock on the date he opts to avail Cenvat. Moreover, there is no provision provided for direct delivery of inputs to the job worker as earlier 57J, or even in case of sending material from one job worker to another. There is no provision to store inputs outside the factory. After all the hue and cry re-drafting of the new set of rules and bringing in Notification 11/2000 dated 1.3.00, it was a pity that industries started following the scheme, without being aware of the revised Cenvat rules, this is bound to create a scope for unnecessary litigation. And I hope that the Central Board of Excise and Customs provides instructions for not taking any actions for not following the new Cenvat Rules with immediate effect.4 4 Shilpa Pandey, Excise and Service tax Consultant

State Wise Document Required for Goods Transports States Sales Tax Form Local Sales Tax No. Octroi Remarks Permit No. Andhra Pradesh Not Required Consignee GST / CST Mandatory No Note Assam Note Required No Note Bihar 28B (R Permit) Required No Note Chandigarh Not required Required No Note Delhi Not required Required No Gujarat Not required Consignee GST / CST Mandatory Yes Note Goa Not required Required No Haryana Not required Required No Note Karnataka Not required Consignee KST/CST Mandatory No Note Kerala Note Consignee KGST / CST Mandatory No Note Madhya Pradesh Note Required No Note Maharashtra Not required Required Yes Orissa Waybill No.32 Required - Note Pondicherry Not required Required No Punjab Not required Required Yes Note Rajasthan Form 18A Required Yes Note Tamil Nadu Not required Consignee GST / CST Mandatory No Note

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Uttar Pradesh Form 31/32 Required No Note West Bengal Note Required No Note Chattisgarh Form 59 A Required No Note Jharkhand Note Required No Note Uttaranchal Note Required No Note

General Requirements

les Tax (LST) Numbers: All invoices must have both the sender’s as well as the recipient’s Central Sales Tax (CST)/Local Sales Tax (LST) numbers printed.

shipments in their states without the local sale tax numbers.

Kerala: Only an original copy or a carbon copy of the invoice is acceptable. Photocopies are not acceptable. The consignee’s KGST3 (Kerala Government Sales Tax) and CST number must appear on the invoice. Form 27 A is no longer required for a non-registered party, but the party should give a declaration in duplicate the reason for the purchase of the goods outside Kerala. The declaration should be on its letterhead and should accompany the shipment into Kerala. If the items categorized below are sent to the Consignee without a KGST3 number, an entry tax would be applicable: Product Tax(%) 37 Air Conditioner/Refrigerator/Washing Machine 12% Transportation Mix Iron and Steel 4% Granite 8% Marble 10% Furnace Oil 10% Generator/Inverter 12% Photocopier/Fax Machine/Scanner 8% Entry Tax is not applicable to: Computers, components and spares/Other machinery Computation of Tax: Tax is computed on: - total invoice value + freight + handling and clearing charges. These should be shown on the invoice. Entry Tax is exempted if:

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The Consignee is a registered dealer having KGST (Kerala Government Sales Tax) numbers. These numbers should be printed on the invoice. The Consignee is a Central Government body i.e. Railways/Postal/All Defense Services/Telecom/CBI/Account General Offices. The rest of the Central and State Government bodies are subject to applicable taxes. Any shipment traveling out of Kerala has to be accompanied by Form 26 in the absence of a regular commercial invoice. Activity1 As supply chain managers please read the laws, rules and regulations governing insurance, sales tax as applicable to India and neighboring countries. Critically examine these laws in the present scenario. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. ............................................................................................................................. India, Switzerland and the United States: How Countries Avoid Liability after Disaster (Bhopal gas Tragedy) (Downloaded from the Internet site Disaster management By Karyn Keenan) Mass disaster, illustrated by the tragic Bhopal accident, often affects multiple parties, both individuals and nation states, and involves several legal jurisdictions. To resolve such a legal conundrum, it is instructive to examine which parties escape liability as well as those who fall prey. Significantly, in several of the worst international accidents involving hazardous technologies and activities, nations that were arguably responsible for the damage sustained, at least in part, escaped liability. This paper explores how both importers and exporters of dangerous technology avoid accountability, and whether or not the legal apparatus exists for their prosecution. IMPORTING COUNTRIES On December 2, 1984, forty tons of methyl isocyanate (MIC) leaked from the Union Carbide India Limited (UCIL) plant in Bhopal, India. Considerable evidence indicates that India was at least, in part, responsible for the accident. Government regulation of 38 Distribution Network Planning industrial hazards is generally ineffective in this country. Inspection departments are understaffed; those agents who are employed are poorly trained; and funds are scarce. In addition, regulatory legislation is largely ineffective. Implementing

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procedures for requirements had not yet developed, set out under the Factories Act of 1948. (Castleman et al, 1985). Similarly, the Water Act of 1974 and the Air Act of 1981 both designed to control pollution, are neither implemented nor enforced effectively. Moreover, there is a deficiency of meaningful health and safety regulations, which are actively enforced. Violations of what little law does exist are met with paltry fines and take years to prosecute (Abraham et al, 1991). India’s failure to adequately plan for the plant’s associated risk became obvious in the aftermath of the accident. Medical facilities were unprepared for the disaster, and the local community had been given no information regarding the risk inherent in plant operations. Neither warning nor emergency procedures had been established (Cassels, 1991). Moreover, the Indian Government failed to respond when the risk of serious incident became known. A series of leaks, one involving the death of an employee, preceded the December 1984 accident. Significantly, Indian financial institutions owned approximately twenty per cent of UCIL stock (Cassels, 1991). In addition, Muchlinski (1987) reports that originally, UCC preferred not to construct a plant in India, but rather, to import pesticides manufactured in the United States. India desired self-sufficiency in pesticide production and accordingly, opposed UCC’s proposal. UCC gave in to India’s requests and agreed to construct the Bhopal plant. India’s failure to draft, implement, and enforce effective regulatory legislation, its neglect for government inspection departments, its failure to respond to obvious signs of impending crisis, its poor performance in anticipating and planning for potential accidents, its interest as a minority owner in UCIL, and finally, its responsibility for the establishment of the plant, point to certain liability in connection with the Bhopal disaster. Despite compelling evidence of culpability, India’s liability toward disaster victims was never considered in the litigation. Following the accident, Americans initiated suits in their domestic courts on behalf of thousands of Indian litigants. In response to the extraordinary circumstances of the situation, including the enormous number of litigants, their inability to effectively seek relief, and the international character of the incident, The Bhopal Gas Leak Disaster Act (Bhopal Act) was passed. This Act gave the Indian federal government parens patriae control of the case, allowing it to appropriate the exclusive right to act on behalf of any person who wished to make a claim with respect to the accident (Abraham et al, 1991). Absolute control over the litigation allowed India to ignore any claim brought against itself. Moreover, as the representative plaintiff, it’s questionable whether it would be possible for India to sue itself!

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This unprecedented act did not pass unnoticed. Bhopal victims claimed that the statute unfairly denied them of control over the proceedings. Others argued that because India was potentially liable both as a shareholder in UCIL, and with respect to its regulatory duties, conflict of interest barred it from acting as the victim representative. Furthermore, the Act jeopardized all future judicial decisions. American courts hearing the case or enforcing an Indian decision were likely to question the legality of the Bhopal Act. It is suggested that the Act both infringes upon individual rights and fails to meet acceptable standards of due process, and accordingly, would prevent a successful claim of the parens patriae doctrine (Cassels, 1991). Post settlement, the constitutionality of the Act was challenged. In December 1989 the Supreme Court of India upheld the statute, explaining that the Government’s use of the parens patriae power was justified, considering the imbalance in available resources between UCC and the victims. The Court also stated that Ttrhaen sipnotertraetsitosn oMf ix the victims were sufficiently protected by the Act (Cassels, 1991). The Indian Government’s ability to pass legislation granting it exclusive, parens patriae power to control the Bhopal litigation precluded any inquiry into its culpability. The ruling of the nation’s most exalted judiciary fortified this position. However, India could not legislate away the counter-claim of its defendant. UCC counter-sued the governments of both Indian and Madhya Pradesh in the Southern District Court of New York. The suit was maintained following relocation to India. However, settlement between India and UCC prevented the resolution of this counter-claim (Koh, 1989). On October 31, 1986, fire broke out in the warehouse of the Swiss pesticide manufacturer, Sandoz. Due to the absence of an established catchments area, fireextinguishing efforts washed thirty tons of the chemicals into the Rhine. In contrast to the Bhopal disaster, the corporation utilizing hazardous technology in this case was domestic, and the accident caused trans-boundary damage. However, both cases involve international claims. In both situations, the plaintiffs privatized their claims, and the nation that was home to the dangerous activity avoided liability. Through inadequate supervision over both the development and implementation of Sandoz’s emergency plans, as well as its storage methods, Switzerland breached its obligations under the Berne Convention on the Protection of the Rhine against Chemical Pollution. Furthermore, Switzerland failed to satisfy its obligations under Articles 7 and 11 of the Rhine Chemicals Convention, regarding the storage of chemicals, containment of spills, and the notification of the International Commission for the Protection of the Rhine (ICPR) (D’Oliveira, 1991). Despite these breaches of both its international legal obligations and domestic

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responsibilities to regulate industry, no claims were brought against Switzerland, either by the foreign governments, which were affected, or by private citizens who sustained damage. Instead, all responsibility was placed, in accordance with the polluter pays principle, on the shoulders of Sandoz. The most important claims from foreign litigants were those made by the Governments of the Netherlands, France and Germany. These countries channeled all claims from their nations directly to the Swiss Government, who transferred them to Sandoz. The Swiss Prime Minister personally pledged the support of Swiss offices for the purpose of reaching settlement. The claim channeling strategy was extremely efficient and by mid-1988, over ninety percent of claims had been processed. The majority of unsettled claims were Swiss. The Swiss strategy was to create an efficient government-clearing house for claims, which dealt preferentially with foreign claims. This strategy likely included Government pressure on Sandoz to quickly resolve the claims through settlement, in order to avoid litigation that could easily have involved the Swiss. It is conceivable that Sandoz received some form of compensation for its compliance. Although successful, no strategy, regardless of its efficiency in concluding settlement, would have deterred litigation if the injured parties were determined to sue. Dâ&#x20AC;&#x2122;Oliveira (1991) suggests that the Netherlands, Germany and France were aware of the significant possibility that any one of them could find itself in Switzerlandâ&#x20AC;&#x2122;s position in the future. By ignoring Swiss liability, it is probable that they anticipated comparable future treatment. Furthermore, these countries wished to maintain friendly relations at the ICPR. The Indian and Swiss governments adopted different, but equally effective strategies for avoiding liability. Exclusive legislative power and unacceptable high probability of future European accidents were the tools handily wielded by India and Switzerland.

EXPORTING COUNTRIES Great discrepancy existed between the standards of operation, which were enforced at the UCIL plant in Bhopal and those at the UCC plant in Institute, West Virginia. The Bhopal plant was designed less safely than the corresponding facility in Institute. A May, 1982 safety audit of the Bhopal plant by the Union Carbide headquarters engineering group revealed dangerous operating conditions, which would have merited immediate corrective action in the U.S.A. Nothing was done in India. The corporate safety and health audit, which revealed this information, was the only one of its kind for Bhopal in seven years of operation. In contrast, American plants were audited every two years. Furthermore, other

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industries manufacture MIC using a far less toxic process than UCIL. Still other manufacturers choose not to use MIC, or store it in small amounts only, converting it to product as quickly as possible (Castleman et al, 1985). Based on the few examples listed above, it is clear that UCC took advantage of the foreign locale of its subsidiary and failed to enforce U.S. standards of industry regulation on UNIL. What is at least as significant, however, is the failure of the United States to enforce the implementation of those standards on UCC. Despite arguable liability on the part of the United States for the unsafe operation of UNIL, India failed to bring a claim for American breach of international law, or to seek a bilateral agreement for reparation. India instead privatized its claim. By characterizing itself as an injured state to which UCC owed liability, rather than as an international plaintiff, India avoided vulnerability to counter-suits in international law. The Amoco Cadiz supertanker grounded in the territorial waters of France in March 1978, spilling dangerous quantities of crude oil. The American company owned the ship, through various subsidiaries, Standard Oil. The Spanish company, Astilleres Espanoles, designed and constructed the ship. The Government of France joined by other injured parties, initiated litigation in the American court system. Standard, its subsidiaries, and Astilleres Espanoles were found liable for negligent design, construction and maintenance of the ship. However, no claims were made against the United States for its failure to regulate the extraterritorial operations of Standard. Scovazzi (1991) argues that it is doubtful that a principle of customary international law has been established which requires states to regulate the activities of their MNCs abroad. This uncertainty in the law may have discouraged France from bringing an action. Moreover, like India, France may have feared exposing itself to possible counter-suit as the host country within whose jurisdiction the accident occurred. Handl (1985) supports Scovazziâ&#x20AC;&#x2122;s assertion, and states that under customary international law, a country which authorizes the export of a hazardous technology is not liable for accidental damage occurring in the use of said technology. In the absence of international law, Handl (1985) looks to the criterion of control over the technology to determine responsibility. He argues that practically, the host country exercises this control. However, control can be defined expansively. Maritime law illustrates the principle. Generally, vessels are deemed to be in the control of their states of origin (Flag State), despite the fact that they may be found in the territory of another. This is especially true with respect of those areas of operation over which the host country exercises no control, such as construction of the ship and the operation of its equipment. Applying this principle to MNCs in place of ships, the

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United States would be held responsible for damage occurring as result of inadequate safety measures regarding those aspects of operation over which it had greater control than India. Considering that the U.S.A. controlled the plant design and construction, as well as the technology utilized in the plant, its prescriptive jurisdiction over UNIL operations is a convincing reason for holding the United States liable. In its document, Liability for Injurious Consequences Arising Out Prohibited by International Law, the International Law Commission argues that an exporting state should be subject to strict liability for damage arising out of accidents concerning an area over which it has prescriptive jurisdiction. Smith (1988) argues that the appropriate standard is due diligence, but that if an exporting country is aware that the host lacks the technical and administrative capabilities necessary to prevent the dangers associated with the technology, due diligence may require prohibiting exportation. Francioni (1991) contends that the argument used by home countries that they lack the jurisdiction to enforce domestic safety and environmental standards on MNCs located abroad is hypocritical. Exporting countries have successfully applied their antitrust laws, fiscal and currency regulations, and trade union laws, among others, to MNCs. This author further argues that international law provides a basis for home country liability. Principle 21 of the Stockholm Declaration on the Human Environment states that nations are responsible to ensure that activities, which are within their jurisdiction or control, do not cause environmental damage. Francioni (1991) argues that the concept of control includes the type of power exerted by parent corporations over their subsidiaries. He also looks to international human rights law. Several international instruments proclaim the right of individuals to a healthy environment. If the export of a hazardous technology jeopardizes the health of the host countryâ&#x20AC;&#x2122;s environment, the exporter could accordingly be found liable in international law. Although several convincing arguments exist for holding exporting nations liable, developments in the regulation of MNCs do not support this contention. International organs are increasingly involved in the drafting of MNC codes of conduct. Neither the U.N. Draft Code of Conduct on TNCs, nor other similar instruments provide exporting state responsibility for noncompliance of parent companies (Handl, 1985). Until the ability of government to legislate absolute control over MNC accident litigation is challenged and potential plaintiffs overlook their self-interest as future foundations described above, exporter liability remains undeveloped. This weakness must be addressed in order that countries such as India, Switzerland, the United States are held responsible for their reprehensible behaviour. An important could know fact and figures from Labour Bureau has been included based on bidi workers in India as per minimum wages act of 1948.

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SUMMARY Legal issues play a very important role in SCM. Supply management professionals deal with two major aspects of law: - the law of agency and law of contracts. This unit has attempted to explain the entire process of SCM in which a supply manager is likely to get involved in lawsuits, legal hassles and how can he overcome or avoid these. The unit covers an overview of the sales laws, environmental realities and their implications on supply chain, warehouse operations and jurisdiction. . It has discussed the rules and regulations in handling the wages of workers Issues pertaining to documentation: Insurance and Sales tax were also discussed.

SELF ASSESSMENT QUESTIONS 1) As a supply chain manager critically evaluate the laws and regulations of both India and EU countries. 2) How will you arrange for Insurance cover in case your vehicle meets with an accident and causes extensive damage to the goods, in the State of Assam? 3) What are the relaxations of Sales tax on goods across the various states in our country and can we overcome this by a single document procedure? 4) As a warehouse manager list out your duties from receiving the goods to its delivery to the manufacturer or to the end consumer. REFERENCES AND SUGGESTED FURTHER READINGS 1) Central excise and Sales Tax laws books. 2) Books on commercial laws 3) Case studies on Litigations and company legal proceedings. 4) Internet sites www.comerciallaws.com , www.salestax.com

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SUPPLYCHAI N MANAGEMENT

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