Co operate sept 2014

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Message from the Editor It's an honour for my team to bring you the September, 2014 edition of "Co-Operate", the Operations magazine of SIBM Pune. With the increased complexity in organizations, it has become increasingly difficult to maintain efficient supply chains, especially in emerging countries. In a world which is highly interconnected, a small shock in supply chain in a far of country can lead to repercussions in another country. This brings us to the theme of this edition which is "Supply Chain in emerging economies". The articles in this edition are focussed around this theme to re-iterate the same. We continue the tradition of providing new insights through our columns - Guru Speak, Jargon Demystified and An Interesting Read. The new addition in this series is "Company Spotlight". We sincerely hope that you will thoroughly enjoy reading this edition and encourage us in our endeavour.

Mandeep Singh, MBA-II

Dinesh Melangi, MBA-II

Editor

Co-Editor

Cover Page Design

Prabha Nadar, MBA-II

Poonam Chauhan, MBA-II

Content Team

Ideas Team

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What's in this Edition New Trends in Operations....................................................................3 Guru Speak: Shingeo Shingo................................................................4 Japanese Tsunami and Supply Chain Risks by Bhavik Makwana, MBA-I...................................................................................................5 Logistics India: Strong on its Legs? by Debopam Das, MBA-I……...9 Jargon Demystified: 3M……………….............................................14 The Agile Supply Chain: Need in Emerging markets by Gopi Krishna Madiraju, MBA-I................................................................................16 CPFR- The emerging model in Supply Chain by Gourab Barma, MBA-I.................................................................................................19 Supply Chain in Emerging Markets - Reasons, Challenges and Future by Pooja Deshpande, MBA-I……......................................................22 RFID in FMCG Product Business by Diptendu Das, MBA-I............25 Supply Chain Strategies for Emerging Markets by Mandeep Sandhu, MBA-I.................................................................................................29 MRO Purchase: The e-reverse auction way by Karthik M, MBAI...........................................................................................................33 Supply Chain in Ecommerce Industry by Meenakshi Tripathi, MBAI...........................................................................................................38 An Interesting Read: The Strategic Importance of Reverse Logistics…………………………………………………………………………………40 A Glimpse into Operations Management...........................................43

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New Trends in Operations : VMI v/s Consignment Model the system level inventory doesn’t reduces much. This issue is tactfully addressed by Consignment model.

We often have heard of the term VMI viz. Vendor Managed Inventory but have we not heard of the consignment model. How do we know which model is better? In this article discuss each of the term one by one and positives and negatives for supplier and customer.

Consignment Model: It is a stock which is held at the premises of the customer but legally owned by the supplier, on terms that give the right to sell or use the stock during the normal course of business or to return it unsold to the legal owner.

VMI: It is a streamlined approach to managing inventory and replenishment. It involves close collaboration between the supplier and customer, with the vendor taking responsibility for maintaining required supply levels at all times.

Customer benefits: the most obvious benefit is having no capital expenditure and little or no risk occurs in stocking items and this is therefore a cost saving because the cost and risk is still held by the supplier until items come out of stock and are used. But costs do exist for the space given over to the inventory storage and the cost of managing of it (often separately to other stock).

Customer benefits: they will have less hassle by not having to schedule orders to meet their own needs and guard against stock-outs, this aspect is now controlled by the supplier who can better schedule their processes to meet usage and stock levels. Improvements in service and costs are obvious alongside better focus and control of time.

Supplier Benefit: Supplier gets the opportunity to sell its products especially those which are new and unproven, thereby giving the access to the market and selling its products. Moreover, there is at times sharing of the profits between the supplier and customer, thereby making a win-win situation.

Supplier benefits: mainly revolve around better and longer contract basis helping its planning and production, but also aiding future development with greater ability to forecast income levels over time. Overall reduction in stocks and costs should be the end result, with fewer errors and no extra costs being incurred.

Since, the inventory is owned by Supplier it is also termed as Vendor Owned Inventory (VOI). Moreover, the inventory level of the whole supply chain is also reduced if implemented efficiently and also reducing the Bullwhip Effect.

Although it helps in reducing the Bullwhip Effect but there can be one problem that supplier can normally push the products more at the customer level keeping its inventory stock minimum and thus overall

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Guru Speak: Shingeo Shingo concepts of “Mistake-Proofing.”In 1969, SMED was originated when he cut the setup time on a 1000 ton press at Toyota from 4.0 hours to 3.0 minutes. During the 1970′s, Shingo travelled in Europe and North America on many lectures, visits and assignments. He began to see Toyota’s efforts as an integrated system and began to assist several U.S. and European firms in implementation. Shigeo Shingo was born in 1909 at Saga City, Japan where he attended the Saga Technical High School. After graduation from Yamanashi Technical College in 1930 he went to work for the Taipei Railway Company. In 1943 Shingo was transferred to the Amano Manufacturing Plant in Yokohama.

Dr. Shigeo Shingo has written 14 major books and hundreds of important papers on manufacturing. The Shingo Prize is awarded for excellence in manufacturing as a tribute to Dr. Shingo and his lifelong work. Dr. Shigeo Shingo and Mr. Taiichi Ohno created the backbone of the industrial revolution known as the Just-In-Time system, the powerful effects of which have altered the international economic order. Dr. Shingo is the teacher and Mr. Ohno is the manager.

As Manufacturing Section Chief, he raised productivity 100%. Shingo worked for several manufacturers in 1945 and 1946 and also began a long association with the Japanese Management Association (JMA). From 1946-1954 Shingo had many assignments, delivered several important papers and crystallized his ideas on process and plant layout. He also applied Statistical Process Control.

Dr. Shingo's study explains the philosophy behind the Toyota Production System, provides additional information where required, criticizes weaknesses, gives credit where it is due, and highlight the system's important aspects.

In 1955, Dr. Shingo began another long association, this time with Toyota in addition to his many consulting assignments in other industries. It is during this period that he first started work on setups by doubling the output of an engine bed planer at Mitsubishi’s shipyard. In 1959, Dr. Shingo left JMA to start his own consulting company.

Shingo has developed the following conclusions from his study:  Elimination of the waste of overproduction cannot be achieved without SMED (single minute exchange of die)  Shortened cycle times demand small lot production (SMED is crucial here as well)

During the early 1960′s, as an outgrowth of work with Matsushita, he developed his 4


Japanese Tsunami and Supply Chain Risks Bhavik Makwana, MBA-I

As this idiom suggests that the strength of a chain is limited only by its weakest link, same thing applies for supply chains also. In Supply Chains, there are many links which are connected together to make a chain of delivery of products or services to end user taking in account manufacturing productivity needs and efficiency. A single bottleneck in a sequence of processes can affect whole chain largely and it can be resulted into a failure. This paradigm was firstly mentioned by Dr. Eliyahu M. Goldratt in his book “The Goal”. Later, this concept was broadly conceptualized in many areas of product delivery. Generalized assumptions and solutions are provided within ambit of principles of TOC-Theory of constraints.

of western manufacturers. These Firms engaged in global manufacturing are vulnerable to the disruption of their supply chains in case of any unwarranted situation. Many factors affect the interconnectivity of a supply chain like geopolitical, environmental, economic etc. High impact, low probability environmental events now seem to be almost a regular occurrence. This is not necessarily because problems are happening more often, but because in a globally interconnected business environment, problems that used to remain isolated now have bigger impacts. According to the 2012 World Economic Forum risk report, of the 25 most costly insured catastrophes in the past 40 years, two-thirds have occurred since 2001. In 2011, An earthquake shocked the Pacific coast of Tōhoku ,Japan with magnitude of 9.0.It was off the coast of Japan and occurred at 14:46 JST (05:46 UTC) on Friday,11 March 2011, with the epicentre approximately 70 kilometres east of the Oshika Peninsula of Tōhoku. The exceptional nature of the Japanese Tsunami disaster by-passed any security procedures embedded in normal supply chain management practices. The strategic role played by Japanese firms means that they cannot be easily replaced by foreign suppliers. Indeed, soon after the disaster, production slow downed and even disruptions began to register in many of the Japanese affiliates abroad and in some foreign industries relying on Japanese inputs.

Japanese Tragedy Japan has been a pioneer in innovative supply chain optimization techniques. It rose to become world's second largest manufacturer during the 1960s and 1970s.Japan has been developed into a central hub for international supply chains (WTO and IDE-JETRO 2011). Japanese manufacturers outsourced a major part of their production bases to low-cost neighbouring Asian countries after responding to the sharp appreciation of yen in 1985.It provided many intermediate products for major producers in USA. Many automobile companies started importing Japanese technology as it was cheap and quality assured. As global economies are coming together, they are also becoming dependent upon each other.

Repercussions of Japanese disaster were felt throughout the world. It affected not only in terms of human capital but also economic loss was of enormous amount. This disruption caused exports in Japan to fall 9.7% in March after initially rising

Any firm aiming for global leadership must look beyond boundaries of its own country and thus off shoring and importing from eastern companies became backbone

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14.8% in the two weeks prior to the quake, as reported by the Japanese Ministry of Finance in the Wall Street Journal on April 20, 2011. The Journal also reported that shipments to the U.S. alone fell 3.4%.

faced components shortages and hence supply chain was affected. It created one of the biggest bottlenecks of supply chain and company finally had to postpone the launching of these models. It re-launched Neo as “Neo V� in other Asian countries following the supplier shortage of 8 megapixel camera sensors and reengineered new model by putting 5 megapixel sensors instead of 8 megapixel. In another case, a factory that was the sole supplier of brake parts for a major Japanese automobile manufacturer was destroyed. The production disruption immediately shut down the manufacturer’s just-in-time supply chain, forcing 18 plants to close for nearly two weeks resulting in a total loss of sales on the order of $325 million. Manufacturers of automobiles were largely affected with year-on-year production decreased for 2011 as can be seen from the graph below.

Japanese SMEs with global market share

Japanese SMEs share a large market globally which are prime suppliers of many important components. A French automobile manufacturer realised, the unavailability of only one engine part could shut-down whole assembly lines. Another factory in Japan manufacturing 60 percent of global car engine airflow sensors was shut down during the disaster which made many competitors fight for scarce availability of sensors. Companies having highly optimized inventories saw their cost-cutting efforts and just-in-time strategies drowned by the financial and reputational cost of supplier disruptions Many companies were not in position to secure similar inventory and were forced to purchase higher-cost, in-efficient, spare supplies in the open market. They were forced to get engineers out of research and development to redesign their products and production to accommodate these spare parts, which lead to lost innovation and delayed a new product launch, which only intensified the sales disruption. For example, Sony Ericsson smart phones models like Xperia Neo, Arc and Play

Recovery after Disaster Companies with flexible manufacturing and supply chain capabilities generally recovered more quickly than their less resilient counterparts after tsunami. For example, a leading printer manufacturer was reportedly able to restore production to pre-disaster levels in less than four months thanks to an established business strategy of diversifying parts production to mainland China and various areas throughout Japan. Collaboration was 6


another key to rapid recovery. Japanese automakers worked closely with their key suppliers to help them get back on their feet. Toyota and Honda which were major exporters to U.S. began bouncing back as soon as they can. Toyota's U.S. market share of 13.9% is nearly back to its predisaster levels and Honda got its’ 9.6% back.

assessment before considering any interconnectivity. Supply chain logistics and cost have to be optimized and counterbalanced with proactive risk management tactics. Customer expectations are rising and product lifecycles continue to very. Today’s buyers expect businesses to deliver customized products that are better, faster and cheaper.

Companies that built business with risk management controls into their supply chains also had a significant advantage in bouncing back from the disaster. One semiconductor manufacturer recovered more quickly than its peers thanks to a strategy it had developed in the aftermath of an earthquake three years earlier. The company created flexible manufacturing capabilities that could handle silicon wafers of varying dimensions. It also established continuity plans for shifting production to unaffected manufacturing facilities in other parts of Japan and Asia. Within three months of the disaster, five of the companies chip plants were already back at pre-tsunami production levels.

Extended Value Chain

Functional

Supply Chain Risk Operational

Macro Environmental

A holistic approach to managing supply chain risk should consider four distinct risk categories:

Supply Chain Risk

Macro environment risks

Japanese Tsunami made Asian supply chain owners to become more inclusive while designing Supply Chains and they took help of Risk Assessment. Supply chain risk is never-ending push to improve operating efficiency and reduce costs. Although trends such as lean manufacturing, just-in-time inventory have helped companies improve efficiency and cost-optimization, they have also introduced new kinds of supply chain risk and reduced the margin for error without providing appropriate counter-balancing to help mitigate risk. As manufacturers are aiming robust and cost-effective business, they spread their supply chain throughout the world. Managers have to balance the costs of keeping high inventories which are crucial for providing cushioning in disaster, and the risk of pure "just in time" production. Companies need to have a comprehensive Supply Chain risk

They are broad external forces that affect the entire business and supply chain. For example, globalization can give businesses access to less expensive labour and materials, and opens up vast new markets. But it also increases supply chain complexity, increases the probability and magnifies the impact of disruptions that might have remained locally isolated such as natural disasters, political turmoil, piracy and regional economic crises. Extended value chain risks It is risk related to company’s upstream and downstream supply chain partners. Increased use of outsourcing has improved efficiency and has allowed businesses to focus more attention on their core competencies. But it has also made their operations more complex and exposed them to increased third-party risk. 7


Operational risks They are tied to a company’s internal manufacturing and distribution operations. Lean manufacturing, just-in-time inventory and capacity rationalization may have boosted supply chain efficiency and may have made businesses more agile and responsive. But by reducing slack in the network, they have also reduced the margin for error and amplified the disruptive potential of any problems that can happen.

Functional risks They are related to the business functions that support supply chain activities, such as finance, HR, legal and IT. Many of today’s’ supply chains are enabled and supported by a broad suite of applications and systems.

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Logistics in India: Strong on its legs? Debopam Das, MBA-I

Introduction to Indian Logistics:

Indian logistics sectors turns out to be a vast, untapped market.

Logistics is a critical component of supply chain management in a business-economic system. It is a major part of global economic activity and a key indicator of economic progress of a nation. Enhancement of efficiency in logistics has played an important role in the growth of developed nations. Their superiority is expressed by undeniable dominance of their major players like DHL, UPS, and FedEx etc in global logistics. Though still struggling with poor infrastructural framework and cost-inefficient structure, logistics in emerging economies is steadily growing and fast catching up with their developed counterparts.

Total Freight Volume (In million tonnes) 3000 2000

1000 0 1950

1979

1986

2012

Despite its impressive growth figures and immense potentials, Indian logistics sector struggles with several inefficiencies that pose a threat to the sector. Cost inefficiency is one of the major drawbacks of Indian logistics. While logistics cost of USA and other developed nations stands at around 10% of GDP, logistics cost in India is fairly high and stands at 13% of GDP. Also compared to developed economies, rail transportation of goods is 3.5 times more expensive and road transportation takes threefold transit time. Also poor quality of storage infrastructure, complex tax structure, low rate of technology adoption and poor skills of workforce are also posing a threat to the sustainable growth to logistics sector in India.

Logistics industry in India has undergone immense growth in last few decades. According to a Cushman and Wakefield report, it is expected to grow at a rate of 15%-20% per annum, reaching its revenue of USD 385 billion by 2015. This growth of Indian logistics industry is mainly because of the years of high growth of Indian economy, with major contributing sectors being Automobile, Pharmaceutical, Engineering, Food processing etc. Increase in freight traffic has created significant growth opportunity in every facets of logistics sector namely transporting, warehousing, cargo handling, freight forwarding, container services etc. Due to its logistics performance as well as future potential, World Bank Global Logistics report ranks India 39th among top 150 nations. With this high growth figures and immense potential in terms of resources,

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Mediums of Indian Logistics: Based upon location and topography, a number of mediums are used in global logistics industries. In Indian logistics, there are mainly four mediums of transportation. They can be categorised as:

Challenges in Indian Logistics: As a developing sector, Indian logistics is undergoing through a number of challenges that are posing serious threat to its growth. These challenges can be broadly classified into four categories namely:

Land transport: This is the most popular means of logistics in India. It makes use of extensive road networks spread across the country and mostly used in transportation of automobile, heavy machinery, FMCG/FMCD products and others.

(1) (2) (3) (4)

Railways: This is another age-old medium of Indian logistics. Though not very popular in finished goods transport, it mainly caters to transport of raw materials and energy resources like coal and petroleum.

Transport related Storage and Infrastructure related Tax Structure related Technology and Skill related

Now let us discuss these challenges in details to understand their effect: Transport related challenges:

Waterways: It is the primary medium of logistics in International trade and largely used in import/export. It is the preferred way of transportation in bulk transport of materials like oil, coal etc and highly sensitive materials like uranium. Besides sea transport, inland waterways also play an important role in Indian logistics.

In India, for transportation of freight cargo, roadways are considered the predominant mode. 61% of total cargo transportation takes place through roadways whereas railways accounts to only 30% total cargo volume. This data is contrasting to the transport data of developed and other developing economies.

Air freight: This is the modern and timeefficient medium of transport in Indian logistics. But due to its costineffectiveness, it is mainly used for high value items, finished goods and courier services.

Road Transport as a percentage of Total‌ 22

37

China

USA

61

Key players in Indian Logistics: Among the key players of Indian logistics sectors, there are some International megabrands along with national companies experienced in this sector for year. Few prominent names in the Indian logistics are:

India

Road network is preferred in India over Rail network due to following reasons: (a) Oversaturated Rail network: After Independence, passenger and freight traffic have grown at a CAGR of nearly 54%, but railways track 10


kilometres has grown only at a CAGR of 6.6%. This has resulted in immense customer pressure on railways resulting in oversaturation of network.

In Indian truck industry, 70% of truck owners are small businessmen having only 1-5 trucks. This highly fragmented trucking industry results in fierce competition and lack of coordination.

(b) Poor quality terminals: Poor quality of freight terminals result in time-inefficiency in transportation as well as damage of products.

(d) Multiple check points: Multiple check points for trucks at state borders, for RTO inspection, Octroi etc. results in delay in road transport.

(c) High Tariff: In India, passenger tariffs in railways is subsidised by freight tariffs. This has resulted in making railways freight tariffs of India one of the highest in the world and nearly 3.5 times the tariff in USA.

Even the waterways transport in India faces various problems: (a) High turnaround time: Due to congestion at berths and slow evacuation of cargo, turnaround time in Indian ports is as high as twice that in major ports of the world.

(d) Long and uncertain transit time: Frequent subordination of freight trains by passenger trains results in long delays and uncertainty about delivery time in freight transport through railways.

(b) Inadequate depth at ports: Due to inadequate depth at many Indian ports, transport through large ships becomes impossible resulting in cost-inefficiency.

But in spite of being considered preferred mode of transport, road transport suffers from its own set of problems, as in: (a) Low road network coverage: National highways are backbone of road transport in India, but they consist of only 2% of total roadways in India and cater to 40% of total traffic. This results in high congestion in National Highways and reduction of freight transport speed. (b) Poor quality of road: Only 10% of Indian roads are motorable. Even in the large highways, there are two lane bottlenecks resulting in slower traffics.

Even with poor cargo handling infrastructure, high fuel cost and various manpower issues, Air freight transport also faces several challenges.

Storage and challenges:

Infrastructure

related

(a) Poor state of Inland container Depots / Container Freight Stations (ICD/CFS): Land, location and parking issues pose as a challenge in setting up ICD/CFS by cargo companies.

(c) Highly fragmented trucking industry: 11


(b) Poor state of Warehouses: Low number of large warehouses (over 10000 sq, feet) and poor quality of warehouse maintenance pose as a threat to logistics.

(b) Absence of IT support: Seamless integration of IT systems in various sections of logistics is the need of the hour, but yet unaccomplished.

(c) Poor quality of cold storages: With inadequate number of cold storage facilities and even 60% of them reserved for only potatoes, lack of cold storage results in damage of perishable items and increases logistics cost.

(c) Skilled manpower shortage: Lack of competent workforce with technology skills, driving skills, industry understanding and multi operational skills is posing as a challenge. Journey Ahead:

(d) Lack of multimodal logistics parks: Integrated logistics and warehousing system is still not adequately present in Indian logistics.

In India, with the logistics industry being highly segmented and to some extent unorganised, very little importance is given to the development of logistics sector. Quality issues in logistics and warehousing are still not given any value resulting in high transport losses. Quality improvement issues like dust proofing are still not present in the industry standards. Even with the increased activity of manufacturing and retail sector, this lack of improvement initiatives and quality concerns can be detrimental for the growth of logistics sector.

Tax structure related challenges: (a) Multiple taxes: Multiple taxes and state taxes like Octroi etc. increases transportation costs. Introduction of single GST is the prime requirement. (b) Delay in collection: Transit time is significantly increased due to payment and checking of multiple taxes.

However, in the recent past, we have experienced some positive changes in the field of logistics. With the new Government taking improvement initiatives to drive India’s growth back in high digits, the ray of hope for the growth and prosperity of logistics sector is more prominent now. Following can be the key factors driving growth in logistics in India:

(c) Fragmentation of warehouse: Higher taxes lead to fragmentation of warehouses and discourage integrated warehouses. Technology Challenges:

and

Skill

related

(a) Technological backlog: Low rate of technology adoption and slow progress in automation is resulting in inefficient logistics practices.

(a) Stronger GDP growth: With the GDP growth figure bouncing back to nine-quarter high value of 5.7%, the importance of logistics is rising. With 12


the increase in production in industrial as well as agricultural sector, it is evident that logistics will gain more focus resulting in its development and elimination of bottlenecks.

(d) Growth of rural market: With the rural market of India growing at an astonishing rate, business houses are focussing more and more on rural penetration of product and services. And logistics is going to be an important arm in this penetration strategy into new markets. With development of these newer and diverse markets, development and growth in logistics is going to be need of the hour.

(b) Importance to infrastructure development: With the Union Government reiterating in Budget 2014 the importance of development of infrastructure and encouraging PPP model for that, it is expected that more and more private players will be involved in the improvement of infrastructural scenario of India. Logistics being a sector highly dependent on infrastructural growth, the logistics in India is expected to see brighter days with this progress.

India is one of the fastest growing economies of the world. The huge population of India makes it a huge market for products and services. And in this seventh largest country of the world, important of logistics in this market penetration is enormous. With the steady growth and future opportunities, logistics sector in India in the upcoming future is expected to rise over all the present problems and shine globally.

(c) Govt. focus on implementing GST: With the Union Govt. showing keenness in implementation of GST before the end of year 2014, one of the major bottlenecks of Indian logistics is expected to end soon. As a result of this, the positive sentiment of investors in logistics sector is going to accelerate the growth of this sector in upcoming days.

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Jargon Demystified: 3M (Muri,Mura & Muda)

There has always been a motive in increasing the productivity of the process or any sequence of operations. But, we are encountered with various evils of production; one of it is 3M. It is actually an acronym for three Japanese words: Muri, Mura and Muda. Understanding and eliminating these M’s have a direct impact on improving the productivity, reduce the operator fatigue, going for standardization, reducing/eliminating wastes, improve work place conditions and safety and improve the morale of the operator. So, let’s look at each one by one.

fatigue and thereby leading to productivity improvement.

Mura: Variation leading to inconsistent, irregular, unbalanced situations, unevenness. For example, one operator may take different time for completing same activity/ operation or different operators take different time for completing same activity/ operation. The main aim is to reduce the variation and determine the minimum standard time for the operation. Mura can be catered by reducing the variations in operation cycle time and determining the standard time for the operation and thereby improving the productivity.

Muri: Any difficult and unnatural operation is called as Muri which means any operation which causes fatigue e.g. Operations that require power leads to muscle fatigue, unnatural posture leads to fatigue due to unnatural posture (ergonomic factor), operations that require attention leads to mental fatigue, unpleasant operations leads to emotional fatigue. All of these fatigues are directly or indirectly resulting in productivity loss. So eliminating the Muri factor from the process leads to reduction of operator’s

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Muda: Muda is nothing but waste. Since we are looking work place organization, it also refers to NVAA (Non Value Adding Activities). Waste is activity that adds cost or time and does not add value to product and customer is not ready to pay. Value is what for which customer is ready to pay. Muda can be catered by making process maps, understanding the process and doing Value Stream Mapping.

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The Agile Supply Chain: Need in Emerging markets Gopi Krishna Madiraju, MBA-I

Introduction:

developing a value stream to eliminate all waste including time, and to enable a level schedule. The main differences are 1. Lean superior objective is to meet the foreseeable demand in most efficient and cheapest way and for agile it is to respond quickly to changes in demand in order to reduce the shortage of supply. 2. For lean the important element is cost and for agile is availability. 3. The production strategy for lean is to keep high level of production capacity utilization and for Agile is to keep the surplus of buffer production capacity.

The present markets are very volatile and unpredictable, these are becoming the norm as life-cycles shorten and global economic and competitive forces create additional uncertainty. Many leaders believe that the only way to survive such a kind of markets is by adopting ‘agile’ supply chain, where development, sourcing, logistics and sales are designed to adapt quickly to changes in demand or customer preference. If there is an unanticipated demand, the business will be ready to capitalise on this, using its agile supply chain to boost production, and bring its products to market before competitors. What is agility? A key characteristic of an agile organisation is flexibility. Indeed the origins of agility as business concept lie in flexible manufacturing systems (FMS). The main characteristics of agility are:1. Shorter supply cycles. 2. Ability to recalibrate the plans in face of market demand and supply volatility. 3. Ability to adapt to variations in demand and supply. 4. Flexibility to make and deliver whatever is ordered.

“Agility” is needed in less predictable environments where demand is volatile and the requirement for variety is high. “Lean” works best in high volume, low variety and predictable environments.

The Agile supply chain:

Lean vs Agility Agility should not be confused with ‘leanness’. The term leanness is often used in connection with lean manufacturing to imply a “zero inventories”, just-in-time approach. The main goal is on the systematic identification, reduction and elimination of all waste from the manufacturing processes in order to create value for the customer. It means also

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Market sensitive is meant that the supply chain is capable of reading and responding to real demand. Most organizations are forecast-driven rather than demand-driven.


The use of information technology to share data between buyers and suppliers is, in effect, creating a virtual supply chain. Virtual supply chains are information based rather than inventory based.  Shared information between supply chain partners can only be fully leveraged through process integration. By process integration is meant collaborative working between buyers and suppliers, joint product development, common systems and shared information. This idea of the supply chain as a confederation of partners linked together as a network provides the fourth ingredient of agility.

The above table represents the ranking of various emerging markets in terms of agility in logistics. The ranking is done in parameters as • Market size and growth attractiveness (50% of overall Index score) • Market compatibility (25% of score) • Market connectedness (25% of score)

Agility in Emerging markets: Global economic growth began to slow down from mid-2011 and has remained weak in its productivity. Also the risks from Euro zone financial crisis remain persistent and the Arab spring added to the chaos. In this state the emerging markets such as India, China and Russia are still above pre-crisis level. Unsurprisingly these markets are of core attention to the developed markets. These investments made market unpredictable, uncertain economic climate and potential risks lead to use of agile technology. Trade flows in emerging regions can be extraordinarily complex, crossing borders with significant differences in labour market efficiencies, infrastructure sophistication, ease of doing business, and tax structure. Population patterns can add more complexity. Countries such as Brazil, Russia and Mexico, for example, have large urban populations, while in the AsiaPacific region; more people live in rural areas than in cities, although urban populations have grown rapidly.

The emerging markets population has high level of distinction in terms of economic standards. Emerging markets are home to 85% of the world’s population and represent vast growth potential for ambitious companies. Companies doing business in emerging markets, however, will soon run up against the limits of traditional supply chain optimization techniques. Dynamic operations offer a way to capitalize on new opportunities and respond quickly and effectively to threats and disruptions. Example: Micromax in India has implemented the agile supply chain. Micromax entered the arena of handset in 2008 and has made a mark in Indian market in quick time which was under control of high potential MNC’s. It was able to do so solely because of identification of consumers’ needs, customization of products, an agile supply chain and a relentless focus on what it called 360 degree branding-identifying. Companies such as Micromax that are successful in emerging markets are 17


creating agility as they partner with local suppliers to reduce costs and improve asset utilization. They also provide a quick turnaround time in case of sudden shortage and acts as cushion during the demands. This is much needed strategy in case of agile supply chain.

of strong horizontal processes to sense and translate demand and supply market-tomarket. Leading companies have already taken up the marketing strategies which are endorsed by a supply chain strategy designed with agility as its core function. These are the organisations that would be best equipped for survival in the uncertain markets of the 21st century.

Challenges: Some argue that agile Supply chain is more useful only at periods of economic instability. High levels of wastage may be incurred for example a product that is already under development has to be abandoned or scaled back to make way for an unforeseen surge in demand for another. Time variance, Quantity variance and inbound variance are the most frequent challenges that need to be faced. Handling of returns is a loss because there are businesses which no longer supply those materials and becomes a bad stock. Conclusion: Volatile markets and global sourcing created fresh challenges to supply chain management and the traditional forecast driven ineffective logistic pipelines are becoming mundane and therefore unsustainable. Building agility happens through conscious choice. The agility in an organization improves if it can concentrate on three chained parameters: the definition of a clear supply chain strategy, the building of strong decision support analytics and the implementation

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CPFR- The emerging model in Supply Chain Gourab Barma, MBA-I

by having the customer and supplier participate hand-in-hand in the forecasting phase. A retailer can compare its demand or sales forecast with the manufacturer’s order forecast. If any discrepancy occurs, the two trading partners can react to get together and decide on the replenishment quantity to rectify any such discrepancies. Hence, the supplier can build its inventory well in advance of receiving a promotional order, and carry less safety stock at other times being on the safer side. A customer or the end-user can alter the product mix to reduce the impact of supply problems. CPFR creates a win–win scenario, tying the buyer and seller together so that their goals are compatible and can be achievable. By competing as one, the buyer and seller form a value chain which makes them ahead of other buyers and sellers who are still caught up in price negotiations. The key financial benefits of CPFR include forecasting the accuracy improvements for smoother ordering patterns. It yields in increasing fill rates thereby increasing the rate of sales. The safety

Collaborative Planning, Forecasting and Replenishment abbreviated as CPFR is an initiative that facilitates the reengineering of the relationships between the associated trading partners and the transactions. This initiative is based on an industryrecognized set of standards that are not proprietary. The Vice President of product strategy for Logility (Atlanta-based Company that offers a CPFR-based supply chain management application), Andrew White quotes, “True collaboration is something that completely reengineers the relationship or the transaction between trading partners”. CPFR provides templates for supply chain partner collaboration. Below is the process model that is segmented into three stages. The planning stage establishes and updates the relationship; the sales forecasting and order replenishment stages occur more frequently.

The process of CPFR is dependent on the comparison of data: It compares the plans of one organization with another; it also compares a new version of one organization’s plans with a previous plan; or compares the plan to actual and/or previous results. In other words, CPFR manages by exception—it counts on the variances, whether plan-to-plan or plan-to-actual or plan-to-previous. An important characteristic of the model is that the accuracies in the forecast can be improved

stock and/or inventory levels are deceased. The less disruption in more stable production schedules and more accurate forecasts reduces the cost of goods sold (COGS) that is based on better insight into end consumer demand. Any collaborative agreements between the potential trading partners must ensure that both the parties share in potential cost savings and revenue enhancements. Conducting joint visioning ensures success in sessions to value 19


the proposition for both sides. The detailed operating plans (i.e., an established set of data, communication protocols and clearly defined business rules regarding partner roles/responsibilities, etc.) clearly defines the roles, responsibilities and expectations.

software companies, SAP and Manugistics, spearheaded an effort to define a process that would link customer demand with replenishment needs through the entire supply chain. The pilot focused on stock of ‘Listerine mouthwash’ that was kept in stores. The group actually first tested the collaborative concept on paper, and then demonstrated in a computer lab that the Internet could be used for the information exchange. The incident: Warner-Lambert’s in-stock averages rose from 87% to 98%. Lead times dropped from 21 to 11 days. And sales increased $8.5 million over the test period even though the pilot was limited to one Warner-Lambert manufacturing plant and three Wal-Mart distribution centres. The movement gained momentum in 1998 when the Voluntary Interindustry Commerce Standards (VICS) got involved. VICS is formed by a group of retailers, textile suppliers and apparel makers. It was established in 1986 to develop bar-code and EDI standards for the retail industry. VICS is a voluntary, non-profit organization which takes a global leadership role in the ongoing improvement of the flow of product and information (about the product) throughout the entire supply chain in the general merchandise retail industry. With the involvement of VICS, more companies were willing to participate in testing and validating CPFR. A number of pilots were launched and resulted successful. One of the most talked about involved stores in the ‘Wegmans’ grocery chain and a ‘Nabisco’ distribution centre. The two companies shared data on 22 items. Manugistics furnished the application and hosted the server where the

CPFR Has Evolved from a Heritage of Supply Chain Solutions CPFR is considered to be the next stage in the evolution of supply chain initiatives. In the earlier days, the supply chain operations had gaps in their practices, including financial plans which used to take precedence over forecasts and nonintegrated supply planning. It resulted in higher inventory levels, lower order fill rates, and increased expedited activity. Companies (the manufacturers as well as the retailers) were not attaining the benefits that they expected. Only later did the companies start focusing on process integration and managing the supply chain from raw materials through delivery to the end user. The vital difference between CPFR and other business process tools, such as Efficient Consumer Response, is that the other models require critical mass before any benefits are attained. With the help of CPFR, a supplier can improve its performance by just having a collaborative relationship with the manufacturer. It originated in the early days of 1995, when retailer Wal-Mart found those consumer products and pharmaceutical company, WarnerLambert’s in-stock averages were not up to par with Wal-Mart’s vendor performance standards. Wal-Mart, along with Warner-Lambert, Surgency (formerly Benchmarking Partners) and two other 20


data was stored. The Nabisco sales force developed a forecast for the items, which was then compared with Wegmans’ own forecast for its stores. Whenever any variance occurred, the Manugistics software sent an email to both parties. The pilot was successful: Nabisco’s sales of 22 Planters nut products grew by 31%, while Wegmans’ dollar sales of nuts increased by 16%, with a surprising 18% decrease in inventory. On the surface, such benefits may seem tempting, but it is also important to fully keep an eye on the costs, implications and requirements of engaging in CPFR relationships. Many overly ambitious projects have stepped back or are abandoned or scaled back to co-managed inventory alliances and joint forecast projects because one or both trading partners (manufacturers and suppliers) did not fully understand the obligations. Even when two partners seem ideally suited and share similar cultural values, unforeseen circumstances like organizational and market changes can hamper the CPFR relationships. Choosing the partners wisely and carefully evaluating the compatibility of people, process and technology are all keys to success.

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Supply Chain in Emerging Markets - Reasons, Challenges and Future Pooja Deshpande, MBA-I

Definition of supply chain says that it is a system of organizations, people, activities, information, and resources involved in moving products or services from supplier to customer. However, the new trend and critical reality is that supply chain is the key to growth in emerging markets. Emerging markets are indeed the right places for businesses attempting to capitalise on their supply chain or trying to establish global footprints through the demand. Broadly, SCM’s primary goals encompass the following two purposes: 1. Cost Reduction 2. Better Customer Services However, these central goals of supply chain become difficult to achieve when it comes to markets as India; since the supply chains in India are mostly handled by the unorganized sector. India has one of the biggest industries in terms of size and revenue, but the top stream of 3PL firms has a very small share in the revenue pie chart, merely 2%. Thus to grow the existing business, the organizations need to establish their strong foot in the emerging markets. So let’s tap SCM in emerging markets with the reasons of its existence, challenges it is facing in the current political, economical and social environment and the future it holds for varied businesses.

Reasons:

1. Globalization: If we look at the traditional supply chain strategies, they were established at a time of stable business environments, around 2-3 decades back. Business cycles at that time were more predictable, and cost effective. However, today, the markets are global, there is very little predictability. It is a ‘VUCA’ world (Volatility, Uncertain, Complex, and Ambiguous) in aOperations literal sense. With in Diagram 1: Dynamic involved such dynamic changes and paradigm today’s Supply Chain shifts in the supply chains, the businesses are not able to handle the speed, flexibility, profitability, and sustenance needed to succeed in the global markets. 2. Service leadership: Businesses need to be well versed with the emerging markets in order to maintain their service leadership. The profits are directly linked with the leadership hierarchies of the organizations. Here, 22


losing the service leadership means losing the top rank, losing market shares, losing the competitive edge, losing customers and thereby losing the business. 3. Competition: Sustenance is also a struggle for the businesses in today’s competitive world. Trades are not restricted to just the boundaries of the country. Our loss of business is someone else’s gain of the market share. The real key to success is ‘think global, but act local’. 4. Tapping into the right emerging markets: Additionally, businesses need to establish the right strategies in the emerging markets; emerging markets as BRICS (Brazil, Russia, India, China, and South Africa). Today, Africa is the fastest growing continent in the world, at 4.9% growth rate; meaning that, it is a huge potential customer base for businesses. Additionally, from the reports of International Monetary Fund (IMF), Bulgaria, Chile, Hungary, Indonesia, Malaysia, Mexico, Peru, Philippines, Poland, Romania, Thailand, Ukraine, Turkey, Venezuela are also termed as the new ‘emerging economies’. Thus, these economies should also be under the radar of businesses aiming to strengthen themselves. 

2. Flexibility: Consumer demands are aligning towards high degree of variety. Thereby it is not possible for businesses to stick to old ‘one fit for all’ strategies. Therefore, tested supply chain formulae in the developed countries may or may not prove to be successful in the emerging markets. Thus, the businesses need to be dynamic and flexible to a great extent. 3. Explosion of e-commerce: The new era of e-commence has been evolutionary in the field of supply chain since it has been a major reason for the dynamism in the supply chain. It has made the customer expectations reach rocket heights and have made it ‘mandatory’ for service businesses to deliver even the unexpected values faster than before. 4. Poor transportation and infrastructure: Countries like India where the roads, railways, their qualities, and their reliability are the biggest issues in front of the supply chain and logistics. Infrastructure is the boon for growth for economies and thus is a vicious problem for counties like ours. In India and likewise, the infrastructure investments are very poor. 5. Regulatory or tax norms: According to the ‘Gartner survey’, the basic reason behind the failure of the supply chain in majority of the counties is the government regulations. To cite an example, in Vietnam, the government has banned the imports of more that 30% of the medical drugs; thereby there is tremendous pressure on the existing supply chains to over-exert

Challenges:

1. High degree of uncertainty: The global markets are changing at the speed of light. These changing time frames make it difficult for the businesses to hold on to their forecasts, demand planning, and cost effective supply operations strategies since they become out dates within a few months.

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700 million Indians, constituting a major consuming class with 41 % of India’s middle-class and 58 % of the total disposable income. This provides a huge opportunity for goods and services that today, are unavailable because of the lack of last-mile connectivity and transportation facilities. 5. Agility : Lean vs. agile – o Lean is doing more with less and is good for standardized products o Agile is meant for less predictable environment and this approach is more helpful in putting the insights into actions for highly customized products 6. Reverse logistics: The process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. As Accenture cited in one of its reports, on an average 12 times more steps are required to process returns than the outbound logistics. In the U.S., the cost of reverse logistics goes up to $100 billion. However, the primary impact of this is on the customer satisfaction, brand equity, competitive differentiation and profitability 7. Resource Based View (RSV): It is an economics‐based, theoretical tool that analyzes, presents and predicts how firms attain a sustainable competitive advantage. The four principal resources are characterized as VRIN valuable, rare, imperfectly imitable, and non substitutable.

and perform according to the expectation. 6. Urban population and a significant increase of the middle class: The major change in today’s economic strata is the rise of the middle class. Middle class, among the 7 economicstrata of India, has been growing and is the biggest purchaser. Thus, it plays an important role to understand the needs of the middle class and serve them accordingly. 

Future:

1. Green Supply Chain: It integrates environmental awareness and action into the supply chain, including product design, material sourcing and selection, manufacturing processes, delivery of the final product to the consumers, etc. 2. Cold Supply Chain: It is a temperature-controlled supply chain that helps extend the shelf life of products such as fresh agricultural produce, seafood, frozen food, photographic film, chemicals and pharmaceutical drug, etc. 3. Strong SMEs involvement in the Supply Chain: A survey shows that SMEs bring in more robust interactions and trust among the supply chain players and thus are welcomed by the big players of the market. 4. Rural supply chain: Rural India comprises of 6, 10,000 villages with

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RFID in FMCG Product Business Diptendu Das, MBA-I

can be significantly improved. The benefits of RFID usage in supply chain management processes. Its been chosen to describe the processes of the FMCG (fast moving consumer goods) industry in this article. However, the benefits of RFID in supply chain management can be reaped also in other industries.

Description Radio Frequency Identification (RFID) is an emerging technology, which has gained increasing attention from academia and practitioners. This technology enables an automatic acquisition of data about an object without necessitating a straight line of sight of transponders and readers. It is widely believed that over the next years, the technology will experience wide implementation as bar coding is used today. This is mainly due to the fact that RFID technology provides the visibility and traceability with a great potential to streamline the supply chain by improving efficiency and effectiveness. Successful RFID applications in logistics and supply chain management bring benefits such as the rationalization of inventory management, optimization of transportation within logistics networks, efficient monitoring of production and assembly processes.

Benefits of RFID in Manufacturing Processes The market of FMCG's, fast moving consumer goods, is one of the fastest moving markets in the world. In the FMCG industry, products have to be counted several times already in the manufacturing process: during the stages of production, washing, and packing. Traditionally, these operations are performed manually. But by utilizing RFID tags and readers, products can be counted in seconds. This is due to the fact that RFID tags can be automatically scanned without being in the line-of-sight of an RFID scanner and multiple tags can be scanned simultaneously. For manufacturers this translates directly into cost reductions as labour intensive tasks can be carried out faster and more accurately. In addition to faster authentication of produced goods, manufacturers can also benefit from

What is supply chain? The term Supply chain covers all possible processes involved in the flow of goods from manufacturing to customer; including manufacturing, distribution and transportation. Thus, supply chain management covers all these steps in combination with marketing decisions, customer demand, in alignment with general corporate strategy and goals. As real-time information is made available also administration and planning processes 25


increased information gathered with the help of RFID technology. RFID tags can store far more information than conventional barcode labels. This information can be used to optimize production processes. Accurate knowledge of the real-time movements of raw materials and the time needed for specific production steps can be integrated into efficient production planning. With the help of RFID, manufacturers can also benefit from increased information in regards to repair and maintenance of their machines and equipment. This allows manufacturers to have visibility into valuable data such as: which machine has been repaired or undergone maintenance and when has this been done? This information helps to plan maintenance schedules. Hence, maintenance can become part of production planning and help to prevent costly production breaks.

situation as it can improve information management concerning cargo flow. Usually, read-write equipment is installed at the entry to a warehouse. Every cargo unit is equipped with RFID tags and all the information relating to the tags is stored in the central computer of the warehouse. When the cargo is moved in or out of the warehouse, the read-write equipment registers it and forwards the data to the backend system. This allows the management centre to manage the vast amounts of products going into and leaving the storage, recognize cargo and help with placement of the cargo in the warehouse. In cases where read-write equipment is placed within the warehouse, all in-house movements are additionally registered in the system. This allows for strategic planning of product locations within the warehouse.

RFID in manufacturing processes means: • • • •

The information that is gathered with RFID can lead to significant improvements as the tracking and handling of the products can be done in real-time and with great accuracy. In the warehouse, products are easily located as all product movements are tracked and this information is automatically registered in the system. Whilst stock is accurately tracked valuable information concerning losses is also recorded.

less manual work less costs improved visibility improved planning

RFID Benefits Management

in

Warehouse

Once production has been completed, FMCG producers pack the products into cartons, and deliver the cartons to the warehouse of the freight forwarder or the buying company. After the cargo reaches its destination, it is not uncommon that it ends up in a warehouse first.

RFID in warehouse processes offers: • visibility of accurate information • fast locating of products • possibility to record losses • ability to plan product strategically

Keeping track of the large number of cartons is a very complex as well as time and labour consuming process. However, RFID can be implemented to ease the

RFID 26

Benefits

in

real-time

locations

Tracking

and


Managing of Shipping Containers

accuracy. Usage of RFID also ensures accurate inventory control.

Around the world, the most popular way to transport large amounts of cargo is to use shipping containers. Container transports are oftentimes chosen as they ensure safe and secured transportation, low costs, standard packaging and high transport density. Companies that use RFID in tracking and managing of shipping containers are able to track containers in each link of the supply chain. Active RFID Tags can be used to track containers in real-time in yards and docks. Ultra-high frequency RFID technology has long identification distance and speeds up identification. RFID in container tracking:

management

As the products reach their final destination, aka the store, they are scanned and registered automatically at the entrance. For more information about instore benefits of RFID, check out the links in the end of this article. RFID in distribution processes: • • • •

accelerates the speed of delivery improves efficiency increases accuracy reduces distribution costs

Retail Benefits from RFID in Supply Chain

and

Implementing

Over the last few years, more and more companies are integrating RFID technology into their strategic planning, since it provides significant advantages to supply chain performance. There are far more benefits gained by RFID implementation into supply chain and logistics operations than just improving identification of products, shipments, and assets. Nevertheless already the most common benefits prove that RFID is worth the investment.

• offers visibility of real-time cargo movement • improves efficiency • increase accuracy Benefits in Distribution Processes Implementation of RFID technology can also add advantages to distribution processes. Usage of RFID will greatly accelerate the speed of delivery management, improve efficiency, and increase accuracy in selection and distribution processes. It will also reduce distribution costs. When products embedded with RFID tags enter a distribution centre, the RFID read-write equipment at the entry gate can register the RFID tags, and send the information to the distribution centres’ backend system. This information can be used to put the cartons in proper places, sort them quickly and efficiently, and dispatch the cartons to the retailing centres in less time with improved

Conclusions Implementing RFID is a complicated procedure, but through the right planning it offers significant advantages to the business. Each area of the organization should be evaluated independently to determine where RFID could provide additional functionality. Nowadays, a lot of enterprises are at the phase of extensive tests of the particular technology and take part in pilot programs. Requirements for this implementation include placement of 27


tags and readers, software and middleware setup and training of labour. Specific issues need to pay attention at each phase of RFID: • Business analysis, • Testing, • Pilot implementation Full deployment of RFID system

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Supply Chain Strategies for Emerging Markets Mandeep Sandhu, MBA-I

similarities in the standard of living of its citizens, low to middle per capita income and a sustained economic growth. For these reasons emerging markets provide an inviting opportunity for corporations to grow at a time when it is difficult to find new customers in markets they are already established in.

Introduction: According to the United Nations' World Population Prospects report, population of the world is expect to reach 8.3 billion in 2030. That’s around a billion more than current levels, and 95% of this increased population will be born in developing and “emerging markets”. Emerging Markets usually referred in today’s context are: 1. Brazil 2. Russia 3. India 4. China 5. Africa 6. Latin America 7. The Middle East

Developing a robust supply chain then becomes imperative to overcome the challenges (like poor infrastructure, unstable political environment, wide economic divide, lower price point expectation etc.) which the emerging markets put forth. The table below expresses the challenges w.r.t supply chain parameters which need to be kept in mind while designing a supply chain:

Even though the emerging markets are geographically unrelated but these economies can be clubbed together citing Supply Chain Performance Metrics Parameters Agility and Response  Cycle time  Demand Forecasting  Lead time  Quality

Challenges    

Assets Utilization

  

Plant Utilization Inventory Turns Cash Conversion Cycle

    

Efficiency

   

Labour Productivity Lean Manufacturing Logistics Procurement

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   

Poor Infrastructure Lack of accurate demand data Cultural and geographical diversity Scarcity of good quality vendors Political Instability Poor facility quality Poor Inventory Visibility High Percentage of LowIncome Population Complex legal and regulatory environment Bureaucracy Long distances Fragmented markets Economic Divide


4-Key Strategies:

Companies therefore need to work out how to reach the large percentage of people so as to maximise the consumer base. This understanding of customer diversity and translating it to an effective segmentation scheme will be critical to designing efficient supply chain operations.

These market challenges necessitate developing a robust supply chain strategy which goes beyond the traditional supply chain of the developed countries. To achieve an organization’s objectives, the focus areas and strategies which need to be concentrated upon are as follows:

2. Integrated Product Design: The unique market conditions that exist in the emerging markets ensure that the product design is specific to the market. A high local understanding of culture and daily routines is required to connect and influence behaviour and perceived value. For e.g. for lowerincome groups product affordability is of utmost importance, while for a

1. Mass Market Segmentation: Generalising a country to consist of one single market segment might well be a fallacy. In a single market, Urban and rural segments are well differentiated in terms of level of infrastructure, which facilitates logistics but then urban areas suffer from high level of congestion and pollution and house a much smaller consumer base as compared to the rural India (Acc. to Indian Census 2011, 70% of the population of India lives in rural areas). Even within the urban cities there is a huge disparity from slums to posh colonies. Segmentation also arises due to cultural difference between different sections of the market. Consumer priorities may be down to cultural

middle class family product affordability should as well as quality of a product matters. Therefore, manufacturing, sourcing and distribution decisions during the product design face are even more crucial in the emerging markets. Innovative products, Packaging to withstand harsh distribution and logistics processes and the ability to source raw material from local vendors will give a substantial competitive edge to a company.

boundaries and cultural choices. For e.g. in India demand for beef will always be low due to the cultural norms as compared to other emerging markets like Latin America or the Middle East.

3. Tailored Supply Design

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One size does not fit all. Therefore, this

population but lack distribution or advertisement channels. Different methods establishing a distribution network is discussed below:  One of the methods to achieve this is through joint ventures or partnerships with local and general distributors through partnerships within an area. This will be a cost effective initial solution. For e.g. EBay India’s partnership with DTDC, BlueDart etc. for it delivery in India.  Second could be to setup proprietary distribution networks from scratch as Lenovo did in China, where it now has more than 5000 stores. Even Ekart logistics is a distribution and logistics network developed by Flipkart.  Third is to acquire existing distribution networks. Even then, focusing on one distribution channel may not be enough to be competitive. Therefore, Adaptability to

leads us to different supply chain designs for different customer segments by using distinct supply networks to offer different levels of service at different prices. Clear channel focus, while configuring the supply chain to meet the needs of individual customers, has proved to be a winning formula. In order to reach local emerging markets, supply chains will likely take variations of one of the following three general product supply structures: 1. Out-of-market supply for entire product (Usually used during market entry) 2. Local assembly with out-of-market supply for components or subassemblies (Mid way stage in localisation of product, or to maintain critical quality standards) 3. Local production and assembly (The fastest and most flexible method, but capital intensive and talent dependent)

various distribution channels will be critical to growth of the organisation. Conclusion In these dynamic environments, change is a constant. So too is the need to manage change and to leverage opportunities through continuous improvement. The developed countries are showing signs of stagnation which leave the emerging markets as the go-to destination for any growth-oriented organisation. Since Emerging markets are complex

4. Micro-level Distribution Management Due to the complexity of the market structure in the emerging markets, the distribution management becomes very important. In Brazil, 15% of the apparel sales happen through door-to-door sales channels. India’s smallest villages are house to almost 50% of the total 31


environments, developing the right supply chain requires a very cost-conscious, locally-driven and flexible organization that can still leverage the state-of-the art strategies forged in developed markets and tailor them to overcome the challenges of emerging markets. It is imperative for an organisation to make a calculated move in terms of aligning its Supply Chain Strategy to the ultimate business goal so that the potential of these emerging markets can be tapped.

References: Transportation & Logistics 2030 Volume 5: Winning the talent race by PwC  Deloitte Report: “Supply chain risk strategies for emerging markets: Understanding the importance of risk”  Deman J. & Tuyishime J. C. “Supply chain management in emerging markets: India” Faculty Of Economics and Business Administration, University of Ghent  Dr. Blanco E. “Winning in Emerging Markets: Five Key Supply Chain Capabilities”, Center for Transportation & Logistics, Massachusetts Institute of Technology

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MRO Purchase – The e-reverse auction way Karthik M, MBA-I 

Maintenance, Repair, and Operations are an integral part of any manufacturing unit, as they are responsible for the uptime of the plant. A downtime of an hour can result in huge repercussions, ranging from customer dissatisfaction, to the top line of the company being hit negatively.

The purchase function plays an extremely important role in ensuring the uptime of the machines in the plant, by ensuring OTIF (On Time In Full) delivery of critical spares that are required for routine maintenance activities.

Varying in pattern: Since hundreds of requirements flow in every day, and requirements are based on partly on need basis and shutdown schedules, the inflow pattern of purchase requisitions does not follow a fixed pattern, making it difficult to predict future requirements Difficult to benchmark: Benchmarking the price of an MRO purchase is extremely difficult, and thus makes quantifying savings difficult, because of the sheer number of SKUs involved

MRO purchase – a tricky affair:

Why optimize MRO purchase?

Purchasing, in general, accounts for around 55% to 60% of a company’s expenditure.. This includes raw material purchases, commodities, engineering spares, and capital expenditure.

A rupee saved in procurement is a rupee earned. However, the same is not true for sales, where you will have to sell for an extra 7-8 rupees to ensure an addition of 1 rupee to the bottom-line. Hence, it is of utmost importance to not only ensure delivery of inputs on time, but also at the most optimum cost.

MRO purchase, however, accounts for only 7%~10% of a company’s total expenditure on procurement. So, MRO purchase must be easy to handle, right? Wrong!

However, in MRO purchase, it is typically difficult to achieve both. Due to the sheer number of transactions, if one chooses to focus on quicker lead times for Purchase Indent -> Purchase Order –> Goods Receipt cycle, then cost savings take a back seat, and vice versa.

MRO purchase, though relatively small in value compared to the total basket of procurement, carries a baggage of complications, which make optimizing it a tricky affair.

So, can we use Zero Based Costing as a tool for optimizing cost?

MRO purchases are:  

Though one of the most comprehensive and accurate tools, Zero Based Costing (ZBC), however, is not a viable solution for cost optimization in MRO purchases

Very frequent: Typically, hundreds of transactions take place every day. Scattered: MRO purchase comprises typically of 80% of the material codes, but contribute only 7%~10% by value to the total purchase

First, let us understand what ZBC is.

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Zero Based Costing involves estimating the cost of an item being purchased by estimating the costs that the supplier would incur by means of raw material procurement, power, labor, infrastructure, etc. This gives us a fair idea of the market price of a particular item.

So, how do we tackle this conundrum of optimizing cost in MRO purchase, and in ensuring OTIF delivery to the internal customer? Reverse Auctions: Reverse auction is an extremely powerful, and an extremely simple tool that is increasingly being used in the field of MRO procurement. While it has been used in capital purchases/sales, such as the spectrum auctions, sale of coal by Coal India Limited, etc., it is yet to find widespread usage in MRO purchase, and the benefits it brings are immense.

For instance, if you were to purchase a wooden table, you would estimate the cost of the table beforehand, and this is used as an effective negotiation tool with suppliers

Item

Estimated Cost Cost Rs 3,000/-

Raw Material (Wood) Electricity Charges Labour Charges Transportation Charges Subtotal Add supplier’s margin (10%) Cost to be expected

In a reverse auction, buyer first prepares a detailed technical sheet, which has the complete specifications of the items to be procured.

Rs 25/Rs 500/Rs 400/Rs 3,925/Rs 39.25/-

Next, these requirements, along with the required quantity, delivery terms, and other conditions are floated to all suppliers on an online portal, which hosts the reverse auction engine.

Rs 3,965/-

Shown above is a basic example of how ZBC is done.

Once the e-reverse auction (eRA) starts, suppliers can quote in real time for the items sought by the buyer. The suppliers can also see their ranks in real time, and hence, can keep reducing their price (as long as their margin allows them to do so), in order to maintain the L1 position.

However, it is nearly impossible to perform ZBC for each and every MRO requirement, as: 

ZBC requires significant lead-time, since it involves lots of data collection (cost of labor, power, etc. specific to industries) It is very difficult to perform ZBC on engineering spares (Such as electronic items, bearings, gearboxes etc), which form an integral part of MRO procurement, as one does not know exactly what all components go into the making of these spares (like electronics/bearings/gearboxes)

Shown below is the bidding trend from an actual reverse auction, done by a leading paperboard manufacturer in India. Savings of ~10% were obtained through this auction.

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Bid Amount 15.2 15 14.8 14.6 14.4 14.2

Bid Amount

14 13.8 13.6 13.4 Ordinary procurement process vs eRA: 13.2 1

3

5

7

Receive requirement

9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45

Float three enquries (1 day)

The ordinary cycle of (average lead times shown)

Receive requirement

Receive 3 quotations (5 days)

Negotiate along with Finance (3 days)

Finalise Purchase (1 day)

Release Purchase Order (1 day)

procurement

Prepare bid document (1 day)

Inform suppliers & conduct eRA (2 days)

Sign off eRA report with finance (1 day)

Release Purchase Order (1 day)

Procurement through the eRA route (average lead times shown) Why do reverse auctions work so well?

Clearly, as seen above, reverse auctions not only help in attaining great cost benefits, but also help in reducing the lead time involved in purchasing, since multiple rounds of negotiations, which are generally done over e-mail and phone calls, and which involve other departments like finance.

Competition! Human beings love competing, and do not like losing. This is precisely why a reverse auction does a better job than even the best ZBC exercise. During a reverse auction, suppliers see their position and ranks live on the screen, and they see their ranks going down and down, as other suppliers out-price them. If their margins permit them, the average supplier will lower his price, as long as he can afford the price drop, in order to see himself moving up the ranking chart.

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Reverse auctions, thus, indirectly force the supplier to give out the best possible price. This is better than the best ZBC analysis that you can do, because nobody can give you a better answer about the actual costing of the product than the supplier himself, and a reverse auction forces the supplier to reveal it!

it is not necessary to cover all of them under eRAs. One can cover ~80% of the procurement value by just focusing on 20% of the items! Care must also be taken to ensure that generic items/items which have at least 3 suppliers are only included under the ambit of reverse auctions, as reverse auctions thrive on competition between suppliers. Greater the competition, better the savings realized for the buyer!

Can eRA be applied for all MRO procurement? The answer to that would be no, as: 

 

The suggested model is given below: It would not make sense to invest time and effort in organizing an eRA for minor requirements, as the costs involved would far exceed the savings realized out of the auction eRAs have their own lead time (typically 3-4 days), and hence, they cannot be used in cases where the requirement is extremely urgent (which occurs frequently during plant shutdowns/maintenance) eRAs will not work with OEM purchases/purchases where you have only 1-2 suppliers eRAs will not work if there is cartelization. The cement industry is a very good example, where multiple reverse auctions have been conducted, and have failed

Perform Spend Analysis

•Annual basis Perform Pareto Analysis Exclude OEM/Single Source items Earmark rest of items for eRA Conduct eRA as and when requirement arises

How will economy? 

Suggested model for implementing eRA in MRO procurement: Since it is not possible to cover the entire basket of MRO purchase under the ambit of eRAs, prioritization should be done, so that maximum value is covered under the eRA umbrella.

To start with, a pareto analysis should be done (rule of the thumb is, 20% of the items contribute to 80% of the causes). A pareto greatly helps in this regard, as MRO purchase comprises a variety of SKUs, and

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eRAs

help

the

Indian

Only 5% of the procurement in India is routed through reverse auctions. Considering that an eRA on an average brings in ~7% to 10% savings, it is capable of unlocking tremendous potential for the manufacturing sector It does it bit to contribute to a greener supply chain, since it is completely electronic! India spends nearly 13% of it’s GDP on logistics, compared to 9% in other BRIC nations, and 7% in developed nations. Even 1% of 2 trillion dollars is a huge amount! Considering the average savings eRAs bring in, if they




are used effectively in logistics, they will release a huge amount of money that can be better invested in other areas. Reverse auctions bring in more transparency, as there is no human intervention, and the scope for corruption/malpractices is minimized.

Reverse auctions are definitely the way forward for ensuring OTIF delivery at the right cost. If used well, they will definitely help propel India towards magical GDP growth!

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Supply Chain in Ecommerce Industry Meenakshi Tripathi, MBA-I

Over the years, Internet has widely enhanced the performance of businesses by improving their supply chain methodologies. The web has offered enormous potential to streamline the coordination between any business and its partners, third-party and fourth-party providers.

later on started diversifying its market into apparel, electronics, softwares, music, etc. Talking about handling the issues with inventory management, Flipkart has used a superb tool "Qlikview", to optimize inventory level and costs associated with excess stock. Usage of QlikView in its day-to-day operations, Flipkart has improved its inventory utilization by 5 percent.

It is also evident to say that supply chain is the most crucial component in the success of any e-commerce. If one is setting up an ecommerce business, the major challenge is inventory management. At the time of designing the business process, it may be realized that it is not affordable to keep the kind of inventory one need in order to do the business. In the initial stages of setting any ecommerce business, it might be a better solution to set up an ecommerce website listing all the products to be sold to the customers, and to have someone else managing the inventory, shipping and returns.

Flipkart was experiencing an increasingly complex data flow from inventory. There was a need of a system which is smart enough to collate and display meaningful and implementable analysis for decision makers across different business units and locations. Before this Flipkart had been much of an open source house. But with exponential growth and expansion in the business and a growing number of knowledge workers and managers requiring Business Intelligent analysis and reports, there was a need of flexible and high speed analytics system.”

This article would be based on the supply chain methodologies adopted by Flipkart and how these methods have made Flipkart a success story.

Flipkart was impressed by the business value achieved with QlikView. According to Flipkart officials- "The first application for sales took just six weeks to implement and each subsequent functional area— supply chain, inventory and finance—took a similar effort. Speed of delivery made all the difference to our business, with analysis available instantly at the fingertips of our knowledge workers on a self-service basis.”

Flipkart established in 2007,has carved a niche for itself in terms of market share, goodwill and popularity in the online market to the extent that retailers are coming under threat because of its discounts and smooth operations. Started with an initial capital of four lakhs it now aims for annual turnover of around Rs. 4500 crores. It started off with books and

Another high-performing application in QlikView is for inventory management. Sales people and managers access data and

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find information quickly without any IT support. Prior to this, they were using ad hoc processes and reporting.

by them was thing they did was that they understood that to be successful in India, you need to be the God of Distribution. In India, Flipkart’s amazing Logistics that prove to be the game-changer and that’s exactly what the folks at Flipkart have done.

Transformed the Business Culture of Flipkart: In today's world accessing information at a fast pace is the key factor for the success of any industry. Flipkart did understand this facet and QlikView has helped it to transform the way Flipkart does business. It’s helping to make the company more agile and responsive to its customers. “With QlikView, it is trying to establish data-driven decision making as a culture within the organization. It has changed the way Flipkart saw itself. It has empowered all the teams and made them independent for reports and analysis. It has developed the capacity to share knowledge holistically across teams, which means we can better evaluate our sales strategy.”

The procurement model is at the heart of Flipkart’s success, as most delays or troubles occur in this part of business. Flipkart employed consignment model i.e. procurement based on demand. It is the robust logistics at Flipkart that sets it apart from other e-commerce sites, an amazingly well-oiled warehousing and delivery system. Hence, it can be very well concluded that improving on your supply chain in any ecommerce business can make any ecommerce business a success.

All functional teams have responded well to QlikView due to its intuitive nature and user-friendly dashboards. Users can explore information freely rather than follow predefined paths of questions. Flipkart also plans to extend QlikView use to employee tablets and smartphones— which is now possible with QlikView 11—and provide a dashboard for senior management to gain an overview of company performance. Other Challenges for Flipkart: Online payment was an option which the consumers were hesitant to make. Flipkart came up with their unique policy of CashOn-Delivery.The first right thing that Flipkart did was that it started off with books- a low capital investment and a fast turn-around time. But the best thing done

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An Interesting Read Managing in Reverse: The Strategic Importance of Reverse Logistics

third and even fourth party providers are building significant businesses by fulfilling the need for providing these specialized services to businesses and their customers. Thus, there is significant interest in managing the so-called "flip side" of the supply chain. Writing in the Harvard Business Review in 2002, Guide and Van Wassenhove labeled the reverse supply chain as "the series of activities required to retrieve a used product from a customer and either dispose of it or reuse it." This area is now commonly referred to as reverse logistics, defined by the IQ Business Group to be: "The process of managing the movement of specific goods away from their typical final destination in order to maximize its value or for proper disposal." The domain of reverse logistics is also referred to by other terms, including:

Introduction There are some unmistakable truths about top corporate execs. CEOs and EVPs love to walk the aisles of their stores, which are shiny and freshly waxed in anticipation of their "surprise" visit. Yet, on such field trips, they rarely see the stock rooms, and they are often hustled past the return counter. Likewise, corporate big wigs like to don a specially personalized hard hat, climb in the golf cart or Gator, and ride around the distribution center, seeing "neatness" on parade - rack after rack, pallet after pallet, shipment after shipment of new merchandise. Yet, they are most often not afforded the same "royal treatment" when they tour their firm's return processing area. Big-time business execs also love to arrive in the limo (or at least the very full size rental car) to be at the plant for the first moment of operation of their newest, fastest, most automated piece of machinery, but they are never there when the machine that was great a decade ago is relegated to the back of the warehouse and "the ash heap of history." Reality has set-in, and companies around the globe are recognizing that supply chain management doesn't reach a nice, tidy "end" with the delivery of a product to the customer. What happens with electronics, products, machinery, etc.:     

when they don't work, when they are recalled, when they are no longer wanted, when they need to be recycled, or when their use should discontinued?

   

The reverse supply chain, The aftermarket supply chain, Aftermarket logistics, or Retrogistics.

This flip – or reverse - side of the supply chain is far less glamorous, far less neat and orderly, and far less predictable than the forward-facing supply chain. The operational characteristics of reverse logistics are indeed fundamentally different and inherently more complex than the forward logistics involved in manufacturing and distribution. As Clay Valstad, Director of Reverse Flow and Specialty Distribution for Sears, categorized the principal difference between forward and reverse logistics as being that: "on the forward side, you deal with order. On the reverse side, you deal with chaos, trying to create order." Think of it, on the procurement side, an

be

Smart executives today are recognizing that there are significant costs – and likewise, significant potential revenue – to be derived at what was formerly thought of as the end of the supply chain. Likewise, 40


organization is dealing with an organized flow of items, coming into its possession in an organized manner (in truckloads, pallets, and cases), being clearly labeled and packaged, and arriving in anticipated quantities. On the opposite end, in reverse logistics, companies are dealing with an irregular flow of goods and materials, a random assortment of all types of goods and materials in various conditions. Chuck Martin, CEO of the Net Future Institute keenly observed that in today's current economic climate, organizations "cannot afford to be excess in anything." Yet, corporate executives often have no clue how much used or surplus equipment their company is sitting on - or where it is. Likewise, companies often have no idea how much their returned merchandise and surplus assets – their "reverse supply chain" - is costing them, or how much they have to gain through extracting value from what are largely thought of as "castaway goods."

The Costs of Being Inefficient in Reverse In 2006, according to estimates from Donald F. Blumberg, the total North American market for reverse logistics services is forecast to exceed $45 billion. Gailen Vick, President of Reverse Logistics Trends, Inc., projects that most firms spend between 3 to 6% of their bottom-line on reverse logistics activities. Today, much of these expenditures and efforts are happening "under the radar" and out of the range of true executive focus. In effect, they are often looked upon as a tax or a drag on a firm's performance.

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support have become de facto standards for all large firms. Dr. Michael Hammer, the founder of the reengineering movement, has observed that because eprocurement, ERP, and CRM techniques have become competitive necessities today, "competitive advantage must be sought in parts of the value chain that thus far have been either overlooked or underaddressed." The flip side of the supply chain is an area that executives of companies should look towards to gain competitive advantage today. A multiplicity of market and legal forces are helping to propel the centrality of reverse logistics in today's business environment.

Companies are increasingly realizing that there are significant costs associated with handling this reverse flow of goods (Table 1 outlines some of the hidden costs involved in handling surplus). All of these hidden costs of surplus detract from an organization's financial results. Specifically, they work to lower a firm's ROA (return on assets) and its liquidity. Once an organization takes steps to reduce the "drag effects" of unnecessary surplus, the firm's financial and operational health improves. Today, organizations are not just simply seeking to minimize their reverse logistics costs, as many firms are seeking to improve their recoveries on goods and assets at the end of the flip side of the supply chain. By actively marketing their surplus – getting an unneeded asset out of their hands and deriving positive revenue from it the process - companies are finding that they can produce significant gains. If a firm can sell its surplus assets, then these incremental revenues can enhance the company's financial standing. In fact, in a recent white paper, ATKearney found that 70-90% of every dollar generated through asset recovery goes straight to the bottomline. This accounts for the rapid growth of a host of used machinery sales outlets or "'B' channel," for goods that have been through a reverse flow. While the "B" channel is intended to operate separately from a company's primary sales channel, the "B" channel can also handle first quality and never used items as well. By operating as a "B" channel, companies can derive positive revenue, without harming their "A" channel. Reverse Logistics and Competitive Advantage With today's hypercompetitive business environment, every company must undoubtedly concentrate on maximizing the efficiencies and effectiveness of its forward supply chain. However, we have reached the point where electronic methods for both acquisition and sales

Managing in Reverse "Managing in reverse" means a paradigm shift for many firms. It means proactively:   

managing a complete product life cycle rather than a product delivery managing the reuse, refurbishment, and reutilization of products managing the recycling and disposal process

It also means looking upon surplus and excess as revenue opportunities, rather than time, space, and manpower wasters. Finally, it means that companies will have to make serious choices about how much reverse logistics activities to take-on, dependent upon both its role in the value chain and its mission. Such activities are often not the core function of the organization. Corporate leaders should carefully weigh the trade-off that must be made between the insourcing and outsourcing of reverse logistics operations. In the end, companies that embrace reverse logistics are likely to be the real winners across industries, and those who ignore it risk becoming surplus in today's era of global competition.

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A GLIMPSE INTO OPERATIONS MANAGEMENT @ SIBM PUNE It has been an exciting journey for Operations students at SIBM as the students of 2015 batch applied the knowledge gained in the past one year in their internships and gained corporate exposure. We also saw infusion of students from diverse professional backgrounds in the form of 2016 batch. A small glimpse into the Operations batch is given below: o Students of Batch 2015 attended Green Belt – Six Sigma workshop conducted by Prof. Rath from ISI Pune and were certified for the same. As a part of the certification students learnt the fundamentals of six sigma and also implemented it in a project with the guidance of Prof. Rath o Students from 2015 & 2016 batch visited JNPT port at Nhava Sheva as a part of Industrial Visit. The visit was arranged by CSCMP members of SIBM Pune – Mr. Himanshu Sharma and Mr. Mrugank Chinchkhede from the batch of 2015. The visit was fruitful as it provided the students with valuable insights about logistics services provided at the port. o Mr. Girija Shankar Acharya, Mr. Mrugank Chinchkhede, Mr. Pratik Vakharia from 2015 batch were Maverick Campus Winners conducted by Deloitte ,2014 o Mr. Karthik M from 2016 batch was the Campus Finalist of SABMiller Brew-ACareer Case Study Contest, 2014 o Ms. Pooja Deshpande from 2016 batch received Certificate of Appreciation for the Dissertation on ‘360 Degree Appraisal’, 2014 o Mr. Bhaskar Sharma, Mr. Rohit Menon from 2015 batch were National Winners E-Strategia, conducted by SIBM Pune, 2014 o Mr. Girija Shankar Acharya, Mr. Mrugank Chinchkhede, Mr. Pratik Vakharia, from 2015 batch were National Winners of Rannbhoomi – Operations Case Study Competition conducted by SIOM Nashik, 2014 o Mr. Deepak S Pradeep, Mr. Kungumaraj Mohan, Ms. Prabha Nadar were National Winners of Chakravyuh-Operations Obstacle Race conducted by SIOM Nashik, 2014 o Ms. Poonam Chauhan, Ms. Prabha Nadar from batch of 2015 were National Runners Up at Womancipation conducted by SIMS, 2014

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o Mr. Girija Shankar Acharya, Mr. Mrugank Chinchkhede, Mr. Pratik Vakharia, from 2015 batch were winners of Case Study Competition conducted by SIBM Pune, 2014 o Mr. Bhaskar Sharma, Mr. Rajiv Pandit, Mr. Rohit Menon from 2015 batch were National Runners Up at OpStrat, conducted by SIBM Pune, 2014 o Mr. Mrugank Chinchkhede and Mr. Viswanath GS from 2015 batch received Basics of Supply Chain Management Certification from CPIM Institute offering the certification-American Production and Inventory Control Society Our heartiest congratulations to the students for their achievements and we hope to see them scale new heights in the future.

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