Pravaha volume 4

Pravaha

Volume 4

COVER STORY

Industry 4.0

and Digitization of value chain Logistics & Supply Chain Management

From the editors desk Dear Readers,

Hope you all are having an amazing time. Operations club, IIM Shillong takes immense pleasure in introducing to you the fourth edition of its enriched and concise assay of different aspects of operations bundled together, the fourth edition of its biannual magazine “Pravaha”. With the tormenting summer receding and the frenzyness of the ever fascinating monsoons we have tried to cover yet another innovative aspect of bringing Operations to your convenience. The magazine greets you with a very sensitive; much heard of yet not tapped enough topic of “Logistics & Supply Chain management”. Pravaha tries to cover the different angles pertaining to the same. Innovation that’s going to redefine the logistics of tomorrow has been aptly touched upon. With pathbreaking technology of warehousing and Anticipatory shipping all eager to adorn the existing establishment of supply chain, Pravaha tries to bring to you subtle aspects of all these technologies.

Important Environmental aspects to give and enlighten ourselves about a responsible tomorrow have been aptly covered by “Green Supply Chain Management”. It indeed is of subtle and pinnacle importance that our environment today stands endangered to a huge threat that is looming and as responsible global managers of tomorrow, it’s imperative on our part to implement and monitor sustainable technology. At the same time the bottom of the pyramid holds significant importance in the upliftment of business. A socially inclusive model that prompts rural India to enjoy the benefits of e-commerce has also been touched upon and many more insightful facades have been spoken of.

It has been our consistent attempt to go beyond the four walls of the classroom and create a conducive environment just to make learning and exploring operations all the more easy and convenient to our dear readers. Hope Pravaha this time takes you through the strides of a lovely, engaging and yet insightful journey along the challenging facades of Operations Management.

With that “Team Pravaha’” signs off and welcomes you to turn to the next page and commence upon this wonderful journey.

Happy reading!!

Please feel free to provide your inputs about the magazine, its priceless and it keeps us alive.

Table of Contents INSIGHT

GST - It’s Impact on the Logistics Industry

2

Evoulution of Warehousing in India

4

Omni Channel Retailing - The future of Brick & Mortar Retailers

7

Last Mile Delivery - In Retail Supply Chain

10

Supply Chain Management - In Insurance Industry

13

BLAZE-A-TRAIL E-Choupal Supply Chain

15

Green Supply Chain management

17

Disruptions in Suplly Chain

20

COVER STORY

Industry 4.0 And Digitization of Value Chain

22

RENDEZVOUS

10 Facts About Logistics & 27 supply Chain Story: Origin of Logistics Interesting Facts About Apple 28 Inc. Supply Chain

Events - Optimus 11.0, OpsMerge, Shrinkhala Industry Associations - Meghalaya Institute of Governance, SCNext, Prezi

Look For This Inside

IIM Shillong • Pravha • 1

P Karan Jain

GST

Summon Chaudhari IIM shillong

its im pa ct o n the lo gisti c s i n d ust ry

here has been a considerable buzz generated

of taxes takes place, resulting in significant costs of compliance for

regarding GST, by the media in recent times. To say

the government. These situations occur primarily due to multiple

that GST is the biggest revolution that has happened

taxable events existing in our present system. For example, for excise,

to the Indian taxation system since independence,

manufacturing of goods is the relevant taxable event, whereas for

would surprisingly be an understatement. Which

sales tax, it would be the sale of goods and for service tax, it would

begs the questions, why is GST such a big deal, and

be the provision of services. Also, in certain states, there may be an

how is it going to supposedly revolutionise the logistics industry?

additional hindrance of an octroi, which is imposed at state borders.

In order to understand that, we have to understand the current

However, the most adverse effect of the present taxation system is

system in place and the positive impacts GST will have on it.

faced by the logistics industry. Logistics efficiency in the country

T

has been severely hit, due to the multiple barriers that have been Background

put up, while getting permits to enter into various states. Trucks in

There are various shortcomings of the present indirect taxation

India travel approximately 260 Kms a day, in contrast to the 440

system. Manufacturing of products have excise duties levied on

and 660 Kms a day average shown in European nations and the USA

them and its credit remains unavailable against liability of vat.

respectively. Moreover, it is apparent that unorganised players, who

VAT is charged on the value of excise, thereby causing a cascading

use less than legitimate means to get the job done, enjoy the cost

effect. The consequences of this factor would be similar to paying

advantage, and hence a significant chunk of the market share with

taxes on taxes, something that is extremely undesirable for any

respect to their organised counterparts.

manufacturer. Furthermore, there are situations when multiplicity

They say necessity is the mother of invention. Therefore it

2 • Pravha • Op-Era

wasn’t really a surprise that these elaborate shortcomings in the

providers, the users and the government, would have to plan in

present system led to the conceptualisation of the GST. The GST

advance so that countermeasures against the various predictable

is supposed to be a replacement for all other taxes in India. One

roadblocks could be devised in due course of time. But, in order

of the major impacts of this value added tax is to make taxes

to ensure the proper development of the logistics industry, certain

destination based rather than origin based. At the same time, GST

infrastructural pre-requisites have to be met. This includes land

is supposed to eliminate the cascading effect of taxes. It is also

availability, road, rail, power and multimodal connectivity. Some

supposed to substantially decrease the parity in regional prices by

of the target regions for 3PL service providers, as well as their

making all regional tax liabilities equal. The expected outcome of

users would include Chennai-Bangalore belt in the South, Nagpur

these provisions is a homogenous growth of the warehousing and

region in Central India and Mumbai-Gujarat-Rajasthan-National

logistics industry in India.

Capital Region (NCR) corridor in the North-West, driven by the high potential for future manufacturing activities and the planned

As a result of all the aforementioned provisions, an optimistic

Delhi-Mumbai Industrial Corridor (DMIC).

man would predict that the organised players in the logistics and warehousing industry, due to the reduction in cost of services

Apart from these significant impacts on the future of logistics

provided by them, would manage to eliminate the cost advantage

and warehousing, GST is also about to have a major impact on

that is presently held by the unorganised players, and subsequently

the logistics market and its dynamics. The logistics industry is

topple them from their current dominant positions in the market.

currently a highly fragmented one, with the top ten listed players

Thus, one can be hopeful that GST will level the playing field and

commanding less than 5% of the net market share. As we have

create a holistic and sustainable development of the industry across

discussed earlier, with the onset of GST, organised players are

India. The research division of rating agency Crisil Ltd expects the

expected to eliminate any competitive advantages unorganised

roll-out of goods and services tax (GST) to reduce logistics costs of

players may have had in the 3PL services sector. However, this does

companies producing non-bulk goods by as much as 20%.

not indicate a bleak future for the smaller 3PL service providers. If there was any truth to what Darwin proposed several years ago, in

Impact on Logistics Industry

order to ensure survival, these smaller players would definitely try

The impact of GST on the logistics industry is much more

to initiate symbiotic relationships with their “fitter” counterparts.

substantial than whatever has been mentioned till this point of

In fact, at this point of time, it seems evident that various

time. Presently, logistics companies focus on

unorganised player would try to initiate tie-ups or collaborations

optimizing their operations such that they could

with established players, which would result in a win-win situation

minimise the amount of tax they would have

for both parties, as well as the industry. Even sensex seems to agree with the glorious future prospects of GST, as we see stock prices of

GST will level the playing field and create a holistic and sustainable development of the Logistics industry across India”

logistics companies increase by up to 10% in intraday trade on 30th July, 2015. Players like Gati, Blue Dart, Patel Integrated Logistics and Snowman Logistics have seen tremendous surges in stock prices over the past few months. People have raised their expectations, all in hopes of the bright and sunny future that heralds the advent of the lower tax rates.

Conclusion it would be safe to say that the nation is eagerly awaiting the arrival

to pay. Consequentially, their focus deviates from efficiency and

of GST and all the limitless possibilities of a futuristic supply chain

optimum quality of service. Provisions explicitly stated in the GST

that it brings with it. The percolation of lower logistics costs, all the

proposal dictates that tax be levied on stock transfers and full

way down to the consumer, the enhancement of service levels, the

credit be available on inter-state transactions. As a result, one

transformation in the industry and the way 3PL clients perceive it,

can presume that the focus will now shift from tax minimisation

are just some instances as to how the passing of this bill would be

to operational and logistical efficacy. Subsequently, the client’s

a game changer for supply chain networks established throughout

demands will change as well, according to the changes in the

the country. As the focus on costs due to taxes reduce, the emphasis

logistics industry, which might result in alterations in established

on innovation and implementation of unorthodox supply chain

logistics networks of several 3PL service providers. This may in

practises will be more commonplace. These innovative and creative

turn result in the realignment of various businesses, in terms of

measures, will surely catapult India to the pinnacle of supply chain

geography, especially the Network and infrastructure related

excellence in the global arena, or at least one can hope so. As we

businesses. Proximity to manufacturing units or consumption

have mentioned before, labelling GST as “revolutionary”, would

markets will be emphasised upon and the hub and spoke model

truly be an understatement and its impact is something the

will be commonplace. In order to ensure this futuristic model of

logistics industry will definitely have to watch out for.

supply chains, the various stakeholders – the logistics service

IIM Shillong • Insight • 3

Evolution of Warehousing I n I n d ia

T

Udayan anand IIM Shillong

Traditionally used as facilities for storage of goods,

demand for newer and greater variety of products. The customer

warehouses are used by manufacturers, importers,

today wants much more to choose from followed by accurate orders

transporters etc. Warehouses typically have loading

deliveries in lesser times. Changes in supply chains to accommodate

docks to load and unload goods from the freight.

this new customer behavior is imperative.

They also have cranes and forklifts to move items from one part of the facility to another.

2. Increasing Competition: Growing competition in the industry has

In this business world of more direct and leaner supply chains

left companies trying to profit from every step in

and direct-to-store supply chain strategies, one might get the

the value chain.

impression of the redundancy of warehouse as a supply chain node.

But the reality couldn’t have been more false. On the contrary, efficient warehouses have become extremely essential for a lean and quick supply chain. Today firms no longer see warehouses and the supply chain as cost centres but as profit centres – a part of the value chain which could be used to increase revenues The forces behind evolving warehouses

Efficient warehouses have become extremely essential for a lean and quick supply chain”

1. Changing economy: The growing economies and the ever more interconnectedness with the global economy has fueled customer

4 • Pravha • Op-Era

3. Complex Business: The increasing complexities being introduced

in the supply chain and the growing need for zero-defect with least

short spans which would severely affect the profitability of the firm.

possible lead times has created the need for intelligent warehouses which can handle greater variety and more value added services in

Mechanization Compatible: Reiterating the rapid proliferation in

lesser time than they have been doing traditionally.

volumes and SKUs and the increasing need to make supply chains leaner and quicker, companies today look for high capacity, density

Evolution of Warehousing in the value chain

and throughputs in warehouses. It is thus important that the

Logistics, which includes transportation and warehousing, have

warehouses today are mechanized, or are capable and compatible

traditionally been kept as in-house functions. But, with the growing

of and for mechanization. Even if they do not have the state-of-

complexity in business, firms started to outsource these logistics

the-art machinery and mechanization, the warehouses should be

operations to specialized players who provided customized

upgradable to the next level technology. The warehouses should

services. Thus emerged the concept of third party logistics (3PL)

have sufficient floor strength, column pitches, adequate lines and

who then looked after all the supply chain functions of the firm,

the scope for forklifts and greater workforce.

while the latter focused on its core competency. The introduction of automated material handling devices, newer technology has given

Accuracy: With the growing need for more accuracy in supply chain

the warehousing sector a fillip towards maturity.

processes ranging from specifications, delivery, times. This creates the need for warehouse processes which have a system of checks

The warehouses today have come of age from their traditional

to make sure that there is minimal leakage in terms of defects,

utility as a stocking and a storage point. Today warehouses are no

delivery, damage etc. Warehouses have to move to complex multi-

more godowns but multi-purpose logistics centres. A warehouse,

step processes from the traditional single step processes, which

in addition to stocking points today are consolidation centres

takes care of such defects and damages through multiple check

for multiple sourcing locations, a cross docking centre for retail

points ensuring a perfect delivery and a satisfied customer.

distribution, sorting centre for door-to-door deliveries, assembly centre for fabrication, knitting, bundling and so on. Warehousing,

Responsive: Responsiveness of a warehouse refers to the quickness

today, comprises of 20% of the total logistics industry in India. The

of the warehouse as a node. It means how fast a warehouse can

Warehousing Industry in India is poised to grow fast, with some

take the baton from its upstream supply chain node and pass it on

experts tagging the annual growth rate number at 35-40%.

the next downstream supply chain node. In view of the growing customer clamor for faster delivery, the warehouse should have

SMART Warehouses

adequate infrastructure which could handle more SKUs and

Today, as noted before, the warehouses will have to move in tandem

volumes in lesser times. Only with more leaner and more responsive

with the increasingly complex needs of the Indian consumer, so as

warehouses processes can it satisfy the current market needs for

to keep the supply chains leaner and swifter.

short lead times.

Scalable: The current business environment is witnessing a very

Transportation-Compatible: The warehouses have to work hand-

fast paced increase in volumes and SKUs which increases the

in-hand with the other logistics processes of transportation and

complexity of the warehousing solutions required. Hence, the

distribution. The warehouse should have efficient and sufficient

warehousing solutions today have to be long-sighted, taking care of

docking and distribution gates and frontiers to facilitate smooth

the projected growth of the warehouse for at least the next 5 years.

off-loading and loading operations. Apart from the capability to

In the absence of such stable and scalable solutions, companies

handle huge transportation operations, it should also be equipped

will have to migrate from one warehouse facility to the next in

to handle multiple modes of transport. An efficient warehouse should have sufficient parking space wide roads, turning areas to accommodate the sudden surges in transportation activities in the warehouses.

Warehousing Sector Drivers 1. Investments in Infrastructure: The huge upcoming investments by the government in infrastructure will act as a great complimentor for the warehousing sector. The development of expressways, border roads, interior roads, cross country corridors, dedicated freight corridor for rail, development of newer ports and scaling up and upgradation of existing ports will stimulate the development of better supply chains including smarter warehouses.

2. Emergence of organized retail: According to a report by AT Kearney, India is the third most attractive retail market among emerging

IIM Shillong • Insight • 5

nations. Apart from the large existing and the new retail entrants,

the organized warehousing sector in India.

the ecommerce players like Flipkart, Snapdeal and Amazon are

References

laying a vital role in the Indian retail drive. This retail boom is

•

“July 2011.” Note Book (2015): n. pag. Pwc.in. Pwc, July 2011.

poised to give a huge fillip to the organized warehousing industry

Web. 3 Aug. 2015. <https://www.pwc.in/en_IN/in/assets/pdfs/

and pave the way for more smart and niche warehouses in the

publications-2011/building-warehousing-competitiveness-

country.

india.pdf> •

Industry, State Of The. Warehousing in India – The Smart Way

Increasing Manufacturing: The increasing manufacturing activity

(n.d.): n. pag. Web. 3 Aug. 2015. <http://www.miebach.com/

in India, owing to the growing number of foreign players entering

files/file/pdfs/Press%20Clippings/2012/2012-09_state%20

the Indian market, looking to tap the growing market. The specific

of%20industry_warehousing%20in%20india-miebach%20

and complex warehousing requirements of such players, which

consulting-web.pdf>.

includes automobile, pharma, hi-tech electronics etc. is set to drive

10 Facts about Logistics & Supply Chain

6 • Pravha • Op-Era

Editors Pick

Omnichannel Retailing T he F utu r e o f B r i c k a n d M o rta r Retai l e r s

Raghu Arun TVN Rohith Ambati IIM Tirchy

tâ&#x20AC;&#x2122;s a gloomy rainy afternoon in Bengaluru, but Aditya

mortar shopping experience, putting retailers operating in silos

needs to buy a gift for his sister today for her birthday.

at a competitive disadvantage. The new breed of consumers,

Five years ago, he would have went straight to a

equipped with smartphones, connecting to online stores 24x7, are

gift shop or shopping mall around the corner of his

shopping at their convenience, comparing prices where different

house. Today shopping starts from his couch at the

online portals are competing to deliver products at lowest cost

comforts of his home by surfing through different

anytime and anywhere. The shopper today wants synergy in terms

online marketplaces, sifting through plethora of products picking

of pricing, availability, payment channels and promotions. This can

his choices by reading the reviews on different products, comparing

be achieved through omnichannel retailing which emphasises the

the prices across online portals and sharing the products with

brand instead of concentrating on the channel.

I

his close friends for suggestions. He also checks out the nearest store for availability and places the order. In no time the gift is at

What is Omnichannel retailing?

his doorstep, without having to step out into the rain. This short

Omnichannel Retailing is an evolution over multi-channel retailing,

instance shows how Omnichannel retailing is revolutionising the

focussed on providing a seamless experience to consumers by

retail industry.

integrating all the available channels. Today, Omnichannel retailing stands as a best solution to the brick-and-mortar retailers to

New breed of customers

compete with online retailing firms. In fact, in The United States, of

The buying pattern of consumers has undergone a revolutionary

the top 20 retailers selling online, majority of them are omnichannel

change with the burgeoning of digital channels, customers are

retailers who started initially as brick-and-mortar retailers. In

choosing more complex paths including digital and brick and

order to achieve this, retailers should invest in technology to

IIM Shillong â&#x20AC;˘ Insight â&#x20AC;˘ 7

create a frictionless, transparent and unparalleled experience

physical and digital channels through an omnichannel platform.

across all touch points to the consumers. The major objective of

“We will leverage our modern warehouses, the distribution centres and

the omnichannel retailing is to leverage online channels not only

the huge customer data that we have to offer a seamless experience,”

to transact more business but also to drive business to the stores.

says Kishore Biyani, CEO, Future Group. There are more examples

Shopping is fundamentally a social activity and e-retailers are

like Shoppers Stop, Infiniti Retail (owns Croma) and Aditya Birla

having hard time to duplicate this experience to its consumers,

group who also have begun their journey towards developing their

omnichannel retailing gives brick-and-mortars a great opportunity

own omnichannel platforms.

to leverage this advantage.

What’s in it for me?

Plethora of instances

But why are the traditional retail chains investing so heavily in

Several retail organisations which adopted the omnichannel mantra

integrating their channels? The answer is simple: Digital Retailing

have begun reaping its benefits already. The phenomenal success of

is here and it’s big. You either transform your business or you perish.

Click and Collect services at John Lewis, a high street fashion retail

India’s online retail industry has reached a phenomenal figure Rs

store in UK is a prime example. This service lets shoppers opt to

139 billion in 2013. It is expected to grow at a 3-year CAGR of

pick up their purchases from one of the department store’s outlets.

50-55% to reach Rs 504 billion by 2016. The retail chains face

Since 2012, Click and Collect service sales have grown from 27%

this threat head on and realise the potential in online retailing

of its online sales to a very recent 49% in the 10 months of 2014

and are reinventing their marketing and operational strategies.

sales figures. In another case, the UK retailer Tesco studied its South

Omnichannel platforms offer:

Korean operation, known as Home plus, to determine how it could

• Better customer reach. The ability to interact and engage with

increase grocery sales to time-starved Korean consumers. In a pilot

tech savvy customers through as many touch points as possible – online, mobile, tablets and social media.

•

Customised offerings. Opens up the

traditional retailers to the enormous history of customer preferences, buying patterns and empower them to offer personalised deals and services.

• Effective store utilisation. Opportunity to turn the traditional retailers’ biggest liability – stores back into an asset. One European retailer, for instance, reports that it captures nearly 5% of online sales in areas near its physical stores, but only 3% outside those areas.

• Faster delivery times. The ship-from-store feature enables retailers deliver goods faster.

This also helps to reduce the shipping costs by as much as 18% program, Home plus covered the walls of Seoul subway stations

• Better inventory management. The sophisticated algorithms can

with lifelike backlit images of supermarket shelves containing

track in real time the inventory levels and thereby impact the store

juices, fresh vegetables and meat, and hundreds of other items.

markdowns.

Key aspects in implementation

Consumers could simply scan each product’s Quick Response code

Clearly, the benefits of switching to omnichannel retailing far

into their smartphones, touch an on-screen button, and thereby

outweighs hanging on to age old practices. But

assemble a virtual shopping cart. Home plus then delivered the

integrating several channels isn’t a simple task.

physical goods to the shopper’s home within a few hours. According

Retailers need to understand precisely their

to Tesco, more than 10,000 consumers took advantage of the service in the first three months, and online sales increased 130%.

Such innovative and out-of-the box ideas give customers access to more touch points thereby integrating the retail operations with other channels.

The Indian companies on their part are also making their mark in this front. Future Group plans to invest Rs. 100 crore in partnership with Hybris Technology to provide customers a ‘single view’ across

8 • Pravha • Op-Era

..... Omnichannel retailing is to leverage online channels not only to transact more business but also to drive business to the stores.”

customer expectations and establish a clear set of goals and

With Amazon recently opening their first brick-and-mortar store at

success metrics. Setting up cross functional teams comprising

Purdue University, Indiana, the line between traditional and online

visionary leadership, sales, IT and other departments will enable

retailers is fading away, indicating that brick-and-mortar stores are

seamless information exchange and make them agile. Integrating

just not going to disappear into the past, unless retailers adapt

channels would also require IT literacy and employees fluency

to the changing ecosystem and keep themselves abreast of the

with the latest technologies and gadgets. Retailers also need to

technological advancements.

provide a complete package of pricing and product information in real-time and across every channel. Achieving this depends on

References

having the right product content layer and multichannel commerce

•

application in place. Most importantly, the investment needed for this transition would be significant and hence retailers must realise

channel-pioneer-explains-his-methods/ •

the hidden potential and must value long term benefits over the expenditures incurred.

http://www.forbes.com/sites/peterhigh/2014/10/27/an-omnihttp://www.forbes.com/sites/peterhigh/2014/10/27/an-omnichannel-pioneer-explains-his-methods/

•

https://hbr.org/2011/12/the-future-of-shopping

•

http://www.business-standard.com/article/management/bestof-both-worlds-114092100684_1.html

•

http://www.bain.com/Images/BAIN_RETAIL_HOLIDAY_ NEWSLETTER_2014_2015_2.pdf

•

http://www.cas-us.com/SiteCollectionDocuments/AccentureOmni-Channel-Commerce-Gap.pdf

•

http://www.crisil.com/pdf/research/CRISIL-Research-ArticleOnline-Retail-Feb14.pdf

•

http://www.purdue.edu/newsroom/releases/2015/Q1/ amazon-launches-first-ever-staffed-campus-pickup-and-dropoff-location,-free-one-day-pickup-services-at-purdue.html

IIM Shillong • Pravha • 9

Last Mile Delivery

Somenath Mukherjee SJMSOM, IIT Bombay

I N Retai l S u p p ly Chai n

L

ast Mile in supply chain refers to the last leg of the

Challenges in last mile retail supply chain

network which includes product delivery to the home

•

From production to DC, the units are palletised and thus easier

of the consumer. Generally, last mile is the most

to transport in “Hub and Spoke” model. But in the last mile only

expensive, least efficient, and most problematic part

parcels can be shipped not the pallet, making it more difficult

of the overall delivery process & comprises nearly 40% of the total cost. So, recently retailers have given

huge importance on the last mile of the delivery

and costly •

A great portion of the orders are from non-metro areas and the lack of good transport and infrastructure in those areas make last mile more challenging

Why so important?

• Number of failed delivery and security issues

According to e-marketer, worldwide ecommerce sales will increase 20% this year to reach $1.5 trillion (Expected growth of retail is from 3 Billion $ in 2014 to 200 Billion $ in 2020.). With retail’s expansion into untapped markets, the e-commerce fire is putting immense pressure on retailers to seamlessly meet customers’ expectations. As, delivery cost reduces with the volume of last mile delivery, retailers are more interested in greater volume which in turn makes last mile delivery more complex. Apart from that, no of single household is increasing & people are working more, so firstattempt delivery number is comparatively less.

10 • Pravha • Op-Era

... delivery cost reduces with the volume of last mile delivery, retailers are more interested in greater volume which in turn makes last mile delivery more complex ”

Modes of transport in last mile •

Own: To reduce the cost, many e-retailers have started their own logistics wing for delivery. Flipkart has its “e-Kart”, Amazon delivers “Amazon Fresh” products by its own channel, and Jabong used GoJavas

•

3PL: Using third party logistics provider like FedEx, DHL etc.

•

Crowd sourcing: Deliv is using crowd sourcing models to deliver products to the consumers. They don’t have to maintain cars, warehouse etc. and not even courier service. Thus the cost of transport is lowest and it is considered disruptive in last mile delivery system

Current Trends •

optimization to calculate the daily transport plan based on

Company fulfilled sellers: E-retailers like Amazon, has its

advanced algorithms. It includes automatic trip creation,

fulfilment centre where sellers can store their items. But, nowa-days companies are doing its shipping from company fulfilled sellers. (A merchant who keeps his products in the e-retailer’s

adjustment incorporation, alerts and mobile integration •

e-tailers to grapple with. Under SOR, an e-commerce company

warehouse and takes advantage of the latter’s fulfilment

buys an item from a supplier with the understanding that if the

services such as quality checks, packaging and logistics

product is not sold within a stipulated time, the supplier will

services.)As the sellers are located near to the consumers, time

take the item back

taken to delivery is less •

Vendor managed inventories: To minimise inventory holdings, but at the same time retain control of shipment of products, some e-retailers are also stocking products in the vendors’ warehouses. In some cases Suppliers are taking care of the inventory and replenishments

•

Retailers who are not using own network, have shifted to lo local courier service to deliver in-city customers (e.g. Aramex

Recent Industry talks •

•

Delivery Option: With the increased competition, retailers have started different delivery options like same day, next day or normal delivery. Amazon has started one-day-delivery in 2013,

Vehicle routing algorithm: To determine the optimal route a

Mumbai with capacity of 5000 orders a day •

solutions (APS) software uses the power of mathematical

Hourly window delivery: DPD has started 1hr window delivery between 15:08 to 16:08

•

LetsTransport.in, a marketplace that connects users with lastmile logistics service providers for intra-city deliveries, has raised $1.3 million in a funding round led by Japanese venture capital firm Rebright Partners

•

Alibaba and Suning Commerce, two titans of Chinese retailing, are buying stakes in each other to develop a “new commerce

vehicle should take doing deliveries and pickups to customer locations is called the ‘Vehicle Routing’. Advanced planning

Postal Department has set up a dedicated e-commerce and parcel processing centre in the country’s commercial hub

examples. Even they are charging from 60-150 depending on •

Snapdeal has announced to spend 1200 Cr on logistics network and would start 4 hour delivery service

•

Flipkart In-a-Day, Snapdel Express Delivery are some of the the urgency of the delivery

In April, 2015, Flipkart had announced its tie-up with Mumbai Dabbawala’s to deliver to the last mile

•

courier). Delivery using motor bike instead of van is one more change that is being observed

SOR( Sales on Return): Inventory ageing is a critical issue for

model” that integrates online and offline shopping •

Social impact venture capital firm Aavishkaar has invested Rs

IIM Shillong • Insight • 11

32 Cr in e-commerce logistics firm Connect India, the country’s

by day, companies will focus on return collection, recalled or

largest impact investment firm

defective products from delivery point

Future trends •

Cloud based logistics: Cloud based logistics will be the next

References

big thing. Cloud base supply chain solutions are already been

•

provided by companies like Cloud Logistics, GTNexus etc.

• •

•

Drone delivery: Delivery to last mile by drone is under testing.

Breaking a Logistics Golden Rule-(Ichael McCool, Mui-Fong Goh, Jian Li ) AT Kearney White papers

•

E-Commerce Growth Brings Last Mile Headaches __ Logistics

Amazon, Alibaba are pioneer of this delivery.

Viewpoints_ A Blog for Logistics, Supply Chain, and 3PL

Advance queuing algorithm: As companies are moving towards

Executives

less inventories, numbers of warehouses will reduce. To serve

•

“Last mile advantage”-Business Standard News, 20 Jan 2014

the total base advance queuing algorithm to be used for order

•

Trends-April 2014 –Inbound Logistics by Joseph O’Reilly

selection and giving instruction for optimized item picking.

•

Reverse logistics in last mile: With the increase of orders day

“Optimized vehicle routing –key ingredient for successful Last Mile Fulfillment”- ORTEC

Origin of Logistics The etymology of the word “logistics” is often thought to be related to armed forces, which uses the term to describe all tasks related to troop support. However, the origins of logistics run back much deeper into the past. Logistics has been playing a fundamental role in global development for almost 5,000 years now. Since the construction of the pyramids in ancient Egypt, logistics has made remarkable strides. Time and again, brilliant logistics solutions have formed the basis for the transition to a new historical and economic area. Examples of this fundamental progress include the invention of the sea cargo container and the creation of novel service systems during the 20th century. Both are integral parts of globalization today.

During the Second World War (1939-1945), logistics had evolved greatly. The army logistics of the United States and counterparts proved they can do more than what the German army could handle. The supply locations for German armed forces were inflicted with serious damages and Germany was not able to wreak the same havoc on its enemy. The United States military ensured that the services and supplies were provided at the right time and at the right place. It also tried to provide these services whenever and wherever required, in the most optimal and economical manner.

The best available options were developed to do the task. This also gave birth to several military logistics techniques which are still in use in a more advanced form.

The global logistics industry has registered significant

growth in the last decade wherein the big driver has been the emergence of Third Party Logistics (3PL) and Fourth Party Logistics (4PL) (make sure you read our post 3PL vs. 4PL to better understand all the layers of logistics) players in the industry who are expected to play much more important role in the years to come. The global logistics industry is characterised by high costs of operations, low margins, shortage of talent, infrastructural bottlenecks alongside increasing demand from clients for providing one-stop solutions to all their needs and for investing in progressive technology. All these factors further decrease the margins involved in this industry and fastens the process of consolidation in the industry through acquisitions, mergers and alliances. Just think back to all of the acquisitions you’ve heard of over the last 18 months. It’s staggering.

12 • Pravha • Op-Era

SUPPLY CHAIN MANAGEMENT I N I N S U RA NC E I ND U S T RY

Shubhabh IIM SHILLONG

any of us usually associate the term ‘supply chain’ with manufacturing

conceptualizes a new product with all the underlined features

sector and products where supply and demand are

covered in that product. This product is then evaluated by the

quite evident. However, the concept of supply chain

actuary of the insurance company and the price for the product

management applies to all the sectors including

is calculated. Next this is sent to IRDA for principle approval after

service sector. The concept of supply chain can be

which it is introduced in the market. There are various channels

applied to any sector where many components

through which insurance company markets the products. Agents

are required to build a product/service for the end

are associated with limited insurance companies and reach the end

users. In Insurance industry also, the end product to the customer

customer. Brokers are the corporate organisations which deals with

is delivered by the services provided by a number of suppliers. This

all the insurance companies and serve retail as well as corporate

is true in all cases, be it car insurance or medical insurance or any

customers. Insurance company also has a direct channel to reach

M other service.

Supply chain of Insurance Industry In a conventional supply chain, insurance company, Insurance Regulatory and Development Authority of India (IRDA), surveyor, broker/agent, Third Party Administrator (TPA), scrap buyer and the end customer are the various parties involved. The process in this supply chain is as follows: the product development team of an Insurance company

IIM Shillong • Pravha • 13

the end customers.

industry by providing valuable information regarding customers

When a claim occurs, more parties get involved in this supply chain.

and their needs such that demand can be forecasted and can be

These are the surveyors and TPAs. These parties coordinate with all

complemented with optimum supply in form of policy coverage and

the players present in the supply chain thus making this chain a bit

extensions. It also leads to better relations of insurance company

complex. These parties are also regulated by IRDA and are under

with its channel partners as revenue for all the parties goes up

its supervision. In some cases, scrap buyers also gets involved in

and end customers also benefits as they get improved services.

the supply chain and proper operating procedures should be laid

The insurance companies and channel partners no longer store

down to deal with them so that the entire chain’s efficiency is not

data on physical devices and use cloud service for this. By doing

hampered. It is a proven fact that good customer service cannot be

this, the operational cost has reduced drastically and operational

delivered to the end customer in this industry if the supply chain is

efficiency has increased. Some of the insurance companies are also

flawed or processes in this chain are time consuming or redundant.

coming up with an app so that prospective customers can access the policies via smartphone and thus the direct channel provides

Role of Technology

better services to the customers. Having said all this, the usage of

Although the supply chain appears to be simple but that is not

SMAC is still restricted to few and has not become the industry

the case. In order to streamline the processes, role of technology is

standard thus the benefits are limited to few in the supply chain.

very important. Latest software and platforms are employed by the

Finally the focus shifts towards perfection. The continuous

insurance companies to streamline the entire value chain so that

quest for perfection thus forms the core of Lean thinking for

losses in the supply chain reduce considerably. One more advantage

which transparency acts as an enabler. It also enables reducing

which technology adds is that it increases the automation in the

clerical intervention and helps in real-time measurement of key

process thus inconsistency due to variations in the human nature is

performance indicators. Thus by bringing in real-time visibility and

controlled. Use of technology has substantially decreased the time

transparency RFID ensures the progress towards perfection.

to design the product and eventually reach the market earlier as compared to the older times.

Mis-Selling Mis-selling is a practice which needs to be checked by the supply

A new channel is gaining popularity at a fast pace and that channel

chain players. Mis-selling usually occurs due to lack of knowledge

is buying online. Various online aggregators and online comparison

and information about the available products for the customers.

vendors have emerged and are serving the customer well. This has

At the same time, the end customers is not aware of the products

led to increase in revenues of the insurance companies and also

available in the market. Thus, insurance companies should reach

deeper penetration in the market. Customers can now compare

out to the end customer directly and educate the users so that the

various available products and chose as per their requirements be

channel partners are enable to sell the wrong product and thus

it price or coverage or both. But with its emergence, it has become

goodwill of the insurance company does not take a hit. IRDA is also

a challenge to accommodate this channel in the existing supply

taking steps to create awareness among the customers to make

chain such that there is no conflict between the channels and no

sure that mis-selling is reduced and channel partners or insurance

cannibalization of the products. This will be very crucial for the

company doesn’t indulge in this.

insurance companies to manage these channels well so that the target segment for various channels remains well defined and non-

Conclusion

conflicting.

The term supply chain in services is not as acceptable as it is in

With the advancement of technology, the

products and manufacturing, yet the concept is equally applicable

impact of SMAC can’t be ignored on this industry.

in services also. The intangible nature of services makes it difficult

SMAC stands for

to manage the supply chain and to lay down standard operating

Social,

Mobile,

procedures for the same, still companies are now coming up with

Analytics and big data are playing a very important role in this industry by providing valuable information regarding customers and their needs”

Analytics

and

innovative methods to streamline the services offered to the end

Cloud. Insurance

customer. Supply chain concepts in insurance sector are not very

companies

are

prevalent or known thus expecting drastic changes in the near

promoting

their

future will be a bit harsh but for sure, the results will definitely be

products through social media and are also accepting the social

facts

via media

platforms which has

improved

the time to address the issues and streamlining the processes.

Analytics and big data are playing a very important role in this

14 • Pravha • Op-Era

visible in the long run.

E-choupal

Satish Rath

S u p p ly Chai n

XIMB

I

Vintesh Garima

TC Limited is an Indian conglomerate diversified into

The Value Chain: Farm to Factory Gate

FMCG, Hotels, Paperboards, Information Technology

ITC setup this model primarily to eliminate the middlemen and the

and Agribusiness. Agri Business Division of ITC(ITC-

local mandis, so that it can deal directly with the farmers and get

ABD) is one of India’ largest exporters of agricultural

quality produce at best prices. By providing a transparent system

products .They have with farm linkages in 14 states.

and empowerment to local people, it targets to gain trust and

Soya, Wheat, Coffee, edible nuts are majorly handled

acceptability among the farmers.

by this division.

Major challenges faced by the division in the existing supply chain: •

Insufficient information dissemination across the levels

•

poor quality of agri-inputs leading to low quality of agricultural produce

•

reduction of profit margins due to presence of middle men in the mandis

•

Unfair weighing & book keeping practises

•

Inaccurate farming methods followed leading to decreased output

IIMShillong Shillong•• Pravaha Pravha • 15 IIM

It provides farmers easy access to a web portal where they

collection centre.

get information regarding crop prices in the mandis, weather

The collection centres also have trucks & trolleys to transport the

reports, best practices of farming, soil testing centers nearby, seed

produce from the farmers to the nearby ITC factories where they

procurement, fertilizer usage, risk management etc by installing a

are further processed and packaged. Another intermediary in the

kiosk centre. Each centre has internet connected PC equipped with

system are the ITC Samyojaks(Coordinators) who are instrumental

satellite connectivity. In the rural areas round the clock electricity

in setting up the E-Choupal in the villages after conducting surveys,

is a major challenge; hence to address this problem, it utilizes the

selection of the Sanchalaks, manage transportation of crops from

solar charged cells & UPS system.

farmers to factories and maintain records.

A Win - Win Deal This model is truly a great initiative by ITC to integrate its business with the mutual benefit of the producers with which they conduct their daily business. Farmers gain by accessing accurate information in real time, higher incomes, reduced transportation costs, transparency & accountability by automated record keeping, accuracy in weighing and timely payments. ITC division is also in the gain as they directly interact with the farmers without the need to go through middlemen & mandis system, quality control of the supply chain & risk management, lower cost of the distribution channel and better access to market intelligence.

Most importantly, ITC has created a feeling of trust and goodwill among the farmers as a responsible

Every centre is installed in areas which are nearer to the farmers where they can carry out their daily transactions and gain information. Using this system, the farmers can check the daily rate and book for sale to ITC on the spot at the kiosk. The internet kiosk is manned by a Sanchalak who is formally trained to use the technology and provide information. Interestingly, the Sanchalaks are chosen from among the farmer community and are compensated

Societal development as an integral part of our mission of wealth creation for our stakeholders ensures the long term sustainability of our business enterprise”

for their services. This provides credibility to the kiosk as farmers rely upon their own village person. Every e-Choupal centre service

partner to work with. This has made the model a success and is

4-5 villages in their vicinity.

hence widely replicated across 14 states partnering with famous brands thereby empowering 4million farmers. Till date 6500

Value Chain of ITC EChoupal

installations cover nearly 40000 villages in India in which the

A procurement hub/collection centre servicing 20 Kiosks in the area.

prominent states include Madhya Pradesh & Maharasthra.

Over

It is setup to properly inspect, weigh and collect the agricultural

the next 5 years it is ITC’s Vision to create a network of 20,000

produce from the farmers. The farmers can offload their products at

e-Choupals, thereby extending coverage to 100,000 villages

the collection centre where the transportation costs are reimbursed.

representing one sixth of rural India. [ITC Portal : Agricommodities

For the smaller farmers without truck/ tractors, provision is made

& Rural Services]. It has also diversified the Choupal model into

to offload at the E-Choupal itself from where they are moved to the

Choupal Pradarshan Khets( Demonstration farms) and Choupal Saagar (a physical infrastructure hub for collection, storage and serving as a hypermarket under a single roof.)

The E- Choupal initiative has been globally recognized as a pioneer in the initiatives under Corporate Social Responsibility(CSR) . It has been widely appreciated and awarded by foreign and national organizations like UNIDO, Ashoka Changemakers, Stockholm Challenge and many more. The success of E-Choupal has given new lessons to corporate in India and abroad in the domain of all-round development of the business and the stake- holders. It ensures a sustainable supply chain model for the benefit of both the organization and the society.

16 • Pravha • Op-Era

Green

Akshay Gajghate harsh Dalmia

S u p p ly Chai n M a n ageme n t

S

IIM Shillong

upply chain management has been historically viewed

the value chain.

as a process wherein raw materials are transformed

Customers are increasingly becoming conscious of green practices

into finished goods and then delivered to consumer.

adopted by various organizations in India. So, organizations need

However, in the past few years, the emissions and the

to focus on the optimal employment of resources and energy for

waste generated by the traditional supply chains have

creating environmentally sound supply chains. GSCM practices can

reached unendurable levels and have become one of

be classified as GSM practices related to customers and suppliers;

the major causes of grievous environmental problems, such as acid rains and global warming. As a result, the need for environmental sustenance has been gaining intensity among the prevalent business practices. In view of the above developments, “Green Supply Chain Management” (GSCM) has managed to seize the raising interest among practitioners and researchers of operations and supply chain management. GSCM covers all stages of a product’s life cycle from the planning, production, and distribution phases to the use of goods by the end users and its disposal at the end of product’s life cycle. GSCM involves the integration of environmental thinking into supply chain management (SCM). It is an approach that targets the overall optimization of information flows and material flows along

IIM Shillong • Pravha • 17

environmental management practices within the organization;

companies can project a positive brand identity by projecting itself

environment-conscious process designs and goods. These

as an organization which protects the environment & ensures

may

include several practices namely environmental compliance,

sustainable future for all.

commitment of GSCM from senior and middle-level managers, auditing programs, suppliers’ certifications from International

McDonald’s, the world’s largest chain of hamburger fast food

Organization for Standardization, collaboration with suppliers

restaurants, is considered to be one of the pioneers in adopting

for environmental objectives, environmental management for

green practices. It helped its potato supplier in Austria to set up a

suppliers’ internal management, company-wide environmental

biogas plant to process all of their solid & liquid wastes accrued

inspections, cooperation with customers for cleaner production and

from potato production. The gas produced by the plant is used to

eco-design, training to build supplier environmental management

create heat which in turn is used to preheat the dryer for the French

capacity, design of products for reduced consumption of energy and

Fries production process. Also, the gas produced is converted

materials, environment-friendly raw materials, design of products

into electricity to supply to the public grid. The residue from the

for recycle, reuse and recovery of material and component parts

conversion process is provided to potato farmers for using it as a

and optimization of processes to reduce solid/liquid waste and

fertilizer. Through heat recovery process, which is serving the dryer,

emission. The need of the hour is to integrate environmentally

electrical energy of 4.2 gigawatt hours a year is produced. Overall,

sound choices into supply-chain practice and research to achieve

40% of the facility’s energy requirements are catered to by using

sustainable growth and development.

this method. Furthermore, recycling of the frying oil (that is left out at the end of frying process) for creating biofuel so as to power its

GSCM vs Traditional SCM

logistical operations, and serving of salads on cardboards instead

GSCM and tradition SCM are starkly different at many levels.

of using plastic bowls, are some of the positive green initiatives

Traditional SCM is usually driven by the single agenda of economy

from McDonald’s.

as its ultimate objective while GSCM takes into account both the ecological as well as economic objectives. SCM outrightly rejects eco-friendly practices whereas GSCM emphasizes green, integrated and ecologically optimized practices. Traditional SCM is more focused on controlling the final product, with no regard to the ensuing harmful effects on environment during distribution and production.

S.NO

Characteristics

Green SCM

Traditional SCM

1

Objectives

Ecological

Economical

Rconomical 2

High

Low

Going green also helps companies to come up with profitable

Criteria for

Long term

Short term

the Pyramid (BOP). In India, where at least 30% of the population

Selecting

relationship,

relationship

Suppliers

Ecological aspects

Impact on Ecology

3

stressed Benefits of Adopting Green Supply Chain Management AGreen Supply Chain Management (GSCM) strategies help in reduction of negative impacts on the ecosystems & in improving the condition of the environment. Today’s socio-economic dynamics & regulatory forces are compelling companies to be green & lean in their product sourcing, operational activities, distribution and logistics. Thus, it is becoming increasingly necessary for companies to go for GSCM in order to remain sustainable. Additionally, it is found that by switching to GSCM practices, ceteris paribus, companies can reduce costs by up to 20%. Though, by introducing new technologies companies can help reduce costs much more drastically, the costs of Research & Development is, most of the times, very high, and may not provide adequate returns on investment (ROI). Whereas, in case of GSCM the results are much more reliable. In addition to all that, by raising their green credentials among employees, government authorities, customers and other stakeholders,

18 • Pravha • Op-Era

initiatives that can be used to cater to the needs of the Bottom of have minimal access to electricity, Coca – Cola came up with solarpowered vending machines which helped it to reach out to more than eighty thousand untapped villages. These machines use insulation materials which help them to run without power for up to 16 hours per day and require power supply only during nights (when it is mostly available).

Another example comes from Hindustan Unilever Ltd., which has a

manufacturing, purchasing, materials management, distribution &

well-formulated recycling program used for eco-friendly disposal of

logistics, and reverse logistics. The lucrative paybacks of having

wastes generated at its national headquarters in Mumbai. HUL uses

GSCM, have led to these practices being increasingly adopted by

an in-vessel vermi-culture system which converts organic wastes to

corporations worldwide. The specialists of GSCM have formulated

vermi-compost organic fertilizer & vermi-wash liquid fertilizer. This

better and more pioneering ways for reducing their carbon

highly nutritional fertilizer is used to enrich the magnificent lush

footprints & green-house-gases (GHG) emissions. Although the

gardens surrounding the office. The inorganic waste, which mainly

high net worth players of various businesses have proved their

comprises cardboard & paper, is sent to recycling units. This helps

environmental sensitivity, the usage of GSCM practices in MSME

to reduce the production of greenhouse gases & carbon footprints

(Micro, Small and Medium Enterprises) has a long way to go. Also,

which would have otherwise been produced by the manufacturers

with the increasing correlation being found between the extent of

of these products.

GSCM by the companies and the enhancement of their economic performance and competitiveness, this concept is sure to become a

HUL has also entered into a one-of-its-kind partnership with the

popular trend in the near future.

poor rag-pickers, which if pursued nation-wide by various companies, can help in substantial reduction of India’s 12k tons of junk which

References

is produced every day. Initially, the HUL partnership program was

•

http://www.redalyc.org/articulo.oa?id=84720408

set up at the stockiest and warehouse levels. The ruptured packs

•

h t t p : / / w w w. a p o - t o k y o . o r g / 0 0 e - b o o k s / G P - 0 9 _

were collected and sorted by rag-pickers and were eventually sold to paper mills. It would have been impossible for municipal

GreenSupplyChain.htm •

Green

supply-chain

management:

A

state-of-the-art

corporation to handle such walloping volumes of junk, if it were

literature review, Samir K. Srivastava, International Journal of

to do it all by itself. Currently, HUL is focusing on improving the

Management Reviews (2007)

monetary value obtained from the plastic wastes such as discarded

•

A green supply chain is a requirement for profitability, Sameer

sachets and lighter plastic packaging so that rag-pickers are able

Kumar, Steve Teichman and Tobias Timpernagel, International

to sell them and thus, find some economic incentives in picking

Journal of Production Research Vol. 50, No. 5, 1 March 2012,

them up from the streets. For streamlining the process, it has also

1278–1296

partnered with a company in Chennai in order to convert flexible

•

https://www.youtube.com/watch?v=w-kdqxdqdr0

plastic wastes into fuel oil at a workable cost. HUL’s Pondicherry

•

http://www.coca-colacompany.com/stories/5by20

factory has been successful in using this fuel to power its boilers.

•

https://www.youtube.com/watch?v=DJ6QGesUWAQ

•

http://www.aboutmcdonalds.com/mcd/sustainability.html

•

http://www.greenbiz.com/news/2010/05/04/potato-power-

Conclusion Greening of the product supply chain is a novel initiative which not only benefits future generations to come but also the current

homes-factories-on-mcdonalds-new-best-practices-list •

profitability of the company which proactively uses it. During the

22/news/36484680_1_ragpickers-plastic-waste-waste-

recent times there has been a substantial increase in need for organizations to focus on GSCM especially because of increased

http://articles.economictimes.indiatimes.com/2013-01management

•

http://www.hul.co.in/mediacentre/pressreleases/2012/

consensus amongst various stakeholders of the society towards

unilever-reports-on-first-years-progress-against-ground-

the use of conservative & sustainable practices. Thus, GSCM has

breaking-sustainable-living-plan-targets.aspx

found its way in the entire spectrum of supply chain activities like

Interesting Facts About Apple Inc. Supply Chain •

Inventory turnover is 59, Apple seems to be more efficient. Anyway, there is a reason for this. Apple Inc is now marketing company with no manufacturing facility

•

Apple recently said that they have about 156 key vendors across the globe. This amount of suppliers is quite manageable

•

Apple inc has central warehouse in California. What Apple do is that it synchronizes data between central warehouse and its own 246 stores + customers. With appropriate level of automation, this kind of operations can be done efficiently

•

Apple, they have about 26,000 items (rough estimate, subject to change) and the products life is more than 12 months which makes the demand forecast much easier

IIM Shillong • Pravha • 19

Disruptions i n S u p p ly Chai n

S

Aman Dhole Iim shillong

upply chain is important part of any operation process.

at right price at right place are they choosing right person that

Operations deals with the study of the input coming

is right supplier. As it looks simple but the supply chain is a very

for the process, the processes that takes place on the

complex chain. Any type of problem at any level in chain may put

input and the final output coming from the system. So

profits of all the organizations on risk. There should be a proper

operations is for an organization while supply chain is

coordination and communication between suppliers and buyers at

for all the organizations in chain.

all levels.

Basically when we talk about supply chain it’s just not about the company but the suppliers of the company then the suppliers of

External Factors Leading to Disruptions in Supply Chain

that supplier company and on the other side distributors, customers,

The first and most important factor affecting supply chain is

end customers and so on. So the supply chain is a much broader

environmental factor. Any type of natural disaster like flood,

picture than the operations.

tsunami, landslide, earthquake, etc. badly affects the supply chain and these are uncontrollable factors. For example – there is

Introduction

furniture manufacturing company in Shillong, and supplier of this

For any manufacturing firm and even for service firm supply chain

company is in Guwahati. This furniture manufacturing company

plays an important role in their revenue generation and profitability.

provides their furniture to highly reputed education Institutes in

So while choosing firm’s suppliers, management keeps in mind that

Shillong. So while transporting raw material to the company, let’s

20 • Pravha • Op-Era

in supply chain. The reason for this could be faulty production facilities – the machinery the company has could be faulty or it could be old to use which might affect the production of products and then it won’t be able to fulfill the demand. The second reason could be the quality control of products. When customers are paying for a product they expect good quality products in return but if there is not a proper quality control unit then due to low quality products sales will decrease which will affect the manufacturing company, supplier of the company, transportation partners of the company, the suppliers of the suppliers and so on.

One of the major problem now a days is of Information Technology say landslide happened. So raw materials will not reach time and in turn it will delay the supply of finished goods to Education Institutes. So the major effect of this will be on company who might lose their relations with long term customers and due to delay in delivery they will lose potential new customers also. At the same time if profitability of company falls down, it will reduce the supply of raw materials from its supplier. So due to one disruption all the organizations in chain got affected.

(IT) system failure. The use of IT is increasing rapidly so if IT system fails, it might create problems for the company because till the date then company become dependent of IT and thus further functioning of firm might stop as a result of failure. Adding to the problem of IT, in developing countries like India, a major problem is of Power. The availability of electricity is highly costly for industrial sector which is causing problems in manufacturing sectors in India.

Losses during Transit The normal and abnormal losses taking place while transportation are causing the delivery constraints in supply chain. Normal losses are losses where the occurrence is inevitable for example- breaking of few milk packets while transportation. While abnormal losses

..... supply chain away from retail customer and small changes in customer demand causes large variation in orders placed upstream”

are the losses whose occurrence can be avoided for example theft. Transportation constraint causes main problem in delivery for finished goods, at the same time raw material delivery failure not affect as much as finished good’s delivery does. The reason for this is for the retailor business finished good ready for sale matters more. So if we look from manufacturer’s point of view both failure causes effect on his profitability and for retailor also both the failures are harmful when it comes to profitability of firm.

Conclusion An unmanaged supply chain is not inherently stable. Demand

The environmental factors or the natural disaster are not the only major disruptions in supply chain. Many a times firm make wrong decisions of choosing the supplier. So the poor performance of the supplies becomes major problem. The suppliers we chose may be not capable of supplying but we have already chose the supplier so we cannot switch to other supplier easily because of the high switching cost and switching time involved in this process is high. There might be many reasons of why the performance of supplier is falling. Few reasons are there might be some problems in manufacturing process of the suppliers, forecasting error by suppliers which in turn affecting the delivery of material, transportation breakdown, natural disasters, etc.

Internal factors leading to Disruptions in Supply Chain The company might itself be problem in supply chain. Supply chain not only include the suppliers and manufacturers but also the end users. So the problems in company could be major constraint

variability increases as one moves up the supply chain away from retail customer and small changes in customer demand causes large variation in orders placed upstream. Eventually network can oscillate in very large swings as such organization in supply chain seek to solve problems from its own perspective. This is Bullwhip effect one of the major disruptions in supply chain. To minimize supply and demand imbalance in supply chain firm utilizes various methods of inventory management. So to tackle the disruptions in supply chain following points should be always taken in consideration – •

Don’t assume supply chain management fixes everything

•

Don’t forget to look for all the available suppliers while selecting

•

Don’t forget to communicate properly with all the partners

•

Don’t forget your suppliers capability

•

Predict the future demand but don’t forget to take into consideration the uncontrollable factors

IIM Shillong • Blaze-A-Trail • 21

Article of the Issue

3D printing is classic example of disruptive innovation that has created new market dimensions”

Industry 4.0 a n d Digiti z ati o n o f Va l ue Chai n

I

Prakhar sahay IIM Shillong

ndustry 4.0 refers to the fourth industrial revolution.

of value chain organization (Hermann, 2015) based on the

The fourth industrial revolution refers to the

technological concepts of cyber-physical systems, the Internet of

computerization

industry,

Things and the Internet of Services, it facilitates the vision of the

especially. It is based on the six design principles-

Smart Factory. Within the modular structured Smart Factories of

Interoperability, Virtualization, Real-Time Capability,

Industry 4.0, cyber-physical systems monitor physical processes,

of

the

manufacturing

Decentralization, Modularity and Service Orientation.

create a virtual copy of the physical world and make decentralized

Its current and future use is spread across various industries like

decisions. Over the Internet of Things (IoT), Cyber-physical systems

automotive, healthcare, manufacturing, oil and gas, food, utilities

(CPS) communicate and cooperate with each other and humans in

and services, . There is a lot of cost saving, service level improvement

real time. Via the Internet of Services (IoS), both internal and cross-

and also revenue increase on part of the industries. The supply

organizational services are offered and utilized by participants of

chain garnered greater visibility and uniformity upon digitization

the value chain.

and error correction improved a lot. The lead time for delivery also gets reduced in many cases. The maintenance and quality control

The German federal government has kept aside approximately

also improved a lot. It is about time industries go for Industry 4.0 in

€200 million to assist and guide industry associations, research

a full-fledged manner.

institutes, and companies develop an implementation strategy. The U.S. government also plans to provide up to $1 billion in funding

Introduction

for the establishment of a national network of research institutes

Industry 4.0 is a collective term for technologies and concepts

and businesses.

22 • Pravha • Op-Era

IIM Shillong • Pravaha • 22

Background Smart manufacturing: A December 2013 survey by the American Society for Quality (ASQ), states that only 13 percent of the manufacturers surveyed said they use smart manufacturing within their organization. Amongst those that claim to have implemented smart manufacturing, 82 percent say they have experienced increased efficiency, 49 percent experienced fewer product defects and 45 percent experienced increased.

Sensors and computerized automation have been implemented by manufacturing corporations for decades. The sensors, PC-based Industry 4.0: Six design principles •

Interoperability: the ability of cyber-physical systems (i.e. work piece carriers, assembly stations and products), humans and Smart Factories to connect and communicate with each other via the Internet of Things and the Internet of Services

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Virtualization: a virtual copy of the Smart Factory which is created by linking sensor data (from monitoring physical processes) with virtual plant models and simulation models

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Decentralization: the ability of cyber-physical systems within Smart Factories to make decisions on their own

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Real-Time Capability: the capability to collect, analyze data and provide the derived insights immediately

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Service Orientation: offering of services (of cyber-physical systems, humans or Smart Factories) via the Internet of Services

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Modularity: flexible adaptation of Smart Factories to changing requirements by replacing or expanding individual modules.

controllers and management systems and Programmable Logic Controllers (PLC) are largely disconnected from IT and operational systems.

Proactive Maintenance: Lower cost sensors, wireless connectivity and big data processing tools make it cheaper and easier to collect actual performance data and monitor equipment health.. With new sensor information, IoT can help a manufacturer improve overall equipment effectiveness (OEE), save money by minimizing equipment failure and allow the company to perform planned maintenance.

Connected Supply Chain: IoT, analytics and IP networks will help manufacturers gain a better IoT systems can also collect and feed delivery information into an ERP system; providing up-to-date information to accounting functions for billing. Access on real-time information will help manufacturers identify issues before they happen, lower their inventory costs and potentially reduce capital requirements.

Solution There are many use cases which show as to how the industry is currently using Industry 4.0 to their benefit

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Company

Domain

Industry 4.0 Application Challenge: reducing network downtime Solution: GM implemented standards-based network architecture, called

General Motors

Automotive

the Plant Floor Controls Network (PFCN), to standardize the design of each plant network and establish a single engineering team that monitors and troubleshoots network operations globally.

Benefits: PFCN helped GM reduce network downtime by approximately 70%.

Challenge: ConAgra Mills makes 800 different kinds of flour for its customers.

Solution: It uses predictive tools and services to forecast pricing, capacity ConAgra Mills

Food Processing

requirements and customer demand.

Benefits: Allowed the company to maximize revenues through improved margin decisions and increase production capacity utilization by 5%.

Solution: Using Rockwell’s software for real time error corrections in the plant.

Toyota

Auto-motives

Benefits: With improved troubleshooting capabilities and error correction, Toyota has minimized rework and scrap rates in its Alabama plant, which has resulted in an annual cost saving of $550,000.

Information and Samsung

communications technology

Solution: Virtual prototyping platform Result: Improving performance by more than 50%

Challenge: High transportation cost Solution: The company uses a route optimization system, ORION. The onboard sensors installed on UPS trucks help calculate when the truck should be UPS

Logistics Provider

turned off or on during the delivery process Benefits: reducing 1.6 million hours of truck idling time The deployment of descriptive and predictive analytics systems Result: reduce 85 million miles driven per year or 8.5 million gallons of fuel.

Franklin Bronze & Alloy

Producer of ceramic

Inc.

shells

PUMA

Solution: used robots to dramatically reduce costs and increase efficiency Results: the company cut man-hours from 56 hours a day to 32, while increasing daily production from 140 to 200 parts

Manufacturer of athletic

Challenge: Prototype Creation time

and casual footwear and

Solution: 3D Printing

sportswear

Result: reduction in the Its Prototype Creation Time by 75%.

Challenge: Target setting

HP

IT firm

Solution: a digital solution for SC optimization ,” Geographic Analytics” Result: cut down the time needed for ad-hoc network optimization by 50%.

Xerox

Manufactures printers,

Application: 3D Printing

multifunction systems,

Results: reduce the cost of producing a single mold by 91% – from $1,200 to

photocopiers, digital

as little as $100

production

Reducing lead time by 93 %( from a week to 4 hours).

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Company

Domain

Industry 4.0 Application Challenge: Software reusability at industrial level.

Solution: Teamcenter by Siemens Benefits: avoid duplication and fosters consistent use (and re-use). This can be a big plus in cases where a functionality such as adaptive cruise control is distributed, requiring multiple modules – brake and throttle control, for instance – to communicate with each other across an onboard network.

Challenge: improving quality, waste minimization Solution: Siemen’s Digital Enterprise platform-products control their own manufacturing process used at The Siemens Electronic Works Chengdu (SEWC) in Southwest China(opened in February 2013) Benefits : (i)the plant uses about 2,500 metric tons less water, discharges about 820 metric tons less CO2, and saves about €116,000 in energy costs each year thanks to smart building technology (ii) The production facility had 500 defects per million (dpm) back in 1989, it

Siemens

Industry, Energy,

now has a mere 12 dpm.

Healthcare, and

Challenge: remote monitoring, service level improvement at Siemens Wind

Infrastructure & Cities

Power Services in Brande, Denmark.

Solution: all the operating data from more than 7,500 Siemens wind turbines all over the world, the data, along with weather and power grid information is collected by the SCADA and Turbine Condition Monitoring (TCM) software by Siemens Benefits: center measures more than 2,500 anomalies every week. Specialists can remotely solve 80 percent of the stopped turbines within ten minutes. A further five percent of the problems take somewhat longer to solve, but do not require technicians to be sent to the defective turbines. In only 15 percent of the cases do service technicians actually have to go out and work on the affected wind turbines Challenge: Artificial knee and hip joints, being standardized products, needed several days to customize them for patients.

Solution: new software and steering solutions Benefits: an implant produced within 3 to 4 hours.

Challenge: Bekaert, a global market and technology leader in steel wire transformation and coatings, wanted to harmonize its supply chain processes to gain better control over its inventory, lower plant maintenance costs and bring transparency to its operations. The company also wanted to eliminate outdated platforms and establish a common platform across its manufacturing units.

Solution: •

Demand management integration with customer service, sales managers and the supply chain team

• TCS

IT Firm

Production allocation integration with supply chain and operational management

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Integration of production planning with customer forecasting

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Handling unit management with traceability

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Automatic robot integration in shop floor operations

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Real-time integration of production and planning data with costing

Benefits: •

Reduced IT operation costs due to elimination of legacy systems and adoption of a common IT platform

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Reduction in inventory to 3 weeks and greater transparency in transit stock

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Standardized processes and documents across regions by implementing global templates

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Clear visibility of capacity allowing for better planning

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Projected Future Growth and Scope •

•

Operations;On Track to Achieve 166% ROI Over Five Years. Cisco

Germany’s National Academy of Science and Engineering

Business Transformation Series – Connected Manufacturing.

(Acatech) believes that new manufacturing processes will lead

•

Consulting, C. (2013). Digital Leadership.

to a 30 percent increase in industrial productivity

•

Consulting, C. (2013). Digital Leadership- An Interview with

German industry will invest a total of €40 billion in Industry 4.0 every year by 2020. Applying the same investment level to

David Reis, CEO of Stratasys.

•

the European industrial sector, the annual investments will be as high as €140 billion per annum •

Review. Capgemini Consulting.

•

While today only one fifth of the industrial companies have digitized their key processes along the value chain; in five

•

goes digital . Capgemini Consulting.

The US government has pledged funding of up to $60 million

•

to the National Additive Manufacturing Innovation Institute (NAMII), which is a public-private partnership aimed at

Hermann, P. O. (2015). Design Principles for Industrie 4.0 Scenarios.

•

IBM. (2011). Predictive Maintenance for Manufacturing- How

transitioning 3D manufacturing technology to the mainstream

to improve productivity, minimize downtime and reduce costs

US manufacturing sector

. IBM.

Certain IoT-enabled HVAC systems also offer integrated

•

weather data and prediction analysis to help manufacturers understand expenses and plan energy usage. GE says efficiency generating 15MW can save over $200,000 on average per year

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Jochen Bechtold, C. L. (2014). Digitizing Manufacturing: Ready, Set, Go! Capgemini Consutling.

•

British Rolls-Royce, an industrial user as well, is gearing up to use 3D printing technology to produce components for its jet

(2014, March). INDUSTRY 4.0-The new industrial revolution How Europe will succeed. Roland Berger- Strategy Consultants.

improvements of 5% in a small industrial power plant •

Gunnar Ebner,Ralph Schneider-Maul,Wolfgang Klade,Jerome Buvat and Subrahmanyam KVJ. (2012). Operational excellence

4.0 solutions in all important business divisions

•

(2013). Gartner Says Worldwide Shipments of 3D Printers to Grow 49 Percent in 2013. Gartner.

years’ time, 85% of companies will have implemented Industry •

Erik Brynjolfsson, A. M.-V. (2014, January). Digital Transforamtion

Klaus Bauer, D. B. (2013). Recommendations for implementing the strategic initiative INDUSTRIE 4.0. Dec.

•

engines. Some of these parts have very long lead times due to

Lauren Keller Johnson, L. C. (2011). Strategy Execution Champions: The Palladium Balanced Scorecard Hall of Fame

the tooling process involved, and it can take 18 months to fill

Report. Robert L. Howie Jr., Managing Director, Palladium

an order. 3D printing would shorten this process considerably,

Group, Inc.,Joshua Macht, Group Publisher, Harvard Business

and also make it possible to manufacture more lightweight parts

Review Group.

•

Mathieu Dougados, S. G. (2013). The Missing Link-Supply Chain and Digital Maturity.

•

Conclusion

(2014). opportunities and challenges of the industrial internet. pWC, strategy&.

Industry 4.0 is as it rightly should gaining huge importance worldwide. To start with, given the fact that the innovation cycle

•

Pictures of the Future. (2013). Siemens AG.

time for services sector is very short and the barrier to entry

•

TCS. (2013). TCS helps Bekaert realize efficiency gains in its supply chain . TCS.

is lower as compared to the products segment. While the larger companies should focus on the overall implementation of industry 4.0 to tis value chain to reap greater benefits- cost cutting, waste minimization, better productivity, better quality control, better service delivery, transparency in the supply chain, etc.

References •

Bechtold, D. G. (2012). Are Manufacturing Companies Ready to Go Digital?-Understanding the Impact of Digital . Capgemini Consulting.

•

Bechtold, D. G. (2012). Digital Transformation In Manufacturing.

Capgemini Consulting.

•

(2014). Building Smarter Manufacturing With The Internet of Things (IoT). Lopez Research LLC.

•

Christian Schulze. (n.d.). Retrieved May 2015, from http://www. globalpacksummit.com/pdf/Christian_Schulze.pdf:

http://

www.globalpacksummit.com/pdf/Christian_Schulze.pdf •

Christian Schulze. (n.d.). Smart Systems - Industry 4.0:How can the industry prepare its factories for the future in automation?

•

Cisco. (2010). General Motors Prepares for Future with NextGeneration Information Networks for Global Manufacturing

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•

Trage, S. (2014). Facts and Forecasts: Renaissance in Manufacturing. Siemens AG.

Rendezvous B I O S COP E o f the past six m o n ths EVENTS Optimus 11.0 Optimus 11.0, held in March 2014, was an online quiz for 20 minutes which required participants to register in a team of two. It gauged their expertise in various fields like supply chain management,

operations,

current

trends

in

industries, best industry practices and concepts involving operations. Team The Blue & The Black from IIM Shillong stood first followed by Team Serendipity from XLRI Jamshedpur.

OpsMerge Optimus 7.0 tested the creativity and conceptual clarity of the participants in a few pre-mentioned basic Operations and Supply Chain concepts.

Participants were required to submit a one slide power point presentation in a team of two which was followed by gathering of Facebook likes by them. Teams were evaluated on creativity, concept clarity/originality, content and Facebook likes/ shares. Team Blackops from NITIE emerged as a winner for innovative solution explaining the topic “Influence of GST on Supply Chain Industry”.

Shrinkhala On 24th August 2014, Op-era in association with i-cube, Entrepreneurship Cell of IIM Shillong launched OpsMerge– a national level operations case study competition. It was a two round event.

In first round over 100 teams participated from all the B-schools. Out of all the participating teams, 25 teams proceeds to second round which was a case study round. Finally the teams Optimus from SIMSR emerged as winner of the OpsMerge while Team Brahmashiras from IIM K settled as the runner-up.

INDUSTRY ASSOCIATIONS Magic cement Op-Era collaborated with Magic cement of RNB group in the form of a live project to design Market penetration strategies into the Shillong cement market. OP-ERA has successfully accomplished the task and is entering into newer collaborations with the group including more

IIM Shillong • Rendezvous • 27

live projects, industrial visits etc.

Meghalaya Institute of Governance, Government of Meghalaya OP-ERA has begun its association with Meghalaya Institute of Governance (MIG) in the form title sponsorer for Shrinkala, the flagship event of the club at Khlurthma, the annual B-school fest of IIM Shillong. Op-ERA has also entered into a tie-up in the form of a live project with MIG related to governance in Meghalaya state thus taking the relationship to newer heights.

SCNext The club associated with SCNext, an international

organization

bringing

together youth working in the domain of Supply Chain from across the world.

As a part of members of the prestigious competition the students get to interact with professionals from across the globe, get to enrol for various certifications in the domain of supply chain, six sigma etc. and participate in the international PTAK prize organized by ISCEA.

Fun Facts of Supply Chain Process •

The term “logistics” was used as far back as 1898

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Ford’s “Model A Car” Production in 1927 demonstrates the first example of mass production

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The mastermind behind MRP (material requirements planning) was IBM’s Gene Thomas who later founded the company, Emeritus

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According to the Council of Supply Chain Management Professionals (CSCMP), it is estimated that it costs approximately $.37 to deliver a box of cereal to the U.S. consumer’s breakfast table

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Logistics operations deliver the equivalent of 16,000 swimming pools of milk every year

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For every truck of goods delivered to our supermarkets, 400 cars are needed to transport the goods to our homes

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If Wal-Mart were a country, it would be 26th largest economy in the world

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Logistics operations deliver the equivalent of 16,000 swimming pools of milk every year.

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If you joined together all the sausages that the logistics industry delivers in a year, they would reach beyond the moon.

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The biggest lorry in the world carries 300 tons of material - that’s 43 elephants.

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The biggest ship in the world can carry the Eiffel Tower and an Airbus comfortably.

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Logistics operations deliver over 4 billion meals to pubs every year in the UK - that’s enough to feed two thirds of the world’s population.

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For every truck of goods delivered to our supermarkets, 400 cars are needed to transport the goods to our homes.

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Every year logistics operations deliver enough beer to fill Wembley Stadium.

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If Wal-Mart were a country, it would be 26th largest economy in the world.

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Amazon’s warehouses have more square footage than 700 Madison Square Gardens and could hold more water than 10,000 Olympic Pools.

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12 million RFID tags – used to capture data and track movement of objects in the physical world – had been sold in by 2011. By 2021, it is estimated that number will have risen to 209 billion as the Internet of Things takes off.

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THE TEAM

Clockwise from left : Abhay Hitendra Chheda, Eashwar Rajan, Chaitanya Deepak Beera, Kartik S, Peeush Goel, Deepak Venugopal Nair, Vinod Kumar M , Rajesh Kumar Meena

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Op-Era, Operations Club, IIM Shillong Email: opsclub@iimshillong.in Website: operaiims.in Follow Us at facebook.com/OpsClubIIMS IIM Shillong • Pravha • 31