August_2013 by Jayaram Nair

SCMPr

Supply Chain Management Professional

n BEST PRACTICE n response n skills n research n human resource August 2013

Vol. 1窶年o. 6 `150

Pharma Supply Chain

Unlocking the Potential Feature:

Frontiers in Warehousing Automation Pg.40

In This Issue Insight The Promise and Pitfalls of Big Data Page...07

LSP Focus Pirojshaw Sarkari CEO, Mahindra Logistics Page...36

HR Employee Engaement: Five Steps to Readiness Page...46

editorial

Realizing Our True Potential T Girish V S Executive Editor

he Indian Pharmaceutical industry is poised on the cusp of a tremendous opportunity. For one the rising cost of health care across the world is focusing attention on generic drugs. With 18 or so major revenue spinners going off patent, it is an opportunity for firms to produce cheaper generics. And India is recognized as a quality drug manufacturer–not withstanding the Ranbaxy and Wockhardt episodes. Need proof–look at china – it manufactures sub par products and labels them made in India! (Not very comforting if you an Indian, or a patient consuming these medicines!) According to a McKinsey report, the Indian pharmaceutical industry is the 3rd in terms of volume and 10th in terms of value. The industry can grow to USD 55 billion by 2020, in a best case scenario and has a potential to grow to USD 70 billion if we play our cards right. And according to another study, excellence in supply chain management can yield: 25-50 per cent reduction in total supply chain costs; 2560 per cent reduction in inventory holding; 25-80 per cent increase in forecast accuracy; 30-50 per cent improvement in order-fulfilment cycle time; 20 per cent increase in after-tax free cash flows. Therefore one of the drivers of the industry will be the supply chain management practices. Recognizing this fact, we at SCMPro decided to dedicate our lead story to this sector. You will find a series of articles exploring the Pharma SCM. Interestingly, we carry an excerpt from the recent SCMPro - Pharma Supply Chain Summit 2013–“The Big Fight”, where various stakeholders candidly talk about the state of the sector. In addition, we carry an interesting article on warehousing automation –how the world is looking at deploying robots in warehouse. The efforts of Amazon are note worthy. The Academic Advocacy looks at multi-Tier supply chain models. Plus you will find the regular pieces on HR issues. As ever, we are thankful to our readers for their feedback. We look forward to your continued support for our efforts. Happy Reading

Executive Editor

SCMPr

August 2013

Contents august 2013 4 SCMPr

06 update >>

13 column >>

Gandhi Automation receive ISO 9001:2008 certification.

Shouvik Chattopadhaya discusses the Cause and Efect of Supply Chain Disruptions.

07 insight >>

34 Education >>

Larry Lapide on Big Data project implemntation and Signal and Noise theory for the forecasters and demand planners.

SCM education need to be taken seriously to meet the Industry demand for right resource, writes Venkatesh V. G

36 LSP Focus >> Pirojshaw Sarakari, CEO, Mahindra Logistics urges OEM's to trust 3PL for their Logistics and Supply Chain need.

40 Feature: Automation >> Automation peneteration is at lowest due to large capital investment and slow returns. The feature looks at various trends in automation from across the wrold

10 column >> Supply Chain Visibility through out the chain is major challenges for any SCM Head. Anil Sahthe highlights the external and internal processes.

August 2013

18 lead story

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

Rashid Iqbal-Director rashid.iqbal@scmp.in

SCMPro Lead story takes a look at Pharmceutical Supply Chain, bringing to you Challenges, Risks, and Skill Set issues for the industry.

46 Human Resource >> Darryl Judd write on how to keep your human resource loyal and explains the five drivers for employee engagement.

49 Last Page >> Challenges in Integrated Pharma Supply Chain by Dr. Rakesh Singh.

Media Group 211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai -400069 INDIA.

Printed and published by Jayaram Nair on behalf of B2B Media Group. Printed at SAP Print Solutions Pvt. Ltd, 28 Laxmi Ind. Estate, Lower Parel, Mumbai - 400 705, India and published at 211/1, Sona Udyog, Parshi Panchayat Rd., Andheri (E), Mumbai - 400069. No part of this publication may be reproduced or transmitted in any form or by any means including photocopying or scanning without the prior permission of the publishers. Such written permission must also be obtained from the publisher before any part of the publication is stored in a retrieval system of any nature. No liabilities can be accepted for inaccuracies of any description, although the publishers would be pleased to receive amendments for possible inclusion in future editions. Opinions reflected in the publication are those of the writers. The publisher assumes no responsibilities for return of unsolicited material or material lost or damaged in transit. All correspondence should be addressed to B2B Media Group. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Mumbai only. ANNUAL SUBSCRIPTION RATE INDIA: `1,800/-

Academic Partner

SCMPr

August 2013

update

ISO 9001:2008 Certificate felicitated to Gandhi Automations P. Ltd. Company

The Only Company in the Entrance Automations Industry Receives the ISO Certification

andhi Automations Pvt. Ltd. is the only Indian company in Entrance Automations to receive the ISO 9001:2008 certification in accordance with TUV NORD CERT procedures. The company chose the respective certification body keeping in mind the reliable auditing procedures that the body practices. It is a matter of pride for India’s No.1 Entrance Automations and Loading Bay Equipment Company to be receiving this certificate from the reputable body. The certification is applicable to manufacturing, installing and servicing of Gates, Doors & Rolling Shutters, Dock Levelers, Dock Shelters, Boom Barriers, Fire Shutters and Access Control Systems. It was in the year 1996-97, when Mr. Samir Gandhi and Mr. Kartik Gandhi, Company Directors, established ‘Gandhi Automations’ in India. In the span of 16 years, the company rose from scratch to being No. 1 Entrance Automations and Loading Bay Equipment Company. Today, the company has direct presence in 23 cities of the country employing dedicated person6 SCMPr

August 2013

nel. Gandhi Automations dream big and its personnel actualize those dreams through sheer hard-work and dedication. Known for its superior products and extraordinary after sales service, Gandhi Automations is growing in leaps and bounds by each passing year. The Company has added one more feather on its cap by acquiring a 120,000 square feet of land at Bhiwandi where the work of factory building is in process. Growth is the only thing that is consistent in the company. Gandhi Automations will now adhere to ISO standards, thereby ensuring its clients about the safety and reliability of the products and services offered to them. No other company in the Entrance Automation sector complies with such high safety standards. Gandhi Automations has always believed in improving the efficiency in its operations, and therefore, implementing the ISO standards was the right step in that direction. For More details visit: www.geapl.co.in

insight

The Promise and Pitfalls of

Big Data

Implementing a Big Data project might make sense for your organization. But before you start investing in the time and resources required, make sure the effort will ultimately enable you to differentiate between the beneficial “signals” and the distracting” noise.”

Dr. Lapide is a lecturer at the University of Massachusetts’ Boston Campus and is an MIT Research Affiliate. He welcomes comments on his columns at llapide@ mit.edu.

he latest hype around “Big Data” is fueled by the vast amounts of information being generated by the Internet. There appears to be boundless enthusiasm for solving the most pressing business problems by leveraging lots of data streams. The concept of Big Data is not new. It really began with the invention of the printing press, which enabled information to be generated at an exponentially growing rate. Since the dawning of computers and later the Internet, Big Data got even bigger and grew even faster. Luckily, computing capabilities have kept pace so that the data could be more easily and accurately assembled and analyzed.

Picking the right data streams is extremely important, since not all data is information. Information supports improved decision-making, and not all data is useful for that. Generally, data becomes information when it is used within a decision-support system that has an underlying business model and principles imbedded within. However, can all the data now available really provide information significant enough to improve business operations? Or is Big Data just more data? Implementing the new Big Data is a big deal. And supply chain managers will no doubt struggle with the question of whether to implement it within their companies. They’ll need to decide whether it makes SCMPr

August 2013

insight sense to expend the enormous amounts of time, money, and other resources required to begin this effort. And they need to know whether this might distract them from pursuing other opportunities requiring significantly less effort. Even more important, they’ll need to carefully assess whether implementing Big Data will increase their “signal-to-noise ratio” enough to yield benefits sufficient to cover the large investments. Signal-to-noise ratio? What’s that?

The Signal and the Noise I just finished a book written by Nate Silver, The Signal and the Noise: Why So Many Predictions Fail—But Some Don’t. I recommend it as a must-read for forecasters, planners, and supply chain managers. The author uses the concept of a “signal” versus “noise” from electrical engineering. Whenever an electrical signal is transmitted, spurious noise distorts it along its path to a receiver. So engineers need to focus on developing receivers that pull out the noise in order to understand the original signal. The lower the signal-to-noise ratio, the harder it is for the receiver to pull out enough noise. In the business world, the signal of interest is the “truth”; the receiver is a manager trying through analytic means to decipher what is true from among myriad confounding (noisy) data signals. Silver discusses “the promise and pitfalls of (the fashionable term) Big Data”. The promise is whether volumes of data will “obviate the need for theory, and even the scientific method”, while the pitfall is that too much data might be distracting and provide little knowledge about the truth. Silver provides useful insights about gleaning information from data. The author researched prediction across a wide swath of arenas and describes how each successfully and unsuccessfully tackles problems leveraging various types of data. He offers nuggets of advice for managers to help filter out the signals in Big Data—specifically, those that improve prediction from the noise that might confuse and not be fruitful. Silver gives a good overview discussing, for example, the successes and failures in sports and gambling predictions, including 8 SCMPr

August 2013

Big Data is certainly not new to supply chain management. The industry has been working on the use of downstream demand signals—a Big Data concept— since 1992. baseball, chess, and poker. He also addresses prediction in the social sciences such as economies and political elections. Some discussion deals with areas virtually impossible to predict, such as terrorist attacks, financial market bubbles, earthquakes, and global climate change. Lastly, Silver discusses some of the successes in forecasting the spread of infectious diseases and the weather. This book should offer some comfort to managers in that our business forecasting and planning issues are less problematic than for earthquakes, terrorism, and global climate change!

Lessons from Downstream Data Big Data is certainly not new to supply chain management. The industry has been working on the use of downstream demand signals—a Big Data concept— since 1992 when Wal-Mart began offering POS data to suppliers via RetailLink. Suppliers have been evaluating how to get maximum value out of the voluminous amount of data that the retail giant offers, as well as the data other retailers now provide. The industry has conducted a great many pilots using downstream data, believing there is great value to be obtained from these signals. Piloting and other efforts have largely shown that while there is value to be gained, it is not worth implementing downstream data as “big-deal” projects, which would include the development of big Demand Signal Repositories (i.e., data bases).

insight

Supply chain managers feel that the downstream data is too detailed and cumbersome to process, especially for all products and for an entire customer base. Instead, they favor focusing on a few elements of downstream data, often from major customers and important products. For example, many feel that instead of assembling a large amount of detailed POS and inventory data, aggregated data streams will suffice. The lesson learned is that it is better to focus on a few signals, and treat the rest of the downstream data as noise.

do this, these businesses capture sales during the introduction of a product at a few retail outlets. For example, many track sales at some trendy stores in New York City and Los Angeles to get early readings of their winning and losing product introductions. (Of course, many now track Amazon sales as well). These predictive signals go a long way towards continuing the successful launch of a winner, and a rapid phase-out of a loser. n During a panel I moderated on downstream demand signals, a VP from a cosmetics company lamented about the lack of

If you are thinking about implementing Big Data at your company, make sure to first identify a few good predictive signals before building an expensive database to house them. Looking at lots of noisy data will confuse things and decrease your signal-to-noise ratio, rather than increasing it. Search for a Few Good Signals I’ve come across a multitude of industry examples of good portending signals. I have also seen others that, while seemingly predictive, were impossible to derive real value from. A few of my favorite examples of both types are discussed below. n While I was a graduate student, a CEO came to visit our campus and was asked how he was able to manage effectively given all the information he received. He said he first looked at one metric: interplant shipments. If these were too high, there was a mismatch between supply and demand; either some plants were producing too much or too little, or certain sales territories needed to be better aligned. Interplant shipments that were too low indicated inventory excesses or insufficient sales (other misalignments of supply and demand). In either case, he instinctively knew he had to look deeper at other metrics only when this one indicated a supply-demand imbalance. n The early identification of “winners” and “losers” in the book, media, and software industries is critical to profitability. To

good demand signals for his trendy products. He gave an example where Lady Gaga had worn a very unusual nail polish at one of her concerts. The sales of the nail polish immediately took off, the company ran out of the product, and their suppliers quickly ran out of materials to make more. The company scurried about to try to get supply, yet missed a lot of sales opportunities. These types of sales spikes are noise rather than signals because they are impossible to get demand signals from which they could be predicted. In essence, they are equivalent to the prediction of earthquakes in this VP’s business. In summary, if you are thinking about implementing Big Data at your company, make sure to first identify a few good predictive signals before building an expensive database to house them. Looking at lots of noisy data will confuse things and decrease your signal-to-noise ratio, rather than increasing it. You’ll definitely get your signals crossed and get too little information out of the data to support improved decision-making. SCMPr

August 2013

n BEST PRACTICE

n response

n skills

n research

n human resource

Increased Supply Chain Visibility:

Turn the Lights n

The company should increase visibility throughout the Supply Chain and tackle internal and external processes with partners says Anil sathe.

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

10 SCMPr

August 2013

ost of the supply chain leaders would agree – a highly effective supply chain comes from comprehensive transformation of a broad set of business practices, with some help from information technology. To identify the right strategies and implement lasting changes, however, you’ve got to get your arms around your problems and the problems of your supply chain partners. Supply chain visibility is the ability to identify, capture and share events and transactions as they develop and to store that information for historical record and reporting. It is crucial for all stakeholders to know where things are coming from, where they are at specific times and where they are going.

Implementing visibility in the supply chain actually turns the lights on to the whole process. The thing that is really compelling is that visibility reveals the areas that aren’t working -- that is the real impact it has had. If you can shine a bright light on the recent and current actions of your customers and suppliers, you can anticipate change and make better decisions. How many units will your customers order over the next three months, and in what configuration of features? Have your suppliers shipped what you ordered last week and are the orders complete? If you don’t know what’s coming around the corner, your production and logistics people can only react to events as they happen, forcing plant disruptions, emer-

column

Supply chain visibility and collaboration capabilities are evolving rapidly, and, not surprisingly, logistics experts often disagree on where this whole effort is headed. gency transportation costs, and unhappy customers. Supply chain visibility and collaboration capabilities are evolving rapidly, and, not surprisingly, logistics experts often disagree on where this whole effort is headed. But visibility for visibility’s sake is not effective, unless you can dive down to very specific detail needed to make decisions. Today’s business intelligence solutions and supply chain technology can provide you with online visibility across your supply chain and help you: n Manage your suppliers more effectively by tracking delivery rates, accuracy, etc. n Reduce costs associated with expedited deliveries. n Analyze supply chain risk exposure by having better visibility to incoming orders and customer demand. n Improved product traceability. n Access cross-departmental supply chain data for improved decision making Increase customer satisfaction.

How do we begin this exiting journey? Here are some suggestions: Start Using Reference Levels In a manufacturing supply chain, references are conducted at the part level. It is critical for all systems that support the manufacturing supply chain, such as the supplier and transportation company, to include the part number as the reference. In the retail and consumer packaged goods markets visibility needs to be at the SKU level to be useful. The amount of product in the supply chain, on store shelves, in the warehouse, in transit or being returned can be more effectively tracked at the SKU level.

Recognize that Much/Most of the Information You Need Will be External If you have outsourced or virtualized much of your supply chain, by definition most of the data you need will reside outside your enterprise. That in turn means connectivity becomes core to the visibility quest; Cloudbased vendors can help us achieve significant pre-connectivity to many companies and logistics providers

Focus on “Actionable” Visibility Visibility certainly brings in benefits but clearly information overdose must be avoided. Whether this is done thro’ exception reporting or by ignoring data points which are outliers, Supply Chain managers must focus on and clearly define what specific information will enable them to makes better decisions and effectively act faster to problems and opportunities.

Invest Effort in Non-Systematic Visibility While we tend to think of visibility as something that is technology based, leaders often actually spend a lot effort to get at data and insight that can’t be captured systematically at the start.

Remember Collaboration = Getting to Know You, Much Better Collaboration goes beyond transactional relationships and take the uncertainty out of future product supply/demand through joint planning and action. This is turn can dramatically improve supply chain effectiveness with new product and package design, demand planning, synchronized production scheduling, and logistics planning. Many have heard the old saying that “What gets measured gets managed.” That’s certainly true, but we could now add a corollary that “You can only manage what you can see.” The supply chain winners of the future may largely be the ones that have more information at their disposal, and use that information more smartly than their competitors. Welcome to the visible supply chain. Feedback /suggestions /comments are most welcome on mail ID feedback_scmexcellence@yahoo.com

SCMPr

August 2013

p a r t s t o o Help B t n e m e g a n a M n i a h C Supply

have If you feel you p insights acquired dee pply Chain to help the Su bootstrap professionals ge, the their knowled pply Chain Institute of Su nt invites you & Manageme ssociate to join us as A areas of: Faculty in the ons Specializati Chain  Supply Management anagement  Risk M siness  Agri Bu d Planning &  Deman Forecasting Warehousing rtation  Transpo Chain Audit  Supply g & Logistics  Shippin Chain Network  Supply Design ogistics  Retail L Sustainability



What will you help us do Helping professionals learn  Guide students in live projects  Evaluate student performance  Research and Analysis About ISCM: The Institute of Supply Chain & Management (ISCM) is the leading forum for supply chain professionals to share best practices, strategic insights and business challenges and explore the innovations in Supply Chain Management in India. ISCM is one of the leading institutes in the area of Supply Chain Management in India. It offers full time and part-time post graduate programs and specialized management development programs in the area of supply chain and business forecasting. The programs offered by ISCM are highly respected and recognized in corporate sector for employment.

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

n BEST PRACTICE

n response

n skills

n research

n human resource

Supply Disruptions

Planning For Continuity Supply chains are vulnerable to disruptions due to the number of variables affecting the components directly or indirectly. Shouvik Chattopadhyay discuss Cause and Effect of Supply Chain disruptions.

Shouvik Chattopadhyay Assistant Professor Management Institute of Engineering and Management, Kolkatta

ithout the supply of materials any business can come to a halt. Be it raw materials for production, components for assembly or finished goods for direct sale. The lead time variation for getting the material from supplier premises can play havoc on the inventory levels, profitability and more so on customer experience. For international procurement, the process involves identification of suppliers, bidding, selection, purchase order, issue of LC, quality inspection at supplier premises, transportation, customs clearance, and finally receipt at the destination. The supply chain then goes forward with the material being transformed into finished product and

beyond till supply at the retail outlet. In case of the retail supply chain the material may not be transformed into a new product as manufacturing /assembly will not take place. The overall supply chain can be visually described as: [Fig. 1]

Supply Disruptions: Cause & Effect Analysis The biggest example put forward by most books and articles is the fire that destroyed the Philips factory at Albuquerque a key supplier to both Nokia & Ericsson. While Nokia survived due to quick response by its procurement department, Ericsson the market leader in mobile business was wiped out. SCMPr

August 2013

basics

Transportation

Transportation Regional Warehouse

Supplier Factory

Regional Warehouse

Supplier

Transportation

Distributor

Transportation

Fig. 1

Retailer

Transportation

Retailer

Transportation Regional Warehouse

Supplier Factory

Regional Warehouse

Supplier

Transportation

Distributor

Transportation Retailer

Fig. 2

Retailer

Further examples of supply disruption can be found in history including the supply disruption of key components / electronic goods during the bird flu outbreak in China, the earthquake/tsunami duo that destroyed Japan, the flooding of Thailand and the recent effect of North Korea trying its best to go nuclear. Variables that may affect international 14 SCMPr

August 2013

consignments can be classified into government regulations, trade agreements, regional stability, supplier viability, route dynamics, weather conditions, natural disasters and others like fire, accident, etc. [Fig. 2] The above figure shows the various areas or nodes where disruptions may occur over time bringing the supply process to stand still. A Cause & Effect Analysis is done us14

basics Fig. 3 Government Regulations

Trade Agreements

Regional Stability

Cancellation of Bilateral Trade Agreements

New / increased Import Duties Anti-Dumping Duties EXIM Restrictions

Political Unrest

Loss of MFN Status

New Export Clauses for Imports

Capacity

Technology

Economic

Supplier Viability

Flooding

Unhealthy change of governments

Drought

Invoking of Wartime Policies

Formation of new power blocks

Volcanic Activity

Accident

Route freezing

Fire

Sanctions

Order Backlog

Earthquake

Conflict

Effect of Sanctions

Change in Foreign Policy

Tsunami

Military Ambitions / activities

New Trade Restrictions

Natural Disasters

Cancellation / Modification

Cyclonic conditions

Weather Condition

Flooding

Piracy / Pirate Problem

Snowfall

Route Dynamics

ing Fishbone for a better understanding of the many variables that affect supply continuity [Fig. 3]. The Fishbone is followed by a Risk Assessment Table that addresses only the major headings as an example and can be drawn in detail for individual components. In order to understand the risk, source and impact with available control measures, a risk assessment table is used. Fig. 4 shows the assessment that will work for most organizations based on major headings with the impact level. This table can be further expanded to include the different aspects of each of the major headings. The risk assessment table [Fig. 4] clear-

Accidents

Drought

Missed Connection

Weather Conditions

Supply Disruption

Strike

LC Approval Quality Inspection

Others

ly shows that Regional stability and Natural Disasters have the biggest risk factors that any organization has to worry about with Natural Disasters taking the lead being unpredictable in nature and impact as severe. For both these factors, there is little an organization can plan for except keeping tab on other supply bases [read country]. Factors falling in the â&#x20AC;&#x153;Othersâ&#x20AC;? category have medium to severe impact, but risk management measures can definitely be taken for reducing the risk & impact to minimum level. The section on current risk level and acceptability is kept blank as the inputs have to be determined for individual supply chains and will vary from organization to organization. SCMPr

August 2013

basics

WHAT CAN HAPPEN?

HOW CAN THIS HAPPEN

FROM EVENT HAPPENING

GOVERNMENT REGULATIONS

PROTECTIONIST POLICIES OF THE GOVERNMENT /

SMALL TO SEVERE

INCREASE IN PRICE OF FINAL PRODUCT / CHANGE OF SUPPLIER / CHANGE OF SUPPLIER BASE [READ COUNTRY]

SMALL TO SEVERE

REQUIRE INCREASE OF END

PRESSURE FROM LOCAL SUPPLIERS / POOR BALANCE OF TRADE

TRADE

INTER-GOVERNMENTAL

AGREEMENTS /

CONFLICT

CURRENT RISK LEVEL

PRICES / IMMEDIATE CHANGE

SANCTIONS

AVAILABLE CONTROL MEASURES

ACCEPTABILITY (A/U)

IMPACT

CURRENT RISK LEVEL

SOURCE

CONSEQUENCE

THE RISK

LIKELIHOOD

RISK REFERENCE

Fig. 4

OF SUPPLIER BASE

REGIONAL UN-

POLITICAL UNREST /

STABILITY

CONFLICT / MILITARY

SEVERE

CHANGE OF SUPPLIER BASE

ACTIVITIES

NATURAL

NATURAL / GEOLOGICAL

SEVERE [INCLUDING

REQUIRE LOCATING NEW

DISASTERS

EVENTS

DISAPPEARANCE OF

SUPPLIER IMMEDIATELY /

SUPPLIER BASE IN

IMMEDIATE SHIFTING OF

MATTER OF MINUTES]

STOCKS / CHANGE OF TRANSPORT MODE

SUPPLIER UN -

WRONG ASSESSMENT

VIABILITY

OF SUPPLIER

FROM ADDITIONAL SUPPLIER

CAPABILITIES / CONFLICT

/ NEW SUPPLIER

ROUTE

MIS-ALIGNMENT / ACCIDENT

SMALL TO SEVERE

MAY REQUIRE SOURCING

EMERGENCY PROCUREMENT / EMERGENCY SUPPLIES THROUGH CHANGE OF MODE

WEATHER

UNPREDICTABLE

SMALL TO SEVERE

CONDITIONS

PROCUREMENT

UNPREDICTABLE

OTHERS

MAY REQUIRE EMERGENCY

MEDIUM TO SEVERE

MAY REQUIRE EMERGENCY PROCUREMENT / LOCATING NEW SUPPLIER

Finally, we must remember that a plan once made loses its value over time due to its inapplicability and hence must be re16 SCMPr

August 2013

viewed every six months or after every major investment or every major milestone, whichever is earlier.

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SCMP is a monthly magazine for Supply Chain Professionals for Enterprise Users as well as Service Providers. The magazine contains specialist artcles, news and information designed to update the readers on the developments in supply chain industry. Specialised articles are contributed by the Industry Leaders and Academicians. Besides, there are other updates published to keep the readers keep pace with the Industry. Published in the 1st week of the month, the magazine is distributed to the readers through courier. Currentxly the print copy of the issue is available only for readers based in India. cover Price `150/-

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lead story Lead story

18 SCMPr

August 2013

lead story

Unlocking the Potential for

Higher

Growth

Indian pharmaceutical industry is expected to grow by 10-12 per cent during 2013-14, says a recent study by ICRA. The main driver for growth will come from generic opportunities in the US. Girish V.S, Executive Editor, SCMPro, explores the pharma growth strategy.

n June 2013, we organized the first Pharma Supply Chain Summit. The pharmaceutical supply chain has an increasingly critical role to play in ensuring that the medicines, which are meant to save our lives, reach us in the condition they were intended to. If the drug has to be kept at a certain temperature, then it should be done during the entire journey - from the manufacturer to the consumer. Quite a few players do have unequal strengths in the supply chain. And there are players who are indifferent to the system. For a start, we looked at the challenges in Supply Chain for pharmaceutical sector – we traced the larger trends seen in local and international markets and its impact on the supply chain. From there we move on to auditing of the Pharma supply chain. At our conference, one of the panellists, a distributor, shared the fact that he has never been audited. That set us thinking as to what are the best practices in the audit of Pharma supply chains. We bring you the highlights of the Pharmaceutical Supply Chain Initiative (PSCI) Audit Program Guidance. We then went on to take a closer look at the risks to the pharma supply chain. Globalization and the search for cheaper source of raw materials or the search for better markets has increased the complexity of supply chains. Logistics accounts for 45% to 55% share of the value chain of a drug. Apart from the normal

issues of delivery times and schedules, Pharma industry transports products that have a short shelf life, are prone to damage when conditions during transport vary from the prescribed norms. The dividing line between a life saving drug and a life threatening drug is very thin. Since we had a few interesting sessions in the conference, we bring you edited the excerpts. A very interesting event at the conference was “The Big Fight” where we faced off Pharma companies, the distributors and the CFAs for a healthy round of discussions. The panel was moderated by Mr. Arif Sidiqqui. The candid discussions led to the unveiling of a few closely held practices within the industry, and the vast scope for improvement in collaboration between the stakeholders. In addition, we bring you the concluding session–on the “War for Talent”–the burning issue of how the industry can attract the talent it need to grow. The industry is at the crossroads. The emerging opportunities from across the globe are a definite cause for cheer. At the same time the industry needs to invest some time, effort, and money in training the staff of the entire stake holder chain, so that they can tap into the opportunities. As Mr. Arif Sidiqqui puts it “It is a sad reflection of our industry that what we consume and goes into our bloodstream is kept in the worst kind of warehouses, while what touches our skin, or goods that we use are stored in the best environment”. We hope you will find these issues relevant. SCMPr

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Challenges in Pharmaceutical Supply Chain Management

The Pharmaceutical industry is experiencing a rude awakening. For long time the cost of medicines was not a major consideration for the developed world. But the financial crisis which started in 2008 has changed that. Why should patients in the developing world pay higher prices for medicines that are available for a fraction of the cost in developing countries? It was a question that was begging an answer. To lower the runaway health care costs, the developed world is developing a taste for generic drugs. And this has opened a huge opportunity for the Indian Pharmaceutical industry. At the same time, the sector is facing challenges in the supply chain front. We take a look at the challenges to Pharmaceutical supply chain management in India.

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he financial crisis has focused attention on a few dark secrets of the global Pharmaceutical industry. It was generally believed that R&D was a major expense for Pharmaceutical industry. It turns out that some of the life saving drugs in the market have been developed using tax payers money! And the tax payer is asking – why should I pay more for a drug that is available to citizens of other countries at a fraction of the cost? At the same time, the crisis has forced firms to look at their cost structures to stay profitable. These twin pressures have posed a challenge for the Pharmaceutical firms. One area that can still yield some gains is the supply chain in the pharmaceutical industry. (This is not a fact restricted to Pharmaceutical firms alone – the industry at large will benefit from the spot light on the supply chain sector!) Some of the major challenges to the pharmaceutical supply chain are:

Serialization In July 2010 a large shipment of pharmaceuticals exported to Nigeria from China were seized by the Nigerian drug regulator NAFDAC on the grounds of their being substandard or spurious. These consignments had originated in China but had labels of ‘Made in India’ on them. It is of little comfort to India that the Chinese Government launched criminal proceedings against the exporter. The damage to the Indian pharmaceutical industry had been done. This is a new type of threat to the Indian Pharmaceutical Industry. The DGFT implemented serialization from July 1st, 2011 for tertiary, secondary and primary packages. This was subsequently modified extended to mid 2012 for tertiary and secondary packages. As on date the third phase of serialization has been deferred to July 2014. (Serialization is the process of assigning a unique serial number to any saleable unit, allowing the unique identification of such a unit in order to provide visibility and full traceability within the supply chain.) Though serialization is currently restricted to exports, it will not be long before we introduce it in the domestic market. The Serialization mandate requires that every basic unit of drug–be it a blister pack, bottle, or any other unit be easily tracked and traced back to the manufacturer. The challenge that the supply chain will face due to serialization is the creation of new bottlenecks Serialization may create operational bottlenecks in the supply chain. These include bottlenecks from itemlevel serialization tasks and from having to manage and interact with serialization solutions. Firms need to spend time to select a scalable, cost effective, easy to use solution across their supply chains.

Ensuring regular supply Pharmaceutical firms have a challenge in ensuring regular supply – both of raw material and products at their intended markets. As manufacturing becomes geographically concentrated in low cost countries and markets going global, firms have to re-work their supply chain strategies to ensure uninterrupted product availability. And a significant enabler will be the supply chain identifying itself with the firm’s business goals. Which brings us to the next major challenge for the supply chain – alignment.

Alignment The supply chain in the sector is fragmented, with limited inter-connections and even lesser visibility. The FMCG sector schedules production based on the customer demand. The Pharmaceutical sector could also do with a demand pull based manufacturing system. That coupled with an ability to see the flow of

The challenge that the supply chain will face due to serialization is the creation of new bottlenecks -Serialization may create operational bottlenecks in the supply chain. materials and the ability to recall the product from any node in the supply chain will deliver better returns to the sector. The prime necessity here is the alignment of manufacturing and procurement processes at the pharma firm end with the aspirations at the supply chain element, creating a dynamic network that will deliver products in time, every time across a complex, worldwide chain. This creates its own risks, creating the need for risk management.

Risk Management Risks are considered to be a burden for companies. But managing them can help companies to plan and forecast future operations. In the absence of adequate information flows and the varying levels of competence of firms in the supply chain, risk management will continue to remain a challenge. One of the critical decisions that firms need to make is regarding the right trade-off between risks to be covered and risks left to happen. A good risk management system is akin to having an effective emergency plan, good SCMPr

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lead story management and effective control – having the right people doing the right things.

Segmentation One of the fallacies of pharmaceutical distribution is the one size fits all distribution strategy. Drugs requiring cold chains being an exception. To optimize the supply chain, it needs to be segmented based on the expiry period, critical nature of the product, profitability of the product, demand variability and price. The supply chains for these diverse requirements has to be different. The challenge is to develop the ability to offer differentiated service based on the above parameters. Firms which fail to do so will continue to grapple with stock outs, over stocking, emergency production runs, increased costs and reduced profitability.

Agility There are two ways to ensure product availability at all times – either carry high levels of inventory right across the supply chain or create a flexible supply chain that can respond quickly to changes in demand from across the network. Agility, in this context, means building an operating model that can systematically respond to changes in customer demand at the same or reduced cost. Agility means having higher production frequency, visibility and robust processes. This will be a challenge to the supply chains in the near future.

Collaboration In an increasingly fragmented and inter connected supply chain, the performance of each individual entity will depend in the performance of the node preceding it. For such chains to be effective, they must evolve a mechanism whereby they can share costs, infrastructure, technology, processes and gains without prejudice to the other members in the chain. This lends a new meaning to the term collaboration – not merely doing things in tandem, but having the ability to adapt processes that will generate a surplus for the value chain as a whole.

Sustainability As concerns about global warming and carbon foot print take center stage, supply chains in critical area like health care cannot be laggards in sustainability movement. In fact they will be expected to lead the charge. However, the Indian supply chain is in the dark ages as far as sustainability is concerned. Our operators lack the ability to measure carbon foot print, let alone minimize it. And as multinational firms enter India, they will expect their supply chains to be green – and will be willing to pay a better price for green supply chain. Again a challenge. These are not issues that can be addressed by individual entities in the supply chain. They need an industry wide effort, and we hope the industry rises to the challenge on its own.

Engage and get exposure to the strategies adopted by Supply Chain Professionals and industry experts.Paper presentations, panel discussions, freewheeling sections, debates etc by Pharma Supply Chain stake holders. A high networking opportunity or the Pharma supply chain decison makers to interact with the Industry Experts and Peers.

Summit Focus Associate Partners

Academic Partner

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Knowledge Partner

Organised by

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+ Strategies for Optimization + Drivers in the Pharmaceutical Supply Chain + Managing Temperature Controlled Supply Chain + Risk Management in Pharma Supply Chain + Skill set challenges + Technology Application in Supply Chain For delegate registration please write to: info@scmp.in or call us on 022- 60020121/ 122

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The ‘Pharmaceutical Supply Chain Initiative (PSCI)’ is a group of pharmaceutical companies that share a vision of better social, economic and environmental outcomes for all those involved in the pharmaceutical supply chain. The group had designed an Audit Program Guideline to be used by PSCI members, audit contractors and suppliers. It provides a detailed overview of the audit process and corresponding roles and responsibilities at each stage of the process. Girish V S brings you the highlights of the PSCI Audit Program Guidelines.

t the SCMPro - Pharma Supply Chain Summit 2013, a CFA made a very telling statement – he has not been through a single audit by the manufacturer till date! The industry with stringent quality concerns and where the cost of non-compliance can be very high, this is a very alarming state of affairs. The challenges to the pharmaceutical supply chains are on the rise. Increasing complexity of the pharmaceutical supply chain, increasing number of suppliers to be audited across the world, increased reluctance from the supply base to receive audits and increasing regulatory expectations regarding the responsibility of

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companies for supplier management has increased the scope and criticality of the audit function. To help the members of the pharmaceutical industry cope with the audit requirements, PSCI had designed an Audit Program Guideline. PSCI also work towards acceptable conditions for workers, safe processes and facilities, economic development and a cleaner environment for local communities. Pharmaceutical firms have a diverse and large base of suppliers. The PSCI Principles address five areas of responsible business practices and related management systems throughout the pharmaceutical industry’s supply chain: ethics, labor, health, safety and environment. The Indian Pharma sector

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lead story could look to these documents for developing their own industry best practice as far as audits go. The PSCI audit program is based on accepted industry practices in these fields as defined by internationally recognized standards including ISO 19011: “Guidelines for quality and/or environmental management system auditing”, OHSAS 18001 “Occupational Health and Safety Management Systems – Requirements” and SA8000 Social Accountability “International Standard for Improving Workplace Conditions”. The document dwells more on the specific requirements of the Pharma sector, leaving the basic methodology for the conduct of the audit to the ISO 19011 document. Third party audits of the supplier base are an accepted industry practice. Reasons to use third party auditors could be: Auditor capacity constraints within a company, Difficulty to access certain regions, Specialist knowledge, e.g. technology or special language skills, Suppliers reluctance to host audits. Thus third party audits could be shared and the overall audit burden be lowered for the suppliers. The document seeks to provide an industry accepted practice to the basic methodology as to how to conduct the audit under the ISO 19011 guidelines. The PSCI Audit Program Guidance focuses on three steps: n Pre-audit Activities – Audit Planning. n On-Site Activities – Audit Execution. n Post-Audit Activities- Reporting, Corrective Action, Follow-up and Closure.

The objectives of PSCI audits include: The audit is to ensure consistent assessment of a supplier’s performance against the PSCI Principles and relevant laws and regulations to provide assurance to PSCI members. This includes: n Identification of key risks. n An understanding of the supplier’s compliance with the PSCI Principles, regulations and their effectiveness/ability to identify and manage key risks. n Sufficient information to allow PSCI members to determine the acceptability of the supplier. n Sufficient information to allow the supplier to understand development needs and to develop a comprehensive improvement program. n Enable supplier to identify root causes and undertake continuous improvement efforts. n Educate supplier about PSCI and regulatory expectations. According to the PSCI guidelines, the audit can be requested either by the pharmaceutical firm, a group of pharma firms or any entity in the extended supply chain of the firm. This is a refreshing change – think of a CFA requesting an audit in India! 24 SCMPr

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Among the pre-audit actions for the auditor is the briefing for the audit site – so that the site can prepare for the audit. This is a refreshing change which sends a signal that the audit is to help the firm develop adequate measures to improve their performance, rather than remain a fault finding mission. According to the best practices in the guideline, the site management should be briefed prior to the audit, to ensure they understand the scope of the audit and what is required from each department. They should be instructed on the importance of having the correct key personnel and documentation available on the day(s) of the audit and understand the importance of releasing personnel for interviews on time. Interestingly, union or other worker representatives should be briefed about the audit, in particular the labor aspects, to ensure their availability and understanding. The workforce should be informed about the audit including the code to which the audit is conducted. The employees should be informed that the auditors will pick employees for individual and group interviews about their labor situation at random, and that they have the right to say “No” to this without giving any reason, and without any adverse consequences. This final aspect is a very healthy process, which will enable gain the trust of the employees and give them the confidence to speak openly about the state of process implementation. Any labor providers (agencies) the site uses should be informed about the audit and make sure they understand the importance of having the correct key personnel and documentation available on the day. Another interesting aspect is the guidelines for calculating the number of days required for the audit. This allows the site and the audit initiator plan for the audit better. The site visit includes Sotrage area, External and Satellite areas, Interview with selected few employees and scrutiny of employment records. The on-site audit steps include: Opening meeting, Comprehensive site tour, Management Interviews reprexsenting HR,HSE, Site management etc. interaction with workers and document reviews and finally a pre-closing and closing meeting. The critical part of the audit is the post audit closure, with the stake holders agreeing to a series of corrective action plans, which may include follow up audits to check on the implementation of the audit findings. It is the responsibility of the audit initiator to decide independently on the path forward for closing action items with the supplier. As a generic guideline, the PSCI includes a few critical areas for pharma firms. It is not our contention that the guidelines are the last word in supply chain audit. They at best represent a credible starting point for the industry to develop its own set of audit guidelines. 24

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Identifying Pharma Supply Chain Risks Globalization and the search for cheaper source of raw materials or the search for better markets has increased the complexity of supply chains. Logistics accounts for 45% to 55% share of the value chain of a drug. Apart from the normal issues of delivery times and schedules, Pharma industry transports products that have a short shelf life, are prone to damage when conditions during transport vary from the prescribed norms. The dividing line between a life saving drug and a life threatening drug is very thin. And the industry needs to constantly be on its toes. Girish V S takes a look at the risks in the pharma supply chain.

harmaceutical industry is increasingly getting fragmented. Today, raw materials are being sourced from multiple countries, manufactured in other locations, packed in yet another location distributed and consumed all across the globe. Executing this complex value chain is prone to multiple risks. Managing supply chain partners effectively is the key to ensuring business continuity for a pharma company. The growing reliance on emerging countries like India, South East Asia and China as a source of cheap and quality generics and also as attractive markets, and the increasing complexity and sensitivity of products to changes in temperature or storage conditions, managing supply chain risks can be even more of an imperative.

The risks to the Pharma Supply Chain The rapid evolution of the pharma industry has led to the evolution of risks. Some of the major risks and vulnerabilities of the supply chain are:

Decreased visibility across the supply chain One of the major issues in the fragmented supply chain of today is the decreased visibility across the chain and the lack of information flow. This magnifies the risks and reduces the response time of the supply chain managers.

Complex Regulatory prescriptions Increasing globalization has led to the creation of a complex set of foreign and domestic regulations and product safety rules. This is compounded by an incomplete set of enforcement tools. This misalignment of resources leaves drug distribution vulnerable to a host of problems. SCMPr

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lead story Disruption in transport condition

Counterfeiting

Certain drugs need to be stored at a particular temperature to retain their potency. Unlike other damages, the degradation associated with storage condition violations are not easy to track. Technology makes it possible for the firm to monitor the entire transport chain in real time and identify if the specific storage conditions were beached at any point during transport and storage.

Counterfeiting is fraudulently mislabeling a product in identity or source, is another significant risk to supply chain security, as well as diversion of products from the intended authorized market to another. This is an external risk and can be detected using technology that can track and trace consignments, but only be fought with the help of the law enforcement agencies.

Intentional adulteration

Intentional fudging

Intentional adulteration is the contamination in the procurement, manufacturing, storage, or distribution process for economic gain. This is seen more in global supply chains, primarily due to the lack of visibility across the chain. Adulteration can result from a number of sources including foreign and domestic terrorist organizations or activists, economically motivated persons or groups, or even disgruntled employees.

Recent events where firms from India were penalized for misrepresenting drug manufacturing, storage and transport conditions is an emerging risk to the pharma sector. Robust audit processes and due diligence across the supply chain is essential.

Cargo theft It is up due to the sluggish economy and security measures that rely too heavily on expecting people to consistently follow prescribed procedures. According to studies in the US, (alas, data is not available for India!) Cargo theft produces an annual loss of $35 billion and in 2011; the average loss per incident in pharmaceuticals due to cargo theft was $585,000. Cargo theft has a high correlation with patient safety risk from stolen goods that have been handled inappropriately getting back into the supply chain. Stolen products can be exposed to temperature and condition extremes that could impact their efficacy and safety to consumers.

Key Questions in Identifying Supply Chain Risk n What

are the major threats to your supply chain? n Where is the supply chain weakest? How is this changing? n How can you reduce this vulnerability? n W hat technology, management or cultural solutions are needed for this? n How quickly can you respond to a trigger and can it be improved? n H ow will you maintain and maximize the value of your assets in the supply chain? n How can product degradation or contamination be avoided? n W hat is the kind of partners and what is the relationship with partners? n Is the risk management process simple and easy to implement? n D oes the risk assessment tools and processes help reduce cycle time eliminate waste?

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Inconsistent warehousing Quite often, inconsistent pest control in warehouses may introduce contamination into the production line. Such an event will cause disruption of the production process and expensive manual inspections. This is easily fixed with education and periodic audits of the warehouse. At a recent seminar conducted by SCMPro, a CFA was vocal about the lack of audit of his operations–apparently he has never been audited in his life!

Lack of accountability Across the entire supply chain–due to the multiple entities involved in the pharma supply chain, some of them overseas entities, it is imperative that the firm be able to trace back each consignment right through the entire chain and hold the respective unit accountable for their operations. Here again technology solutions can be of help–but the entire chain needs to be on the same page on this.

Infrastructure risks By far the biggest risk to Indian Pharma supply chain is something that the industry has little control over–the lack of adequate infrastructure–road and rail networks, warehouses and trucks. An effective Risk Management process will protect the continuity of product supply and ensure that end-users receive products that are fit for purpose. All entities in the supply chain should recognize their role in assuring mutual business continuity and take an ethically responsible approach to the potential impact of their actions or inaction. Feedback and communication is essential between the manufacturer and suppliers in terms of requirements, expectations, product end-use, performance measures, health and safety etc. 26

g i The B Fight lead story

At the Pharama Supply Chain Summit held in June 2013, we had an innovative panel discussion, interestingly titled “The Big Fight”. What we did was to bring in a few stakeholders - representatives from the pharma manufacturers, CFA’s, Distributors and a Consultant and have a healthy debate among them, looking at the various pain points that these stakeholders face, how do their actions and inactions create pain up and down the chain. We bring you edited excerpts from the proceedings.

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hy are companies not so open to spending money on their supply chain infrastructure, resources and processes?

Ashu: There are two aspects to it - the first aspect is supply chain is a relatively new term. In the pharma industry, it has been more of distribution and distribution simply meant dispatch, receiving the same and making them available at the stockists and the outlets. Because of this there has been insufficient spend on supply chain as a function. The second reason is the cost part of it. Firms have always look at supply chain as a cost centre. It was being looked at as a necessary evil. However, it must be borne in mind that a large part of the distribution expenses are regulated by the government – around 30 per cent goes to the trade as margins, which does not leave much on the table for the manufacturer. And when it comes to savings, the first area to be looked at is the supply chain. Having said that, things are changing and we are seeing higher outlays. Javin: In our experience, the whole attention of the top management is in three distinct areas – one is R&D, the second is Good Manufacturing Practices and the third is marketing and sales. Distribution, or supply chain or logistics has not caught the attention of the top management. Pharma firms are not worried about inventory – they are paranoid about loosing sales. Manoj: Today supply chain is being recognized. I would not agree that the distribution margins do not leave much for the manufacturer. A new breed of people is coming into this business who see this as an opportunity, and they are not averse to investment. Why do CFA’s want to delay the move from their existing infrastructure to a modern infrastructure?

Manoj: The new age distributor believes in transparency. If the company is transparent, on their requirement, the CFA will provide that. The role of a CFA is dictated by the company. He does not have a say in that. It is a regulated environment, with a

list of activities. It is activity based, not outcome based. A CFA is not expected to innovate on processes. However, the newer entrants are questioning this. Remember, not all products need innovation – what innovation can you have for shipping out paracetamol? Upendra: We have a strange situation in India. The appointment of a stockist is based on their ability to sell the product, not on infrastructure. If the sales personnel of the firm is adamant on having such a stockist, distribution does not have a say. The company distribution department has no say beyond the CFA. The distribution department should be the ones to appoint the stockist. The warehouses are not in the best of shape. Yet how do companies clear their audits?

Ashu: Audit are being passed on merits. The external conditions of a warehouse are not what we desire. But the internal conditions do meet the WHO standards. We are meeting the guidelines in place. The issue is that some of the auditors who come in are not familiar with the nuances of a pharma audit. Till a few years back we had very little material avail-

The new age distributor believes in transparency. If the company is transparent, on their requirement, the CFA will provide that. The role of a CFA is dictated by the company.

Panelist: Ashu Gupta, AVP, Mylan Pharmaceuticals Ltd. Manoj Lekhrajani, CEO, Pharma Point India Pvt. Ltd. Upendra Dinani, CEO, T Vijay Pharma, Javin Bhinde, ED, Syncore Consultants. Panel Moderator: Arif Siddiqui Founder, Coign Consultants 28 SCMPr

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able on these issues. It is only a few months back that the government has come out with a guideline on good distribution practices. Javin: Unless there is a regulatory framework that the industry can adopt, may be things would be different. Now is the time for some one to come forward and define good distribution guidelines. Upendra: If distribution licences were to be issued by US FDA, then things would have been different. The question of failure does not arise. We have not been audited till date. Only our Mumbai office has been audited â&#x20AC;&#x201C; and that too once. Manoj: It is not a matter for regulations alone. It also includes the knowledge and understanding to be given to the distributor as to why things have to be done in a particular way. Take for example the case of

refrigerators. The earlier ones were ice based and the right temperature would be achieved only at the top. The bottom part would be at a significantly higher temperature. How many distributors know this? This knowledge needs to be passed on to all entities in the chain. Do CFAâ&#x20AC;&#x2122;s add value?

Manoj: First off, you need to recognize that CFAs do play a part and are not mere dumping grounds for achieving sales targets. There is a good amount of investments being done by distributors in spite of lower margins. I believe that in spite of CFAs adding value, they are not being recognized. Today, if the CFA refuses to accept a consignment because he does not have the appropriate storage capacity, and another is willing to take it, even without the capacity to handle it, the company backs the second party.

(From Left) Arif Siddiqui Founder, Coign Consultants, Ashu Gupta, AVP, Mylan Pharmaceuticals Ltd. Manoj Lekhrajani, CEO, Pharma Point India Pvt. Ltd. Upendra Dinani, CEO, T Vijay Pharma, Javin Bhinde, ED, Syncore Consultants.

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lead story As companies, do you look at the total cost of the supply chain?

Ashu: We do look at the total cost and not just what the CFA bills us. The problem is that the desire to keep supply chain costs minimal is what is driving the companies. And coming to the issue of return goods – either broken or damaged, the quantum is reducing. The primary reason for damage is the lack of proper training to the staff handling the products at the distributor or the retailer. Javin: I think it is time the companies come out of their cost mentality when they look at supply chain management. I think they need to understand that supply chain is adding value to them. This has to happen from the CEO down. Supply chain is a value added function. If this happens, you will see a dynamic shift happening in all these areas we are talking about. Are CFAs and Distributors willing to change?

Upendra: I look at it as two separate part – one is the CFA, the other the stockist. The CFA does not influence the sales. The stockist does. At the stockist level, the company cannot reduce margins – they are fixed. There may be a scope for enhancing the margins based on their sales merits. When it comes to the CFA, they are the first to be targeted for cost reductions. The CFA margins are usually reduced – never increased. There are no criteria for these cost reductions. And it is never for lack of infrastructure. We are just sent a letter intimating us of the revised margins. CFA has no voice in this scheme of things. And if the CFA is expected to provide services at a reduced price, there is bound to be erosion in service quality. The lack of trained personnel at CFA can be traced to this attitude. Are supply chain managers serious about improvement?

Manoj: If the company wants to empower their distribution network, they can do so. We see that in the bio-technology product space. The companies need to realize that if their product does not reach the end consumer in the state in which it was intended to reach, their business will not grow. The initiative for this has to come from the company. The Supply chain managers are not ignorant of the inefficiencies of their chain. The degree of empowerment depends on the company they are in. Unfortunately, the sales manager has a larger say than the distribution manager. It is indeed a sad state of affairs. Again, if on the rare occasion the supply chain manager does visit us, 30 SCMPr

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The Supply chain managers are not ignorant of the inefficiencies of their chain. The degree of empowerment depends on the company they are in. Unfortunately, the sales manager has a larger say than the distribution manager. It is indeed a sad state of affairs. they do not have a checklist that they need to focus on. That is absent. We need to move to a outcome based rather than activity based remuneration model for the CFA. Upendra: In my experience, the supply chain managers occasionally visit us. But I am sorry to say, I never got any suggestion – constructive or not – from any supply chain manager from the companies. Their primary goal of coming is to study how other firms are doing in the market. We may be adopting some best practices. But it is of our own volition. There is no such pressure from any of the companies. Unfortunately, the payment of commission is not linked to the infrastructure of the CFA. The CFA with best infrastructure is paid the same as the one with poor infrastructure. There is no incentive for quality. Ashu: In smaller firms there is a fear that any improvements that the company may seek will come at a higher price point. In larger firms, there is an implicit expectation from the CFA for a higher price – a “you are not compensating me adequately, can you demand this from me” kind of thought process. At the same time, there many CFAs who have walked the extra mile.

n BEST PRACTICE

n response

n skills

n research

n human resource

Skill Set Challenges All businesses are run by people. And without the right set of people, the business does not go anywhere. With the right set of people you can hope for the future. And it is this hope that we took forward through a panel discussion aptly titled “Skill Set Challenges for the Pharama Supply Chain”. Make no mistake – there is no war here – only an abiding interest in getting the right set of people to man our supply chain so that the pharmaceutical industry can realize its full potential of USD 70 billion by the year 2020.Interestingly, an MBA in Supply Chain Management from even a lesser known college in US today commands a starting salary of over USD 60,000/- per annum – more than her peers in marketing or HR. The west has realized the value of the supply chain manager. It is time for us to do so. And attract top talent to this vital sector.

Panellists: Narayan Rao CV, Head Supply Chain, Aurobindo Pharma, Prasad Deshpande, Head Supply Chain, Biocon Ltd., Dayanand Deshpande, Director Pharma Operations, SynCore Consulting Group, Abhijit Chaudhuri, Director, Milestone Consulting. Panel Moderator: Rishabh Bindlish, Principal, Accenture Ltd. SCMPr

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lead story

ishabh: The timing of this discussion could not have been better. Our own research suggests that the most critical aspect today is skill development. How do we hire, train and retain the best talent for the pharmaceutical supply chain. And from the timing of today’s discussion, it is appropriate that we discuss this at the last session. Because the common thread of the entire proceedings of today is finding the right people. Are you seeing a change in trend of investment by the Pharma SCM?

Abhijit: I would like to start by giving you a historical perspective. As an analogy, let us look at the real estate firms. If you ask them about operating spends on variable costs, they will tell you “Look, as long as I have the land bank with me, I do not care about how much money I am spending on cement” Other than land, the rest of it does not add up to even 50% and does not get any attention from the business perspective. Coming to the question on hand, the 14 to 19% shift in contract manufacturing that is coming to India and China is for those people who thought life is easy, to stay afloat. Those who thought there is a flexibility in their costs are facing a different set of problems. Costs are the prime mover for contract manufacturing. We need to realize that the days of the block buster drugs are over. It is the rule of the generics. And we need to save every paisa we can, by eliminating wasteful expenditure. The time of waste is over. We are moving into lean manufacturing practices. Narayan Rao: I agree, till around 1990, the MNC players were in a sweet spot. Profit margins were good –across the entire value chain, we were having a nice time. And then we had a wave of domestic players come in. These companies entered into branded generics. And then these firms went global–near shore first, then Europe and then US. US is typically generics business. Margins have been eroding, especially in the US, which is worse than the India market today. In the 1980s we had the PPIC–production, Planning, Inventory and Control, warehousing, purchase–all of them were silo functions. Logistics reporting to marketing. And as margins became tighter, these functions came under management scrutiny. Today Supply Chain heads report directly to the CEO or in some cases to the Chairman and managing Director. Supply chain has become a CEO agenda today. This has led to the fragmented function of supply chain, move to an integrated function. With that even the skill sets started changing. The skill set which was required earlier was production planning, inventory control, managing stores, etc. Today 32 SCMPr

August 2013

the supply chain manager needs to understand demand management; he needs to understand what works in the market. The skill requirements have changed. If the skill sets required are changing, how different are they from what was required five years ago?

Dayanand: Let us understand the kind of changes that are happening in the market place. As we move into an integrated framework, the supply chain manager who can work in teams. They need to understand cross functional aspects of the business. Another change we are seeing is–we are moving from a push based system to a push based system–a more customer centric view of the business. That needs customer insight. It is also imperative that the measurements across the functions are understood by all the stakeholders. We need to move from operating efficiency ratios to fill rates and inventory turns. To do all these, we need analytical skills, problem solving skills. The third aspect is that information is becoming a strategic asset. And hence IT skills are going to be very important. A fourth skill set is the win-win orientation. Supply chain networks are competing with each other. This is my thinking on the subject. Are there any other skills that you feel are necessary?

Prasad: We have been talking of US as our major customer. There are quite a few areas we are ignorant of–how many of us know of CTPAT (Customs Trade pact against terrorism). The skill sets are very different from what it was even three years ago. Another example is the parallel trade in Europe. (Parallel trade is medicinal products produced genuinely under protection of a trademark, patent, or copyright, placed into circulation in one market, and then imported by an intermediary into a second market without the authorisation of the local owner of the intellectual property right.) It is not unethical or illegal. We had one problem in Pfizer. In one of the East European country, the sales of the product was equal to the population! Today you need to able to identify these things. In our earlier days, we just had to deliver. It is not enough to sit back and enjoy the sales. When we enquired, it was found that trade bodies in the East European country were re-packaging the cheaper product from their country for sale in the higher priced western markets. Supply chains can play a bigger role than being mere delivery boys. In another instance, when we were exporting to France, we were asked about of carbon foot print of our supply chain. And frankly, we did not know that. If we look at the skill sets, there ate the traditional areas like domain, expertise, those are known. We were measured on fill rate, inventory, customer service etc. Green Management, Carbon foot print, sustainability, these are some of the 32

lead story

(From Left) Narayan Rao CV, Head Supply Chain, Aurobindo Pharma, Prasad Deshpande, Head Supply Chain, Biocon Ltd., Dayanand Deshpande, Director Pharma Operations, SynCore Consulting Group, Abhijit Chaudhuri, Director, Milestone Consulting. Rishabh Bindlish, Principal, Accenture Ltd.

newer skills that we need to acquire. Another skill, I believe, will be required is business analytics. To quite a few of us business analytics means pivot tables. We do not see people from other industry – say FMCG – move to pharmaceutical sector. Why is it so?

Abhijit: This is an area, where we have failed as leaders. Personally, I am all for cross industry migration of talent. I believe it brings better processes and practices. I for one could not convince my CEO that we could find suitable candidates from other industries. I believe there need to be more conviction in the argument we put across to our boards as far as talent from other sectors are concerned. We need to get away from the comfort zone of “I have hired a guy from the same industry, and so I thought he will perform” Therefore it becomes a good crutch for me to stand on. What did you as a leader do differently?

Narayan Rao: In Dr. Reddy’s we did try bringing talent from other industries. It did not work in the beginning. What we did not do was to build a strong base line. Supply chain is not a function. It is a process. Once you have all the processes of demand fulfilment, purchasing - the entire chain in place, once you have the people at the base ready, that is the time to bring

in a senior from another industry. Unless and until you strengthen the base line, it really does not work. Once you have built a strong base, you can then bring in leadership, who will be able to orchestrate things better. Another issue we have is the reluctance of professionals to join the Pharma supply chain. Why is this so?

Prasad: There is a difference in perception. In FMCG they are movers and shakers. In Pharma, we are delivery boys. In the Pharma sector, the supply chain was not a critical asset. And if it is not a critical asset, the best and brightest do not want to pursue that career. Things are changing. We need support from the board. In the FMCG sector, distribution is the business. I remember, in one of my past companies, when we were asked about inventory turn over, we were not concerned. We went after 100% customer satisfaction. Not realising that going from 99% to 100% means tripling our inventory. That was OK for us. Rishabh: We believe that the old ways of the Pharma SCM has to change. There is a need for infusing fresh blood from other functions. And for that to become a reality, management commitment is an absolute must. We believe supply chain must have that allure, not be plain delivery boys. And to keep pace with the demands of a global market, we need to keep upgrading our skills. SCMPr

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Education Special

Time for Introspecting the Curriculum in SCM Supply Chain Industry is in major transformation phase to accomodate the structure to handle the operation holistically write Venkatesh

Venkatesh V G is Assistant Professor at Symbiosis Institute of Operation Management, Nasik and Specialize in Supply Chain Management and Logistics.

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upply Chain Industry landscape in India is changing and facing a great challenge in terms of getting the right talent in align with the available job profiles. More Industries are thriving hard to find a right talent and in the process forging a tie-up with the Institutes to get the mutual benefit. Now is the time to take this relationship further by offering them the live projects, innovative training programs and collaborate with them for white papers on the trends and processes. Nevertheless, there are some obstacles which industry is facing in terms of recognizing the talents coming from top notch B-Schools. It is highly overwhelming to see the response from B-Schools to innovate the curriculum and align them with the practice. A new specialization called â&#x20AC;&#x153;SCMâ&#x20AC;?, which covers entire paradigm of the business right from Procurement to Global Logistics, collaborating with classical subjects at the requisite point needs to be added to classical disciplines such as Marketing, Finance, HR and Operations after a review. We can see this trend to rule in the coming years as every Industry is looking for the professionals who have the in-depth knowledge in Supply Chain Management and it is not to be read as a single course or just

August 2013

a module in the curriculum. There are evidences that quantitative parts were dominating in the entire curriculum of operations, but as far as business domain is considered, it is imperative to put the qualitative part to be placed with the right outcome. Curriculum on Operations/ Supply Chain Management supports only model building and Analysis? It would be a wasteful exercise, if we donâ&#x20AC;&#x2122;t know, what are the heuristic principles/best practices and relevant concepts used in practice. Our contention here is, the curriculum should reflect to build the both quantitative and qualitative instinct on the minds of the students, so that they can drive their passion in the right direction on their decision making. Industry does not want to see all the people as the theoretical consultants and model builders, they would like to receive the professionals who can visualize the problems and try to approach the problems in the structured and scientific approach. The time is to introspect, whether current programs offered by institutes addresses these issues. Though the current structure is extreme; the balanced approach is the missing link either from Engineering Institutions offering the Supply chain domain knowledge or B-Schools with supply chain

curriculum for managerial decision approach. The courses with Industry training and classroom approach will be the one with great demand in future. The certification exams from APICS, ISM and other renowned professional bodies should be identified and promoted as the tools for expanding knowledge rather as a passport for getting the jobs. Academic institutes do have a major role on this. But we need to go a long way on this. B-Schools are trying to impart the research skills amongst students to enable them to think holistically. We should support this endeavour vividly, as it would help them to structure their outputs in the form of whitepaper and consulting outputs. Trends like Case writing by students, extending the summer internships to a continuous engagement with the companies are highly welcomed changing trends by the B-Schools. And the future envisaged for SCM education in India is not only to be a data driven SCM professional, he needs to address the ground reality of the situation with the operating conditions. It is going to be a challenging but growth oriented task for all the Professionals. We need to be optimistic. The above thoughts are independent thoughts of the author.

Education special

Post Graduate Program in Operations Management (PGP-OM) Objective of the program This program will develop the knowledge and skills for the professionals in the operations, function of any enterprise in the business sector â&#x20AC;&#x201C; be it in the manufacturing or service sector. This program should be chosen by future managers who want to make a career in operations which is the thrust area of the Indian Government who have released a manufacturing policy recently.

Subjects offered SEMESTER I SEMESTER II Principles of Management Human Resources Management Industrial Relations and Labour Law Productivity Techniques and Project Management Design & new Product Development & Purchasing and Material Management IT Management Total Quality Management Costing and Financial Management Operation Management Supply Chain Management and World Class Manufacturing Management

Program Highlights

Duration

1. Course curriculum is designed based on inputs from diverse industry professionals and academia. 2. The content includes subjects which are vital to give a broad picture of operations, impact at the enterprise level and vice versa. 3. The importance of operations of any enterprise will be brought out so nicely in this curriculum that all aspiring future entrepreneurs, operation managers will be greatly benefited from this program. 4. Contemporary Study Material. 5. Faculty members include experts from the industry and academia.

Eleven Months

Eligibility 1. Graduation from any recognized university 2. Students who have appeared for Final year exams can also apply 3. HSC with 2 years work experience and Diploma holder (SSC plus 3 years / HSC plus 2 years) can also take admission for Certificate Program in Operations Management (COM)

Course commencement PG / Certificate Programs will commence twice a year (July & January).

How to apply The candidate can apply to this program through our website www.welingkaronline.org or else they can visit the institute on the below given address. Prin. L. N. Welingkar Institute of Management Development and Research. L. N. Road, Next to R. A. Podar College, Matunga (C.Rly.), Mumbai â&#x20AC;&#x201C; 400019. Tel - 022- 24198600 Extn : 8155 / 8156 / 8157 / 8158 / 8161 / 8162. Prashant: 9892595456 Email: autonomous@welingkar.org

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lsp focus

Leave It To Us

In our continuing series on Logistics Service Providers, SCMPro caught up with Pirojshaw Sarkari, CEO of Mahindra Logistics Limited. In a freewheeling talk with our Executive Editor Girish, Phil, as he is fondly called, held forth on the challenges in being a 3PL service provider, much ahead of the industry demand. We bring you edited excerpts from the interview. bringing to our customers. We need to demonstrate our capabilities, before the company trusts us. When I took over this role three years back, we were moving about `900 crores of freight, and it was all controlled manually. When you move freight manually, there is no visibility, no predictiveness, and no transparency - when the transporters bill you, you bill the OEM. You don’t even know what is happening with the freight. The first thing we did was, we invested in technology. That has given customers visibility and transparency right from the time they hand over the goods till the time the goods are received by their customers. And the bonus - the system caters to our customers’ customers needs too. Most OEMs have not experienced what a 3PL can bring to the table. Once they use 3PL services, they become advocates themselves. A 3PL can handle variability of service requirement to the customer. And this is what most customers appreciate.

Pirojshaw Sarkari, CEO, Mahindra Logistics Limited

What is your assessment of the Logistics sector in India?

India has progressed very rapidly as far as manufacturing processes are concerned. But when it comes to logistics, we are way behind. As a 3PL player, we have to justify why our customers need an LSP. There is a perception that there are no good 3PL firms available, and that they can do it better. Because of this, 3PL has only about a 15 per cent share of the logistics spend. One of our challenges is educating the OEM about 3PL and our end goal. We cannot just go in and say that we are a 3PL Company. We have to explain the value we are 36 SCMPr

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So how would you define Supply Chain Management, and what is the role you want Industry to recognize as a 3PL player?

The word ‘Supply Chain Management’ is loosely used in India. I would rather say we are a logistics service provider - not Supply Chain managers. The Supply Chain Managers job starts from procurement. Our jobs starts from picking up that material, transporting it either to manufacturing locations or storing it, feeding it to the manufacturing locations, then collecting the finished products and delivering them to either warehouses or market. That is the end-to-end logistics we want to provide to our customers. As a 3PL, we can provide value added services like delivering kits to production lines instead of individual components, or we can do milk runs. We can consolidate loads and optimize freight. Therefore I define our role

lsp focus as a 3PL, providing end-to-end logistics rather than supply chain management. Who takes ownership in a 3PL space?

The absolute ownership of the logistics chain is taken by us, which means we sign SLA’s (Service Level Agreement) with the customer. The customer need not deal with all the layers that go below us. And that again is the USP of the 3PL - we would be responsible for the SLA’s and the performance of all the logistics functions. Does the customer get visibility into all the layers as far his product is concern?

The challenge here is visibility across the network. Because of our investment in technology, it is very easy for the customer to view the entire movement of his goods from pick up to delivery. From the warehousing perspective, thanks to the WMS we use, customer can view stocks lying in the warehouse. The customer gets full visibility of his end-to-end material movement. However achieving all of this is not that simple. One of the challenges is fitting GPS in the vehicle; it is a challenge to track vehicles manually. We have a command centre, whose only job is to track vehicles day in day out. Today, every time our driver moves out of the premises, his mobile number and name is registered in our command centre. We can track where that vehicle is at any point of time. However, we have to move to a maturity level where GPS is fitted on to all vehicles. What is your views of 4PL?

Coming to 4PL, it is more of a consulting role. When 3PL is just 15% of the share, 4PL is a long distance away - at least from the Indian market. Having said that, in mature markets where the organized segment is large - for example US, there are fleet owners who own 1000 or 2000 trucks. That is where a 3PL’s role is minimized and 4PL comes in play - where 4PL draws up the road map for the OEM and OEM deals with service providers directly, or via a selected 3PL. That is not the case in our country. Do you think fraud is a challenge and what you could do to minimize it?

We are the one point contact for the customer. The customer need not deal with all the layers that goes below the 3PL.

Another hot button is fraud; I believe it is not very high. It is more a perception than reality. In a professionally managed logistics system the use of technology makes it difficult for individuals to deviate from the processes set by the company. Corporate governance is paramount. We have zero tolerance to fraud. And our business partners know that. Being a 3PL company, we are totally dependent on our business partners. I am moving in excess of `1500 crores of freight without owning a single truck. For me my business partners are extremely important, they are fundamental to our operations. How focussed you are on Sustainability and what are the issues that you face?

As an organization, Mahindra is very focused on sustainability. It is the number one priority for us. Whether air, sea or surface, logistics is the largest emitter of Carbon. Our challenge is to measure carbon emission. The first thing we did was measure our carbon footprint. We must first know and be aware of our carbon Footprint. Only then can we take steps or launch initiatives to improve or positively impact the same. Post base lining our carbon footprint, we have launched several initiatives to improve the same at Mahindra logistics. We know for a fact that every truck that we replace, the carbon footprint reduces. There is a concerted effort to reduce the age of our fleet to less than eight years. Vehicles more than eight years, have to be replaced. For me sustainability is not just about the carbon footprint, it is also the driver. Without the driver there is no business. Today 20% of the trucks are standing idle on the road, not because there is no freight, but because there are no drivers available. We are now forging a relationship with the driver, who is the critical component of the whole process. We are training them, teaching them, showing them that they can have a positive impact. We give scholarships to the children of our drivers, we have driver welfare programs. We put just one question to the driver. Will you like your child to be a driver? And there are no guesses to the answer over here. The third, and it is again a Mahindra federation initiative, is the “Rise” philosophy - to give back to the community. We at Mahindra logistics invest a significant portion of our profits towards driver and community welfare. As 3PL player do you have a large role in mitigating a risk in the whole business?

From the risk perspective, corporate governance once again is extremely important. And that is part of our DNA. It allows us to plan and structure our business process, controls and consequences in a manner SCMPr

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lsp focus crores, just a few years ago, in 2010 we were at only `900 crores. Yet we are not even 5 per cent of the market, and when the opportunity is so huge, market volatility should not stop you from growing. Since just 15% of logistics spends are through a 3PL, I do not think market volatility should hamper us. It would be challenging as the automotive industry, which contributes around 80% of our business is facing a slump. We have started diversifying and a lot of the present and future growth has and will continue to come from other industries such as FMCG, consumer durables, hi-tech, electronics, engineering goods and retail. We are also As a CEO, what are your concerns like. Essentially looking at Agri business. We are going into all aspects what keeps you awake at nights? from irrigation to product movement. And that opens My biggest concern is skilled manpower. It is ex- up a totally new canvas for Mahindra Logistics. tremely challenging and difficult to find good profesWe have set ourselves a target of billion dollars in sionals for logistics. Take an example; it is extremely dif- the next three years. We cannot achieve that without ficult to find good solution designers. We have to look inorganic growth. We have identified couple of areas outside the country. If you want to become a billion for inorganic growth - one is International freight - we dollar company, I think are looking at a few target skilled manpower is the companies to be acquired biggest challenge. There or to invest in for our inI am delighted that in two years are enough customers ternational freight. Simiand there is enough busilarly we are also looking at Mahindra Logistics has become ness out there, but you a service provider who can India’s top 3PL company”, says need skilled manpower. cater to the emerging exThat and technology. press and e-commerce disParag Shah, Managing Partner tribution business. We will of Mahindra Partners the $750 What vision you see for move to countries where technology? Mahindra is present. Mn Private Equity division that Technology is the There are two props this overseas Mahindra Logistics. only differentiator besector (logistics) requires. tween a normal 3PL One is GST has to come in Mahindra Partners also overseas player and a company quickly. That is one regula11 companies spanning various which will really give tory change that everybody you an edge. Without has been looking forward industry sectors like Cleantech, technology I do not to for 3-4 years. That will Steel, Retail, Vocational Education think any 3PL will be bring along lot of consoliable to survive. We have dation in the warehousing and Consulting. the technology backspace. Today warehouses bone already in place. have been set up for tax Without technology, rather than business purthere is no visibility, and visibility is key to any supply poses. Once GST comes, we will see modern warechain. If there is no visibility, there is no predictability. housing, as in US or Europe. The other area which Customers cannot just sit and wait for goods to arrive. is extremely critical is infrastructure development. We Technology is extremely critical and more so mobile are seeing a lot of development on that front. The only technology. I think the important thing is how to pro- problem is that by the time the infrastructure developvide visibility on customer’s mobile phone. ment is complete, it would fall short of our requirements. That is something that requires better planning What is your outlook for the next one year kind of, and vision. given your performance in past? And to sign off, I would like it if manufacturers I see a strong future growth path for Mahindra Lo- would focus on their core strengths and leave logistics gistics. Last year our turnover was in excess of `1500 to a 3PL service provider like us! which minimizes risk; for us as well as our customers. The other risk which is prevalent is the boarder environment risk. The way we design our solutions, the value addition via technology and a centralized command centre all go a long way in mitigating the various risks which a logistics system may face. I believe that OEM’s would rather move risk on to a 3PL. How a 3PL builds mitigation of risk into each solution is therefore very important. However, this cannot be the leading factor when it comes to an OEM making an outsourcing decision.

“

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August 2013

The 4th International

Exhibition & Conference

www.sauditranstec.com

TRANSPORTATION, MATERIALS HANDLING, WAREHOUSING & LOGISTICS 9-11 December 2013 Dhahran International Exhibitions Center, Dammam, Kingdom of Saudi Arabia

Feature automation

The battle of the Bots

Frontiers in Warehousing

Automation

The three pillars of an economy are Agriculture, Manufacturing and Services. All three sectors sees continued growth. Especially so manufacturing. A strong and vibrant supply chain propels the expansion in manufacturing and at the heart of the supply chain is the warehouse. It co-ordinates and smoothes the flow of materials and information from the suppliers to the consumers. In spite of being a crucial link in the supply chain, warehouse automation is yet to take root in India. Girish V S takes a look at warehouse automation trends across the world.

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August 2013

Feature automation

ndia has been a laggard in warehouse automation systems – probably due to the large capital outlay it entails and the long pay back period. However, all that is set to change. Increased competition and pressures to reduce costs are forcing warehouses to adopt automation. A small beginning has been made with a few traditional solutions. However, as the need to quicken the delivery process and reduce costs gain momentum, warehouses will need to go beyond the traditional automation and adopt some of the newer technologies.

Drivers of Automation As with every aspect, there need to be some drivers for automation. One of the drivers of automation is the recognition that a large centralized warehouse enables better control over inventory as compared to a number of smaller remote warehouses. This improves visibility and reduces aggregate inventory. Another driver is the lack of trained manpower. Most warehouses operate at a distance from the towns and cities, making it difficult to hire skilled personnel. Labor costs in automated warehouses are lower than in conventional facilities because they need fewer workers. This reduced staffing cuts hiring and training expenses. Automation ensures high-density material storage, higher accuracy and efficiency in inventory tasks, offering lower operating costs. Over the past fifty years or so, robots have become smaller, more flexible and precise, making it possible for them to undertake a exponentially higher number of tasks. Unlike the industrial robots, which are fixed and perform a repetitive task accurately, a warehouse robot needs to be small, able to navigate the vast interiors by themselves and yet retain their accuracy. Early stage warehouse automation saw some large firms introduce massive automated material handling systems to retrieve pallets of product as needed from towers of shelves. Others used automated cranes which can move from aisle to aisle grabbing boxes. These are the ASRS, Conveyors and carousels, Automatic Guided Vehicles of the traditional warehouse automation systems. Automated storage and retrieval systems (AS/RS) and their accompanying warehouse management systems (WMS) help achieve the goal of maximizing storage space while reducing operating costs.

Sustainability of warehouses operations improve with automation. Even with AS/RS solutions, warehouses can occupy less space. Automated warehouses save energy in multiple ways. The lighting and air conditioning expenses are lower for a smaller warehouse. The regenerative braking on storage/retrieval machines further reduce energy consumption because it feeds back surplus braking energy to the power supply system. Finally, the facility’s WMS controls all product flows and optimizes product movements, which saves energy. That was the past. The future is a series of small, intelligent, mobile robots that will move around the warehouse, picking up the items required and bringing them to a human picker, who will complete the order, and send it to shipping. Some recent advances enabled robots to communicate with each other, improving efficiency. We feature two innovative ways in which modern day warehousing is adopting automation. In March 2012, Amazon ordered a USD 775 million automated warehouse management product – called the “magic Shelf ” from Kiva, a company based in Massachusetts. A warehouse running Magic Shelf would look like a more traditional operation, at least until the system is switched on and the shelves start moving. The shelves themselves aren’t robotic. Kiva designed a special shelf it called the pod, which the robot can safely pick up and transport. As the order comes into the warehouse, the WMS orders a robot

Traditionally Warehouse Automation Conveyors: A conveyor network moves the goods from the picking station to the shipping station Automated Storage Retrieval System (AS/RS): An automation system with high-rise racks that are loaded and unloaded using automatic storage machines within the aisle. Automatic Guided Vehicles (AGVs): Used to transport, store and retrieve loads for warehouses, which are mainly associated with the manufacturing and shipping industries. Carousels: Carousels are used in warehouse to move loads to a pickand-drop station. Warehouse management Systems: -The software that enables efficient management of warehouse - including locating the items for each order and directing picks.

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August 2013

Feature automation

Pods a worker at his packing The pods on theThe left are beingon filledthe withleft ordered delivered Podswith with a worker at hisstation. packing station. pods are items being filledbywith mobile inventory which arrive the right. ordered itemspods delivered by on mobile inventory pods which arrive on the right.

â&#x20AC;&#x201C;a squat, orange self-driving dolly that resembles an oversize computer mouse - to the shelf location where the item is placed. The robot travels under the raised shelf, leaving the aisles for movement of the robots carrying the shelves. As the robot reaches the shelf, it rotates like a jack, lifting the shelf off the floor. It then moves along the aisles to the place where human pickers are stationed. A set of lights and laser pointers guide the pickers directly to the shelf and bin containing the item ordered. Once the items have been removed by the picker, the robot takes the partially empty shelf to a location at the back of the store, ready for the next load. The robot, then waits for the next command. Swisslog, a European firm does it a bit differently. Dubbed Click & Pick, the system uses a three-dimensional grid of cubes stacked up-and-down and side-to-side rather than shelves. Each cube contains a bin of identical size that contains the stock of a specific item, (what the industry calls a SKU.) The wheeled robot pickers roam the gridâ&#x20AC;&#x2122;s top level, which also serves as the set of tracks on which the 42 SCMPr

August 2013

robots run. When an order comes in, a robot will slide to the specific column containing the bin that holds the item ordered and lower tethers that lift the bin to the top. If the bin holding the needed item is buried beneath several others, the robot will pull out the bins on top one by one and make a stack nearby until it reaches the container it needs. Next, the robot will deliver its cargo to a chute that sends the bin to a picking station staffed by a person. When the bin arrives, the human worker opens the lid, pulls out the mobile phone, T-shirt, or whatever else was ordered, and sends the item to be boxed up and shipped. As per Swisslogâ&#x20AC;&#x2122;s claim, their system can work four to five times as quickly as human-powered operations of similar size. Click & Pick can fill 1,000 orders in an hour and an individual order in as fast as 20 minutes. Today, robots can pick up, move, and place arbitrary items according to a plan. With advances in technology, we will soon have robots do their own bin loading. And when that happens, we can safely switch off the warehouse lights!

n BEST PRACTICE

n response

n skills

n research

n human resource

Toward a Theory of

Multi-Tier

Supply Chain Management

Supply Chains are inherently complex. And when supply chains go global, they add to the complexity. Globalization has resulted in longer, more complex and sometimes fragmented supply chains. In such a scenario, industry needs to master the art of multi tier supply chain management. For this issue of Academic Advocacy, we bring you the research conducted by three experts, two of them academics and one of them from the industry. They take a look at a theoretical development of multi-tier supply chain (MSC) management by adopting an inductive case study research design. Following a multiple case research design, they investigate threetier supply chains to develop a theory of MSC management. Each of the investigated supply chains consists of a buyer, supplier and supplierâ&#x20AC;&#x2122;s supplier. Carlos Mena Cranfield School of Management Andrew Humphries SCCI Ltd. Thomas Y. Choi Arizona State University SCMPr

August 2013

Academic Advocacy

he days when a single organization would own an entire supply chain, like the Ford Motor Company did in the first half of the early 20th century, are long gone. The trends toward outsourcing and global sourcing have created more complex and fragmented multi-tier supply chains. It is long been recognized that the length and complexity of supply chains can have an impact on economic indicators of performance, such as cost, quality, responsiveness and resilience. Despite the growing importance of MSCs, multiple challenges for researchers have been recognized. The complexity of MSCs includes

chosen to include the raw materials supplier at the second-tier supplier level, and this industry allowed that. Focusing on this industry in essence allowed the authors to cover the whole supply chain from retailer to raw materials supplier in a three-tier MSC Much research into MSCs has relied upon modeling and simulation approaches. Jay Forrester’s seminal paper on industrial dynamics (1958), arguably the first academic paper on supply chain management, illustrates how computers could be used to simulate the dynamics of production and distribution systems. Forrester’s legacy continues to this day in the

The complexity of MSCs includes not only the structural issues of networks such as number of links, reverse loops and multiway exchanges, but also the associated behavioral issues. not only the structural issues of networks such as number of links, reverse loops and multi-way exchanges, but also the associated behavioral issues such as nonlinear dynamics, self-organization, emergence and co-evolution. This study aims to gain a more in-depth understanding of the structure, behavior and performance of MSCs. More specifically, what happens within MSCs is still largely underexplored (i.e., how a link affects another link and how a node affects a node once removed). This study investigates a theoretical development in the subject of MSCs by exploring the activities of three MSCs in the U.K. food industry. The food industry was 44 SCMPr

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ubiquitous Beer Game (Sterman, 1988, 1992), which is used to teach the impact of decision making and feedback control systems in supply chains. An alternative to modeling and simulation has been the use of organizational, economic and sociological theories. The development of complexity theory or complex adaptive systems (CAS) theory in the natural sciences has provided a different lens with which to investigate multi-party relationships. CAS does not seek to explain why firms take part in a network, but it can help to understand the behavior of multi-party relationships in the supply network context. It provides an alternative perspective

on multiparty relationships and a new set of constructs such as co-evolution, emergence, patching and self-organization.

Structural Arrangements Buyer–Supplier–Supplier Relationships: The first arrangement involves the relationships between a buyer and two suppliers, and between the suppliers. This triadic formation rests on the premises that companies have extended beyond supplier management and now aim to manage the supply network as a competitive resource. It brings salience to the way in which suppliers work together affects their own operational performance. Parallel sourcing to overcome supply risk aims to create simultaneous competition and cooperation between the suppliers, known as co-opetition. Co-opetition creates a sense of stability in a relationship where interactions induce reciprocity and collaboration and reduce destructive competitive behaviors. Thus study examined the structural dynamics involved in three multi-tiered supply chains (MSCs). The approach was an inductive, theory-building methodology using qualitative case studies. The authors explored three cases of MSCs in the U.K. food industry. Based on these cases, The authors have been able to formulate four propositions. Proposition 1 refers to the relationship between supply chain position and power. Depending on their position in the supply chain (buyer, supplier and supplier’s supplier), the members of the MSC appear to draw power from different sources. Buyers can act as bridges between the MSC and the marketplace, suppliers act as a bridge across the MSC and suppliers’ suppliers have access to resources such as raw materials and expertise. Proposition 2 provides one theoretical perspective regarding this 44

emerging issue. In all three cases, the raw materials had a strong impact on sustainability because it is at this stage that the majority of natural resources tend to be consumed. In food supply chains, the further upstream an organization is the more impact it is likely to have on sustainability. Clearly, sustainability is not the only reason for a buyer to reach out toward the supplier’s supplier—others could include quality and safety. Proposition 3 deals with the interdependence that exists among the members of the MSCs under study. In all three cases, it appeared that as the members of the MSC became aware of the interdependent relationships they had with other members of the MSC, and as the triad moved into a closed structure, they relied more on trust and cooperation than on power to achieve their objectives. Firms can take on two different roles a in a supply network - tertius iungens and tertius gaudens. The former role focuses on acting as a conduit for information, and the latter on acting as a broker for leverage. According to this study, it appears that realization of interdependence persuades organizations in favor of a tertius iungens orientation rather than a tertius gaudens. Proposition 4 argues that fully Closed MSCs are more stable, but they require additional management resources and skills. When a network is closed, each member is in a better position to triangulate the information it receives from its partners and thus is less exposed to opportunism and adversarial behavior. Conversely, Proposition 4 posits that Open MSCs demand fewer management resources, but are less stable. This is because they are more exposed to unilateral actions by any member of the MSC, which could have unexpected consequences on behavior and outcomes. The study indicates that the competitive dynamics of MSCs across three tiers appear to be different from those found in research occurring across only two tiers. For instance, in buyer–supplier–supplier triads across only two tiers, co-opetition is purported to take place as the two suppliers seek to collaborate while competing against each other for the buyer’s orders. In MSCs, competition takes a different form. All participating nodes have different capabilities and do not compete for sales, but they do compete for a greater share of the revenues that flow through the same supply chain. Understanding the dynamics of MSCs can offer practitioners improved means of proactively managing relationships across multiple tiers to increase performance, either by better positioning in the supply chain or through more effective use of management resources. SCMPr

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n BEST PRACTICE

n response

n skills

n research

n human resource

Employee Engagement

Five Steps to Readiness

In the battle for Supply Chain and Logistics talent, keeping your staff loyal, productive and on board starts with a full understanding of the five drivers of employee engagement.

Darryl Judd

COO, Logistics Executive darrylj@ logisticsexecutve.com

ith demand for talent in the Supply Chain and Logistics sectors ever increasing, there has never been a more important time to focus on employee engagement. In a battle to take control of future talent in-flows and control over wage inflation as a direct result of increasing talent demands, organisations need to focus on the retention of employees and refining of their career development programs and skills training. It is

by focusing on these key HR elements that will ensure companies are equipped to grow and maintain market positions. Employee engagement plays a key role in this. Ensuring staff remain loyal, proactive and engaged is an important factor, which can not be overlooked, if we are to achieve a return on investments made into skill based training programs and develop â&#x20AC;&#x2DC;home-grownâ&#x20AC;&#x2122; talent. Employee engagement is the vital link to successful organisations for providing an

talent emotional connection between employees and their organisation. This emotional connection leads to improved performance (both individually and company), increased productivity, better staff retention, improvedcustomer service and greater staff loyalty. Until recently, internal executive debates has centered not on the benefits of introducing employee engagement programs, but rather on the value it brings. With numerous examples and global surveys clearly identifying the financial impact that a robust employee engagement strategy can bring, this debate is now largely settled, leaving us to ponder the more important challenge of understanding the factors that drive employee engagement and most critically, how each of these needs to be addressed to achieve the best outcomes.

According to Grass Roots , an organisation that specialising in positively influencing the behaviours of people to achieve the best outcome possible for channel partners, employees and customers, there are five key drivers of employee engagement that are critical; n Leadership and management, n Culture and environment, n Purpose and development, n Reward and recognition, and n Communication. These five identified drivers all of which are critical to any programs success are inter-dependent and self-reinforcing. Meaning that organisations cannot just focus on one area, while ignoring another – they need to ensure each is introduced consistently and managed concurrently to achieve the desired value outcomes. In other words, organisations wishing to engage

their employees need to work on multiple drivers at the same time taking an integrated approach.

Leadership and management Much as been said on Leadership and Management over the years and Logistics Executive’s monthly CEO Newsletter has diligently covered this topic over time. It’s simple - Leaders must understand and effectively communicate the vision and goals of the business, therefore as this cascades down, managers should provide employees with regular performance feedback and coaching. Whilst doing so, they also need to take a genuine interest and be interested in employees’ personal development, wellbeing and opinions, treating them as individuals. Creating an environment of empowerment and autonomy works better than

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talent “command and control” leadership tactics.

Culture and environment According to Grass Roots and supported by Logistics Executive’s annual EMS Report, employees respond well to a culture of trust, collaboration and respect and mutual support. Organisations and Leaders should be clear on the values and behaviours employees should aspire to exhibit. This critical behavior driver is intrinsically linked to Leadership and Management as it is this management group that helps set the organisa-

to the employee engagement. Today’s employee rates highly career development and continuous learning. Investment in staff development programs and training will ensure you meet these important employee drivers whilst increasing the internal skill base of the organisation.

Reward and recognition In the battle to retain valuable employees, Employers need to recognise individual and team performance to ensure employees feel a sense of achieve when they have made the ‘extra effort’.

It is critical that employee engagement programs are treat the drivers as interdependent and self-reinforcing and that HR teams linking all activities under a common framework. tional tone and creates the right culture environment.

Purpose and development Purpose is about ensuring an environment whereby the Employees understand how they contribute to the vision and goals of the organisation and how their inputs contribute to this. An key element not to over look is to ensure that Employees that wish to have the opportunity to express their opinions and ideas, knowing they will be heard and their contribution valued. Like earlier, this driver also has strong linkages with the leadership and culture drivers. Personal and professional development is another critical part 48 SCMPr

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As people become more engaged and their performance improves, the organisation must recognise this in concrete ways. We all thrive with praise and acknowledgement. When someone does great work reward them with public recognition, and a monetary bonus or a prize. It’s a great feeling to earn something extra, something tangible that can be shared with colleagues, family and friends. This doesn’t not necessarily mean you need to run off and increase pay rates but rather look at reward mechanisms that offer employees a range of benefits, in line with industry standards in addition to their base salary. These rewards need to be fair, transparent and

motivational to encourage employees to aim for high achievement. Many of these benefits may be nonfinancial such as giving extra time off or opening up additional development training to them in recognition of their extra achievements.

Communication Without doubt, the most important ingredient in business is Communication. Communication is the underlying driver, which supports the previous four employee engagement drivers. Consistently of message across all management bands and each operating function is the business is one of the most important aspects to a successful communication strategy where people are concerned. Employees need to receive relevant, timely and personalised communication from the organisation on their vision and goals. Where there are any changes, such as new people, process, policies, systems or simply company updates then these should be communicated clearly and with a provision for two-way communication encouraged allowing employees to feel that they can provide feedback and influence change. Understanding the drivers of employee engagement is the first step in addressing overall engagement levels throughout an organisation. But as mentioned early, it is critical that employee engagement programs are treat the drivers as inter-dependent and selfreinforcing and that HR teams linking all activities under a common framework. Taking the holistic approach helps quickly build a broader employee engagement framework that is embraced from the top down, allowing for an organisation culture and environment where employees are giving their best every day.

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“Challenges in Integrated Pharma Supply Chain”. Address by Dr. Rakesh Singh at the Pharma Supply Chain Summit 2013

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

adies and Gentlemen, I wish you a very insightful day ahead. I remember speaking at the automotive Logistics Seminar at Chennai in 2010, there was a very important white paper from Frost and Sullivan which said that the industry is going to double in five years – that is by 2015. And there was a huge demand that the automotive industry needs to move forward in a way that can meet the demand from the sector. At that time there was something interesting happening in India which has actually aggravated today–the twin deficits–Fiscal and Current account–were increasing. It was 3.2 per cent same, as 1991. The economy was slowing down, but the auto industry was growing at 30 per cent. One of the fundamental issues that struck me was the fact that when the economy is doing well, every one thinks that they can enter the market and grow and that the growth will continue. This was a classic case of the bull whip. When you take such advices and project your supply chain, what you are actually doing is you readying for a market, which is there, but is disruptive and volatile. This may force you to exit those markets. If you look at the global macro economic situation, you have China growing – but in a very negative way. If you look at the backbone of credit in China–China is one economy that may have the next sub prime crisis through their shadow banking. In In-

dia, the NPA’s of Indian banks are increasing. Our macro economic fundamentals have gone for a toss. When you look at Europe, most of the peripheral economies are in doldrums, there are fears of Germany going into recession. However, the US economy is showing some promise because they have gained from the shale gas discoveries. But look at Brazil, Russia–they too are in trouble. It is only the African countries that show some growth–I think that should encourage Pharma firms to foray into Africa. The outlook for the global economy is largely pessimistic, with some islands - primarily the US - of growth amidst general gloom. I would like to explore how supply chains respond to the global slowdown. We are aware that it is difficult to compete in times of recession, and we have seen that supply chains actually improve in times of slowing economies. It is a great time for us to look at supply chains from this perspective. A cursory look at the performance of the pharmaceutical firms during the last drought in India shows that pharma sales were affected. This clearly indicates the correlation between economic growth and the pharma sector. This is counterintuitive to the understanding that whether there is a slow down or not, the consumption of medicines will continue. Let us take a look at the global scenario for pharama sector. The demand for drugs will be there. And as growth unfolds, the SCMPr

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Another challenge pharma supply chain faces is the lack of visibility – we do not know what is lying where. The practice of creating market specific packaging adds to the complexity of efficient management. 50 SCMPr

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supply chain activities tend to be transactional. Communication to the players up and down the chain is minimal. The industry is growing and the tendency to remain in the old supply chain mould and yet gain becomes the norm. And as we stay in the warm cocoon of our established practices, a new technology or a new entrant with better technology and processes will emerge and disrupt the status quo. Customers will gravitate towards these players. Another trend we see is in the area of IPR. The global market in pharma is now being dictated by generics. Of the twenty value generating patent based drugs eighteen are going off patent. This is an opportunity for Indian firms to step up and out into the international markets with renewed vigour. At the same time we need to be aware that the competition in the space will increase with new players stepping in to take advantage of the new opportunity. Unlike what Michael Porter wrote about strategy as the ability to differentiate a product and charge a premium, we are seeing the emergence of similar products at a lower cost changing the dynamics of the business. And logistics plays a significant part here. As we look at the pharma supply chain, we see the emergence of large retail medical stores and hospital chains who have a larger bargaining power with the suppliers, and who often bypass the traditional supply chain layers. Add to this the ability of government to change prices–we see that happening across the world, in USA, UK, and Puerto Rico. We may see that in India too, putting a pressure on the margins of the manufacturers. In such a scenario, the old ways of overstocking to ensure 100 per cent service levels will lead to severe problems. Again a cursory analysis of the demand in the local market and their standard deviations for five top firms makes this obvious. The standard deviation turned out to be 220 while the mean demand for the pill was around 300. To maintain even a 95 per cent service level, you will have to keep an inventory of 600. You produce 600, sell 300 across the supply chain, and if we take it to 99 per cent and 3 sigma, the figure will go to 900! Look at the redundancy in the supply chain. We have adopted a transac-

tion based approach rather than strategic approaches that will build trust, efficiency and also lower costs. If we move to rural India and smaller towns, the picture is different–we have stock outs. This is a strange combination– we have surpluses in some location and shortages in other! One factor that worries me is the tendency to change the supply chain practices to suit the supply chain software solution rather than creating a solution to fit your processes. It is very necessary that the supply chain solutions be designed to the product, service, market and process combination. Adopting a one size fit all type of solution forces you to loose your competitiveness. Yet another challenge pharma supply chain faces is the lack of visibility–we do not know what is lying where. The practice of creating market specific packaging adds to the complexity of efficient management. We have the same product packed in different pack sizes for different markets. This leads to high levels of inventory, pushing up costs. Another challenge is the relationship with the multiple entities in the supply chain. The emerging trend is the roles of facilitators who will help the industry achieve cost competitiveness and better supply chain alignment. It requires new structures in terms of warehouses, transportation, it requires new processes so that you communicate better, and it requires linkages. And to do all these things, it is very important that you understand your markets. Planning requires a forecasting technique which is so hybrid in nature that it captures all your markets and geographies in a better way and which you better strategic inputs, both in terms of numbers and the quality of information that is required to streamline the supply chain. It is very important for us to understand disruptions, create supply chain capability, integrate what is happening in the macro scenario of the pharma industry and build supply chain capability in terms of sourcing, managing demand and align them with enterprise wide processes which facilitates smoother flow of information.

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